They said it
“If the banks are this risk-off, and they’re not making real estate loans, the real estate industry will stop”
Ross Perot Jr, chair of Dallas-based developer and investor Hillwood, in a June 16 Fortune article in which he also cautioned that a pause in bank lending could precede a recession.
Off into the sunset
The commercial real estate capital markets are close to saying goodbye to LIBOR as the historical benchmark for pricing floating-rate loans edges closer to its widely anticipated expiration on June 30. Top of mind for sponsors is the language around transitioning derivatives contracts tied to the benchmark and making sure the default benchmark is Term SOFR and not the Prime Rate, said Rob Mangrelli, a managing director at Kennett Square, Pennsylvania-based Chatham Financial, in an article posted on Real Estate Capital USA on Tuesday. “We have had a decent timeline toward a change and companies have had the time to get familiar with their products but there are still some outliers where there is ambiguity or uncertainty,” he said.
New York-based manager Tishman Speyer lined up construction loans totaling $900 million last week from Toronto-based investment bank RBC Capital Markets and Montreal-based manager Otera Capital. Otera funded a $750 million loan to finance the first phase of the firm’s Harvard University’s Enterprise Research Campus in Boston – the largest US construction loan originated year-to-date. Meanwhile, a $150 million loan from RBC is expected to fuel the redevelopment of a Washington, DC-area mall into a multifamily and revamped retail asset. The deals also represent Tishman Speyer’s ongoing shift from the office sector into multi-use projects spanning research facilities, retail and apartment housing, as well as the growing activity from international capital sources seeking US deals as the commercial real estate capital markets – particularly banks – stay in a holding pattern.
Tishman Speyer is not the only manager that secured a major construction financing package this week. Real Estate Capital USA’s lending data snapshot shows construction lending has abounded this month, with lenders like Bank OZK, Affinius Capital and Madison Realty Capital each closing $100 million-plus loans. Affinius’ $180 million financing for a New Jersey logistics center was highlighted as Real Estate Capital USA’s Loan in Focus in last week’s Term Sheet, notably.
On the sponsor side, New York-based manager Property Markets Group has been the second most active borrower Real Estate Capital USA has tracked this month behind Tishman Speyer. The firm secured $597 million of construction loans for projects in Miami and Brooklyn in June. While alternative lenders have been the most active, bank lenders – including Wells Fargo – are coming off the sidelines more often to originate large ticket loans, similar to their activity prior to the most recent bout of market volatility.
Lenders and borrowers are getting clarity around prices for New York offices as a handful of transactions clear the market. A June report from New York-based manager and developer Okada & Company cited the examples of 25 Water Street, 260 West 36th Street and 111 West 24th Street, all of which traded in recent months at levels significantly below the peak pricing seen for similar assets in their specific submarket.
“We are seeing a perfect storm when it comes to the office sector due to incredible price discounts, some of which have not been seen in 14 years,” founder Chris Okada told Real Estate Capital USA last week. With assets like 61 Broadway – a Class A office building in Manhattan’s Financial District – expected to trade imminently, more metrics around pricing will emerge for lenders and borrowers in the coming months.
Real estate influencer
Jon Gray, the president and chief operating officer of Blackstone Group, made his LinkedIn debut this week and was welcomed to the platform with an effusive post from the New York-based private equity firm’s chief executive and founder, Stephen Schwarzman. Schwarzman shared a photo of the duo from the firm’s acquisition of Equity Office Properties in 2007 – and reminded investors about the speed, scale and return for its investors the $39 billion transaction presented. “In an 8-week span, we executed a total of $70 billion in real estate transactions – the initial purchase plus $30 billion of sales to reduce risk as much as possible for our investors,” Schwarzman wrote. Gray’s LinkedIn debut also came with the promise of additional insights from the manager as Blackstone aims to communicate more directly through social media.
Loan origination volume in the life sciences sector is being adversely affected by a drop in venture capital funding. “Loan momentum is not steady; it has downshifted,” said Abby Corbett, global head of investor insights at Chicago-based real estate advisory firm Cushman & Wakefield in a Real Estate Capital USA feature published this week. Venture funding for US life science companies totaled $49.2 billion in 2021 and in 2022 slipped 28 percent to $35.8 billion, Cushman data showed. In tandem, vacancy rates in the asset class are on the rise. Cushman data shows 17 million square feet of life science space is due for delivery in 2023, meaning vacancy rates could remain elevated. Still, established hubs such as San Diego, San Francisco and Boston have remained steady beacons of leasing and lending activity.
Cutting apartment rent
Data from Richardson, Texas-based analytics firm RealPage shows effective asking rents declined in eight major US markets over the last year, including still-maturing Sunbelt cities such as Austin, Jacksonville and Atlanta. This list could double in the next month or so, RealPage senior vice-president and chief economist Jay Parsons wrote in a June 15 LinkedIn post.
Toronto-based advisory Avison Young this week saw the departure of its US president, Juan Bueno. Harry Klaff, who has served as Avison Young’s president of clients since 2020, has been promoted to fill the role. Per a June 21 Commercial Observer report, Bueno left the firm after two years in the role and is pursuing a new opportunity. Klaff will work with Mark Rose, Avison Young’s chief executive officer, and is responsible for the firm’s global relationships and strategies across asset classes. Klaff worked at Chicago-based advisory JLL from 1995 to 2020 before joining Avison Young, per his LinkedIn profile.
Greg Corbin, former president of bankruptcy and restructuring at New York-based brokerage Rosewood Realty Group, is launching his own firm – North Point Real Estate Group. Corbin said in a June 17 LinkedIn post that he would be continuing his focus on bankruptcy, foreclosure, loan sales and restructuring at North Point. As president of New Point, Corbin brought on former Rosewood professionals Chaya Milworn, Felix Ades and Shaun Rose to round out his team. Corbin ran Rosewood’s bankruptcy and restructuring division from 2019 to 2023 and previously filled roles New York-based advisory Besen Partners and Massey Knakal Realty Services.
Harboring the right opportunities
Norfolk, Virginia-based manager Harbor Group International is completing acquisitions and refinancings in the multifamily market and opting for more selectivity around office sector opportunities. The difference in transaction activity in the sectors is driven by the availability of senior debt capital, Richard Litton, president, told Real Estate Capital USA. “On the multifamily side, where about 85 percent of our activity is focused, we have seen a pickup in activity,” he said. The firm has also been active in the secondary commercial mortgage-backed securities bond markets and sees an opportunity to be active in the new issue market too. As part of its credit platform growth plans, HGI appointed Matt Jones as its chief investment officer for credit investments on June 21. Jones has been a key figure in growing the firm’s platform to $4.5 billion investments since its 2020 inception and has worked at HGI for more than 20 years.
Loan in focus
Towering over LIC
A group of banks led by Buffalo, New York-based M&T Bank originated a $425 million construction loan to New York-based BLDG Management Company to create a mixed-use residential tower in Queens, New York. The June 21 deal was arranged by New York-based manager Greystone and upon completion the 69-story, roughly 800 foot-tall tower will be the tallest residential asset in the Long Island City neighborhood. The bank consortium included US Bank, Bank of China, Israel Discount Bank, City National Bank and Bank Hapoalim all working in various capacities on the financing. The project, named The Orchard, will feature 824 apartment units, 100,000 square feet of amenity space and 13,000 square feet of retail space.