They said it
“I am excited about what I see coming up, but I’m not excited that things are going to all of a sudden switch because the Fed said something”
Alfonso Munk, Hines’ Americas chief investment officer, sharing his views with affiliate title PERE on sentiment following the central bank’s positive comments on inflation and interest rates in December.
Waiting for rate change
The tone of the commercial real estate debt industry teetered toward optimism this week as senior executives and representatives from leading lenders, advisories and brokerages gathered at trade association the Commercial Real Estate Finance Council’s annual conference in Miami. While 2023 was seen as a slow period for originations, the broad sentiment was any pain could be alleviated with expected interest rate reductions from the Federal Reserve this year. Some market participants anticipate there could be up to 100 basis points of rate cuts before the year’s end, inspired partly by the US central bank’s December commentary.
Though conversation was centered around the outlook on rates, in-vogue asset classes and concerns around a broad valuation reset, attendees also expressed concerns about the way in which the bank lending market was sidelined last year as the Federal Reserve increased rates. While banks are selectively dipping toes back into the lending market, panelists and market participants were bullish on alternative and private credit lenders capturing more market share – especially with capital-related regulatory changes expected this year.
Ready player one
London-based alternative lender DRC Savills Investment Management this week expanded its commercial real estate debt platform to the US via a joint venture with Atlanta-based Quadrant Real Estate Advisors. The firm, which manages debt investments in the UK, Continental Europe and Australia, sees the US as the next logical place for expansion.
“It is an interesting time to enter the US markets because the size and speed of the interest rate rises and the adjustment in capital values is creating an opportunity for non-bank capital, even in the US where there is a more balanced system of providers,” Dale Lattanzio, managing partner, told Real Estate Capital USA.
DRC Savills IM, which has about £2 billion ($2.5 billion) in assets under management in a portfolio that includes senior debt, high yield and whole loan products, will be the joint venture’s majority owner.
Blackstone names new co-CIOs
The Blackstone Group today announced several promotions, including elevating Ken Caplan – the current global co-head of real estate – and Lionel Assant, European head of private equity – to the newly created roles of global co-chief investment officers. As a result, Nadeem Meghji, head of real estate Americas, will step into Caplan’s shoes as co-head of real estate with Kathleen McCarthy. A press release stated the positions were created to enhance the co-ordination and oversight of the New York-based manager’s investment process as the firm prepares for what Steve Schwarzman, co-founder and chief executive, characterized as an “active investment period.” The firm has roughly $200 billion of dry powder, the release noted.
Dry (powder) January
Bank OZK, Wells Fargo and KeyBank started off 2024 with a bang, with the banks originating large-scale loans for acquisitions, developments and refinancings.
- Little Rock, Arkansas-based Bank OZK funded $215 million in financing for a Ritz-Carlton Residences in Bonita Springs, Florida on behalf of local sponsor London Bay, a $220 million loan in nearby Fort Lauderdale for a large-scale mixed-use project for Houston-based Hines, and a $73 million loan for the development of an apartment property at 335 Eighth Avenue in New York.
- Cleveland-based KeyBank this week funded a $447.5 million Fannie Mae credit facility for a portfolio of 19 workforce housing properties in New Jersey, Pennsylvania and Delaware on behalf of Philadelphia-based manager Montium. The $520 million financing package also included a $72.5 million preferred equity investment from New York-based manager Basis Investment Group.
- San Francisco-based Wells Fargo in late December provided $360 million in financing for the first phase of an 880-unit affordable housing project in New York’s Queens submarket.
The activity, tracked via Real Estate Capital USA’s weekly lending barometer, could be an early indicator of what is to come in 2024 as banks and non-bank lenders absorb a less hawkish outlook from the Federal Reserve.
Real Estate Capital USA 2023 Awards
Remember to vote
Time is running out to have your say in Real Estate Capital USA’s 2023 Awards, with voting closing on Monday, January 15 at midnight PST. While there are clear leads in some categories, others are still up in the air – and a few votes could change the outcomes entirely in some of the most hotly contested areas. Please remember you are only allowed to vote once per category, and you may not vote for yourself or your firm. Additionally, you are not required to vote in all categories – simply vote in those of interest to you, all votes are confidential and block votes will not be counted.
Cast your vote here today and stay tuned for our big reveal in April, online and in print.
Looking ahead in 2024
At the turn of the year, Real Estate Capital USA connected with lenders, borrowers, advisers, servicers and other key market participants to ascertain what the key trends of the coming year would be. Top of mind for market participants were:
- The rising need for workout specialists to assist in resolving distress situations for $659 billion of loans slated to come due in 2024.
- How a handful of office sales in San Francisco’s beleaguered office market could mark a bottom for lenders and borrowers.
- The way in which long-term demand for affordable housing will further drive the multifamily sector to mixed-income investments.
- In-depth analysis on lending activity in 2023 and what the coming year will bring.
Room to assume
The potential for sponsors to assume attractive, in-place commercial real estate debt is expected to garner more attention in 2024, according to a report published this week by Kennett Square, Pennsylvania-based Chatham Financial. With 2023’s total investment sales dropping an estimated 61 percent from 2022’s record high, industry participant outlooks are more opaque and every asset class is facing some headwinds with office still under the most pressure. For multifamily transactions specifically, the assumption of in-place debt could act as a better incentive for attracting more bidders especially with a tandem option to buy properties free and clear, Chatham noted in its research.
Office supply to plummet
The US office vacancy rate has been steadily climbing since the onset of the pandemic, but it is now having a notable impact on new construction. After holding relatively steady from 2019-23, new office space deliveries are expected to drop to approximately 30 million square feet this year and plummet to around five million in two years, according to data from New York City-based advisory Cushman & Wakefield.
Clancy leaves Trepp
Manus Clancy, senior managing director at New York-based data provider Trepp, this week announced his departure from the firm after a more than three-decade career. Clancy, who cited a new professional endeavor in his farewell email, has not yet disclosed his next company or position.
Avatar hires Weingart
Seattle-based Avatar Financial Group, a national bridge lender, hired Jeffrey Weingart this week as senior vice-president of originations. Before joining Avatar, Weingart was senior vice-president of originations and underwriting at Boise, Idaho-based A10 Capital. Weingart will be based in Boston, with his primary responsibilities involving underwriting and origination of commercial real estate loans, business development and expanding Avatar’s national platform.
Loan in focus
3650 REIT this week funded two construction loans in California totaling about $145 million, marking the national commercial real estate manager’s first deals of the year. The financings were split between a $91 million loan to complete the construction of Gillespie Field iPark, a planned industrial facility in El Cajon close to San Diego, and a roughly $54 million loan for The Ranch at Model Colony, a more than 90 percent pre-leased retail development in the city of Ontario, California. Both loans carry terms of 24 months and were originated via the firm’s bridge and event-driven lending platform. But the bigger story is around a dearth of construction financing in the market right now, said Jonathan Roth, co-founder and managing partner.