CrowdStreet’s Ian Formigle is joined by Zack Streit, Senior VP at George Smith Partners, to discuss layoffs at companies like Disney, United, and American Airlines, what a flattening recovery means for commercial real estate, plus a major trade in the student housing sector.
Ian Formigle, Chief Investment Officer
CrowdStreet
CrowdStreet
Ian is a real estate professional and serial entrepreneur with 24+ years of experience in real estate private equity, startups, and equity and options trading. At CrowdStreet, Ian serves as the key decision-maker for all investments on its Marketplace, totaling over 400 offerings and some $13.7 billion of commercial real estate. Ian is the author of “The Comprehensive Guide to Commercial Real Estate Investing” and he is a contributing author at Forbes.com.
Prior to joining CrowdStreet, Ian was VP of Business Development for ScanlanKemperBard Companies, where he managed the firm’s alternative investment platform and served as a senior acquisitions officer on a team that acquired some $500 million of commercial real estate assets during his tenure. Previously, Ian co-founded and served as CEO of Clarus Property Ventures, a regional real estate private equity firm that focused on multifamily acquisitions. Ian began his career as an equity options market maker and member of the Pacific Exchange. Ian holds a BA in Economics and a BA in Political Science from the University of California at Berkeley and has held numerous securities licenses including Series 7 and 63.
Zach Streit, Senior Vice President
George Smith Partners
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.
00:00:03 Hi everyone. I'm Ian Formigle, Chief Investment Officer here at CrowdStreet. Welcome back to StreetBeats for October 6th. In this weekly segment, as you've probably come to know by now, we discuss capital markets, what's happening out there in the macroeconomic environment, and how we see that playing out in the commercial real estate landscape. So typically with me every week is Malcolm Davies. Now, in his stead this week is Zack Stri. You've seen him before. He's back. So welcome back Zack, to StreetBeats.
00:00:34 Thanks, Ian. Always happy to pinch it and appreciate you having me.
00:00:37 Absolutely. Anytime Zack. And it's interesting to note on this week that Malcolm Davies is actually traveling for business. He is in Nashville, uh, looking at a deal. So just one anecdotal data point out there to suggest that parts of the country are starting to act a little bit more normal. Yeah. So Zack, let's, let's kick it off. Let's go into some of the stuff that you're seeing last week. So as, so for viewers, as you know, we're gonna, we're gonna recap some last week events. We'll talk about what we're seeing right now happening and what we see in the weeks ahead. So to dig right into it, Zack, what did you see last week that was interesting to you?
00:01:12 Yeah, so I think from a macro perspective, we were pretty focused on corporate layoffs last week. I mean, it was a rough week across Disney, United Airlines, Delta, American, and Regal. You probably had over a hundred thousand dollars jobs that were either layoffs or furlough. So that was tough. And that I think, puts continued pressure on Washington, um, to think about this next stimulus bill and to think about what might happen with continued accelerated layoffs and what might happen in some of the real estate spaces, um, if the bill isn't passed. Um, I think there's a big push and hope now that the next stimulus bill has some aid for C M B S hotel borrowers, cuz that's 80 billion worth of securitized, um, hotel debt and without some aid soon. And with forbearance, um, you know, kind of expiring, there could be a long tumble of defaults.
00:02:04 There is, um, interestingly discussion about 2.5% preferred equity loans to borrowers to cover a year of debt service. Um, and operating reserves with, uh, extended repayment period. Um, banks would make these loans with a federal backstop that would be an incredible boon, um, to the hotel space because in the absence of that, we've already started working on financing some distressed, um, hotel acquisitions, some preferred equity recaps. Um, and I think, you know, look out for more of those. Um, if this doesn't happen, um, we hope that it will very tough to know, you know, what's gonna occur politically over the next month and then through the end of the year. So, um, that, that's definitely one big thing.
00:02:47 Yeah. So Zack, I think you make an interesting point on that because what, when I was researching for this week, the overriding theme of the last couple, few weeks has just been relatively flat. Everything a mixed bag of results. And so to your point, right, the United and American Airline layoffs, that's like 32,000 workers right there. That's real. And that's gonna affect a lot of households around the country. You know, um, at the same time we did see national unemployment rate tick down to 7.9%. So there's, there is continued week over week, you know, month over a month progress there. But it definitely feels like at this point, you know, the, the, the, the pandemic recovery to date is now kind of flat. It's kind of flattened out, stalled out a little bit. You know, I, I just kind of feel like we're gonna bump around in this, we'll, we'll continue to see pockets of good news, they'll be offset by pockets of bad news. I think we're just kind of in the spin cycle for a little while until we really get to the next level of economic recovery.
