They said it
“I think we get meaningfully worse before we get better unfortunately. I think about the distress coming into the system – office is an animal of its own”
Michael Comparato, president at Franklin BSP Realty Trust and head of commercial real estate at Benefit Street Partners, speaking at the Commercial Real Estate Finance Council’s Annual Conference on how more stress is still to come for lending markets.
That’s all (for now)
The US Federal Reserve opted to keep interest rates unchanged at a meeting on Wednesday but cautioned that it could complete two additional interest rate increases before the end of 2023 as it seeks to reduce inflation to its targeted two percent level. “Holding the target range steady at this meeting allows the committee to assess additional information and its implications for monetary policy,” the US central bank said in post-meeting commentary. The target range continues to be 5-5.25 percent.
Despite the clarity, Marcia Kaufman, chief executive of Great Neck Plaza, New York-based Bayport Funding, sees continued dislocation in lending. “We will continue to see private credit funds take advantage of the void in the credit market by opportunistically stepping into high quality lending opportunities,” she told Real Estate Capital USA on Wednesday.
Low transaction volume, refinancing risks and the possibility of more defaults ranked highest on the list of concerns among industry professionals speaking at the Commercial Real Estate Finance Council’s Annual Conference, held from June 12-14 in New York. While the market has been in a holding pattern for several months, panelists noted this could start to unlock. “We are starting to reach a critical mass where borrowers and principals are having to ask the question ‘How much more can I really carry this [property] before we have to make a real big change?’” said Steven Pack, managing director at Goldman Sachs, on a lending panel. Even so, the consensus was that transaction activity could remain slow through the end of the year – or even beyond.
Cain International and Security Benefit Life Insurance last week struck a deal to acquire a roughly $1.2 billion portfolio of commercial real estate construction loans from Pacific Western Bank. The sale is the second of its kind for Beverly Hills, California-based PacWest, which also sold a $2.6 billion portfolio of construction loans to a unit of Beverly Hills-based manager Kennedy Wilson Holdings earlier this month as it seeks to shore up its balance sheet. Kennedy Wilson later flipped a majority stake in the portfolio it acquired to Toronto-based insurer Fairfax Financial Holdings.
More transactions and trades of this kind are expected, including the eventual sale of the estimated $33.1 billion Signature Bank real estate loan portfolio, which is being handled by New York-based advisory Newmark on behalf of the Federal Deposit Insurance Corporation.
Affordable housing creation in New York hit another wall this week as state lawmakers were unable to reach a deal on rent protections and an extension of the now-defunct 421a tax subsidy prior to the end of this year’s legislative session. Before its expiration in June 2022, the 421a legislation provided subsidies that made it easier for developers to create and maintain affordable multifamily rental units, a critical need for New York. Unless Governor Kathy Hochul calls for a special session, the state legislature is unlikely to take up an extension before January 2024, The Real Deal reported.
Tishman Speyer this week was able to secure a one-year extension of a $485 million loan on New York’s 300 Park Avenue, a 770,000-square-foot office building that serves as the collateral for a 2013 single-asset commercial mortgage-backed securities deal. A report from New York-based data provider Trepp said the extension on the loan came after the manager was able to ink nearly 200,000 square feet of leases and renewals over the past 18 months and bring occupancy up to 97 percent. The situation is reminiscent of what unfolded last month at the Seagram Building, where owner RFR Realty was able to extend roughly $1 billion of CMBS debt on the iconic property after executing 375,000 square feet of leasing in 2022.
From the ground up
Alternative lenders are homing in on residential and multifamily construction lending as recent volatility has led regional bank and national bank lenders to slow down their activity in the space. Palm Valley, Florida-based alternative lender Snap.Build sees room to expand its construction lending platform this year. Meanwhile, debt funds have stepped up to fund large-scale multifamily projects for institutional-quality sponsors, like New York-based manager Property Markets Group, which this week lined up nearly $800 million of financing for a pair of multifamily projects. “Community and regional banks are almost in the business begrudgingly and it takes them longer to process financing,” Brad David, executive vice-president at Snap.Build, told Real Estate Capital USA this week. The impact of this shift over the long-term? More market share for non-bank lenders.
The toolkit for commercial property-assessed clean energy (C-PACE) financing expanded last week as Bethesda, Maryland-based non-profit investment firm Calvert Impact launched Cut Carbon Notes, a program through which developers can obtain additional capital to develop and redevelop low-carbon commercial real estate properties. The firm rolled out the program in conjunction with Milwaukee-based PACE Equity, a C-PACE specialist, and aims to be an additional source of capital for sustainability-related upgrades. While institutions are expected to buy most of the notes, Calvert Impact’s vice-president of investment partnerships Justin Conway told Real Estate Capital USA the first $30 million series of notes is available to individual investors via brokerage accounts for a minimum $1,000 investment. CPACE financing has steadily increased in usage in recent years and PACENation data shows use of the funding totaled $5.2 billion in 2022.
Real estate debt fund dry powder totaled $41.3 billion as of the end of May, ranking as the third most popular focus behind value-added strategies ($80 billion) and opportunistic strategies ($74.5 billion), according to CBRE Research.
JLL expands in Seattle, Chicago
Chicago-based advisory JLL this week hired Seth Heikkila as a senior director in its Seattle office and brought on Bill Baumann as a managing director in its Chicago office. Heikkila, who returns to JLL after several years at Calabasas, California-based Institutional Property Advisors, will focus on multi-housing debt advisory for the Chicago company. Baumann will focus on apartment sales and financing in Chicago and the Midwest. He joined from Monarch Realty Partners, a Chicago-area brokerage firm.
CBRE Capital Markets brings on Florida team
Dallas-based CBRE Capital Markets has hired a team of multifamily specialists led by Denny St Romain and Jubeen Vaghefi to focus on institutional multifamily sales, land development stales, structured debt and equity and private capital sales in the Central and North Florida markets. The team joins from Chicago-based Cushman & Wakefield.
Loan in focus
Penning New Jersey deals
San Antonio, Texas-based alternative lender Affinius Capital this week originated a $180 million construction financing package for the development of a logistics center in Pennsville Township, New Jersey. Affinius, which has been most active as a mezzanine debt provider in recent months, provided the loan to a joint venture between Newark, New Jersey-based manager PGIM Real Estate and Duluth, Georgia-based industrial specialist CTR Partners. The construction funding will be used to develop Garden State Logistics Center, a 1.7 million-square-foot complex set for completion in the fourth quarter this year. The 282-acre site will also feature 2,568 car and trailer parking stalls and a total of 276 dock doors, Affinius noted in its June 12 release.