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

Fannie Mae Implements Pre-Review Requirement for Broker-Involved Loans

Plus: PE firm TPG is snapping up single-family homes in Florida to rent them out daily as an alternative to hotels and Airbnb.

Fannie Mae Implements Pre-Review Requirement for Broker-Involved Loans

Plus: PE firm TPG is snapping up single-family homes in Florida to rent them out daily as an alternative to hotels and Airbnb.

Together with

Good morning. Mortgage lenders partnering with Fannie Mae must now resubmit many of their loans. Kennedy Wilson (KW) plans to boost its credit business and expand its multifamily and industrial portfolios. Additionally, a private equity firm is purchasing single-family homes in Florida for rental purposes, offering an alternative to hotels and short-term rentals.

Today’s issue is sponsored by VTS Activate, an innovative solution for multifamily owners, operators, and the residents they serve.

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Market Snapshot

S&P 500
GSPC
4,382.78
Pct Chg:
0.1%
FTSE NAREIT
FNER
651.97
Pct Chg:
-1.0%

;

10Y Treasury
TNX
4.499%
Pct Chg:
-1.6%
SOFR
1-month
5.32%
Pct Chg:
0.0%

*Data as of 11/08/2023 market close.

CHANGING THE RULES

Fannie Mae Says All Broker-Involved Agency Loans Must Now Be Pre-Reviewed

Fannie Mae has introduced a new rule to now require pre-reviews for broker-involved loans, responding to recent events related to Freddie Mac's investigation of a major commercial mortgage broker.

What happened: Fannie Mae's announcement states that the pre-review requirement applies to all agency-backed loans associated with brokers. Loans that were committed or rate-locked with Fannie Mae before the implementation of this rule are exempt. However, for loans currently in the underwriting process or with outstanding quotes, lenders must resubmit these transactions for pre-review.

Freddie Mac's investigation: This development follows closely after reports emerged of Freddie Mac launching an investigation into Meridian Capital Group, one of the country's prominent commercial mortgage brokers, regarding a deal negotiated with Freddie Mac. While specific details of the investigation remain undisclosed, Freddie Mac has temporarily suspended dealings with Meridian, describing it as a "temporary pause."

Impact and industry response: This action by Fannie Mae has the potential to impact mortgage brokers engaged in agency lending significantly. Ira Zlotowitz, CEO of Gparency, a company founded to enable direct developer-bank interactions without broker fees, believes that while intermediaries will always have a role, questions arise about their titles and fee structures. The industry is closely watching these developments, with debates about the necessity of intermediaries in mortgage transactions.

➥ THE TAKEAWAY

Why it matters: As of the latest available information, it remains unclear whether Freddie Mac will implement a similar policy. Fannie Mae's decision to subject broker-involved agency loans to pre-review underscores the increasing scrutiny and regulation within the brokerage industry. The impact of this policy on the role and relevance of intermediaries in mortgage transactions remains a topic of discussion and debate within the industry.

A MESSAGE FROM VTS

Announcing VTS Activate for Multifamily

Multifamily continues to be top of mind for CRE owners and operators, with new headlines every day about converting vacant office buildings for multifamily use, owners shifting investments towards multifamily assets, and surges in supply.

VTS is proud to have served the multifamily sector through the acquisition of Rise Buildings since 2021. Major multifamily providers such as Habitat, Stonehenge, and Lendlease have chosen us to power their resident experience with our technology.

We've got an exciting announcement about the future of our resident experience solution. Introducing VTS Activate for Multifamily, our new brand and solution for multifamily owners, operators, and the residents they serve.

TRENDING IN CRE

  • Financing freeze: CRE financing has become difficult as banks withdraw, causing property values to drop and transactions to decline.

  • Shaking up the market: NYC’s CRE market is experiencing widespread departures, potentially causing a brain drain and company closures.

  • Scaling up at all costs: D.R. Horton (DHI), the largest US homebuilder, plans to sell between 86–89K homes in its next fiscal year, despite higher mortgage rates and inflation.

  • Bankruptcy bonanza: Restoration Hardware (RH) purchases 55 Gansevoort Street, home of RH Guesthouse, for $58M in a prepackaged bankruptcy deal.

  • Uniting thrills: The proposed merger of Cedar Fair (FUN) and Six Flags (SIX) would create an amusement park operator with 42 parks and 9 hotels, bringing in over $3.2B in annual revenue.

  • Reining in Wall Street: US officials plan to restrict access to Federal Home Loan Banks after failing lenders used them during March's banking crisis.

