Tag Archives: RealEstateInvesting

Distress or Opportunity? Securing Capital for Value-Add and Distressed Asset Strategies

by: Adam Horowitz

The commercial real estate market in 2025 is shaped by volatility, price dislocation, and tighter credit conditions. With over $1.8 trillion in CRE loans maturing by 2026, asset owners across property types are facing capital stack pressure, valuation resets, and increased scrutiny from lenders. For seasoned sponsors, this environment presents a rare opening to acquire underperforming or distressed assets at attractive pricing, assuming capital is secured with precision.

The challenge is clear. Traditional lenders are retrenching, underwriting standards are more conservative, and execution timelines are compressed. Those who can bring capital certainty to the table will have a clear advantage in unlocking value from assets others are forced to exit.

Understanding the Current Landscape

Distress is growing across key asset classes. Many Class B and C office buildings, older multifamily properties, and retail centers are facing diminished cash flows and declining valuations. Rising interest rates and expiring fixed-rate debt have created a liquidity gap, especially for sponsors with limited access to alternative capital.

At the same time, market fundamentals in many locations remain strong, particularly in sectors like industrial, data centers, and workforce housing. This divergence has led to selective but active interest from non-bank capital sources who are willing to engage when the structure, plan, and sponsorship are sound.

However, capital is not flowing freely. Securing financing for transitional or distressed assets today requires a tailored approach, disciplined underwriting, and alignment between sponsor and capital provider.

Best Practices to Attract Capital in 2025

If you are actively pursuing value-add or distressed opportunities, capital partners are evaluating more than just the asset. Focus on these core principles:

  • Sharpen your underwriting. Reflect current leasing assumptions, capex costs, and exit cap rates. Use sensitivity analysis to demonstrate risk awareness.
  • Be transparent about risk. Sponsors that proactively identify challenges and articulate mitigation strategies build greater trust with capital sources.
  • Show alignment. Demonstrating meaningful sponsor equity and hands-on involvement sends a strong signal to both debt and equity providers.

Act with urgency, not haste. Having a vetted capital network in place shortens timelines and strengthens offers in competitive or distressed bidding environments. 


Capital for Value-Add and Distressed Strategies

Capital for value-add and distressed strategies typically includes several components. These may involve acquisition financing for properties with repositioning potential—such as lease-up, renovations, or rebranding. It can also include rescue capital or preferred equity to recapitalize assets facing maturity defaults or operational shortfalls. Additionally, bridge or mezzanine debt is often used to fill gaps in the capital stack during the value creation process.

In all cases, sponsors must present a credible path to upside, usually through improved NOI, market repositioning, or cap rate compression. Lenders and investors look for well-supported pro formas, conservative exit assumptions, and sponsors with a proven track record of execution.

How Lever Capital Partners Adds Value

Lever Capital Partners provides a competitive advantage by sourcing and structuring tailored financing solutions across the capital stack, including senior loans, mezzanine debt, preferred equity, and JV equity. With strong relationships across non-bank lenders, private credit funds, and institutional investors, Lever combines market insight with real-time access to capital. Beyond placement, the firm offers hands-on support throughout the deal process, from packaging to closing, ensuring alignment between complex strategies and capital execution.

Distressed assets are not without risk, but for prepared sponsors, they offer meaningful upside. In 2025, access to capital will define who can take advantage of this market cycle. With the right strategy and the right advisor, today’s market uncertainty can become tomorrow’s competitive advantage.

From Overbuilt to Optimized: The New U.S. Retail Landscape

by: Simone Mehdizadeh

Retail vacancy rates hit a 20-year low of 5.4% this summer, down almost 50% from the pandemic peak. Even before COVID-19, vacancy rates were already very high at 9.7% in January 2020. Three key factors are contributing to this historic drop in vacancy; store closings, better tenants, and conversions to mixed-use.

The recent surge in store closures that has ultimately surpassed openings is creating a window of opportunity for opportunistic retail investors across the country. A Coresight Research report highlights that 4,548 stores have closed compared to 4,426 openings, resulting in a net loss of 122 stores (CoStar). This shift has been driven by significant closures from retailers like Big Lots (not to mention many others) which plans to shut 258 locations nationwide. Despite this, according to CoStar, analysts remain bullish that the demand for retail space continues to outstrip supply, indicating a tight market and a substantial demand from various sectors for retail space. This imbalance between the need for retail space and its availability, combined with significant bankruptcy activity closing stores across the country, leaves a window of opportunity for investors to buy retail centers at a discount (due to recent vacancies) and take advantage of the many retailers looking to expand and willing to pay higher/market rents.


