The Industrial market has turned from the ugly stepchild of the 4 major food groups into a sought after commodity, especially in the last year. A subcategory of industrial that you might not be that familiar with is Cold Storage. These facilities store perishable products such as fruits, vegetables, meat, or fish under controlled conditions for long periods of time. Cold storage is becoming crucially important because of a need to store the Covid-19 vaccine as well as food distribution via e-commerce that has grown immensely over the last 12 months.
How the Financing Markets are Heating Up to Cold Storage
Consumers are purchasing much more food via e-commerce because it was a very convenient and easily accessible solution during the lockdown. In particular, Amazon Fresh’s sales have grown by allowing customers to purchase and receive deliveries for their groceries and consumer products. The future of cold storage is still untold because it will be more prevalent when more pharmaceutical companies such as Johnson and Johnson, Sanofi, and Bayer come out with approved vaccines with FDA approval along with the current demand of the vaccines from Pfizer and Moderna. With consumer trends shifting to buying more items online, the investors we speak with believe that increasing Cold Storage assets in their portfolio will be inevitable.
The future of cold storage has endless possibilities that will not diminish anytime soon due to the increased food distributions through e-commerce channels. According to David Egan, senior director and global head of research for CBRE, “food in the U.S. is a category worth approximately $2.5 trillion, with grocery sales representing almost $1 trillion of that number. If e-commerce grocery sales grow to 15% penetration, that’s about $150 billion in sales that would shift from an in-store model to an online model. To put that in perspective, all e-commerce in the U.S. is about $500 billion” (NAIOP). Based on these statistics, this showcases how attractive cold storage is becoming in 2021 and where institutional investors will look in the coming years as a major investment for cold storage as an asset class in the industrial real estate sector.
The Changing Landscape of Available Capital
Prior to COVID-19, cold storage was primarily used by grocery store distributors to help facilitate their sales of produce and meats along with a growing demand from e-commerce companies. Jones Lang LaSalle Incorporated (JLL), a global commercial real estate services company, mentions, “In May 2018, Blackstone, one of the most prolific investors in commercial real estate, purchased a 2.3-million-square-foot portfolio of nine industrial properties that were primarily cold storage facilities for $255 million at a 6.25 percent cap rate.” Due to these new changes and demands, lenders and investors are now looking at this niche market as an attractive investment. Lever Capital Partners and their sister firms at the Real Estate Capital Alliance held a virtual MBA in early February. At that event many capital providers talked about lending and investing in Cold Storage for the first time. Once a majority of capital providers sees the Cold Storage space as a critical component of the Industrial segment rather than a niche business, the competitive landscape will increase thereby increasing the competition for available capital.
We’re Here to Guide You!
Lever Capital Partners knows the Cold Storage business and in fact financed their first one back in 2005 in a Boston suburb. We have increased our tracking of available capital due to the occurrences we’ve seen in the last few years and can help guide you through today’s capital availability. Our team of industrial experts will advise on your ability to get financing up and down the capital stack utilizing debt and equity for acquisitions, adaptive reuse, or development. Because we’re a relationship oriented firm, our preference would be to work with established sponsors looking for programmatic capital rather than one-off projects. Please reach out so we can quickly evaluate your project and guide you towards the best available capital!
We entered January 2020 with unprecedented momentum. A strong economic outlook called for a year of tremendous growth after nearly a decade of global economic expansion. While all the indicators of growth and success presented themselves, the global pandemic put the era of growth to a screeching halt; leading to a year of tremendous loss and uncertainty, changing the world as we know it.
A year later, with the vaccine rollout in full swing and the end to election uncertainty, we anticipate 2021 will be a strong year for the capital gains market. We are seeing a positive market outlook that boasts low interest rates, banks and investors flush with cash, and an S&P 500 index that’s up 3.8% YTD.
While we anticipate a strong year of recovery, we gathered the latest research and interviewed the most influential CRE experts to expand on our predictions. Here is what they have to say.
Distressed commercial real estate loans and discounted asset sales will continue to rise
The Fool reports 20 large real estate firms have filed for bankruptcy by the end of 2020, including two with more than $50 million in assets. In the next five years, CoStar Group predicts there will be a more than $126 billion flash sale of distressed commercial real estate, equating to $321 billion in sales by 2025.
Additionally, data from the Federal Reserve shows commercial property debt increased to a record of $3.06 trillion for the first time during the third quarter of last year, up from $2.2 trillion in the third quarter of 2012, which was a 10-year low.
