Features

Berkadia’s David Leopold on Tackling the Affordable Housing Crisis

by Sarah Daniels February 5, 2020

It’s no secret America is in a housing crisis, but the problem is easier to identify than it is to tackle. David Leopold, senior vice president and head of affordable housing for Berkadia, believes it can be tackled, however, if the industry’s best and brightest can collaborate on a nationwide strategy. Finance Insight (FI): What is your view on the affordable housing market? Leopold: It’s an exciting time in the affordable housing market. There’s massive demand for affordable housing nationwide, which means new opportunities for innovation and new needs to be fulfilled. There’s also a real sense of urgency and commitment galvanizing players across the industry to pursue innovative solutions that will result in decent, affordable and safe housing in every single community across the country. This extends to developers, lawmakers, real estate professionals and beyond. It’s a tall order, but this work is essential to the well-being of our communities. FI: Speaking of tall orders, what are some of the challenges facing the affordable housing industry? Leopold: Rent control is certainly a hot topic and will remain one in the year ahead. Last year was a significant chapter in the rent control debate, with comprehensive statewide reform enacted in …

February 5, 2020

Features Loans

CMBS Loans Face Few Refinance Hurdles

by Alex Patton February 3, 2020

A total of $109.6 billion of CMBS mortgages are up for refinancing over the next two years, with $57.6 billion coming due in 2020 and $52 billion the following year. Single-asset, single-borrower CMBS transactions represent 66 percent of this total, while conduit loans account for 29 percent. These are two of the largest deal types in CMBS. Short-term loans against hotels account for $31.7 billion, or 28.9 percent of the total coming due. That’s the result of the heavy acquisition and brand consolidation activity within the hotel segment in recent years. Office and retail comprise 21.6 percent and 23.2 percent of the total coming due, respectively. While interest rates have remained extremely low for the past two years, helping keep the incidence of maturity defaults low, the risk is that rates will increase, which could lead to a rise in defaults. (The 10-year Treasury yield stood at 1.8 percent as of mid-January compared with 2.7 percent a year earlier.) Analysis & Findings Trepp has reviewed the $31.6 billion of conduit loans maturing from now through 2021 and examined whether they would pass certain refinancing thresholds based on prevailing loan-to-value (LTV) and debt-service coverage ratios, as well as debt-yield requirements. We …

February 3, 2020

Features Multifamily

Berkadia: Interest Rates, Election Campaign Will Have Greatest Impact on Multifamily in 2020

by Katie Sloan January 29, 2020

Commercial real estate experts at Berkadia are bullish on the multifamily industry moving into 2020, according to findings from the 2020 Outlook Powerhouse Poll, which surveyed 150 of the firm’s investment sales brokers and mortgage bankers in December 2019 on their outlook for the year ahead. Both investment sales brokers and mortgage bankers pointed to interest rates and the presidential election as having the greatest potential impact on multifamily investment and financing in 2020. Meanwhile, 91 percent of mortgage bankers expect Government-Sponsored Enterprises (GSEs) such as Fannie Mae, Freddie Mac and HUD to be the most active financing providers in 2020. In a related question, 89 percent of all respondents agreed that ongoing discussions around GSE reform will have a major impact on the way the entities conduct business. “With the presidential election in sight, we are closely monitoring new developments in Washington,” says Ernie Katai, executive vice president and head of production at Berkadia. “The continued uncertainty around GSE reform has paved a wide, prosperous road for institutional investors and other nontraditional lenders to enter our industry, creating overall strong deal volume and available capital throughout the market.” The top two subjects to watch this year are affordable housing …

January 29, 2020

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Millennials Move the Multifamily Market — But is Their Reign Almost Over?