Developers are revitalizing shopping centers by introducing more experiential tenants such as entertainment venues, modern restaurants, and recreational activities that attract a broader customer base. This shift started in the mid-2010s when traditional retailers like bookstores were replaced by more trend-driven brands and entertainment options. Experiences like pickleball courts and escape rooms are now major draws. For instance, the State of the Escape Room Industry Report shows that 68% of owners plan to expand, indicating how these new activities boost foot traffic and help retail centers thrive. In today’s retail landscape, centers that incorporate experiential elements and are anchored by major grocery chains like Walmart, Target, or other essential retailers are experiencing significant revenue growth among nearly all tenants, while those lacking such features continue to face challenges.


Many middle-market retail centers that have been hit hard are being redeveloped into mixed-use spaces, combining retail with residential, office, and recreational elements. This transformation creates vibrant community hubs, boosting retail while meeting demand for housing and office space.  It also draws people into retail center locations as a destination and keeps them there as long as possible to maximize the return on investment. For example, Trademark Property Company is reducing retail space by 50% in one of their developments, and adding office, hospitality, and residential components to revitalize the area. Similarly, Paradise Valley Mall in Phoenix now includes residential amenities like a fitness studio and dog park, turning it into a desirable mixed-use destination.


Retail centers are becoming more attractive investments, particularly when compared to apartment and industrial properties with lower cap rates and less value-add opportunities. Our retail clients are finding good investment acquisitions all over the country where they can take advantage of the higher cap rates and add value quickly by utilizing the strategies above. Lever Capital Partners can help secure tailored financing solutions to help investors navigate retail real estate opportunities, secure profitable deals, and maximize returns. Whether you’re looking to finance a retail project or explore new investments, Lever’s expertise ensures you get the best guidance for success.

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.

References:

https://www.grandviewresearch.com/industry-analysis/proptech-market-report https://www.aceee.org/sites/default/files/publications/researchreports/a1701.pdf https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/real-estate/deloitte-nl-fsi-real-estate-smart-buildings-how-iot-technology-aims-to-add-value-for-real-estate-companies.pdf https://www.jpmorgan.com/insights/outlook/business-leaders-outlook/commercial-real-estate-business-leaders-outlook https://brainboxai.com/en/solutions/ai-hvac-optimization ” CoStar https://www.grandviewresearch.com/industry-analysis/proptech-market-report https://www.aceee.org/sites/default/files/publications/researchreports/a1701.pdf https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/real-estate/deloitte-nl-fsi-real-estate-smart-buildings-how-iot-technology-aims-to-add-value-for-real-estate-companies.pdf https://www.jpmorgan.com/insights/outlook/business-leaders-outlook/commercial-real-estate-business-leaders-outlook https://brainboxai.com/en/solutions/ai-hvac-optimization

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 Daisy, Covercy, Paraspot, Blanket, Waltz, block.a, Tough Leaf, Tweaks, 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. 

References:

US Ecommerce Sales Reached $1.119 Trillion in 2023 Adaptive Reuse: The ‘wrong’ Project in the Right Market.” ACRES Capital, 19 Oct. 2021 Commercial Real Estate Trends 2023: Reuse and Redevelopment.” CRE Knowledge Base, 29 Aug. 2023 Goldberg, Jason. “E-Commerce Sales Grew 50% to $870 Billion during the Pandemic.” Forbes, Forbes Magazine, 12 Oct. 2022 Here’s a Look at 99 Cents Only’s Retail Locations.” CoStar Rental Vacancy Rate [2024 ]: National Trends & Rates by City.” iPropertyManagement.Com, 5 May 2024 Meyersohn, Nathaniel. “Red Lobster Files for Bankruptcy | CNN Business.” CNN, Cable News Network, 20 May 2024 Williams-Eynon, August. “The New, Old Real Estate: Capturing Value, Sustainability, and Community Impact by Repositioning Older Buildings.” Urban Land, Urban Land, 10 Aug. 2020

The Rise of Industrial Outdoor Storage: CRE’s Latest Gold Mine

by: Cristina Sosa Lindo

As the world rapidly evolves, we see new concepts being born, and such is no exception for the industrial landscape. IOS, Industrial Outdoor Storage, is a relatively new commercial property type in the real estate world that grew as a result of the industrial boom the world experienced a few years ago when companies struggled to find proficient storage options (1). IOS refers to the practice of effectively using outdoor (industrial) space to mainly store vehicles, materials, and large pieces of construction equipment. With this said, they often partake as container storage and truck terminals. Most are sized between 2 to 10 acres, with a small building in the middle deemed for tenant’s use. While their look might not sound appealing to investors initially, their high returns lure them back to the deal (2). Their unattractive look, yet incredible returns, have made them proudly gain the name “a beautiful ugly duckling” by Green Street. They consider that “Industrial Outdoor Storage sites in infill submarkets are priced to deliver risk-adjusted expected returns that are superior to those available on most other commercial real estate property investments, including “traditional industrial.” (Green Street)  

