Trump's CRE Doctrine & Chicago's mega-foreclosure fight

Trump’s CRE Doctrine

A “shellacking,” is how CNN’s John King described Kamala Harris’ loss to Donald Trump, who’s heading back to the White House w/ a supercharged mandate, a GOP Senate, and potentially the House too. Lots of other places you can go read about the political, geopolitical, economic & cultural implications of this win – here though, we’re going to stick to the biggest things it might mean for CRE – both the policies & the players 🦅 

POTUS (Cont.)

Freedom for Fannie & Freddie: Trump insiders have been in talks to privatize Fannie & Freddie, which together owned/guaranteed 40% of the $2.2T multifamily mortgage market as of Sept. ‘23. Bankers estimate that the govt.’s stakes could be valued in the 100s of billions of dollars, so privatization would mean getting the world’s biggest investors – think Abu Dhabi types – involved. Trumpworlders have discussed having the Treasury Dept. partially back some agency loans through a so-called standby guarantee – similar to what the FDIC does w/ banks. Currently, Fannie & Freddie are overseen by the FHFA ( a “parent-child r’ship” is how 1 source described the dynamic).
“If Trump wins, this is all anyone [in MF] will be talking about,” The Promote wrote in Sept. And now, he has. 🍼 

Also: Both GSEs have ramped up their efforts (or at the very least, their rhetoric) to counter mortgage fraud (catch up here). In a new SEC filing, Fannie ID’d its loan-vetting process’ susceptibility to fraud as a key risk factor & acknowledged that it has already suffered fraud-related losses.

Bossing the Fed: Trump has made clear his desire for the presidency to exert influence over the Federal Reserve (not just nominate the Fed chair & its board which is how things work rn). "I feel the president should have at least (a) say in there," he said this summer. That kind of influence could corrode the US capital markets, argues Brad Hargreaves in this excellent Thesis Driven breakdown: “Without confidence that the Fed won’t bend to political whims – regardless of the party in charge – investors and lenders will be less willing to do business and make long-term bets,” he writes. “And once the precedent of independence is broken, it’s very hard to get back.” 💵 

Taxes: Harris was looking to curb 1031s to $500K in gains, a proposal that earned her CRE’s ire. Trump, tho, likely won’t mess w/ them. He also wants to lower long-term cap gains taxes - standard GOP stuff, w/ the add’l insight of a guy who’s mastered that particular game. The industry has pushed to preserve tax benefits it already has, such as pass-through deductions & low cap gains rates ("‘Do no harm’ is the biggest thing with real estate organizations," a CREFC wonk told Reuters last month.)

Border: The construction industry leans heavily on immigrants, incl. a sizable proportion of undocumented immigrants, who are a key Trump deportation target. Of course, we’ll see if that deportation push was just (incredibly effective) campaign rhetoric, or whether it translates into action. 🛠️ 

Homies: Trump is at heart, always & forever, a New York real estate guy. And New York real estate guys make up a big chunk of his inner circle, from Steve Witkoff to Howard Lorber to Richard LeFrak to nursing-home mogul Eliezer (Lou) Scheiner. Friends to winning candidates sometimes get a look for ambassadorships. And then there’s Newmark chair Howie Lutnick, who was Trump’s main man on Wall St. this campaign and has been rumored to be eyeing a big job in the administration.

“If the president asks you to serve,” Lutnick said in July, “you have to say yes.”

Bonus: Still the best thing ever written about DJT

Beacon’s Mega-Foreclosure Battle

The floating-rate reaper ™️ came for Beacon Capital Partners, and the firm’s now fighting to hold on to one of its Chicago trophies. On behalf of CMBS bondholders, Wells Fargo has hit Beacon w/ a mammoth foreclosure lawsuit, one of the largest ever in the Windy City. The $370M loan at the 52-story, 1.2M sf AMA Plaza went to special servicing (SitusAMC handling) in August, after Beacon indicated it might not meet its debt service that month, and might also renege on its property tax payment. Beacon, which paid $467M for the tower in ‘16, insists it will work things out, describing the foreclosure action to Crain’s as "premature and inappropriate" – it already kicked in $6M this summer to get a 1Y loan extension. The investor is in the same sorry boat as many of its Chicago peers: NOI at the property in ‘23 was $27.4M, below the $28.1M debt service, per CoStar. It’s also under the cosh at nearby 303 E. Wacker Drive, where a $156M mortgage is coming due. But bloodbaths also bring bargains – Beacon paid just $125M ($144/foot) for the 36-story 333 W. Wacker Dr. this summer, compared to the $320M ($370/foot) seller AFL-CIO paid 9Y ago.

