Multi Lenders Silent Scream & Abu Dhabi in your Capstack

Born Ready: “Late Cycle Stress”

We have the new mother of all euphemisms: “Late cycle stress in the multifamily sector” is how Ready Capital’s Thomas Capasse, key lender to syndicators Tides (Sean Kia, Ryan Andrade) and GVA (Alan Stalcup) described the carnage in his debt fund’s $6.6B CRE CLO book. 10% of that book is now >60 days delinquent, Ready reported in its Q1 earnings, a 284% YoY jump.

Unlike its compatriot Arbor, which can tweak its actively managed debt book without the blessing of a special servicer, Ready deals in “static securities,” per TRD, making it less nimble in addressing problem deals and requiring it to score a special servicer’s approval to modify loans.

“We’re certainly encouraging them to have a greater sense of urgency,” said Ready’s chief credit officer Adam Zausmer, matching his boss’s ability to scream silently.

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Multifamily Lenders (cont.)

The firm is in talks to replace its special servicer, and is also considering becoming its own special servicer 😵‍💫 . Meanwhile, it’s shopping $655M worth of debt, over 2/3 of which is delinquent in some fashion.

Much of the syndicator action has been in the Sunbelt, and there’s some interesting data about that broader market that just dropped: rent growth turned flat or negative in many Sunbelt regions through early ‘24, per Yardi Matrix. The Southeast saw YoY rent growth of 0.2% through March ‘24 and the Southwest -1.2%, compared to 3.8% in the Northeast and 3.2% in the Midwest. Of course, even modest single-digit rent growth would not do much for gung-ho syndicators’ business plans, nor for the debt funds that bankrolled them. Here’s a snippet from a ‘22 GVA deal, funded by LoanCore - $6.4M NOI at time of deal with projected NOI of $9M by ‘25.

Politicians Sour on Data Centers

If you follow the industry-generated media, you’ll know that data centers replaced self-storage as thinkbois’ favorite asset class sometime last year. They have everything: size, capital, AI implications and Blackstone trend pieces. Their growth has received a significant boost from lawmakers across the country in the form of generous tax breaks – data centers were seen as a way to stimulate local economies and create heaps of jobs.

Now comes the reckoning. Politicians are beginning to question the efficacy of those bets – did those sweetheart deals with developers and investors amount to much of anything?

“It’s a money loser,” Republican state Senator Chuck Hufstetler, who’s sponsoring a Georgia bill that would freeze tax breaks for 2Y, told Bloomberg. “All too often, lobbyists say tax credits are great and create a lot of jobs. But in reality, these data centers create few jobs.” The bill was pushing for a moratorium so that data centers’ impact on the economy and the power grid could be analyzed, but Governor Brian Kemp vetoed it.

Politicians in Virginia, epicenter of the country’s data-center boom, are also reflecting: the state comptroller estimated that VA forfeited $750M of tax revenue in FY’ 23 alone. The state’s tax dept. is more optimistic, projecting that the 5Y tax revenue generated by data centers will be nearly twice the value of the tax breaks. And industry players are fiercely defending their turf: Blackstone-owned QTS hired a former Georgia AG and a former House Majority Whip to lobby against the bill.

Quickies

• 🎥 A multibillion-dollar game of Rentopoly is playing out in SF

• Fed flags rising CRE delinquencies in semiannual report; says it is “focused on improving the speed, force and agility” of supervision

• NY lawmakers carved themselves out of good cause eviction 👏 

• Kilroy alum David Simon, with Bain’s backing, has 70mm aspirations for his Hollywood projects  

• David Bistricer (“my vice is money – I like to make money”) lands $430M JPMorgan loan for Greenpoint multi project

• Bain confirms fatty lease – first reported by Cuozzo in October – at Milstein’s 22 Vandy

• Brooklyn I-sales rainmaker Stephen Palmese left JLL a couple months ago and is running his own credit fund, which just bankrolled a $53M Red Hook development deal 

• Foreclosure looms at Charles Cohen’s 750 Lex office tower

Abu Dhabi in Your Debt Stack

CFIUS has given its blessing to Mubadala’s $3B takeover of SoftBank-owned Fortress, putting the mammoth Abu Dhabi 🇦🇪 sovereign wealth fund in the thick of the distressed-debt CRE game. CFIUS, which reviews foreign investment in strategically important US companies, approved the deal after Mubadala pledged to keep Fortress’ data and technology stateside, per the FT, on top of an earlier pledge to have no say in day-to-day operations – i.e. Harry Macklowe doesn’t have to worry about staring at Khaldoon Al Mubarak across the negotiating table. The deal allows for Fortress execs to up their ownership stakes in coming years, depending on performance - in that regard it reminds me of Eastdil’s Temasek-assisted buyout in ‘19.

Fortress is of particular fascination to US CRE players, given how much appetite it has for troubled deals, but this isn’t Mubadala’s first dabke in the debt stack: it is JVing with Ares on a $1B private credit fund for European RE deals.

All the Abu Dhabi funds – Mubadala, ADIA, Aldar, etc. – are in some fashion controlled by the world’s richest family, the Al Nahyans, which rule Abu Dhabi and flex a $1.5T war chest across the global economy. One real estate legend who got tight with them was Sam Zell, and he did it in trademark fashion – late-night motorbike rides with MBZ, now UAE president 🏍️ 

Special Assessments Rock Florida Condos

The ‘21 building collapse tragedy in Surfside led to a Florida structural standards law that is now pummeling the state’s condo market, per WSJ. Unit owners, faced with the prospect of 6-figure assessments for repairs on their units, are flooding the market with inventory, and the prospect of footing the bill for repairs is spooking any potential suitors.

Under the law, new structural inspections are mandatory for most condo buildings >30Y old, or 25Y old if within 3 miles of the coast. In South Florida, condo inventory has more than doubled YoY in Q1, to 18K units, most of them in aged buildings that require these assessments 🤷‍♀️ 

“Even if we found a buyer, what could we buy with the pennies we’d receive for our unit?” one resident of North Miami bayfront condo Cricket Club told the publication. Consider the numbers: One seller, faced w a $134K special assessment, listed his pad for $350K but eventually sold it for $110K, a 42% loss on his ‘19 purchase price.

This state of affairs – desperate sellers, no retail buyers – created opportunities for developers to come in and do bulk buyouts, though a recent appeals court ruling has complicated matters.

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