They said it
“High-fidelity, highly actionable data sets are going to be the differentiator for asset managers here over the next ten years”
John Stecher, chief technology officer at Blackstone, speaking this week on CBRE’s Weekly Take podcast about how private data sets will give managers an edge over their peers as artificial intelligence and technological capabilities evolve
What’s new
Pacific coast pipeline
Newark, New Jersey-based manager PGIM Real Estate has been a regular issuer of debt in California and this week extended its streak with a $143.5 million bridge financing package for two Los Angeles multifamily assets. The lender, which ranks near the top of Real Estate Capital USA’s Debt Fund 40, has funding for recapitalizations, acquisitions and now, bridge loans, in the state. The October 6 deal, tracked in REC USA’s weekly Real Estate Lending data snapshot, was originated via PGIM’s core-plus debt strategy for Los Angeles-based real estate investor and developer LaTerra Development. The financing will take out existing construction loans on LaTerra’s 246-unit Louise Los Feliz complex and 99-unit Charlie Santa Monica development as both assets complete their leasing phases. PGIM has been taking part in larger deals, especially where bank lenders have been sidelined by today’s elevated interest rate environment.
Industrialized workflow
KKR last week completed the sale of $560 million of industrial properties, selling more than 5 million square feet of properties in five portfolios to five different buyers. The transaction was discussed at last week’s ExpoReal conference in Munich, with market participants noting the sales show the equity and debt markets are more liquid for industrial assets than for other sectors. The sale primarily comprised assets from the $2 billion Real Estate Partners II fund and represented a sizeable chunk of the KKR’s 40 million-square-foot industrial portfolio. Lenders have remained focused on the industrial sector for generating fresh lending opportunities in the back half of 2023 despite the broad slowdown in transaction volume currently affecting all commercial real estate asset classes, according to Real Estate Capital USA‘s Real Estate Lending data snapshot.
Vintage distressing
Office assets across the US are showing their age and encountering more distress than their higher-quality and newer counterparts, according to a report published this week by New York-based ratings agency KBRA. The agency found older offices are struggling to retain and attract tenants, resulting in lower commercial real estate loan performance. The distress is most visible in cities such as Denver, Chicago, Philadelphia, Washington DC and Houston, which collectively account for the highest office distress rates. KBRA noted it will take creative thinking, redevelopment planning and financial assistance on a municipality-by-municipality basis to reduce distress in office properties financed via CMBS and beyond. Real Estate Capital USA has explored concerns around aging office assets in past editions, though more clarity is now emerging on the scope of distress as higher interest rates impact business plans.
Trending
Hoteling office
Oakland, California-based real estate investor and manager Monarq entered the conversation around Bay Area’s office conversions this week with the exploration of an office-to-hotel redevelopment project in its headquarter city. Per a San Francisco Business Times report, the manager outlined initial plans to convert the 14-story, 96-year-old office building at 1624 Franklin Street into a hotel. The firm acquired the property in 2019 for $24.8 million and currently maintains a 65 percent occupancy rate at the Class B building. Belal Kaddoura, development manager at Monarq, said Class B and C offices are encountering more troubles in the Bay Area at present. “Everybody is having these conversations,” Kaddoura told the SFBT. “At a time like this, it’s about taking a step back and asking what is really the highest and best use for the city, the owner, the space itself.”
Data snapshot
Office in the crosshairs
The commercial mortgage-backed securities special servicing rate rose by 20 basis points in September to 6.87 percent, fueled in part by a 60-basis point increase in troubled office loans, according to a report published this week by New York-based data provider Trepp. With a rate of 8.34 percent, this marks the first time the sector has seen a special servicing rate of more than 8 percent since May 2017.
People
Colliers coastal expansion
Toronto-based broker Colliers this week expanded its debt financing arm, Colliers Mortgage, with a focus on the West Coast. The firm appointed Jonathan Lee and Shahin Yazdi as executive managing directors in Colliers’ Los Angeles office on October 11. Their appointments are intended to help grow the firm’s debt and equity production on the West Coast and beyond. The team will report to Colliers head of national production John Randall. Lee and Yazdi both join from Los Angeles-based capital markets advisory George Smith Partners. Yazdi worked at GSP from June 2007 onward, per his LinkedIn profile, and Lee worked at the firm from January 2006 onward, per his profile.
Borrower’s corner
Logistical thinking
Altre, a Sao Paolo-based manager with offices in New York, is expanding its commercial real estate platform in the US via equity and debt investments in the industrial, multifamily and logistics sectors. While the firm is focused primarily on equity investments via partnerships with best-in-class operators, Haig Apovian, chief investment officer, said this week in an interview with Real Estate Capital USA that Altre is also considering exposure to the credit markets. “We see that as an opportunity in terms of risk-return and we see in structured deals rather than holding only the equity, if we find the right opportunity,” he said. While stateside investors remain defensive, market analysts have told REC USA they expect an influx of foreign investment into US real estate equity and debt markets. The perceived safety of US real estate has made it a more compelling investment opportunity for Altre and other international managers.
Loan in focus
Tripling down
New York-based manager Madison Realty Capital is significantly adding to a $34 million bridge loan originated last year for a pair of multifamily developments in the Koreatown neighborhood of Los Angeles. The firm last week increased the financing to $115 million, more than tripling the amount it is lending to a joint venture between Los Angeles-based developer Harridge Development Group, New York-based manager Silverpeak Real Estate Partners and San Francisco-based manager Urban Green Investments. The financing will fund the conversion of a mixed-use asset at 3240 Wilshire Boulevard and a nearby ground-up mid-rise multifamily development at 684 New Hampshire Avenue. Upon completion, the project will feature 277 apartment units and more than 30,500 square feet of retail space. Madison’s upsizing of its origination marked a rare occurrence in a market dominated more by one-off construction loans and gap-filling bridge loans.
Today’s Term Sheet was prepared by Randy Plavajka with Samantha Rowan and Shihao Feng contributing
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