Together with

Blackstone, Related Emerge as Likely Buyers for $32B Signature Loan Pool

The auction for Signature Bank's real estate loans is almost over, revealing who's bidding and their plans for the assets.

In one corner: Blackstone (BX) is reportedly leading the bid for nearly half of the portfolio, targeting around $17 billion in commercial property loans. These loans span various sectors, including retail, office, and industrial spaces. To manage these loans effectively, Blackstone is currently in discussions to join forces with Rialto Capital, a move that would enhance their loan servicing capabilities.

In the other corner: Related Fund Management (a Related Companies affiliate) is likely to secure a 5% stake in $15 billion worth of Signature's rent-regulated multifamily property loans in New York City, bidding less than 69 cents on the dollar, as first reported by the Wall Street Journal. Partnering with nonprofits Community Preservation Corporation and Neighborhood Restore, Related plans to supervise these loans and manage properties in case of owner defaults.

Unexpected twist: According to sources at Commercial Observer, Related Fund Management's bid wasn't the highest for the loans. Brookfield Asset Management, in collaboration with Tredway, offered more than 80 cents on the dollar. Additionally, multifamily investor Skylight Real Estate Partners, with Rithm Capital, a public real estate investment trust, also bid above 80 cents. The reason why Related is anticipated to win despite their lower offer remains unclear.

➥ THE TAKEAWAY

Unhappy ending for NYC: The sale of Signature Bank's loan portfolio, particularly the rent-regulated assets in New York City, may lead to lower market valuations for similar banking assets. This situation stems from the recent banking crisis, with the FDIC retaining a significant stake in the rent-regulated loans. Current borrowers have the option to repurchase at the bid price. The involvement of Related Fund Management and nonprofits in managing these loans and properties, especially in default scenarios, has sparked industry concerns about setting a lower benchmark for bank valuations.

• Hybrid work hopes: Hybrid work is becoming more common as formerly remote workers are forced to return to offices, causing fewer headaches for landlords and employers.

• Staff exodus: OpenAI (parent company of ChatGPT) faced a mutiny on Monday, with most of its employees threatening to resign over the board's decision to fire CEO Sam Altman.

• Gains in asking prices: October witnessed a 4.9% rise in average asking prices per square foot for new assets on CREXi’s for-sale platform, marking the sixth consecutive month of pricing growth.

• From offices to labs: Underutilized office buildings facing high vacancy rates due to economic uncertainties should consider converting to multifamily or life sciences uses. Here’s why.

• All roads lead to NY: NYC's financial district leads the nation in converting office buildings into new multifamily housing, including the single largest conversion in the country.

• Lease of the day: Neal, Gerber & Eisenberg, a law firm, has signed a 90KSF lease in a vacant office tower in Chicago's Loop district, making it one of the city's largest deals this year.

• Building decarbonization: Older buildings in the US account for 29% of annual energy-related emissions, prompting policies for a transition to "zero emissions" buildings.

• Appraiser's appraising: Appraiser Walter Roberts II was sentenced to 12 months in prison for his role in a tax shelter scheme linked to a $1.3B in real estate conservation easement.

• Distressed multifamily: Defaults and foreclosures in the multifamily sector are on the rise, with over $7.5B in distress and another $65.7B on the way, attracting well-capitalized investors.

• Rent roller coaster: Origin Investments predicts that rents in the priciest apartments will decline until 2024 before going up again in 2025.

• Data center fever: Starwood Capital (STWD) plans to allocate 20–30% of its $10B fund to data centers, targeting the potential growth of the sector driven by AI adoption.

• Deal of the day: Kaiser Permanente, the largest private nonprofit healthcare organization in the US, acquires Station Place II, a 507KSF office property in Washington, DC, for nearly $198M.

• Reaching new heights: Bayhill Ventures plans to build San Francisco's tallest residential property, a 71-story tower at 530 Howard Street.

