Multifamily Developers are Nearing Default on ~$1.0B in Loans

Welcome to the Monday Briefing, your weekly newsletter for the latest CRE headlines and everything you need to start your workweek smarter.

In today's issue: Rising interest rates are crushing some multifamily developers, even in the face of last year's record rents and low vacancies. Veritas Investments defaulted on a $448M loan, while The Chetrit Group is on the brink of defaulting on a $481M loan.

Developers are Nearing Default on ~$1.0B in Loans

Despite soaring rents and low vacancy rates across last year’s housing market, some developers couldn't avoid the squeeze of rising interest rates. Veritas Investments, a San Francisco-based multifamily landlord, has defaulted on a $448M loan. Meanwhile, The Chetrit Group is inching toward default on a $481M loan.

Same story, different market: According to Veritas’ CEO, Yat-Pang Au, the multifamily sector isn’t all sunshine and rainbows right now. In San Francisco, it’s facing increased regulation and taxes, and the lingering effects of mass tech layoffs. Some landlords are even seeing vacancy rates as high as 35%, well above the national average of 3%.

Beware of the floater: Rising interest rates haven’t made the situation any easier. The Chetrit Group financed an 8,600+ unit portfolio across the Sun Belt, NY, IL, IN, and OH with floating-rate debt at LIBOR + 500. The all-in interest rate on their portfolio may very well be over 10% now, which is tough to stomach considering the portfolio’s 24% vacancy rate.

➥ THE TAKEAWAY

A rock and a hard place: The debt dominos are starting to fall for multifamily investors. Investors who splurged on properties at low cap rates over the last two years might get caught by the current expansion in cap rates. As Veritas and Chetrit both seek to recapitalize or sell their portfolios, expect more to follow suit.

• It's getting ugly: Following rate hikes and lower transaction volume, experts foresee refinancing difficulties and delinquencies for the CMBS market.

• If you buy it, corn will come: A group of pro athletes, led by Joe Burrow, invested $5M in a 104-acre Iowa farm as an agricultural investment.

• Big data: Blackstone (BX) has formed two JVs with Corporate Office Properties Trust (OFC) to acquire 5 data centers in Northern VA for $278M.

• Hail Mary: Manhattan’s largest office landlords are offering massive concessions to try to entice tenants to their properties.

• Hurry up & wait: Despite the slowdown in transaction volume, construction companies are still experiencing backlogs longer than 9 months.

• Roll the dice: Hudson’s Bay Company, the owner of Saks Fifth Ave, is the latest to enter bidding to turn the top three floors of its flagship store in Midtown Manhattan into a casino.

• Econ 101: Thanks to lack of incoming supply, shopping center vacancy rates have fallen to their lowest levels since 2007.

• Bring out the hammer: Thor Equities acquired a 23-acre industrial site in Long Island for $35M via bankruptcy auction.

• Work hard, play harder: Related Group partners on $1B Bahia Mar development in Fort Lauderdale, featuring a luxury hotel, condos, boat slips, office and retail spaces.

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.