New York-based real estate manager Broad Street Development has launched Paradigm Advisory Group, a credit-focused firm that aims to assist lenders, borrowers, and special servicers to stabilize office and residential properties in the city that have been affected by today’s challenging interest rate environment.
“This is arguably one of the most dislocated marketplaces I’ve ever seen, both from a capital perspective, an unknowing of the future, and very tepid, anaemic tenant demand,” Broad Street principal Daniel Blanco told Real Estate Capital USA.
Paradigm, launched by Blanco and fellow Broad Street principal, Raymond Chalme, will provide a suite of services in areas including value-add asset management, construction, property management and leasing.
The launch comes after the pair had received a steady influx of queries from market participants regarding how assets can be capitalized in today’s volatile environment; what were the costs involved to get the asset to a place that is capitalizable; current values and best options moving forward.
“We saw a unique need and an opportunity to create this platform because we [realized] there’s a vacuum in the marketplace for hands-on asset management services at the development, leasing, and operations level,” said Blanco. “Most constituents in the capital stack have high-level asset management expertise that can benefit from our support to design and execute more complex business plans involving change of use, redevelopment, leaseup and so forth.”
He continued: “We wanted a place where lenders – who are faced with some difficult decisions – can have some advisory work done, help them to develop a business plan and [look at] the asset’s inherent needs.”
The team not only has experience working with prominent lenders and investment funds – including MetLife, Barings, Prudential, Blackstone, Crow Holdings, Invesco and others – but also has experience navigating previous crises.
“If you’ve only been through one cycle, you don’t see a lot, compared to when you’ve been through four and five cycles as we have. And because the marketplace is somewhat recalcitrant, you tend to react better to it,” said Blanco. “We’ve been through troubled times and [have learned the best way forward is to adopt a] really granular approach to major panic in the marketplace.”
This experience enables the team to better understand a few things – tenant needs, trending requirements and amenities, how to compensate and incentivize the brokerage community to bring in tenants; which brokers and which segments of the marketplace are most active; and what research on the asset and location is out there.
“It’s about being very, very selective,” said Blanco. “You have to differentiate your product. And because we do our own leasing, our own management, and because we have such a hands-on approach, our interface with the real estate advisers, the counsellors, the brokers, is very dynamic.”
Blanco described the firm’s strategy as multi-pronged. “It’s like going to the doctor when you have a horrible respiratory infection – the doctor will not only prescribe an antibiotic, but also steroids and an inhaler. We think of it as a multi-prong approach of remediation,” he said.
The initiative comes as New York’s office market is facing roughly $30 billion of loan maturities, with Blanco saying these could be resolved in a variety of ways.
“It depends on the appetite, it depends on the capitalization, it depends on the source of financing,” he said. “It is too early to tell how the banks are going to respond, and it is too early to tell right now how the sponsors will [behave] but we will likely see that in the third and fourth quarter of this year.
“My sense is, either the sponsor says, ‘I’m going to put more money into the asset’; the lender says, ‘I’m going to work with you on it’; or the third response is ‘I don’t want it, you take it back.’ And I believe it’s going to be a mixed bag of all three in this in today’s marketplace.”