📊 Investors Hit Pause in 4Q23 per Burns + CRE Daily Fear and Greed Index. See the full report here.

Crow Holdings Bags Record $3.7B for U.S. Value-Add Fund

Plans to focus on multifamily and industrial properties, representing an approximately 35% growth from the previous fund in this series.

Crow Holdings Bags Record $3.7B for U.S. Value-Add Fund

Plans to focus on multifamily and industrial properties, representing an approximately 35% growth from the previous fund in this series.

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Good morning. A Dallas-based investment firm has raised nearly $3.7 billion for its latest property investment fund. Meanwhile, a recent Federal Reserve meeting showed restraint in lowering interest rates.

Today’s issue is brought to you by Bullpen — your connection to the top commercial real estate talent.

Market Snapshot

S&P 500
GSPC
4,981.80
Pct Chg:
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FTSE NAREIT
FNER
728.13
Pct Chg:
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10Y Treasury
TNX
4.307%
Pct Chg:
-0.016
SOFR
1-month
5.32%
Pct Chg:
0.0%

*Data as of 2/21/2024 market close.

FUNDRAISING

Crow Holdings Bags Record $3.7B for U.S. Value-Add Fund

Crow Holdings, a Dallas-based investment firm, has raised nearly $3.7 billion for its latest property investment fund, marking its largest capital raise.

The round: The Crow Holdings Realty Partners X LP fund attracted investors, including private entities, banks, sovereign wealth funds, insurance companies, and pension plans. It primarily targets value-add real estate assets, focusing on multifamily and industrial properties. Additionally, the fund will consider investments in manufactured homes, retail, self-storage, and student housing. Over 25% of the fund has already been allocated to 14 different investments.

Investor confidence: A notable highlight of this fund is that more than 70% of its commitments came from previous investors of Crow Holdings, indicating strong investor confidence. The fund's size, almost 35% larger than its predecessor, showcases the growing trust and partnership between Crow Holdings and its investors. The fund could also increase to $3.7 billion, as it secured an additional $600 million in equity capital from co-investors.

➥ THE TAKEAWAY

Big picture: Bob McClain, CEO of Crow Holdings Capital, has expressed strong confidence in the firm's investment strategy, emphasizing a focus on real estate assets that align with long-term growth trends, particularly in the industrial and multifamily sectors across high-growth U.S. markets. This positive momentum comes amid Trinity Hunt Partners' $700 million fund and MB2 Dental's $2.3 billion deal with KKR, showcasing an optimistic investment atmosphere with anticipation of Federal Reserve rate cuts later this year.

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✍️ Editor’s Picks

  • On the rise: 2023 saw U.S. construction costs rise by an average of 4%, with forecasts predicting another 3–6% rise this year, as reported by Currie & Brown. 

  • Questionable decision: Florida's housing market faces a new dilemma as a state insurer is set to expand, which could lead to unwise investments by homeowners amid climate risks.

  • Pension plunge: Pledges to CRE vehicles from U.S. pension funds plummeted 50% in 2023, a sharp drop from 2022’s record highs.

  • Cold hard cash: Corporate cash surges to record $4.4T as investors continue to flock to money market funds.

  • Shrinkage strategy: HSBC reduced its U.S. CRE exposure by over 50% due to lower demand, with a $3.9B portfolio.

  • Mortgage spike: After a slight reprieve, mortgage rates have surged above 7%, leading to a 10.6% drop in applications last week.

  • Signs of life: Blackstone-backed Great Wolf Resorts secures around $1B in refinancing for 8 destination hotels, indicative of the wider hospitality rebound.

🏘️ MULTIFAMILY

  • Diamonds in the rough: Gotham Organization and Carlyle Group acquired the 310-unit Aire in NYC amid a 35% drop in multifamily deals.

  • Market musings: Despite challenges, the multifamily market remains stable with $253M contracts on 37 properties in 2023.

