Zack Streit, Capital Markets Update | Ep.95

Anna-Marie Allander Lieb, Director of Investments

Anna-Marie Allander Lieb is our Director of Investments, sitting on CrowdStreet's Investment Committee while also managing the team responsible for identifying and reviewing potential offerings for the Marketplace. Prior to joining CrowdStreet, Anna-Marie worked for the Tax Credit Investment Group at PNC where she specialized in underwriting innovative tax credit equity and debt financing solutions for Historic Tax Credit, and Low-Income Housing Tax Credit investments. Anna-Marie started her real estate career in Boston where she was a member of the CBRE New England Capital Markets Team. Anna-Marie holds a B.Sc. in Economics with a concentration in Real Estate from the Wharton School of Business.

Zach Streit, Senior Vice President
George Smith Partners

- Welcome back to StreetBeats Capital Markets. I'm Anna-Marie Lieb, Director of Investments at CrowdStreet. And I'm joined by Zack Streit, SVP at George Smith Partners. Zach, welcome back.

- Hey, thank you, Anna Marie. Glad to be back again.

- Yeah, it's been an exciting week. We've seen, you know, continuing upward trends on vaccinations, they're averaging, what 3.3 million daily vaccinations as of last week, you know.

- An incredible number

- Math on that's like 100 million a month. In terms of shots in arms, Which is great to see. I think right now we're sitting at 40% of the population with at least one dose. 26% fully vaccinated as of last week. So, we're definitely, I think trending towards that herd immunity. Hopefully, we're going to be able to hit that by June, as long as people, you know, line up to get their vaccines.

- I think we're very close to anyone who wants to get it can get it.

- Yeah

- Most well, we hosted a happy hour for our clients down in Phoenix last week. And we probably had 30 folks attend. We did it outside, lots of space, everybody there was vac'ed. Every single person.

- Yeah, that come to sort of tell you a story. Which is interesting. And that's where we're moving into.

- Yeah, no, I agree. It's been great to see. kind of in terms of some other economic numbers that came out last week. Retail sales, that was a big one.

- Big one.

- We had 9.8% growth in March, compared to, kind of the economic forecast. They're expecting 5.7%. You know, part of this was probably due to the stimulus checks that came out in March but, you know, it's definitely great to see that up. Especially kind of the restaurant sales. They were up 13.4% month over month. So, you know, I think the retail sales are coming back strong. Things are starting to open up. It's great to see. Speaking of the retail side, I think the big news there was Kimco Realty Corp's proposed acquisition of Weingarten Realty investors

- Yeah, yeah. Grocery anchored retail is not dead.

- Yeah, exactly

- Some of your boxes in big malls are challenged, for sure, but if it's grocery-anchored or there's a specialty component to it, there's a lot of strength that's out there. I had mentioned to you we were working on a deal here in Koreatown. It's a specialty retail deal. It's got a lot of restaurant tenants. We're getting quotes that our full ask which is about 65% loan to cost as an institutional deal. The interest rates are between 4,5 and 5,5%. For the last two months, collections have been a 100% of the property. It's been truly amazing. And this dovetails into what's going on at the big corporate level with Kimco and Weingarten and vaccinations and the fact that you can outdoor dine again and even the limited capacity, you can indoor dine. And I bet that goes up in terms of how much you can do it. So it's not just so abstract you're actually seeing it like in the reflections from interest rates in the capital markets. So that's pretty amazing.

- Yeah, no, definitely. I think you know so on our CrowdStreet side, we've seen some retail deals come through our end. Again they're in that grocery-anchored sector. Currently, we've got a deal up with the an Amazon fresh,

- Yeah, the recap deal. And in similarly right, they're able to get refinancing with kind of 10 years interest only at call it a 4% rate. Just under 60% LTC. So, definitely some deals happening there.

- Yeah.

- And I think there is strength still in that market.

- Now and Amazon doesn't hurt either.

- Definitely not, definitely not. Other news. You know, hospitality sector still is showing signs of recovering it's coming back quicker than what we thought. Occupancy per STR last week was at about 60%.

- Yeah You know, and again, that's more than 50% of properties across the country had occupancy above 60%. Which is great to see obviously markets, you know, in Florida and whatnot were upwards of 80 and kind of anecdotally what we've been hearing from our sponsors out there is that actually transactions are really getting outbid.

