Ned Hennessey

The value of distressed assets in the #CRE marketplace continued to grow in the U.S. into Q3'24. Still, the ramp up is not as rapid as that seen following the GFC as there are different forces at play in the current market. Read more about the source of distress and a chart on comparisons to the GFC by my colleague Alexis Maltin here: http://ms.spr.ly/6049WR4GN MSCI Real Assets

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Foreclosure: Brand new multifamily asset. 110 units delivered in 2022. 400 Florida Ave. NE in Washington DC. The $44.4mm mortgage ($404K per unit) was recently sold. It is unclear if the note sale transacted at or below par. Current NOI is ~$1mm, and stabilized is estimated to be ~$2mm. Even at the $2mm of NOI, debt yield is only ~4.5%. Assuming the $2mm stabilized NOI is accurate, the value of this asset is likely in the low to mid $30mm range. The foreclosure sale bypasses the Tenant Opportunity to Purchase Act—a law in DC that grants tenants the right of first refusal to buy their property, which would normally be activated during an open market sale. Foreclosure auction scheduled for May 23rd.

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📢 Big News in Real Estate! KKR Makes a $2.1 Billion Bet on Multifamily 📢 Global investment firm KKR has purchased a major apartment portfolio from Lennar's Quarterra for $2.1 billion. More signs that everyone is getting comfortable with the current enviroment: 💼 Deal Overview: KKR bought 18 Class A multifamily properties with over 5,200 units. The properties are located in high-growth markets across the US, including coastal and Sun Belt regions. This is KKR's largest investment in the apartment sector. 📊 Market Conditions: Despite a 40-year high in apartment completions in 2023, KKR is confident in the long-term fundamentals of the multifamily sector. The recent surge in supply has affected valuations and rent growth, creating a buying opportunity for well-capitalized investors. 🏢 Property Details: The portfolio includes a mix of high-rise and mid-rise developments. Ovation Apartments in Seattle, built in 2022, has seen rents fall by 5.5% over the past year. 📈 Strategic Insights: KKR plans to manage the assets with Carter-Haston, MG Properties, and Dalan Real Estate. The firm believes transaction activity is picking up after two years of dislocation in commercial real estate markets. 🔍 Historical Context: Quarterra, originally Lennar Multifamily Builders, faced operating losses due to overbuilt markets and slowing rent growth. The company first considered a sale in 2022 but pulled back due to unfavorable market conditions. 💡 Future Outlook: KKR's recent multifamily market report is optimistic about acquiring high-quality properties at discounts through 2024. The firm's scale, relationships, and local knowledge provide advantages as a buyer. This significant transaction underscores KKR's confidence in the multifamily sector's potential for long-term growth and stability. #Colliers #Pittsburgh #MoreIn24 #ThriveIn25 #ClosersCoffee #ColliersCapitalMarkets https://lnkd.in/edX-fBXR

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Below is a summary of the ICSC Boston panel “Capital Markets: Predicting and Preparing for the Unpredictable” which took place earlier this week. Hope my network finds this useful. 1 - Retail is the new industry darling. Leasing is hot, vacancy low, and there is a ton of new equity coming into the space (foreign and domestic). Panelists believe non-anchored centers are the best investments. Anchored centers can be binary and carry more risk. Either there’s a strong anchor supporting the other tenants or not. Harder to backfill and more TI dollars needed when it rolls.    2 - Larger institutional dollars don’t feel the need to chase yield or go up the risk spectrum. They can get Core+ returns on Core real estate due to low vacancy and rising market rents. No longer need to underwrite a lower exit cap rate, flat exit caps can pencil. In a supply constrained environment with no new creation, the increasing rents will do all the work. 3 - For development, cost part of equation remains front and center. National average market rents ~$40/SF and need to be closer to $60-70/SF to pencil against construction expenses. Only 0.2% of new neighborhood retail coming online in the next year, extremely small growth. If you’re building, best asset is very contemporary real estate for luxury tenants. Simply because the sales/rent help make the numbers work.   4 - Key word for the next couple years will be “conversion”. America has an abundancy issue of square footage when compared to European “15-minute cities”. Paying replacement costs and changing formats is cheaper than new builds, which creates opportunity for markets with aging real estate.    5 - Toughest asset types today are... ...Big box spaces. Expensive to maintain and tenants will always have the upper hand in negotiations. Limited end users. ...Full-service restaurants. Again, tenants don’t need as much space as they used to. QSR and fast casual have lower overhead and can generate more sales.   Other: “There’s a general reinvention of retail in a post-Covid environment.” “Reinvestment cost of office is now coming to retail.” Investors expect higher IRRs since Covid. Core pre-Covid IRR hopes were ~6%, now it’s ~7.5%.   To conclude, there is hope that cost of capital will come down over the next few years while rents continue to increase (thanks inflation). Once existing supply is cycled through, property values could see a nice boost. Troubled tenants will continue to be weeded out and backfilled by growing brands. Transaction volume may continue to stall in the short-term as would-be sellers try to time the market and hold out for lower rates. Possible decline in 1031 exchanges as it will be tougher to identify “value deals” and replace strong cash-flow in a rising market. Reach out to discuss >> [email protected] - 516-382-1873 #srs #debt #equity #netlease #CRE #commercial #realestate #investing #investments #marketupdate #lending #NNN #data #interestrates #ICSC #Boston #NYC