  • Wall of debt doors: Rising interest rates in Texas may lead to real estate bargains as high vacancies add fuel to the fire and put more pressure on sellers.

  • Trouble brewing: CRED iQ's CMBS distress rate rose by 14 bps in October, with retail seeing the most significant reduction in distress.

  • Gambling game-changer: It’s official—billionaire Steve Cohen plans to build an $8B casino, Metropolitan Park, near the New York Mets' stadium.

CONSTRUCTION LENDING

Kennedy Wilson Expanding Debt Platform Reach With PacWest Loan Acquisition

Kennedy Wilson looks to push into the loan business

Kennedy Wilson;s Bill McMorrow (Getty, Kennedy Wilson)

Kennedy Wilson is advancing into the credit sector with ambitions to become a key player in construction lending, navigating through a turbulent banking landscape with strategic finesse.

Some background: Kennedy Wilson's Beverly Hills office was conveniently located just five blocks from PacWest Bancorp when the investment firm decided to acquire the bank's $4B construction loan portfolio in June for a 50% discount. The acquisition occurred against the backdrop of a regional banking crisis, with Kennedy Wilson taking the opportunity to expand its debt business beyond distressed loans, capitalizing on market dislocations. In addition to acquiring loans, Wilson expanded its workforce by 40 key employees.

Shift in strategy: As interest rates rise, Kennedy Wilson, alongside firms like TPG, is pushing into credit and pivoting away from new development to expand its industrial and multifamily asset management. With industrial assets surpassing office space, the firm aims to significantly reduce its new development budget, prioritizing loan book growth over development spending.

➥ THE TAKEAWAY

Adapting for growth: Kennedy Wilson's acquisition of PacWest's construction lending has diversified its previously distressed-loan-focused debt business, a move catalyzed by the COVID-19 pandemic's impact on the banking industry. By integrating PacWest's robust asset management team and its zero-loss loan portfolio, Kennedy Wilson has strengthened its capital offerings across the board. Despite a competitive market with fewer deals, this strategic expansion into construction lending positions Kennedy Wilson favorably for new transactions in a market with reduced bank competition.

QUICK HITS

📖 READ: WeWork's (WE) Chapter 11 bankruptcy filing reveals the company has entered a strategic reorganization for future success. And they’re starting by unloading billions in non-performing office properties.

▶️ WATCH: Louis Bruno and Jeff Stomski of the Financial Services Group at EisnerAmper share insights on common mistakes and best practices for fee and expense allocation in private funds.

🎧 LISTEN: On this episode of The TreppWire Podcast, Matthew Frazier, CEO of Jones Street Investment Partners, discusses the multifamily market, recent changes, and opportunities.

VACATION TIME

PE Firm TPG Enters Competitive Vacation Rental Market

Your Next Airbnb Host Could Be a Private-Equity Firm

(WSJ)

TPG, a private equity giant, has embarked on a pilot program to purchase single-family homes in Florida vacation markets to rent them out daily.

Evolving travel trends: TPG's strategy targets “bleisure” travelers, flexible remote workers, and families who prefer more space and amenities. TPG believes that providing spacious homes rather than hotel suites will cater to the evolving needs of travelers in the post-pandemic era.

Challenging hotels: If TPG is right, they could pose a threat to hotels and other short-term rental companies like Airbnb (ABNB). By purchasing homes and renovating them to offer a higher level of quality and service, TPG aims to charge premium rates as affluent travelers seek consistent experiences and are willing to pay for it.

Potential risks: The PE firm’s entry into the vacation rental market may face backlash if it gains significant ownership in certain towns, leading to concerns about housing affordability and availability. The business model itself is riskier than annual home rentals, as TPG will need to resell properties daily. However, daily and weekly rentals at competitive rates can offer greater upside.

➥ THE TAKEAWAY

Impact on short-term rental market: TPG's foray into the vacation rental market through daily home rentals challenges both hotels and short-term rental platforms like Airbnb. They’re actively targeting the preferences of “bleisure” travelers by providing alternative accommodations with superior quality and service. However, the potential risks of public backlash and the need to resell properties daily raise questions about the long-term viability of this approach.

📈 CHART OF THE DAY

Months on the market — another indicator of the industrial sector’s underlying strength in DFW

DFW industrial vacancy is at 8.9%, slightly above average. However, vacancy for assets delivered before 2022 is under 6%, indicating the increase is due to new properties. DFW's months on the market dropped to 4.7 months in Q3, the lowest ever recorded. Meanwhile, North Fort Worth fell to 4.4 months. South Dallas is the slowest at 6.5 months.

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