In the wake of the CMBS industry downcycle during the Great Recession, servicers are determing how best to maintain their business volume. One strategy may be to acquire other servicing companies.

Master servicers have been experiencing dwindling assets these past few years, as the amount of CMBS loans paying off or being disposed of as distressed assets has not been equally replaced by new originations, explained Daniel Phelan, president & CEO of Pacific Southwest Realty Services, a certified mortgage and commercial mortgage servicer.

As the loans originated in 2003-2007 mature, “a large amount of loans will be rolling off in 2013 and 2017. To keep their servicing operations and people in place, the question becomes how these servicers can keep their profitability when little new product has been originated,” said Phelan.

As an example of mergers in the servicing business, in May, KeyBank Real Estate Capital agreed to purchase substantially all of the third-party CMBS and special servicing rights from Bank of America’s Global Mortgages & Securitized Products business. Keybank also agreed to buy Berkadia Commercial Mortgage L.L.C.’s special servicing business, and it entered into a long-term sub-servicing agreement with Berkadia under which Berkadia will sub-service all CMBS primary servicing acquired from Bank of America.

Following the acquisitions, KeyBank will have a commercial mortgage servicing portfolio of about $205 billion, ranking it among the three largest servicers of commercial and multi-family loans in the U.S.

Phelan commented that KeyBank’s acquisition of Bank of America’s servicing portfolio enables it to boost its servicing business at a time when the pipeline of new servicing contracts is not necessarily robust. And KeyBank already has the servicing infrastructure in place to take advantage of the additional servicing volume, he added. Phelan surmised that Bank of America, the seller, may be relinquishing its servicing as a non-core business while it focuses on loan originations.

CPE reported that Marty O’Connor, executive vice president & head of KeyBank Real Estate Capital Loan Servicing and Asset Management, said that the portfolio acquisitions will allow the company to “further leverage our highly rated servicing platform,” while “our existing partnership with Berkadia will allow us to quickly integrate the Bank of America portfolios.”

Multi-family is still reeling in the lenders. A 12-property apartment portfolio in Manhattan has just been refinanced to the tune of $94.4 million, courtesy of Beech Street Capital L.L.C. The mortgage banking firm financed a group of Freddie Mac loans for owners Henry Moses and Robert Moses as part of its correspondent relationship with originator Meridian Capital Group L.L.C.

The portfolio was irresistible.  “[They're] low-leveraged, well-located Manhattan properties,” Meridian’s Josh Rhine told Commercial Property Executive.   The collection of apartment communities encompasses 488 residences located on the Upper East Side, Lower East Side and in the East/West Village. And the tenant rosters are full at all 12 properties.

The Moses brothers have owned some of the assets for over a decade, having amassed the portfolio over a nine-year period beginning in 1999. A Wall Street lender had held the majority of the loans on the assets. The entire group of loans has now been replaced with a full-term seven-year interest-only loan package.

“The borrower was extremely pleased with the entire process,” Rhine said in a prepared statement. “Beech Street understood what they wanted and delivered accordingly.”

Joe Hoesley, of U.S. Bank

General Growth Properties Inc., of Chicago; U.S. Bank, of Minneapolis; and RBC Capital Markets, of Toronto, recently closed on a $1.5 billion secured term loan refinancing 16 of GGP’s properties in the United States, U.S. Bank announced Wednesday.

U.S. Bank acted as joint-lead arranger, joint bookrunner and administrative agent on the transaction, while RBC Capital Markets served as joint-lead arranger (left), joint bookrunner and syndication agent. A U.S. Bank spokesperson told Commercial Property Executive that the other 11 co-lenders in the facility are predominantly commercial banking institutions, along with two investment banks and one insurance company.

The 16 GGP properties are Columbiana Centre (S.C.), Eastridge (Wyo.), Fallbrook Center (Calif.), Grand Teton Mall (Idaho), Mayfair (Wis.), Mondawmin Mall (Md.), North Town Mall (Wash.), Oakwood Center (La.), Oakwood Mall (Wis.), Pine Ridge Mall (Idaho), Pioneer Place (Ore.), Red Cliffs Mall (Utah), River Hills Mall (Minn.), The Shops at Fallen Timbers (Ohio), Sooner Mall (Okla.), Southwest Plaza (Colo.).

Joe Hoesley, vice chairman of Commercial Real Estate at U.S. Bank, said in the release that U.S. Bank and its partners were able to raise more than $1.8 billion in commitments for this credit facility, “demonstrating the strong appetite lenders have for quality commercial real estate assets.”

