2023 Western States CMBA CREF Conference 

Helping You Navigate Today's Commercial Real Estate Financing Environment

Las Vegas, NV – Members of our team recently attended the 2023 Western States CREF conference. It was a major success as we gained valuable insight into the current state of the Commercial Real Estate market and further fostered relationships with our lending and capital partners.

Capital Seeking Yield: A prominent theme discussed throughout the conference was the abundance of capital waiting on the sidelines. With US Treasuries offering 4-5% and attractive yields on both corporate and CMBS bonds, many capital providers are limiting their exposure to direct real estate. As lenders remain cautious and selective, spreads have continued to widen out.

Market Outlook: Many participants agreed that while 2023 was a more difficult year than forecasted, the outlook for the industry remains optimistic. It is expected rates will begin to stabilize or decline in the first half of 2024, generating greater liquidity in the real estate markets and leading to an uptick in transaction activity.

Surge in Bridge Financing: Assets underperforming aggressive pro-forma projections has led to a spike in bridge financing originations. Many lenders are offering bridge-to-bridge solutions as well as Fixed-Rate bridge programs to create greater stability for borrowers.

The Emergence of Debt Funds and Credit Unions: Debt fund, private lender, and credit union lending activity has soared as these groups look to fill the void left by banks. Greater flexibility, customized solutions, and less stringent asset requirements have made this capital extremely attractive to borrowers.

Multifamily and Industrial Properties Remain in High Demand: Multifamily and Industrial properties continue to generate the greatest interest among capital providers. Multi-tenant Retail and Hospitality are beginning to see greater interest based on strengthening sector fundamentals. Location, property quality, and sponsorship remain key aspects to asset attractiveness.

As we are faced with a volatile commercial real estate market, Tower Capital remains committed to helping our clients navigate and succeed in this challenging environment. Please do not hesitate to reach out if you have any questions or if you would like to discuss how we can best be a resource for you going forward.

Thank you for your trust in Tower Capital.

Insights from Vail: A 2023 View from the Top (8,150 ft) 

I recently attended a captivating real estate summit at the picturesque Arrabelle Resort in Vail, Colorado, hosted by the Leadership Cabinet of the Jewish Federation of North America. The summit was an amalgamation of insights, ideas, and a wide range of sentiments about the ever-evolving real estate landscape. I’m excited to share some key takeaways with you.

Sentiment and Market Overview
The atmosphere at the summit was a blend of cautious optimism and prudent pessimism. As we delved into the intricacies of the commercial real estate market, it became evident that performance in this sector is highly nuanced, with a need to scrutinize individual submarkets more carefully. Despite a wave of new supply entering some areas, there's still a palpable shortage of housing with continued strong demand for industrial spaces. Retail appears to be fully recovered since the Great Recession and hospitality is healthy, helped by the popularity of experienced based recreation today. The real conundrum lies in the office space, where uncertainty prevails. My expectation is that there will be limited new office supply, potential conversions to multifamily, or even complete demolitions, all while the market gradually absorbs the existing stock.

Debt Market and Note Purchasing
Investors are on the lookout for opportunities in the debt markets, hungrily eyeing discounted notes from lenders. However, the high demand for these notes has kept prices close to par, with limited opportunities available. It's important to point out that some lenders claim to have healthy portfolios with lower leverage, but skepticism lingers regarding the accuracy of these assertions.

Opportunities and Fragmentation
A recurrent theme throughout the summit was the search for opportunities in fragmented marketplaces where there will be less competition from institutional buyers. Mobile Home Parks (MHPs) and self-storage facilities are gaining popularity among investors for their potential.

Insurance Challenges
The soaring costs and limited availability of insurance have become major pain points, particularly in the southeast. These challenges are casting a shadow on real estate transactions across the board, affecting values and debt service coverage ratios.

Keynote Speaker: Ethan Penner
One of the highlights of the summit was a compelling keynote speech by Ethan Penner, the founder of Mosaic, renowned for pioneering the first CMBS securitization. Penner shared his personal journey, growing up in a challenging environment and finding inspiration in the most unexpected places. He emphasized the importance of recognizing the child in people as a means of connecting with them.

