Author Archives: levercp

AI-Powered PropTech: The Future of CRE Efficiency and Innovation

by: Caden Jang

Amid an ever-evolving commercial real estate (CRE) industry, the emergence of property technology (PropTech) has sparked a significant transformation. We talked about PropTech last month and highlighted companies that are on the rise. PropTech encompasses a wide range of digital solutions designed to streamline every aspect of real estate; from development and management to marketing and tenant engagement. In 2021, the global PropTech market was valued at over $25 billion, with a projected compound annual growth rate (CAGR) of 15.8% annually through 2030. This surge is largely fueled by the growing use of Artificial Intelligence (AI), which promises to revolutionize the industry by enhancing energy efficiency, elevating tenant experiences, promoting sustainability, and providing advanced analytics for data-driven decision-making. As AI-driven PropTech continues to gain traction, these innovations are sure to reshape the future of CRE, bringing both economic and operational benefits. 

Energy Saving

One of the significant advancements of AI-driven PropTech is its application in Energy Management Systems (EMS) and Building Management Systems (BMS). These systems bring together critical building components such as HVAC, lighting, and security under a single, centralized platform. By utilizing data from Internet of Things (IoT) sensors and smart meters, EMS and BMS can pinpoint inefficiencies and suggest corrective measures, ensuring properties run harmoniously to reduce energy consumption and improve building performance. A study by the American Council for an Energy-Efficient Economy found that implementing smart lighting, window shading and HVAC systems can lead to energy savings of 30-50%​. This translates to lower utility bills and a smaller environmental footprint, making these properties more attractive to eco-conscious tenants and investors, alike.

Tenant Experience 

Keeping tenants happy is key to maintaining high occupancy rates, and AI-powered smart building technologies are transforming how tenants interact with their spaces. From personalized climate control and lighting settings to easy app-based amenity bookings, tenants now enjoy a level of convenience that was hard to imagine just a few years ago. The integration of IoT devices allow for real-time adjustments to these features, providing a tailored living or working environment that boosts tenant satisfaction. Properties utilizing these technologies have reported up to a 30% increase in tenant satisfaction thanks to the personalized comfort and seamless digital experiences they offer.

Beyond day-to-day comforts, AI also provides property managers with invaluable insights into tenant behavior and preferences. By analyzing this data, managers can anticipate issues before they arise, address concerns quickly, and proactively improve tenant services. This approach not only strengthens relationships with existing tenants but also offers greater attraction to prospective ones, helping reduce vacancy rates and increase long-term revenue​​. 

Sustainability

With sustainability now a main concern for many CRE stakeholders, AI-driven PropTech solutions, particularly ClimateTech, are playing a crucial role in addressing these demands. According to the 2023 JPMorgan Business Leaders Outlook for CRE, improving energy efficiency is a top priority for building management. AI-powered EMS are making that goal easier to achieve by using real-time data from IoT sensors, weather forecasts, and historical energy usage patterns to fine-tune energy consumption. For example, by adjusting HVAC and lighting systems based on building occupancy or natural light availability, energy use can be reduced by 10-25% in HVAC alone. 

Integrating AI-driven sustainability solutions can not only help companies meet their Environmental, Social, and Governance (ESG) goals but also reduce operational costs and improve tenant retention by creating healthier, greener environments.

Advanced Analytics for Informed Decision Making

One of the most transformative aspects of AI in PropTech is its capacity to deliver advanced data analytics. AI algorithms can process vast amounts of data from various sources, including market trends, tenant preferences, and property performance metrics. This data-driven approach enables property managers and developers to make more informed decisions.

For instance, AI can identify optimal pricing strategies based on current and historical market data, forecast demand for different types of spaces, and highlight promising investment opportunities. These insights enable CRE professionals to react quickly to market shifts, adjust leasing rates as needed, and position properties to maximize appeal and profitability. By relying on data rather than intuition, AI-driven analytics significantly improve decision-making and ROI across the board. 

How Lever Can Help

As AI-driven PropTech continues to reshape the commercial real estate landscape, Lever Capital Partners is uniquely positioned to help clients leverage these innovations as they are investors at many PropTech firms and follow the most recent trends. At Lever, we pride ourselves on our ability to finance a wide array of PropTech-driven projects, from energy-efficient upgrades to smart building systems. Our expertise in evaluating and structuring capital ensures clients have access to the most accretive financing options tailored to their strategic goals.

