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Madison Closes $2.04B RE Debt Fund

Madison Realty Capital just closed a $2.04B real estate debt fund (the largest in the US YTD). The fund will focus on opportunistic residential, hotels, industrial, and retail properties in major metro areas.

Madison Closes $2.04B RE Debt Fund

Madison Realty Capital just closed a $2.04B real estate debt fund (the largest in the US YTD). The fund will focus on opportunistic residential, hotels, industrial, and retail properties in major metro areas.

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Good morning. Madison Realty Capital just closed a $2.04B real estate debt fund (the largest in the US YTD). The fund will focus on opportunistic residential, hotels, industrial, and retail properties in major metro areas.

Today’s issue is brought to you by MHCI Group.

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Market Snapshot

S&P 500
GSPC
5,595.76
Pct Chg:
+0.75%
FTSE NAREIT
FNER
842.88
Pct Chg:
+0.43%
10Y Treasury
TNX
3.649%
Pct Chg:
-0.031
SOFR
1-month
5.34%
Pct Chg:
0.0%

*Data as of 9/12/2024 market close.

FRESH POWDER

Madison Realty Capital Closes $2.04B Debt Fund

Madison Realty Capital Closes $2.04B Debt Fund

Madison co-founder Josh Zegen sees more opportunities ahead

Despite falling short of its $2.25B target, Madison Realty Capital just closed the largest U.S. real estate debt fund in 2024.

Record-setting: Madison Realty Capital (MRC) has raised $2.04B for its sixth U.S. real estate debt fund, making it the largest fund in its history. Launched in September 2022, the fund will primarily focus on multifamily properties while seeking opportunistic investments in hotels, student housing, industrial, retail, and office buildings.

Zoom in: The fundraising round is the largest U.S.-focused real estate debt fund to close in 2024 to date. According to PERE, the biggest closing this year was ACORE Credit Partners II, which raised $1.4 billion. In comparison, Goldman Sachs Group Inc.'s alternatives division raised $3.6 billion for a global real estate credit fund.

Filling the gap: With banks scaling back after the collapse of Silicon Valley Bank and Signature Bank, private lenders like Madison are stepping in to fill the void. Josh Zegen, Madison's co-founder, emphasized the firm’s advantage in a market where "many competitors are on the sidelines." Madison’s strategy is paying off, with $3.79 billion in deals across 26 completed transactions, representing 45% of its capital commitments.

➥ THE TAKEAWAY

Looking forward: While commercial property prices are still 19% below their 2022 highs, values have risen 3.3% in 2024 through August. However, transaction volume remains sluggish, down 5% year-over-year, with $203.8 billion in deals closed by July. Lower interest rates, anticipated soon, could rejuvenate the market, offering Madison even more opportunities to invest in distressed and opportunistic assets.

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✍️ Editor’s Picks

  • Wealth on the rise: US household wealth hit a record high in Q2, rising by $2.76T to $163.8T, spurred mostly by real estate gains and stock gains.

  • Bringing it back: San Francisco and Lendlease struck a deal to revive the $1.2B, 47-story Hayes Point tower, which includes 333 condos and 290KSF of office and retail space.

  • Adams under fire: Allegations of a bribery scheme test NYC Mayor Eric Adams's leadership as an ongoing federal probe threatens his credibility and real estate goals.

  • A case for cuts: Goldman Sachs CEO David Solomon suggests the Federal Reserve might consider a larger 50-basis-point rate cut due to a softening labor market, though a smaller 25-point cut remains more likely.

🏘️ MULTIFAMILY

  • Slightly more affordable: Rising wages and stable rents, driven by increased apartment construction, are making rental housing more affordable across the country.

  • Rent relief: NYC apartment rents eased in August, with Manhattan's median dropping 3.5%, offering some relief after last year's record highs but still far above pre-pandemic levels.

  • Rent reset: NYC rents fell slightly in August, marking a significant shift in landlord fortunes as city residents finally said, “Enough is enough.” Further rent drops are expected after rate cuts.

  • Thrifty tenants reign: Only 11% of Dallas-Fort Worth renters care about expensive luxury amenities, while 31% of renters value space and 30% prioritize location.

  • Golf meets real estate: PGA star Patrick Cantlay partners with LRE Management to invest in multifamily properties, eyeing real estate as a future career while still competing on the tour.

🏭 Industrial

  • Revolving door: STAG Industrial Inc. (STAG), with notable lenders and an active acquisition history, refinanced a $1B senior unsecured revolving credit facility, successfully extending debt maturities.

  • Major lease: Lingerfelt signed a lease with Vital Records Control for over 230,000 square feet at Ruffin Mill Distribution Center, bringing the Richmond, VA property to full occupancy.

🏬 RETAIL

  • Westward leading: NewMark Merrill Hadler Community Partners is now targeting underinvested West Coast communities, with a focus on retail center development.

  • Shopping success: A Regency Centers (REG) and Brand Street Properties JV has entered the Providence market, buying 97%-occupied East Greenwich Square for $46.7M.

🏢 OFFICE

  • Tower revival: The $1B renovation of San Francisco's iconic Transamerica Pyramid faces uncertainty due to a $600M lawsuit involving a key tenant, clouding its reopening.

  • Building buzz: Howard Hughes Holdings' (HHH) much-hyped mass-timber office building in Houston, featuring eco-friendly design and innovative tech, is already 80% pre-leased nearly 80%.

  • Office reset: Paramount Group (PGRE) plans to sell Market Center in San Francisco after writing off its investment, potentially recouping $224M.

🏨 HOSPITALITY

  • Labor battle: NYC hotel subcontractors form an advocacy group against the Safe Hotels Act, which would require union labor, risking mass hospitality layoffs and citywide chaos.

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*Please see the advertising disclosure at the bottom of this newsletter.

📈 CHART OF THE DAY

Why Light Industrial Properties Will Continue to Shine

According to data provided by Green Street, the cumulative rent growth for small-bay light industrial properties from 2021–2023 was propelled by the rising demand for e-commerce and last-mile logistics, alongside constrained supply.

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