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Category ArchiveHFF

Domain Companies Secures $38M in Debt to Finance Gowanus Warehouse Acquisition

The Domain Companies has sealed a $38 million financing package for its purchase of an industrial building in Gowanus, Brooklyn, according to an announcement from HFF, which arranged the financing.

Property records show that the largest share of the debt comes from CIT Bank, which contributed a $25 million floating-rate mortgage to the package. New York City-based Sherwood Equities chipped in a $13 million mezzanine loan, completing a debt package that represented about 80 percent of the $47.5 million purchase price.

“Sherwood Equities’ lending platform was a perfect match for the project given, their appetite for pre-construction New York land loans and comfort with the rezoning of the property,” Christopher Peck, the leader of HFF’s team for the transaction, said.

The 65,000-square-foot building, at 420 Carroll Street, now hosts Alex Figliolia, a plumbing and sewer contractor. But with the Department of City Planning considering a significant rezoning of the historically industrial neighborhood, Domain is eyeing conversion of the site into a mixed-use development that would include housing—including some affordable units, HFF said.

A representative from the contractor declined to comment on whether it had yet spoken with its new landlord.

As the rezoning plans move forward, Domain has been eager to stay ahead of the curve. In December, it bought another warehouse in the neighborhood, at 545 Sackett Street. Matthew Schwarz, Domain’s co-founder, told Crain’s that he hopes to turn that site, too, into a mixed-use development that includes affordable housing.

Plans for the rezoning aim to make the Gowanus Canal the focal point of a reinvigorated and more pedestrian-friendly neighborhood—and the 420 Carroll lot includes about 250 feet of frontage along the waterway, immediately south of the Carroll Street Bridge.

The sale represents an impressive return for previous owner Property Markets Group, which bought the warehouse in 2012 as part of a two-property, $9 million acquisition.

Representatives from Sherwood and CIT Bank did not respond to requests for comment.

 

Source: commercial

Room for Improvement: The Value-Add Hotel Lending Space Is Heating Up

Hotels, like people, are sometimes in need of a little makeover.

Even more so in fact, given that an average hotel room has a shelf life of only seven or eight years before the cracks begin to show (quite literally) and its potential customers start eyeing its younger, shinier competitors down the street.

But, owners looking to give their property a facelift to boost occupancy and revenue per available room—whether through a renovation, a rebranding or a full repositioning—are in luck: The value-add hotel lending space has become increasingly competitive, which means lower costs of capital for borrowers and a myriad of capital sources eager to lend.

“It’s incredibly competitive out there, and it’s becoming more competitive,” said Matt Nowaczyk, a senior vice president in JLL’s hotels and hospitality group. “There was a tremendous amount of equity in the real estate space, and about 24 months ago those groups started putting their energies into mezzanine, preferred equity and senior lending instead.”

The wide bid-ask spread is part of the switch to the debt side. Sellers’ anticipation of higher purchase prices than the equity community is willing to invest has led to a slowdown in acquisitions and an increase in refinances.

“We’re not seeing a lot of trades in the market from an equity perspective. We’re finding better opportunities on the lending side because people are recapping existing deals,” said Greg Friedman, the CEO of Atlanta-based Peachtree Hotel Group, whose investment vehicles and funds are focused on investing in equity and debt positions on value-add hotels.

“There are a lot of new lenders in the space providing financing for transitional hotel assets,” Friedman continued. “You’re also seeing more collateralized loan obligations being formed that are financing these assets, in addition to private equity funds setting up a debt strategy.”

Debt fund capital is—by nature—value-add, and a lot of that capital is being raised by fund sponsors who have a knowledge of the hotel sector—providing the new competition with especially sharp teeth.

“Many [debt platforms] are sponsored by private equity firms who understand the product. I think it allows them to more competitively underwrite value-add executions,” said Daniel Peek, a senior managing director in HFF’s hospitality practice group. “The loans are a little higher leverage and a little higher cost, although the competition is actually keeping a lid on cost. It’s a very good market for value-add borrowers today.”

Also in the mix is the commercial mortgage-backed securities (CMBS) market. “The single-asset, single-borrower market has been strong for hotels for some time. Hotels are easy to underwrite as a single asset and easy to securitize,” Nowaczyk said. “CMBS has always been a very competitive product to the alternative lenders although CMBS lenders only play when the senior piece is in excess of $150 million—so whale hunting, really.”

Whale hunting indeed, but a CMBS execution creates additional competition for other lenders thanks to CMBS’ significant pricing power in providing higher leverage value-add loans.

A slowdown in demand and increase in supply, coupled with how late in the real estate cycle we are, meant that lenders and equity investors still proceeded with some caution last year.