Luck and Timing
Penner discussed the evolution of banking and the increasing consolidation of the industry as a concerning sign of economic health. He also shared his experiences working at savings & loans during the early '80s, which eventually led to his foray into trading mortgages.

Integrated System Concept
A central concept that resonated with attendees was the notion that everything in real estate (and life) is interconnected and must be evaluated holistically.

Market Behavior
Herd behavior and greed were identified as primary drivers of market movements, shedding light on the psychology behind real estate trends.

Audience Questions and Insights
Penner fielded questions from the audience on how to identify opportunities, build conviction, and execute plans. His advice boiled down to taking action and rallying support for ideas. He encouraged skepticism of consensus, challenging authority when necessary, and emphasized the importance of clear profit margins in seizing significant opportunities. Interestingly, he advised against competing head-to-head with others and instead recommended creating a distinctive brand, one that exudes positivity and attracts like-minded individuals. In an unexpected twist, he cautioned against hiring individuals with extensive lending experience, favoring ambition and likability as key hiring criteria.

In conclusion, the real estate summit in Vail provided a multifaceted view of the current real estate landscape, with experts offering valuable insights and strategies to navigate the challenges and seize the opportunities that lie ahead. We remain committed to staying on top of the latest developments in the real estate market to serve your interests better.

Thank you for trusting us with your real estate endeavors.

Warm regards,

Adam S. Finkel

CRE Financing Patiently Awaits, Should the Music Stop - WMRE 2023 Midyear Outlook

Midway through the year, financial experts are still trying to understand how the U.S. banking crisis that unfolded quickly in the first few months of 2023 will play out in capital markets. Until the uncertainty clears, commercial real estate sponsors and borrowers must be patient as the pieces are reassembled in the capital markets and in the larger marketplace.

The result of the Fed changing its rate hike trajectory and investors adopting more conservative and safe strategies have caused expectations to be reset and bond yields to decline. Early in 2023, a commonly held view was that the Fed would continue hiking rates until something broke. Clearly, something did break in the banking sector. The financial crisis that unfolded in the spring of 2023 stemmed from the liquidation of Silvergate Bank, as well as subsequent collapse of Silicon Valley Bank (SVB), Signature Bank and First Republic Bank, which sent shockwaves through the ranks of the country’s local and regional banks.

While various factors played into the failures of these banks, one factor that they all had in common was increased pressure from the Fed’s interest rate hikes that began in 2022. The spate of interest rate hikes appears to be nearing a pause and the Fed has expanded its balance sheet to provide additional support to banks. But the crisis makes a soft economic landing even more unlikely, and many experts believe a recession is unavoidable.

Banks are seeking to boost liquidity by asking for greater depositor relationships. Because the largest banks saw a major inflow of deposits following the regional bank failures, many lenders are willing to give better rates to borrowers who provide meaningful deposits. There are also numerous lenders shifting resources from originations to asset management. Banks are also sharply reducing lending levels and are expected to be even more cautious about future loans.

by Adam S. Finkel | Principal and Co-founder of Tower Capital

As seen on WMRE | Read Full Article

AZRE’s AZ Big 100 Companies

Tower Capital’s experienced team brings an institutional quality approach to middle market owners, operators, and developers. Tower Capital provides white-glove service to its clients from the beginning of the transaction all the way through to closing.

“So often, we hear complaints about our competitors, who sign up the transaction and then leave the borrower to manage the closing on their own with little support,” says Adam Finkel, principal and founder of Tower Capital. “Once we engage a lender, our transaction team is incredibly proactive throughout the closing process by keeping track of all the lender and third-party due diligence, scheduling and coordinating site visits; facilitating communication amongst title, the lender, and legal teams; taking a lot of that time, energy, and frustration off our client’s plates. Additionally, we are often complimented by our capital providers on the quality of our loan packages and overall process. Ultimately, the most aggressive lenders are the busiest and a strong working relationship with these groups opens up access to our clients that the competition may not be able to provide.”

While 2022 was a year where the market quickly shifted from an up cycle to a down cycle, Tower Capital advisors have shined more than ever while helping clients navigate the choppy market conditions.

“We are using this continued momentum and activity to position ourselves to be the ‘go to’ lenders for construction completion, bridge lease-up, and secondary financing solutions,” Finkel says.

