Rising Double Defaults Test Banks' Commercial Loan Stability

Together with

Good morning. The volume of US CRE loans facing ‘double defaults’ surged to $5.5B as of September 2023. In response, banks are resorting to "extend and pretend" write-offs—but regulators warn trouble is brewing.

Today’s issue is brought to you by Lev — the data and workflow platform for CRE financing.

How did Richard Byrne go from his early days at Merrill Lynch in the '80s to leading Benefit Street Partners' $76B portfolio?

Join Jack Stone and Alex Gornik on No Cap as they dive into his career, strategies, and unexpected path to Jiu-Jitsu.

Market Snapshot

SOUNDING THE ALARM

TOGETHER WITH LEV

Streamline and enhance your financing workflows

Lev is a CRE financing platform built for capital markets teams and financing brokers. As well as providing access to the industry’s largest source of real-time lender data, the Lev platform includes tools that dramatically streamline financing workflows: 

• Use AI to build your deal materials in minutes

• Get instantly matched with exactly the right lenders for your deals

• Automate lender outreach and follow-ups

• Have Lev’s Deal Assistant team call unresponsive lenders on your behalf

• Download real-time deal status reports 

CRE Daily readers can try Lev risk-free with a no-obligation, free first deal. 

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

• CRE shake-up: Houston's Lionstone Investments is selling $5.5 billion in assets as parent company Ameriprise plans to exit the real estate business amid leadership tensions.

• Rapid expansion: Landsea Homes (LSEA), a publicly traded residential homebuilder, has signed an 8,000-square-foot long-term lease at Stonebridge Plaza in northwest Austin, Texas, which will serve as the company’s Austin division headquarters. (sponsored)

• Hurricane exodus: Florida's population has grown to 23M residents over the past two decades despite all those hurricanes, greatly boosting the state’s residential and CRE markets.

• Bouncing back: Zillow (ZW) exceeded Q3 earnings expectations, with strong rental growth offsetting weaker home sales, driving shares up over 11%.

• Dormant dreams: Shares of Fannie Mae (FNMA) and Freddie Mac’s (FMCC) long-dormant preferred stocks surged up to 70% as Trump’s re-election stoked hopes of ending government conservatorship.

• Ranching walls: The Texas General Land Office acquired 355K acres, most of which came from the 353.8-acre Brewster Ranch, with plans for a border wall.

• Maverick moves: Standard Communities invests $1 billion in affordable housing across Colorado, California, Arizona, and Texas, adding 6,000 units to address regional housing needs.

• Rapid expansion: AvalonBay Communities (AVB) is expanding aggressively, with $835M in YTD projects, and a $1.1B development pipeline target by year-end in multiple markets.

• Rent projections: The Southwest leads the nation with 3.4% multifamily rent growth expected in 2025, followed by the Northeast and Midwest. The projected national rent growth rate is 3.1%.

• Urban resilience: In central Chicago, Class A apartment rents rose to $3.61 PSF in Q3, up 2.3% from last year—welcome news for Windy City multifamily owners and operators.

• Logistics limbo: Subdued demand in logistics real estate persists despite healthy GDP, with an 84.4% utilization rate in Q3, and 34% less absorption.

• Car cuts: Stellantis (STLA) plans to lay off 1.1K workers in Ohio, cutting more worker shifts due to low demand for the Jeep Gladiator pickup.

• Growth ahead: Investors see stable income growth in industrial real estate on the horizon, but speculative developments dropped 43% in 1H24, signaling ongoing caution.

• Midwest mega deals: Atlanta investor MDH Partners purchased three warehouses near Chicago for $136.7M, a standout deal among the city’s $3.3B in past-year sales.

• Store closures surge: The US retail sector saw its highest number of closures since the pandemic started this year, driven by mounting debt and rising costs as big-name brands shuttered their stores.

• Delicious, nutritious: Regency Centers (REG) acquired a 218 KSF H-E-B-anchored retail property in Round Rock, TX, bolstering its Austin portfolio.

• Dressed to thrill: Boggi Milano is ready to open its first US store in SoHo at 115 Mercer St. The retailer will occupy the coveted 1.9 KSF space for 5 years.

• It begins (hopefully): More companies are bringing employees back to the office regularly, offering some stability as investors show renewed interest in the sector.

• Betting on a rebound: Uncommon Developers acquired two Hollywood office buildings for $45M, banking on LA’s office recovery, though vacancy rates remain elevated.

• Green success: Jay Paul Company secured $200M in ‘green’ financing to replace a JPMorgan construction loan for a 971 KSF office tower in San Jose.

• Buying and selling: Summit Hotel Properties (INN) sold 10 hotels for $150M, pursuing new acquisitions as conditions improve for hospitality sector transactions.

📈 CHART OF THE DAY