Warren de Haan, the head of originations and a founding partner of ACORE Capital, said, “The investment sales market is a leading indicator of where people think the market is, and that dropped off significantly in 2017. But here’s the interesting point: The hotel market has done better than any of us thought and continues to do well—which is crazy, because we’re deep into the cycle and hotels are usually the most volatile asset class as their leases are up every night.”

But, lenders should be mindful of opportunities flowing from the slowdown in investment sales, de Haan said: “Just say you want $100 million [to sell] your hotel but you’re only getting bids at $85 million. Because the debt markets are so robust right now borrowers are saying, ‘Well let’s go to the refinancing market instead of the sale market.’ Borrowers will come to us for a 75 percent loan-to-value loan, but that loan is really an 85 percent loan to where someone would actually buy the property in today’s market. We [as a lender] have to be cautious when we get a loan inquiry, and ask, ‘Did it go through a sales process,’ and ‘Where were the bids?’ We have to make sure that the value is lining up with where the market clearing price for a sale would be so that we’re not overleveraging ourselves.”

So, why is the value-add hotel space so attractive right now? “A return premium at the internal rate of return level and a premium at the debt level,” Peek explained. “Generally, it’s a good market, and there’s an attractive yield out there.”

And, just as a stable asset appeals to certain investors and lenders, the ability to create value and reposition an asset is equally attractive to several capital sources today.

“We see an improvement in the stabilized loan-to-value in all of our assets as a result of new capital going in and rebranding,” de Haan said. “In a stabilized lending environment where the assets are stable, you don’t have that uptick because there’s no value-add story. But we love the value-add stories.”

Square Mile Capital Management has made 18 value-add hotel loans over the past three years. It defines “value-add” as assets that have some in-place cash flow but where cash flow is expected to increase over a period of time. The value-add component typically comes through making physical improvements to the property, through a property improvement plan (PIP), a renovation or a repositioning of the asset maybe through a rebranding or changing the franchise, or improving the management or operations of the property.

“Assets typically have an in-place debt yield of 7 or 8 percent but also have a business plan in place to get them to a double-digit debt yield over a 24- to 36-month period,” said Nolan Hecht, a managing director at Square Mile.

Square Mile’s loans typically have a five-year term with a 3-1-1 structure—a three-year base term for the sponsor to execute its value-add business plan with two one-year extensions.

When it comes to identifying an attractive value-add opportunity, Square Mile first looks to the quality of the sponsorship, Hecht said: “What’s their track record, have they done similar renovations or repositionings? Then we look at the feasibility of the business plan—what they’re proposing, does it make sense. Then we look at the asset quality and the local market dynamics.”

If those three considerations are strong, then Square Mile will lend 70 to 75 percent loan-to-cost on a hotel asset.

ACORE favors the whole loan approach in value-add lending, doing both the senior and the mezzanine part of the capital stack with an average loan-to-value of 65 to 70 percent.

“A typical inquiry would be a borrower asking for 65 to 75 percent of the cost of the purchase price plus 60 to 75 percent of capital that they need to invest in the hotel in order to reposition it,” de Haan said. “Once it’s repositioned and stabilized they typically go and sell the asset.”

A value-add hotel lending opportunity recently caught ACORE’s eye in Houston—a market hit hard by Hurricane Harvey as well as the lagging energy sector. “Have the full effects of Houston be felt? Probably not, but you have a Class-A hotel in a great location where the net operating income has been hammered, the asset needs money and the seller is selling it a fraction of replacement costs,” de Haan said.

Bolstering the asset’s story (ACORE is currently considering the deal, so de Haan couldn’t name the property) is its lack of direct competitive supply. “It will be very difficult to replicate and the cost would be way higher—$500,000 a key versus our borrower’s basis at $200,000 a key,” de Haan explained. “So that’s an interesting, risk-adjusted story. The cash flows could suffer for the next two years but fundamentally the value of the asset, coupled with a strong sponsor putting in new capital and upgrading the asset, will come back. And at our dollar basis it feels impossible to get hurt.”

While hotels comprised 25 percent of ACORE’s lending volume four years ago, that amount dipped to 15 percent in 2017, indicative of the caution around new supply outstripping demand.

An asset’s potential to compete with other properties in the area is key, de Haan said.

“We can look at a competitive set of assets and see that our hotel’s average daily rate and occupancy is at the bottom of these four hotels,” De Haan said. “Let’s say the other hotels have nicer features in their rooms than we do, nicer restaurants, but our location is very good—that’s a story I look for. Because if we replace the furniture, fixtures and equipment (FFE) in the room, if the borrower puts in a new restaurant concept and if demand exists in that market it’s not a stretch to think its rate and occupancy should be equal to—or better than—the comparable hotels. We don’t have to believe in the market, but if it improves, we exceed our underwriting significantly. But, we don’t bet on that—that’s a bet that the equity is making, not us.”