  • Better than owning? In a new report by Northmarq, renting a single family home saves $825 per month compared to buying one, which is $275 per month more expensive since 2022.

  • Supreme rent laws: The U.S. Supreme Court rejected hearings for NYC landlord claims on the constitutionality of 2019 rent law reforms, leaving future challenges open.

🏭 Industrial

  • NIMBY vs. warehouses: Many communities resist building e-commerce warehouses due to noise, traffic, and pollution concerns, impacting job creation and logistics growth.

  • Legal battle ensues: A DFW judge grants an injunction blocking a 200KSF warehouse construction, citing imminent harm to the nearby community. The trial is set for 2025.

🏬 RETAIL

  • Retail realities: An analysis by placer.ai shows similarities and differences in demographics and psychographics of mall types, with open-air centers enjoying the highest-income visitors.

  • Revolutionary: Retail Dive highlights the growing use of RFID tech in inventory management, with 61% of retailers planning to adopt it by 2026.

  • Magnificent moments: East Coast firms purchased a mostly vacant retail space on Chicago's Magnificent Mile, led by Rolex as a lone tenant.

  • Retail reinvention: Realty Income (O) is selling a portfolio of nine Walmart Neighborhood Markets for $88.3M as Walmart (WMT) expands.

🏢 OFFICE

  • All about fundamentals: Buffett protégé Ian Jacobs buys near-vacant San Francisco office buildings, bucking the area’s market trend.

  • Weathering rent woes: WeWork faces $500K in unpaid rent between Uptown Dallas and Irving, TX locations, struggling amidst bankruptcy and legal battles.

  • Officially onerous: In January, U.S. office values dropped 25%, with an average national rent of just $37.35PSF.

  • Property peculiarities: Last-minute tax appeals in San Francisco saved commercial landlords $36M last year, resulting in $2.49B in estimated property revenues.

INFLATION NATION

Fed's Cautious Approach on Interest Rates

In a recent Federal Reserve meeting, officials showed restraint in lowering interest rates, emphasizing the need for more evidence of sustained inflation reduction before making any cuts.

Maintaining the status quo: During the meeting, the Federal Open Market Committee chose not to alter the key overnight borrowing rate. This decision was underscored by a change in their post-meeting statement, now requiring "greater confidence" in inflation decline before considering rate cuts. The minutes revealed a balanced view: optimism about the effectiveness of past policies in reducing inflation, which had peaked at a 40-year high, alongside a consensus that rate hikes were likely ending.

Awaiting further data: The Federal Reserve expressed the necessity of more data to confirm a sustainable trend towards their 2% inflation target. Despite observing significant disinflation, the Fed noted some progress might be due to temporary factors. Officials emphasized the risks involved in hastening rate reductions, preferring a careful evaluation of incoming data.

Economic uncertainty: There's ongoing deliberation over the duration needed for restrictive monetary policies. The economy's growth at a 2.5% annual pace in 2023 and the robust labor market, with 353,000 new jobs in January, suggest resilience despite consecutive interest rate hikes. However, recent inflation data still surpasses the Fed’s target, warranting a cautious stance on policy relaxation.

Balance sheet strategy: The meeting also touched on the Federal Reserve's bond holdings. Since June 2022, over $1.3 trillion in Treasurys and mortgage-backed securities were not reinvested. The Fed plans a detailed conversation on this "quantitative tightening" in March, focusing on the necessary reserve levels for banks.

➥ THE TAKEAWAY

Looking ahead: Fed officials are contemplating the extent of policy relaxation needed to foster growth while controlling inflation. Current policies are considered restrictive, and the challenge lies in determining the right balance. Recent data showing a higher-than-expected rise in consumer and producer prices adds complexity to these decisions.

📈 CHART OF THE DAY

According to Moody’s, the average rent-to-income ratio across the U.S. has increased yearly since 2019. While 36.6% of renters paid 35% or more of their income on rent back in 2019, nearly 3% more (39.6%) were in the same boat in 2022.

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