- It’s Merger Monday for Real Estate Investment Trusts “Merger mania swept the beleaguered real-estate sector on Monday with the announcement of two multi-billion dollar deals. San Diego's Realty Income (O) agreed to buy Dallas-based Spirit Realty Capital (SRC) in an all-stock deal valued at $9.3 billion. The companies are structured as real-estate investment trusts, or REITS, with thousands of commercial properties. In the healthcare real-estate sector, Healthpeak Properties (PEAK) and Physicians Realty Trust (DOC) struck a deal to combine in an all-stock merger of equals valued at $21 billion.” (The Wall Street Journal)
- Global Real Estate Fundraising Slumps 71% with Rate Risk “Private real estate fundraising plunged in the third quarter as higher interest rates cooled investor appetites for risk. Around the world, $18.2 billion was raised by 61 funds in the three months through September, a 71% decline from the second quarter, when 117 funds raised $63.4 billion, according to a report by Preqin. It was the slowest rate of fund closures in the present cycle of interest-rate increases, the research firm said.” (Bloomberg)
- Non-Traded REITs Will Give Back $20B in Redemption Requests After Battering Year “Nontraded REITs are poised to grant some $20B in redemption requests by the end of 2023, doubling last year’s total and reflecting the impact of a year in which investors made the unprecedented decision to ask for their money back. That number is the largest annual total of redemptions fulfilled by nontraded REITs in their short history, according to Kevin Gannon, chairman and CEO of investment firm Robert A. Stanger & Co. But the number is likely to taper off heading into 2024 as property valuations are lowered and wary investors’ fears are soothed by the money that has already been repaid.” (Bisnow)
- Bad Loans Are Becoming a Real Problem for Regional Banks “In recent weeks many mid-sized financial institutions across the country reported that nonperforming loans, a measure that tracks borrowers that are behind on their payments, rose during the third quarter. They also disclosed mounting costs from unpaid debts written off as losses. Of 18 regional banks analyzed by Yahoo Finance with assets ranging from $50 billion to $250 billion, 15 reported jumps in nonperforming loans when compared to the same year-ago period. The average rise was 80% more than the third quarter of 2022, and up 8% when compared to the second quarter of this year.” (Yahoo Finance)
- Bank Exposure to Commercial Real Estate Loans Remains a Concern “More than seven months after Signature Bank’s collapse, the New York State Department of Financial Services said banks’ exposure to commercial real estate. The watchdog, which answered to the United States Congress earlier this year over the collapse, remains concerned with unrealized losses stemming from the rise of interest rates commercial real estate exposure.” (The Real Deal)
- How High Interest Rates Are Changing Commercial Real Estate Lending “This has been a perfect storm for the commercial real estate lending industry. Higher interest rates have slowed down the economy and made loans prohibitively expensive. Falling property prices and liquidity fears are causing banks to slow or stop lending on commercial properties. And stubbornly high seller expectations have reduced transactions to a fraction of pre-pandemic levels. All of this combined to push commercial lending to a standstill. The second quarter numbers of the Mortgage Brokers Association show commercial and multifamily loan origination dropping by an unbelievable 54 percent year over year. I can’t think of any industry that could survive more than half of the revenue drying up in less than one year.” (Propmodo)
- Distressed Loans Face Value Pressures “CRED iQ analyzed 480 properties that were reappraised in 2023. The top 25 valuation declines all received an updated appraisal in the third quarter, and each of these properties were either delinquent or with the special servicer. In total, the average decline in value compared to the original valuation at issuance was 41.6 percent — a very slight overall increase of four basis points over the first half 2023.” (Commercial Observer)
- What’s Is the Multifamily Sector’s Short-Term Exposure to Credit? “While much of the commercial real estate industry has been focusing on concerns surrounding maturing office building loans, multifamily debt has increasingly become a significant concern for lenders and borrowers as the 25-basis-point interest rate hike in July increased the federal funds target rate to 5.25 to 5.5 percent. Moreover, June economic projections had the median rate at 5.6 percent by the end of the year. In other words, the rate has yet to peak. Under these circumstances, we wanted to see how the current lending landscape presents itself. Drawing on Yardi Matrix data, we looked at multifamily loans nationwide, zeroing in on those with maturity dates set between 2023 and 2025.” (Multi-Housing News)
- Strip Malls Are the New King of Retail Real Estate “A major shopping-center owner is spinning off all its strip malls into a new publicly traded company, indicating that this property type is thriving under a hybrid work environment. SITE Centers, which owns and manages open-air shopping centers in affluent suburbs, is placing 61 strip-mall properties into a real-estate investment trust called Curbline Properties, company executives said Monday afternoon. This new company will own and manage all of SITE Centers’ strip malls, which aren’t anchored by a grocery or big-box store. SITE Centers said it is valuing Curbline at $1.7 billion.” (The Wall Street Journal)
- Why Single-Family Transaction Volume Is Thriving “The single-tenant transaction count for the first half of 2023 was the fifth-highest tally since 2000, according to Marcus & Millichap’s 2H 2023 U.S. Single-Tenant Net-Leased Retail National Report. Furthermore, single-tenant trades accounted for nearly one-fourth of all primary commercial real estate deal flow during the 12-month period ending in June and its share of total trading exceeded its prior yearlong proportion.” (GlobeSt.com)
- Tech Moguls Used ‘Strong-Armed’ Tactics to Buy Land for Secret City, Farmers Say “The details emerged on Friday as part of a lawsuit the company, Flannery Associates LLC, filed in May in District Court in Sacramento, alleging various farmers conspired to inflate the value of their land by $170 million. The landowners deny the claim and are seeking to dismiss the suit. The latest allegations, contained in a report on a conference held by both parties in September, provide the most complete account to date of the landowners’ accusations against Flannery, which has backing from former Sequoia Capital Chairman Mike Moritz, LinkedIn co-founder Reid Hoffman and venture capitalist Marc Andreessen, among others.” (Bloomberg)
- Blackstone Real Estate Aims New Diversity Effort at College Sophomores “Blackstone (BX) Real Estate is taking its internal and industry-wide diversity efforts to a new level through a program launching this January aimed at college sophomores. The inaugural weeklong Blackstone Real Estate Leaders Program, running Jan. 8 through Jan. 12 in New York City, will be geared toward providing “historically underrepresented, high-potential undergraduate students” exposure to careers in the real estate investment industry. Eric Wu, chief operating officer of Blackstone’s Real Estate Americas division, said the initiative originated from conversations with colleagues in early 2023 about ways to continue building the talent pipeline for people historically underrepresented in real estate.” (Commercial Observer)
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