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PropTech Companies on the Rise

by: Adam Horowitz

Welcome to the exciting world of PropTech, where real estate meets cutting-edge technology. Two years ago I became a Venture Partner with RE Angels, an Angel Fund dedicated to investing in technology-driven real estate solutions. We’ve carefully selected and invested in nine companies so far, including DaisyCovercyParaspotBlanketWaltzblock.aTough LeafTweaks, and Pest Share, which we’ll explore in this overview. 

Mastering Retail Bankruptcies: Key Strategies for CRE Success

by: Samantha Armendariz

The commercial real estate (CRE) landscape has been significantly impacted by the upsurge in retail bankruptcies seen in the Spring of 2024. The fallout following the decline of once-stable retail giants such as 99 Cents Only Stores and Red Lobster is extensive. The closure of thousands of retail locations has not only resulted in decreased property values and rental income but has also triggered high vacancy rates that threaten to diminish foot traffic and affect neighboring tenants. Investors in retail centers anchored by these former tenants are left to grapple with stabilizing their properties and mitigating financial losses. 

The financial implications of these bankruptcies are stark. Properties with substantial vacancies often face revaluation downward, impacting investors’ balance sheets and reducing their borrowing capacity. This is likely driven by the loss of revenue, which lowers the net operating income (NOI) and the property’s value based on income capitalization. A higher vacancy rate within a retail center may also lead potential investors or lenders to believe the center is undesirable or is located in a declining market. Devaluation can lead to higher interest rates or stricter loan terms when seeking acquisition financing or refinancing, further complicating financial stability in the sector.

Amidst these challenges, the industry has witnessed a notable shift towards repurposing vacant retail spaces. Repositioning vacant commercial buildings has not only breathed new life into dormant properties but also aligns with evolving consumer preferences and community needs. Creative strategies have emerged to reposition vacant retail spaces effectively. From transforming these areas into vibrant lifestyle entertainment hubs (ie. adding fitness centers and experience-based retail) to integrating residential or office spaces within mixed-use developments, these adaptations cater to diverse demographics and inject vitality into local economies. Reusing old building shells significantly reduces carbon emissions. Repurposing existing foundations, structures, and enclosures helps to avoid the emissions tied to producing, transporting, and installing new materials like concrete or steel. This process capitalizes on the carbon already embodied in the existing buildings. This trend of repurposing assets has also proven beneficial to developers as these projects are 16% less expensive than ground-up construction and accelerate the construction timeline by 18%. Such initiatives not only optimize existing infrastructure but also align investments with long-term sustainability.

There are several underlying issues that may lead to retail bankruptcies. Often, private equity acquisitions burden companies with high debt loads, leading to financial strain and prioritization of short-term gains over strategic long-term planning. The CRE industry has witnessed cases of retailers filing for bankruptcy, such as with Toys “R” Us and Payless ShoeSource, following a merger or acquisition. When managing the portfolios of these retail companies, some private equity firms may sell off valuable assets of the acquired company to repay debt or generate quick profits, leaving the company weaker and less competitive. As most recently seen with mass sale-leasebacks for both 99 Cent Only Stores and Red Lobster, the lack of industry-specific expertise within acquiring firms can exacerbate these challenges, resulting in misaligned priorities and ineffective management practices. 

The shift in consumer behavior has also played a pivotal role in the downturn of retail fortunes. The exponential growth of e-commerce, accelerated by the COVID-19 pandemic, has reshaped spending habits. E-commerce sales in the U.S. currently makeup over 22% of retail sales and recently increased over 7% from $1.040 trillion in 2022 to $1.119 trillion in 2023. This trend has significantly impacted brick-and-mortar stores, particularly in sectors such as apparel and electronics, where online retailers dominate market share. In response to these dynamics, retail giants like Target and Walmart have pivoted towards hybrid models, blending online convenience with enhanced in-store experiences. Such adaptations reflect a strategic recalibration to meet evolving consumer expectations and sustain competitive relevance. 