Brock Cannon, Head of National Loan Sales at Newmark believes the distress created as a result of COVID will last beyond our predicted 5-year growth period. He says, “my team is still working on sales that originated in 2007 and 2008, thirteen years later. We will be working through this distress for at least ten years to come.”
Bid-Ask Spread to Lessen
Distressed deals in 2020 were also challenged with a large bid-ask spread, a leading indicator of illiquidity of the market. We anticipate that the spread shrinks in 2021, due to lenders having more realistic expectations of below-par sales and increased available capital.
Chris Skinner, author, speaker and expert on banking says the lasting impact will stretch beyond 2021 saying, “it’s not just in the CRE space but in all aspects of society. Most people had exposures to loss in 2020 and they will pass those losses onto the banks. Expect a major downturn and increasing NPLs through to 2025.”
Hotel and Retail Will Struggle to Recover; Office Recovery Uncertain
FitchRatings reports that hotel and retail delinquencies rose to $2.0 billion in December 2020 from $1.5 billion in November. New delinquencies were largely made up of $1.2 billion in hotel loans and $582 million in retail loans. The delinquency report from Moody’s Analytics paints the same picture.
Adam Horowitz, Principal at Lever Capital Partners, shares a different perspective. “Every time there is a downturn in the market, funds are raised with the anticipation of a flood of NPLS hitting the market,” he says.
Research from Real Capital Analytics indicates that CMBS had the highest leverage and market share during the last crisis. This time around, we are seeing higher leverage with direct lenders and banks. However, CMBS is more concentrated in the hotel and retail areas, which will be reflected in deeper discounts on CMBS distressed sales.
Marco Santarelli, Founder and CEO of Norada Real Estate Investments points out that while the commercial space is suffering, residential real estate remains strong. He says “the brick and mortar retail space has suffered the most, but demand for homes, logistics and storage have increased.”
Unanimous Uncertainty and Novel Ideas Around Office Recovery
CBRE predicts that the office sector will recover the slowest from pre-pandemic investment volumes. The cloud of uncertainty around the future of work and office spaces are widely shared across the board, with a general consensus that evolving trends that include remote and flexible working are here to stay.
New York Times editor, Matthew Haag, suggests NYC’s real estate can be positively transformed if office spaces are converted to residential spaces. Data shows that job growth in New York City has tremendously outpaced housing growth, leading to a massive housing shortage. While this would require zoning and density rules to change by the City Council and State Legislature, this is one of many novel ideas presented due to the uncertainty around a return plan to corporate offices.
The report states that only 10% of Manhattans’ 1 million office workers are physically reporting to the office, and filings to erect new buildings dropped by 22% in 2020, the lowest number since 2010.
AI and Technology Will Transform the Way CRE NPLs Are Sold Forever
“The real estate industry as a whole has been very slow to adopt new technology,” Santarelli states. His sentiments are widely shared amongst experts interviewed, confirming a need for broader capabilities of technology platforms to fully meet the increasing demand to manage CRE deals.
The success of lenders, brokers, and CRE firms in a post-COVID world depends on the extent to which their people can perform in remote work environments. Deloitte reports that most CRE companies are unprepared to meet the demand in this wave of distressed debt.
Jim Berry, Vice Chairman and US real estate leader at Deloitte states, “While the pandemic was an eye-opener, we see it as an accelerant of existing trends. It is telling that 56% of CRE respondents to our 2021 CRE Outlook survey said that the pandemic exposed shortcomings in their organizations’ digital capabilities. Only 40% of respondents said their company has a defined digital transformation roadmap.”
It’s clear that digital adoption is not enough – a digital transformation is necessary for firms, brokers, and sellers to keep up with demand and operate efficiently.
Horowitz shares how technology is helping his firm today by saying, “Technology helps with the two main components of our business; who needs capital and where to find it. There are various ways to determine whose loans are coming due, what projects are on the docket for future development, and what assets are currently in default.
On the capital side, technology is helping us determine capital availability, making sure we connect with the right person at that firm, then create a process using technology to close the deal in the most efficient way.”
Technology platforms driven with AI, like Metechi, help fill in the gap to meet this increasing demand. Increasing analytical capabilities coupled with security and transparency will transform the way the market will operate. To find out how you can buy and sell CRE NPLs at scale, schedule a free demo with Metechi today.