The Industrial Outdoor Storage market has witnessed a remarkable surge in demand, effectively meeting the storage needs across diverse sectors. However, despite its rapid growth, the market remains underdeveloped, thus presenting a tremendous potential gold mine for investors (2). In a comprehensive report by Commercial Search, the valuation of the IOS market was conservatively estimated to exceed $200 billion, with continuous new investors and developers attracted to it. Aside from this, Green Street analysis highlights that the IOS is a “fragmented” industry where a considerable portion of its supply is owned and managed by conventional operational methods or individual proprietors, not part of big institutions or platforms. This portrays a compelling opportunity for developers and investors seeking to enter the market and capitalize on its growth trajectory. (1)

The widespread success of IOS can be attributed to various factors. Yet, most of it is attributed to its unique set of tenants and how they are responsible for directly impacting the supply chain. According to Green Street, the transportation and logistics sectors are the primary users of these spaces. Third-Party logistics companies strategically leverage the prime locations of IOS units, which are typically near highways, ports, and airports, to capitalize on transportation cost savings. By taking advantage of these convenient locations, logistics companies can reduce transportation costs and allocate more funds to renting IOS units, thus enhancing the supply chain operations and making IOS an influential factor in improving its overall effectiveness. (1) 

Due to many favorable factors, Industrial Outdoor Storage sets itself as an up-and-coming investment option. It portrays a compelling case for investors or developers seeking profitability with easy and cost-effective maintenance, consistent cash flows, low capital expenditures, and rapid growth in response to increasing storage demands. (3) However, its most enticing attribute is its relative newness in commercial real estate. IOS is the perfect opportunity for investors and developers looking for something new to build to capitalize on its current upward trajectory and position themselves for long-term success. Now is the time to take the risk and invest in this thriving sector. 

Here at Lever Capital Partners, we thrive on embracing risk and actively seeking out innovative investment opportunities. Our extensive experience in financing successful developments has allowed us to identify promising ventures, and we believe that Industrial Outdoor Storage presents an exciting opportunity for growth and profitability. We are excited to offer our support and financial backing for your development in IOS, empowering you to achieve new heights of success. With our expertise and resources, you can confidently embark on this journey, knowing we are fully committed to your project’s triumph. Contact us today, and let’s take the first step toward a rewarding partnership.

References:

https://greenstreet.com/insights/blog/industrial-outdoor-storage-a-beautiful-ugly-duckling https://www.commercialsearch.com/news/industrial-outdoor-storage-continues-to-grow/ https://rebusinessonline.com/stashing-success-the-growth-of-industrial-outdoor-storage/

The Emergence of Student Housing as a Lucrative Asset Class

by: Ori Nozar

Over the past few years, student housing has emerged as a distinct asset class, separating itself from the multi-family sector. This shift is evident in the rise of multi-billion-dollar REITs and funds devoted exclusively to investing in student housing. Just this past year, Blackstone acquired American Campus Communities, a student housing REIT, for $13 billion (1). The popularity of this asset class is due to the consistent growth in university enrollment from both domestic and international applicants since the great financial crisis (2). In 2022, student housing experienced one of the highest appreciation, with rent growth increasing by double digits, providing the groundwork for it being the most attractive investment option on a risk adjusted basis.

Due to the pandemic, the uncertainties faced by other asset classes such as retail and office have led commercial real estate investors to focus on student housing and multifamily investments as people will always require housing. Moreover, recessions often result in increased university enrollment, as laid-off employees seek further education to improve their job prospects. Student housing investments offer unique advantages such as the ability to capture current market rents through one-year lease cycles and minimizing credit losses through guarantor requirements.

The value of a student housing property is heavily influenced by its proximity to the university, the amenities it offers, and the availability of housing near the campus (3). While flagship universities continue to expand, smaller institutions in the Midwest and Northeast are struggling to maintain enrollment levels. Some state university systems are consolidating smaller campuses into larger regional ones, such as in Wisconsin and Georgia  (4). Real estate investors should be cautious of public universities’ capacity to use eminent domain and increase dormitory supply, potentially decreasing market rents. Rising rates have impacted transactions in Q4 2022 across all asset classes, leading to a cap expansion and causing sellers to be reluctant to sell at the prices buyers are willing to offer (5).

