Brian Degnan

WASHINGTON, D.C. - Greater Washington’s economic outlook at standstill with ‘frozen’ commercial real estate The economic outlook for Greater Washington continues to show a region locked in stasis by a chilled commercial real estate market. At the same time, a handful of data points offer a glimpse of hope for the near future. That’s the latest finding from CBRE’s REVIVE Regional Vibrancy Index charting the D.C. area's economic strengths and weaknesses in the wake of a pandemic that changed the core of how the region operates, from the shift to hybrid work to the evolution in how people get around. CBRE and the Washington Business Journal are partnering to produce the monthly index, tracking changes throughout 2024. The index in May fell 1.3% from the previous month to 65.5 out of 100. The data lags by about a month. The most recent index, however, sits 12.2% below where it was a year ago in May 2023. Like in April, the score continues to be weighed down by a growing intensity of distress in the region’s commercial real estate markets, which face higher interest rates and softer demand. Valuations of commercial space, especially downtown offices, have also fallen dramatically, leading to fewer transactions. Office foreclosures in the first half of 2024 have already exceeded the total number recorded in 2023, CBRE reported, fueled primarily by rising vacancy and upcoming debt maturities. “Right now the region’s commercial real estate sphere just remains generally frozen and challenged,” said ​​Ian Anderson, CBRE’s senior director of research and analysis. The commercial real estate component of the score is at the lowest number the firm has ever recorded, and it is likely to remain stagnant. A lack of commercial real estate transactions is also constraining the budgets of local governments, including suburban jurisdictions, by depriving them of tax revenue. That could hold up some initiatives that governments may have otherwise pursued had the tax dollars been available, Anderson said. “That’s a hard thing for people to get a handle on, but it’s going to be something we’re just going to have to deal with over the next couple of years,” he said. The good news? The real estate industry has likely absorbed what Anderson believes to be the brunt of higher interest rates and their effects on values, especially in retail, industrial and multifamily. In the fall, he said, there’s potential for investors to move back toward new commercial real estate investments as they settle deeper into this new normal. But the caveat is that some forthcoming sales activity will not necessarily reflect positive data points. Transactions, for example, could come from multifamily owners unable to sustain higher interest rates. For more, click on the link below. #escrowcredirt #newmarktitleservices https://lnkd.in/eaztc54N

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📣 Attention CRE professionals! 📣 There are jewels in this portfolio. Good luck identifying the prized trophy New York City commercial real estate assets in Meat Packing, West Village, Union Square and other prime neighborhoods in Brooklyn. 🏦 Republic First Bank, a prominent player in the commercial real estate lending space, has made a surprising move. The bank, known for issuing billion-dollar loans, has decided to shutter its CRE lending division. 💡 This strategic shift raises questions about the future of CRE lending and the potential impact on the market. Will other banks follow suit, or will they seize the opportunity to fill the void? 🔍 Stay tuned as we delve deeper into this development and its implications for the CRE industry. 💼 In the meantime, let's connect and discuss how this news might affect our respective roles in the industry. Your insights and perspectives are always valued! #CRE #RealEstate #Banking #CommercialLending #IndustryNews

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RELPI | Interests Aligned® hitting NYC meeting with Community Member Scott Arden CRE, Sentinel Real Estate! "Interests Aligned ®" is not just a tagline, it's what we do. For information about to get involved with the growing RELPI | Interests Aligned® Community, please contact us at [email protected]. For Investor and Consultant engagement, please contact Leigh Ann Hochman, Managing Director, Investor Relations at [email protected]. #RELPI® #Community #InterestsAligned® #modernmedia #relpiselfie