About Our Contributors
Brock Cannon serves as the head of national loan sales with the Newmark Loan Sale Advisory Group. Based in the firm’s New York headquarters, Brock focuses on secondary debt transactions on a national basis. Brock’s experience with loan sales is extensive and includes the origination of debt and equity financings, restructuring and modifications of distressed loans, loan servicing, loan sales and investment sales. For more information on how to get on the investor list, speak with Brock here.
Chris Skinner is an author, expert and speaker on banking, finance and fintech. He is the author of the The Finanser blog and chairs the Financial Services Club. He defines purpose-driven banking as more than sustainability or ESGs. He likes to pose the key question: if your company doesn’t stand for something then it will fall for everything. What does your company stand for?
Trisha Connolly is a Senior Managing Director at B6 Real Estate Advisors focusing on equity and debt transactions for the capital advisory team with clients across the country and a focus on the lower Manhattan territory. Ms. Connolly specializes in commercial real estate financing with over 15 years of experience including loan restructure, term financing, syndicated credit facility, construction financing, acquisition financing and advisory and joint venture equity structures.
Adam Horowitz is the Founder and Principal at Lever Capital Partners. Lever focuses on two types of transactions; large one-off deals for institutional sponsors ($50MM+) and programmatic equity investments for established owners looking to build out a niche platform ($10MM+).
The purpose built Build-for-Rent (BFR) market growth chart is starting to look like a hockey stick and LCP is actively speaking with debt and equity capital hungry for deals. A strong market opportunity is emerging and LCP is here to help qualified sponsors capitalize on this sector.
Commercial Developers vs Traditional Homebuilders
Commercial Developerscan leverage the scale of their in-house investment management, property management, and development groups to build horizontal multifamily developments. Single family homes will be a new product type for most commercial developers and they will need to have the right contractors in place to get it right. However, what they lack in single family home development experience, they most likely make up for in institutional investment management and large scale project execution.
Homebuilders have a demonstrated track record of construction and development of single family communities which puts them in great position to capitalize on this new market. They’ll likely need to partner with an established management company or hire a 3rd party manager as they traditionally are merchant builders and not owner operators with a track record of asset and property management.
What are Debt and Equity Providers Looking For?
Equity investors are interested in partnering with commercial developers and homebuilders that show a demonstrated track record of home construction, development execution, and long-term rental management. The investors can either come in as an LP when they feel the sponsor has an existing portfolio or a Co-GP where they need to bring in their development expertise. Investors want to create a portfolio of BFR communities that can be managed like multifamily but with double digit unlevered returns. Market rate yield on cost is variable due to market specific construction costs but expectations are generally higher than for multifamily construction.
Debt lenders like cash-flowing rental properties and as more people escape the big cities for suburban living, they feel like this asset type will hit the right chord for many people used to choosing between owning a home vs apartment living. You can expect a variety of options for first mortgage debt, including high leveraged stretch loans, mezz, and pref options along with non-recourse facilities available to the strongest sponsors. Expect pricing will be inline with multifamily loans.
We’re in the market right now!
LCP has been tracking this space for a long time and can help you navigate the capital markets to get your project financed. We are talking with sponsors and institutional investors on a daily basis and know who the right groups are to be speaking with and can help guide you to supplement any holes in your presentation or team. LCP’s Build-For-Rent program can arrange programmatic solutions for long term growth in the marketplace. This is an exciting space with lots of future opportunities and we know what it takes to grow your BFR platform.
Lever Capital Partners is speaking with lenders and investors on a daily basis and have been hearing that changes in underwriting are at the forefront of their minds. The number one question capital providers are asking is, “In the current post-Covid world, what changes have you made in your underwriting assumptions?”. The conversation is a non-starter if the sponsor has not thoroughly thought through these changes and can’t clearly point to adjustments made in the proforma with a compelling story to back it up. Here are a few of the major underwriting changes we’re requesting from our sponsors (for now) and our recommendations about how to present them to the market:
Cap Rates – Needless to say there is pricing uncertainty in the market (investment sales volume has dropped roughly 70% in Q2 2020 from the same period in 2019, according to CoStar and RCA Data). Pre-Covid comps are being ignored so it’s important to factor in a conservative premium to appease investors. Recently, we’ve seen value adjustments of 10%+ for multifamily properties up to 30%+ for hospitality, depending on the specific asset. Don’t be shocked when looking at your updated IRRs.