by Sarah Daniels January 29, 2020

Gregg Gerken, head of U.S. Commercial Real Estate at TD Bank, appreciates what millennials have done for the nation’s multifamily market. Factors contributing to multifamily’s success in recent years include millennials’ desire to live close to where they work and play, their tendency to delay marriage and kids and their social preferences that often involve roommates or the sharing economy. However, millennials are growing up — and many are aging out of the rental market. For many, those delayed life milestones are upon them. Other generations are waiting in the wings, but will they be enough to sustain the current level of multifamily supply and demand? Gerken tackles all of this and more in the Q&A below. Finance Insight (FI): Multifamily has been a strong performer for a while now. Do you expect this to continue in 2020 and beyond, particularly as millennials start to enter their traditional marrying and childbearing years? Gerken: For 2020, multifamily will continue to be a strong performer. When you look at the long-term demographic trends, however, this activity will trail off a bit as the millennial generation starts to age out of the key renter cohort, which is between the ages of 25 and …

January 29, 2020

Features Loans

Exclusive Survey Reveals Lenders Bullish on Multifamily, Industrial

by Jaime Lackey January 28, 2020

The apartment and industrial sectors are clearly the darlings of the commercial real estate lending community. According to an exclusive online survey of direct lenders and financial intermediaries conducted nationally by France Media, 82 percent of respondents identify the multifamily sector as providing the most attractive financing opportunities for lenders in 2020, while 67 percent cite industrial real estate (Figure 1). A closer look at the fundamentals of the multifamily and industrial sectors helps explain why lenders favor these two property types. In its 2020 U.S. Real Estate Market Outlook report, CBRE Research forecasts multifamily demand to remain sufficient enough to absorb most of the new supply and to lower concessions in oversupplied markets. More specifically, the brokerage services giant projects multifamily completions will total 280,000 units in 2020, on par with an estimated 281,000 units delivered in 2019. While CBRE forecasts the multifamily vacancy rate to edge up 20 basis points to 4.5 percent in 2020, it is expected to remain under its long-term average of 5.1 percent. Despite some softening in the industrial and logistics market, overall fundamentals will remain strong due to continued e-commerce penetration and demand for logistics space, predicts CBRE. Supply is expected to outpace …

January 28, 2020

Features Net Lease Retail

Interest Rate Cuts Bolster Net-Lease Investment

by Taylor Williams January 24, 2020

The Federal Reserve’s decision to reverse its monetary policy and lower short-term interest rates has fueled demand for single-tenant, net-leased retail assets with regard to both deal volume and the entrance of new buyers into the space, although cap rate movement has been slow to reflect this growth. The nation’s central bank implemented three 25-basis-point cuts in 2019, creating a lower cost of capital for prospective buyers in the net-lease market and generating positive impacts on the cash flows of owners marketing their properties for sale. Consequently, both sides are showing a willingness to both bid on and ask for more aggressive price points. Traditionally, lower interest rates translate to more investment demand, leading to higher prices, thus lower cap rates. The new monetary policy, which has only been in effect since this summer, has not yet impacted cap rates in the net-lease retail sector. However, that will likely change in early 2020, says Jonathan Hipp, president and CEO of Calkain Cos., a Virginia-based net-lease brokerage and advisory firm. “Cap rates rose slightly in the middle of the year, but with interest rate cuts, they’ve come down,” he says. “Cap rates should demonstrate more compression when we do a 2019 …

January 24, 2020

Features Multifamily

Four Strategies for 2020 Success in Class B Multifamily Space

by Taylor Williams January 22, 2020

As we enter a new decade, it’s important for apartment owners and operators to understand the current state of the market and where it’s heading. In July 2019 we officially entered the longest recovery in our country’s history. Interest rates continue to be at historical lows, and there has been an influx of institutional appetite for Class B workforce housing, resulting in cap rate compression. That said, growth has started to slow and opportunistic investments are hard to come by. In 2020, Class B owners need to be selective and keep their houses in order by securing long-term, fixed-rate debt and continuing to focus on maximizing the renter experience. Here’s how you can capitalize in 2020. Monitor New Markets Class B workforce housing will continue to be a hot commodity for institutional investors because of its historical resilience to market recessions compared to other real estate sectors such as retail, office, and hospitality. The increased demand, coupled with low interest rates, should result in continued cap rate compression. For renters, the demand for affordable, quality living is high. Despite the fact that multifamily properties are being developed in almost every city across the United States, the majority are luxury, urban, …

January 22, 2020

Jim Flynn, Hunt: Multifamily demand drivers have remained strong...

