CRE Storylines That Defined '24 – And Will Shape '25

CRE Gets “Debanked”

Forget Griffin & Bezos at Carbone Beach – the (hypothetical) conversation I’d like to most be privy to is one between George Gleason & Adi Chugh. Nothing signified the shift in the lending landscape in ‘24 quite like the furiously rapid rise of Chugh’s Elliott-backed Tyko, which through a whirlwind of deals ($2B+ in H2 alone, from the Flatiron Building conversion to Major Food Group’s Miami condos ) unseated Bank OZK as the most talked-about construction lender in the market. Tyko is a supercharged case of one of the defining narratives of the year: debt funds finding opportunity in the massive void left by regional banks.

Debanking (Cont.)

Whether through death (Signature, First Republic, SVB), dismemberment (NYCB), or tighter regulation, regional banks, which long served as the lifeblood of the CRE market, have become a far less potent force, and debt funds are stepping in. “The underlying stress here is just so big,” Fortress’ co-CEO Drew McKnight said in Feb., “that they’ll eventually get to a point where they’re just going to have to utilize private capital to clean up the mess and recapitalize the system.” Fortress is going after what it calls that “trillion-dollar opportunity” in a bunch of ways, buying into struggling regional lenders and making an Abu Dhabi-backed push to double AUM. Madison Realty Capital, too, expects riches in regional ruins: principal Josh Zegen recently spoke of the opportunity in loan-on-loan deals. For a fuller picture of the players in this game, check out our “Quiet Kings of Capital” rundown.

Syndicator Comeuppance

Multifamily syndicators lived a lifetime in a year. We started ‘24 w/ an unusual stalemate between underwater syndicators and their long-suffering lenders, while LPs, many who came via nebulous entities known as feeder funds, continued to get rocked. “Everyone’s being delusional – whether on purpose or by accident,” is how one source described it. Lenders resigned themselves to screaming silently, perhaps best epitomized by this line from Ready Capital’s Adam Zausmer: “We’re certainly encouraging [delinquent sponsors] to have a greater sense of urgency.” 👏 

But that dynamic began to change, and fast. We saw a wave of takebacks, followed by lawsuits lenders filed against their most troublesome sponsors. The Tides saga, in which Starwood, Acres and Rialto are personally going after Tides’ principals Sean Kia & Ryan Andrade over PGs (carry guaranties, recourse guaranties, springing recourse!), is being closely watched – what happens there may inform how other more milquetoast lenders proceed in their own disputes.

Such carnage is also, of course, fertile ground for heists, such as Scott Everett’s S2 Capital rescue recap this month of a massive GVA (Alan Stalcup) Sunbelt portfolio. The structures of such opportunistic deals – in this one, existing LPs agreed to contribute all the individual property JVs into a new holdco that would sit junior 🧒 to S2’s pref – will be among the most interesting themes in the new year. As will the creative ways in which syndicators are crafting escape hatches for their shakier stuff: Everett, for one, is folding a chunk of his mega-portfolio into a private REIT. Meanwhile, the fate of one key syndicator lifeline in Texas, traveling Housing Finance Corporations, hangs in the balance – there’s a summer-camp romance feel to the whole thing.

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Fraud and the Aftermath

What a mad, mad year for a reckoning w/ mortgage fraud, and other assorted frauds, a reckoning that will continue well into ‘25 and perhaps even permanently alter the lending landscape. We did a special issue on the topic last week, so rather than rehashing it here I encourage you to check it out. The fallout from the shenanigans has been wide-ranging, and has humbled some of the most prominent firms in CRE finance, incl. Meridian Capital Group, whose twists & turns we’ve been covering in great detail.

Tranche Warfare

Couple big things to highlight here as we look ahead to ‘25: In May, AAA CMBS bondholders ate their first losses since the GFC, at Blackstone’s 1740 Broadway. Observers expect many more examples of primo-tranche losses to come, particularly on these once-thought-to-be-bulletproof SASB office deals - CREFC found this summer that the rate of SASB loans in or near default has almost tripled over 2Y, to 8.7%. Amidst all this drama, special servicers are having a grand ol’ time, pocketing hundreds of millions of dollars in fees, and have enormous power to stack the deck – one of the more colorful examples happened at the distressed Veritas portfolio in SF (bought by Brookfield & Ballast), where special servicer Midland held back a whopping $164M. Expect a lot more: more fee juicing, more litigation, and more sponsors crying foul.

When Developers Break

This was the toughest theme of the year, and the one we got the most personal notes about. A special edition this summer tackled the thorny issue of developer mental health, examining how the extreme pressures of the sport can play a role in some really bad decisions, decisions that can derail a career, land one in prison, even end a life. Even since it was published, we’ve seen a couple more tragic examples, and I hope that it (and an accompanying mini-doc 🎥 ) can serve as a reference point to those struggling. Things can get bad, but they are never final.

Quickies

• Rundown: The biggest single-asset office deals this year 🌆 

• Apollo/RXR/SLG file for 942-unit resi conversion at 5 Times Sq.

• Savanna buys Meatpacking ground lease from Invesco at massive 💇 

• All Year wants answers on Yoel Goldman’s side deals (see also: What’s debt between yeshiva buddies?) 🎲 

• That’s all, y’all: Atlanta pushes back against data-center boom 💾

Unquotable Quotes

A note of gratitude: “How did you stop writing about us, and start writing for us?” was something we got asked a few weeks into the life of The Promote. It was perhaps the most meaningful compliment we’ve received, capturing the ethos of what we’re doing here, what makes this whole thing so tasty 🍊 and so worthwhile. We’re not trying to win over a general audience – we’re happy for them to get their news & insights elsewhere. This thing is for CRE insiders only, and having that DNA allows us to reach a level of nuance, coverage and spice you simply cannot find elsewhere. So, thank you to all who made it so this year: the sources, the gut-checkers, the editors, the newsrooms, the evangelists, the advertisers, the maniacs who open this thing in a Tijuana club at midnight or read it twice 3m before going dark for Shabbat. I appreciate you more than you know. A very Happy New Year, and here’s to a brilliant ‘25! 🫡 - HS