Speaking of equity, there’s a debate underway around whether having an equity side to your business is a positive or negative calling card in the value-add hotel lending space.

Square Mile has separate debt and equity platforms but—like others—has seen more action on the debt side recently. “We’re out hunting on both sides,” said Hecht, who believes that having both platforms is beneficial because Square Mile has an understanding of which value-add business plans make sense and which markets are attractive.

“If you have a deeper understanding of the minutiae, location, brand, manager, positioning, I think you can more effectively underwrite value-add financing,” Peek agreed.

Peachtree’s lending platform, Stonehill, is five years old, but Peachtree has been an equity inverstor in the value-add hotel space for 10 years. Friedman sees this as an advantage: “We can understand the credit and what’s happening; it allows us to do deals that are a little more difficult for other lenders because they may not have that knowledge.”

ACORE, on the other hand, doesn’t have an equity platform. De Haan sees ACORE’s position as a pure-play transitional lending shop as an advantage because the firm is not viewed as a threat.

“We’ve concluded that about 10 percent of the $5 billion in business we won last year was because we’re not viewed as competitors on the equity side,” de Haan said. “Those borrowers made the decision that they don’t want to share confidential information on their business plans with their biggest competitors.”

Some wary borrowers will strike a lender with an equity platform from the list of potential capital sources right away, Nowaczyk said. “That said, the capacity of some of those firms is significant, and it’s clear their business plan is making money off debt, not out of trapping guys and taking their assets,” he said.

Boston-based UC Funds provides both equity and debt. It recently made a $75 million direct equity investment in two adjacent hotels on Stamford, Conn.’s restaurant row; an existing Courtyard Marriott; and a half-complete Residence Inn. UC Funds picked up the two assets at a discount and intends to add value by managing both properties under one management company.

“This is a value-add situation where you can buy something unfinished and combine it with an operating hotel with shared resources and amenities,” Daniel Palmier,  the president and CEO of UC Funds, explained. “The Courtyard Marriott has a great valet service and pool. We took the opportunity when we bought the Residence Inn to expand the gym from 900 square feet to 1,400 square feet and we don’t need a pool because there’s already one at the Courtyard. So we’re adding value by operating these two hotels symbiotically.”

UC Funds began a PIP on the Courtyard Marriott six months ago, updating the FFE and lobby from its 2004 decor. The Residence Inn is now around 75 percent complete with hip furniture, a baby grand piano in the lobby, a modern bar and outdoor space on a mezzanine level in its future. “It’s going to be a really sexy hotel product,” Palmier added.

As a result of the renovation, “We’re going to cut cost on a room-by-room basis of around 30 percent,” Palmier said. “We now have one general manager for both properties, and we have one valet instead of adding another, so there are efficiencies across the board.”

There’s no doubt that a big-brand hotel name is preferred by some lenders.

“We love lending in the branded space, be it Hilton, Marriott or Hyatt. That will always be a high proportion of our lending business,” Hecht said. “But where it makes sense, we’ve also been lenders on strong lifestyle hotels in the right market. In general, it’s just easier for branded hotels to attract debt capital.”

Square Mile has made 10 loans on Embassy Suites hotels.

“These are 1980s or 1990s assets, and when they haven’t been renovated, they get tired and their market penetration drops down to 100 percent,” Hecht said. “So we’ve been doing loans for the renovations, for the PIPs and then once these assets are renovated the Embassy Suites typically spring back to 110 or 115 percent penetration. They are assets that are doing well—they just need a renovation to bounce back.”

For now, one capital source not competing quite so fiercely with those in the value-add space is the banks.

“An average bank is not going to do more than 50 percent [leverage] on a hotel,” Palmier said. “We go up as high as we feel comfortable. We’re not regulated, we’re a private capital provider, and because we understand the space and the intrinsic value, we can go up to 80 to 90 percent sometimes.”

But that’s not to say there isn’t room at the table for everyone, Friedman said: “I think this is a space where banks are becoming comfortable with allowing alternative lenders like us to fill the void. In some cases we’re partnering with regional banks and community banks who want us in as a participant with them, and we’re taking on that higher risk position in the loan.”

Source: commercial

Mesa West Originates $165M Refi of Two San Diego Apartment Buildings

Mesa West Capital has originated $165 million for San Diego-based Sunroad Enterprises to refinance two San Diego, Calif. luxury rental complexes, Mesa West announced today.

The five-year, non-recourse and first-mortgage financing was split into two pieces, with Mesa West keeping a $145 million A-note and New York-based investment manager Clarion Partners keeping the remaining $20 million on its books, according to a news release from Mesa West. The deal closed December 19.