When navigating this complex landscape, CRE professionals can leverage specialized expertise and strategic insights to mitigate risks and capitalize on emerging opportunities. Finance brokers such as Lever Capital Partners offer crucial support through financial restructuring, portfolio diversification advice beyond retail, and market intelligence for repurposing retail spaces. Lever Capital Partners is a premier player in the space with an extensive network, structured finance experience, and a commitment to personalized service nationwide. We offer access to both debt & equity capital, as well as advisory services for loan renegotiations, ensuring investors can maintain control in changing economic conditions. This makes Lever Capital Partners an invaluable resource for investors managing CRE finance amidst tenant retail bankruptcies.

As the retail sector continues to evolve, proactive adaptation and strategic foresight will prove pivotal for CRE investors and developers. By embracing innovation and leveraging comprehensive insights, stakeholders can not only weather the storm of retail bankruptcies but also foster resilient, adaptive real estate ecosystems poised for sustained growth. Although challenges are presented, opportunities for reinvention and success in retail development emerge. 

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The Keys to Unlocking CRE Loan Opportunities in the 2nd half of 2024 and beyond

by: Ashton Zakariaie

The commercial real estate (CRE) lending landscape is undergoing significant shifts, influenced by rising economic uncertainties and heightened caution among lenders. As we move into the second half of 2024, obtaining a CRE loan will remain a challenge, and only the most qualified sponsors will be able to secure financing.

The difficulty in securing CRE loans will persist through the end of 2024 and into 2025 due to increased lender caution and economic uncertainty. The stringent requirements set by lenders will significantly impact the acquisition, development, and refinancing of CRE projects, as fewer will meet the qualifications for funding. Developers will find it harder to start new projects, expand existing ones, or refinance current loans. However, there are strategic ways to navigate these economic constraints and meet the new, stricter requirements being implemented by lenders across the board.

New Requirements for CRE Loans

  1. Stronger Guarantors: Lenders now prefer sponsors who can provide robust guarantees. This additional security assures lenders of the repayment capabilities, thus reducing their risk.
  2. Experienced Sponsors: Sponsors with a proven track record and substantial experience in managing CRE projects are favored. Their experience suggests they are less likely to encounter insurmountable problems and are better equipped to handle and resolve issues if they arise.
  3. Better Financial Economics: The financial requirements for CRE loans have become more stringent. Higher debt service coverage ratios (DSCR) and lower loan-to-value (LTV) ratios are now the norm. This means sponsors must demonstrate stronger cash flow capabilities and provide more equity upfront, further ensuring lenders of the project’s viability and that interests are aligned. 

Impacts on Owners and Developers

The tightening of lending criteria has several critical implications for owners and developers:

  1. Stronger Sponsors for Construction Loans: Only the most financially robust and experienced sponsors will secure construction loans. This limits the pool of potential developers and may slow the pace of new construction projects and therefore the delivery of new product for the next few years.
  2. Reduced Construction and Acquisition Loans: Compared to previous years, the volume of construction and acquisition loans will likely remain low. This is a direct consequence of the stricter lending standards and the economic environment that is stymieing overall transaction volume.
  3. Challenges in Refinancing: As property values drop and loan terms become more stringent, refinancing existing loans will remain increasingly difficult. Falling property values reduce the equity available for refinance, and the stricter loan terms make it harder to qualify for new loans. Sponsors may find themselves unable to refinance with favorable terms, which could lead to financial strain and potentially forced sales.

Strategies to Secure Loans in 2024-2025

Given the challenging lending environment, sponsors can adopt several strategies to improve their chances of securing a CRE loan:

  1. Credit Enhancement: Enhancing the credit profile of the guarantor can make a significant difference. This might involve improving financial statements or finding additional guarantors to bolster the overall financial backing of the loan.
  2. Raising Additional Equity: With lower LTV/LTC ratios, sponsors will need to raise more equity to fill the financing gap. This additional equity reduces the lender’s risk and makes the project more attractive for financing.
  3. Higher Leverage, Higher Cost Debt: In some cases, taking on higher leverage, higher cost debt may be necessary to bridge financing gaps. While this increases the cost of capital, it can make it possible to move forward with projects that might otherwise be stalled due to equity shortfalls.
  4. Leveraging Relationships: A large network and strong relationships with lenders can help sponsors find more favorable loan terms. Sponsors should leverage their connections and work closely with financial advisors to identify the best financing options that are tailored to their project and overall business plan.
  5. Strategic Credit Enhancements: Finding credit enhancements that address both capital needs and credibility can be a game-changer. This might involve securing mezzanine financing, preferred equity, or other forms of credit support that can improve the overall financing package.

