Laura (Busch) Whitaker, CFA

💡 Want to know why deals fall out in seniors housing? ⚠ <long post, somewhat technical> ➕ ➖ ✖ ➗ A recent trend has been where ownership groups engage a broker to run the sales process: create the book, shop the asset, get the bids, select best and final, and go under LOI. 😥 Then during the PSA process, the GP has an “aha moment”, realizes they won’t hit their promote at that sales price, and backs out of the deal. 😜 The GP is simultaneously shopping preferred equity who will come in, paydown the existing lender, rewrite the pricing / term / covenants on the existing debt and relegate the existing LP/GP equity to something akin to a hope note. The new, incoming preferred investor gets their recognition rights with the existing senior lender because the senior lender gets to be in a much better position through a material paydown and the presence of a new, subordinate entrant who provides fresh capital and tightens interest alignment. ✔ The existing LP consents because they don’t want to take a mark on their existing investment. Their eyes are on the prize of a new fundraise in a once-in-a-lifetime investment environment. So, they are fine with the GP backing out of the sale. The existing LP investment is not yet marked down on the fund’s financials, and if they did sell thus realizing a loss, that would negatively impact the fund manager’s current capital raise and thus management fee revenue. They’ve already, mentally given up on the prospect of carried interest from the prior fundraise which had created this specific investment and others. 😳 If they aren’t raising a new fund, we’ve found LPs to prefer a sale actually – but these are fewer. 🦄 So, you recut the existing deal, backend your LP/GP equity to hope 🙏, which allows you to fight another day, the LP continues to raise a new fund and get those management fees on committed capital, and the GP gets a free option on declining rates that might turn the water of out-of-the-money promoted interests into the wine of in-the-money. The manager continues to get their management fee of 5% so they’re happy too. If the current manager doesn’t perform, the new preferred investor is ready to bring in their go-to manager and has already baked those pre-approvals in with the paydown of the existing senior lender. 🥂 I would argue this really is a sale, though with a retained call option at a very high strike price, even if no membership interests change hands. The LP/GP existing equity isn’t worth anything most likely after the new preferred raise, but it realizes the benefits above. Since these are refinances though, there is no sales price that informs market makers. The per unit values become that much more obscure as a result and market transparency dims. Valuations become that much more difficult. 🤔 Many of these are getting done quietly. We understand them. 💪 #CRE #investmentsales #brokerage #preferredequity #seniorshousing

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Thank God for Stop-loss!! 📉 🥵 Market volatility around election time isn't much of a surprise, in fact this year a lot of brokerages increased margin requirements to avoid the risk of default. 📉 Sensex and Nifty ended 6% 🔻 almost wiping out all gains from April '24. On an average my entire PSU portfolio is down 15% Bank is down 12% and the bloodbath continues! So did I actually lose money today? Cutting to the chase, the answer is no but how did I safeguard myself? 💰 I made short term bets on a handful of stocks about 2 weeks ago and rode the wave. Markets looks inflated yesterday and I booked profits today morning. 📈 Stillness is key. At any point of time, I ensure my long term portfolio remains untouched. Whether a pandemic hits us or elections pull the market down, I keep putting in money. The power of compounding is a blessing. 🏆 The real reward in such situations comes from being able to play the short term and long term game. With short term trading, make sure you have your targets and stop losses in place and while it's okay to trail these, remember it's okay to let a loss making trade go. I'm not expert and I don't make a ton of money trading, well not as yet but every penny counts right? What does your money game look like and how do you approach events like today? Drop a your thoughts below ⬇️ That's todays #rantoftheday folks! Until the next one! #finance #markets #2024elections #indiaelections #stockmarkets

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Appraisers in the U.S. need better tools that allow them to use more judgement in valuing assets. My colleague Willem Vlaming has been developing work showing that in parts of the world with low market liquidity and few comparable sales, that appraisal teams have been better able to capture the decline in asset values. http://ms.spr.ly/6040Yw5ts MSCI Real Assets #CRE

