They said it
“Only by the grace of God do some of these regional banks continue to walk. Any group of hedge funds can take one of them down at any moment”
Barry Sternlicht, co-founder and chief executive of Starwood Capital Group, said during a June 22 appearance on CNBC’s Squawk Box when discussing the state of regional banks in the commercial real estate lending landscape.
Beverly Hills, California-based PacWest Bank continued an ongoing loan sales program this week by offloading a $3.5 billion portfolio of specialty finance and commercial real estate loans to Los Angeles-based alternatives manager Ares Management. Affiliate title Private Debt Investor reported Ares is paying $2.01 billion for a portfolio of loans with an outstanding principal balance of $2.21 billion. With transaction costs, the sale price is $2.07 billion.
The diverse portfolio includes commercial and residential real estate loans as well as asset manager and fund finance loans. The sale is the third of its kind for PacWest this year, with the bank also selling $2.6 billion of construction loans to a unit of Kennedy-Wilson Holdings in May and $1.2 billion of construction loans to a partnership between Cain International and Security Benefit Life this month. So far, the discounts have largely been lower than expected, market participants told Real Estate Capital USA.
Freddie Mac this week originated a $947 million loan for San Francisco-based asset manager Prime Residential on Park La Brea, a Los Angeles affordable multifamily property. The 10-year, fixed-rate loan is expected to recapitalize the 4,249-unit multifamily housing complex, which includes 18 high-rise towers and 175 garden-style apartment buildings. The McLean, Virgina-based government-sponsored enterprise expects to securitize the June 26 loan through its Freddie Mac K-Deal program. The financing was arranged by New York-based advisory Newmark to help retire existing debt and allow for accessory dwelling units to be constructed on the 144-acre site. Prime Residential has owned Park La Brea since 1995 and the community was originally developed by MetLife between 1941 and 1950.
Clearer (office) views
New York-based manager SL Green sold a 49.9 percent interest in 245 Park Avenue to a US affiliate of Tokyo-based manager Mori Trust this week for a gross asset valuation of $2 billion. The June 26 transaction marked Mori’s first investment in New York and reflects a steadfast sentiment among office owners that, at a minimum, there are still opportunities to be had for class A office properties in the city. “The formation of this new partnership with Mori Trust reflects the continuing allure of investing in trophy midtown New York assets and resilience of the Park Avenue corridor,” SL Green chief investment officer Harrison Sitomer said in a statement. SL Green acquired the 1.8 million-square-foot office tower in September 2022 with plans to eventually reposition the asset with a partner. The 245 Park Avenue deal comprises a major component of firm’s plans for 2023 alongside its $500 million refinancing of 919 Third Avenue in April.
Terra Property Trust, a subsidiary of New York-based manager Mavik Capital Management, outlined plans this week to merge with Pasadena, California-based real estate investment trust West Asset Mortgage Capital Corporation. The resultant REIT, based in New York, will have approximately $1.2 billion in assets and will be led by TPT’s chief executive officer Vik Uppal as its chief executive and chair. The transaction is expected to close in the fourth quarter of 2023 and the combined company will be externally managed by a subsidiary of Mavik. The investment portfolio will be geared toward shorter-tenor, floating-rate and low loan-to-value commercial real estate loans with room for future equity investments as well.
The new bridge loan
Morgan Stanley, Wells Fargo, JPMorgan Chase and Bank of America this week launched BANK2 2-23-5Y2, the second commercial mortgage-backed securities conduit deal comprised entirely of five-year loans. The $675 million deal is notable for a lower-than-average loan-to-value ratio than other, similar CMBS deals completed this year, per a Fitch Ratings pre-sale report. But it is also important because five-year CMBS conduit loans are emerging as a new kind of bridge loan for capital-constrained sponsors, said Malcolm Davies, founder of Los Angeles-based advisory WAY Capital. “These loans have the ability to prepay within a 12-month window, rather than a six-month window, which means you have a four-year permanent loan that could act like a bridge loan,” Davies told Real Estate Capital USA this week.
2040 or bust
A June 22 report from Capital Economics is taking a long-term view of the recovery of the office market, with the London-based research firm projecting values are unlikely to recover before 2040. The firm’s calculus considers the persistence of remote working and its impact on net operating income and projects value declines of around 35 percent, like what the retail market saw prior to the covid-19 pandemic. Despite this glass half-empty outlook, office specialists are more bullish, particularly for class A or trophy properties. SL Green Realty Corp’s deal to sell a stake in New York’s 245 Park Avenue shows there is still money for the best assets and, moreover, remote working will ultimately return to the mean, market participants told Real Estate Capital USA.
The revival of the area around New York’s Pennsylvania Station will move ahead even after New York-based manager Vornado Realty Trust paused its office-heavy redevelopment plans in November last year. New York Governor Kathy Hochul said in a June 26 press conference she would be seeking new designs for the station. “We’re decoupling this from the prior plan,” Hochul said. Hochul noted later in the conference that while demand for office space is down right now, the state government believes this phenomenon will be temporary. In the meantime, Hochul said she wanted to build more housing – including around Penn Station – as the city and state continue facing shortages, especially in urban centers.
The industrial sector continues to be a beacon for lending activity with high occupancy tethering many debt providers’ convictions in the category. A June 26 report from Dallas-based manager Crow Holdings showed occupancy rates for multifamily, industrial and retail assets are all near or above their trailing 10-year average as of the end of the first quarter.
Rackind to leave Credit Suisse
Robert Rackind, the global head of real estate at Credit Suisse Asset Management, is departing the firm following its March acquisition by UBS. Affiliate title PERE reported June 23 that Rackind would be leaving the firm within the next three to four weeks per a staff-wide announcement. Rackind was a key figure behind CSAM’s further expansion into US commercial real estate debt. In February this year, he helped assemble a joint effort with Trinity Real Estate Investments for the $835 million purchase of the Diplomat Beach Resort in Hollywood, Florida. The February deal saw CSAM and Trinity assume the outstanding commercial mortgage-backed securities debt on the asset as part of its terms.
Loan in focus
New York-based JPMorgan Chase’s global alternatives business and Boston-based developer Boylston Properties last week secured a $150 million loan for a class A life sciences project in Massachusetts. Northwestern Mutual, a Milwaukee, Wisconsin-based financial services and life insurance company, provided the financing, which will be used to pay off a 2021-originated construction loan from Arkansas-based Bank OZK. Boylston Properties and institutional investors advised by JPMorgan Global Alternatives will own the complex. The loan highlights that, despite recent capital markets headwinds, the life sciences sector has seen some significant financings unfold in recent months. Bank OZK’s $265 million construction loan to Chicago-based sponsors Harrison Street and Sterling Bay for a California life sciences project is one example of this trend.