Mitch Bollinger, CFA, CAIA

Interesting #ForeclosureAuction pricing action going on. Wonder if we will see continued downward pressure going into the second part of the year. Here is an interesting question I heard recently: Will home values actually decline or improve with an interest-rate reduction before the end of the year? As more and more homes see price-reductions and more time on the market, will we see an overstaturation of the market? What do you think? Let's talk about it. I'd love to hear a private-investor (boots in the ground) take on the current state-of-affairs. #sharafreport #foreclosureauction #mortgageservicing #specialservicing #privatelending

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The NAIOP Sentiment Index is designed to predict general conditions in the commercial real estate industry over the next 12 months by asking industry professionals to predict conditions for their own projects and markets. https://lnkd.in/eugDAfcH

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😶 🌫SOUNDS OF SILENCE: THE CURSE OF PARK AVE. SOUTH 🤬 🧙‍♀️ 👟CRAIN'S REPORTS LATEST CRE debacle, once again in Park Ave. S near the Hess Building as posted previously; this strip of CRE is ground zero for defaults: "Mortgage holders of a 19-story tower known as a haven for tech tenants are facing a $50 million loss after Meta Platforms and others moved out and the handsome limestone building swung from 99% occupied to 40%." 🐑 BUILT IN 1909 AS the "American Woolen Building", 225 PAS is emblematic of the Manhattan CRE-crisis. These Gilded Age buildings are obsolete. Since Guardian Life moved out (1998), 225 became a transient tech-internet space: >> 2014: Buzzfeed signed a lease for 194,000 square feet >> 2016: Facebook signed a lease for 200,000 square feet >> 2001/2002: Port Authority of NY and NJ became a temporary tenant after the destruction of their offices at One WTC until exit in 2017 >>2017: major renovation/ upgrade completed; 97.9% of space was then leased > 2017-2020: 10 tech tenants included BuzzFeed, Facebook, and STV Inc. 🆑FACEBOOK CLEARED OUT, giving space over to MetaPlatforms who eventually broke the lease, paying an insane $33 mn to do so in April 2024. Having worked in PAS Flatiron district, its charm is lost on anyone other than condo residents and restaurateurs. So, which lenders took the default hit? #Buzzfeed #Facebook #MetaPlatforms #PortAuthority #Crains #SiliconAlley #default #mortgage #CRE #GildedAge

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For years I’ve used some version of this chart as an indicator of the health of the housing market. The gist is that we used to have more housing per person in America, and we need more housing, 2.8 MM units right now, to get back to that average. When housing supply turned off post-GFC and the population had the impudence to keep growing, we became underhoused. The worst point was 2018, Q1, when we were 5.5 MM units underhoused. Supply has outpaced population growth since then, and hopefully that keeps up. In general, I trust the results of this chart because it meshes they mesh well with other data points. Rents have grown faster than incomes since the GFC. Every year the Harvard Joint Center For Housing Studies gently points out that some terrifying share of renter households are cost burdened - fifty percent as of the last reading, a new high. How can that happen in a competitive market? An undersupplied market allows for aggressive pricing. Housing prices are way up as well. For years you could pin that on ever-falling mortgage rates, but no longer. Prices continue to drift upwards, per the Case Shiller housing index, despite a two-plus-decade high in mortgage rates. The sudden spike in interest rates barely registered, and only a single month (May 2023) showed a year-over-year loss in prices before gains reasserted themselves. I’ll don't think that a shortage of 2.8MM is the right number; I suspect it’s too low. This is a national reading, so it’s hiding areas of oversupply. Detroit is actively tearing homes down, and units delivering in vacation destinations probably do little to ease the imbalance. There is also a big restatement of the Census data in 2003. I think I’m doing a reasonable job of smoothing it out, but it’s not perfect. Nevertheless, I do think this is a reasonable estimation and that there’s still a shortage of housing in America. While I’m still hopeful that it’ll correct eventually, it’s not happening quickly.