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Here are the development project types that are trending today. I.e. here is where we (RD Advisors) are seeing the most demand in our home market of Boston: - Pre-Development loans for larger projects (mid-scale 10-100 unit developments with approvals however need not fully permitted so one step before construction loans) - ⁠Office to Resi conversions: Providing capital to acquire the ‘bricks’ so the developer can complete process with the City.  - ⁠Suburban residential housing in good school districts. This market is still on fire (hot hot) with very little supply and substantial demand. Sale prices under $2m for renovated projects in the best suburbs feel rare.  - ⁠Condo projects still have demand however the pressure is off as rates taking a bit out of first time buyer market. (That said there is there is demand, and not that much supply).  - ⁠High End Residential Condo is mixed - the best projects are selling out - however projects that missed the mark on design and specs are slowing down, we’re not involved in this sector in any meaningful way however it’s interesting to watch.  - ⁠New rental projects barely pencil. Therefore very little new supply coming: The result is that it’s pushing up rents on existing rentals Where are the developers out there seeing the most substantial demand? #BostonRealEstate #RealEstateDevelopment #RealEstateInvestment #Boston Marc Savatsky, Tom Colleran, J. Peter Vanko, Adam Dunn, John F. Fish, Sean Rose Scott Emrich Talia Cannistra, AIA Paul Passacantilli Chris Fitzpatrick Tyler Winder Nick Schiffer 🔨 Evan Smith

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Lender Takes Control of DC Office Building Starwood, the lender, placed a $44mm credit bid for 1200 K St. NW and plans to convert the building to apartments. This highlights an interesting point about office-to-residential conversions: While an office-to-residential conversion may not "pencil" for a new buyer—meaning the returns aren't sufficient—the calculus changes for a lender. The lender faces two choices: 1) Sell the building at a significant loss. 2) Convert to residential, even if it's not cost-effective, to preserve value. By converting to residential, the lender may cut their losses compared to selling the building as office space. Lenders may opt to convert to residential to preserve value, unlike new buyers who may find the conversion financially unfeasible. Plus, there's a much more liquid multifamily market to take out the lender as apartments use-case in scenario 2.

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Rent control does not work. New York City Community Bank has had a 990% spike in multifamily delinquency tied to rent controlled apartments. With current losses projected at $1.5B. The bank is currently selling off assets to offset losses. I'm a huge fan of affordable housing but rent control is not the answer. In 2019, NYC passed the Housing Stability and Tenant Protection Act. The law primarily affects apartments built between 1947 and 1973, which encompasses around 1 million units. The law severely restricts a landlord's ability to raise rents, charge late fees or evict existing tenants. With increased timelines for non-payment, an inability to charge late fees for evicted tenants, and punitive charges for illegal eviction. The law also curtailed some loopholes by which property owners had previously been able to remove buildings from the program. Loopholes which were often priced into their valuations. Which leads us to where we are now. With $1.5 Billion in losses and several hundred million more projected as the interest rates on the notes reset from say 3% to 7% even as the actual Net Operating Income (NOI) may have actually decreased. Commercial real estate loans are amortized for 20-40 years depending on asset type and loan type. However, the debt is only locked for 5-10 years (with a few exceptions). Theoretically, NOI will have increased sufficiently to offset the increases in interest rates and allow for the takeout of the existing debt, but in this case it's not. With expenses actually outstripping allowable rent increases. While the article focuses on the severe economic losses at the bank level. Losses that almost led to the bank's collapse earlier this year. It does not discuss the real impacts on the properties themselves. As I mentioned the other day, banks are generally not eager to foreclose on commercial real estate. It forces them to book the actual losses. Which means that many of these buildings have likely been in trouble for years. During that time, the owner would have no incentive to do any repairs or upgrades. So yes, the people living in those apartments wouldn't see major increases, but they may also not have working toilets. Further, the buildings, which are older, would likely start to degrade overall. When you underwrite a loan on an older building you pro-forma in more capital expenses, because old pipes break, sewer lines fail, brick has to be tuck-pointed, and repairs may involve lead based paint or asbestos remediation. The overall result of the "Tenant Protection Act" is crumbling buildings, failing banks and substandard living conditions. https://lnkd.in/echg8xXV

