They said it
“There will be significant defaults, buildings being taken back by the lenders, but that creates opportunities”
Bill Rudin, chief executive at Rudin Management Company, speaking on CNBC’s Squawk Box this week about how stress in the commercial real estate landscape is driving fund launches and investor interest across US regions.
What’s new?
Appetite for acquisition
Kayne Anderson Real Estate this week acquired a $1.3 billion portfolio of medical office loans from Synovus Bank, continuing a small but growing pattern of bank loan selloffs as institutions look to create liquidity. The Boca Raton, Florida-based manager picked up 106 floating-rate mortgages across 308 buildings in the September 18 deal with the Columbus, Georgia-based regional bank. Andrew Smith, a senior managing director and the head of real estate debt at Kayne Anderson, told Real Estate Capital USA the manager sees opportunity going forward to carve out similar deals where banks may need liquidity in the current capital-constrained market.
“Our view is that all else being equal in terms of risk profile and comfort with the collateral and that investment is making sense, generally we view bigger as being better,” Smith said of the loan acquisition opportunities the firm would prioritize. The Kayne Anderson-Synovus deal tracks similar bank loan selloffs seen at McLean, Virginia-based Capital One and Beverly Hills, California-based Pacific Western Bank prior to its acquisition by Banc of California.
Pause, but concern
The Federal Reserve this week held off on raising interest rates further, though market analysts still see potential for another 25-basis-point hike in the future should the US central bank deem it necessary. The Federal Reserve has increased rates 11 times since March 2022, lifting the federal funds rate range to 5.25-5.5 percent throughout that period. The elevated rate levels still leave some US commercial real estate lenders in a bind or sidelined altogether.
Lisa Richmond, principal of the real estate industry at Minneapolis-based accounting firm CliftonLarsonAllen, told Real Estate Capital USA further rate hikes would continue to dampen regional bank lending, especially if there are additional increases. Richmond said reactivity in the commercial real estate space has started and will further recover though some segments – including office and retail – will struggle compared with more preferred opportunity areas such as industrial and multifamily. “We could expect commercial real estate lending to recover overall as office and retail assets start to stabilize,” she noted.
Extra credit
New York-based private markets mega-manager Blackstone is prioritizing growth for its credit business. Stephen Schwarzman, chairman and chief executive at Blackstone, took to LinkedIn last week to share his expectations of expanding the firm’s debt business to reach $1 trillion in assets under management within the next decade. He announced the formation of Blackstone Credit and Insurance, or BXCI, as part of the initiative.
The private credit target includes real estate credit, which has been a steady inflow collector within Blackstone’s wider business in recent quarters. CalPERS, the biggest US pension fund, confirmed last week its biggest single commitment of 2023 with a $1.5 billion allocation to Blackstone Real Estate Debt Strategies V. Data from affiliate publication PERE [trial or subscription required] shows BREDS V reached a third closing in June, amassing $3.7 billion of commitments to date against an $8 billion target.
Trending
Endurance test
Marathon Asset Management is looking to bid on Signature Bank’s $33.2 billion commercial real estate loan portfolio, according to the New York-based credit manager’s chief executive Bruce Richards. Speaking on Bloomberg Television this week, Richards said the most sizable distressed debt opportunity is in the commercial real estate market at present. Marathon’s interest in the loan portfolio, which is primarily geared toward affordable multifamily assets in New York City, comes two weeks after the Federal Deposit Insurance Corporation opened the marketing process for the New York-based bank’s loan book. Led by advisory firm Newmark, an offering teaser portfolio noted that 12 of the available 14 pools will be open to all eligible buyers with the remaining two all-cash pools limited to bids from FDIC-insured banks.