The CRE lending landscape in the second half of 2024 is characterized by heightened caution and stringent requirements. Only the most qualified and experienced sponsors with robust financial backing will succeed in securing loans. By understanding the new requirements and strategically enhancing their financial positions, sponsors can navigate this challenging environment and continue to pursue CRE opportunities. Lever Capital Partners’s knowledge and experience in times like these, matched with a well-connected network of capital providers with significant dry powder will be an invaluable asset for sponsors looking to secure the most favorable loan terms in this new era of CRE financing.

Is Rescue Capital Rescuing the Borrower or the Lender?

by: Eleni Zarokian

Rescue capital is a type of financing injected into distressed properties to support their business plans and prevent foreclosure or bankruptcy when traditional funding isn’t available. The primary goal of rescue capital is to stabilize the asset, allowing for refinancing or sale in the future. Given the complexity and risks associated with such funding, it is essential for borrowers to carefully evaluate their options, often with the guidance of experts like Lever Capital Partners, to ensure that the decision aligns with their long-term business objectives and does not result in further financial strain. Lever Capital Partners can help evaluate the current market options to ensure informed decisions and avoid further financial pitfalls.

Rescue capital can take various forms: first mortgage debt, mezzanine financing, preferred equity, or joint venture equity. Deciding to use it is often challenging, especially if you’ve signed recourse on the existing loan and feel cornered into borrowing expensive capital as your only escape from recourse. In such cases, it might seem like the only viable option to salvage your investment.

However, if you have a non-recourse loan, you might consider handing back the keys rather than taking on the risk of expensive borrowing. The goal is always to use the capital to stabilize the asset, and then refinance or sell it. At Lever Capital Partners, we help borrowers determine what options are available and strive to find those that align best with their business plans.

What Type of Rescue Capital Makes the Most Sense in Today’s Economic Environment?

  • Debt: Suppose you’re about to finalize an acquisition with bank financing, but just weeks before the closing, the lender’s credit committee rejects your deal because it doesn’t meet the new, stringent guarantor criteria. In this situation, rescue capital in the form of debt could bridge the gap, allowing you to close the deal. 
  • Mezzanine/Preferred Equity: Imagine you’ve completed your development, but leasing is progressing slower than anticipated, and your construction financing has depleted all the reserves. In such cases, secondary financing like mezzanine or preferred equity can provide the time necessary to stabilize the asset until you can refinance it.
  • Equity: Consider a scenario where your existing loan is maturing, and refinancing isn’t an option due to high-interest rates. Your current lender may agree to extend the loan but requires a cash infusion to reduce the loan balance. Here, rescue equity can facilitate the loan extension, ensuring continued ownership and operation of the property.

When Not to Use Rescue Capital

Rescue capital isn’t a one-size-fits-all solution. It’s crucial to recognize scenarios where it might not be suitable:

  • If your plan will take years to execute, the cost of borrowing could outweigh the benefits over a prolonged period.
  • If rescue capital will significantly dilute your equity, it might jeopardize your investment’s long-term viability.
  • If it will consume all cash flow, making it difficult to manage ongoing expenses and operational needs, it’s likely not a feasible solution.

Who Are the Capital Providers and How Can LCP Access Them?

Understanding who provides rescue capital and how to access it is essential. At Lever Capital Partners, we analyze all available options to determine the most viable sources of rescue capital. Our extensive network and industry expertise enable us to connect you with suitable capital providers, helping to mitigate risks such as making capital calls to equity investors or losing your property altogether.

We carefully evaluate whether the available rescue capital is a good fit for your project, ensuring that you make informed decisions in today’s unpredictable market. Our knowledgeable team is dedicated to finding the best solution for your situation, providing you with the stability needed to navigate economic uncertainties.

While rescue capital can be a lifeline for distressed properties, it’s essential to thoroughly evaluate its implications. Lever Capital Partners can guide you through this complex process, ensuring that you make decisions that align with your long-term business objectives.

