Term Sheet: CREFC, NCREIF lay groundwork for industry-first debt fund index; Nuveen channels insurance investor demand into C-PACE lending fund launch; What the Moody’s and Fitch downgrades mean for real estate debt

CREFC and NCREIF roll out debt fund aggregate comprised of 13 managers to field feedback on their forthcoming index launch; Nuveen launches C-PACE lending fund to address insurance company appetite; How commercial real estate debt will be affected by the Fitch and Moody’s downgrades amid existing market volatility; and more in today’s Term Sheet, exclusively for our valued subscribers.

They said it

“Times like these are great because there’s opportunity – if you can sort through fact versus fiction as to what’s really going on in the market” 

What’s new?

One giant leap for debt
The New York-based Commercial Real Estate Finance Council and the Chicago-based National Council of Real Estate Investment Fiduciaries rolled out the NCREIF/CREFC Open-End Debt Fund Aggregate on August 7. The index – the first of its kind for the commercial real estate market – will be in draft stage for the next year to gather industry feedback before its formal introduction, the groups said in an announcement. The index includes data from 15 funds overseen by 13 managers spanning core, core-plus and value-add open-end debt funds, aiming to provide greater transparency around commercial real estate debt as an investment. CREFC is working with NCREIF and the Hartford, Connecticut-based Pension Real Estate Association on the next phase, which will establish parameters for core, core-plus and value-add investment strategies.

SoCal state of mind
KKR expanded its West Coast presence this week with the opening of its first Los Angeles office. With existing offices in San Francisco and Silicon Valley’s Menlo Park, the New York mega-manager is looking toward southern California to build out its real estate, private equity, private wealth and institutional client relationship teams. Senior real estate executives in Los Angeles will include Corey Hall, a director leading real estate credit originations in southern California and other parts of the US West Coast; Daniel Palmieri, a managing director leading real estate equity investments on the West Coast; and Lawrence Ou, a director leading institutional real estate client relationships on the West Coast. KKR’s California expansion has been ongoing since 2016 when the firm moved three real estate team members – including Justin Pattner, now head of real estate equity, Americas – from New York to San Francisco.

C-PACE momentum
New York-based manager Nuveen and Nuveen Green Lending this week launched the Nuveen CPACE Lending Fund, a novel strategy aimed at originating commercial property assessed clean energy loans on behalf of insurance companies investing in commercial real estate. The manager has already lined up $525 million of capital commitments from six insurance companies for the fund, which comes at a time when C-PACE financing is gaining momentum as an alternative to traditional financing, and insurance companies are planning to increase their impact investing. “Insurers are interested in differentiated sources of capital efficient income, and increasingly motivated to address climate change,” said Joe Pursley, head of insurance, Americas, at Nuveen in the August 9 announcement. Per Nuveen research, 82 percent of insurers planned to consider impact investments in the next year.

Brookfield’s Florida financing
New York-based Citibank and Paris-based investment bank Natixis joined forces this week on a $220 million refinancing for two hotels owned by Toronto-based Brookfield Properties. The deal, first reported August 7 by the Commercial Observer, backs Hilton Fort Lauderdale Marina in Florida and the Westin Savannah Harbor Golf Resort and Spa in Georgia, property records show. The bulk of the financing – an estimated $144.1 million – was for the Fort Lauderdale hotel, a 594-key property located west of the city’s barrier island. The remainder, meanwhile, was used to refinance debt on the 403-room resort in Savannah, Georgia. Brookfield has been active in the hotel market this year and in February sold the 1,000-room Diplomat Beach Resort in an $835 million deal with Trinity Investments and Credit Suisse Asset Management.


Sign of the times
Non-performing loan securitizations, another signpost of a distressed market, could be in the cards, according to a report released this week from New York-based rating agency KBRA. A key factor in this outlook is the valuation declines of commercial real estate loans on bank balance sheets, which could ultimately end up in future securitizations. Historically, these deals have been a mix of non- and re-performing loans as well as REO assets. The agency is starting to field some inquiries, with Christina Moy, managing director and a co-author of the report, adding there is a potential for some of these deals to be completed next year.

Another day, another downgrade
Fitch Ratings last week downgraded the credit rating of the US by one notch to AA+, becoming the second ratings agency – after Standard & Poor’s in 2011 – to lower its opinion of the country’s ability to repay its debt in a timely manner. While the public markets declined and then recovered after the news came out, the bigger question for the real estate market is what this means for institutional investor allocations to the US over the longer term. Does a combination of the recent volatility in the banking sector, the potential for political instability and another debt downgrade mean the US will become a less attractive option for international institutional capital? Gunnar Branson, chief executive of the Alexandria, Virginia-based trade group AFIRE, which represents foreign investors in US commercial real estate, believes it is too early to tell. “AFIRE is surveying members right now about this and I hope to have some perspective in early September.”