00:03:45 Yeah, I, I, I agree very much with that. There's a lot of talk of maybe indoor malls starting to reopen and even indoor dining starting to reopen. That should be good for unemployment. But it seems like that could get shut down very quickly, again, at a moment's notice if there are flare ups, which would be bad for unemployment. So I think you're right, Ian.
00:04:04 Yeah. And the regal announcement, I mean, that's tough news. Again, another hit for the retail sector, right? 500 locations around the country closed indefinitely. And as you and I talked a a few minutes ago offline, you wonder when or how do they reopen? I mean, I guess some of them reopen maybe eventually, but does Regal even make it, uh, is this just the next win for on and the onward march of Netflix? I mean, who knows right now what's gonna happen in that space?
00:04:34 This could be a big covid accelerator. Um, you're already seeing Blockbuster movie releases being pushed to 2022. Um, and I think Netflix and the other streaming companies, um, are going to be really the big beneficiaries. Uh, from that. I, I think it's would be hard to do this interview without talking about the Reid Hastings article in Netflix, which has some positive implications for real estate. Cuz he was really clear that even though they're a tech culture, they're an in-office tech culture and ones he can bring folks back to work, you know, safely, securely, and without health concerns, he fully plans on doing so. And that's an interesting sort of aberration from what, um, some of the other tech companies had said. So that's, that's gonna be something to watch for. But no question that the, the media and content industry is, is is changing and changing a lot.
00:05:24 Yeah. So Zack, another thing I wanna take a minute to talk about was an announcement that came out towards the end of last month. And that was a, a major trade announced in the student housing sector. Mm-hmm. <affirmative>, you have preferred apartment communities announcing that it's selling an eight campus, 6,000 bed roughly portfolio to TPG for 475 million. It's about 78,000 per bed, which is a, a pretty good number for that kind of portfolio. It's kind of a mix of a little bit older class a, you know, like I said, at eight campuses around the country. You know, I thought know, I thought that was fascinating news because it, you know, to me it, it signified so many things in terms of how some level of certainty and semblance of normalcy is starting to return to a market. I mean, to me, student housing stands out as these single asset class that six months ago we wondered, we had no idea what the future would look like.
00:06:19 None
00:06:19 Could a buyer and seller agree to a 475 million deal on a portfolio, simply impossible in April or May. We were seeing doors close of, of smaller universities. People were wondering if like half the world of education's going online and that kids are never gonna return to campuses. So mm-hmm. <affirmative> to see, you know, how much that space has changed over the summer. You know, and it's interesting, we talked about this actually in a webinar we gave last week at CrowdStreet that, you know, previously we launched a, an investment thesis earlier this year to the whole community and we purposefully left student housing out of the thesis for the interim. Yeah. Because we were just, were, we were still asking those questions ourselves when we published it over the summer, seeing more data points happen, seeing the fall start seeing big campuses win some unfortunately smaller campuses lose, but that the fact that there are kids back at schools housing at student housing at major universities is strong. Seeing record enrollments. I mean that led us to, to go in on student housing kind of big, I think on, in terms of big campus major conferences. And so to me it was super fascinating to see that that trade get announced because now we have two major institutions coming together and saying, Hey, we, we think we have an understanding of where student housing is now going forward. Yeah.
00:07:36 Uh, six months ago, I think it, there were big question marks, um, over that sector and it, it's incredible, um, the enrollments that many of these prop, well, not enrollments, but the, the tendency in many of these properties that they've been able to achieve. Um, and I don't think anybody quite sort of forecasted that. Like there were a lot of parents that would just want their kids out of the house and in new student housing, even though most if not all of their classes were remote. And even though there's a lot of parting that goes on at schools and that could, you know, result in covid transmission, but I think, I think, you know, parents wanted students, uh, out of the house and, and, and kind of being on their own and being independent and empowering them to make their own decisions. And so you've seen, you've seen operations, um, result in profitability and in strong leasing as a result.