Investment Firms Turn to U.S. Farmland as Safe-Haven Amid Economic Uncertainty

Investment funds are stockpiling U.S. farmland to hedge against inflation and benefit from growing global food demand. As a result, lawmakers now worry about land affordability for new farmers.

Surge in farmland: Since the 2008 financial crisis, investment firms like Manulife Investment Management and Nuveen have accelerated their acquisitions of U.S. farmland. Data from the National Council of Real Estate Investment Fiduciaries (NCREIF) shows a 231% increase in properties owned by these firms since 2008, with the value of holdings soaring over 800% to around $16.2 billion.

Appeal to investors: Institutions are drawn to farmland for its resilience to inflation and steady returns, even during high inflation periods. With the United Nations projecting a 60% increase in global food demand by 2050, firms see farmland as a growth opportunity. David Gladstone, CEO of Gladstone Land (LAND), a REIT with 116K acres of farmland valued at $1.6B across 15 states, explains, "It’s a hard asset. It’s like gold. It’s not going anywhere.”

Foreign influence: Legislative efforts are underway to limit farmland purchases by foreign entities and investment funds amid concerns over foreign and corporate control. Cropland prices have soared to a record $5,460 per acre in 2023. While 60% of U.S. farmland is still farmer-owned, the remaining is held by non-farming entities like investment firms. The NCREIF farmland index shows farmland investments outperforming the S&P 500 with an average 11.4% annual return over 25 years.

➥ THE TAKEAWAY

Big picture: The growing interest of investment firms in U.S. farmland highlights a shift in investment strategies post-2008 financial crisis, focusing on tangible assets with stable returns. While offering a hedge against inflation and benefiting from global food demand, this trend also sparks critical discussions about the sustainability of farming practices, the role of corporate entities in agriculture, and the future of farming communities. The outcome of these discussions and potential legislative changes could reshape the landscape of US agriculture.

Warehouse Demand Slows While Clean Energy Firms Look for More Space

A new JLL report highlights a notable shift in the industrial real estate market. E-commerce tenants are projected to need less industrial space going forward, while clean energy and tech demand for warehouses are on the rise.

Change in demand: In the past year, there has been an 8% decrease in the total demand for industrial space, down to about 807 million square feet from 2022's 873 million. Although logistics and distribution companies continue to be the largest industrial users, their demand for warehouse space has declined by 12% year-over-year.

Regional shifts: The Southeastern U.S., stretching from Kentucky to Florida, is witnessing significant industrial demand, accounting for about a third of the national need. This demand is driven partly by car and battery manufacturers, contributing to 230MSF of tenant demand. Cities like Atlanta, Columbus, and Houston are experiencing spikes in industrial demand due to the growth of sectors like solar energy, electric vehicle manufacturing, and tech industries.

Market drivers: Manufacturers of clean energy equipment, EVs, and batteries are increasing demand for industrial space, driven by the push for cleaner energy and the popularity of EVs. SoCal's Inland Empire is still the largest industrial market in the country for logistics and e-commerce, accounting for 42% of regional demand. However, the pullback has resulted in a 13% drop in leasing volume in the area during the first three-quarters of 2023 YoY.

➥ THE TAKEAWAY

New industrial revolution: As the demand for warehouse space from e-commerce and distribution sectors sees a decline, a new trend emerges with electric vehicle (EV), clean energy, and technology companies increasingly seeking more warehouse facilities. The southeastern United States, particularly recognized for its robust EV and battery manufacturing presence, is emerging as a pivotal region for industrial demand. Key cities such as Atlanta, Columbus, and Houston are experiencing significant surges in demand, underscoring a dynamic shift and unveiling fresh opportunities within the industrial real estate sector.

The private credit market, now valued at $1.6 trillion, is drawing wide interest across the finance sector, yet a select few firms, such as Ares Management Corp. and Blackstone Inc., dominate by deploying over half of the capital, with the market becoming increasingly concentrated among these larger lenders.