Banks in the crosshairs
Moody’s Investors Service on Monday downgraded the credit ratings of 10 regional banks and is looking closely at another six. The New York-based rating agency raised concerns that have been widely voiced about the banking sector in its decision, citing the impact of share price volatility, higher interest rates and a weaker commercial real estate market. Banks that saw their ratings downgraded included Buffalo, New York-based M&T Bank – the 19th largest in the US by assets – as well as several smaller regional lenders. The agency is reviewing the ratings of Bank of New York Mellon, US Bancorp, State Street Financial and Truist Financial. Despite the downgrades, all of the banks maintained their investment grade ratings.

Data snapshot

Hotel strong
The commercial mortgage-backed securities market saw a one basis point uptick in delinquencies in July. But the increase was tempered by strong resolutions for troubled hotel loans, according to a report this week from Fitch Ratings. The agency tracked a 1.92 percent delinquency rate in June, with loan resolutions of $692 million during the month.


Red Oak builds out Charlotte hub
Red Oak Capital Holdings moved its headquarters last week from Grand Rapids, Michigan, to Charlotte, North Carolina as part of a larger plan to expand its commercial real estate lending business. As part of this shift, the firm has made four hires. Jeff Joyner has come on board from advisory JSJ Ventures as regional manager for the US Southeast. Meanwhile, Thomas Gorski and Hermann Wendorff have joined as senior underwriters and Jesus Martinez has signed on as a loan administrator.

JLL brings on deal structuring specialist
JLL Capital Markets this week brought on CJ Kelly as a managing director focused on debt and equity, with the Chicago-based brokerage hoping to tap into his broad background structuring deals as an advisor and principal. Based in Atlanta, Kelly joins from CBRE, where he founded the firm’s debt and structured finance institutional group in the Southeast, and has also held senior roles at banks, debt funds, life companies and within the CMBS market. Kelly will focus on structuring deals across property types and lender groups, said Ed Coco, co-head of the firm’s Atlanta Capital Markets Group.

Newmark sets affordable housing expansion
Newmark this week named John Ward to head its multifamily capital markets group as part of a broader move to expand its presence in the mission and workforce housing space nationally. Ward, who joins from Cleveland-based KeyBank, oversees the origination of debt products that include agency, CMBS, life company and banks across the capital stack. Sharon Karaffa, vice-chair and co-head of production for multifamily capital markets, said Ward also brings strong relationships with a diverse set of borrowers across the US.

Borrower’s corner

Gowanus’s growth
A joint venture between Canyon Real Estate Partners, Charney Companies and Tavros is set to expand its multifamily presence in Brooklyn’s Gowanus submarket with $119.9 million of construction financing from Charlotte-based investment manager Barings. The August 3 deal is the joint venture’s second in Gowanus this year and carries notable differences from the $107 million construction loan the trio obtained in January. This time around, the joint venture sourced its debt capital from a private credit lender after having first used a regional bank – Beverly Hills, California-based Pacific Western Bank – as its construction lender. That January financing is now under the management of Kennedy Wilson, who bought the loan as part of a $2.6 billion portfolio deal in May. Sam Charney, founder and principal at New York-based developer Charney, noted the venture was in talks with 10 potential lenders to finance the August project and said five dropped out this year from market deterioration.

Loan in focus

IOS update
San Diego-based Axos Bank originated a $132.3 million refinancing last week for a 22-property industrial outdoor storage portfolio owned by a joint venture between Columbia Pacific Advisors and Criterion Group. The portfolio spans nine states across the US Northeast, Southeast and Texas and demonstrates how momentum is holding steady for in-demand niche sectors, including industrial outdoor storage. “With the growing necessity of last-mile logistics due to the continued growth of e-commerce, leasing for industrial outdoor storage assets has started to shift from typically non-credit, local tenants to national credit tenants, thus attracting a more institutional investor-set as well,” said Peter Rotchford, managing director at Chicago-based advisory JLL. Rotchford worked on the capital markets advisory team that arranged the five-year, floating-rate loan.

Today’s Term Sheet was prepared by Randy Plavajka, with Anna-Marie Beal and Samantha Rowan contributing