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Commercial Banking System Commercial Real Estate loans amount to about $5 trillion. Banks’ exposure to CRE as % of their loan book, by bank size... The large banks: 6% of their loans are CRE loans. Each of these banks has over $250 billion in assets. Mid-size banks: 17% of their loans are CRE loans. These banks have between $10 billion and $250 billion in assets. Small banks: 31% of their loans are CRE loans. These banks have between $1 billion to $10 billion in assets. Tiny banks: 28% of their loans are CRE loans. These banks have between $100 million and $1 billion in assets. (Source: Wolf Street) _____________________________________________ Whether Buying Commercial Or Residential Property In New York State, You MUST Protect It…That's Where Title Insurance And Due Diligence Comes In! Do Some Research Concerning The Title Insurance Provider That Will Be Used For Your Real Estate Purchase In New York! Watch 'Do You Ever Wonder About Title Insurance? Maybe You Haven't, But You Should’ at YouTube here https://lnkd.in/gdpgZFju. And remember that it’s your RIGHT to choose the title company you would like to use! Hallmark Abstract Service...You Buy Real Estate, We Protect It! #CRE #commercialrealestate #banking #cmbs #reit #privateequity #tobigtofail #commercialbanks #multifamily #bankingsystem

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Good news! Annual CPI #inflation was 3.6% in March quarter 2024, lower than the 4.1% annual rise in the previous quarter. This is the 5th consecutive quarter of lower annual inflation since the peak of 7.8% in December 2022 quarter. The most significant price rises this quarter were #rents (+2.1%), Secondary education (+6.1%), Tertiary education (+6.5%) and medical hospital services (+2.3%). So unfortunately our renters are still in dire times. How will this impact #cashrate? High chance we will see a hold, continuing from the current pattern. Inflation rate is not in the 2-3.0% target band just yet, which is most likely what the RBA need to see before any cuts. This means stability in household #budgets, creating a conducive base for more #realestate transactions.

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May 2024 Recap: Transaction volume on the rise, prices on the decline?   Nationwide, there remains a shortage of inventory compared to pre-pandemic; despite the recently realized price cuts and surge of new listings coming to market. So, while the scales are tipping further towards the favor of buyers, they’re still technically in seller’s territory for most regions.    As always, however, real estate is local and there are parts of the national and international landscape that are trending with more fervor than others.    Would-be buyers who witnessed intense competition in Florida markets over the past few years aren’t seeing such a frenzy now, as strong construction in many of these markets has helped restore inventory levels.    LUXURY MARKET Transaction volume in the luxury space has picked up; with major sales like 10 Tarpon Isle in Palm Beach ($152,000,000), and the mass market is likely to follow suit.   Luxury prices have increased at 2x the pace of non-luxury over the last twelve months. Much of this could be attributed to the stock market, as luxury home buyers tend to be well-diversified and have seen equity investments grow, thus creating the opportunity to leverage their portfolios or cash out and purchase hard assets like real estate. The DOW closed above 40,000 for the first time ever in mid-May while the S&P 500, and tech-heavy Nasdaq Composite also closed at new record highs after positive inflation news.    INTEREST RATES The latest Consumer Price Index read showed that prices were up 3.4% for the 12 months ended in April, easing from 3.5% the month before. Taken together with retail sales and the election cycle, this supports a Fed rate cut in the fall.   Rising gasoline and shelter costs accounted for more than 70% of the monthly increase in overall inflation, and grocery prices fell for the first time in a year, dropping 0.2% from March. The housing component of the CPI has proved frustrating because the government’s measurement of shelter costs come with a considerable lag, though private sources of real estate data have shown a cooling rental market.   A separate report mid-month showed that US retail sales were flat in April, which could be an indication of consumers getting tapped out. Retail softening is an indicator that could have a continuing moderating effect on inflation, and thus also support a rate cut in the coming months.    NEW CONSTRUCTION The new single-family home market has thrived given the lack of resale supply, the narrowing price spread between new and existing homes, and offer of builder incentives. Importantly, though, two different housing markets have emerged; that of larger, mostly public builders, and that of smaller and mid-sized builders. In the immediate market, larger builders have been able to be more aggressive with incentives, including buying down the mortgage interest rates well below what a smaller builder is willing and able to do.

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Existing-home sales might've slowed this month, but prices keep climbing. Despite the rise in prices and mortgage interest rates, sellers still face favorable conditions: average of 3.2 offers, 27% sold above the list price, and just 26 days on market. All cash buyers may be one reason: they remain at 28% of the market.