Heartbreak Hotel or Hotel California? An Investment Opportunity or Unnecessary Challenge in the Hotel Industry’s Revival in 2024

by: Elton Luk

As the hotel sector’s performance returns to pre-pandemic levels, fueled by eased travel restrictions and a surge in consumer demand for travel, activity within the hotel industry is poised for significant growth and opportunity. This revitalization of the hospitality industry combined with potential rate cuts and a maturity wall in 2024 will make it challenging for current owners to refinance existing loans without injecting more capital, opening doors for new investors. Opportunities for new buyers exist, however it’s not all rainbows and unicorns for existing hotel owners due to the current interest rate environment and the distress that the state of the capital markets poses.

The current landscape presents a unique scenario of buying opportunities for investors, primarily driven by a tough financing market that limits competition. Many current hotel owners who are locked in at affordable rates may look to offload their assets when their current loans reach maturity. While investors face significant headwinds in securing favorable financing terms, Revenue Per Available Room (RevPAR) is forecasted to grow 3.0% in 2024 according to a recent CBRE report. If interest rates continue to decrease as many expect to happen this year, hospitality investments should prove much more attractive. Another significant factor to take into consideration is the dislocation we are seeing between supply and demand. Yahoo Finance said that Metropolitan areas like New York City have banned short-term rentals causing hotel prices to rise roughly 10% on a year-over-year basis since the ban was implemented, further enhancing RevPAR growth. These short term rental bans and restrictions are becoming more and more common throughout the U.S. San Francisco, Santa Monica, Anaheim, and West Hollywood have also tightened restrictions on AirBnb listings making it more challenging to secure short term rental permits. Rising RevPAR, tightening short-term rental regulations, and anticipated interest rate reductions create a promising landscape for hospitality investments. Investors positioned to navigate the challenging financing climate and capitalize on these dynamics stand to gain significantly as the market adjusts to the evolving demand and supply conditions.

On the flip side, current hotel owners are facing their own set of challenges. Many investors are struggling to find financing options that allow for a cash neutral refinance. The combination of the current interest rate environment and lenders being constrained by 1.30-1.40x Debt-Service Coverage Ratio (DSCR) requirements leaves a gap forcing owners to either sell in order to repay existing loans or inject fresh equity. The situation is further exacerbated by an impending maturity wall due this year and next, totaling $42.3 billion, the third highest among all property types according to Cred IQ. This financial pressure is further heightened by the past reliance on CMBS loans (Commercial Mortgage-Backed Securities), which if refinanced in the current rate environment, would not only lock borrowers into higher interest rates but provided interest rates do come down would lead to elevated defeasance costs in future years. Many hotel investors and owners may need to sell off their assets to relieve themselves of these financial pressures or be willing to weather the storm that may or may not present a path to recovery in the near future.  

Historically, the hotel sector enjoyed a healthy influx of CMBS loans, and the rates secured in 2019-2022 hugely benefited the sector and injected it with the capital that it needed. However, the present narrative has shifted, with the hotel sector now perceived as a riskier investment compared to other asset classes like multifamily. Opportunistic investors and lenders who are still willing to lend or invest in the hospitality space are looking to charge a risk premium for the increased risk they are facing in this current period of uncertainty or look to mitigate their downside in other ways. Many large institutions and banks are playing the waiting game on deploying capital given the looming election coming in November and the Federal Reserve’s heightened caution in terms of lowering rates too quickly. This shift has led to a tightening of available capital, making it harder for hotel owners to secure the necessary funding that they need to remain profitable. Looking ahead, the looming maturities provide both challenges and incentives for lenders and hotel owners alike to renegotiate terms. The concept of “extend and pretend” is likely to become more prevalent, with lenders reluctant to take back hotel assets and investors eager to preserve their equity. 

The path to recovery for the hotel industry is paved with both golden opportunities and daunting challenges depending on your risk appetite. For prospective investors the market conditions present a ripe landscape for entry, bolstered by favorable RevPAR trends and a supply-demand imbalance. Conversely, existing hotel owners must navigate the current financial storm, facing refinancing hurdles and the looming threat of loan maturities. As the industry moves forward, the dynamics of capital markets will play a crucial role in shaping the future of hotel investment, with stakeholders on both sides of the aisle looking for innovative ways to adapt and thrive in the dynamic world of commercial real estate. With this in mind, Lever Capital Partners’s long track record in the hospitality sector allows us to guide owners and developers through these challenges. For the last 15 years, Lever Capital Partners has provided exceptional and reliable service by leveraging our strong relationships and connections to help our clients find the capital they need.