Source Article

IREM CCIM Annual Economic Forecast 2022: Part 2 National Outlook

The outlook for Arizona, especially the Greater Phoenix MSA, is extremely optimistic rolling into 2022. Continued population growth and positive demographic trends will keep demand high for housing and other assets classes.

The Greater Phoenix Economic Council (GPEC) and other industry organizations have been successful in luring companies to Arizona making the state a major center for advanced manufacturing in the semiconductor and electric vehicles industries, which include companies such as Intel, Taiwan Semiconductors, Lucid Motors, and Nikola. In addition to high tech manufacturing, the industrial sector is also benefiting from growing ecommerce, onshoring, and greater need for food and beverage capacity, as noted by the recent announcement of both Red Bull and White Claw facilities.

Strong job growth is a major component of healthy economy and Arizona has recouped 100% of the jobs lost during the COVID pandemic. As a state Arizona ranks 3rd in the nation for job growth when comparing 2019 to 2021, while the Phoenix MSA is second only to Austin when comparing cities. In fact, Arizona is currently capturing about 1/10th of all movers relocating to different states withing the country and is growing approximately four times the national average. The majority of people moving to Arizona are in their late 20’s and early 30’s, which historically is the peak age range for first time home buyers. These demographics are likely to keep housing demand high when there is already an extreme lack of supply.

The Greater Phoenix MSA has one of the most significant imbalances of supply and demand in the nation, which is under supplied in existing homes, new homes, and apartments. The estimated shortage of single-family homes is 25,000 and 15,000 for multifamily. This is on top of the additional units needed to keep up with population growth. The lack of inventory has sent home prices skyrocketing, with affordability becoming a major concern, especially with interest rates expected to rise. Yet the average price for a home in Phoenix is still well below that of cities like Los Angeles, Seattle, and Chicago which represent the top three markets from which people are relocating from.

What happens if the affordability situation continues to deteriorate? There will be fewer buyers that can afford the median home price, fewer owners and more renters, more people doubling up or living with their parents, smaller homes, more density, less work force housing for service workers like teachers, policemen, firemen, nurses, etc., and more homelessness. These scenarios create a worsening economic development picture over time as the ability to draw workers diminishes. When the balance of supply and demand does normalize, prices are expected to be at a much higher level than today.

According to Elliot Pollack, in order to meet the demand of approximately 80,000 – 90,000 people moving to Arizona per year, much more housing inventory must be built. It is estimated that to get supply and demand back in balance over the next five years we will need a total of 26,000-28,000 single family for sale units per year and a total of 13,000-16,000 rental units per year.

Despite a number of uncertainties facing the country, such as supply chain disfunction, inflation, possible rise of interest rates, lack of labor, and the risk of housing affordability, Greater Phoenix will likely continue to be stronger than the US as a whole for the near to medium term given the population and job growth it should continue to benefit from.

IREM CCIM Annual Economic Forecast 2022: Part 1 National Outlook

The sentiment was positive at the IREM CCIM Annual Economic Forecast which was held at the Biltmore Resort in Phoenix, Arizona on Friday, January 14, 2022. The event featured keynote speaker Elliot Pollack, a local economist, CEO of Elliot D. Pollack and Company, teacher, consultant, and author. Elliot was preceded by four panels of experts focusing on multifamily, industrial, retail, and office asset classes.

Elliot opened his presentation by noting that the economy continues to recover at a rapid pace, however, the rate will be erratic and there may be some challenges along the way. This is not a typical business cycle and will behave differently than in the past because the COVID recession was caused by the government forcing large parts of the economy to close and not by “natural” causes. Elliot noted the following encouraging aspects of our national economy:

BIGGEST RISKS

Despite these risks, the outlook remains optimistic as the country has already surpassed peak GDP levels prior to COVID with strong demand by consumers who are sitting on record levels of cash and low debt caused by forced savings and government stimulus. Yet businesses are having difficulty replenishing inventories due to global supply chain issues, as well as facing challenges finding workers in a shrinking labor pool.

