What Happens When Wall Street Owns the Neighborhood?

If you can’t buy it, build it. Big residential property investors are finding it harder to buy in good neighborhoods, so they are building new ones

What Happens When Wall Street Owns the Neighborhood?

If you can't buy it, build it. Big residential property investors are finding it harder to buy in good neighborhoods, so they are building new ones

Good morning. Big residential property investors and Wall Street are finding it harder to buy in good neighborhoods, so they are building new ones from scratch. Plus, 2023 saw a nearly twofold increase in the number of loan modifications. CRED IQ breaks down what to expect in 2024.

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What Happens When Wall Street Owns the Neighborhood?

Build to rent houe meets wall street

Big residential property investors are switching gears from buying to building new neighborhoods as purchasing existing homes becomes increasingly challenging due to high interest rates and limited availability.

Investor shift: Wall Street investors, traditionally involved in buying existing homes, are now focusing on constructing new neighborhoods. This shift is driven by the current economic climate where high interest rates and a record-high spike in home prices have made purchasing existing homes less feasible. Data from John Burns Research and Consulting indicates a decline in large investor purchases from 3% in 2022 to just 1% in the third quarter of 2023.

The new strategy: Despite owning 55% of U.S. apartment units, institutional investors are now eyeing single-family homes, attracted by stronger rent growth and longer tenant stays, especially for families with school-going children.

Efficiency in new developments: The traditional model of acquiring scattered individual houses is becoming inefficient and expensive. The focus is shifting towards "build-to-rent" communities, which are more efficient in terms of management and maintenance. This approach also allows for the design of homes with durability and cost-effectiveness in mind, such as wide hallways and hard-wearing materials.

The rise of BTR communities: "Build-to-rent" communities, though still a small fraction of the market, are expanding rapidly. The Urban Institute reports about 900 such neighborhoods nationwide, and the National Association of Home Builders estimates that around 10% of new housing construction is for these rental communities. As of June 2023, Phoenix, Dallas, and Atlanta rank as the top three markets for BTR properties under construction – and by a wide margin.


Why it matters: The change in strategy by Wall Street from purchasing existing properties to focusing on new constructions is poised to transform the suburban landscape in America. Initially, this could lead to less competition for individual buyers in the conventional housing market, possibly bringing some calm to the frenzied process of purchasing homes. However, it also heralds the introduction of a different kind of living space, characterized by efficiency and uniformity, which may diminish the distinctive charm and variety often seen in naturally evolved communities. This significant shift could alter the US housing market and the communal fabric of American suburbs.


  • Mortgage maneuver: Brookfield and Ballast acquire $915 million in distressed mortgages from Veritas, potentially becoming major landlords in San Francisco with 76 apartment buildings.

  • Market expansion: Argyle Real Estate Partners acquires a 264-unit property in Charleston, marking their entry into the South Carolina market.

  • Construction decline: Twin Cities saw a 35% drop in new housing permits in 2023, reaching the lowest level since 2019 despite a surge in single-family homes.

  • Acquisition in Palm Beach: A multifamily firm linked to Arizona's BB Living purchased a 39.2-acre site for $24M in Palm Beach County, planning a 314-unit apartment complex.

  • REIT downgrades: Investment bank Jefferies downgrades Mid-America Apartment Communities, the largest U.S. multifamily owner, due to challenging rent conditions and oversupply issues.

  • Made in Manhattan: Cash buyers for Manhattan's condos and co-ops hit a record peak in 2023, driven by surging mortgage rates, the highest since 2000.


  • Major Lease in Miami: Iberia Foods signs a record lease for nearly 398,000 square feet in Miami Gardens' Bridge Point Commerce Center, marking 2023's largest deal in North Miami Beach's industrial market.

  • Industrial outlook: Yardi Matrix describes 2023 as a transitional year for the industrial sector, marked by easing economic stresses and new growth drivers, yet challenged by volatile, high interest rates.