Rent Growth – Underwriting future income streams poses a considerable challenge for most properties without long term leases or credit tenants in-place. Across the board, investors are underwriting untrended rents and factoring in zero rent growth for the next 2-3 years. In rare instances, some markets are projected to have a negative rent growth rate over the next 1-2 years. Where you build / purchase will be heavily scrutinized now.
Exit Cap to Yield on Cost – In regular times we’d typically look for untrended yield on cost spreads of 150 basis points compared to the exit cap rate. The industrial and core multifamily spreads are holding close to those numbers but we’re seeing a much wider spread for all other asset classes. Be prepared to show numbers in the 175-200+ range.
Spec Development – Building spec has always been a challenge, even in the most bullish of times. Office and retail have required a fair amount of pre-leasing even in the early part of this year. But now, given the circumstances, nothing is going to happen unless you are heavily pre-leased with credit tenants in tow. Walking into the lender’s office with a mask and a dream won’t cut it, so start lining up those credit tenants.
Debt Assumptions – The lending world has dried up considerably with some participants leaving the market (debt funds) and others on the sidelines only willing to lend to existing relationships (banks). Overall, leverage has decreased with developments maxing out at 65% and more commonly in the 50-60% range while interest rates spreads have widened, increasing all-in rates. You’re likely going to need more cash, and investors are much more focused on the debt status than ever before.
Without these adjustments, most lenders / investors will take a quick pass. Your ability to identify and edit your original underwriting shows you’re adapting to the new normal, have an understanding of what metrics had to change and are able to craft a workable solution around the modified numbers. To come off as a sharp sponsor and on top of the market, we recommend having your changes ready to present by (1) preparing a doc that outlines your changes that you can share with investors and lenders and (2) crafting a compelling story for the asset and market that you can talk through.
These are the first things we ask for when looking at new deal packages. If you follow the above rules you might be one of the fortunate few to get a new loan or investor equity. We can help when you’re ready to “turn and face the strange” as Bowie said. We’re home working in our PJs waiting for you to call.
There have been many changes to the commercial real estate sectors largest food groups since Covid-19, some are temporary and some will be here to stay. Below we share some statistics and our thoughts on which property types you should devour and which ones to avoid as we hit this very unusual July 4th weekend. We’ll list the sectors from 1-4, ranked as the number of turns left on the BBQ until it’s ready to eat.
Multifamily (1 turn left)
Multifamily is poised to recover better than other sectors for a few reasons. The sector had strong momentum going into the Covid crises and as heard on a recent webinar, “you can’t sleep on the internet.” Per CBRE, vacancy is expected to rise 3.1% from from Q4 2019 (4.1%) to Q4 2020 (7.2%) but fully recover by the end of 2021. Similarly, rents are projected to drop 8.1% in 2020 and fully recover by Q1 2022.
However, that doesn’t mean there won’t be changes. People will live where the jobs are and the changing landscape of the “work-from-home” era might affect the long-standing trend of people moving closer to big cities. We think the so-called 18-hour cities that have job growth, lower taxes, less traffic, and a cost of living that provides the ability to work from home will benefit more than the largest US cities.
Industrial (1 turn left)
Industrial is another palatable menu option. Although COVID is suppressing the macroeconomy and may experience a brief downturn through 2020, the shift toward social distancing has encouraged e-commerce spending, providing some protection for the industrial sector over the next few quarters. Over the long term, it’s expected that e-commerce will largely maintain its gain in retail share and businesses across the economy will look to carry larger amounts of inventories, boosting industrial demand.
From Lever Capital’s perspective, strong sponsors who can pre-lease or pre-sell industrial will be one of the most attractive asset classes for both debt and equity markets given the strength of e-commerce spending. Everyone will try to enter this space without the knowledge or relationships to get these deals done. We’ll encourage new entrants to partner with experienced groups.
Office (2 turns left)
Office still needs a few more turns on the BBQ before it’s fully cooked. However, according to CBRE, despite the staggering rise of unemployment and negative GDP figures, 9 of 10 respondents to a Bureau of Labor Statistics survey considered themselves on a temporary layoff. The office sector benefited from a fast adoption of work-from-home policies. Looking forward, the U.S. office sector most likely will not be able to go through the current crisis unscarred. New office densities and the magnitude and duration of work-from-home regimes is still not ready to eat.