The global supply chain has evolved where everything is interconnected. Shortages of one product or component create supply shortages and price swings of other products or components. Until lock downs and other things that affect the ability of a factory to run effectively and get its products delivered at normal rates remain, there will continue to be disruption. This is a worldwide issue where the end is difficult to ascertain and will slow down GDP growth in the present but will speed up GDP growth later as pent-up demand is met. This has created upward pressure on prices in the near term, but Elliot predicts that prices will fall once capacity comes back online, however, the price declines will not erase ALL of the price increases.

Furthermore, despite a healthy amount of job openings, twice as many job openings as there are unemployed, people are not going back to work. In fact, the number of unfilled job openings compared to those unemployed currently far exceeds the 48-year historical average of 23%. Headwinds for the labor market will lead to higher wages and price increases to consumer goods and services.

Inflation is hidden throughout the service economy as a combination of COVID and federal incentives discouraging people not to work have decimated services. Even where costs have not risen, the quality of service has declined. Think about your experience at most restaurants these days. Last year the government spent $1.9 trillion on an American Rescue Plan that was supposed to create 7 million jobs, but created very few, with more stimulus expected as the Build Back Better bill is reintroduced in smaller pieces. Having promised us only transitory inflation the Fed currently has no good options in dealing with the issue. Elliot noted that raising rates too rapidly might send us into a recession in an election year and will increase the cost of borrowing to the national debt. On the social side, cutting spending is politically unfeasible and raising taxes could undercut economic growth.

Stocks and home prices are at all time highs, wages are at all time highs and accelerating, job openings are at all time highs, inflation is at the highest level since 1982, yet the government continues to inject liquidity into the system while holding rates low and spending trillions more. All of these factors have led to too much money chasing too few goods, causing prices to increase.

Underbuilding of housing during the past 10 years has led to an extreme shortage of supply, with vacancy rates for both single family and multifamily rentals at historical lows. The estimated shortage of single-family homes is 25,000 and 15,000 for multifamily in Grater Phoenix, on top of what is needed to meet normal population growth. The national housing shortage is in the millions of units. Currently in the US there is only a 2.1 month supply of homes for sale which is half the number of homes for sale two years ago. In Phoenix both new and resale home values are up 20% with extremely low risk of overbuilding, with similarities in many other growth markets, particularly the sunbelt states.

The primary reason housing remains affordable is due to exceptionally low interest rates, but what happens if they go up? Affordability will become an issue and at least 3 interest rate hikes are expected this year for as much as 100 basis points. Total housing construction should continue at or near current levels for a while but what will be the mix of single family and apartment units?

The overall conclusion for the national economy is that the demand side looks very healthy but the supply side needs work. Unless there are very poor political decisions that affect the economy, a black swan event, or a dramatic move in interest rates, the economy should remain strong through 2023.

Please join me for part 2 where I will focus on Arizona and the 4 major asset classes, multifamily, retail, office, and industrial.

What is Driving Build-to-Rent Demand During Pandemic Economy?

By George Maravilla, Senior Vice President of Tower Capital

Demand for the single-family residential rental product is rising and has emerged as a popular option today for those seeking an affordable and spacious living environment. The trend toward single-family homes that are built-to-rent was a burgeoning trend over the past couple of years and has accelerated as an asset class nationally during the COVID-19 pandemic. The shift caters to a new kind of starter home market and features an entirely new institutional investment asset class: build-to-rent (BTR) single-family homes.

The Phoenix market has become ground zero for the product type, and Tower Capital continues to remain active in the segment that is so far producing strong fundamentals. Tower Capital has successfully closed more than $250 million in financing transactions for Build-to Rent product and continues to be a leader in the marketplace with another $1 billion of projects in the pipeline. The firm’s pipeline of projects span multiple states including in Arizona, Texas, Alabama, Georgia and Florida.

Recent deals that the commercial real estate debt and equity financing firm has been involved include:

- arranging a programmatic joint venture with an institutional private equity firm, which resulted in $50 million in financing for three separate single family rental developments in the Phoenix market.

- arranging $14,225,000 in non-recourse construction financing for 19 North, a build-to-rent Townhome community in Phoenix.

