Banks' High-Volatility CRE Loans Surge 20% in Q2 2024

Together with

Good morning. U.S. banks saw a significant increase in high-volatility commercial real estate (HVCRE) loans during Q2 2024, although their overall exposure remains below recent peaks.

Today's issue is brought to you by Hernandez Construction—your trusted partner in industrial & commercial construction.

🎙️ New Episode: On this episode of No Cap by CRE Daily, Alex and Jack sit down with Michael Santora, CEO of Logic. They discuss his robotics platform, which automates supply chains and optimizes warehousing.

Market Snapshot

LENDER TRENDS

TOGETHER WITH HERNANDEZ CONSTRUCTION

Partner with Experts in Construction

With over 20 years of experience and 16 million+ SF delivered across Industrial, Manufacturing, Distribution, Retail, Office, and Tenant Improvements, Hernandez Construction is your go-to partner for:

• Construction Management: End-to-end management from preconstruction to project turnover.

• Development Services: Owners Representative offering Development Management Services to developers and end users including management and execution through feasibility, due diligence, design and entitlement.

• Tenant Improvements: Customized solutions to meet your unique specifications.

• Sustainability & ESG Commitment: Smart, sustainable building techniques that support carbon emission goals and enhance positive social impacts in the communities where we work.

At Hernandez Construction, we go beyond managing your project. Our commitment is to deliver it safely, on time, and within budget while focusing on your goals to achieve speed to market. Let’s build together.

*Please see the advertising disclosure at the bottom of this newsletter.

• Rate rewind: US property insurance rates fell 0.94% in Q2 for the first time since 2017, driven by lower catastrophe-related losses and improved insurer profitability.

• Debt decline: U.S. corporate debt fell to $8.43T in Q2, with speculative companies leading the retreat, while energy sector debt surged by 4.1%.

• Got loans? Sand Capital is actively purchasing loans collateralized by commercial properties throughout the US, focusing on retail assets like strip, power, and grocery-anchored centers. (sponsored)

• Rate cut dreams: Real estate anxiously awaits the Fed’s decision on interest rates later today. Many experts hope for a dovish 0.5%, while some think CRE needs rates to drop by at least 2%.

• Veteran retires: Bill Stein, a key figure in Blackstone Real Estate's (BX) major investments, like Hilton (HLT) and Invitation Homes (INVH), is retiring after nearly 30 years with the firm.

• Chiefs charged: Two top FDNY officials were charged with accepting over $190K in bribes to expedite fire inspections for real estate projects in New York City.

• Falling star: Starwood REIT's (STWD) total NAV slipped 1.03% to approximately $9.43B in August, although repurchased shares met stockholder requests.

• Market rebound: According to Cushman & Wakefield, the US multifamily market stabilized due to less oversupply risk as construction slows down and demand increases.

• Multifamily millions: Waterton raises $1.73B for a $5B investment in the multifamily market, targeting 30–40 properties across several major US markets.

• Pricey perches: JRK property acquired an 88-unit Rincon Hill building in San Francisco for $44.25M, averaging $503K per unit, through a $1B fund.

• Tides turning: Struggling with liens and forced sales, Tides Equities faces foreclosures on several Denton County properties in North Texas with $153M in default.

• Urban forecast: Concerns are rising for urban multifamily properties as the office sector struggles with rising vacancies, impacting rental housing demand.

• Organizing the data: Due to overwhelming construction demand, Fairfax County, Washington, D.C.'s largest suburban area, is capping local data center sizes at 80 KSF and setting new location restrictions.

• Leading acquisitions: Sagard Real Estate expanded its industrial holdings with a $24.1M acquisition in Avenel, NJ, and a $33.5M acquisition in Hanover, MD, strengthening its market position.

• Refinancing innovation: Faropoint secured an $81.5M loan from Blackstone (BX), enhancing its financial flexibility with 16 industrial properties in key markets.

• Fifth Avenue frenzy: Brookfield Asset Management (BN) is considering selling a high-profile luxury retail property at 685 Fifth Avenue for $300M to $500M.

• Retail boost: US retail sales rose unexpectedly by 0.1% in August, driven by online shopping despite mixed results across other sectors.

• Keeping the engine running: AutoZone (AZO), O'Reilly (ORLY), and NAPA are seeing increased foot traffic as more Americans, driven by economic pressures, maintain older vehicles.

• For capitalism: South Florida leads the nation in office return rates, with over 90% of employees back in offices, 20% above the national average.

• Apples for sale: Tricap is selling three Sunnyvale office buildings leased to Apple (AAPL), with an expected price between $270M–$300M.

• Real estate ransom: Steven Roth spent an eye-popping $300M+ just to secure a lease renewal for Michael Bloomberg at 731 Lexington Avenue.

• Franchisor fracas: A Houston hotel loan worth $50.6M was repurchased after falling into delinquency; the property struggled with low revenue and occupancy.

A MESSAGE FROM REAP CAPITAL

Reap Capital invites accredited investors to invest in a lender-forced sale opportunity. The Calvin is a core-plus, 1995 vintage asset located in the highly desired Plano, TX submarket.

• Demographics:  1-Mile median income $114k 

• Great Basis:  25% below nearby sales comps 

• GP Returns:  LP's receive 80-90% of upside

• A+ Location:  Walk to Trader Joe's, Whole Foods, Pottery Barn, William Sonoma 

*Please see the advertising disclosure at the bottom of this newsletter.

📈 CHART OF THE DAY