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Listed REITs returned +2.1% this week, outperforming the market value weighted S&P by +255bp and the equal weighted S&P by +222bp. The sector has now risen five out of the past 6 weeks. Real estate was the 2nd best of the S&P sectors trailing only energy. Sixteen out of 18 subsectors were positive as cell towers (+4.9%), industrial (+4.4%), healthcare (+3.4%) and shopping centers (+3.4%) led while lodging (-0.7%), apartments (-0.6%), diversified (+0.1%) and specialty (+0.1%) lagged. While YTD returns stand at -4.3%, valuations have risen+6.4% since the YTD trough last month and are nearly 20% above the late October 2023 trough. Here's your pretty picture.

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Commercial real estate seems to be turning a corner globally. There are still storm clouds out there, and holes in the capital stack that need to be patched for some assets. But the rapid decline in deal volume and pricing came to a halt in the second quarter of 2024. MSCI Real Assets #CRE

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(I’m avail for consulting 💪). Pro-real estate White House + expected further Fed rate cuts = RE firms sizing up again. For any RE investors looking to deploy in FL and TX, reach out if I can: 🚀 Help you source A+ talent 🚀 Review underwriting for buy-side opportunities 🚀 Level up your asset management systems and team 🚀 Boost NOI via more effective Property Management There's so much opportunity out there right now, but only if you're excellent. Reach out to discuss. I'm seeking to take on 1-2 clients, in win-win scenarios where I can prove out the value proposition and enjoy working with the team. #multifamily #propertymanagement #assetmanagement #acquisitions

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KKR (unintentionally) makes the case that CRE lenders are in for some tough sledding. 🍀 From KKR via Jay Parsons: “As [CRE] owners come under more pressure to sell assets, we see an exciting opportunity coming to buy high-quality properties below replacement cost while achieving attractive long-term yields.” “We think interest rate dynamics rather than a sea change in fundamentals have driven the repricing of assets in most commercial real estate sectors. The office sector in the United States and Europe is an important exception …” “Rising interest rates have taken their toll on U.S. multifamily housing, as they have on other commercial real estate sectors.” “Debt levels relative to equity are higher in multifamily than in some other segments, a loan maturity wall looms, and interest rate caps are expiring, putting many owners in the position of refinancing at a time when their properties are worth less than their acquisition basis and interest rates are much higher.” “Plus, a wave of new supply will come on the market over the next two years.” “Some have wondered whether multifamily housing is in for a period of significant defaults and distressed deal flow similar to that of the office sector.” “Multifamily housing is both one of the largest components of the commercial real estate market and one of the most levered, meaning that properties tend to have high loan-to-value ratios (LTVs).” “Multifamily housing is facing some of the same problems as the rest of the commercial real estate market - falling property values, high debt loads, a pullback in available debt capital, and a loan maturity wall—as well as some unique supply issues over the next two years.” “We think the [multifamily] sector is in for a multi-year deleveraging cycle.” 🍀 And it’s worth bearing in mind that KKR is referring to investment grade, Class A multifamily. Hmmm. 🤔 🍀🍀🍀