Student housing deals enjoy widespread support from various capital providers including banks, credit unions, and private capital due to their resilience. In 2022, transactions reached an annualized total of $18.9 billion, nearly doubling the previous year’s high (6). Despite rising interest rates, most lenders and capital providers are likely to continue financing student housing deals in 2023. However, loan-to-value ratios across the board have decreased compared to previous years and financing for ground-up developments came to a screeching halt.

In areas with student housing supply shortages, operators can significantly raise rents and capitalize on increased appreciation and cash returns, making these investments even more attractive to investors and lenders. The unique benefits of student housing investments support their claim as the most desirable asset on a risk-adjusted basis.

Lever Capital Partners has provided capital for various student housing projects across the United States, including ground-up development, value-add remodeling, and turnkey acquisitions. We can help source debt, mezzanine debt, preferred equity, and equity to ensure no deal or opportunity is left unexplored. Furthermore, we connect clients with capital providers, fostering partnerships between them and sponsors. In these times of high inflation and interest rates, securing capital has become more challenging. Collaborating with Lever Capital Partners can alleviate the stress of sourcing capital, allowing you to focus on executing your business plan and seizing opportunities.

References:

https://www.blackstone.com/news/press/blackstone-funds-complete-13-billion-acquisition-of-american-campus-communities/ https://research.com/education/student-housing-trends https://www.multihousingnews.com/what-experts-expect-for-student-housing-in-2023/ https://www.forbes.com/sites/michaelhorn/2018/12/13/will-half-of-all-colleges-really-close-in-the-next-decade/?sh=23f09c2a52e5 https://www.wealthmanagement.com/student-housing/student-housing-investment-sales-activity-grinds-halt https://www.us.jll.com/en/newsroom/student-housing-sees-record-transaction-volume#:~:text=Jenna%20Sharp&text=CHICAGO%2C%20Jan.,of%20%2411.5%20billion%20in%202021.

The Rise of Luxury Apartments: A Flight-to-Quality Trend

by: Will Lin

The COVID-19 pandemic has had a profound impact on the real estate market, with demand decreasing in the hospitality industry and among many others. However, in the luxury apartments sector, many tenants elected to hop on the trend of paying more for less and valuing quality over quantity; as a result, the demand for luxury apartments has increased significantly. According to JLL, overall leasing volume in luxury property types has increased 24% over 2021 activity and a record number of leases have been signed (1). This activity illustrates the resiliency and relevancy of luxury properties within the real estate market which proves to be valuable information for investors and developers who would like to capitalize on this market. 

One of the major driving factors for the increase in demand for the luxury apartment sector is the increased growth of the U.S. population. In 2022, the U.S. Census data revealed that there was a 0.4% increase, or 1,256,003, to 333,287,557 in the U.S. resident population as well as an influx of 1,010,923 immigrating to the U.S. (2). With the continued population growth, the demand for housing will continue to increase and that proves to be true, especially in the luxury apartments sector. Furthermore, Mike Cobb Jr, director of analytics at the CoStar Group states that the increasing costs of construction and materials make it challenging to construct profitable multifamily properties of lower quality rather than higher quality (3). Not only are developers and investors flocking towards the high-end and profitable luxury apartment market, but consumers are also gravitating towards these properties that boast premium features and access to luxury amenities. This flight-to-quality trend is especially prevalent among young affluent professionals who are looking for places to live that provide access to a variety of high-end amenities within a short walking distance. 

With the current economic conditions it is essential to take into account the impact of the Federal Reserve’s interest rate increases and how this can influence the luxury apartments market. At first glance, rising interest rates can pose a potential threat to investors of luxury apartments as they need to pull out money from their portfolios to purchase these types of real estate (4); however, higher interest rates can deter buyers from taking out mortgages to purchase homes which can drive up rental prices and potentially lead to higher profits for luxury apartment owners and investors. For example, JLL reveals in their 2022 end-of-year recap that tenants have signed a historic number of leases for premium rental spaces in Manhattan, with 190 leases starting at $100 or more per square foot and covering a total of 6.1 million square feet. This leasing volume is twice as much as the previous record set in 2021, which was three million square feet for premium rentals. 