Not trying to be a jagoff alarmist here, but… 75% of CMBS backed by Chicago’s office properties was distressed as of May, leading the nation - here’s our breakdown.

More: Tragedy of the Special Servicer 

Multifamily’s Pricing Power Shift

We may be entering an era in which multi landlords once again call the shots: In Q3, the national apt. vacancy rate stopped rising for the first time in 3Y, per Apartments.com, decreasing to 7.8%. Meanwhile, the supply-demand gap – 178K units delivered, 176K of them absorbed – was the smallest it’s been in 3Y. Upscale units made up the bulk –147K – of that absorption. (On the sales side, we’ve seen a flurry of closed and pending deals in that tier, with buyers including KKR, Blackstone, EQR, and soon, Max Peek’s Magnolia.)

The multi construction boom, which saw 1.2M new units delivered in the past 2Y, meant that tenants could flex a little. But now, w/ new supply expected to drop precipitously in ‘25 & ‘26, it might be landlords who have the juice. 💪 

“The worst of the pressures on pricing from new supply are likely behind us,” MAA’s Eric Bolton said in an earnings call last month (h/t WSJ). Renewals are commanding an avg. rent increase of 3.5% as of Aug., per Yardi, while NYC, LA, and Midwestern hubs have exceeded that threshold. Meanwhile, Austin, the erstwhile darling of syndicators, is in a sorry state, w a nation-leading 15% vacancy rate.

Bonus: Inside Texas Syndicators' Favorite Housing Loophole
Even more: Enjoying this annotated commentary from @jayparsons on multi earnings calls ☎️ 

Yardeni, Ares Pounce in Manhattan

 “Very early, I realized real estate in New York is like celebrity in L.A. When they have sex, they talk about real estate.” - Ofer Yardeni

What gets built is a function of what gets financed, and the same is sometimes true for I-sales: when buyers can assume a seller’s cheap in-place debt, it can grease the wheels of the deal. The latest e.g.: Ares is snapping up Mitsui Fudosan’s 75% stake in 525 West 52nd St., per TRD, a deal that values the 392-unit rental at $270M ($690K/unit, a fun comparison to the $900K/unit that Vanbarton wants for its new build in the Seaport). Ares will assume the $200M Wells loan on the property, which carries a 4% interest rate. (In the mix here: Newmark)

Ares ($50B-ish in RE AUM) bought a large rental in Boca for $140M (just under $500K/unit) in May, at the time the region’s largest multi deal of the year. And in ‘23, it sold a prominent Chicago rental to the FO of Zara founder Amancio Ortega for $230M+.

Meanwhile, Stonehenge’s Ofer Yardeni has expanded his UES kingdom, snapping up a luxe rental for $128M ($850K/unit), per CO, a fat discount to the $200M ($1.3M/unit) seller CIM had paid in ‘19. Acore provided the debt. (In the mix here: Eastdil). Stonehenge frequently partners w/ the mighty office REIT SL Green, which bought out Yardeni’s partner Joel Seiden in ‘14.

Quickies

• 🎥 $1.7T war chest & ready to shop: Abu Dhabi’s private-credit dreams

• NYU masterleases 1.1M sf 770 B’way, pays VNO chunk of rent upfront 👩‍🎓 

• Stonepeak pays Starwood $244M in Houston’s top industrial deal since ‘10

• California voters kill move to expand rent control 😮‍💨 

• Nuveen eating the C-Pace market, issues $220M loan for Jay Paul’s San Jose office tower

• Apple to take Meta’s former 190K sf spread in Seattle 🍎 🕶️ 

• 🎤 Leon Capital boss on using demographics to drive CRE bets 

Unquotable Quotes