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Hunt: Multifamily Should Remain a Favored Product Type in 2020

by Jaime Lackey January 21, 2020

James P. Flynn, CEO of New York-headquartered Hunt Real Estate Capital, believes 2020 will continue to provide a strong environment for multifamily lending and transactions. Though this may be good news for borrowers, it does mean competition in the market will also remain strong. Flynn addresses these points and elaborates on ORIX USA’s acquisition of the Hunt Companies’ commercial real estate financing subsidiary in the Q&A below. Finance Insight: What commercial property sector will experience the most activity in 2020, and why? Flynn: Multifamily should continue to be the most active commercial real estate sector in terms of financing activity. The MBA forecasts that multifamily lending will top $395 billion in 2020, a 9 percent increase over 2019 activity. That figure represents nearly 60 percent of the total commercial real estate activity forecast for 2020. With the Fed signaling no change to borrower costs for the year, the consensus seems to be a continued period of interest rates near historic lows. Multifamily owners and operators will continue to take advantage of this environment to rehabilitate, refinance and refine their portfolios. Of course, the other side of the equation is the growth in multifamily demand drivers. These drivers have remained strong, …

January 21, 2020

Features Northeast Feature Archive

Sagging Foreign Investment Fails to Extinguish Optimism

by Taylor Williams January 21, 2020

Foreign investors in U.S. commercial real estate are on pace this year to sell more assets than they acquire on an annual basis — something that hasn’t happened in seven years. Through the first three quarters of 2019, foreign investment in U.S. commercial real estate totaled $30 billion, compared with $60.6 billion during the same period in 2018, according to Real Capital Analytics (RCA).The New York City-based commercial property research firm tracks deals of $2.5 million and above. To be sure, the lack of large entity and portfolio transactions driven by foreign buyers that beefed up last year’s cross-border sales volume are partly to blame. But so are a number of other factors, which have largely relegated many foreign investors to the sidelines. Those factors include premium pricing, a prolonged period of high hedging costs, and an economic expansion that has lasted so long that it resembles the second game of a baseball double-header. The falloff in demand has affected core office assets in major markets in particular, say commercial property experts, but cross-border buyers continue to expand into secondary markets and a broader range of properties (see sidebar). Nevertheless, commercial property experts remain confident that foreign investors are on …

January 21, 2020

Features Retail

Retailers, Landlords Face Complications of Factoring Online Returns Into Gross Sales

by Jeff Shaw January 17, 2020

With the rise of e-commerce, declining foot traffic in malls and shuttering department stores, retail landlords and brick-and-mortar tenants have faced a wave of challenges in recent years. As a result, both landlords and tenants are constantly searching for new and unique ways to improve their bottom-line figures. One recent area where this has become an issue concerns in-person returns from online sales, and how they affect a retail tenant’s percentage rent calculation. Many retail leases contain a percentage rent provision in which a tenant pays a portion of its gross sales above a certain threshold to the landlord in addition to the tenant’s other rental obligations. These provisions often include numerous exclusions that can be deducted from a tenant’s gross sales calculation, including employee discounts, gift certificates prior to redemption and fees paid to credit card companies. Many leases also contain language allowing retailers to deduct the sales price of items that have been returned by customers. As a result of the rising popularity of online shopping, disputes have arisen between retail landlords and tenants as to whether tenants can deduct the sales price of items bought online and subsequently returned in store from the gross sales calculation in …

January 17, 2020

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