The loan was originated out of U.S. Bank’s commercial real estate office in Chicago.

The $1.5 billion loan is secured by cross-collateralized mortgages on 16 properties with a weighted-average interest rate of LIBOR plus 2.50 percednt and a term-to-maturity of 3.0 years (with two one-year options), according to a report from GGP. The prior loans secured by the properties had a weighted-average interest rate of 3.98 percet and a term to maturity of 3.3 years. The transaction generated approximately $180 million in net proceeds.

In the three-month period ending March 31, GGP’s FFO increased 13.6 percent to $252 million, or $0.25 per diluted share, from $222 million, or $0.22 per diluted share, in the prior year period. EBITDA increased 5.7 percent to $496 million from $469 million in the prior year period.

Net operating income for the company’s portfolio of U.S. regional malls increased 3.7 percent to $513 million from $495 million in the prior year period.

Net loss attributable to common stockholders was $14 million, or $0.01 loss per diluted share, versus a net loss of $198 million, or $0.21 loss per diluted share, in the prior year period.

Tenant sales per square foot on a trailing 12-month basis, mall leased percentage and initial rental rates for executed leases commencing in 2013 on a suite-to-suite basis all increased.

At the 2013 Mortgage Bankers Association CREF/Multifamily Housing Conference, David Durning, president and CEO of Prudential Mortgage Capital Co., explains Prudential’s targets for balance sheet, Fannie Mae, Freddie Mac and FHA, CMBS and bridge financing for 2013.

Could the conduit financing recovery reverse course overnight? Not likely, according to some experts, who believe a sudden evaporation of conduit financing is less likely this time around because the economic recovery appears to have legs.

Make no mistake, spreads for conduit loans can spike, as has been demonstrated in recent history. “We have seen disruptions before. There were a few instances in the last years. Spreads can increase suddenly, and CMBS financing can become non-competitive very quickly,” said Gary Tenzer of George Smith Partners.

A recent false start in the CMBS market occurred in 2011, when the recovering market was derailed by the European debt crisis and concerns about the U.S. economic recovery. “Because of the volatility, it was difficult to price deals on the front end,” explained Rusty Fleming, partner at Morris, Manning and Martin L.L.P. When the loans were taken to market, the conduits were not able to obtain the yields they anticipated. “That shut down the market.”

However, though a reversal of the current CMBS financing recovery is “always possible,” it is currently unlikely, according to Fleming. “We feel the U.S. and world economy are at different places now compared to two years ago.”

Tom Muller, co-chair of the real estate and land use practice group at Manatt, Phelps & Phillips L.L.P., agreed that the conduit market “would not be as easily derailed again.” He elaborated: “We expect the conduit market will be sustained for the next several years because the U.S. general economic recovery will be sustained for the next several years.”

Tenzer said borrowers can protect themselves against possible CMBS market disruption by locking in rates. “CMBS is a volatile market. Until you get to the point of locking the rate, you do not know you have a deal.”

CMBS financing allows for early rate locks of about 30 days in advance. But Tenzer also stressed that the borrower should not lock the rate until the due diligence, such as environmental reports, has been performed. Borrowers could lose their deposit if they lock the rate and decide not to complete the transaction.

 For more on the conduit market’s performance, see “Comeback Redux” in the May 2013 issue of CPE.

Robert Knakal, chairman of Massey Knakal Realty, said the New York City commercial property investment sales market is currently red hot, but warned that sustained periods of low interest rates typically lead to real estate bubbles.

“Things are phenomenal now if you are in the sales business,” said Knakal. Knakal gave an address as keynote speaker at the New York City Real Estate Career Expo, held yesterday at the New York City Bar Association.

Knakal said that the state of the New York City land market is currently “unprecedented.” Land prices in New York City have increased by 20 to 25 percent in the past three months, and have even exceeded levels achieved at the peak of the market in 2007. He said that the Upper West Side is registering prices of $600 per square foot, compared to $400 in 2007. And in Tribeca, land prices are $1,000 per square foot, up from $500 per square foot at the last market peak. “Land prices are on fire,” he said.

By dollar volume, the New York City investment sales volume in 2012 was $40 billion, compared to $63 billion at the market peak in 2007. Knakal noted that more buildings sold last year than at any time in New York City’s history. The relatively high sales level in 2012 was driven in part by the increase in the capital gains tax rate, said Knakal. He expects the number of buildings sold this year to decrease by 20 to 25 percent, but the dollar volume of sales to nevertheless increase. “If you are a sales broker, you are feeling pretty good.”

Knakal said that price per square foot of New York commercial properties has increased by 13 percent in 2012, and by 15 to 20 percent in the first three months of this year alone.

