Term Sheet: All eyes on the Fed’s next steps; Brookfield takes over Veritas portfolio; Greystar joins private real estate credit push

Lenders zero in on next week’s Federal Reserve meeting; Brookfield becomes San Francisco’s largest multifamily owner via foreclosure auction on Veritas apartment portfolio; Greystar joins a wave of private equity interest in growing real estate debt; and more in today’s Term Sheet, exclusively for our valued subscribers.

They said it

“What we see ahead is an unparalleled opportunity to deploy more than $65 billion of dry powder into a dislocated environment” 

Nadeem Meghji, global co-head of real estate at New York-based mega-manager Blackstone, speaking to affiliate title PERE in an interview published last week.

What’s new

Not long to wait: the Federal Reserve’s rate decisions will help set lending tones and appetites for 2024 (Source: Getty)

It’s Showtime

The Federal Reserve’s first meeting of 2024 is slated for January 30 and lenders, investors and advisers believe the outcome will set the tone for the first half of the year. The central bank last month indicated the potential for three rate cuts this year, but the most important consequence will be clarity around potential timing and the extent of its actions, said Ernie Katai, an executive vice-president at New York-based advisory Berkadia.

“The one thing you learn quickly in this business is the market hates nothing more than uncertainty,” Katai added. There is another area of concern – more cautious market participants are already warning their peers to temper their euphoria around the potential for lower rates, as noted in this analysis by affiliate title Real Estate Capital Europe.

Golden Gate opportunity

Toronto-based Brookfield Properties is making a strong play in San Francisco. Last week, it took over a 75-property portfolio of 2,149 rent-controlled multifamily units in the city from local investor Veritas via a foreclosure auction. The auction came after Brookfield acquired the roughly $915 million of underlying debt on the portfolio in December and then foreclosed, bringing in local investor Ballast Investment to manage the properties.

Brookfield and Ballast plan to invest additional capital in the properties, with the partners seeing a strong outlook for San Francisco despite pressures the city is seeing today. “With little to no supply coming online in the near term, we think this will be a great investment for our partners in the long run,” said Ben Brown, head of real estate for the Americas at Brookfield.

Back in the market

The troubled commercial mortgage-backed securities loan backed by New York office building 1740 Broadway hit the market again this week after several special servicer replacements slowed a sales plan. Overland Park, Kansas-based Midland Loan Services, the loan’s current special servicer, has hired Chicago-based advisory JLL to market the sale of the $308 million mortgage. The loan has been in flux since New York-based manager Blackstone Group stopped making payments two years ago.

Valued at $605 million 10 years ago, the property has seen declining appraisals, with the latest pegged at $175 million in April 2023. Stav Gaon, head of securitized products research and strategy at New York-based Academy Securities, said the property’s valuation does not necessarily set a benchmark for the broader New York office market. “[This is a] very unusual case where a very prominent sponsor walked away. There are hundreds of other office buildings that don’t experience the distress of 1740 Broadway,” he said.

Trending

Debt dive

Charleston-based manager Greystar this week created an office of the chief investment officer as part of a push to expand its real estate investment activity. “We are very focused on growing our credit business because we see the opportunity set for private credit growing and it’s a natural evolution of our platform,” Wes Fuller, chief investment officer at Greystone, told Real Estate Capital USA. The firm’s core housing sectors will remain its primary focus as it expands its debt platform, with Greystar responding to regional and national bank lenders which are straying away from originations. The move mirrors the larger push of private equity real estate managers into the credit space, drawn by the potential for higher returns with less risk when compared with pure equity plays.

Reven-up office lending

Reven Office REIT, which last week announced plans to offer financing for well-located, high-quality office properties, sees a significant advantage in being a first mover in a market in which institutional capital has all but dried up, according to Ethan Penner, who co-founded the company with Chad Carpenter. At a time when some lenders are veering away from or downsizing their office allocations, the REIT’s launch goes against the idea that office may be too volatile to vest long-term stakes on. The La Jolla, California-based manager will work with existing contacts throughout the US to identify properties which it believes have long-term potential – with one caveat. “A lot of real estate operators and investors have dreams and we are not financing dreams. We are financing in-place cashflow,” Penner said.

Data snapshot

Mounting multifamily distress

Data and research provider MSCI has identified the multifamily sector as a rising cause of concern with more loans being identified as in danger of becoming distressed. Potential distress for the sector clocked in at $67.3 billion as of the fourth quarter compared with $65.7 billion in the third quarter of 2023. More than 30 percent of the potential distress is centered around properties purchased in the last three years.

Launch pad

Green-lit fundraise

New York-based real estate investor and manager SL Green Realty is set to launch fundraising for a planned $1 billion fund that will make commercial real estate debt investments in New York City. The local real estate investment trust, which announced plans for the fund on its quarterly earnings call this week, has for many years been a debt investor alongside its equity portfolio. The move comes as Los Angeles-based manager Ares Management and New York-based asset and investment manager RXR Realty last week announced plans for a $500 million office joint venture targeting high-quality New York properties.

People

M&T Realty reconfigures senior leadership

Buffalo, New York-based manager M&T Realty Capital Corporation this week restructured its senior ranks, moving chief executive Michael Berman to an executive advisory role and appointing M&T RCC president Michael Edelman as his successor. Both Edelman and Berman will continue reporting to Tim Gallagher, head of commercial real estate at Buffalo-based M&T Bank, as part of the changes. The firm also made a trio of senior appointments. All the leadership shifting – detailed on Real Estate Capital USA here – is centered around growing the team’s relationships with agency lenders as well as external managers and advisory partners, the firm noted.

Clarion taps Karlekar to head global research 

New York-based manager Clarion Partners this week added Indraneel Karlekar back to its ranks, this time as managing director and global head of research and strategy. Karlekar joined from Des Moines, Iowa-based manager Principal Asset Management where his 10-year tenure included a role as global head of research and portfolio strategies. His move to Clarion is a bit of a homecoming after having worked for its predecessor, ING Clarion, as head of global research and strategy from January 2007 to July 2011 per his LinkedIn profile.

Loan in focus

Industrial ensemble: PCCP originated a $102 million loan for a five-property portfolio (Source: Cushman & Wakefield)

Industrial production

Santa Monica, California-based manager PCCP has provided a $102 million senior loan for a five-property industrial portfolio located across Atlanta, Charleston, Charlotte, Louisville and Nashville. A team at New York-based advisory Cushman & Wakefield assisted with the sponsor, Bala Cynwyd, Pennsylvania-based manager Stoltz Real Estate, to secure the loan. Comprising four Class A industrial assets and one industrial outdoor storage asset, the properties are 100 percent leased with 4.6 years of weighted average lease term.

“This loan presents PCCP with the opportunity to lend on a fully occupied, newly constructed Class A industrial portfolio,” said Ryan Dodge, managing director at PCCP, adding that the company transacted with Stoltz Real Estate Partners based on a long-time relationship and the sponsor’s role as an experienced industrial owner nationally.


Today’s Term Sheet was prepared by Randy Plavajka with Samantha Rowan and Shihao Feng contributing