They said it
“The deal business is not totally in mothballs and these things start again”
Blackstone chairman and chief executive officer Stephen Schwarzman, talking to Bloomberg TV this week, about how the New York-based mega-manager had finalized large real estate deals in both Europe and the US in recent weeks
The sale of Signature Bank’s $33.2 billion commercial and multifamily real estate loan portfolio is edging closer to completion, with New York-based manager The Related Companies said to be in the pole position to acquire the entire portfolio. But what impact will the expected sale have on valuations and pricing, particularly for banks seeking to mark their portfolios? Likely very little, according to one local investor.
By his reckoning, the portfolio is too focused on the New York affordable housing space and will have significant support from the FDIC, making it an imperfect metric. That said, banks will have to start marking down their portfolios eventually, and the Signature Bank sale is a step in that process. “The pain is going to continue,” the investor added.
Atlanta-based manager Invesco this week expanded its industrial sector capabilities by acquiring a minority stake in Memphis-based infill industrial manager Faropoint. Bert Crouch, head of North America at Invesco Real Estate, told Real Estate Capital USA the firm has appetite for similar acquisitions in what it views as favorable sectors.
Faropoint has been one of the most active acquirers of small bay warehouses in the US since 2018, purchasing more than 400 warehouses and 20 million square feet of last-mile industrial assets in high-growth markets. “This type of differentiated access and execution can provide scalable outperformance over an extended period of time,” Crouch said. “That is our end game.” Watch REC USA‘s website later this week for more analysis of the deal.
London-based bank Barclays, Charlotte-based Bank of America and Toronto-based Bank of Montreal combined forces this week to originate a $294 million refinancing package for Chicago’s largest retail asset – the Woodfield Mall. The financing was first reported by newswire CRE Direct and will be used by a joint venture of Indianapolis-based manager Simon Property Group and Institutional Mall Investors to recapitalize the property.
To secure the deal, Simon and IMI – itself a joint venture between the pension California Public Employees’ Retirement System and Skokie, Illinois-based advisory Miller Capital Advisory – had to put up nearly $88 million to retire a $374.4 million loan set to mature in March 2024. The deal is further confirmation that premier retail assets have a place in institutional portfolios and can attract sizable capital. Woodfield Mall’s new financing includes a 10-year, interest-only loan with an interest rate of 6.85 percent.
Interest rate traders are projecting that the US Federal Reserve is likely to stop raising the benchmark rate and start cutting rates by May 2024, a positive sign for the stalled commercial real estate lending markets. According to Chicago-based data and service provider CME Group, projections based on 30-Day Fed Funds futures pricing suggest the middle of the second quarter could be the bright spot some debt executives have been waiting for.
Frankfurt-based manager DWS expressed a similar view in a webinar last week on which analysts said the US central bank’s monetary policy stance could start to soften in the next six months. “Our belief is that we have reached the terminal rate, so we don’t expect any more rate hikes as a baseline scenario. We would see first rate cuts starting in mid-next year,” said Johannes Müller, global head of research at DWS.
Fears of contagion in the global banking system from the impact of a potential collapse in real estate values, rumbling for most of this year, have been stoked yet again by the European Central Bank’s latest assessment. In its twice-yearly Financial Stability Review published last week, the ECB wrote “real estate firms are vulnerable to losses in the current environment, with consequences for the resilience of banks’ loan books.”
Large losses for real estate firms could also “significantly amplify an adverse scenario” and lead to “systemically relevant losses being incurred in the banking system.” Investment funds and insurers could subsequently be affected, wrote the bank.
Focusing on the US, the high exposure of regional banks toward commercial real estate have stoked more fears of contagion in recent quarters relative to UK and European markets, where the real estate lending pool is more nuanced and diversified among institution types.
Room to drop
Commercial real estate values still have more room to fall, according to a report published this week by PGIM Real Estate. But compared with the global financial crisis, the firm anticipates lower average value losses in the current cycle, with values expected to only drop up to 10 percent more before reaching their trough.
New York-based manager Monday Properties is planning a pivot toward the industrial sector after years of focusing primarily on the multifamily and suburban office sectors. Adam Carr, executive vice president of acquisitions and capital transactions, told Real Estate Capital USA last week the firm’s goal has been to diversify beyond its core competencies into other asset classes and geographies. “Last-mile warehousing and distribution teams have become significant users of real estate, partially due to growth in the e-commerce market,” he noted. The firm sees opportunities to invest in dislocated assets and plans to look for platform investment opportunities like the Faropoint deal to expand its portfolio further.
Loan in focus
Managers Affinius Capital and Clarion Partners this week provided a $158 million loan to refinance debt on Post District, a Class A mixed-use multifamily development in Downtown Salt Lake City. The sponsors, managers Bridge Investment Group and Lowe Property Group, will use the funding to pay off the existing debt on the project and fund future costs to complete the construction.
The complex is located at 570 South 300 West, spreading across four buildings that comprise 580 units. It also reused parts of abandoned industrial structures and was built over the site of a former Salt Lake Tribune distribution facility. Walker & Dunlop’s New York Capital Markets team arranged the financing. Sean Reimer, a managing director at Walker & Dunlop, said the refinancing will unlock the value of the sponsors’ opportunity zone platform, with the project driving the downtown Salt Lake City’s market.