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Shadow and Substance: The Emerging Story of CRE Lending The prevailing narrative in commercial real estate (CRE) lending is reassuringly optimistic: offices are stable, and banks report non-performing loans (NPLs) of less than 1%. However, beneath this calm surface, a storm is brewing—a confluence of hidden challenges and emerging threats that starkly contrast with the mainstream account. Recent data indicates that distressed bank office loans could escalate to between 3% and 5% by year's end. This forecast, grounded in hard data and historical patterns observed in financial markets, is supported by the concept of "Shadow Inventory," which includes distressed debts and assets poised for recapitalization through loan sales. This inventory reveals figures about 2 to 3 times higher than the non-performing loans officially reported on bank balance sheets. Data from the Federal Reserve Board as of the end of 2023 shows that banks held the largest share of CRE debt, with 1.025% or $25.08 billion in total non-performing CRE loans across various sectors. More notably, in the non-owner occupied CRE sector, banks reported 1.593% or $18.69 billion in total non-performing CRE non-owner occupied loans as of March 31—substantially higher than the oft-cited figure of less than 1%. The total stressed loans in this category reached 2.46% or $28.87 billion, highlighting a significant disconnect between public perception and the harsher realities of financial data. This gap between perception and reality suggests a landscape fraught with financial instability, often overlooked in upbeat economic reports. The implications of such discrepancies are profound, impacting local businesses and the gig economy, as businesses cut hours or close and competition in freelance work increases. Managing financial distress in CRE involves the strategic use of Troubled Debt Restructurings (TDRs). Major banks have restructured over $8.6 billion of CRE loans as TDRs, which, while helping to contain the NPL figures, also mask the potential for future crises. These TDRs, intended to provide temporary relief, often falter within 18 to 24 months post-modification. The narrative surrounding CRE lending is not just about numbers and policies; it’s about the resilience and adaptability required in an ever-changing economic landscape. With a clear-eyed view of these challenges, stakeholders can better navigate the uncertain waters of commercial real estate lending, making informed decisions that foster long-term stability and growth. #CRE #Banking #Lending #CommercialRealEstate #RE #Equity #Debt #Fed #FederalReserve #PE #NYCRealEstate

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Appraisal lags continue to suffocate dry powder for 80% of the CRE market... The CRE market has grappled with falling property values over the last 2+ years. ...except for BREIT, which raised $59B from retail investors and, based on appraised values, has had an average return of 10%. Sidenote: Blackstone's other core+ vehicle (BPP), with $65B from pension funds and other institutions, has a very different return profile with a 6% average return. As this chart shows, there's a similar dynamic at play with institutional holdings (albeit not as extreme as BREIT). In short, until the light grey bars in this chart (core property appraisals) catch up with the dark grey bars (spot market values), funds with the cheapest cost of capital will remain on the sidelines. ...which doesn't suggest good things for transaction activity or future appreciation. #creanalyst #appraisallag #realestate #breit

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Every CRE Broker I Know That Produces Over $1,000,000 in GCI Annually Has These 3 Traits… 1) They're selling clients a differentiated offer from their competition... - This is usually a combination of the product type they're selling and the value proposition they bring to the table. There is nobody to compare them to because they're in a league of their own. The way they got here is by points 2 & 3. 2) They are more focused on market knowledge & value creation than prospecting... - Their real focus is on being that best at what they do and providing more value than anybody else. Whenever people know who you are, what you do, and also that you are the best at what you do... you become a deal magnet. The brokers who provide the most value and are consistent over time will come out on top. 3) They are master marketers, and think outside the box... Hosting Conferences, Client Events, Detailed Market & Transaction Reports (that isn't just regurgitated data from someone else), and much more. They don't do what everybody else is doing, but they use their entrepreneurial spirit to continuously tell the market why they are the best option, and it truly is undeniable. Share this to your feed to help someone else!