The drivers of the investment sales market are the low interest rates, the “same pool of capital fighting over” a limited pool of real estate, and relatively small yields in other investment vehicles resulting from a mediocre economy. Knakal emphasized that values are increasing not because of underlying fundamentals but above all because money is cheap as a result of low interest rates maintained by the Fed.

“The government is artificially manipulating interest rates.” The leasing market, he added, is not as hot as the investment sales market.

“Things right now look great, but are we in another period of asset bubbles? History tells us that sustained periods of low interest rates create asset bubbles.” And he said that in the past few real estate cycles, a spike in land prices has always preceded a downturn in the market. The sky-high price of land, he said, “makes us nervous.”

He said if interest rates eventually rise because of traction in the economy, that will be not pose as much of a threat to the real estate market as if interest rates rise as a consequence of the high level of government debt.

Life companies and pension funds increased their market share of commercial property financing last year despite ongoing industry deleveraging, and the mortgage loans yielded a total return of 4.7 percent for the institutions in 2012.

According to the Giliberto-Levy Commercial Performance Index, 25.6 billion in new permanent mortgages were originated in 2012 by institutional balance-sheet lenders. The Index principal balance ended 2012 at a total level of 180.6 billion, compared to 178.7 billion in 2011. The Giliberto-Levy Index is a private debt market index that tracks senior loans made by balance-sheet lenders, primarily life companies and pension funds.

“The good news here is that the life company/pension fund activity is actually increasing and gaining market share in the overall commercial space,” said Michael Giliberto, co-founder of the Giliberto-Levy Commercial Performance Index. He noted the increase in principal balance was occurring at a time when the commercial property sector was still deleveraging.

Speaking at a webinar reporting on the Giliberto-Levy 4Q Index, Giliberto noted that office and industrial lending by the institutions lost market share last year, while apartment lending by the institutions gained share. Office mortgages comprised 26.3 percent of total mortgage lending by the institutions, industrial made up 12.6 percent, and apartments were 20.1 percent of the total. Sixty percent of the institutional senior loans consist of five- to seven-year loans.

The Giliberto-Levy Index showed total returns from the balance sheet loans was 4.7 percent for the institutions in the whole of 2012. Giliberto noted that this return was higher than 10-year Treasury returns.

The Index showed that while 10-Year Treasury yields increased from 1.65 to 1.78 percent in the fourth quarter, 10-year mortgage spreads narrowed from 2.60 to 2.35, resulting in a net decrease in mortgage yield of 0.12 percent for the institutional lenders.

Construction is under way on Crescent Terminus, a $67 million luxury apartment community in Atlanta’s Buckhead section that will add 355 rental units to the restaurant, retail and office space in the Terminus master-planned development.

The project’s developer, Crescent Resources, is planning three eight-story buildings containing five levels of apartments above three levels of parking at the intersection of Peachtree and Piedmont Roads. The apartment community, previously called Circle Terminus, is located on a three-acre site that is the last vacant parcel available within Cousins Properties’ Terminus development. It is being financed by an equity investment from Crescent Resources and by a construction loan from JPMorgan Chase & Co. Completion is expected by spring 2014.

“Crescent Terminus will allow residents to take advantage of lifestyle amenities, while also helping to add to the sense of community within Terminus and the greater Buckhead area,” Ben Collins, vice president of Crescent’s multi-family group, said in a news release.

Designed by Lord Aeck & Sargent, an Atlanta-based architectural firm, the buildings will feature business centers, a salt-water, resort-style pool, rooftop terraces, a wine bar and tavern. Crescent Terminus will be a candidate for LEED certification. Crescent Resources has selected Greystar to serve as property manager.

“This is a quality plan by a quality team in a quality location,” Sam Massell, president of the Buckhead Coalition and a former mayor of Atlanta, said in the news release. “Crescent Terminus will fill an important need of Buckhead’s growing population.”

The rental market is hot in Atlanta, where job growth is among the highest in the United States. The Fourth Quarter 2012 Apartment Research Market Report from Marcus & Millichap Real Estate Investment Services Inc. noted that many young adults will be looking to rent rather than buy and “they will likely choose to live in modern, luxury apartments near entertainment and business districts.” The report stated that demand will outpace supply, allowing owners to boost rents to pre-recession levels. In Buckhead, the year-end vacancy rate was 4.7 percent, a year-over-year decline of 170 basis points. Meanwhile, average effective rents rose 1.7 percent to $1,051. That compares to average effective rents of $780 per month for the entire region at the end of 2012.