“With Clarion, we had a conversation with the borrower to bring in a partner, and leverage was important to the borrower,” Mesa West Vice President Jason Bressler, who told Commercial Observer. “We identified Clarion as being active in multifamily in Southern California. HFF really helped us figure out the parameters borrower was looking for, and Clarion was a natural fit to get the execution the borrower wanted.”

ariva apts courtesy mesa west capital Mesa West Originates $165M Refi of Two San Diego Apartment Buildings
Ariva Apartments at 4855 Ariva Way in San Diego. Courtesy: Mesa West Capital

The debt is backed by Ariva Apartments and Vive on the Park, located at 4855 Ariva Way and 8725 Ariva Court, respectively, in Kearny Mesa, a suburb of San Diego.         

“We continue to be bullish on multifamily,” Bressler said. “It’s an asset class, in whole, that’s always going to bounce back very quickly. These properties are brand new and are very high quality and what each benefits from is they are in a central location with certain demand drivers.”

Ariva Apartments is comprised of 253 rental units within two four-story buildings. Construction was completed in 2014 and the building was fully occupied within 16 months of opening, according to a press release from Mesa West. The complex includes a cardio and strength playground and assigned, underground parking.

Monthly rents for Ariva range from $1,815 for 595-square-foot studios to $2,700 for a 1,241-square-foot, two-bedroom pad, according to the property’s website.

The seven-story Vive on the Park was constructed June 2017 and is home to 302 units. Amenities include a pool and spa, a fitness center with multiple stories, rooftop lounges with barbeque pits, social areas with sand fire pits, a business center, a clubroom, a game room, a social club and on-site dry cleaning.

Monthly rents at Vive on the Park range from $1,835 for a 546-square-foot studio to $3,530 for a 1,409-square-foot, three-bedroom apartment.

“The sponsor has done an excellent job in leveraging the portfolio’s quality finishes, high-end and diverse amenity offerings and central Kearny Mesa location in the lease up of these two projects in a very competitive market,” Mesa West Principal Steve Fried, who led the origination team with Bressler, said in prepared remarks. “We are confident in their ability to maintain the strong leasing velocity to meet the demand for this type of product in one of the most rapidly developing pockets in San Diego County.”

Ariva Apartments and Vive on the Park are the two most recent residential developments for Sunroad’s planned 40-acre community called Sunroad Centrum, which will surround the nearby Centrum Park and will be included as part of the Spectrum Technology Center—the redevelopment of the former 232-acre General Dynamics aerospace facility—in Kearny Mesa. Once completed, Sunroad Centrum will include 1,622 multifamily units and approximately 856,000 square feet of commercial office space, according to the release.

HFF Senior Managing Directors Tim Wright and Aldon Cole—out of the firm’s San Diego office—arranged the financing. Wright and Cole did not immediately respond to a request for comment. Sunroad Enterprises could not immediately be reached.


Source: commercial

Moinian Group Nabs $118M Square Mile, Bank of the Ozarks Loan for Dallas Office Tower

Square Mile Capital Management has provided a $118 million loan to The Moinian Group and SMA Equities for Renaissance Tower—a 1.7-million-square-foot office building in Downtown Dallas.

Square Mile brought in Bank of the Ozarks to take a senior portion of the loan, which will be used to repay an existing CMBS loan on the property and bridge the asset through stabilization.

HFF’s Whitaker Johnson and Steve Heldenfels arranged the financing on the dazzling tower, outside shots of which depicted the fictional home of Ewing Oil in the 1980s television series Dallas.

SMA Equities and The Moinian Group have owned the building since 2006. The previous loan was securitized in the Wachovia Bank-sponsored WBCMT 2006-C29 CMBS deal and split into a $64.5 million A-note and a $64.5 million B-note.

One of the tallest buildings in Downtown Dallas, Renaissance Tower sits in Dallas’ Central Business District. Its tenants include Hilltop Securities, Neiman Marcus Group, Dallas County and EY.

The Environmental Protection Agency also recently signed a 20-year lease for 229,000 square feet at the property, and the tenant is scheduled to move in December 2018. 

“We are excited to establish a lending relationship with SMA Equities and The Moinian Group on this transaction,” Square Mile Principal Matthew Drummond said in prepared remarks. “As Downtown Dallas continues to benefit from additional redevelopment and as evidenced by the recent signing of the EPA lease, Renaissance Tower is well positioned as a cost-effective alternative to other high-quality office buildings located in submarkets such as Uptown and Plano.”

“We received extremely competitive financing packages from multiple sources but ultimately closed with Bank of the Ozarks and Square Mile,” a spokeswoman for The Moinian Group told CO. “The terms gave us the flexibility we required to complete lease up of our Class-A office tower.”