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Why FinTech isn’t making a dent in Commercial Real Estate Finance Brokerage

by: Adam Horowitz

The pace of technological advancement is reshaping numerous industries, leading to significant transformations and job displacements. Yet, despite the efforts of numerous tech companies, the Commercial Real Estate Finance Brokerage industry remains largely untouched by disruptive innovations. Why is this the case?

We’ll explore what I think are the three main reasons for this:

1) At its core, commercial real estate finance is driven by relationships rather than simple matching algorithms. 

2) Lenders and investors rely on trusted sources to conduct thorough underwriting processes, which cannot be easily standardized. 

3) The human element of trust and expertise plays a crucial role in navigating the complexities of this industry.

Unlike residential mortgages, obtaining a commercial real estate loan entails a far more intricate process, involving a multitude of data points and considerations. From sponsor backgrounds to market trends, each project demands meticulous scrutiny. While technology can aid in identifying potential capital providers, it’s the expertise of individuals that ultimately ensures successful transactions.

The difficulty in standardizing the vetting process stems from the unique nature of each project. While some may appear straightforward, others require in-depth analysis of market dynamics and sponsor track records. Identifying the weak links in complex projects necessitates a discerning eye honed through experience.

Lenders have traditionally been reluctant to expand their workforce to evaluate every transaction, preferring to rely on trusted intermediaries. This reliance on expertise extends beyond mere checkboxes, as understanding the nuances of borrowers’ experiences is essential for informed decision-making.

How do I know so much about this topic? I’m a rare tech/finance guy whose undergraduate and graduate degrees focused on both business and technology. I rode the technology wave in the 90s until soon after the dot-com bubble crashed in 2000. That crash hurt more than you can imagine as I had a lot of stock options and the company I was at was going public on the NASDAQ two days after the stock market crash. I hung around for a bit longer, then moved into the CRE finance world in NYC just after 9/11.

Taking into account the knowledge that I had gained, I tried to implement as much tech as I possibly could to streamline processes, automate tasks, and focus on having the best database in the industry. I also acknowledged that you can’t stop progress so I invested in a few of those same FinTech companies that failed. Some of those investments were profitable due to increased deal flow, and others created a write-off after values went to zero.

At Lever, we use technology to help us do one thing and one thing only; to provide capital at the best available terms for our clients. If tech helps us do that then we use it, and if it does anything else, then we don’t. I look forward to seeing how tech evolves in the commercial real estate industry and we’ll continue to use it so long as it brings results to the only people that matter…our clients.

Micro-Construction: A Game-Changer for Solving the Student Housing Crisis

by: Rachel Epstein

A recent survey uncovered that 43% of students at four-year colleges in the United States grappled with housing insecurity in the year leading up to the study, an increase of over 100% since 2022 (Benbow, 2023.) This troubling trend is forcing many students to couchsurf with friends or commute from home to attend school. In response to this challenge, the University of San Diego turned to a temporary solution by placing students in hotel rooms due to a shortage of on-campus housing (Staff, 2023). The aforementioned solution has been seen at the University of Miami and other campuses as well. This predicament has been intensified by a 9% surge in student housing demand over the past year (Staff, 2023). To address the escalating housing crisis, micro-construction is emerging as a solution, offering compact living units that provide individuals with personal space while accommodating more occupants within a single building, thus alleviating the strain on student housing.

Micro units are smaller efficient units usually ranging from 100-200 square feet which are priced at a lower cost. These units include kitchenettes, bathrooms, and a small study space. A few other benefits of the buildings are fitness centers, game rooms, meeting spaces, and storage lockers. The buildings will incorporate larger common space for students to socialize and study. Internet is also included in the rent for their units which attracts many students to live there. An added bonus is that the units come fully furnished so one does not have to worry about purchasing furniture. As stated in the article, “… murphy beds that transform into desks”(Interactive, 2022) so the room can be transformed within minutes as one pleases. This allows individuals to have their own personal space when wanted but also gives them the opportunity to be with their friends. The emphasis on these small units genuinely represent the current generation and their need for personal space but also wanting to have time with friends.

