Morgan Stanley's Note Carrot & Student Housing's Megadeal

Morgan Stanley’s Loan Sales Sweetener

With the great debt reshuffle underway, positioning yourself as the go-to loan seller can be a juicy business. To eke out an edge in this increasingly competitive game, Morgan Stanley’s offering an unusual carrot: financing for the buyer 🥕 

The bank’s loan solutions group is tantalizing buyers with the incentive, per CMA, a departure from the typical routes of seller financing or 3rd-party financing. And it’s a meaningful perk – as we’ve discussed before, what gets built/traded is sometimes a Q of what gets financed.

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Morgan Stanley (Cont.)

MS is having a good run: it advised on Valley National Bank’s in-process $800M loan book sale, trading at a mere 1% discount (pretty wonderful given recent comps); worked on Banc of California’s $2B resi book; and is also in the mix on a $2B book for Atlantic Union/Sandy Spring.

Small and midsized banks are under pressure to reduce their CRE exposure, faced w/ heat from regulators 🐫 as well as an unwillingness to stomach further losses. Luckily, there’s an aggressive pack of bargain hunters for such deals, from the likes of Fortress (which sees a “trillion-dollar opportunity” in the regional-banking crisis) to Blackstone & Rialto, which then sometimes sell smaller slices to players such as Maverick (our convo w/ David Aviram here).

Some CRE loan brokers appear miffed about MS’ success: per CMA, they claim that if such sales were handled by specialized industry experts (MS uses I-bankers), banks would score better pricing and perhaps unload more loans. 🎻 🎻 🎻   

Scion’s Student Housing Megadeal

The kind of deal that gives me hope for our youth. Students are back on campus, and so student housing is roaring. The latest: Rob Bronstein’s Scion Group just bought an 8,700-bed student housing portfolio from Harrison Street for $893M, or north of $100K/bed. The portfolio spans 14 properties near the likes of Texas A&M & Mizzou. Scion’s an interesting firm - Bronstein started it in ‘99 w/ his big brother Eric, and parlayed a 2-man consultancy into the country’s largest off-campus housing provider - this latest deal pushes them over 100K beds.  

The deal comes a few months after KKR paid $1.64B, or $160K+/bed, for a Blackstone-owned dorm portfolio, an offering which Blackstone’s BREIT sweetened by providing below-market financing (6.5% pref) + $800M in assumable low-interest debt.

Meanwhile, Nuveen & Preiss are shopping a 4,300-bed Sunbelt portfolio and teasing pricing of $400M+, or $93K/bed. (Learned a new bit of jargon: bed-bath parity)    

Number Go Up: Blackstone Buying ROIC

Blackstone’s takeover of shopping-center operator ROIC, which controls 10.5M sf of retail across 93 properties, is official. The firm announced Nov. 6 that it’s taking ROIC private in a $4B deal – the price is what jumped out at me, given that when Reuters had first reported talks of the deal this summer, it pegged ROIC’s market value as closer to $2B, and when it reported on Nov. 3 that the deal was imminent, it quoted a market value (incl. debt) of $3.4B. Blackstone’s doing the all-cash deal at a $17.5 share price, a 34% premium to ROIC’s closing share price the day before the summer Reuters report came out.

ROIC bills itself as the “largest West Coast grocery-anchored REIT.” Same-space new leases rented for a 12.4% premium in Q2, it disclosed. 🥋 

It’s been a monster CRE M&A year for Blackstone: it bought SFR giant Tricon in a $3.5B take-private in January, and brought joy to rental landlords everywhere in April w/ a $10B deal for AIR Communities.

SNF Giant Accused of Scamming Taxpayers

“Federal marshals are so far up my ass I can taste Brylcreem.” - Uncle Junior 

Would kill to be a fly on the wall at Tabernacle this week… the SNF industry is abuzz w/ news that PACS Group, one of the biggest players in the space, is being accused by short-seller Hindenburg Research of “systematically scamming taxpayers.” Hindenburg alleges that PACs (founded by Jason Murray & Mark Hancock) inappropriately accessed thousands of patients Medicare benefits across its portfolio, taking advantage of a Covid-era waiver. “As soon as one person tested [COVID-19] positive in our building, boom, wildfire, every single person gets flipped [to Medicare], absolutely inappropriately,” Hindenburg claims one former manager for the firm said. PACS went public in April at $21/share, and the price more than doubled before plunging after the report was released ($20.5 currently). On Wednesday, PACS disclosed that it was under federal investigation 👀 and said it was postponing the release of its Q3 financials.

These kinds of Medicare/Medicaid fraud allegations – emotionally and politically charged given that old people are involved – are an ongoing issue in the SNF industry, which is small (15K facilities nationwide) but hella lucrative. Coincidentally, The Promote put together a nursing home power roster Monday, and a lot of the names mentioned – from Daryl Hagler to Kenny Rozenberg to Bent Philipson to Joel Landau – have been accused of the F word. 🩺 

Fool Me Once…

How’s extend & pretend going? Well, the number of CRE sponsors in danger of double-defaulting on loans is at the highest level in a decade, per a BankRegData analysis of modified NPLs cited by the FT: Through Sept., “re-defaults” are at $5.5B, up 90% YoY and up $1B from the previous quarter. (“Real estate recidivism,” is how Maverick’s Aviram put it).

See also: Extend, Pretend, Repent

Even more: Our conversation w/ a federal regulator about loan mods and one in which he walks us through a bank review

Quickies

• ICMYI: The Promote breaks down the Trump CRE Doctrine

• Wall St. bigwigs huddle up for Trump – and Newmark’s Lutnick’s fielding the calls 📞 

• Cousins in contract to buy Charlotte office for $329M

• Howard Lorber admits to intimacy w/ his brokers

• Checking in on the global wellness RE market 💆 

• Hilco revealed as winning $177M bidder of OC’s Ziggurat - the quirky building is not long for this realm 🏯 

• “Ridiculous thing:” PMG’s Kevin Maloney sounds alarm on Trump tariffs

• Namdar takes Nightingale building via deed-in-lieu (latest on Elie Schwartz here)

• Looks like Scott Chisholm, prez of Greystone’s lending unit, is out - hasn’t updated his LI yet, but per sources he’s out (& no longer on company website)

Unquotable Quotes