Tag Archives: CommercialRealEstateFinancing

2019: The Market Ahead

By Max Bleiler, Lever Capital Partners

Investor appetite is lessening in 2019, according to firms surveyed for the 2019 Annual Investor Intentions Survey by CBRE. Of those surveyed, 98% intend to continue making acquisitions in 2019, but anticipate that they will do so at a slower pace. Furthermore, they are increasingly looking to secondary markets as well as alternative asset classes for yield. Amongst investors, the majority of investments are being made in pursuit of a stable income stream, followed by expectations of capital appreciation. This makes sense as prices across asset classes and markets are at or near all time highs.

Amongst investors, there is continued fear that 2019 may be the year of a global economic downturn. As we are all aware, this fear has been a growing concern over the past few years, but there has yet to be any strong indication that the apocalypse is now. Secondary to this concern is fear over what rising interest rates will do to the economy. At this time, the Fed seems to have indicated that they are taking a break from raising rates, so this fear, at least for 2019, can be put to bed.

Atlanta, Denver and Central Texas markets have emerged as leading metropolitan areas for real estate investment in 2019. Amongst Tier I cities, Boston and Chicago remain in favor while New York, Seattle and D.C. fall behind other Tier II and Tier III locations, including Las Vegas. These trends are continuations of what Lever Capital Partners has seen over the past few years and expects to continue to see moving forward.

Across asset types, industrial reigns top amongst investors. This continues a duel between industrial and multifamily spanning several years now. As tech giants continue to develop distribution plans for our increasingly e-economy, large investors have indicated they believe this sector is ripe with opportunity. Across asset types, value-add strategies remain most popular amongst investors, a trend that has now been increasing for nearly half a decade which Lever Capital Partners expects to continue in the short term. To the surprise of many, retail continues to hold its ground as an investment class, despite much buzz about the so-called “death of retail”.

Looking to the year ahead, the study indicates that 2019 is forecasted to be a slower version of 2018. Many of the concerns of the market have been sustained for several years now and trends in favorable real estate classes, investment strategies, and geographies are continuations from what Lever Capital Partners has seen in the past. In our experience over 2018, we saw increased activity in the senior housing, student housing, and industrial sectors. We anticipate these trends to continue as we move further into 2019.

At Lever Capital Partners we work closely with developers and owners to connect their projects with capital appropriate to their needs. We appreciate and anticipate the challenges the market cycle can bring to real estate transactions. We pride ourselves on our ability to have open conversations with clients and provide quick feedback, as to the market appetite, for their bespoke products. When partnering with developer clients in early stages, we are able to provide our market forecasts and help guide clients toward more financially feasible transactions.

Reference:
CBRE Americas Investor Intentions Survey 2019

High Construction Costs and Delays are the New Normal

By Adam Vanlerberghe, Managing Director, Lever Capital Partners

The topic of high construction costs has been popular over the last year and continues to be relevant into the new year. At Lever Capital Partners (“LCP”), we work closely alongside our Developer clients who must navigate and mitigate increased labor rates, material costs and labor shortages and delays.

The pain has been felt throughout the industry and especially within the Multi-Family sector where there remains a shortage of specialized trades needed to finish jobs. “We’re measuring an average delay of around five months,” says Andrew Rybczynski, senior consultant for CoStar Group Portfolio Strategy.

These delays can also lead to increased financing costs and liabilities to the Developer and/or Loan Guarantor(s). Delays lengthen the construction phase of a project, which typically carries a higher interest rate than the completed, income producing phase/product. Even worse, the delay could result in a loan default and/or costly loan extension fees.

At LCP, we anticipate and understand the challenges associated with developing a commercial project in today’s high-cost, often-delayed construction environment. We have realistic, open conversations with our Clients and help negotiate favorable loan terms, extensions and language to address such contingencies with our vast network of capital providers. Further, we will assist and advise our Clients on the preparation of budgets and proformas that account for these contingencies. When done properly, our Client and their project gain valuable credibility with capital providers, improving the likelihood of effectively closing the transaction.

Reference:

NREI Online

Opportunity Zones

By Amnon Cohen, Managing Director, Lever Capital Partners

Opportunity zones are areas designated by local governments that offer tax breaks under a new federal program. Investment firms have started to set up funds to distribute money specifically into these opportunity zones. There is a catch, every property within a qualified opportunity zone will not receive the same benefits.

There are multiple factors for investors to consider when it comes to investing money into opportunity zone properties. A few of these factors are, “the likelihood of getting a solid return on investment, the ability to quickly navigate the project approval process and the other programs that can be utilized alongside the opportunity zone benefit” (Banister).