- arranging $56 million in construction financing for Village at Pioneer Park, a 332-unit build-to-rent community in Peoria, AZ,

- arranging $30.6 million in non-recourse construction financing for a 217-unit build-to-rent multifamily community in Laveen, AZ

 

Where Did B2R Start?

Nationally, the demand for single-family rentals is growing. The Harvard Joint Center for Housing Studies’ Rental Housing 2020 report indicated the number of all single-family rentals, both previously existing homes and new build-to-rent units, grew 18% from 2008 to 2018 to 15.5 million units, or about a third of all rental units nationally.

RCLCO Real Estate Advisors reports 700,000 single-family units are expected to be designed and built for the rental market nationwide over the next 10 years. RCLCO researchers say that's still not enough to keep up with the growing demand.

 

BTR Sector Drivers 

The initial single-family rental product emerged out of an era when an overabundance of homes went unsold and home builders pivoted to a for-rent model that has evolved into its own category. In 2019, the emergence of this product skyrocketed, with 1,350 single-family rental homes delivered to the Phoenix Market, and another 2,300 were in the pipeline as of February 2020, according to Colliers International.

The demand drivers for the build-to-rent product include two demographic sectors that find the format attractive, including Baby Boomers and Millennials.

Boomers entering the empty nester phase of life seek to downsize yet still want to enjoy many of the features and comforts they grew accustomed to in their owned residence is appealing. The “lock-and-leave” aspect of the build-to-rent product allows them to travel. The larger build-to-rent homes with private yards also allow them to comfortably entertain friends or have their grandchildren over.

The Millennial cohort’s higher debt compared to prior home-buying generations means and thus simply don’t have sufficient resources to make a down payment on their own single-family home. Additionally, they tend to wait longer to get married, start a family and that adds up to them staying in a rental product longer.

Millennial’s are starting to move into new a life phase and seek a more subdued and less urban setting where they can start a family lifestyle. The B2R asset class aligns with that trend. The build-to-rent product appeals to residents as young as 20 and as old as 90 and spans an income diversity ranging from less than $50,000 to more than $100,000. The asset class appeals to a wide mix of genders, too.

 

Impact of Covid

During a time when social distancing has become a necessity due to COVID-19 concerns, renters are seeking to avoid crowds and busy streets. People are move away from elevator-served buildings in urban areas that tend to maximize resident density and are exiting major metros with large populations.

 

 

Capital Sources

The built-to-rent product is attracting capital and developers. Capital providers, both big and small, have created new programs to deploy capital into the single-family rental space, especially in the Sunbelt states. In the last 60 days alone, Tower Capital has arranged $120 million for build-to-rent development and is in the market for an additional $350 million. There is a growing number of new developers entering the market, as well as existing companies fighting for a share.

The future is promising for this emerging asset class. Given the lack of affordable housing and impacts from the COVID-19 pandemic, Tower Capital expects the Build-to-Rent product type to remain in high demand for investors.

 

Tower Capital Advises on $50M in Financing for Three Single-Family Build-To-Rent Townhome Developments

PHOENIX, February 22, 2021 – Tower Capital arranged a programmatic joint venture with an institutional private equity firm, which resulted in $50 million in financing for three separate single family rental developments. The financing will be coupled with 60% LTC construction debt from an existing sponsor relationship for the first 114-unit townhome community on a 5.4-acre site in Surprise, Arizona.

Tower Capital co-founder Kyle McDonough says, “These projects are at the forefront of the new and rapidly growing single-family build-to-rent asset class. The property type is uniquely positioned between multifamily and single-family to provide a lifestyle for people who desire the privacy and independence offered by single-family living the flexibility and amenities of multifamily living. The asset class also appeals to households who are looking to downsize in space from larger single-family homes or upsize from a more dense apartment.”

Construction on the Surprise site at W. Bell Road and N. Litchfield Road is anticipated to commence in March 2021 and the project is expected to be completed in 18 months. The two- and three-bedroom homes will feature bright kitchens that open to large great rooms, two baths, a powder room and convenient in-unit laundry rooms. With granite countertops, plentiful cabinets, handsome flooring and upgraded fixtures, all details are commensurate with newly built single-family homes. Each home at TOWN Surprise also includes a private courtyard and viewing decks that is perfect for pets, barbeques and enjoying the outdoors along with a couple of viewing decks.  