Source: commercial

CIT Lends $35M on Creative Office Building in Oakland

CIT Bank has provided $35 million to New York-based real estate owner and operator Brickman to finance the acquisition and upgrading of Plaza 360, a creative office building located at 360 22nd Street in Oakland, Calif.

The five-year, non-recourse floating-rate loan was arranged by New York-based brokerage HFF.

Loan proceeds were used to acquire the property, with a portion of the undisbursed funds going toward common area upgrades and tenant improvements, according to an announcement from CIT.

“Plaza 360 is located in Oakland’s Uptown District, a prime spot close to restaurants, shops and several transportation options,” Matt Galligan, president of CIT’s real estate finance division, said in prepared remarks. “This transaction is the first with Brickman and demonstrates our effort to provide secure financing that maximizes value for developers.”

Built in 1957, the 115,186-square-foot property includes ground level retail space and has a large pool of tenants, including the United States Social Security Administration, according to property tenant information from CompStak.

“Plaza 360 is perfectly situated to allow Brickman to execute on its highly successful Bay Area, value-add office repositioning strategy,” Peter Smyslowski, a senior managing director at HFF, said.

Brickman has several West Coast office properties in its portfolio, including one in Los Angeles, two in San Francisco and two in Seattle, Wash.

In August, The Registry reported that the owner-operator had acquired the eight-story Plaza 360 building for $44 million from White Plains, NY-based True North Management Group, which had purchased the asset for $28.25 million in August 2015. With this transaction, Brickman was investing its Brickman Fund VI and purchasing primarily value-add office assets on the West Coast, according to the publication.

Officials at Brickman could not immediately be reached for comment.


Source: commercial

Square Mile Lends $133M on Former LA Times Printing Facility

Square Mile Capital Management has provided a $133 million loan secured for the acquisition and redevelopment of The Pressa 420,000-square foot creative office property redevelopment in Costa Mesa, Calif., Commercial Observer can first report.  

Invesco Real Estate and SteelWave recently acquired the propertyformerly a Los Angeles Times printing facilityfrom Tribune Media and Kearny Real Estate in an off-market deal. Square Mile’s loan financed the joint venture’s acquisition and will also fund construction costs and leasing costs to redevelop and stabilize the property, which is directly adjacent to SteelWave’s Hive project—a 180,000 square foot creative campus that is home to the Los Angeles Chargers‘ headquarters and training facility.

“We were especially drawn to this transaction by the opportunity to back two market-leading investors, developers, and operators who each bring recent, directly applicable experience to the table,” said Michael Mestel, a principal at Square Mile. “Between Invesco Real Estate’s highly successful redevelopment of Apollo at Rosecrans in El Segundo and SteelWave’s current project next door at Hive, this is the ideal team to unlock the site’s potential and deliver market-leading product.”

HFF’s John Rose, Todd Sugimoto, Patrick Burger and Olga Walsh negotiated the financing on behalf of the borrower.  

The site includes a 250,000-square-foot industrial building, a 112,000-square-foot office building, as well as an adjacent 4-acre site.  The immediate plan is to redevelop approximately 420,000 square feet of creative office space and retail—including a food hall, but the site allows for an additional 230,000 square feet in future development.

“We saw an immense potential in The Press and our vision is to redevelop the asset to be the single most significant creative office opportunity in Orange County, if not all of Southern California,” said Seth Hiromura, the managing director of acquisitions and development at SteelWave, in an announcement regarding the acquisition.

The redevelopment marks SteelWave’s first joint venture with Invesco and will be complete within two years.

“By combining the existing structure’s heavy industrial feel with Class-A creative office amenities and finishes, SteelWave and Invesco Real Estate are positioned to create a unique product that has thrived in markets like West Los Angeles and San Diego but doesn’t currently exist in Orange County,” Daniel Neumann, a vice president at Square Mile, said. “With an abundance of retail and recreational amenities on-site, The Press will create a true campus environment that we believe will be well received by prospective tenants.”

Jonathan Hastanan, a vice president of acquisitions and development at SteelWave, said the project also “pays tribute to the history of the building by embracing its character, making it unique to the region.”


Source: commercial

Urban Edge Borrows $660M To Refinance 15 NY-Area Malls

In case you had the retail apocalypse penciled in to your Friday-night plans this evening, better think about pushing the date to next week.

Urban Edge Properties, a New York-based mall operator with shopping centers in 12 states and in Puerto Rico, announced late Friday afternoon that it had secured $663 million in refinancing on a portfolio of 15 retail properties and one industrial asset in New York and New Jersey, according to HFF, which negotiated the financing.