It’ll take a while to determine the level of hurt this sector will take as tenant leases roll over the next year. The opportunity here exists on the distressed side, having a tenant lined up to occupy a vacant building, or repurposing to industrial.
Retail (Overcooked)
The impact of COVID-19 has put additional pressure on the retail industry. According to CBRE, the overall availability rate is expected to rise and reach its peak in Q1 2021 at 12.5%, or 380 basis points (bps) higher than the Q1 2020 level. Rent is forecasted to reach its trough at Q2 2021, with an 8.5% decrease compared to Q1 2020. This is a challenging time for retailers as many close their stores and more retail space becomes vacant or converted to other property types.
Lots of our friends and clients admit that the country was already “over retailed” and given the shift to e-commerce for some products that previously were dominated by brick and mortar it’ll feel even more-so. However, with retail sectors being impacted so differently, their recoveries will have different trajectory paths.
Conclusion
The U.S. Real Estate sector will look different this 4th than in years past and some food groups appear to be more appetizing than others. Multifamily and industrial are poised to recover in short order, while office has some cooking to do and retail has already been burnt from sitting on the grill for too long and may need to be replaced with a fresh dog.
We’re Here to Help
Lever Capital Partners is a boutique capital intermediary with deep relationships in the debt and equity capital markets for commercial real estate. To learn more about our services or if you have questions about capital, reach out to us and we will evaluate your project.
There’s been a lot of change recently and commercial real estate has not been kept out of the fray. Sure, there are some obvious losers (retail and hospitality) and winners (distribution and data centers) that we can see a mile away, but what about the ones harder to find. Here are 3 less obvious sectors:
Office – Not all jobs can be done remotely, and many firms will still favor the social and collaborative benefits which are fostered through in-person working relationships.
Manufacturing – Supply chains could be re-focused domestically, as the outbreak caused global disruptions. The thought is that the industry would be better equipped to handle a similar pandemic in the future if more operations were located in the U.S.
Healthcare – This sector is expected to grow 10% to 16% annually over the next decade as the entire local, county, state, and national healthcare facilities infrastructure and platform are reshaped, integrated and expanded as society mends and strengths as a result of a pandemic like the world has never seen.
Commercial real estate is a slow moving animal, the Manatee of the real estate market some might say. The pandemic has pushed the envelope of how fast CRE markets can shift creating some havoc in certain sectors and opportunities in others.
Short term there will be a quick reaction to run away from office creating plenty of distressed opportunities in this sector, with some assets bouncing back fairly quickly. I don’t expect significant new development without strong pre-leasing from credit tenants nor do I think 50% of the workforce will be working from home in the next year or two. The lack of new supply in the coming years will provide some good deals to get in when the sector is in panic mode.
Industrial in general has been one of the hottest sectors in the commercial real estate business for some time now, but mostly on the distribution and energy fronts. What might be less apparent is what’s happening in the manufacturing space. There will be a small but significant increase in manufacturing as companies concerned about supply chains and their ability to weather future global issues decide to keep more of the work stateside.
Putting aside the challenges with Skilled Nursing at this time, the rest of the Healthcare sector ranging from low acuity products like Independent Living and Assisted Living, to higher acuity such as Memory Care and Hospice will continue to grow. Ancillary property types including Medical Office Buildings and Biotech will follow suit as well. Most of these assets are operation intensive endeavors and therefore have high barriers to entry.
There are sunny times ahead if you can get into the right sector, at the right time. Some sectors will continue to thrive. There will be some new hot property types to consider and also lots of distressed assets coming down the pike if you can gain access to them and have the capital to quickly close.
We are speaking with the markets daily and can tell you that capital is available for both assets that are doing well during this downturn and opportunistic deals in more challenging sectors. The real opportunity will come as deals fall apart for weaker sponsors allowing stronger ones to come in with cash or great capital relationships to pick up the pieces at a discount.
To learn more about these trends and how they might affect your business, or if you have questions regarding a commercial property, reach out to us and we will evaluate your project.
In light of the current economic situation, property investments may experience distress and there are certain considerations that should be taken into account. First, is to stay calm! Owners, lenders and investors have weathered uncertain times before and this too shall pass – this may even present an opportunity for some to grow. In coordination with experienced advisors, owners and lenders here are 3-steps to identifying the right path forward:
Step 1: Review the existing deal and investment plan
Before making any changes, it’s important to understand the structure of the deal in place. Lever Capital Partners is constantly reviewing and negotiating deals on behalf of clients and can help make sense of restructuring a deal. Who are the parties involved and what are their interests and motivations? Review the partnership and loan docs to clearly define rights, consents and obligations. Who has decision making authority and what requirements need to be met in order to be in good standing? Focus on major covenants such as recourse obligations, cash controls and consents required for changes to the capital structure or operations.