“The industry was awaiting specific regulations from the Treasury Department, but experts believe it will allow investors to see significant increases in returns while also benefiting communities that otherwise might not attract as much investment. Develop founder Steve Glickman, who helped write the Opportunity Zone program while at the Economic Innovation Group, said the vision was to foster investment in low-income communities. But it was also important for local governments to select areas that could support private investment and create returns, and he said they did a good job of that. The census tracts selected cover 10% of the U.S. population, roughly 35 million people, and have an average poverty rate of about 30%” (Banister).

Here are the specifics:

-Gains can be reinvested into opportunity zones. If the project is held for longer than 5 years, 10% of the gains tax will be reduced
-If the project is held for 7 years 15% of the previous gains tax will be reduced
-If the project is held 10 years the any gains tax on the existing phttps://levercp.com/wp-admin/edit.php?post_type=news_2roject will be eliminated
-Among the answers provided, the Treasury Department said that a business can qualify as being in an Opportunity Zone as long as 70% of its property is in the designated area.
-Another important data point: Investors have 180 days from the sale of their stock or business to put the proceeds in an opportunity fund.
-Businesses also get 30 months to hold working capital for an investment in the Opportunity Zone, just so long as there is specific plan for a project.

Interactive Map of Opportunity Zones

References:
https://www.bisnow.com/washington-dc/news/economic-development/which-properties-investors-expect-to-benefit-most-from-opportunity-zone-investments-93980

Hotel Outlook: Economic Growth, Occupancy, and Airbnb

At Lever Capital Partners we are also seeing positive ADR and Occupancy growth for most of our hotel clients. Given the run up in RevPAR, there has been a slew of development and the commercial real estate financing world is now taking a harder look at new development projects. Commercial real estate lending for new hotels is now only provided for the best owners where the STR report shows a true need for the asset in question. There’s been a bunch of CRE News about Airbnb and the effect that it’s having in the hospitality market but I haven’t seen it given the deals we’ve looked at. Maybe it’s having a greater effect in primary markets like NYC and San Francisco but many of the assets we’ve financed recently continue to have positive RevPAR trends. Overall we continue to like the hospitality segment but are cautious along with the lenders about what might happen if there’s a slowdown in the segment given the increase in average interest rate for commercial real estate loans.

– Adam Horowitz, Principal of Lever Capital Partners and President of the Real Estate Capital Alliance

Click here for more information on economic growth, occupancy and Airbnb in the hospitality sector.

Opportunity in the Apartment Market for Family Offices

I like Antonio’s article and hope that more family offices invest in multifamily assets. We’ve always enjoyed finding commercial real estate financing for family offices, but the challenge has been the locations. Antonio suggests that they should look in secondary and tertiary markets but what we’ve found is that the family offices tend to start off investing in locations near their home base with a GP partner before heading into a smaller market which makes it more difficult. We’d love to see more commercial real estate news saying that family offices are pouring into the space but only time will tell if they want to pick up multifamily assets and commercial building loans in markets they don’t know well.
– Adam Horowitz, Principal of Lever Capital Partners and President of the Real Estate Capital Alliance

Click here to read Antonio’s article on why family offices shouldn’t overlook the apartment market.

New Approach to Senior Living: Multigenerational Communities

This was an interesting article to read, and I think personally a good idea. The challenge with this idea on senior housing will come from the commercial real estate lending side. The commercial real estate financing business moves pretty slow and they like to see that there are many very similar projects that they can draw from for comps and previous success. We’ve worked on similar projects recently and have seen that attaining a commercial real estate mortgage was more challenging in this sector, although still doable.

– Adam Horowitz, Principal of Lever Capital Partners and President of the Real Estate Capital Alliance

Click here to read more about senior living bridging the generation gap.

The End of Office Space as We Know It

Our team at Lever Capital Partners has been providing commercial real estate financing for a few clients in the co-working space. As the average interest rate for commercial real estate loans keeps creeping up, our office owners are looking for additional ways to boost their NOI. Over the last couple of years we’ve been hired by firms that are trying to emulate WeWork in markets where they already have a strong office presence. The ability to get a commercial building loan is getting easier as WeWork co-working expands into smaller markets.

– Adam Horowitz, Principal of Lever Capital Partners and President of the Real Estate Capital Alliance

Click here to read more about The Rise Of ‘Office As A Service’.

Smaller Metros in the West are Emerging

Our team at Lever Capital Partners has noticed similar trends as we started seeing more smaller metro deals come across our desk the last few years. It’s still hard convincing non bank commercial real estate lenders to do business in many of these markets, despite showing the data that supports commercial real estate financing in those areas. The more cre news similar to this article the better support we’ll have in the future when working on deals in this sector.

– Adam Horowitz, Principal of Lever Capital Partners and President of the Real Estate Capital Alliance

Click here to read more about the emergence of smaller and Western metros.