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Levers Owners can Control: Corporate Direct Lending vs. Commercial Real Estate Loans Revenues have contracted for the past 4 quarters for Private Credit corporate loans, but impressively EBITDA growth has improved as operating margins strengthened. Now compare this with the net operating income for many CRE properties where lower revenues create lower NOl, full stop, bottom line. Real Estate, in general can not make the same adjustments that companies can make. Today’s post examines this dynamic. Real Estate is a local market, with each sub-sector subject to its own dynamics, where footfall, location, supply-demand dynamics, and quality of the asset are key differentiating factors. Yet, there is a huge difference in the flexibility a company typically has vs. a single asset CRE property. Companies have the flexibility to adapt various strategies to cut expenses to improve operating margins/enhance profitability that insures long-term viability. Management can reduce SG&A, optimize headcount, negotiate contracts/payment terms with suppliers, outsource certain activities, reduce CapEx, adjust advertising spend, restrict T&E as well as increase productivity, sell non-core divisions, eliminate unprofitable business lines. Holding all things constant, the LBO sponsor has more flexibility when a portfolio company struggles under the weight of Higher for Longer vs. a CRE sponsor. Commercial Real Estate has few levers to push on since the property manager can do little to reduce its cost structure as it provides basic service with minimal room in adjusting variable costs & personnel expense. To improve operating efficiency for the property it typically requires additional CapEx such as lighting upgrade, water conservations systems, maintenance & repairs, building automation, which is highly capital intensive. So, when revenue falls (vacancy rises) there is little the property manager can do to increase NOl (the equivalent of EBITDA) away from leasing. Weak companies and properties will struggle in this environment. My team at Marathon Asset Management avoids the "weak" as the focus is to wisely invest capital and be a thoughtful & creative partner to companies and asset owners that will make it through the trough. As time goes on and both sectors feel the stress, there is a huge need for tailored capital solutions, a condition that should prove ideal for teams with deep expertise and an established presence across opportunistic credit. Marathon has never been busier as we are “Open for Business” - a willing, disciplined, and thoughtful lender for both sponsors financing LBOs and sponsors financing their CRE properties. The BIG Delta is cash-out refi is possible for LBOs as EBITDA increases and valuations rise vs. many property owners require cash-in refi as cap rates have expanded and property values have declined over the past 2 years. Best to avoid Office: only 35% of Office Loans can refinance according to Moody’s:

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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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2nd Quarter numbers are in, and it's no surprise that demand continues to outpace supply, driving up the median sale price to $2.75M YTD, an 8% increase from this time last year for single family homes in Greater Greenwich. With inventory at all-time lows, the seller's market remains strong in this luxury market despite rising interest rates. Sellers continue to have the upper hand, so if you're thinking about selling, take advantage of this market now before the tide has turned! Click on the link below for more details about this historic market: https://lnkd.in/eXWTpujH

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WaFd sold 2,000 multifamily real estate loans worth $2.9 billion to Bank of America, reflecting banks' adjustment to market conditions. lvpefund.com/market-intel This follows similar moves by other banks, like New York Community Bank, amid industry stress. Leaders like Barry Sternlicht note a "distress cycle" in multifamily real estate, opening opportunities for alternative financing as regional banks retreat. Read full article 👆 Want to co-own our prime property at Bethlehem with us? take our five-question survey to see if you're a good fit: lvpefund.com/questionnaire #RealestateMarket #RealestateInvestment #CommercialRealestate #MultiFamilyRealEstate #AccredictedInvestors

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🚗🌍 Top 5 Biggest Car Companies and Automaker Stocks in May 2024 by Market Capitalization 🌍🚗 In the dynamic world of the automotive industry, market capitalization is a key indicator of a company's success and influence. As of May 2024, these five automotive companies are leading the way: ·   Tesla Inc 🏅 ·   Toyota Motor Corp 🚀 ·   BYD ⚡ ·   Mercedes-Benz ⭐ ·   Porsche 🏎️ These companies are not only driving technological innovation and sustainability in mobility but are also setting significant trends in the global market. #Nearshoring #RealEstate #IndustrialPark #SIOR #Broker #Data #Economy #productivity #Supplychain #bigdata #Building #Business #development #investment #Investing #Innovation #Management #automotive #Finance #technology #electriccar

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Amazon’s 200 BP Cap Rate Rise: A Clear Signal of the Market’s New Normal 📊 As Amazon properties experience a significant yield shift, the broader implications for CRE investors are hard to ignore. The recent 200 basis point rise in cap rates on Amazon-leased facilities reflects a significant shift in investor sentiment. Where low-3% cap rates once defined the market frenzy, today’s 5.75% initial yields indicate a recalibration as investors reassess risk, particularly in an environment of rising interest rates and slowing rent growth. This isn’t just about Amazon—it’s a bellwether for the entire industrial sector. Strategic buyers like EQT Exeter and MDH Partners are navigating this new landscape, seizing opportunities in Pennsylvania with a combined $215 million investment in Class-A facilities. These deals involve: - 1.2 million sq. ft. facility: Acquired by EQT Exeter for $170 million, offering a 5.75% initial yield. - 306,000 sq. ft. facility: Purchased by MDH Partners for $45 million, with yields in the mid-5% range. - Lease Terms: Both properties have Amazon as the tenant with a weighted average remaining lease term of 10.2 years and annual rent bumps of 3.5%. - Seller: Core5 Industrial Partners, who originally marketed these buildings as a package to maximize pricing. What does this tell us? - Rising Caps vs Lowering Interest Rates: A signal that investor appetite is adjusting to new market realities. - Long-term lease appeal: Investors may start to warm up to long-term leases again, especially if they come with higher yields. As inflation and interest rates cool, the question remains—will we see a resurgence in demand for long term credit assets? Watch this space. #CommercialRealEstate #Amazon #IndustrialRealEstate #CRE #WarehouseInvestments #RealEstateTrends #NetLease

