Distressed & Opportunistic CRE Funds Dry Up

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Good morning. Billions raised for distressed real estate deals are still sitting idle, as the expected wave of opportunities hasn’t materialized. Today, we break down what’s holding back the market and where investors are shifting their focus.

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• Real resilience: Despite mortgage rates rising to 6.90%, the Mortgage Bankers Association reported 1.7% more mortgage applications last week, with purchase applications up 2%.

• Happier builders: NAHB's November survey showed that US builder confidence has returned, with the Housing Market Index at 46, up from 43 MoM.

• Pump the brakes: Nomura (NMR) analysts warn there may be no December rate cut, with Federal Reserve Chair Jerome Powell once again waffling (no surprise there).

• Tale of two homes: In October, US single-family homebuilding dropped 6.9% from September, with the South seeing a 10.2% decline. Meanwhile, multifamily housing started to surge by 9.8%.

• Banking blues: Speaking of the Federal Reserve, they also highlighted some concerns for CRE lending as office delinquency rates now exceed 10% at large US banks.

• Mortgage troubles: Moody's downgraded Blackstone Mortgage Trust's credit ratings to B1, citing ongoing concerns over office loans and significant losses.

• Multifamily moves: In the first three quarters of 2024, multifamily demand reached 362K units nationwide, up 50% from last year and second only to 2021.

• Bracing for impact: Billions more are expected in multifamily loan maturities by October 2025, which could peak at $5.4B for the year, or 25% higher than in 2023.

• Legacy luxe living: The JCPenney HQ in Plano is set for a high-end transformation into a mixed-use development featuring 750 luxury apartments starting at $4K, office towers, a hotel, and more.

• Exurbia explodes: ‘Exurbs,’ the outer suburbs of metro areas (as opposed to the inner suburbs), enjoyed growth in 2023 despite their distance from the largest city centers.

• Loosening the Belt: Atlanta Beltline is planning a $270M mixed-use project in Bankhead with 1.1K apartments and townhomes, nearly 30% affordable, to boost connectivity and address housing needs.

• Evolving energy: The incoming Trump administration’s focus on AI data center growth—with a focus on fossil fuels and deregulation—is a stark contrast to Biden's renewable energy focus.

• Revitalizing Dallas: Lincoln Property is replacing an old truck terminal near Dallas Love Field airport with a modern two-building logistics hub, set to be completed by October 2025.

• Charging ahead: Investing in EV chargers has boosted margins for CRE owners, with increased traffic and charging revenue despite installation and insurance costs.

• Bigger burritos: Chipotle is expanding rapidly, with potential growth of 8–10% annually, and is aiming for 7K North American locations, including Chipotlanes for faster service.

• American Dream rising: The infamous American Dream mall in NJ, a $5B complex with unique attractions, finally saw rising sales and foot traffic in 2023.

• Neumann's Florida fief: Former WeWork CEO Adam Neumann expanded his real estate holdings in South Florida, acquiring the Aventura office complex for $116.2M.

• All roads still lead there: NYC's office sector is showing strength despite a national slump, with better vacancy rates, strong investment activity, and leading office-to-residential conversions.

• Debt dodger: SL Green (SLG) extended a $742.8M loan on 1515 Broadway in Times Square (a potential casino candidate), pushing the maturity date out to 2028 with an interest rate of 3.93%.

• Dream deferred: The redevelopment of Bloomingdale’s shuttered Indian Lakes Hotel is at risk as investor Ruben Espinoza faces a $3.1M loan default and mounting legal battles over unpaid debts.

• Changing hands: Sam Chang’s McSam Hotel Group sold a Chelsea Holiday Inn Express to Prospect Ridge for $59.8M, continuing his gradual portfolio selloff.

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