Against the grain
A maturing $38 million commercial mortgage-backed securities loan on a Class B office building in Philadelphia last week achieved a 30 month-extension – a rare feat in a time where capital and options are scarce for office deals. The mortgage on One South Broad, owned by New York-based manager Aion Partners, is part of JPMorgan’s JPMCC 2012-LC9 CMBS. It matured in December after anchor tenant Wells Fargo exited its space. But the sponsor was able to recapitalize the property in a deal brokered by New York advisory Iron House Management. The extension was able to happen because Aion was able to fill its vacancies and once again demonstrate cash flow at a well-located asset which is close to Philadelphia’s City Hall, Michael Betancourt, founding partner of Aion, told the Commercial Observer in a story published this week.
Data snapshot
Fair forecast
The Pension Real Estate Association’s Consensus Forecast is offering a glimpse into what could be a brighter day for the commercial real estate sector, in a survey published last week. Across the 27 surveyed firms, respondents said they expect total returns in the NCREIF Property Index – the primary index used by US institutional investors to analyze commercial real estate performance – to turn from negative to positive in all sectors except office next year.
People
Mount Street’s US push
Mount Street Group, a London-based loan servicing and asset management company, this week hired Stephanie Petosa as a managing director and head of US business development and client relations as part of a move to expand its roughly $33 billion servicing portfolio in the region. Petosa joins the firm in New York and will report to Paul Lloyd, co-founder and chief executive. Most recently, Petosa filled a similar role at New York law firm Dechert and spent nearly 20 years at Fitch Ratings, holding senior roles in the New York rating agency’s commercial mortgage-backed securities group.
Ricks to retire from Kennedy-Wilson
Mary Ricks, the president of Los Angeles-based manager Kennedy Wilson, last week announced her retirement after a 33-year tenure at the company. The firm has named Matt Windisch, a former executive vice-president, to fill the role Ricks leaves open and tapped Mike Pegler, the former head of UK, as president of Kennedy Wilson Europe. During Ricks’ tenure, the firm established strategic investment platforms in the UK and Ireland. Ricks will work with Kennedy Wilson’s US and European debt and equity teams to ensure a smooth transition. In the US, Kennedy Wilson has been more active in the commercial real estate debt market in recent months through loan book acquisitions and related hiring efforts.
CBRE promotes Millon
Dallas-based advisory CBRE promoted James Millon as president of its US debt and structured finance for the US. Previously, Millon was the vice-chair and co-head of US large loans. Tom Traynor, co-head of US large loans, will assume Millon’s prior duties. Millon’s mandate includes working to grow the firm’s debt and structured finance business across the US. Over the past two years, the firm has arranged more than $70 billion in loans.
Launch pad
Room to explore
San Francisco-based manager TPG is targeting commercial real estate debt with the launch of an opportunistic strategy this week. The firm did not disclose a target size for TPG Real Estate Credit Opportunities in its September 19 Form D filing. TPG currently manages $19 billion in real estate assets and invested $6 billion in the category since the 2009 inception of its real estate platform. The credit opportunities fund will be the second commercial real estate debt fund on TPG’s roster, which already includes the TPG Real Estate Finance Trust (TRTX), a vehicle with about $5 billion of assets under management that is focused on originating and acquiring commercial mortgage loans and other North American real estate debt investments.
Loan in focus
Data center development
Toronto-based mega-manager Brookfield expanded its commercial real estate debt portfolio this week with a $200 million construction financing package for Dublin-based manager Chirisa Investments to develop a data center in Chester, Virginia. The September 18 deal, confirmed to Real Estate Capital USA by a Brookfield spokesperson, was funded by one of Brookfield’s infrastructure vehicles. The funding will be used to outfit a 242,000-square-foot turnkey data center at 1401 Meadowville Technology Parkway and will be fully leased to New York-based information technology specialist CoreWeave. Of note: the foundation of the property has already been completed and Brookfield’s construction loan will fuel tenant buildouts for CoreWeave. Data center development and acquisition opportunities have steadily attracted debt capital from both real estate and infrastructure managers in recent quarters as firms look for more loan portfolio diversification.
Today’s Term Sheet was prepared by Randy Plavajka with Samantha Rowan and Evelyn Lee contributing
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