The rent for micro-units could be significantly less expensive “…students in Vancouver can rent a 140 square foot unit for $675-$695 a month, as compared to $1,000 for a full-size unit” (Interactive, 2022). The price difference is significant enough that it can be the reason one attends school or not.  This will certainly attract students to live in these units because they could have their own space and privacy but also be able to spend time with their friends whenever they want. 

Historically, regular apartments were about 800 square feet with four bedrooms with one to two students per bedroom. The units came with a full kitchen and bathroom but the buildings had limited study and communal spaces. Students could not enjoy spending time in their apartment with all their friends. Most of the time they would have to find another location for everyone to be together. Lenders and investors are interested in these spaces because of the future micro-housing holds. 

At Lever Capital Partners we are dedicated to remaining well-informed about the evolving market for modular housing construction in the Student Housing space by diligently tracking industry trends and staying ahead of developments. Our approach involves collaborating with lenders known for their reliability, ensuring that clients receive the best possible financing solutions for their projects.

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Unlocking Investment Potential and Asset Diversification: The Rise of Suburban Mixed-Use Developments in a Dynamic Real Estate Landscape

by: Kyle Tran

In the dynamic world of real estate investment, suburban mixed-use developments stand out as a key opportunity for investors. Catering to the changing needs of a workforce where 12.7% are working from home and 28.2% engage in hybrid models (TenantCloud, 2023), these developments offer a unique blend of residential and commercial spaces. These developments are not just about blending spaces; they are about maximizing utility and profitability. With diversified revenue streams, they present a robust platform for investment. The presence of on-site retail and recreational amenities enriches the living experience and enhances the value of these developments, making them multifaceted and secure investment options.

The resilience of mixed-use developments is particularly noteworthy when considering their performance during and after the global pandemic. In the wake of the pandemic, these developments have shown remarkable resilience, attracting the attention of a diverse array of investors. This includes interest from EB-5 investors, private equity firms, and Real Estate Investment Trusts (REITs), as noted by Kirk in 2022. This resilience is partly attributed to their operational efficiency, which stems from a unique mix of residential, commercial, and retail elements. This blend not only optimizes operational costs but also creates a variety of revenue streams, further enhancing their appeal in the ever-fluctuating real estate market.

In addition to their resilience and diversification, mixed-use developments also stand out in terms of financial performance. Research by JLL indicates that office spaces in mixed-use developments command higher rents – by about 24.7% – compared to those in nearby submarkets. Furthermore, these properties often have higher market valuations, with lower capitalization rates by approximately 75 basis points than prime assets in the broader real estate market (Kirk, 2022). This economic advantage underscores the appeal of mixed-use developments in the current investment landscape.

Hudson Yards in New York City is a perfect example of a successful mixed-use development. This project has transformed over 28 acres of underutilized land into a thriving urban space. It boasts more than 18 million square feet of commercial and residential space, including over 100 shops, a range of restaurants,  approximately 4,000 residences, and state-of-the-art office towers. The transformative development has rejuvenated a previously dormant area of Manhattan and contributed to creating a dynamic environment that merges modern living, work, and leisure. Its design emphasizes sustainability and a community-centric approach, making it a landmark project in urban development.

Mixed-use developments were initially challenging due to the complexity of integrating multiple asset classes into one, this made financing, permitting/approvals, and valuation quite tricky. However, developers and capital providers have grown to love mixed-use assets as it allows them to mitigate risk through further diversification and operational efficiency. Data from JLL (2023) reveals that these properties maintain lower vacancy rates, even during market fluctuations. Major metropolitan areas like Chicago and San Francisco demonstrate this resilience, showing lower vacancy rates compared to central business districts.

The broad tenant base in mixed-use developments contributes significantly to financial stability. For example, if the retail sector faces a downturn, the residential or office components can continue providing steady cash flow offsetting significant loss. This balance across different tenant types ensures a consistent and resilient income stream, as highlighted in a 2023 report by JPMorgan. To summarize, mixed-use developments represent a safe and attractive investment opportunity in the current market. Their ability to adapt to changing work models, combined with their financial stability and market resilience, positions them as a strategic choice for investors.

At Lever Capital Partners, we specialize in complex financing for these kinds of developments. With over 1,000 capital provider relationships we are able to procure tailored financing solutions that cater to the unique needs of mixed-use assets and many others. We work with our clients to curate the most efficient capital stack for any commercial real estate project nationwide, allowing them to focus on what they do best. Contact Lever Capital Partners today to explore the potential of mixed-use developments in your portfolio and the financing you’ll need to get your next project across the finish line.

