They said it
“Global investors likely will remain cautious for the rest of this year… Nevertheless, it appears that inflation has peaked globally and central banks are either at or near the end of their rate-hiking cycles”
Richard Barkham, global chief economist at CBRE, speaking this week on how the firm expects global cross-regional real estate investing to begin recovering in the first half of 2024.
What’s new?
Opening bids please…
The Federal Deposit Insurance Corporation this week opened the bidding process for Signature Bank’s $33 billion commercial real estate loan portfolio. The prospective sale, either in parts or in full, is being watched closely as a potential indicator of asset and loan values. Unlike Pacific Western Bank’s real estate loan sell-off, the Signature loan sales could come with discounts or incentives for potential buyers given the FDIC’s involvement, market analysts told Real Estate Capital USA.
The New York-based bank’s portfolio includes around $15 billion of loans secured by multifamily assets that are either rent stabilized or rent controlled. The FDIC outlined some parameters linked to buying Signature’s loans in a September 5 release, including that the agency would place the rent stabilized or controlled loans into one or more joint ventures, with the FDIC retaining a majority equity interest.
PGIM REconfiguration
New Jersey-based manager PGIM Real Estate this week retooled its senior ranks following the launch of PGIM Private Alternatives. Current PGIM RE president and chief executive officer Eric Adler was appointed president and chief executive of the new alternatives business, which combines the firm’s private credit real estate equity and debt, private equity, infrastructure and agriculture investment teams under one branded division. The firm appointed its chief operating officer Cathy Marcus and chief investment officer Raimondo Amabile as co-chief executives of PGIM RE in Adler’s place, effective October 1. Four other senior professionals will be affected by the reconfiguration, as outlined by REC USA here. Bryan McDonnell, head of US debt and agriculture and chair of global debt at PGIM RE, was unaffected by the changes.
Housing convert
San Francisco-based Wells Fargo originated a $360 million construction loan to convert a Washington, DC hotel into a five-acre multifamily complex, the bank confirmed this week. The funding will be used by San Francisco-based manager Carmel Partners to rework the former Washington Marriott Wardman Park Hotel at 2660 Woodley Road NW into two multifamily buildings. The financing tracks with an ongoing commercial real estate market trend of converting underutilized assets into more viable and in-favor asset classes, including multifamily. Though office-to-multifamily redevelopments have commanded more of the conversion conversation, the redevelopment of hotel assets into multifamily buildings has quietly gathered momentum in recent quarters as owners and lenders look to add post-pandemic value to their portfolios.
August stability
The US commercial real estate debt markets were stable as market participants worked to make sense of a higher interest rate transaction market, according to indicative deal data recorded by REC USA. There were around $6.1 billion of new financings in August, down slightly from the $6.2 billion of loans tracked in July. The total was fueled in part by large refinancings, including a $450 million loan from Morgan Stanley to refinance debt on Los Angeles’ prominent Glendale Mall and a $430 million loan from JPMorgan Chase for New York-based Witkoff Group and Chicago-based Monroe Capital’s redevelopment of historic Shore Club Hotel in Miami. All but one of the 10 largest loans recorded were for construction projects or refinancings.
Trending
‘Unsustainable hypergrowth’
Since WeWork declared its intention to restructure to avoid bankruptcy last month, much has been made of the size of its office footprint, particularly in Manhattan, where the firm has the largest concentration of locations. But in terms of what comes next for private real estate investors with exposure to the New York-based co-working provider, and how worried they should be, the gravity of the situation can only be assessed from building to building. Notably this week, WeWork chief executive David Tolley said the firm “would be kicking off a process of global engagement with our landlords to renegotiate nearly all our leases.” Indeed, affiliate title PERE spoke with two landlords that both had leases terminated early by WeWork but experienced very different outcomes: one sued the company for damages before re-leasing all of the space within a year, while the other put the property on the market. A lease with WeWork is “a sword of Damocles,” and even landlords with “bulletproof” leases with the company should be worried, says another manager.
Flow state
Dallas-based real estate advisory firm CBRE this week published research showing cross-regional capital flows have fallen in the first half of 2023 across global commercial real estate markets. Flows between North America, Europe and Asia-Pacific totaled $30.5 billion in the first half of 2023, marking a 52 percent drop compared with the first half of 2022. The firm anticipates cross-regional investments will stay subdued until the end of year with potential recovery in 2024. Notably amid the global flow drop, cross-regional investment in North America ticked up 5 percent year-over-year. CBRE noted this was driven by two large acquisitions by Asian investors. Cross-regional flow to Europe from US investors dropped 68 percent in the first half of 2023 compared to the first half of 2022. That slip was driven by economic uncertainty, constrained debt markets and high interest rates, CBRE noted.
Cooling off
Annualized multifamily unit rent growth continued to drop in August this year and could go negative in September, according to research from service provider RealPage. Jay Parsons, senior vice-president, chief economist and head of industry principals at RealPage, wrote on LinkedIn this week that effective asking rents increased 0.28 percent year-over-year as of August, an 11 percent decline from August 2022. “For the first time in multiple decades, rents are cooling to near zero at the same time demand remains healthy,” Parsons wrote. “How? Three simple reasons – supply, supply, supply.” Month-over-month, effective asking rents were down for the first time in 2023, dropping 6 basis points. Parsons noted that of the top 50 largest US markets, 24 are now seeing year-over-year rent cuts and only seven markets saw rent growth of 3 percent or more – all lesser-supply markets in the Midwest or Northeast, he said.
Data snapshot
Office origination crumbles
New York-based advisory Newmark published research this week showing office debt originations fell 55 percent year-over-year in the first half of 2023. Newmark also cited data from MSCI Real Capital Analytics which showed office origination volumes clocked in at their lowest level since 2011.
Borrower’s corner
Mitigating risks
Beverly Hills-based apartment and industrial specialist StarPoint Properties sees risk mitigation as its top priority right now, with chief executive Paul Daneshrad citing concerns over the impact of higher rates on floating-rate mortgages, volatility at the short end of the yield curve, and a paucity of construction lenders. “We are trying to deliver asymmetrical returns, and what that means is focusing more on the risk component of real estate and make sure we’re hedging that,” Daneshrad told REC USA, in a story posted this week.
Loan in focus
SoCal soiree
Chicago-based manager Heitman last week originated a $145 million construction financing package for an industrial development in Southern California’s still-hot Inland Empire market. The August deal, first reported by the Commercial Observer, was originated on behalf of Blackstone’s industrial owner-operator specialist Link Logistics. Link plans to use the funding to create the Altitude Business Centre, a six-property logistics hub at 7311 Kimball Avenue in Chino, California. The project is set to be completed in 2024 and was arranged by Toronto-based advisory Colliers. The Inland Empire has remained one of the highest-demand industrial markets even amid market volatility in recent quarters.
Today’s Term Sheet was prepared by Randy Plavajka, with Anna-Marie Beal, Charlotte D’Souza and Samantha Rowan contributing
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