Step 2: Identify changes, immediate needs and reset goals
What changes are temporary vs permanent? Lever Capital Partners spends a significant amount of time in the bankruptcy and workout world, and can quickly identify problems that need to be addressed. Define the immediate cash needs to fund carrying costs and service debt. Identify what short-term and long-term targets need to change. Run sensitivity analyses to understand the impacts these revised assumptions have on investment returns for each party. Based on this information, begin to reset expectations for the asset and redefine short- and long-term goals.
Step 3: Develop a plan and come to a resolution with the right parties involved
At this point, a realistic plan can be made. Bring all parties to the table, along with expert advisors such as Lever Capital Partners, who can help facilitate a dialogue and implement changes. The goal is to optimize alignment of interest among all parties and come to consensus about how to move forward collectively. From an operations standpoint, investigate creative solutions for the property and alternative uses that could support the asset in the short term. Financially, there may be a simple solution such as short-term capital, raising equity or bridge financing or a possibly a longer-term workout solution that satisfies the lender and existing investors.
This is not the first period of distress that the commercial real estate industry has seen, and there are tried and true ways to evaluate whether to restructure an asset. With the right team in place and the right advisors such as Lever Capital Partners, problems caused by current distress in the market can be solved and, in fact, may present an opportunity to grow.
We’re Here to Help
Lever Capital Partners is a boutique capital intermediary with deep relationships in the debt and equity capital markets for commercial real estate. To learn more about our services or if you have questions about recapitalizing a property, reach out to us and we will evaluate your project.
By: Adam Horowitz, Principal, Lever Capital Partners
Private equity sounds awesome and sometimes it actually is. When sponsors are building out their capital stack they often have a need for outside equity to compliment their own capital. They then have to decide if they want private partners or an institutional one. There are pros and cons of raising equity from private sources vs institutional ones and we’ll try to provide some of the biggest factors you should think about.
Equity from private sources certainly can have some upsides. Private sources will typically allow for the general partner to have greater control of the project, more favorable deal splits and less complicated partnership terms. With all of those positives, why would anyone take on an institutional partner you might ask. Well, if you need more capital than your private sources have lying around, don’t want to spend half your day raising capital, or want a partner that’s an expert in commercial real estate, then maybe finding an institutional partner is for you.
As we all know, time is money, and if you want to grow your business, work on bigger deals, and not spend your days capital raising, then you’re better off with an institutional partner. Making the transition isn’t always an easy one. The required reporting is much greater and you’ll be asked a lot of questions regarding your project or business model that you hadn’t thought of previously. Having answers to those difficult questions when the credit markets tighten will benefit you as you’ll have a professional partner that understands how to navigate the difficult waters.
Is having “control” important? Of course it is. Loss of control is always a big contender for those contemplating going the institutional route. Control rights typically come in to play only if you run into a problem with the project and your partner has a different vision than you. The operating agreement clearly spells out all the control rights and there will be a buy/sell agreement giving everyone a fair shake when it comes to staying in or exiting the investment.
What about the complicated IRR hurdles? OK, so you’ll have to break out your Excel modeling skills here or ask the analyst on your deal to step you through the model. These IRR hurdles usually are only going to come into play once a capital event, like a sale or recapitalization takes place so it’s not like you’re going to have to run the formulas daily.
Everything seems great until it doesn’t. When problems arise, as they are now, you want an institutional partner that knows how to navigate troubling times. This won’t be their first rodeo when dealing with economic uncertainty. They’ve been there before and can work with you to figure out the best plan of action going forward. Private investors scare more easily and would be more likely to try and pull their money out of a deal rather than backing your plan and coming out the other side in one piece.
Sometimes you’ll find a perfect investor where you get all the benefits with none of the downsides. When that happens, take it and be grateful. For everyone else, it might be time to look at institutional partners to see if they’re a good fit for your next project.
We’re Here to Help
Lever Capital Partners can guide you through the process of determining which partner is best for you. To learn more about this topic, or if you have questions regarding other financial needs, don’t hesitate to reach out to us.