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The Fed’s Trade-Offs as It Navigates Inflation and Growth in 2024 The Federal Reserve’s dual mandate of price stability and maximum employment presents trade-offs as the Fed grapples with the next move of interest rates.  Recently, as progress against inflation has stalled, the dilemma over the U.S. Federal Reserve’s dual mandate has come back into focus. Unlike other developed country’s central banks, which focus solely on price stability, the Federal Reserve is unique. It has a dual mandate to promote price stability as well as maximum employment. This mandate was shaped in the 1970s, an era of simultaneous high inflation and unemployment, known as stagflation. The mandate was officially set by Congress in the 1977 amendment to the Federal Reserve Act, set the Fed’s goals as “maximum employment, stable prices, and moderate long-term interest rates.” Stable prices and long-term interest rates are typically clubbed together as a single mandate and maximum employment is deemed the second.  At times, the Fed’s choice of which of its two congressional mandates. During the Great Recession in 2008, it prioritized economic growth and employment by reducing its benchmark federal funds rate and discount rates to near zero, and expanded its traditional use of open-market operations to help stimulate the economy. Conversely, during the post-pandemic reopening of 2021–22, when inflation rose to four-decade highs, the Federal Reserve naturally prioritized its mandate of price stability. It raised its target federal funds rate from near zero in February 2022 to between 5.25 and 5.5 percent by July 2023, its highest in twenty-two years. The Fed’s aggressive rate hikes have lowered Consumer Price Index inflation from its peak of 9.1 percent annually in June 2022 to around 3.4 percent as of the latest reading. Meanwhile the Fed’s preferred Personal Consumption Expenditures index fell from its peak of 7.1 percent in June 2022 to 2.7 percent in March 2024. However, this remains above the Fed’s long-term target of 2 percent. Moreover, disinflation appears to have stalled since last fall: the last mile, bringing inflation down from around 3 percent to the target 2 percent, has proved challenging.   The Fed now faces two choices, each of which comes with trade-offs: Does it continue to focus on inflation and keep interest rates elevated to bring it down to its target of 2 percent, or does it shift its focus from inflation and gradually lower rates for the rest of the year in the hopes of a soft landing?  Both options have costs. Leaving interest rates elevated for too long weakens interest-sensitive sectors such as housing and could trigger a recession. Conversely, lowering interest rates while inflation is still above target levels could entrench inflation in the economy. Further, if the Fed fails to get inflation back to its publicly stated target, it could undermine its own credibility, which is important for anchoring the public’s inflation expectations.  

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NEPI Rockcastle has reported double digit growth in net operating income (NOI), up 9.4% on a like-for-like basis, with tenant sales having increased by 10% during Q1 2024 versus Q1 2023. All product categories recorded higher sales, except ‘Sporting Goods’ (-2.3%) with the best performing categories ‘Health & Beauty’ (+19%) and ‘Services’ (+18%). Fashion, the largest segment, saw sales increase by 9%: https://bit.ly/3UFjiMx #nepirockcastle #commercialrealestate #europe #realestateinvestment #propertyfund #realestatenews #propertydevelopment #propertyowners #landlords #retailrealestate #assetmanagement #shareholders #investorrelations #propertynews #poland #listedcompanies #JSE

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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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New trend: We're building tons of rental homes 🏡 In 2023, new homes built for rent skyrocketed. ~40% growth yoy 7%+ mortgage rates are rough, but great to see rental markets respond What are the non-obvious investment opportunities as a result?

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John Drachman your points at the end are the most important to explore further: 1) Redevelopment - is that densification of existing apartments? Or demolition of houses and low density? Or commercial office / retail / industrial / motels? Or all of the above that I have been leading for over a decade now? That’s a tall order to restack the debt and equity and takes all lot of cash if you have solid track record and good partners / lenders, but high barriers to enter 2) Entitlement Pursuits - This is risky, but some eat risk instead of Cheerios for breakfast and where I have excelled for 20+ years in acquisitions and development And takes a lot of cash and time to pursue unless there is covered land, in this market run up with values, low cap rates, high cost of funds many would rather just hang out unless that are a larger master / merchant builder creating projects for a business and pipeline of construction 3) Hold for long term/Operate Better than Others - That’s my preference and you have to have patience money and time the markets right as it can be 5+ years to get to teens IRR or better yield on cost and all the cash refinanced out of the property. This is why I am building a billion investment with PearlX and learning the sustainability ops side of the business. Again ten or more years of track record needed so probably your best advice is go to grad school, intern for a brand name with taraining program doing these three strategies and then come back when you have time, risk captial and backers to give it a try…

