Office investing and lending is not without optimism as market participants break down the sector’s opportunistic evolution in the cover feature of PERE Credit’s October-November edition; ORIX USA sizes up a commercial real estate debt expansion with the hiring of Dean Dulchinos from AEW to spearhead its stateside ambitions; Benefit Street Partners adds a spark to the commercial real estate collateralized loan obligation market with a $1 billion close; and more in today’s Term Sheet, exclusively for our valued subscribers.
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“Values have not bottomed yet, regardless of product type, and we have not gotten through the maturity wall yet” |
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Tim Sloan, vice-chairman and head of commercial real estate debt at New York-based manager Fortress Investment Group, tells PERE Credit regulated lenders have more distress and real estate debt exposure to deal with in the next five years. |
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October-November edition out now |
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Opportunistic on office
The October-November edition of PERE Credit is live now, featuring a cover story on the evolution of office investment opportunities and how private credit managers are navigating the contentious sector today. A split between best-in-class offerings and everything below is driving a more refined focus on what a ‘major league office’ play can look like.
Featuring conversations with senior executives at Hines, Invesco, Colliers, 3650 REIT and Hodes Weill among other key market players, the analysis dives into the most in-demand parameters and investment conditions sponsors, lenders and institutional allocators are seeking in the current market. Access the digital version of the print edition here and a coinciding podcast here.
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| Debt to develop: ORIX USA hired Dean Dulchinos to oversee real estate credit expansion Source: ORIX USA |
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Credible addition
This year’s increase in real estate credit business formation and expansion gained another entrant this week. New York-based manager ORIX USA hired Dean Dulchinos as managing director and head of real estate credit with an associated initiative to build up its affiliated and third-party commercial real estate credit asset management business lines. The firm, an affiliate of Tokyo-based Orix Group, is taking a similar tact to New York-based manager Blue Owl Capital which earlier this year brought in fresh senior talent to take up the real estate debt business reins.
"We see a broad multi-sector opportunity forming in commercial real estate transitional lending strategies resulting from the bank pull-back from the direct lending space," Dulchinos told PERE Credit exclusively. Dulchinos joined ORIX USA from manager AEW where he worked as head of debt portfolio management from 2023 through the better part of this year, per his LinkedIn profile. He will work as a portfolio manager at the firm and develop investment products for ORIX USA and affiliates such as New York-based manager Lument, which focuses on financing multifamily, affordable housing, senior housing and healthcare assets.
Sector spark
The commercial real estate collateralized loan obligation market received a jolt last week. New York-based manager and lender Benefit Street Partners closed a $1 billon CRE CLO through its real estate investment trust, Franklin BSP Realty Trust. Michael Comparato, head of commercial real estate at BSP and president of FBRT, told PERE Credit the firm was able to close BSPRT 2024-FL11 because of the manager’s mid-market real estate debt activity especially. “We have been able to play offense while the rest of the market has been playing defense,” Comparato said.
Data from New York-based trade group CRE Finance Council shows the CLO consists of six whole loans and 17 participating loans secured by multifamily, hotel and industrial assets across five states. BSP’s CRE CLO close arrives in a relatively quiet period for the sector. CREFC data shows year-to-date CRE CLO issuance totaled $6.8 billion as of September 24, inclusive of BSP’s deal, a slight jump from $5.1 billion over the same span in 2023.
A good low
Patterson, California-based investment manager LBA Logistics this week earned a rare distinction for a $577.6 million commercial mortgage-backed securities loan. The financing, backing a 10-property infill industrial portfolio, achieved the lowest pricing seen for an industrial single-asset, single-borrower deal since March, said Kevin MacKenzie, a senior managing director at Chicago-based advisory JLL, which arranged the loan. Part of the reason for this was the sponsor’s relative strength as well as the quality of the portfolio.
“Being patient throughout the process and timing the marketing properly led to being significantly oversubscribed, with spreads tightening across the capital stack, demonstrating the current demand in the market,” MacKenzie said.