The sixteen separate loans, provided by two CMBS lenders, three life-insurance companies and one bank, follow a variety of structures. Fourteen carry a fixed interest rate and two a floating rate, with terms ranging from seven to 13 years. Fourteen New Jersey shopping centers and one mall in New York, mostly anchored by grocery stores and wholesale clubs, and a multi-tenant warehouse property in East Hanover, N.J., secure the debt.

“This retail financing proves that the capital markets remain highly liquid for assets in dense markets operated by best-in-class sponsorship,” Scott Aiese, an HFF managing director, said in a statement. “As lenders remain focused on diversifying their portfolios by asset type and geography, HFF experienced significant interest in the 15 retail term loan opportunities.”

According to the statement from HFF, proceeds from the loans will be used to refinance existing CMBS debt and reorganizing Urban Edge’s cash-flow schedule.

The retail centers are over 98 percent leased, to tenants including ShopRite, Walmart, Home Depot and Costco.

Representatives from HFF and Urban Edge did not immediately respond to requests for comment.


Source: commercial

Werber Nabs $62M Loan For Luxury Development in Jackson Heights, Queens

Werber Real Estate has secured a floating-rate, $61.5 million construction loan for a new apartment tower in Jackson Heights, Queens, according to HFF, which brokered the deal.

The floating-rate loan, from Principal Global Investors, will fund the construction of Roosevelt Parc, already underway at 71-17 Roosevelt Avenue. The 15-story building will host 154 rental apartments—ranging from studios to four-bedrooms—and over 16,000 square feet of retail space.

“Unlike Long Island City and Downtown Brooklyn, Jackson Heights has very little competition in the luxury rental segment.” Geoff Goldstein, a senior director at HFF, said. “The building’s got great transportation, and it’s a brand-new building, well designed, with a great developer.”

The brokerage team said they did not have an estimate regarding when construction will be complete.

With perks including a rooftop deck, a fitness center and a movie screening room—40,000 square feet of amenity space in total—the project looks to break ground in the neighborhood in more ways than one. As the looming L train shutdown condemns many Brooklyn residents to the prospect of a hellish commute in the coming years, ongoing improvements to the 7 line promise to make the trip from Jackson Heights to Manhattan a comparative cinch.

As a result, the HFF team said, optimism abounds for Roosevelt Parc’s ability to attract luxury renters.

“I think that was part of the challenge about this opportunity: it’s a hard project to comp in this submarket given its amenities,” Steven Klein, a managing director at HFF, said. “But because [Werber is] a local operator, they have first-hand knowledge of the submarket, and they know what renters are willing to pay.”

Unlike Long Island City, a sleepy warehouse district in the years before its luxury-housing boom, Jackson Heights is already a bustling residential neighborhood—a trait that could cut both ways for one of the neighborhood’s first high-end developments.

On the one hand, Roosevelt Parc will face little competition for residents seeking high-end digs in the area. On the other, the development could draw ire for boosting rents in a neighborhood whose residents rely on less inflated housing bills.

The neighborhood, famous for its striking ethnic diversity, came to broader attention in 2015 as the subject of the film In Jackson Heights. The documentary, by acclaimed director Frederick Wiseman, highlighted the area’s importance as an affordable, welcoming destination for new immigrants to the U.S.

“Times Square is often called the crossroads of the world, but Mr. Wiseman suggests that that title more rightly belongs to Jackson Heights,” Manohla Dargis wrote in The New York Times.

Representatives from Werber and Principal Global Investors did not respond to requests for comment.


Source: commercial

What’s Happening With Chinese Investment in New York City Commercial Real Estate?

There was a lot of nail-biting from the New York real estate community heading into this year after hearing that the biggest whale in terms of investment might not be allowed to swim in our waters. We’re talking, of course, about China.

With China’s capital controls in place, the country was expected to tamp down outbound investment in 2017. While the number of New York City investment sales deals involving the country has dwindled significantly this year, China still represents the biggest cross-border player, according to Cushman & Wakefield.

Chinese investments dropped to 16 percent, or six, of the 38 foreign capital deals (excluding debt deals) in New York City in the first three quarters of the year, versus 28 percent, or 16, of 58 acquisitions at the same time last year, C&W data indicates.

Francis Greenburger, the chairman and chief executive officer of Time Equities, explained the issue in Commercial Observer’s survey for this year’s Owners Magazine: “Although there are exceptions, Chinese investors are subject to government restraints in arranging to transfer funds out of China. This has caused a reduction in transactions by one of the most active group of New York City buyers.”

But in terms of dollar volume the dip in Chinese investment in New York City hasn’t been dramatic, and the country still has spent more than its competitors. Chinese investments made up 11 percent of the $24.51 billion spent on commercial real estate in New York City this year through September compared with last year’s 13 percent of $45.87 billion.

