In this episode of StreetBeats, CrowdStreet’s Anna-Marie Lieb and Zack Streit, Senior VP at George Smith Partners, give an update on the debt markets this week as well as the amount of capital that’s ready to be deployed into the real estate markets.
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CrowdStreet
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.
George Smith Partners
Zachary D. Streit has arranged and closed in excess of $1 billion and has underwritten in excess of $6 billion of debt and equity financings for a broad array of real estate transactions. He has significant experience arranging and closing construction loans, CMBS loans and private/hard money loans across all commercial property types. Zachary’s clients recognize him for his relentless focus on execution and responsiveness.
Zachary is an active member of real estate industry groups and related charities and has a number of professional designations. Affiliations include: Urban Land Institute (ULI), International Council of Shopping Centers (ICSC), National Association of Industrial and Office Parks (NAIOP), Jewish Federation Real Estate and Construction Group (REC), AIPAC Los Angeles Real Estate Group and Jewish National Fund’s (JNF) Commercial Real Estate Division. Zachary is a Member of The State Bar of California and is also a licensed real estate broker in the State of California.
Zachary has 12 years of real estate experience, including 5 years of experience as a principal lender. Prior professional positions include: Managing Director of Originations for Anchor Loans LP; Vice President of Originations at Colony American Finance, a Colony Capital subsidiary; Founder and President of Streit Lending; and Investment Associate, Aviva Investors’ Global Real Estate Multi-Manager Group.
Zachary has a Master of Science in Real Estate Finance from New York University, a Juris Doctorate from the Benjamin N. Cardozo School of Law and a Bachelor of the Arts, Summa Cum Laude, in Political Science from Yeshiva University. Zachary remains involved with his alumni associations.
- Welcome to this week's edition of street meets capital markets. Where we discuss all things, debt, equity, and the broader economy. I'm Anna-Marie Lieb head of multi housing here at CrowdStreet and I'm joined by Zack Streit SVP at George Smith Partners. Zack welcome back.
- Good to be back with you. I was in Europe on personal travel for my sister-in-law's wedding, and it began to feel kind of like almost normal life a little bit again. There weren't a lot of foreigners there, obviously, because foreign travel is still down, but I hear Europeans are now going to be able to come into the states, you know, by November. And so maybe that will precipitate more of us traveling abroad, but like, I didn't feel too much COVID out there to be honest, I just felt a lack of foreigner. So maybe that was COVID. But otherwise I think I was in France and Italy, the vaccine rates are pretty high and it felt good to be out there and it felt like, okay, maybe we're turning another corner here. So we'll see.
- Definitely. Yeah. I think for us at CrowStreet, it's definitely been busy. We've seen a lot of deal flow, and I think that's kind of indictive of, you know, the broader commercial real estate markets in terms of, you know, deals are trading. There's a lot of capital out there, you know, that that's kind of dry powder, that's ready to be deployed. I think Greenstreet, I saw estimated that I think there's 175 billion worth of dry powder right now allocated from PE funds for CRE. And, you know, I think it's similar on the debt side. I know you were talking through some of the, the kind of the rates and kind of loans listings that you've been seeing lately.
- I would say that we are about as busy as we've ever been in terms of deals in the marketplace that are outright now on the multifamily side. And it's everything from construction to bridge to permanent financing. There is incredible liquidity out there in the debt markets and incredibly low rates that are out there. We you know, I'll talk through the construction bridge and per markets. On the construction side, we just apt, you know, 82% loan to cost ground up financing. Let's just say in the greater downtown LA area, which named maybe previously, it was a four letter word, you know, call it mid sixes all in blended cost of capital for an institutional quality project. So we're really, really excited about that because that's really cheap non-recourse financing. You did it with a senior lender and a sub-debt lender on the bridge side, we're seeing pricing in the two and a half to three and a half percent range pre TCO executions are possible. In fact, we got a term sheet on a pre stabilization 10 year deal on an asset that's about 60% leased from a debt fund three and a quarter percent interest rate, 10 year fixed non-recourse with three years of interest only. So you can actually perm out a deal that's sort of still in transition, which is kind of amazing. And then at least the per markets where we're seeing deals pricing between two, and let's say two percent and low three percent. And I'll talk to you about one recent deal, we got quotes on the market. Where we're taking out a construction loan into a perm loans is up in kind of the greater Portland area. We got an offer from agency at 90% loan to cost three and a quarter percent, 10 year fixed rate with eight years of IO that's taking out, you know, almost the entire debt and equity stack. And then as a three and a quarter percent rate, and then my gosh, on the other hand, on, you know, lowest rate, we had a 2.1% quote with no IO from an insurance company taking about 75% loan to cost out. So they had a pretty low leverage construction loan. This was an off zone deal. We put the debt and equity together, and they have maybe like a, I don't know, 60% loan across construction loans and the insurance companies still providing cash out which insurance companies don't like to do. And man you would get a 10 year loan at a 2% rate. So that would be highly, highly accretive and low. So even with a little bit of a tick up in the 10 year rate, you still have just absolutely incredible financings. And, you know, Anna-Marie, you had mentioned some of the exit caps or trays that you've seen cap rates,
- Yeah. some of that's being fueled by this debt.