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CLOSED – CASH OUT REFINANCE: MUSCLE SHOALS, ALABAMA We wanted to share our latest achievement: a strategic refinancing deal for a property in Alabama, where we successfully secured $2.9 million in proceeds on a non-recourse loan. This distinctive transaction is structured with a 5-year term, featuring full-term interest-only payments, and a step-down prepayment schedule of 5, 4, 1, 1, 1. Moreover, we've locked in an attractive rate of 7.95%. This deal is especially noteworthy not only because of the property's lack of seasoning—a condition that typically necessitates agency financing—but also due to this lender’s ability to underwrite to interest only payments. By underwriting to IO payments, as opposed to the industry standard of Principal and Interest (P&I) or amortizing payments, we were able to raise an additional $300,000+ in loan proceeds, thereby maximizing financial leverage and benefitting our client’s investment strategy. Our innovative financing solution serves as an exemplary quasi-permanent, quasi-bridge program, presenting a significantly more cost-effective option compared to traditional bridge loans. The positive momentum in the market is undeniable, as we witness a surge in activity with an increasing number of requests and successfully executed deals. This transaction not only highlights our ability to navigate complex financing landscapes but also emphasizes our dedication to providing tailored solutions that meet the unique needs of our clients. In an era where adaptability and foresight are key, our team stands ready to leverage our expertise to assist you in achieving your real estate financial goals. Whether you're exploring refinancing options or aiming to capitalize on emerging opportunities, we're here to guide you through every step of the process. Special thanks to Michael Derk, Zack Metzner, Daizy Gomez, & Linsey Farrahi for helping to get this one across the finish line. For expert guidance and to learn how our innovative financing solutions can benefit your portfolio, contact us today. Let's make your real estate aspirations a reality. (916)719-9025 #AlabamaRealEstate, #Refinancing, #CommercialRealEstateFinancing, #InnovativeFinancing, #RealEstateInvesting, #BridgeLoanAlternative, #CREAlabama, #RealEstateFinance, #CREInvestmentAlabama, #AlabamaPropertyInvestment, #RealEstateMarketTrends, #EmergingMarkets, #RealEstateDeals, #CRECapitalMarkets.

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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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Which strategies are investors looking at in RE for 2024? Much of the increased attention on real estate is being directed to non-core strategies, with many allocators and consultants continuing to give real estate a wide berth – according to With Intelligence data. 🔹 NEPC: Predicts 2024 will be a strong year for real estate, particularly in distressed and debt opportunities. 🔹 RCLCO (consultant to CalSTRS): Advising clients to focus on real estate debt and highlighting chances to acquire assets at reduced prices from financially strained investors. Interested in the full report? Request a demo of the With Intelligence platform to see more of our RE insights and data: https://lnkd.in/eKBX7u4g  #realestate #strategy #realassets #investmentstrategy

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In last week’s post, you saw evidence of stabilizing multifamily underwriting assumptions. And now, we can say that the fundamentals are stabilizing and turning the corner as well. In CBRE’s Q1 2024 Multifamily Figures report (published today!... and linked below), we find there are many reasons for cautious optimism: ·      This year will be the peak for new deliveries in most markets (some have already peaked). ·      Absorption has been on the heels of new supply for several quarters. ·      Q1 absorption was no exception with the 3rd highest first quarter in more than 20 years. ·      Vacancy is plateauing (up just 10bps in Q1 to 5.5%). ·      Supply and demand are expected to reach parity this year and occupancy rates will improve slightly by year-end. ·      As projected, national rent growth stabilized and remained positive in Q1 at 0.4% year-over-year. ·      Alongside improving occupancy, we expect rent growth will begin accelerating in 2024 and beyond. Fundamentals vary by market and region. Rent growth remains negative in many high-supply markets across the Sun Belt and the Mountain States regions. However, improving rent growth in Q1 provides much needed evidence (particularly in the Southwest, West and Mountain States) that the bottom has formed for some markets. By contrast, the Midwest and the Northeast continue to outperform. All markets within these two regions (including major hubs like D.C., NYC, Boston, and Chicago) reported positive year-over-year rent growth in Q1. The shrinking supply pipeline combined with healthy renter demand is setting the stage for several years of improving multifamily occupancies and accelerating rent growth. https://lnkd.in/enGqejMZ #cbre #multifamily #capitalmarkets #research Travis Deese