Palm Desert, Calif.-based Family Development’s Rudy C. Herrera said, “Tower Capital introduced us to a private equity firm, which resulted in a $50 million commitment for projects in the Phoenix market, as well as in Dallas-Fort Worth and Boise. The whole team at Tower Capital, from George Maravilla, Kyle McDonough and Vin Basa, worked tirelessly to help facilitate the financing. Tower went above and beyond to address challenges and get the transaction done for a product concept that maximizes the units per acre.”

These communities will offer residents numerous amenities including onsite leasing and management offices, swimming pools, dog parks and a two-car attached garage for each unit. 

“The developer, Family Development, designed a townhome product that offers nearly all of the benefits of single-family living, yet also includes the coveted two-car attached garage that residents want,” said Tower Capital’s Senior Vice President George Maravilla. “Family has designed a product that can yield up to 18 units per-acre with these two-story townhomes. That has allowed them to secure well-located sites that have been passed over because they were too small for horizontal apartment product.”

Tower Capital has successfully closed more than $250 million in financing transactions for Build-to Rent product and continues to be a leader in the marketplace with another $1 billion of projects in the pipeline. The firm’s pipeline of projects span multiple states including in Arizona, Texas, Alabama, Georgia and Florida.

 

CRE Lenders Ended 2018 on a Strong Note

Fourth quarter increases over the year-ago quarter were led by the healthcare, multifamily and industrial sectors.

A strong fourth quarter lifted commercial mortgage originations by 3 percent in 2018 as multifamily and industrial originations drove investor activity, according to preliminary estimates from the Mortgage Bankers Association’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.

The MBA released its preliminary figures during at the 2019 Commercial Real Estate Finance/Multifamily Housing Convention & Expo underway this week in San Diego.

Fourth quarter increases over the year-ago quarter were led by the healthcare, multifamily and industrial sectors, with healthcare experiencing a 61 percent year-over-year increase in the dollar volume of loans.

Origination volume on multifamily properties was up by 32 percent over the year-ago quarter and industrial lending was up by 28 percent. In comparison, retail saw origination rise by just 1 percent, office property originations declined by 3 percent and hotel lending was down by 4 percent.

Jamie Woodwell, MBA’s vice president for commercial real estate research, said the year ended strong, despite broader market volatility. “Investor and lender interest in multifamily and industrial properties continues to drive transaction volumes while questions about retail and office property markets have slowed activity for those property types,” he said in a statement.

 Matt Brendel, divisional president and managing partner at JPI, which builds apartments, says optimism in the sector remains present.

“We continue to see very strong investor and lender interest in the multifamily sector as demand remains strong; the fourth quarter is traditionally very active for transactions and 2018 was no different,” Brendel says. “The outsized increases as compared to other years was likely influenced by a decrease in the 10-year Treasury rate during the same period.”

JPI is focused its multifamily development on two markets last year: Dallas-Fort Worth and Southern California. It started construction on nine communities with a production cost of about $840 million—$520 million in DFW and $320 million in Southern California.

For the full year, the commercial/multifamily market ended the year with originations up about 3 percent over 2017, according to preliminary figures. Multifamily led with a 22 percent increase over 2018.

Among investor types, the dollar volume of loans originated for Fannie Mae and Freddie

Mac increased by 32 percent year-over-year. There was a 22 percent year-over-year increase for life insurance company loans, a 5 percent increase in commercial bank portfolio loans, and a 35 percent decrease in the dollar volume of CMBS loans.

“I think multifamily will remain very strong this year with Fannie Mae and Freddie Mac providing a lot of liquidity to that asset class,” says Adam Finkel, principal at Phoenix-based commercial mortgage broker Tower Capital, who was attending the MBA conference. Besides the GSEs, life insurance companies, banks, credit unions and equity groups and debt funds are all still placing capital into multifamily, he says.

“I think the new Opportunity Zone legislation will really help breathe some oxygen into the market as well and encourage additional investment,” he adds, noting the legislation could drive affordable rental housing to underserved areas.