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Redefining Real Estate Investment in Today’s Economic Landscape The commercial real estate sector is undergoing profound changes. Traditional banks are failing the market, as underscored by Josh Zegen of Madison Realty Capital on Bloomberg TV. With soaring interest rates and a tumultuous market environment, it's clear that sticking with old financing methods is no longer viable. In this challenging landscape, YRS offers a game-changing alternative. Our innovative banking method dramatically reduces interest costs by up to 70% and potentially doubles your capitalization rate, providing a solid safeguard against market uncertainties. As property valuations sink, particularly for office spaces hammered by the shift towards remote work, relying on conventional investment tactics could spell disaster. YRS equips real estate investors to master this new terrain with greater confidence and significantly less financial burden. Watching as others lead the market? Don’t get stuck with outdated methods. Secure one of the few remaining free consultation slots with YRS to enhance and protect your investments 👇 https://lnkd.in/gcGGPjyy

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🚀 KKR Secures $571 Million Refinancing for Industrial Portfolio! 🚀 KKR & Co. is set to refinance a portfolio of manufacturing and distribution spaces through a $571 million loan co-originated by Barclays Capital Real Estate and BMO Capital Markets. This significant move marks KKR’s return to single-borrower CMBS financing after more than two years. Key Highlights: •Loan Details: $517 million to be rolled into a new CMBS offering, KIND 2024-1. •Portfolio Specs: 42 industrial properties and one office property totaling 6.7 million sq ft across 17 states and two Canadian provinces. •Tenant Spotlight: BlueTriton leases the 769,000 sq ft bottled water distribution facility at 4718 Mountain Creek Parkway in Dallas. •Market Outlook: Single-borrower industrial CMBS deals have surged to $11 billion this year, driven by e-commerce demand and supply constraints in key markets. This refinancing showcases KKR’s strategic investments in single-tenant, net-leased properties and reflects the robust fundamentals of the industrial market. How do you see the future of industrial real estate evolving with such significant financial moves? #KKR #IndustrialRealEstate #CMBS #Ecommerce #RealEstateInvestment #CommercialRealEstate #Logistics #Manufacturing https://lnkd.in/gg9vCZxp

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According to a recent GlobeSt.com. article, cap rates for small #multifamily properties averaged 6.0% in Q3, staying below the six-year high but up 31 basis points year-over-year. The risk premium over the 10-year Treasury yield has returned to pre-pandemic norms, reflecting a shift toward stabilization. The report by Arbor points to improving pricing, cap rates, and credit conditions thanks to easing interest rates, strong rental demand, and strengthened government-sponsored lending. Institutional investors are signaling that #CRE pricing may have hit bottom, setting the stage for attractive opportunities in 2025. Southern California’s Class B/C multifamily market shows similar trends: cap rates stabilizing near cyclical lows and solid fundamentals driven by demand. https://lnkd.in/gW-zF35B

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Veteran GOAT broker Bob Knakal distills the challenges of CRE 2024+: "And will owners put in fresh capital to effectuate a refinance? In a real-life example, a Midtown West asset was purchased for $110 million many years ago with $50 million in debt. The debt was at 3.5 percent and matured a year ago. The lender kicked the can for one year. They won’t do it again, and offered the borrower $35 million at 7.5 percent. The owner has the $15 million, but will he put it into the asset, which may be worth only $60 million today?  The calculus: Put in $15 million (which you need a return on) and see your mortgage payment go up by $875,000 per annum. With a 6 percent return required on the additional equity, the rent has to go up by 42 percent for the owner to break even. He is going to sell. Others facing the same circumstances, many of whom don’t have the $15 million, will also sell." Thank you Bob Knakal. @langdontitle can help buyers and sellers sort out issues to closing these deals.

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Exciting to see larger capital continuing to enter this market. Unfortunately, #ios deals are rare in New England. We are seeing a market that prices additional laydown land much more favorably than in years past. The same holds true for "under parked" assets. These often see bids 20-30% lower than similar buildings with standard parking/loading. #industrial #bostonre #realestate

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