Good Morning All!!!

Special servicing rate reached 6.87% in September according to Trepp. Rental rate growth was on average negative on multifamily submarkets which had more than 5% annual inventory growth in Q2 2023. S&P Global warns broader market conditions could worsen debt markets. Tenants are now demanding landlord financials for office buildings in the wake of rising defaults. Rates on home loans hit a new high (again). Demand for adjustable rate mortgages grows as the spread between ARMs and fixed-rate loans grows to nearly 100bps. Banks are poised to write-off more loans as rates remain high. And finally, the trial of FTX’s Sam Bankman-Fried sees his ex-girlfriend turn on him.

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Capital Markets

Market News

• Rising bond yields have markets betting in favor of the Fed not rising rates anymore this year. The CME FedWatch Tool currently places the chance of a rate hike at 8% vs. 44% a month ago. Inflation data from Thursday’s CPI release could change the outlook (Yahoo)

• 30-Year mortgages hit another high with 8.34% on Friday (Investopedia)

  30-Year Fixed-Rate Mortgage Average

  

• Demand for adjustable rate mortgages surged last week by 15%. Average contract rates for a 5/1 ARM decreased to 6.33%, while average rates for 30-year fixed-rate loans increased to 7.67% (represents average with discount points) (CNBC)

• GM reached a tenative agreement with Canadian autoworkers hours after they launched a national strike earlier on Tuesday. The agreement includes wage increases of up to 25%, reactivation of cost-of-living adjustments, and shorter progression for workers to reach top pay (CNBC)

• Largest US Banks poised to write-off more bad loans due to higher interest rates. Net interest income, capital requirements, and investment-banking revenue all expected to be sore spots (Bloomberg)

• Sam-Bankman-Fried’s ex-girlfriend tells court he gave orders to commit fraud at FTX. On the fifth day of trial Ellison gave an account of how she met SBF and how Alameda used FTX customers’ funds to repay lenders (TheGuardian)

CRE Headlines

• Tenant brokers are demanding to look at office landlord’s financials as a wave of office defaults hits the market. Owners unable to prove they are in good financial shape are seeing tenants leave as they realize their landlords may not be able to find tenant improvements in a lease renewal (Bisnow)

• A report from S&P Global warns credit conditions for borrowers are likely to further deteriorate. CRE loan losses could rise due to higher financing costs, declining demand, and volatile conditions for U.S. banks. The report also notes broader trends pointing to a potential recession such as company rating downgrades, increase in corporate defaults, and asset devaluations (SPGlobal)

• Former Re/Max agent indicted on theft for misappropriating $2.25mm in investor funds for personal use (TheRealDeal)

• Submarkets that grew their apartment supply by less than 2.5% (YoY as of Q2 2023) are still achieving positive rent growth. Markets that grew their supply by more than 5% YoY are seeing negative growth. Dallas, TX submarket Frisco, and Austin, TX submarket Round Rock both had apartment inventory grow by greater than 10% YoY and are now seeing rent cuts (RealPage)

  Average Annual Rent Growth vs. Inventory Change (Q2 2023)

  

• The Trepp CMBS Special Servicing Rate jumped by 20bps in September to 6.87%. $2.4bn in loans were transferred to special servicing in September. Office and Retail led the charge with the highest percent share of special servicing (Trepp)

  CMBS Special Servicing Rates by Property Type

  

• Opportunistic investors are waiting to deploy $100bn of dry powder (commercialsearch)

Deals Deals Deals

Sales

• Multifamily: StoneBridge Investments acquired a 236-unit multifamily community in Washington, D.C. for $66mm from National Development (CommercialObserver)

• Office: The Douglas Living Trust bought a 30k sf office in Palo Alto, CA for $58mm from Kenson Ventures LLC. The deal represents a $1,933 psf price (Bisnow)

• Office: Easterly Government Properties acquires a 95k sf office building for $31mm from Oaktree Capital Management and Hines in Anaheim, CA (CommercialObserver)

• Multifamily: Vista Residential Partners and Batson-Cook Development sell a 300-unit multifamily community in Atlanta, GA. The garden-style development was completed in 2021 (MHN)

Debt

• Multifamily: Sabal Investment Holdings closed on five B-piece investments, representing around $2bn in collateral balance and $203mm in bond balance across three different Freddie Mac Multifamily programs (connectcre)

• Multifamily: GAIA Real Estate secures a $224mm debt package to refinance its four-property, 989-unit Stamford, CT portfolio. Greystone provided the Freddie Mac debt which was made up of four seven-year loans with 35-year amortization (CommercialObserver)

• Multifamily: Tesseract Capital Group secures two acquisition loans from Dwight Mortgage Trust for a combined $60mm. The loans will finance a 347-unit apartment portfolio in the Central Valley in California (connectcre)

• Hotel: Pyramid Global Hospitality secures a $50mm C-PACE financing package from North Bridge to refinance a 331-key hotel in Berkeley, CA (CommercialObserver)

• Multifamily: Neology lands a $31mm bridge loan from Harbor Group International to refinance a 192-unit luxury apartment building in Miami, FL (MHN)

Developments

• Industrial: Summit Real Estate Group breaks ground on $164mm industrial park in Youngsville, NC. The site will be built out in three phases and consist of nearly 1.4mm sf (REBusinessOnline)

• Multifamily: Flaherty & Collins Properties break ground on a $65mm mixed-use property in suburban Chicago, IL. The property will feature 219 luxury units and 10k sf of commercial space (MHN)

Distress

• Office: Extell Development sells 1710 Broadway in NYC for $173mm. The firm paid $268mm in 2017 for the 52k sf office and retail building and had plans to develop a hotel (TheRealDeal)

Meme Summary