00:08:28 I think another surprise to the upside, which still has some questions on it, is the senior housing space. But again, you know, there's a demographic play there and seniors need a place to live. And, and not everyone is going to just exit senior housing institutions and move in with their kids, um, when they can't get the level of care, um, that they need to, where they don't have doctors on call, where they might need them. You know, you would sooner see, um, be smart about how they visit their folks that might be in an institution than bringing them home. So, you know, two asset classes that people didn't know, you know, how they would fare, you know, seemed to have fared. Okay. And then there's a whole other swath of asset classes on the hotel and retail side and to some degree office that, you know, haven't been as fortunate.
00:09:17 Yeah. So, yeah, you make an interesting point on, on senior housing, we haven't honestly seen much of any of it trade. We had a, we have one opportunistic fund that we pursued that's still live on our marketplace and they're, they're able to pick up, you know, a couple of discounted note purchases, you know, but by and large, that asset class has just seen, I mean, it's huge drop in transaction volume. I mean everything this year has seen a huge drop in transaction volume. You know, I think what we're still roughly almost 70% down year over year and total transactions. But then if you kind of peer into that and you start looking at things like hospitality and senior housing, okay, now you're getting down like 90%. Right? It's huge. So I think right now, if any operator can hold on, they are, because they know that they ultimately have demographics coming back in their favor and the new supply pipeline is kind of winnowing out.
00:10:07 And many of those operators, and we even have a couple in our portfolio, they were able to get pretty decent p p P loans. Yeah. Which for now forgiven because they were able to, that they used that to maintain the staff. So, you know, see to me, senior housing was one of the one segments that showed the benefit of how the early stimulus really did give it a lifeline. Got it through to where we see now and, you know, brighter days are ahead for student, for, I'm sorry, for senior housing. So you, you gotta think that you're gonna see some, a recovery of that market kind of coming maybe like later next year or so. Um, it'll be interesting to see what trades, something's gotta trade at some point, but what, what does that pricing look like? Because I mean, we're a buyer of it. If, if we get a nice discount and it looks kind of opportunistic relative to the previous basis, we're all in. We just don't have any real confidence right now to know what that pricing is going to look. Yeah.
00:10:57 And, and nobody does. And there are definitely more questions about that. And you haven't seen institutional capital flowing into it like you have student housing, but we've at least heard some anecdotes that, you know, seniors still need a place to live and they, and they still want that and folks that are kind of still bullish on it. So it'll be interesting to see how that, how that plays out.
00:11:16 Uh, so I think Zack, with that, we've just cussed a lot today. Uh, again, really appreciate you stepping in. When you do, you bring a tremendous amount of knowledge to the table every time, uh, you know, the viewers benefit from it, I benefit from it. So, so thanks <laugh>.
00:11:32 Appreciate that, Ian. Thanks a lot. Take care.
00:11:34 Absolutely. And so for everyone out there, uh, you know, next week, uh, Annamaria will be back, I think, with Malcolm again. Yes. And, you know, and in the meantime out there, everyone stay safe.
00:00:34 Thanks, Ian. Always happy to pinch it and appreciate you having me.
00:00:37 Absolutely. Anytime Zack. And it's interesting to note on this week that Malcolm Davies is actually traveling for business. He is in Nashville, uh, looking at a deal. So just one anecdotal data point out there to suggest that parts of the country are starting to act a little bit more normal. Yeah. So Zack, let's, let's kick it off. Let's go into some of the stuff that you're seeing last week. So as, so for viewers, as you know, we're gonna, we're gonna recap some last week events. We'll talk about what we're seeing right now happening and what we see in the weeks ahead. So to dig right into it, Zack, what did you see last week that was interesting to you?
00:01:12 Yeah, so I think from a macro perspective, we were pretty focused on corporate layoffs last week. I mean, it was a rough week across Disney, United Airlines, Delta, American, and Regal. You probably had over a hundred thousand dollars jobs that were either layoffs or furlough. So that was tough. And that I think, puts continued pressure on Washington, um, to think about this next stimulus bill and to think about what might happen with continued accelerated layoffs and what might happen in some of the real estate spaces, um, if the bill isn't passed. Um, I think there's a big push and hope now that the next stimulus bill has some aid for C M B S hotel borrowers, cuz that's 80 billion worth of securitized, um, hotel debt and without some aid soon. And with forbearance, um, you know, kind of expiring, there could be a long tumble of defaults.