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I know, not everyone is interested in CMBS loans. However, a CMBS resurgence could benefit CRE professionals. Rather than reading the entire article, allow me to extract and summarize four major themes you should be aware of. 1. The CMBS market has seen a significant rebound in 2024, with private-label CMBS issuance reaching $32.2 billion, compared to $13 billion during the same period in 2023. After dealing with CMBS loans and servicers for years, some of my clients refuse to consider another CMBS loan. What has changed? “If you need money and are (a) in position to refinance a loan and you don’t have an alternative, it becomes your go-to source and potentially your only source for financing.”  No other options! 2. The decline in commercial bank CRE lending, influenced by the regional banking crisis of 2023, has driven borrowers towards CMBS as a financing alternative. Yes, many banks are still on sidelines. “Banks are in retrenchment mode so there’s a huge liquidity crisis that’s going on, and CMBS is stepping to fill that liquidity crunch. It’s a combination of a gap in the market because of regulatory pressure, credit pressure and balance sheet pressure.” But someone must buy the CMBS bonds. Are they selling? 3. There is a strong demand for CMBS from investors, with $24.6 billion in new CMBS securities purchased year-to-date through May, nearly three times the amount in the same period in 2023. Why now? Are spreads better? “Spreads for CMBS were historically in the 50 bps range. If they’re making 250 basis point spreads (today), that’s a huge profit for them. Higher spreads are always lucrative for lenders, who charge interest paid on the loan based on the difference of what they’re buying the money for and what they’re selling it for" Even with higher spreads, are the loans attractive to borrowers? 4. CMBS offers competitive rates and terms compared to available options, because there are fewer. “Your options as a borrower, particularly from traditional banks, have dried up materially, compared to the CMBS market, which is still very liquid. While it does come with some headaches when dealing with an asset that underperforms, or goes into special servicing, overall CMBS is available and a better option than it was last year." A CMBS execution may not be your favorite, but it could be the best and only option for a less-than-stellar performing property. Look at it this way, still better than a foreclosure or capital injection.  #cre #commcap #crelending #creinvesting #CMBS

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Check out this graph put out by MSCI Inc. showing US multifamily transaction volume through May '24. Down approx. 75% from peak '21-'22 & down about 50% of pre-covid average. Bad news is that it has been a very rough 18 months for the multifamily capital markets space. Good news is I struggle to see how the volume stays this low for an extended period of time. In my humble opinion, a combination of lower rates, sellers accepting the new value reality and forced sales from debt maturities or distress will likely bring a return to pre-covid transaction volume at some point in the next 12-24 months, so hang in there!

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Investor preference is returning to the multifamily sector, according to a new survey by CBRE—but high interest rates and limited credit availability is stemming the optimism. Read Market Monitor for Origin’s Managing Director of Investment Management Marc Turner’s interpretation of the outlook. Link in our comments below. #multifamilyrealestate #realestateinvesting #interestrates 

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You always have two choices as an investor: Option A from Howard Marks: "Rather, the pendulum is usually swinging toward one extreme or the other, first recovering from one psychological extreme — either too high or too low — and then continuing toward the other." Option B from Howard Marks: "The superior investor is mature, rational, analytical, objective, and unemotional. Thus, he performs a thorough analysis of investment fundamentals and the investment environment." Ride the wave or be anchored. Reminding myself this week.

