They said it
“We are actually seeing assets becoming stranded with a velocity that we have never seen in the market before”
Raimondo Amabile, co-chief executive of PGIM Real Estate, speaking to the Financial Times about one consequence of the end of cheap financing
The roughly $33.2 billion commercial real estate loan portfolio of New York-based Signature Bank is drawing more attention this week after Toronto-based mega-manager Brookfield highlighted what it believes is a lack of transparency in the Federal Deposit Insurance Corporation’s auction process of the loan book. In a letter sent to the FDIC, Brookfield cited the process as being secretive and alleged the regulator was picking some winning bidders for assets at prices below the highest offers.
“[We] have heard from numerous sources including from your adviser [Newmark] and from media reports, that a winning bidder has been selected and that this bidder’s price is lower than ours,” Brookfield said in its letter, as reported by the Financial Times.
New York-based manager Related Companies emerged in prior weeks as the winner of the FDIC’s auction, which is slated to be finalized by December’s end. “If the winning bidder’s price is in fact lower than ours, as it appears to be, we intend to launch a formal protest, as we believe that this would be in violation of law,” wrote Lowell Baron, chief investment officer at Brookfield. Officials at Brookfield declined to comment on the report.
Out of time
Commercial real estate sponsors with maturing loans who were hoping to buy time and wait for a more favorable interest rate environment are coming to terms with the reality that interest rates are not going to moderate any time soon. The sentiment is one that has gained traction over the past few weeks, with the market coming to realize that the problems around maturing loans or other issues in the capital stack can no longer be put off.
“That optionality exists for groups that are well capitalized. But for other groups, they are at the end of their ropes and have run out of time,” said Nitin Chexal, chief executive of Palladius Capital Management, an Austin, Texas-based real estate private equity manager. Read the Real Estate Capital USA story here.
Reaching the bottom
Investors believe property prices in some markets have started to hit bottom as trades come through. The sale last month of San Francisco’s 123 Townsend Street is the first of a series of pending office sales that could mark the trough of that market – and provide long-awaited clarity on pricing and valuations for investors. At $73 million, half of the office’s buying price in 2021, 123 Townsend Street was acquired by the local investor Rubicon Point Partners.
Despite the negative headlines about the city’s office market, Rubicon Point’s acquisition is a bet on San Francisco. “I think it’s going to be a challenging, messy, bumpy period in the short term. But in the long term, we are believers in the resiliency of the city,” Ani Vartanian, managing partner at Rubicon Point Partners, said in a story posted this week.
Multifamily game changer
The US multifamily sector could see positive headwinds from the potential for federal legislation introduced last week, which would provide tax credits for middle-income workforce housing. If passed, the bipartisan legislation could foster the creation of much-needed workforce housing, said Daron Tubian, managing director and head of affordable housing investments for debt and equity at Barings. “A [workforce housing tax credit] program would mirror [existing Low Income Housing Tax Credit legislation] and will be an important game changer,” he added. Read Real Estate Capital USA’s coverage here.
Denholtz Capital, a Red Bank, New Jersey-based commercial real estate manager, this week rolled out a rescue capital fund to provide preferred equity and mezzanine debt to sponsors facing short-term capital challenges. The Denholtz Opportunity Fund II will help tackle an uptick in situations in which sponsors are facing operating deficits, refinancing obstacles, cost overruns and lower than expected rental rates, said president Steve Cassidy.
“The reality today is we have settled into a less volatile market for debt. The meteoric rise of interest rates has been so challenging, but I think today, there is a sightline where you can start to create and execute a plan,” Cassidy added. The fund comes as more managers are looking at ways to fill gaps in the capital stack as borrowers come up against what New York data provider MSCI estimates to be a $1.9 trillion maturity wall over the next three years.
Two single-borrower commercial mortgage-backed securities deals were priced last week, including the $1 billion BX 2023-XL3 backed by loans that are secured in 109 industrial properties across nine states owned by Blackstone. Meanwhile, the $736 million KSL 2023-H5 was backed by 19 hotels across the country and was completed on behalf of Denver-based manager KSL Capital Partners.
Year to date, New York-based trade organization the Commercial Real Estate Finance Council has tracked private-label CMBS and CRE CLO issuance at $43.6 billion, still 57 percent behind the $100.4 billion in the same period of 2022. In a capital markets update from CREFC, analysts noted despite an overall anemic origination in the CMBS market, the final quarter of 2023 is seeing some green shoots, especially in retail and lodging sectors.
Although market watchers have keyed in on multifamily-focused debt funds as a potential point of market distress, analysis shared this week from data provider RealPage sought to assuage these fears. The report noted these lenders make up just a small portion of the $2.1 trillion in outstanding multifamily debt. As of December, Federal Reserve data showed that government-sponsored entities, banks and life insurance companies account for the lion’s share of outstanding multifamily debt with mortgage real estate investment trusts and other fund structures accounting for 3 percent of the current total.
Berkadia hires Cale from PIMCO
Michael Cale, former co-head of debt investments at PIMCO Prime Real Estate, last week announced his departure from the firm to take up a role as a senior vice-president at New York-based manager and broker Berkadia. Per his LinkedIn profile, Cale made the move near November’s end and marked his first day in Berkadia’s capital markets division early in December. His hiring will be a boost for Berkadia’s third-party lending relationships. Cale will be responsible for managing relations with banks, life insurance companies, debt funds and commercial mortgage-backed securities groups. Additionally, Cale will manage production for Berkadia’s proprietary bridge lending capabilities. He will work in the firm’s Atlanta office and report to Hilary Provinse, executive vice-president of production and capital markets at Berkadia.
Loan in focus
Time to breathe
Florida-based manager Accesso this week secured a critical loan extension lasting up to three years on the IDS Center with the assistance of New York-based restructuring and placement specialist Iron Hound Management. The asset, a 57-story Class A office tower, urban park and retail center in Minneapolis, Minnesota, is linked to $151.7 million in commercial mortgage-backed securities debt originated by JPMorgan Chase across two transactions, JPMCC 2013-C12 and JPMCC 2013-C13.
A source familiar with the debt noted it had been transferred to special servicing in February this year prior to this week’s extension. Securing new office financing and refinancing has not been an easy feat even for best-in-class assets during recent years. Accesso plans to use the extension window to find longer-term financing as market conditions improve locally and nationally.
Term Sheet will resume in 2024
We the team at Real Estate Capital USA would like to thank our valued subscribers for a wonderful year of Term Sheet. This newsletter is made possible by a hard-working team, expert source network and diligent audience keen to understand the current trends and inner workings of the commercial real estate debt landscape. Following a two-week break, production and delivery of Term Sheet will resume in 2024 with the first iteration due in your inbox January 4. Thank you very much, we hope you and yours have great holiday seasons and a successful close to the year.