They said it
“The pain is going to be on the private side”
John Murray, managing director at Newport Beach, California-based manager PIMCO, tells the PERE America Forum where he believes looming debt maturities will hit the real estate industry hardest.
What’s new?
Correcting course
Senior real estate executives speaking this week at affiliate title PERE’s annual America Forum in New York expect volatility in the debt landscape to persist through the first half of 2024. But this stress does not mean opportunities will be absent. Nu Suwankosi, head of global credit at Oxford Properties and a panelist at the conference’s opening session, believes the market is in a period of correction after benefiting from a low-rate environment over the past decade.
Lee Levy, managing director at Goldman Sachs, said that compared with during the Global Financial Crisis, the market today is not dealing with overleverage. Instead, the market is contending with levered assets that were overpriced.
Suwankosi, Levy and their fellow panelists – PIMCO managing director John Murray and QuadReal managing director Prashant Raj – all believe the lending markets may return to more familiar ground in the second half of 2024, though 2025 is more likely to be the first full year of relative stability.
Agency reduction
The Federal Housing Finance Agency this week outlined its 2024 multifamily caps for Fannie Mae and Freddie Mac, lowering loan purchase caps to $70 billion for each of the government-sponsored enterprises. Both agencies had their caps reduced by $5 billion, compared with $75 billion caps in 2023, as a response to persistent market volatility and forecasts.
New York-based trade organization the Commercial Real Estate Finance Council published a side-by-side analysis of the caps this week to further break down how the FHFA is updating its practices. Most notably, the FHFA maintained its requirement that 50 percent of the enterprises’ multifamily business be mission-driven, affordable housing. Loans supporting workforce housing were also exempted from the volume caps to focus more specifically on pure affordable housing efforts under FHFA director Sandra Thompson.
Opportunity approaching
Fort Worth, Texas-based TPG has raised more than $750 million to date for its new real estate credit strategy, with chief executive Jon Winkelried noting this week the firm intends to capitalize on what it believes is an opportune time in the credit space. The firm has originated loans through its public REIT and Angelo Gordon subsidiary previously and will build on its existing relationships across the industry to deploy capital at a time of reduced liquidity from traditional lenders. “Our expectation is that we will be able to flex between public markets and private markets as a result of having a pool of capital,” Winkelried said.
Cap needed
A $670 million loan on the Hemsley Building, the 1.4 million-square-foot office building at 230 Park Avenue, New York, was transferred into special servicing last week ahead of a maturity later this month. The transfer, recorded by New York-based Kroll Bond Rating Agency, comes at a time when the Grand Central-area office is facing near-term lease maturities for three of its five largest tenants.
But the bigger obstacle for its sponsor, New York-based real estate investment trust RXR Realty, comes from the loan’s expiring interest rate cap. While the three-year, floating-rate loan, securitized in MSC 2021-230P, has two one-year extensions, the sponsor will need to buy a new cap to exercise these options. Since the loan was originated two years ago, the cost of rate caps has risen exponentially – and has forced sponsors to make hard decisions.
Real Estate Capital USA Awards 2023
Nominations closing soon
The submissions deadline for the Real Estate Capital USA Awards 2023 is looming. The awards seek to honor standout organizations and transactions across 30 categories, encompassing activity across the last 12 months. Access the submissions form here – the deadline for submissions is midnight EST this Friday, November 17. Voting will commence on Monday, December 4 and close on Friday, January 12, 2024. Winners will be announced online April 1 and be featured in our April-May 2024 edition. Last year’s winners can be seen here.
Trending
Ripple effect
Following the bankruptcy last week of flexible workplace provider WeWork, the US commercial mortgage-backed securities market is providing a lens for the possible impact. There are around $750 million CMBS loans with exposure to leases WeWork has rejected, according to a report published this week by data provider Trepp. New York, for example, has a high concentration of offices affected by the lease rejections, with Trepp tracking $182 million of CMBS loans in which WeWork occupies more than 90 percent of the space. Manus Clancy, a senior managing director at Trepp, foresees challenges for affected landlords. It will be difficult for landlords to release space in the near-term and maintain cashflows, he added.
Finishing stronger
The US commercial mortgage-backed securities market is gearing up for a stronger finish to 2023 after a tepid year of issuance. Market participants say they expect to see $5 billion to $7 billion of new conduit originations in the fourth quarter, noting year-to-date CMBS issuance being 63 percent down from 2022. One encouraging sign is upcoming conduit loans have a more diverse exposure across property types, including challenging sectors like office. “It is hard to get a loan on an office property if it has a huge vacancy [or] a huge rollover coming,” said Anuj Jain, director of CMBS strategy at Barclays. He noted in today’s market, the risk for office exposure in conduit is well contained because most underlying assets have long-term leases in place.
Data snapshot
Insurers rising
Insurance company lenders have picked up a larger commercial real estate debt market share in the third quarter of 2023, compared with the same quarter in 2022, according to a report published this week by Dallas-based advisory CBRE. Banks remained the top non-agency lender, however, with a 38.4 percent share of loan volume, down from 46.5 percent in the third quarter of 2022.
People
Savills plans North America CEO succession
London-based advisory Savills this week outlined succession plans for its North America chief executive Mitchell Rudin, who has filled the top stateside spot since 2020. Rudin will transition to the role of chairman, North America, on January 1 of next year and will simultaneously be succeeded by David Lipson as CEO of Savills North America. Lipson has served as the advisory’s North American president since 2021 and previously worked for more than 10 years leading the advisory’s Washington DC practice. Rudin will work as an adviser to Savills North American executive board as part of his chair appointment and focus on leadership development, DEI efforts and other business development opportunities.
Loan in focus
Relationship management
PGIM Real Estate this week originated a $188 million loan for The Blairs, a five-property multifamily portfolio in Silver Springs, Maryland, on behalf of sponsor Tower Companies – a commercial real estate manager with which the Newark, New Jersey-based manager has a 25-year relationship. The financing comes as lenders of all stripes are espousing the importance of relationships in today’s volatile market, as well as the supply-demand fundamentals of the apartment sector.
“Moving into the fourth quarter, we strongly believe in the opportunity that the multifamily industry has to offer, despite economic headwinds in the current market environment,” said Trevor Arnholt, vice-president at PGIM Real Estate who led the financing on the firm’s behalf. For PGIM, the deal extended what has been a months-long streak of lending activity for the top-ranked Real Estate Capital USA Debt Fund 40 manager across the West and East Coasts of the US.
Today’s Term Sheet was prepared by Randy Plavajka with Samantha Rowan and Shihao Feng contributing
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