By: Adam Vanlerberghe, Managing Director, Lever Capital Partners
With news of a different large retail chain closing down stores or filing for bankruptcy seemingly every week, there has been little reason for optimism for the retail real estate owner and investor. While the collapse of large retailers is very real and prevalent, there are signals that the sector’s decline has leveled off. There are several contributing factors to this apparent stabilization including creative tenant-mix repositioning, federal interest rate cuts and an overall improvement about the sentiment in the retail sector from the lending/investing community.
Retail owners and managers now have more of a focus on bringing in a tenant mix which includes entertainment and lifestyle businesses in order to create centers with more of a social experience. Restaurants, bars and other entertainment related businesses are helping drive consumers to the centers thus increasing the overall foot traffic and exposure to all surrounding businesses. Service oriented tenants are also being sought after by retail owners and managers as these businesses cannot be as easily replaced by the ever-growing online shopping phenomenon.
Notable changes in the federal interest rate have also helped the retail industry rebound. Just as quickly as we watched the Federal Reserve raise rates in 2018, we saw them fall once again with three straight rate cuts to end 2019. Due in part to the federal rate cuts and the repositioning to more entertainment-focused tenant mixes, the lending and investing community within the retail real estate sector has finally started to thaw.
National Real Estate Investor (“NREI”) recently published an article which highlights notable findings from a survey of 231 real estate professionals about the sentiment in the retail sector and found that “the share of respondents saying capital is more available than a year ago rose to 20.8 percent for equity (up from 12.7 percent last year) and 18.9 percent for debt (up from 13.3 percent in 2018)”. With regard to real estate investors buying, selling or holding retail property, the article further noted that “…sentiment began to swing a bit on investors’ plans to buy… The buy figure is the highest in the five years NREI has been conducting this research.”
We’re Here to Help
Lever Capital Partners has helped our clients fulfill their capital needs including ground-up development financing, bridge financing, permanent financing as well as joint venture equity investments. To learn more about these trends and how they might affect your business, or if you have questions regarding a commercial property, reach out to us at Lever Capital Partners and we will evaluate your project.
Chapter 645B of NRS Relating to Commercial Mortgage Lending is Amended, Allowing for More Growth and Opportunities in Nevada
LAS VEGAS, NV. Dec. 12, 2019 /PRNewswire/ — In a change positively impacting lending in Nevada, lenders who are unlicensed in the state of Nevada may conduct transactions through a licensed mortgage broker in the state, effective Jan. 1, 2020. Chapter 645B of NRS relates to commercial mortgage lending in the state of Nevada. The bill exempts wholesale lenders who only fund or purchase commercial mortgage loans from obtaining a license. The recent assembly Bill No. 398 amends Chapter 645B by adding the line, “The provisions of this chapter do not apply to a wholesale lender who only funds or purchases commercial mortgage loans.”
Prior to the amendment, the law required persons and entities engaged in mortgage lending in Nevada to be licensed by the Commissioner of Mortgage Lending in Nevada. Lever Capital Partners’ Principal, Adam Horowitz, said, “It was difficult for the state to track the transfer of funds, as the state lacks the staff to properly track the companies lending with or without a proper license. Often the state focused primarily on unlicensed residential loans, therefore groups either lent illegally, filed for an exemption, or forewent lending in the state altogether.”
Adam Horowitz, was aware of the complications this was causing within the industry and wanted to enact change. Horowitz spearheaded the amendment to the bill as he knew this would be beneficial to the state and open doors to out-of-state capital providers wanting to lend in Nevada. The bill will allow projects to be completed more easily, promote competition and increase dollars flowing into the state. The state will also be able to monitor deal traffic more easily as the transactions will be better regulated.
Lever Capital Partners maintains a commercial lending license within the state of Nevada and is on the board of the Nevada Advisory Council on Mortgage Investments and Mortgage Lending. The firm is an experienced commercial real estate finance brokerage company, providing capital on transactions over $5MM across the United States. It offers its clients the resources of a national platform with the personal commitment of a boutique company. The team’s track record demonstrates a commitment to serving financing requirements in nearly all types of real estate income-producing and developmental projects. LCP is a proud member of RECA, the Real Estate Capital Alliance, a consortium of 20 companies covering every major metropolitan market across the United States financing over $5.2 billion in 2018.
For more information about lending in Nevada, please contact Adam Horowitz at (212) 493-5400 or [email protected].