00:02:04 There is, um, interestingly discussion about 2.5% preferred equity loans to borrowers to cover a year of debt service. Um, and operating reserves with, uh, extended repayment period. Um, banks would make these loans with a federal backstop that would be an incredible boon, um, to the hotel space because in the absence of that, we've already started working on financing some distressed, um, hotel acquisitions, some preferred equity recaps. Um, and I think, you know, look out for more of those. Um, if this doesn't happen, um, we hope that it will very tough to know, you know, what's gonna occur politically over the next month and then through the end of the year. So, um, that, that's definitely one big thing.
00:02:47 Yeah. So Zack, I think you make an interesting point on that because what, when I was researching for this week, the overriding theme of the last couple, few weeks has just been relatively flat. Everything a mixed bag of results. And so to your point, right, the United and American Airline layoffs, that's like 32,000 workers right there. That's real. And that's gonna affect a lot of households around the country. You know, um, at the same time we did see national unemployment rate tick down to 7.9%. So there's, there is continued week over week, you know, month over a month progress there. But it definitely feels like at this point, you know, the, the, the, the pandemic recovery to date is now kind of flat. It's kind of flattened out, stalled out a little bit. You know, I, I just kind of feel like we're gonna bump around in this, we'll, we'll continue to see pockets of good news, they'll be offset by pockets of bad news. I think we're just kind of in the spin cycle for a little while until we really get to the next level of economic recovery.
00:03:45 Yeah, I, I, I agree very much with that. There's a lot of talk of maybe indoor malls starting to reopen and even indoor dining starting to reopen. That should be good for unemployment. But it seems like that could get shut down very quickly, again, at a moment's notice if there are flare ups, which would be bad for unemployment. So I think you're right, Ian.
00:04:04 Yeah. And the regal announcement, I mean, that's tough news. Again, another hit for the retail sector, right? 500 locations around the country closed indefinitely. And as you and I talked a a few minutes ago offline, you wonder when or how do they reopen? I mean, I guess some of them reopen maybe eventually, but does Regal even make it, uh, is this just the next win for on and the onward march of Netflix? I mean, who knows right now what's gonna happen in that space?
00:04:34 This could be a big covid accelerator. Um, you're already seeing Blockbuster movie releases being pushed to 2022. Um, and I think Netflix and the other streaming companies, um, are going to be really the big beneficiaries. Uh, from that. I, I think it's would be hard to do this interview without talking about the Reid Hastings article in Netflix, which has some positive implications for real estate. Cuz he was really clear that even though they're a tech culture, they're an in-office tech culture and ones he can bring folks back to work, you know, safely, securely, and without health concerns, he fully plans on doing so. And that's an interesting sort of aberration from what, um, some of the other tech companies had said. So that's, that's gonna be something to watch for. But no question that the, the media and content industry is, is is changing and changing a lot.
00:05:24 Yeah. So Zack, another thing I wanna take a minute to talk about was an announcement that came out towards the end of last month. And that was a, a major trade announced in the student housing sector. Mm-hmm. <affirmative>, you have preferred apartment communities announcing that it's selling an eight campus, 6,000 bed roughly portfolio to TPG for 475 million. It's about 78,000 per bed, which is a, a pretty good number for that kind of portfolio. It's kind of a mix of a little bit older class a, you know, like I said, at eight campuses around the country. You know, I thought know, I thought that was fascinating news because it, you know, to me it, it signified so many things in terms of how some level of certainty and semblance of normalcy is starting to return to a market. I mean, to me, student housing stands out as these single asset class that six months ago we wondered, we had no idea what the future would look like.