Dallas-based Caddis Healthcare Real Estate says it expects senior housing to continue to draw investor interest into 2019. The company this year will break ground on an 18-story senior housing high-rise in the Buckhead area of Atlanta and will also build a senior living community in Heartis Yardley, near Philadelphia. Caddis was also active in 2018 acquiring medical office buildings with Invesco as a partner, said Jud Jacobs, executive vice president of development and a partner at Caddis.

The high rate of healthcare originations in the fourth quarter noted in the MBA survey could be due to investors seeking to close deals before the end of the year, Jacobs says. He said 2019 also looks positive for the healthcare sector.

“The capital markets look strong; there’s a high level of interest for equity investment and from lenders,” he says.

Industrial still hot

The MBA’s numbers show the industrial sector origination volume up for the fourth quarter and the full year, and investor interest should remain high into 2019, says Tony Crème, senior vice president at Hillwood, an industrial, commercial and residential developer active in 25 states.

Hillwood just announced plans for to build three new speculative industrial buildings totaling nearly 1.5 million sq. ft. at AllianceTexas, its massive 62,000-acre development in Dallas-Fort Worth.

One of the spec warehouses will offer over 1 million sq. ft. with the ability to expand to over 2 million sq. ft.– which would make it the largest class-A industrial buildings under one roof in the nation. The three buildings will break ground in March with a scheduled completion in the fourth quarter.

E-commerce should continue to drive investor interest in the sector, especially among institutional investors, Crème says. “They are easy and inexpensive to re-tenant and with the growth of e-commerce creating a huge demand for industrial space, you are seeing it become the preferred asset class,” he says.

Capital widely available

Capital for many sectors will be abundant this year, according to many real estate experts.

MBA projects commercial and multifamily mortgage originations to total $530 billion in 2019, which is just a hair higher than 2018's volume of $526 billion and matches the record $530 billion in 2017.

“Our banking relationships continue to be very interested in originating new construction loans,” says JPI’s Brendel, “and there is strong interest from private and institutional capital for equity in new multifamily developments.”

Kerry Curry | Feb 13, 2019

View Article on National Real Estate Investor

16th Annual IMN Opportunity & Private Fund Forum

Despite the rainy weather, the mood was upbeat at the 2019 IMN Winter Forum on Real Estate Opportunity and Private Fund Investing, held at the Montage Hotel in Laguna Beach, California. Over 1,100 people registered for the event, which according to IMN’s website is:

 “Developed by leaders within the commercial real estate (CRE) industry representing the full spectrum of industry participants including funds, developers, LPs, law firms, accounting firms, technology firms and other service providers to the industry, the agenda offers real estate investors a strategic approach to the current regulatory and investment environment.”

Tower Capital had a strong presence at the conference and was represented by its Principal, Kyle McDonough, and Vice-President, George Maravilla. In accordance with the last several years, multifamily remains a favorite asset class among private equity investors while retail is still avoided by many. Despite an overall bullish market outlook, investors are being selective – looking for quality projects, in strong locations, with experienced sponsors - and underwriting remains uncompromised. However, when a project does check all the boxes, some equity investors are willing to stretch a little more than in the recent past by allowing the sponsors to contribute a smaller equity percentage of the total capital stack, and thereby have less “skin in the game.” In recent years, a sponsor (or syndicator) would be required to write a check for at least 10% of the total equity required for the project from their own funds. Under current conditions some investors simply want to see an amount “that is meaningful to the sponsor.” This is because of the ever-increasing amount of capital sitting in funds waiting to be deployed.

Given where we are in the current market cycle, some funds are de-risking by offering mezzanine financing where their position is more secure than straight equity. These capital providers may lend up to 90% of the total capital stack for the project, with pricing as low as 12%. Return expectations have simmered to an extent, with investors accepting returns in the low to mid-teens for existing value-add projects and high-teens to low 20’s for ground up development.

Several funds have been created targeting opportunity zone projects, which have been created to help direct resources to traditionally low-income communities, known as Qualified Opportunity Zones, through a more market-driven approach. Projects situated in these newly designated Opportunity Zones offer a number of financial incentives to long term investors.

If you have are seeking equity financing for a project, or would like to learn more about different equity programs being offered in today’s marketplace, please contact Kyle McDonough or George Maravilla, at Tower Capital.