- Yeah. There's kind of capital wanting to get in and get access to these opportunities. And so pricing is actually, you know, higher what we expected. Kind of that pre-COVID discount that, you know, maybe previously thought we thought it was going to be around 25% is probably more so sitting at that 5 to 10% range. And I know you've been seeing some interesting transactions on the debt side too, in in hospitality these days.

- It's unbelievable. Just this morning, we got a high leverage, call it, preferred equity financing quote on a full-service hotel, full-service hotel up in the Pacific Northwest. last dollar was 85% loan to cost

- Yeah.

- And pricing was sort of call it low to mid teens. All accruing. That's just an incredible sort of leverage level to reach, you know, on a hotel acquisition. As a frankly, you're seeing very similar quotes in multi-family construction. And I think most people looking at the two would say multi-family construction is safer right now than hotel, but you're starting to see these incredible quotes come back. You know, this in addition to, lower leverage bridge quotes, you know, that our pricing call it in the five to 6% range, all in. Let's say at 65% loan to cost. And then on the backs of us actually having put another hotel loan for a property here in Southern California, into application with a CMBS lender. I might've mentioned this on our last session. I'm not sure, but just the fact that you could do that today that the markets are open for that liquidity is there. It's a lower leverage deals underwritten to a 12 debt yield and a 50% loan of value. But the fact that you can get a permanent loan today, on something who's operating history, generally wouldn't qualify for it but there are adjustments made, you know, due to what occurred last year is really interesting. And it just kind of continues in the vein of the economic recovery and, you know, liquidity restoring and growing in the capital markets for a wider variety of transactions.

- For sure. I mean it right. If we look back, even call it, you know, three months or even, I mean, definitely six months ago. If you were to tell me that we'd have hospitality deals getting loans up to 85% you know, the there's no way it's happening, right.

- But it felt like almost no bid at all. And that was the story. And I was having coffee with an equity source. Last week up in San Francisco that did a deal in the greater Portland market in your neck of the woods. And he acquired a limited service hotel at a really great basis. And he's just like Zack. I mean, I think the window is closing. If it hasn't closed for this type of transaction, the next window to open, or that is still open is, you know, if you're going to acquire kind of a full service conference hotel, you know. In a major market that's been hit real hard, like, you know an Anaheim or any other convention center market, you know maybe like San Diego, for example because like that takes a lot of courage, but he's like I'm willing to bet you that that window is not going to stay open for too long. You know, as the vaccine pace just continues to mount as folks come back to the office and as people attend conferences again. I actually spoke at a conference in Newport beach. In-person socially distance, a lot of masks but I spoke and they probably had like a hundred folks in a really big room, you know. I am vac'ed, I felt okay with it. And I think that could actually be coming back sooner than you think so, or sooner than a lot of people not view. Well then a lot of people think so kind of interesting.

- No, I agree. It is interesting. I also, similarly, you know, I'm scheduled for my first in-person conference, not till June but as though anecdotally yeah.

- Around the corner.

- Yeah, it's coming up. So that'll be very exciting but just anecdotally business travel, I think is is somewhat coming back. I know at least my husband he's in kind of health care equity investing. He's, you know, hitting the road back on the road, after a year off, you know, going to some meetings diligencing deals and kind of getting back out there. So, you know, those green shoots are common and people are getting back out there. which is great to see.

- Yeah.

- And also kind of speaking of the back office, you know, Salesforce announced that they're reopening their headquarters. This May, again, this is a 1.4 million square foot office space, 61 floors and they've kind of laid out their plan of how they're going to do it. They're talking about, you know, stage one, open to workers. Who've been vaccinated. They're going to have mandatory testing. twice a week, for employees at this point. It'll be open to volunteers. Then they're going to move into their stage two. You know, bringing it up to 75% capacity at that point. Not necessarily everybody has to be vaccinated and kind of thereafter seeing how things go. going to 100%. So it's interesting seeing how that kind of that some of these big players are going to roll out kind of that back to office play.