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Washington Federal Bank selling its multifamily loan portfolio to Bank of American for $2.9 Billion Washington Federal Bank is selling 2,000 multifamily loans with a current unpaid principal balance of $3.2 billion to Bank of America for about $2.9 billion in a bid by the regional lender to scale down its exposure to the commercial real estate sector, according to a regulatory filing by parent company WaFd. Once the deal is closed, Bank of America plans to enter into a structured transaction or loan sale with one or more funds of Pacific Investment Management, according to the filing. Regional banks have been under increased scrutiny by regulatory authorities worried about their exposure to troubled commercial real estate loans. In particular, the Federal Reserve has categorized multifamily with office as being the more concerning areas of CRE markets. Another distressing data point for the sector: multifamily showed the biggest transaction decline, at 50%, by the end of 2023, according to MSCI. “Multifamily now is in the crosshairs,” said Starwood Capital Group CEO Barry Sternlicht, at the recent Milken Institute’s annual conference, adding that he sees a “huge distress cycle” coming. “This is really a balance sheet crisis. The Fed is very aware that it has a teetering regional banking system that loads about $700 billion, that are real estate loans [originated] in a low interest rate environment, and the small borrowers are going to have a hard time refinancing.” #escrowcredirt #newmarktitleservices

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Boston declared a state of emergency for heat for the next 3 days. If you think about the interconnectedness of the global economy, the disruption of business in one location causes a domino effect across multiple industries and markets, even if that disruption lasts only a few hours. We are not even talking about major catastrophes, but even simple challenges like a train line being delayed or a pipe bursting in the financial district can cause an amazing ripple effect whose impact may not be understood for days, weeks, or generations. Both awesome and frightening if you really think about it. Fellow Boston peeps, be careful out there. LAND AND SEA REAL ESTATE, INC. JoAnn Kalogianis Spaneas #business #heatwave #macroeconomics #butterflyeffect #industry #realestate #boston

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So how many of you/us Real Estate Developer types can continue doing business after a $1B default much a $1M default. This is the classic double standard, different strokes for different folks. https://lnkd.in/gTrfGPyn

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In a recent article published by the Tuck School at Dartmouth and supported by the research of ghSMART, the overall ability of CEOs has fallen since the global financial crisis in 2008. The study finds that more recently appointed CEOs are less strategic and creative, and more execution oriented. Per the authors, these CEOs are not as charismatic and interpersonally oriented, but rather operationally focused. Is this a “reaction to the moment,” where running a public company, in particular, has recently become less attractive due to global uncertainty, greater transparency, etc. It is, however, counter to what we seek in our CEO candidates, where we continue to focus on those executives with a blend of strategic skills and leadership skills. 

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In this episode of No Cap by CRE Daily, Alexander B. Gornik and Jack Stone sit down with Vikram Raya, CEO and co-founder of Viking Capital. Vikram shares his journey from a practicing cardiologist to acquiring $800M+ in multifamily assets. Plus, why specialized professionals like doctors often aren’t good investors. Listen to the full episode 🔗 https://lnkd.in/eyvhg-zF #nocap #credaily #podcast #vikingcapital

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📈 Haverhill, MA v. Methuen, MA: April 2024 Real Estate Market Comparison 📉 Year to Date Data Comparison (January through April) 🏡 Single-Family Properties 🏡 ➡️ Closed Sales Methuen: 79 in 2024, up from 68 in 2023 (+16.2 percent) Haverhill: 66 in 2024, down from 73 in 2023 (-9.6 percent) ➡️ Median Sales Price Methuen: $575,000 in 2024, up from $497,500 in 2023 (+15.6 percent) Haverhill: $535,000 in 2024, up from $500,000 in 2023 (+7.0 percent) https://hubs.la/Q02yw-mr0 #Haverhill #HaverhillMA #Methuen #MethuenMA #HomeBuying #HomeBuyer #RealEstate #BuyerAgent

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Want more details about the Knakal Map Room? In this clip from a recent podcast, I share BKREA's hub of real estate information in Manhattan. The Knakal Map Room houses extensive data on development projects, construction plans, recent sales, and more, providing a comprehensive view of the market. Yes, it's analog but there is something to be said about having a physical map you can highlight, mark up, and manipulate that is very satisfying. Special thanks to Jamie Bateman from the From Adversity to Abundance Podcast for having me on his podcast. Get the link to the episode in the first comment. #bkrea #nyrealestate #bobknakal