00:06:19 None
00:06:19 Could a buyer and seller agree to a 475 million deal on a portfolio, simply impossible in April or May. We were seeing doors close of, of smaller universities. People were wondering if like half the world of education's going online and that kids are never gonna return to campuses. So mm-hmm. <affirmative> to see, you know, how much that space has changed over the summer. You know, and it's interesting, we talked about this actually in a webinar we gave last week at CrowdStreet that, you know, previously we launched a, an investment thesis earlier this year to the whole community and we purposefully left student housing out of the thesis for the interim. Yeah. Because we were just, were, we were still asking those questions ourselves when we published it over the summer, seeing more data points happen, seeing the fall start seeing big campuses win some unfortunately smaller campuses lose, but that the fact that there are kids back at schools housing at student housing at major universities is strong. Seeing record enrollments. I mean that led us to, to go in on student housing kind of big, I think on, in terms of big campus major conferences. And so to me it was super fascinating to see that that trade get announced because now we have two major institutions coming together and saying, Hey, we, we think we have an understanding of where student housing is now going forward. Yeah.
00:07:36 Uh, six months ago, I think it, there were big question marks, um, over that sector and it, it's incredible, um, the enrollments that many of these prop, well, not enrollments, but the, the tendency in many of these properties that they've been able to achieve. Um, and I don't think anybody quite sort of forecasted that. Like there were a lot of parents that would just want their kids out of the house and in new student housing, even though most if not all of their classes were remote. And even though there's a lot of parting that goes on at schools and that could, you know, result in covid transmission, but I think, I think, you know, parents wanted students, uh, out of the house and, and, and kind of being on their own and being independent and empowering them to make their own decisions. And so you've seen, you've seen operations, um, result in profitability and in strong leasing as a result.
00:08:28 I think another surprise to the upside, which still has some questions on it, is the senior housing space. But again, you know, there's a demographic play there and seniors need a place to live. And, and not everyone is going to just exit senior housing institutions and move in with their kids, um, when they can't get the level of care, um, that they need to, where they don't have doctors on call, where they might need them. You know, you would sooner see, um, be smart about how they visit their folks that might be in an institution than bringing them home. So, you know, two asset classes that people didn't know, you know, how they would fare, you know, seemed to have fared. Okay. And then there's a whole other swath of asset classes on the hotel and retail side and to some degree office that, you know, haven't been as fortunate.
00:09:17 Yeah. So, yeah, you make an interesting point on, on senior housing, we haven't honestly seen much of any of it trade. We had a, we have one opportunistic fund that we pursued that's still live on our marketplace and they're, they're able to pick up, you know, a couple of discounted note purchases, you know, but by and large, that asset class has just seen, I mean, it's huge drop in transaction volume. I mean everything this year has seen a huge drop in transaction volume. You know, I think what we're still roughly almost 70% down year over year and total transactions. But then if you kind of peer into that and you start looking at things like hospitality and senior housing, okay, now you're getting down like 90%. Right? It's huge. So I think right now, if any operator can hold on, they are, because they know that they ultimately have demographics coming back in their favor and the new supply pipeline is kind of winnowing out.
00:10:07 And many of those operators, and we even have a couple in our portfolio, they were able to get pretty decent p p P loans. Yeah. Which for now forgiven because they were able to, that they used that to maintain the staff. So, you know, see to me, senior housing was one of the one segments that showed the benefit of how the early stimulus really did give it a lifeline. Got it through to where we see now and, you know, brighter days are ahead for student, for, I'm sorry, for senior housing. So you, you gotta think that you're gonna see some, a recovery of that market kind of coming maybe like later next year or so. Um, it'll be interesting to see what trades, something's gotta trade at some point, but what, what does that pricing look like? Because I mean, we're a buyer of it. If, if we get a nice discount and it looks kind of opportunistic relative to the previous basis, we're all in. We just don't have any real confidence right now to know what that pricing is going to look. Yeah.
00:10:57 And, and nobody does. And there are definitely more questions about that. And you haven't seen institutional capital flowing into it like you have student housing, but we've at least heard some anecdotes that, you know, seniors still need a place to live and they, and they still want that and folks that are kind of still bullish on it. So it'll be interesting to see how that, how that plays out.
00:11:16 Uh, so I think Zack, with that, we've just cussed a lot today. Uh, again, really appreciate you stepping in. When you do, you bring a tremendous amount of knowledge to the table every time, uh, you know, the viewers benefit from it, I benefit from it. So, so thanks <laugh>.
00:11:32 Appreciate that, Ian. Thanks a lot. Take care.
00:11:34 Absolutely. And so for everyone out there, uh, you know, next week, uh, Annamaria will be back, I think, with Malcolm again. Yes. And, you know, and in the meantime out there, everyone stay safe.