Crescent Resources said it changed the name of the Buckhead development to Crescent Terminus to be aligned with its corporate name and its other properties. Founded in Charlotte, N.C., in 1969, Crescent Resources has 20 master-planned communities and nine multi-family communities with 5,300 units under construction and in predevelopment. The company owns about 50,000 acres, including approximately 800 acres zoned for commercial use.

The firm has several projects under way including Crescent Bayshore, an $86 million multi-family complex in Tampa, Fla., with 367 units. The apartments are expected to be ready by early 2014. In January, the company purchased 221 acres in Franklin, Tenn., where it plans to build a master-planned community of 240 apartments and up to 384 single-family homes. Crescent Resources said in December it was building a $36 million 546-bed student housing complex in Charlotte near the University of North Carolina campus. It also announced that month it was developing a $33 million apartment community in Charlotte. Crescent Resources bought a 993-acre property in November near Houston, where it hopes to build a master-planned community with more than 2,200 single-family homes, 540 apartments, 50 acres of retail and other commercial uses, and a school.

Bud Malone, CEO of Mortgages USA, describes how he was able to take on a loan that other lenders had rejected. The transaction illustrates the benefits of consulting seasoned FHA lenders.

The 444-unit community is adjacent to Huffines Communities’ previously built and fully occupied first phase of the development, which contains 250 units.

Fannie Mae’s priority in 2013 will be to continue focusing diligently on loan quality. “We intend going into 2013 to pay careful attention to the market to make sure we appropriately buy loans that meet our credit standards,” said Jeffrey Hayward, senior vice president, head of the Multifamily Mortgage Business, Fannie Mae.

Hayward was speaking to reporters at a press briefing held during the Mortgage Bankers Association’s annual Commercial Real Estate Finance/Multifamily Housing Convention and Expo.

Fannie Mae has announced that it provided $33.8 billion in financing to the multi-family market in 2012, the third highest acquisition level in its history. The company said it remained the largest source of multi-family financing in 2012, financing nearly 560,000 units of multi-family housing.

The real significance of the total production volume achieved last year “is not necessarily the number, but the fact that we continue to serve all segments of the market, and that we did it through…Delegated Underwriting Servicing. In essence, every dollar that we advanced, there was risk sharing involved,” said Hayward.

Hayward noted the multi-family financing market was also bigger in 2012 compared to the year before. Fannie Mae reported that its loan production increased in the categories of multi-family affordable housing, small loans, large loans, manufactured housing communities, and student housing, while falling slightly for structured transactions and seniors housing. “[In] almost every segment of the market, we were at least flat, or in some cases way ahead of where we were in 2011,” he commented.

Hayward pointed out that Fannie Mae through the first quarter has earned more than $1 billion in net profits for U.S. taxpayers. “We understand that is part of our responsibility to deliver benefits to the taxpayer, and we are proud of our ability to have done that.” According to Fannie Mae, 88 percent of the units in its current book of business support families of modest means earning 100 percent or less of Area Median Income.

Fannie Mae and Freddie Mac are required by the government to reduce their investment portfolios by 15 percent annually. The targeted portfolio size for each of the GSEs is $250 billion, which is projected to be reached in 2018, four years earlier than expected. However, that does not mean that Fannie Mae’s level of participation in the multi-family market will shrink, as the agency is currently securitizing its multi-family loans and not retaining them on its portfolio.

In answer to a question, Hayward said he is not aware of any directive from the government for Fannie Mae to reduce its footprint in the multi-family space.

“Our participation in 2013 will be the larger result of what the DUS lenders ask us to do as we work in partnership with them. It will be the result of choices they make in the marketplace … We will be there to provide liquidity when we are called upon. That is how we see our mission.” He also said that Fannie Mae will continue to make financing available to primary, secondary and tertiary markets.

Last year, Fannie Mae multi-family financing achieved averages of 65 to 66 percent on LTVs and slightly below 1.50 in Debt Service Coverage, Hayward reported. He said that the likely greater competition in the financing marketplace this year would be welcome, and he acknowledged that if the conduits start providing greater loan proceeds or more favorable interest-only features, Fannie Mae’s will see its market share decline in 2013.

San Diego—Mortgage originations for commercial properties will increase by 11 percent in 2013, the Mortgage Bankers Association (MBA) forecasted. The market share of multifamily financing may tick down this year as capital supply to the other commercial real estate sectors make a comeback.

At MBA’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo, MBA released its 2013 mortgage financing outlook. Originations of commercial and multifamily mortgages will grow to $254 billion in 2013, compared to $229 billion in 2012. (In its inaugural financing volume forecast, MBA had predicted the 2012 volume to be $230 billion.)