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🚨 New York’s Housing Crisis: A Post-421-a Landscape 🚨 More than two years after the expiration of the 421-a tax incentive, developers and lawmakers are navigating new territory with the introduction of 485-x, passed in late April. The backdrop? A severe housing crisis in NYC, where rents have soared to all-time highs, vacancy rates have plummeted, and the housing pipeline is nearly dry. 🏙️🏢 While 485-x aims to address affordable housing needs by requiring permanently affordable units and setting lower rent caps, developers argue that it misses the mark. They say that the higher wage mandates and restrictions will limit the incentive to build large-scale projects, the very thing needed to tackle NYC’s housing shortage. 🏗️ As the city grapples with these challenges, the question remains: Will 485-x be enough to unlock new development, or will it further complicate the path to resolving the housing crisis? 🤔 ________________________________________________________ Are you buying commercial or residential property in New York? The title insurance company you choose to use actually matters a great deal! And remember that it’s your RIGHT to choose the title insurance provider you want to work with. Read ’Top Reasons New York Homebuyers Can And Should Choose Their Title Insurance Provider!’ here https://lnkd.in/efKNzZuv. Questions? Contact us at [email protected] or (516) 741-4723. Hallmark Abstract Service…You Buy Real Estate, We Protect It! #NYCHousingCrisis #AffordableHousing #RealEstateDevelopment #485x #HousingPolicy #ConstructionIndustry #NYCRealEstate #421a #Multifamily #CRE #commercialrealestate #government

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Anatomy of a CRE office loan portfolio extension. 🍀 It ain’t pretty. 🍀 “After pandemic’s biggest office default, Columbia Property Trust scores lifeline. PIMCO-owned landlord nabs new terms on $1.7B in debt.” Here’s the quick recap according to The Real Deal. 🍀 7 office buildings in New York, Boston, Jersey City and San Francisco 🍀 valuation dropped by 30% citing leasing difficulties across the portfolio 🍀 maturity date extended to July 2025 with in a six-month extension option 🍀 interest rate on $485 million in subordinate A-notes cut to near-zero 🍀 interext rate on the $160 million B-notes to 0 percent 🍀 defers payments on the $125 million mezzanine debt 🍀 the workout leaves $930 million in debt that is accruing significant interest From The RealReal via Bisnow: “Columbia, in negotiations with Goldman Sachs, Citigroup and Deutsche Bank, nabbed an extension on the $1.7 billion CMBS loan that bumps its maturity date to July 2025 and bakes in a six-month extension option, according to Morningstar Credit.” “Seven office buildings — three in New York, two in San Francisco, one in Boston and another in Jersey City — collateralize the debt. Their valuation was slashed by 30 percent.” “Critically, the modification cuts the interest rate on $485 million in subordinate A-notes to near-zero and the $160 million B-notes to 0 percent, as well as defers payments on the $125 million mezzanine debt, according to commentary from Morningstar Credit and ratings agency KBRA.” “As of September, Columbia had quit making payments on the B-note and mezzanine debt, according to KBRA.” “The workout still leaves the office landlord with $930 million in debt that is accruing significant interest.” “The portfolio, valued at $2.3 billion in 2021, was reappraised last month for $1.6 billion. The 30 percent reduction reflects the leasing difficulties across the portfolio.” “Columbia’s collateral for the $1.7 billion loan includes 315 Park Avenue South, 229 West 43rd Street and 245-249 West 17th Street in New York; 201 and 650 California Street in San Francisco, 116 Huntington Avenue in Boston and 95 Christopher Columbus Drive in Jersey City.” 🍀 As generic office building loan extensions pile up on new loan maturities, are lenders building a bridge to a train wreck? 🤔 The key phrase here is ‘leasing difficulties’. It’s not looking good so far. 🍀🍀🍀