Despite a slowdown in deal flow and a reduction in investment sums, the Chinese have been going for big deals in New York City.

“Starting in 2016 through the first half of 2017, China surpassed Canada as the largest foreign investor in New York City,” said investment sales broker Douglas Harmon of C&W. “Capital controls caused Chinese buyers to participate in less transactions, but the capital was consolidated into the larger deals.”

Harmon and colleague Adam Spies are representing SL Green Realty Corp. in the sale of a 49 percent stake in a 54-story office tower at 1515 Broadway between West 44th and West 45th Streets to China Investment Corporation (CIC), a Chinese sovereign wealth fund. It is a property valued at $2 billion. A spokesman for SL Green said the deal has not closed.

In the priciest foreign property acquisition of the 12 months ending in October, Chinese conglomerate HNA Group paid $2.21 billion for 245 Park Avenue between East 46th and East 47th Streets. The sellers were Canada-based Brookfield Property Partners and the New York State Teachers’ Retirement System. The deal represents one of the highest prices ever paid for a Manhattan office property. (HNA also bought a mansion at 19-21 East 64th Street for $79.5 million this year.)

At the end of last year, CIC bought a 45 percent interest in the former McGraw-Hill Building at 1221 Avenue of the Americas between West 48th and West 49th Streets from Canada Pension Plan Investment Board. The property was valued at $2.29 billion.

Two other large Chinese acquisitions in the last year include WanXin Media’s $68 million buy of an office building and vacant lot at 7-15 West 44th Street and office developer Soho China picking up the landmarked John Pierce Residence at 11 East 51st Street for $30 million.

Alex Foshay, a senior managing director in Newmark Knight Frank’s capital markets division, said the Chinese government’s restrictions have “really strangled all major investment out of mainland China.”

Foshay cited as an example, China’s Anbang Insurance Group’s pulling out of an investment in 666 Fifth Avenue. Kushner Companies was planning to redevelop its flagship New York office tower with Anbang but talks terminated in March.

Terrence Oved, the head of the real estate department and a partner in the law firm Oved & Oved, said he has seen the drop off in acquisitions generally, and those that are closing are taking longer to complete.

“That rapid-fire tennis-match-like quality that we saw in 2016 [between players] is glaringly absent in the foreign transactions in 2017,” Oved said. “The perception of foreign money is that New York is in the later stage of the cycle.”

Also, Oved said, New York City is facing global competition from other world cities that weren’t as competitive the last few years. He pointed to Silicon Valley’s appeal to the tech company likes of Amazon, Facebook and Microsoft.

HFF’s Andrew Scandalios said that deal flow is down this year because properties are overpriced.

“Buyers are less enthusiastic to pay 2015 prices, and the sellers aren’t going to move [them],” he said. “We haven’t seen the offshore capital abate. It’s just they’re waiting for better pricing opportunities.”

Scandalios worked on the deal in which Singaporean sovereign wealth fund GIC picked up a 95 percent stake in the 50-story office tower at 60 Wall Street from Paramount Group and Morgan Stanley with a $1.1 billion valuation. (He also helped secure GIC’s $550 million acquisition loan from German bank Aareal Capital.)

In the summer, Germany-headquartered Allianz SE contributed the 18-story, 352,000-square-foot office building at 114 Fifth Avenue (which it acquired in 2015 with L&L Holding Company) into a then-new joint venture with Columbia Property Trust to buy and manage U.S. trophy properties. Columbia contributed a Palo Alto and San Francisco property to the venture. The three properties were valued at $1.3 billion and HFF negotiated the deal.

Commercial real estate deal volume is down this year for all foreign buyers in New York City as of the third quarter to 28 percent of all investment sales, C&W found, from 34 percent a year prior. (A look at foreign investment in New York City is limited to investment sales deals because debt and equity transactions are harder to track.) The findings parallel the nationwide trend. As of mid-2017, foreign investors represented 13 percent of all U.S. transactions by volume versus 16 at the same point in 2016, Real Capital Analytics data indicate.

Foshay said that a number of overseas buyers are “skeptical” about plunking down large sums of money (over $150 million) in the U.S., out of concern about “where we are in the cycle.”

This doesn’t mean, of course, that foreign investors aren’t seeking out deals nationwide. And Canada heads the procession.

Canada has sealed 255 U.S. commercial real estate acquisitions in the last year, followed relatively closely by China with 215 before dropping off significantly with Singapore and its 36 deals, RCA data show.

In the last year, Canadian entities have closed some notable purchases in New York City. Oxford contributed $65 million in a $130 million deal for 427 10th Avenue and Brookfield Property Partners input $185 million of $370 million for 1100 Avenue of the Americas. In addition, Canadian pension fund Ivanhoé Cambridge and Chicago-based Callahan Capital Properties paid $652 million for Goldman Sachs’ former headquarters at 85 Broad Street (Ivanhoé Cambridge invested $326 million in the deal).