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Keep this in mind whenever you see overly broad statements about the rental market. The spike in multifamily supply was not distributed equally; the impact of market-to-market variance is clearly shown on this chart. Context matters!

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Freddie Mac's latest midyear outlook forecasts muted growth for the multifamily sector in 2024, with high supply and slow rent growth posing challenges. Despite a healthy economy, the vacancy rate is set to rise, and rent growth is expected to be just 2.7%. This tempered performance is a result of record-high new unit supply and economic volatility. However, long-term prospects remain strong due to housing shortages, high for-sale housing costs, and favorable demographics. Secondary and tertiary markets, particularly in the Sun Belt and southern plains, are likely to see more robust growth. https://lnkd.in/dUYcUevi Website: https://londonmoeder.com/ Facebook: https://lnkd.in/d7-qmPKb LinkedIn: https://lnkd.in/dsKSa7am TikTok: https://lnkd.in/dMJuxejJ Youtube: https://lnkd.in/d2rGGnCy #commercialrealestate #commercialproperty #CommercialLand #commerciallandforsale #warehousespace #officespace #flexspace #industrialspace #sandiegocommercialrealestate #sandiegorealestate #realestate #cre #realtor #realestateagent #realestateinvesting #property #commercial #commercialproperty #realestateinvestor #business #investment #propertymanagement #investmentproperty #residentialrealestate #forsale #retail #entrepreneur #construction #officespace #realestatebrokerage #housingshortage #housing #housingelements #housingmarket #housingcrisis #orangecountyrealestate #orangecounty #orangecountyhomes #latimes #lahousing #losangeleshousing #housingresearch

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From CRE DAILY: Private Equity Seeks Bargains in US Real Estate Distressed investors are seizing a rare chance to buy troubled US CRE assets, with private equity firms leading the charge. Betting on distress: Private equity firms are circling the distressed US property market like sharks sensing blood in the water. According to Preqin data, approximately 64% of the $400 billion earmarked for property investments is focused on North America, marking the highest allocation in two decades. Filling the gap: The US CRE market is on sale, with office values dropping nearly 25% last year due to remote work. This year, $1 trillion in CRE debt will mature, leading to a surge in defaults as borrowers struggle to repay. PGIM reports a $150 billion gap between maturing loans and new credit availability, creating prime opportunities for patient investors. Shrinking pool: While the US attracts private equity buyers, the global pool of PE capital for CRE has shrunk. The amount set aside for real estate debt strategies dropped 26% to $56.1 billion by May 2023, per Preqin. This decline could limit interest in non-performing CRE loans worldwide. Charles McGrath of Preqin notes, “Dry powder is declining” due to higher borrowing costs affecting fundraising and transactions. This comes as European CRE debt, with LTV ratios over 100%, nears €160 billion, highlighting severe financial strain. The looming crisis: US banks, heavily exposed to real estate, face severe risks, highlighted by NYCB’s and First Foundation's recent capital injection. Oaktree’s analysis suggests that a 20% drop in CRE values could put more US banks at risk than during the 2008 crisis. Barry Sternlicht of Starwood Capital Group has also noted ongoing lender challenges, with Starwood’s income trust tightening withdrawal limits to maintain liquidity. ➥ THE TAKEAWAY What experts think: While the US presents a fertile ground for distressed asset buyers, the global CRE market faces prolonged recovery challenges. The global pool of PE capital for CRE has decreased by 26% to $56.1 billion through May 2023. This decline could limit interest in non-performing CRE loans globally, as higher borrowing costs deter fundraising and transactions.

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KKR just closed on a $2.1B purchase of 5,200 apartment units from Lennar's multifamily portfolio. This is on the heels of Blackstone's pending $10B acquisition of AIR Communities. The big guys are scooping up deals while most of the market waits. Are Lennar and AIR just realistic sellers or are KKR and Blackstone just more bullish than the rest of the market? https://lnkd.in/gjptjBw2

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