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INTEREST RATE SPECTATOR CRE Financing Rates, Loan Programs & News -Founded 1985 - September 3, 2024 Fall 2024 Finance-A Thon! MARKET COMMENTARY Borrowers have been waiting, extending expiring loans and hoping for a drop in interest rates. About 1/3 of all expiring loans last year were extended into this year and this fall we will see a record number of additional loan expirations. Early bird gets the worm... It has been a quiet year in financing with low market volume. That is all about to change dramatically.... Intensifying the competition for loan dollars is the fact that a decent portion of each lender's loan quota for 2024 has already been expended. Our advice is simple.... get out there now! Before.... The lenders get swamped The loan quotas are expended Recessionary factors have more impact - (raises rates) Values start to decline further Occupancies decline The Fed will meet September 17th & 18th They will go down 25-050 bpts It takes a couple weeks for a deal to get into the market and exposed to the right lenders. At that point, the Fed will make the rate adjustment as your loan quotes are coming in...perfect timing! Don't wait until rates are down, you'll be at the back of the line! INTEREST RATES The benchmark 10-year Treasury was at 3.95% at the beginning of the year. The 2024 high was 4.70% in April. 5.00% was the highest we've seen in this rate cycle. Now we are at 3.86%. If Treasury moves in sync with the Fed, 10-year could be at 3.35% mid-month. That pencils out to commercial loan rates of from 4.85% to 5.50% Rate Reality Check, in the last 5 years... We saw the 10-year drop as low as 0.70%, as the Pandemic arrived and shutdown hit. Just prior to that 10-year was at 3.00%. Rates were back to 3.00% by end 2022 as Pandemic faded and inflation hit. This implies that lowest we'll get to, without a strong recession, is about 3.00%. If Fed goes down 50 bpts, we'll be within 50bpts of the Pre-Pandemic lows. No one ever actually locks in a rate at the lowest lows, never seems to happen. So we may soon be within 50 bpts of the new rate lows. Remember, rates aren't going down because inflation is beaten, they are going down on recession concerns.

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CRE. A measured article (for once) on the CRE market. Perhaps the sky is not falling, there are problems, but can we extend our way out of it. I was fortunate to have a few personal quotes in this one. "There have been temper tantrums, as investors suddenly call it quits on bank stocks they owned for years, and CEOs defend the health of their CRE loans. There's been yawning, since doomsdayer predictions of an imminent collapse haven't yet panned out."  "While the hit to CRE may handicap lenders, it won't "destroy everything,"" "Bankers seem encouraged that the narrative is turning in their favor. There's been a broader recognition that not every player has the same strategy. Those lenders that are in bigger trouble are the ones that took bigger risks." "The No. 1 thing to understand is that commercial real estate is a really big, heterogeneous market," said Jamie Woodwell, who heads CRE research at the Mortgage Bankers Association. "Each and every property and loan is really unique." "Look, it's not a great outcome, but there's nothing in there that I think is going to surprise us" "Densely urban Class B and C properties — graded on a descending letter scale that corresponds with the quality of the building — are generally performing the worst among CRE assets, said John Toohig, head of whole loan trading at Raymond James. But in the suburbs, Class B and C buildings are "not doing as poorly," and Class A buildings are holding up "very well," he said." "Toohig, as a loan trader, said he's hearing about lots of interest from private credit funds, which are "licking their lips" at problem properties." "The number of phone calls we are getting from private credit saying, 'Hey, show me all your distressed portfolios,'" Toohig said. "There's a bunch of money out there hunting for that distress and so far, it just hasn't come. So there'll be plenty of buyers for this. Right now, there are just not as many sellers." "So far, though, there aren't many clear markers about the extent of the bleed in CRE. That is to say: As banks have done what they can to avoid foreclosing and risk selling properties at a loss, there is still a lot of price discovery to be done. My comment outside of the article - so long as this economy holds - so far - extend and pretend has worked. Strategic sellers remain active. Forced sellers are few. Hat tip to Catherine Leffert / Polo Rocha #banks #creditunions #lending #credit https://lnkd.in/d2-bckGW

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