  • Waddle on over: Penguin Packaging Solutions quadruples its footprint with a 65,035-square-foot lease for office and warehouse space in Jessup, Maryland.

  • Strong investor interest: A private California buyer acquires Park 130 @ Whitestown Building 3, a 319,336 sq ft Class A industrial property in Indianapolis, for $28.4 million.


  • Closed: Kimco Realty has finalized the deal to acquire RPT Realty for $2 billion, reinforcing its position as North America's top grocery-anchored shopping center operator.

  • Retail reshuffle: Argentic Investment Management sells former Barneys site in Chelsea to Raymond Chan for $22 million, a steep drop from its previous value.

  • Funding secured: Pebb Capital obtains a $173M construction loan from Monroe Capital and J.P. Morgan for the $240 million Sundy Village office and retail project in downtown Delray Beach


  • On sale: Virginia executives T. Michael Scott and Thomas Dungan III acquire a D.C. office building for $16.25 million, a significant discount from its previous $52.7 million sale price a decade ago.

  • Financial strain: KBS Real Estate Investment Trust III, grappling with $1.7 billion in looming loan maturities and declining office asset valuations, expresses significant uncertainty about its future.

  • What’s next? Key players in Philadelphia question the future of non-prime (Class B, C, and below) office spaces in 2024 amid struggles despite renovations in both city centers and suburbs.

  • Landmark deal in LA: Hudson Pacific Properties and Macerich sell One Westside and Westside Two in LA to the University of California for $700 million, with plans to convert the 687,000-square-foot property into a research park.


Loan Modifications Were the Common Theme in 2023, Says CRED IQ

In 2023, the commercial real estate landscape witnessed a significant increase in loan modifications. As higher interest rates and a challenging lending environment prevailed, borrowers sought adjustments to their loans.

Key findings: CRED iQ conducted an analysis of all modifications within the securitized universe, covering CMBS, CRE CLO, SASB, Fannie Mae, Freddie Mac, and Ginnie Mae. A total of $13.6B across 441 loans underwent modifications in 2023, with the highest volume occurring in the second quarter. Single-borrower large loan (SBLL) deals accounted for nearly half of all modifications, closely followed by CRE CLO deals. The most modified property types were office loans, totaling $4.6B, and multifamily loans, amounting to $3.3B.

Notable modifications: Several major loan modifications stood out in 2023:

  • The 831,000-square-foot office building at 375 Park Avenue in Manhattan, with $782.8 million in debt, extended its maturity date by one year.

  • The $536 million Aon Center, a 2.8 million-square-foot office tower in Chicago, extended its maturity by three years with no change to the interest rate.

  • The $219.6 million loan for Aven, a 563-unit multifamily building in Los Angeles, underwent two modifications: one in May to switch from LIBOR to SOFR and another in September, extending the maturity from March 2025 to March 2026.


Looking ahead: Compared to the previous year, 2023 saw a nearly twofold increase in the number of loan modifications. Extending the loan term emerged as the most popular modification type, and CRED iQ anticipates that maturity extension modifications will remain favored by borrowers in 2024. This trend is expected to continue, especially with $209.6 billion of CRE debt maturing across securitized sectors in the coming year.

Editor’s Picks

  • Midwest success: According to recent GDP data, Kansas City has emerged as a standout in the Midwestern economy, ranking as the second fastest-growing large economy in the region.

  • Podcast: The once-hyped boom in mobile home park development, fueled by the Biden administration's affordable housing promises, fizzled out, leaving the industry to conclude that new mobile home parks are unlikely to be built again.

  • Slowdown: Private equity firms took a backseat in 2023's Wall Street dealmaking due to high-interest rates and market instability, leading to a notable decrease in deals.

  • More trouble: Rishi Kapoor faces a lawsuit from the U.S. Securities and Exchange Commission, accusing him and his former firm, Location Ventures, of defrauding investors of $93 million in real estate projects.


San Francisco has seen a notable drop in office asking rents since 2020, and other markets may also experience similar declines in 2024.

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