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The Medtail Revolution: Transforming Retail Real Estate

by: Cody Nakatsukasa

Unlocking a promising solution for the commercial real estate sector, medical-retail real estate, commonly referred to as ‘Medtail’, stands poised to counter the prevailing decline in retail developments. The industry is now turning its gaze towards this innovative approach, asking the pivotal question: Can Medtail be the game-changer we desperately need? This specialized asset class represents the intersection of medical office specialty use and retail commercial real estate. These developments now feature more national credit tenants and larger-scale urgent care facilities, transitioning from the smaller mom-and-pop dermatology and optometry-type clinics that once occupied the majority of these spaces. With retail becoming such a distressed asset class in a post-COVID era with the rise of E-commerce alternatives, there are questions as to how to keep demand for retail space up. This specialized asset could be an answer.

Prior to the global upheaval caused by the pandemic, the retail real estate market had been witnessing a noticeable decline in available capital, signaling a departure from the robust funding prevalent in the early/mid-2000s. This shift, marked by waning interest in conventional retail spaces like enclosed malls and shopping centers, had already begun to unfold. Against the backdrop of this challenging retail climate, the dynamics of financing for retail developments, renovations, and acquisitions faced constraints, yet still served as a stable product type for investors.

However, as the pandemic accelerated the shift towards E-commerce, traditional retail spaces faced unprecedented challenges. According to the 2023 United States Census Bureau Quarterly E-Commerce sales report, E-commerce sales accounted for around 15.6% of total sales in the third quarter of 2023 (5). Foot traffic plummeted, with shoppers preferring online, no-contact alternatives, leading to store closures and bankruptcies. This turmoil had a profound impact on the perception of retail as an investment, turning many lenders and investors more cautious. This was coupled with the recent hikes in federal interest rates to combat inflation, making lending terms less favorable. Vacancy rates in retail markets across the country have skyrocketed, with one of the largest jumps being in Dallas, increasing vacancy by around 21.31% according to the Federal Reserve Bank of Atlanta (3). Other major markets including Los Angeles, New York, and Philadelphia all saw around an 8-10% increase in retail vacancy.

‘Medtail,’ the fusion of medical office and traditional retail, is rapidly gaining prominence as it reshapes the retail landscape. It offers resilience in the face of E-commerce, as healthcare services remain immune to digital disruption, ensuring consistent demand and foot traffic. The inclusion of healthcare tenants diversifies the tenant mix, providing stability and financial predictability for property owners. These tenants are also largely part of a demographic of medical practice known as traditional alternative medicines, including practices such as massage, chiropractics, and meditation, an industry that has grown in employment by double, increasing from 60,000 to 120,000 employees in the space according to the U.S. Bureau of Labor Statistics (1). Adaptive reuse of vacant retail spaces for ‘Medtail’ purposes addresses oversupply issues while catering to the growing need for accessible healthcare facilities. 

Furthermore, ‘Medtail’ fosters community-centric experiences, creating destination shopping hubs and appealing to investors seeking reliable, long-term income streams. According to NAIOP, “The era of monumental health care facilities (mega-hospitals and sprawling campuses) is coming to an end. They are not consumer-friendly and tend to be an unpleasant clinical experience” (4). Smaller ‘Medtail’ offices and community-centric projects offer a more personal and less institutional feel to the patient experience that has become sought after in a post-digital world.

Looking ahead, the future of capital availability in ‘Medtail’ real estate is poised for growth. A compelling real-world example of such potential is evident in Black Salmon & The Allen Morris Co.’s ambitious new development plan in Highland Park Miami. This $1 billion, 7-acre mixed-use project, announced at the end of September, aims to expand the Miami Medical District (6). Encompassing 500,000 square feet of medical office/retail, a hotel, residential units, and ground-floor retail, the joint venture seeks to establish a walkable medical community. Projects like this underscore the integration of Medtail into diverse product types and highlight its evolving role within urban ecosystems.

Drawing on our extensive expertise in the retail sector for both value-add and ground-up development, we are able to procure the best available capital solutions to suit any Medtail project. Empower your investment journey by partnering with Lever Capital Partners and allow us to leverage our network and experience to find the capital for your next real estate project.

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