They said it
“What seems inevitable and obvious over my career has not played out to be inevitable and obvious”
Ralph Rosenberg, global head of real estate at KKR, on the difficulty of predicting the future of cities, in a McKinsey webinar last week.
What’s new?
Packing up
Beverly Hills, California-based Pacific Western Bank’s commercial real estate division departed last week to join Kennedy Wilson, including former PacWest executive vice-president Patrick Crandall. Approximately 40 people will be making the move to Kennedy Wilson, a spokesperson for the firm told Real Estate Capital USA. In a July 13 LinkedIn post announcing the move, Crandall said the former PacWest team already has an active pipeline and has issued terms on several deals. The team will continue focusing on non-recourse bridge and construction financing. The move came after the bank sold its construction loan portfolio to the manager in May.
Debt fund demand
Two more managers launched commercial real estate debt funds last week. Northcap, a West Palm Beach, Florida-based real estate private equity firm, rolled out a $750 million real estate debt fund in response to the scaled back lending of regional and national banks. “We understand the importance of liquidity in enabling developers to seize opportunities and navigate market challenges,” said Michael Reynoso, managing principal at Northcap. The firm will use the fund to provide financing for acquisitions, construction projects and refinancing for what Northcap views as high-quality assets with strong cashflow potential. Northcap’s launch arrived a week after Franklin Templeton’s Benefit Street Partners filed to launch its second opportunistic debt fund and El Segundo, California-based manager Calmwater Capital closed its fourth credit fund with $372 million in capital commitments.
Towering loan sales
New York-based JPMorgan Chase is seeking a buyer for a $350 million loan backed by HSBC Tower at 452 Fifth Avenue in Manhattan, according to a report in The Business Times last week. The move fits the broader theme of regional and national banks reducing their office exposure through loan and asset sales. Market participants familiar with the deal noted the bank has offered cheaper-than-market financing to further incentivize the potential buyer. JPMorgan refinanced 452 Fifth’s debt last year and reset its maturity for 2024 with extension options beyond next year, according to financial filings by building owner Israel-based Property & Building Corp.
Just peachy
Starwood Capital Group has encountered office headwinds this week on Tower Place 100, an Atlanta office building. Barry Sternlicht’s New York-based investment management group failed to refinance or pay off $212.5 million of debt linked to the 29-story Class A office tower, according to a July 18 report from Bloomberg. A filing from Melbourne-based data service Computershare noted Starwood was unable to pay off the Goldman Sachs-originated loan at maturity and that the lenders have hired counsel to negotiate an agreement. The Starwood office default places the investment manager in similar company to Blackstone and Brookfield Asset Management, which have both defaulted on select office loans in recent months as a result of sustained volatility in the US office market.
Trending
Beach vacation
Despite broad debt market volatility, select destination resorts have continued to attract new financing across the US. New York-based Morgan Stanley and Frankfurt-based Deutsche Bank finalized a $515 million commercial mortgage-backed securities deal this week backed by The Westin Maui Resort & Spa, Ka’anapali, in Maui. The resort is owned by a partnership between Honolulu-based manager Trinity Investments and Los Angeles-based manager Oaktree Capital Management. The loan will be used to refinance $360 million of maturing debt and follows a $120 million renovation completed by Trinity and Oaktree for the 771-key luxury resort. Real estate investment bank Eastdil Secured arranged the four-year, interest-only loan, which was priced at 7.755 percent. Sean Hehir, managing partner, president and chief executive of Trinity, discussed the deal in depth with Real Estate Capital USA following the July 18 announcement.
Building blocks
This past week has seen an upswing in lending momentum as a plethora of sizable loans have closed, many of which are over the $100 million mark. Among the many alternative credit providers active in the last week, New York-headquartered Greystone was particularly noteworthy, funding a number of deals including a $150 million acquisition loan for a supported living facility in Illinois and a $172 million refinancing on a mixed-use asset in Los Angeles’ Koreatown. The most significant transactions in recent days, however, are Morgan Stanley and Goldman Sachs’ $450 million retail refinancing; and Coast Commercial Mortgage Trust’s $220 million refinancing for two hotel assets in Georgia and Florida. Market participants can only hope the past week’s activity is reflective of the upward direction of the US lending market.
Suburban shift
Workplace Property Trust, which last week obtained an extension of $1.3 billion of commercial mortgage-backed securities debt tied to a portfolio of mostly suburban offices, believes there will be a secular shift away from cities. The first is the relative strength of the suburban office market, which for the first time in more than 30 years is outperforming downtown and CBD office markets. The second is that the REIT was able to pay down a portion of the debt and bring in new equity as part of its negotiations with special servicer Key Bank, said Roger Thomas, chief operating officer and co-founder. “We believe the market will continue to recover over the next six months, albeit with the potential for a modest recession. The bondholders and the special servicer agreed with that assessment, and we were able to achieve the extension,” he said.
Data snapshot
Volume drop
Commercial mortgage-backed securities issuance dropped steeply in the first half of 2023, with New York-based data provider Trepp tracking a roughly 66 percent drop in volume.
People
Greystone names CFO
New York-based real estate company Greystone has promoted Eric Welby to chief financial officer. Welby previously served as the firm’s deputy chief financial officer and chief accounting officer, and has played a key role in managing and maintaining accounting practices, and leveraging technology to increase the efficiency of the department.
Eastdil Secured adds MD in DC
Global real estate investment bank Eastdil Secured has hired Rob Walters as managing director in its Washington, DC office. Walters will lead Eastdil’s data center and digital infrastructure business, focusing on sales, leasing, joint ventures and financing. He joins the firm from Avison Young where he served as principal and led the Toronto-based advisory’s data center practice. While at Avison Young, Walters advised clients on sales and leasing transactions totaling more than 15 million square feet and a combined value of over $4.5 billion. “His addition provides tangible value for clients around the world in the growing digital infrastructure and data center space,” said CEO, Roy Hilton March.
Loan in focus
New Jersey transit
Newark, New Jersey-based PGIM Real Estate this week originated a $103 million fixed-rate financing package through its core lending strategy to New York-based manager DRA Advisors for a 35-building industrial portfolio in Camden County, New Jersey. The industrial portfolio totals 1.2 million square feet just outside the Philadelphia metropolitan area and includes more than 70 tenant-leased spaces as of the July 17 closing. “While the real estate market continues to show signs of volatility, we remain bullish on the industrial sector and are committed to lending on high-quality, well-located in-fill assets like those in this portfolio,” said Tom Goodsite, managing director at PGIM Real Estate who led the financing on the firm’s behalf.
Today’s Term Sheet was prepared by Randy Plavajka, with Anna-Marie Beal and Samantha Rowan contributing
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