Term Sheet: REC USA opens 2023 award submissions; PGIM, Northwestern originate $869m industrial refinancing; White House looks to boost residential conversions

Real Estate Capital USA opens for nominations for our third annual US commercial real estate debt industry awards; PGIM Real Estate and Northwestern Mutual join forces on a $869 million refinancing for a 25-asset Class A industrial portfolio; the White House looks to encourage more asset conversion pace to boost residential supply with a guidebook launch; and more in today’s Term Sheet, exclusively for our valued subscribers.

They said it

“Capital market malaise is crushing everybody” 

Michael Levy, chief executive of Crow Holdings, says a slowdown in the capital markets is hindering commercial real estate transaction levels broadly, as quoted in The Wall Street Journal.

Real Estate Capital USA Awards 2023  

Real Estate Capital USA is now accepting nominations for its 2023 awards. (Source: Getty)

Call for nominations 

Real Estate Capital USA has opened nominations for its third annual awards for US-focused commercial real estate lenders, advisers and service providers. 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 on 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.

What’s new

Batch financing

The industrial sector continues to command significant capital for deals and this week a single unnamed borrower added to the momentum with an $869 million refinancing package on a 25-asset Class A bulk industrial portfolio in 13 major US industrial markets. Milwaukee, Wisconsin-based manager Northwestern Mutual originated two separate financings – a $259 million loan and $195 million loan – for its portion of the deal, with Newark, New Jersey-based manager PGIM Real Estate originating the remainder with a $415 million loan. For top-ranked Real Estate Capital USA Debt Fund 40 manager PGIM, the deal continues a lending streak that was extended this week with a $25.9 million construction mezzanine loan for a Houston industrial asset and a $75 million refinancing package for a Miami multifamily asset.

Interval of increase

With many lenders absent from the market or adopting defensive positions, Dallas-based manager Pender Capital this week launched a closed-end fund with a $1 billion fundraising target to capitalize on private commercial real estate debt opportunities. Cory Johnson, co-founder and chief executive at Pender, told Real Estate Capital USA the firm intends to use the Pender Real Estate Credit Fund to help fill financing voids it sees in today’s market. Pender, a specialist provider of short-term, senior secured commercial bridge loans, will be using the interval fund to mirror its existing debt focus.

The firm plans to originate $10 million to $30 million lower mid-market senior bridge loans nationwide with an emphasis on Southern states and flyover regions in the US. Of additional note, the interval fund was converted from a Regulation D strategy in April this year to more directly target allocations from wealth management, registered investment advisers and retail investors. The fund’s minimum investment requirement is $10,000. Interval funds, a type of closed-end fund, are more often used by traditional mutual fund managers to let retail investors access private alternative asset classes on a limited basis.

Holding steady

Institutional investor allocations to commercial real estate remained steady in 2023, marking the first time in 10 years these levels did not rise, according to New York-based capital advisory firm Hodes Weill’s 2023 Real Estate Allocations Monitor.

The report, published this week, cited market uncertainty as one reason for the unchanged targets. Additionally, nearly 40 percent of this year’s 175 respondents reported being overallocated to the sector in 2023, up from 32 percent last year. But overallocation is expected to become less of an issue going forward, said Doug Weill, founder and co-managing partner at Hodes Weill. “The denominator effect is abating,” he explained. For more on the waning denominator effect and other findings from the survey, check out our coverage here.


Housing accelerator 

The White House is opening the doors to financing programs that would help market participants convert vacant office buildings into residential units. The Department of Transportation will offer low-cost financing for projects located near public transportation while the Department of Housing and Urban Development will expand the financing programs it already offers with an eye toward these conversions, according to a guidebook published this week. A key factor in the conversions will be increasing housing affordability and reducing emissions. New York’s Downtown submarket saw about 20 million square feet of office-to-residential conversions in the period following the September 11 attacks due to zoning reforms and tax incentives, and the guidebook laid out a similar scenario for the city and other major urban areas going forward.

Office risers

The White House’s proposal around office-to-residential conversions comes amid a flurry of third quarter reports detailing distress in the office sector as lower-quality buildings continue to feel the impact of a prolonged work-from-home environment. New York-based data provider Trepp, which tracked a 42.4 percent increase in the delinquency rate for commercial mortgage-backed securities through the end of the third quarter, found there were 199 office loans totaling $9.33 billion classified as 30 days delinquent as of the end of September. By comparison, Trepp tracked a total of $26.56 billion of delinquencies and a delinquency rate of 4.39 percent for the entire CMBS universe during the same period. With $103 billion of near-term CMBS maturities, Trepp is forecasting situations in which borrowers might need additional equity or rescue capital to get loans refinanced.

Data snapshot

Five-year low 

The average interest coverage ratio for private real estate has fallen to a five-year low, according to Green Street’s Debt Insights report published last week. Having ranged between 2.6 and 2.7 from 2019 to 2022, the ratio for private real estate dropped to 2.1 in 2023. Meanwhile, the ratio for REITs stayed above 5.4 since 2019.


CBRE captures Sera Global investment banking team 

Dallas-based manager CBRE this week hired the investment banking team from New York-based advisory Sera Global. The Sera team will build on what is already a stacked CBRE global investment banking roster that includes managing principal of capital advisers James Scott, who currently heads investment banking in the Americas. The team hire adds more offices for the Dallas-based firm in New York, London, Los Angeles, Toronto, Boston and other international business hubs. As part of the move, Sera chief executive Leo van den Thillart will now work as global head of investment banking at CBRE.

Sera, which rebranded in 2021, was previously backed by Toronto-based mega-manager Brookfield. “When we partnered with Brookfield, our goal was to create an industry-leading capital advisory practice,” van den Thillart said in an October 30 release. “As part of our next chapter with CBRE, we look forward to delivering on that vision through a truly integrated global investment banking team.”

Loan in focus

Industrial trio: PCCP originates $252 million loan for development in Fredrickson, Washington. (Source: PCCP)

Pacific North-best

Los Angeles-based PCCP last week originated $252.3 million of construction financing on behalf of Panattoni Development Company and Crow Holdings Capital for the development of a trio of industrial buildings totaling about 2.15 million square feet in Fredrickson, Washington. Dorian Farhang, senior vice-president at PCCP, said location was a key driver behind the manager’s decision to originate the loan. Frederickson – a Seattle-Tacoma-area city across from the Puget Sound – has become a solid destination for big-box distribution. “We believe these buildings will play a part in meeting large occupier demand,” Farhang added. New York-based advisory Eastdil Secured arranged the financing for Irvine, California-based Panattoni and Dallas-based Crow Holdings. The properties are slated for delivery in mid-2024.

Today’s Term Sheet was prepared by Randy Plavajka with Samantha Rowan, Evelyn Lee, Christie Ou and Shihao Feng contributing