The flight-to-quality in the multifamily apartment sector is a trend that is continuing to grow in the post-COVID world. Here at Lever Capital Partners, we pride ourselves on our ability to finance all types of multifamily deals including your next luxury apartment project. Our expertise in financing luxury apartment projects in various stages is diverse and extensive and we are able to get you the most accretive financing options catered specifically to your strategy and business plan. We believe that understanding the availability of different capital structures is the foundation for curating the most efficient capital stack for our client’s projects. Our ability to promptly evaluate creative alternatives allows us to direct any project towards the most optimal capitalization structure given the current market conditions and our client’s strategy and goals.

References:

https://rew-online.com/record-number-of-100-plus-leases-signed-in-2022-as-tenants-seek-premium-space/ https://www.census.gov/newsroom/press-releases/2022/2022-population-estimates.html https://www.virginiabusiness.com/article/flight-to-quality/ https://www.wsj.com/articles/new-york-citys-luxury-apartment-market-under-pressure-in-2023-11673742970

A Hot Market For Medical Office Buildings

by: Ethan Newman

Are you aware medical office buildings (MOBs) are arguably the safest asset to invest in? Since the pandemic, vacancy rates skyrocketed for traditional offices. The Sage Group reported office space vacancy rates in 2022 in downtown Los Angeles and Long Beach, California were 18% and 26% respectively (1). Despite MOBs being a subset of traditional offices, the demand for medical office space stayed resilient throughout the pandemic even with the rise of telemedicine (2). The Connected Real Estate Magazine shared how 2022 vacancy rates for MOBs nationally were only 8% (3). With MOBs outperforming traditional offices, what has contributed to MOBs becoming a reliable investment?

Because of the rise of the aging United States population, the demand for medical office space is increasing. Although there is strong demand, supply is relatively low for MOBs mainly due to construction obstacles that have in turn made existing healthcare properties more valuable. 

One of the reasons for this noticeable demand for medical office space has to do with the aging population in the United States. U.S. data census estimates one in five Americans will be 65 and older by 2030 and one in four Americans will be 65 and up by 2060. Because of the aging population, medical-related office visits are becoming more frequent which leads to practices demanding more space. For example, RPC reported that the average amount of current office space per person is around 5.3 square feet, but this number is estimated to increase to 11.2 square feet per person in order to accommodate the higher aging population (4).  

Although there is an increased demand for MOBs, new supply is lagging.  The San Diego Business Journal claimed supply of MOBs in 2022 does not meet demand (5). Alliance reported that the average price per square foot for MOBs is $498 where retail is $245/per square foot and normal offices are $315/per square foot. Because MOBs are costly and require complex construction standards compared to other assets, there is less activity in the construction pipeline which results in a lower supply. To put this in perspective, there is only 1% of the amount of space under construction for MOBs compared to the existing stock available (6).  

Due to the recent pandemic and the realization that there is a significant shortage, MOBs have become a very desirable investment. From the second quarter of 2021 to the second quarter of 2022, the average price per square foot of MOBs increased by 20%. As a result, the limited supply makes existing properties more and more valuable (7). With property values increasing, the average cap rate for MOBs dropped to an all-time low of 5.5% in 2022. Aside from rapidly increasing values, investing in MOBs allows capital providers to diversify their overall portfolios by tailoring their tenant mix in each MOB that they own. This can be done because of the variety of medical tenants in need of the same type of space.

The escalating demand for MOBs presents a momentous prospect for investors seeking steady cash flow and low-risk investment opportunities. As medical practices continue to expand and require more space, the construction of new buildings is anticipated to persist. Capital providers nationwide have expressed keen interest in financing the development and acquisition of such assets, and Lever Capital Partners collaborates closely with these entities, which actively disburse senior and mezzanine debt, preferred equity, and joint venture equity for the acquisition, development, and recapitalization of medical office assets across the country. By optimizing our clients’ capital structures, we enable them to concentrate on operations, construction, and asset management, while ensuring that the capital we procure establishes each project for success, regardless of the prevailing market conditions.

https://www.sageregroup.com/did-remote-work-collapse-the-southern-california-commercial-office-space-market/embed/#?secret=CXTEGUhD3k

https://risingrp.com/insights/medical-office-building-investment/embed/#?secret=sUOUafpZDH

https://connectedremag.com/uncategorized/medical-office-cre-shows-strong-signs-of-improvement/embed/

https://www.rpcpropertytax.com/archives/aging-u-s-population-expected-to-drive-demand-for-medical-office-space/embed/

https://www.sdbj.com/news/enews/medical-office-space-high-demand-low-supply/embed/#?secret=m6Qb5MBUoN

https://alliancecgc.com/education/medical-office-building-market-trends-past-and-present/embed/#?secret=6iXjSMUCeY

https://www.commercialsearch.com/news/medical-office-sector-resists-adversity/