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Here's what I'm observing on the ground: 1️⃣ One of the biggest challenges I'm witnessing for real estate investors in Washington is the quest for deals that truly make sense. With the resale market somewhat stagnant, it's becoming increasingly crucial to sift through the complexities to uncover hidden gems. 2️⃣ New Construction vs. Resale: While resale might seem sluggish, the new construction sector is buzzing with activity. National lenders often hold the advantage here, offering competitive rates through their mortgage affiliates. However, local builders face their own set of challenges, lacking the financing support enjoyed by their larger counterparts. 💡 MY ADVICE ▶️ In this tough cycle, perseverance is paramount. From scouting promising projects to exercising patience, success in Washington's real estate market demands a strategic approach and a willingness to adapt. If you want personalized guidance tailored to your unique investment goals, I'm here. Feel free to reach out anytime to connect and talk about WA real estate ▶️ charlesf@1892capital.com or call/text (253) 592-3452 #washingtonrealestate #tacomarealestate #seattlerealestate #hardmoneylending #hardmoneylender #realestateadvice #washingtonmarket #realestate2024

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I've been following the recent news regarding Barry Sternlicht's SREIT and there are a number of good comparisons to the real estate syndication/private placement side of the of the business. First off, I pay special attention to Barry's public comments and Starwood's moves as indirectly Barry made my career. Barry backed a Private Equity Fund who backed my prior firm PRP Advisors which allowed us to buy billions of dollars of distressed loans post financial crisis. When I made a pivot in 2020 into Multi Family and other syndicated real estate asset classes I continued to follow Starwood's actions and analysis. Here are some takeaways from a recent article, the article itself is in the first comment. 1. Many investors complain about the lack of liquidity in syndications, however ultimately almost all funds have a run on the bank clause and can limit redemptions when necessary to avoid panic selling at the bottom. 2. After managing through 6 major downturns over their 30 year history, he believes it is the best interest of their fund to limit redemptions so they do not have to sell at what they perceive is the bottom of the real estate market. 3. Prices are down 21% since the March 22 Peak. (We are seeing this in new opportunities we have on our desk currently or in some cases closer to 30%) 4. The expectation is rates will come down next year, however last year there was an expectation that it would have already happened. This complicates the outlook for real estate and makes it harder for buyers/sellers to align on pricing most of the time.

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Key takeaways from the morning session at GlobeSt.com Net Lease: - Middle market slb financing will remain attractive relative to corp debt refis over the next 2-3 years - Entry cap is crucial in this rate environment, profits are made on the buy - Unit-level reporting and no go dark clauses are essential now that gone are the days of covenant light debt - 2024 can still be a strong year in select markets with negotiations primarily starting at 7.50-7.75% for sub investment grade net lease retail portfolios - Structuring deals without cap rate compression is more realistic given this environment - However, slight cap rate suppression possible in 2024 due to a growing “cap rate fatigue” and abundance of capital to be deployed into the market

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Apartment purchase prices are down compared to recent peaks…so why hasn't transaction volume picked up? Part of the reason is that, despite the recent decline in prices, they still remain meaningfully higher than they were pre-pandemic. In this latest post, I look at how price changes have varied between Class A, B and C units over the last four years. https://lnkd.in/giZwArcT

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There's been a lot of talk about CMBS debt lately... Here's a copy of the June 2024 Trepp, Inc. CMBS Research report (based on May 2024 data). The delinquency rate decreased by 10 basis points to 4.97%, mainly attributed to substantial resolutions in the office sector. In May, over $2 billion in office loans were resolved, with $1.7 billion from just five office loans. Interestingly, there were around $1.2 billion in newly delinquent office loans in the same period. Moreover, the retail, lodging, and multifamily sectors also saw notable increases in delinquent loans, with $995 million in retail loans, $238 million in lodging loans, and $245 million in multifamily loans newly delinquent. While these sectors experienced an uptick in delinquencies, the net increase was moderated by a substantial number of resolved loans during May, mirroring the trend observed in the office sector. #cmbs #trepp #data #delinquency #resolution #office #retail #lodging #multifamily

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As Gen Z would say, financial data's giving chaotic energy, but the central bank's rate forecasts are super chill. And I would be concerned that we are going to be handing out Ls to equity investors. Let's not wade into central bank expectations directionally, but just note that the world we currently live in definitely seems high volatility. As Jamie Dimon recently noted the band for JP Morgan's interest rate forecasts sit in the range of 2-8%. So with a large propensity for regime changes in the near term, I would expect the median point estimate of central bank rate expectations to carry almost no information of value. I don't really understand risk-premia compression in the current environment, and that is big yikes. #nocap #interestrates

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