Risk Transfer Rampage & Baron of Big Box

Risk Transfer Rampage

In the fallout from the regional-banking crisis, in which CRE has been a central tragic figure, regulators are demanding their pound of flesh: banks need to take risk off their books, and fast. Investors have answered the call with an instrument that’s rapidly becoming the talk of Wall Street: Significant Risk Transfers 🧝‍♀️ 

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SRTs (Cont.)

Banks ranging from the bulge brackets to midsize lenders for whom CRE overexposure is a more acute concern have been using SRTs (sometimes known as synthetic-risk transfers) to shift first losses on loans to private investors, per Bloomberg: Typically, a bank will set aside a pool of loans on its balance sheet and buy credit-default protection on the first 5-15% of losses on that pool – losses that its counterparties would have to eat. If, however, the loans hold up, those counterparties can reap juicy returns – European SRT investors have often earned low double-digits. EJF Capital’s Neal Wilson, an investor in the space, told the publication that 2,800 US banks w/ <$100B in assets could be primed to do SRT deals in the coming years, in order to slash risk on $200B worth of loans (not just CRE loans, to be clear). Among bank shot-callers, the idea is “starting to catch fire,” Wilson said.

In a May post, KKR had ID’d SRTs as a growth area in the US, predicting that the so-called Basel III Endgame mandates would push banks to tap more frequently into the vehicle. The US, KKR said, would come to more closely resemble Europe in its use of SRTs as a tool to keep regulators at bay – it noted that the Fed’s Sept. ‘23 guidelines opened the doors to heightened activity in the space. And this Feb., Fortress’ co-CEO Josh Pack had made a broader point about the regional-banking crisis, saying that regulators would eventually have to play ball w/ private investors. “The underlying stress here is just so big 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,” he said at the time.

The issues with this SRT frenzy? Well, at the moment, investor demand for the vehicle greatly outstrips supply, leading to concerns that the market could be flooded w/ questionable deals. In a healthy market, you’d want buyers & sellers to hash out deets of what goes into the pools, such as which CRE portfolios are included. There’s also a “flowback risk” – investors who tap out rather than continuously re-invest, shifting the risk back to banks.

More: A candid chat w/ a federal bank examiner
   

Brickell Bonanza Continues

Erik Rutter & David Weitz, two New York guys who’ve wholeheartedly embraced the Miami lifestyle (“Winning in the morning sets your day up for success,” Rutter said of padel), are poised to make their biggest bet yet in the 305: Their Oak Row Equities has signed an LOI & put down a refundable deposit to acquire Aimco’s massive Brickell waterfront assemblage, per CO. Oak Row is in talks to buy the 4.25-acre spread for ≈ $500M, or $118M/acre – compare that to Ken Griffin’s $145M/acre deal in ‘22 for the Citadel HQ land a block south. CBRE, which is marketing the assemblage for Aimco, was targeting a $650M ($153M/acre) price.

Oak Row’s targeting a luxe condo redevelopment play at the site, which is currently home to a 32-story office tower and a 31-story apartment building but is zoned for a 3M+ sf project. It’ll be fascinating to see which equity partners and lenders step up to back them; construction on Oak Row’s 41-story Edgewater project is being funded w/ a $181M OZK loan, and it’s JVing w/ L&L over at the Amazon-scouted Wynwood Plaza – OZK’s the debt there too.

This fall, Aimco sold an Edgewater rental to Kushner Cos. for $190M, while also scoring construction financing for a new project nearby.

The Baron of Big Box

“Real Gs move in silence like lasagna.” - Lil’ Wayne 🍝 

Only in industrial could a billion-dollar acquisition transpire and go completely undetected for months. EQT Exeter, the RE arm of Swedish investment giant EQT AB, paid $1.3B for a 14.6M sf portfolio in July, a transaction that’s just been brought to light by REA. The seller was a JV between Abu Dhabi SWF ADIA & Canada pension fund PSP, and here’s what’s interesting: that same JV had paid EQT Exeter predecessor Exeter Property Group $3.15B for a 58M sf industrial portfolio in ‘15 – it’s unclear if this new purchase is a chunk of that very same portfolio, but if it is, it’s telling how far pricing has come in just a few years – $54 a foot to $89 a foot.

EQT Exeter, led by Henry Steinberg, also just paid $202M to DWS for 2 Napa industrial properties, per REA, w/ Green Street putting the firm on track to close $6.8B in buys this year – more than 3x its ‘23 haul. It recently pulled off a $570M financing of a separate industrial acquisition, notable bc the lender was a lifeco.

Nursing Home Titans Strike Settlement

Daryl Hagler & Kenny Rozenberg, 2 of the players on The Promote’s Nursing Home Power Roster, are about to take some strong medicine: The founders of Centers Health Care will cough up $45M to settle allegations of Medicaid/Medicare fraud & patient neglect. The 4 NY facilities that were the focus of NY AG Tish James’ investigation will continue to be supervised by an independent monitor, and the owners are barred from shuttering or selling the facilities for at least 3Y (whether this complicates a long-whispered deal for Rozenberg to sell his SNF portfolio to Chuny Herzka is anyone’s guess). 💊 

Residents “endured years of tragic and devastating mistreatment and neglect, while the owners made millions of dollars in profit,” James said in an announcement. In 1 of the alleged schemes, Hagler, acting as landlord, charged the Rozenberg-owned nursing homes inflated rents and the duo pocketed the excess funds.

Elsewhere in this insular industry, PACS Group is being accused by short-seller Hindenburg Research of similar Medicare/Medicaid mishegas. PACS disclosed last week that it was under federal investigation and postponed its Q3 financials release.

CushWake Shakeup

The Promote learned yesterday that Dan Broderick, who ran the Americas advisory business for CushWake, is out. The brokerage declined to comment, but we confirmed that his profile’s been nixed from its website. No clarity yet on the reason for the exit – Broderick was also serving as interim head of capital markets for the region until this summer, when Westbrook alum Miles Treaster was brought in. Cushman has been in balance-sheet babysitting mode 👶 for over a year now, levering down & slashing costs, which included eliminating some sr. execs. The firm has turned a corner though, eking out $34M in net income last Q, and CEO Michelle MacKay said it would be reinvesting in brokerage as the capital markets recover.

Quickies

• 🎥 Why MF landlords will soon be back to calling the shots  

• Newmark czar Howie Lutnick up against hedgie Bessent for Treasury Sec. (more on Lutnick’s MAGA journey here)

• More Namdar bottom-feeding 🐡: Investor offers $61/foot for Loop office tower (more on Namdar’s office playbook here)

• Schron, Werner win ruling in Billionaires’ Row ground-lease dispute 

•  Carlyle’s the money on Yardeni’s UES buy

• Provident buys distressed office campus home to RealPage HQ

• Midtown Manhattan is largely back to the office (also see: Manhattan is still Manhattan)

• Gibson Dunn goes to bat for Traveling HFCs (catch up here & here & here)

• CRE brokerage is an insecure man’s game 🕴️✈️ 

Unquotable Quotes