- Yeah. It's definitely something to take note of. I've been saying forever that we should buy office rates. I still haven't done it, but I'm a believer in that you know, there's probably some opportunities still there. Since there's generally a bearish view on the sector. I'm happy to report that we closed about a $60 million loan, down in North County, San Diego. Really a cherry location. On a true mixed use asset. It had 25 apartment units but it also had 50,000 square feet of spec office and 10,000 square feet of spec retail. So the apartments were not a large enough component of the deal that just right off the value of the office and the retail entirely and just say. Oh, I can, you know, place all of my value on the apartments. There was big spec component to this. There was no pre-leasing in place for this. And we closed about a 70% loan to cost construction stack on the deal. And the pricing was very, very reasonable. I would say it was, let's just say, call it midish single digits on a blended basis. Non-recourse. All in up to 70% to costs that previously six months ago, you would've thought maybe, you know, no bid on it. We had a few guys that were sort of circling the wagons that were there, but it was, it was tough going. And I think that's just a very positive message. In terms of what's going on in the office space for construction financing. Cause I think you're going to start to see that come back slowly and in locations. And look there are some big transactions that got done down here in Southern California. Hudson Pacific signed a big lease with three companies and kind of the media content entertainment space and maybe even bigger news. There was a building in Burbank that groups that we work with sold to Nuveen that sold for $800 a square foot. Which is a giant number for Burbank, on the basis of a lease to Comcast was their e-sports division. So, you know, I'm not saying all buildings are going to go for that. And there's still some lease maturities happening in office spaces that have to be dealt with. And there's a lot of, they can see in certain sub-markets and shadow inventory as well but there definitely are some high notes that are out there that are worth watching because we think there'll be bellwethers for kind of where the market is going.

- Definitely. And then I think to wrap up, I think it'd be interesting to share kind of what you were sharing earlier, before we jumped on here, Zack. Kind of what you're seeing. In terms of the financing on multi-family. In terms of kind of Fannie Freddie versus some of the debt funds?

- Yeah. So this is interesting. So we got off a call with a client this morning. Who's pursuing a deal on the mountain states and they're a big sort of value multi-family owner operator. And they said, you know, we've been looking at a lot of deals recently and there's so much competition out there. It's pushing in place cap rates on multi value add down far to 4% and sometimes less. Historically, the sponsor was a big user of agency financing. You know, either fixed rate from the get-go with a supplemental later on or kind of a Freddie or Fannie floater. To get their deals done. And they just said, the more they've been looking at stuff. The more they think to be competitive today that just isn't going to work because that underwriting from the agency is premise really on, in place cashflow and that they have to use debt fund financing. Which can underwrite primarily based on future cashflow and a stabilized rent roll in order to really be competitive and to hit the IR's. They need to both for their own promote and for their investors. We've heard this a few times now. It's not to say that agency's going away. It's still very strong. Actually, I think last week they they cut their spreads, you know, 10 and 15 basis points. And I think they're reacting to some of the phenomenon in the CMBS market and perhaps some of this phenomenon but the explosion in debt fund liquidity that really began in February when the CLO markets and the warehouse markets came back, isn't stopping. And, and it's incredible that you can get rates that are call it 3%, 3,25% all in for strong multi-family property with some in place cashflow, you know, and a value added transaction. You're almost at an interesting point in the cycle where the debt fund rates that are out there are actually cheaper to some degree than the permanent rates that are out there. It's almost like an inverted yield curve and it's supply demand. It just has to do with all this capital. That's trying to find a home. And, you know, multi has been one of the safest spots to play in throughout the pandemic. And so a lot of its drivers aren't going away. And so we're starting to wash and to see that amongst clients. And I'll tell you, we've got no shortage of debt fund guys that are calling us now and saying, Hey you know, we can price multi in the threes, you know, show us stuff that has cashflow maybe even a little less cashflow. And, you know, we love sort of emerging secondary markets, which, you know, since we're more West coast focus are your Phoenix, your Salt Lakes, your Vegas' is never thought I'd be staying in Vegas, but Vegas too, et cetera. And then of course, you know markets in the Southeast as well. So there's some pretty interesting dynamics at play there too.

- Definitely, it's something that we'll want to watch moving forward for sure. Well Zack, as always, appreciate the time today.

- Likewise.

- Everybody out there, thanks for tuning in and we'll see you again in a couple of weeks.

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