Finally, Canada-based Oxford Properties Group is in the process of purchasing the St. John’s Terminal site at 550 Washington Street from Westbrook Partners and Atlas Capital for $700 million.

In New York City specifically, foreign investment has been dropping because of a dearth of trophy property on the market, according to a couple of brokers.

“There just wasn’t as much property available this year as there was last year,” said CBRE’s William Shanahan, who along with CBRE’s Darcy Stacom brokered the 245 Park Avenue deal.

The duo also sold the 31-story office building at 685 Third Avenue for TH Real Estate and Australian sovereign wealth fund the Future Fund, to Japanese real estate firm Unizo Holdings for $467.5 million.

Foshay concurred about the lack of inventory.

“I would say there has been a lack of trophy product to be purchased,” he said, but “there’s been quite a lot of availability in investment sales of non-trophy assets, meaning Class B product, and it is that trophy investment product that particularly appeals to overseas investors.”

Going forward, Shanahan expects to see “more participation” from Japanese investors.

Harmon said, “We think Chinese investment should pick back up in the first quarter of 2018. Additionally, South Korea, Japan, Norway, Saudi Arabia and Canada make for plenty of competition for domestic investors in 2018.”


Source: commercial

Cove Lands $479M Construction Loan for Hudson Yards Office Tower

Cove Property Group and its equity partner, Boston-based hedge fund Baupost Group, have secured a whopping $479 million non-recourse loan for construction at 441 Ninth Avenue, which they will rebrand as Hudson Commons, Commercial Observer has learned.

Apollo Global Management and its subsidiary Apollo Commercial Real Estate Finance provided the behemoth loan.

HFF negotiated the financing on behalf of Cove. Michael Gigliotti, a senior managing director at the brokerage, declined to give its terms, but said that it follows the contours of a typical construction loan.

The Cove-Baupost partnership bought the property, situated between West 34th and West 35th Streets, for $330 million in 2016 from insurer EmblemHealth, which had occupied the entire building. The current structure comprises 423,000 square feet on eight stories, but Cove plans to redevelop the property by adding an additional 17-story structure atop the building, expanding the total square footage to approximately 700,000.

Internal demolition has already begun, according to Kevin Hoo, a managing partner at Cove. Construction will begin on the new tower in January, he said, and the entire building will be tenant-ready by the end of summer 2019.

Meanwhile, Cove hopes to begin leasing the lower eight stories by the end of next year, even as construction continues on the tower. Cove has maintained the building’s certificate of occupancy, which Hoo said will make the lease-up relatively hassle free.

“This is a very diverse type of building that should attract all types of tenants,” Gigliotti said, noting that its location between Hudson Yards, to the west, and Penn Station, to the east, would make it an attractive destination for commuters.

As a result, Gigliotti said, lenders competed fiercely to back the project.

“It was a highly contested process,” Gigliotti told CO. “All the big names in the construction lending space were interested.” Apollo, he added, had already been involved in the project as a partner that funded, along with Deutsche Bank, the $220 million bridge loan for the property Cove inked in 2016.

Gigliotti noted that Apollo also offered “new features” in its financing package, but declined to give details.

Hoo said that a variety of companies have already courted Cove for office space at Hudson Commons.

“We’ve been entertaining a number of large tenants,” the Cove founder said. “They include fashion, technology, media and infotech [companies], along with a bunch of traditional banks.”

Because the new tower will have a significantly smaller cross section than the eight-story original building, Cove will be able to offer a variety of floor-plan sizes, which Hoo listed as a key element. Each floor of the existing building offers 50,000 square feet; the new tower will sport approximately 16,000 square feet per floor.

“Our floor-by-floor lease-up plan meant that we could diversify [our tenants] and mitigate the downside risk,” Hoo said. “That business plan helped lenders get comfortable.”

HFF’s deal team was led by Gigliotti, Geoff Goldstein and Michael Tepedino. Gigliotti said that Ben Gray, who was unavailable for comment, spearheaded the financing for Apollo.

The Baupost Group, Cove’s equity partner, is a secretive hedge fund that the Wall Street Journal called one of the world’s largest in 2014, when it managed $27 billion. The fund has made headlines recently for confirming that it owns nearly $1 billion of troubled Puerto Rican debt. Officials at the firm did not respond to a request for comment.

Hudson Commons is the second major New York property for Cove, which was founded in 2015. Last year, the company purchased 2 Rector Street, a 26-story, 470,000 office tower in lower Manhattan, and rebranded it as 101 Greenwich.


Source: commercial