- For sure I think definitely that is driving it. And as you were saying, I think, you know, the recent deals we saw a deal in Austin, a 2009 vintage, but 220 unit deal, 96.5% occupied. And that was trading at a three seven five cap or about two 10 a door. Similar, we saw 1980s vintage outside of Seattle in the Everett submarket, you know, that we got eyes on, this was 96% occupied trading at a three one cap. And then in Atlanta recently, 2000 vintage asset, 95% occupied again, trading at a four one cap. So definitely seeing kind of the compression there in the cap rates. And I think, you know, along with the, you know, favorable financing that's available out there, the capital that that's in the market looking to get placed, you know, I think there's some strong fundamentals. You know, Real Page just kind of put out there kind of recent market findings. And they saw that national asking rents grew 10.3% in August is the highest we've seen the first time we've seen double digit rent growth in over 20 years. And then you look at markets like Phoenix, Las Vegas, Tampa that saw over 20% year over year.
- Yeah, yeah.
- And then also average occupancy across the country, sitting at 97% in August, another big factor that kind of shows the tightness of the market. Obviously, you know, some areas definitely kind of had rents kind of flat a little bit during COVID, whether that was, you know, Seattle saw that that was kind of implemented at the government level in and kind of mandated. So I think that's, you know, spurn some of that rent grow. But another interesting statistic was that household incomes for new renters at professional managed properties hit a new high of 70,000 a year as well. So just kind of shows that there's a lot of demand for, for multi housing and apartments out there.
- Yeah. And likely set to continue. I don't see any stop to it. Obviously the fed met and there were some questions, you know, about tapering and rate hikes, but I think the consensus is isn't going to be until next year on the rate hikes and tapering, we'll see. Like, could be later this year could end up being next year. I think there was a job report that came out that was a little bit negative. So maybe that moves tapering along, you know, maybe it doesn't we'll see, but like, you know, so far I think this is, you know, some of them, I guess, post COVID sort of, you know, optimism and economic strength and it's interesting to the whole.
- Yeah, no, definitely. I agree. I think the fed, you know, report was interesting, you know, that it seemed like they might be in favor of the tapering starting November 2nd and 3rd, but obviously they're going to be watching A, to your point what's happening with employment, B, kind of in inflation there as well. But I think a lot of large part of that too, is kind of watching the Delta variant and kind of the numbers there. And if you look at currently, I was looking, you know, we're actually down the 14 day averages is down about 12% currently
- Yeah. to 130,000 cases a day. And if you look at Texas and Florida, we're down 25% there and Florida 42%. So it seems like that Delta variant it's kind of working its way through at rapid fire pace. So it'll be, you know, something definitely to watch.
- I had read that some of the like vaccine mandates coming out of large companies and also government might have something to do with that. And so, you know, if that's the case, that's great. Or if just herd immunity, that's great. Whatever gets us to the other side is great.
- Yeah, definitely. And again, I think going back to the right hikes, obviously, you know, we're going to have to see the tapering kind of get down to zero probably before the fed is going to, you know, start hiking up rates. So I agree. It's probably, you know, at the earliest end of 2020 to probably into 2023, that we can expect to see some of those rates go up.
- I think it is an incredible time to be a borrower and frankly a seller. Like you're seeing trades go off in Phoenix that, you know, are 2x that are either, the basis or the property purchase price of what they were two and three years ago. But I think that, you know, there's a lot of optimism for buyers too, cause there's cheap debt and there's incredible fundamentals like you quoted earlier. So really interesting time in that asset class.
- I agree. Well Zack as always thank you for your time today.
- Likewise Anna-Marie always a pleasure.