The industrial sector has been a steady fixture for private credit managers according to data from PERE Credit’s Lending Barometer. JLL data shows CMBS SASB industrial volume has jumped this year, accounting for more than 33 percent of total deal volume from January to August of this year compared with 7 percent during the same period in 2023.
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Gale-force headwinds
Private real estate investors are grappling with a tougher macroeconomic environment and contending with the reality of their real estate portfolios as a result. Data from the 2024 edition of affiliate PERE’s annual Global Investor 100 ranking of the landscape’s largest investors shows 48 of the top allocators recorded a decline in the value of their real estate portfolios compared with 12 months prior. This is an increase from 35 in 2023’s ranking.
On an aggregate basis, PERE analysis shows these firms’ capital allocations to real estate increased by 2.4 percent compared with 2023, marking the lowest such increase since 2020. But the wall of obstacles could see some tamping down soon, driven by the prospect of lower interest rates in the fourth quarter of 2024 and beyond. And while the real estate investment landscape as a whole is adapting, allocators are still keen to bulk their commitments to commercial real estate debt in particular as tracked by PERE Credit analysis.
Keystone deal
The sale of bank loan portfolios to private investment managers notched another deal this week. New York-based Keystone Equities, a real estate private equity and credit manager, closed on the acquisition of a $217 million performing loan portfolio from Fort Lee, New Jersey-based Cross River Bank. The deal comes as Keystone is ready to deploy what chief executive Jonathan Zamir characterized as “meaningful equity” across the capital stack of commercial real estate deals because of a recent partnership with an undisclosed institutional investor.
“In this period of reduced liquidity, we see a unique opportunity to deploy capital responsibly and capitalize on market inefficiencies,” Zamir said.
The deal hits two important notes, first underscoring the increasing willingness of banks to manage their exposure to commercial real estate. And it also demonstrates the way in which managers – and investors – are becoming increasingly willing to deploy capital. |
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Retail run-up
New York-based data and ratings provider Trepp this week tracked an uptick in its commercial mortgage-backed securities delinquency rate through the month of September. The overall rate increased 26 basis points to 5.7 percent and was primarily driven by the retail sector, which accounted for about 50 percent of the net change in the total delinquent loan amount during the month.
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New Toronto leaf
Toronto-based investor and manager CPP Investments this week named Sophie van Oosterom as its global head of real estate, filling a succession gap left six months ago by the exit of Peter Ballon after his 17-year tenure at the firm. She is joining from London-based manager Schroders Capital where she worked in a similar role over the last four years.
A source familiar with the matter told affiliate PERE that van Oosterom is expected to start at CPP in early 2025. Her prior role at Schroders was filled this week by head of UK real estate Nick Montgomery, who is now slated to become Schroders’ global head of real estate after a transition period.
Van Oosterom’s appointment to CPP adds to the wave of real estate leadership changes across Canada’s largest pension funds seen in recent years, including Toronto-based Ontario Municipal Employees Retirement System, Ontario Teachers’ Pension Plan and Montreal-based CDPQ.
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Shipping up to Boston: Walker & Dunlop arranged a $137 million Boston multifamily financing deal |
More than a financing
A combination of private credit expertise and agency financing served as the driver of a Class A multifamily tower transaction in Downtown Boston this week. Bethesda, Maryland-based manager Walker & Dunlop lined up a $137 million financing package from Washington, DC-based government-sponsored enterprise Fannie Mae for the acquisition of LUKA on the Common, a 398-unit, 30-story property located at 45 Stuart Street in the Boston Common multifamily market.
The purchase by San Francisco-based manager Carmel Partners marks the highest price paid for an apartment complex in the market in more than a year, Walker & Dunlop noted in a September 25 outline of the deal. The deal arrangement closes out a summer-long sales process of the asset that started in July when Walker & Dunlop’s Boston investment sales team was hired by Virginia-based manager AvalonBay Communities to sell the property.
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