Term Sheet: Proposed capital requirements mean more complexity for US banks; Ares on the hunt for loan portfolio acquisitions; Banco Inbursa financing adds to New York office conversion momentum

US regulators look to boost bank capital requirements in Basel III proposal; Ares’ senior leaders talk real estate debt opportunities during quarterly earnings; Banco Inbursa originates $220 million financing to fuel Silverstein, MetroLoft New York office tower conversion plans; and more in today’s Term Sheet, exclusively for our valued subscribers. 

They said it

“When people hear about problems in office buildings, it’s natural to extrapolate that to real estate very broadly” 

Mike Acton, head of research and strategy at Boston-based manager AEW, speaking to Real Estate Capital USA this week on how stress in the office sector is clouding a still-positive outlook for other commercial real estate asset categories.

What’s new

Bulking Up: US regulators have formally proposed more stringent capital requirements for US banks that could curtail lending momentum. (Source: Getty)

Revising requirements
US regulators are looking to boost bank capital requirements as part of Basel III reforms, a move that market participants fear could dampen commercial real estate lending momentum. The Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation this week proposed a set of capital requirements that could require banks to set aside 16 percent more capital for the loans they originate.

Industry trade groups including Washington, DC-based Mortgage Bankers Association and Commercial Real Estate Finance Council were quick to respond. Bob Broeksmit, president and chief executive of the MBA, wrote in a July 27 statement: “The large increases in capital standards will likely stunt macroeconomic growth and reduce banks’ participation as single-family and commercial/multifamily lenders, servicers and providers of warehouse lines and mortgage servicing rights financing.” The proposed changes are now in an open comment period until November 30, 2023.

Awaiting consolidation
Los Angeles-based manager Ares management is anticipating more commercial real estate debt opportunities as US regional banks face sustained volatility. “I would imagine that the bulk of the primary market opportunity for us is going to be in and around the commercial real estate lending and the commercial real estate opportunistic equity side of our platform,” said Jarrod Phillips, Ares’ chief financial officer, during its second-quarter earnings call.

Phillips noted the firm will be looking for potential loan portfolio purchase opportunities from any consolidation in the regional banking sector. The firm participated in one of three portfolio sales from Pacific Western Bank as the Beverly Hills-based lender sought to shore up liquidity prior to its July 25 acquisition by Banc of California.

Reading the tea leaves
The Federal Reserve last week raised interest rates by 25 basis points, setting a new target rate at 5.25 to 5.5 percent and suggesting any future increases this year will be data driven. Bryan Kenny, a principal at Los Angeles advisory Bandon Capital Advisors, sees a modest impact on the commercial real estate capital markets. “Short-term loans like construction, bridge and repositioning or renovation loans will continue to be the most affected, as they are priced over indexes more closely tied to the Federal Reserve’s decisions. Permanent financing, which is indexed over longer dated US Treasury bonds, will be less impacted,” he said. “It will take several more months of favorable news for commercial real estate fundamentals, as well as stable or declining borrowing rates, for dealflow to ramp up again.”

The Federal Deposit Insurance Corporation this week launched the long-awaited sales process for an $18.5 billion loan portfolio from New York-based Signature Bank. The loans include 201 performing loans tied to Blackstone, Brookfield Asset Management, Carlyle Group and Starwood Capital Group, according to a July 28 Bloomberg report. The sale is part of a larger, $60 billion sale of the bank’s loan portfolio. New York-based advisory Newmark Group was hired by the US regulator in March to handle the process.

August/September issue live now

The August/September 2023 issue of Real Estate Capital USA is live now and available in print or online here. The issue’s cover feature takes a deep dive into how relationship-based lending has evolved with the retreat of select national and regional bank lenders from the commercial real estate debt markets. It features perspectives from senior executives at JPMorgan Chase, AllianceBernstein and ACORE Capital among others. The issue’s insight and analysis sections also include features on Avrio Management’s ESG-centric investment approach, the rise in use of five-year loan structures and how negative leverage is becoming more common in today’s deal-making.


Correcting posture
San Francisco-based manager Farallon Capital Management this week closed its fourth US opportunistic real estate fund with more than $650 in capital commitments. The firm has a plan to originate more junior debt positions with the proceeds. Farallon said in a July 31 announcement it would use Farallon Real Estate Partners IV to target inefficiencies in the real estate market with a focus on industrial, multifamily, retail and office sub-sectors. Farallon will be aiming for equity, preferred equity and distressed debt investments. “We believe we are in the early innings of a widespread correction that will lead to attractive acquisition opportunities, particularly as it relates to working with owners in need of flexible and creative capital solutions,” said Josh Dapice, partner at Farallon.

Rescue mission
The window for deploying rescue capital could be short during the current wave of market volatility. Boston-based manager Taurus Investment Holdings represents one such firm looking to make moves in this space even if the window is brief. Chief executive Peter Merrigan described the opportunity as a short-term phenomenon. “Eventually, the margins will get squeezed, but right now it is a pretty attractive place to play,” he said. The focus comes as the markets reset and adjust to higher interest rates and volatile lending markets. Other borrowers – including New York-based developer ANAX Real Estate Partners and Los Angeles-based TruAmerica Multifamily – have also started targeting rescue capital opportunities amid the volatility.

Data snapshot

Still-slowing bank lending
New York-based data provider Trepp recorded a continued slowdown in commercial mortgage origination by banks during the first quarter of this year. In Trepp’s Anonymized Loan-Level Repository report published last week, the firm noted commercial real estate loan originations dropped to $3.5 billion in the first quarter compared with $5.1 billion in the fourth quarter of 2022.


Salt Lake City senior hire
JLL Capital Markets this week appointed Chris Gandy as senior managing director to lead its Salt Lake City Capital Markets team to oversee its investment sales and debt and equity advisory platforms. He will report to Jody Thornton, president of JLL Capital Markets for the Americas, and work alongside senior director Phil Brierley and director Cole Macadaeg, who currently focuses on investment sales in the region. Gandy brings 15 years of experience in the commercial real estate industry and has completed more than $12 billion in transactions throughout his career.

New at NewPoint
NewPoint Real Estate Capital last week hired Mike Ortlip as senior managing director to oversee its financing solutions through NewPoint’s Agency, FHA/HUD, Proprietary and third-party loan programs. Ortlip joins the New York-based real estate finance company from Grandbridge Real Estate Capital, a Charlotte, North Carolina-based equal housing lender and subsidiary of Truist Bank, where he was senior vice-president. During his career, Ortlip has originated more than $7 billion across a variety of loan structures and asset classes. He also has a track record in Fannie Mae, Freddie Mac and FHA/HUD executions.

Borrower’s Corner

Making (loan) assumptions
Excelsa Properties, a Bethesda-based multifamily specialist, took a different financing tack with its value-added acquisition last month of Concord Park at Russett, a 335-unit multifamily property in Laurel, Maryland. The manager assumed an existing fixed-rate, interest-only loan with an interest rate of 3.4 percent. The loan has another six years remaining on its term and the firm obtained another fixed-rate, IO loan with a similar duration to complete the acquisition, David Fletcher, a managing director, told Real Estate Capital USA. The financing has a weighted average interest rate of 3.7 percent and demonstrates the need for creativity in today’s market. The firm made the acquisition on behalf of two funds, which have acquired nearly $600 million of properties since 2019.

Today’s Term Sheet was prepared by Randy Plavajka, with Anna-Marie Beal and Samantha Rowan contributing