“Our forecast anticipates Fannie Mae, Freddie Mac and FHA, as well as life insurance companies, will all continue to have strong appetites for making loans, and—coupled with growth in originations for CMBS—the total market will continue to expand,” stated Jamie Woodwell, MBA’s vice president of Commercial Real Estate Research, in a press release.

At a press briefing during the conference, Woodwell predicted that multifamily financing will total about $105 billion in 2012. This financing volume far outstripped expectation, as only $77 billion was originally forecasted for the multifamily sector for the year.

Multifamily financing volume may experience a slight shrinking in 2013 and subsequent years to “a more traditional size” relative to the overall commercial property mortgage market, said Woodwell, during a press briefing held at the conference. Woodwell said multifamily financing had seen its share of the overall commercial property financing market increase due to funding availability and multifamily fundamentals. In 2012, multifamily financing was 46 percent of total commercial property mortgage financing. As mortgage funding for the other sectors are returning a little more strongly, however, “we’ll see more of that traditional balance” between the multifamily and commercial property market shares, said Woodwell.

MBA forecasts GDP to increase to 2.0 in 2013 from 1.8 percent last year, while unemployment rate will fall to 7.6 percent, compared to 8.1 percent for 2012. MBA said the 10-year Treasury yield will rise slightly from 1.8 percent in 2012 to 2.2 percent for 2013. However, actions by the Fed, on which a large part of the interest rate prediction is predicated, could be unpredictable, noted Jay Brinkmann, chief economist and senior vice president of Research and Education.

In the fourth quarter of 2012, MBA reported that commercial and multifamily mortgage originations increased by 49 percent compared to the fourth quarter of 2012. “During the fourth quarter, commercial and multifamily mortgage borrowing and lending hit the highest level since 2007,” stated Woodwell. MBA’s mortgage bankers originations index shows originations for 2012 increased by 24 percent compared to 2011.

The fourth quarter increase in commercial/multifamily lending volume was driven by increases in originations for hotel and office properties, according to MBA. The mortgage financing volume increases, relative to fourth quarter 2011, were 331 percent for hotel properties, 78 percent for office properties, 49 percent for multifamily properties, 46 percent for industrial properties, 5 percent for retail properties and 26 percent for health care properties.

By investor type, the dollar volume of loans in the fourth quarter compared to the same period in 2011 rose by 228 percent for CMBS, 68 percent for commercial bank portfolio loans, 51 percent for GSEs and 18 percent for life insurance companies.

MBA President & CEO David Stevens

The low-interest-rate environment is driving the demand for relatively higher-yielding commercial real estate loans, and the commercial real estate financing industry cautiously greeted the rapid return of liquidity into the sector during the Mortgage Bankers Association’s (MBA) 2013 Commercial Real Estate Finance/Multifamily Housing Convention & Expo. The exposition opened on Monday with a record attendance level of about 2,600.

“As the year begins, we can see positive momentum,” said Debra W. Still, 2013 MBA chairman, at the opening session. “Commercial and multi-family real estate finance has enjoyed a relative calm amidst the storm.” Still, she noted favorable conditions for both financing and commercial real estate–interest rates are lower than ever before, and yields and cap rates remain attractive relative to those of other investments. “Multi-family markets have arguably never been stronger, and office and retail markets offer plenty of upside.” Still cited, however, challenges to the commercial property sector including the European sovereign crisis and federal deficit, and she referred to the current “artificially low” interest rates.

“You feel good about the business environment, and you should,” said David Stevens, MBA president and CEO, in addressing attendees during the opening session. Stevens said that delinquencies are at the lowest level since 2009, the $2.4 trillion in mortgage outstanding is increasing, and CMBS issuance is expected to grow this year to $65 billion from $45 billion last year. “This really reflects the demand and recovery on the private capital side.” Life insurance companies and banks, meanwhile, are also looking to retain mortgages, he said.

On the other hand, although the low interest rates provide many benefits, Stevens said, capital is struggling to obtain concurrently desirable yield levels and asset quality in the low-yield environment.

One fear among market participants is that debt investors’ bid for the relatively higher returns offered by commercial property could lead to lower underwriting standards and a weakened CMBS sector—all too soon–as lenders compete for the same deals.

Debt investor groups across the board are generally said to be increasing their appetites for commercial loans this year. CMBS and bank financing has returned to the market, while life insurance companies and the GSEs are expected by many industry players to maintain if not increase the dollar amounts of their financings in 2013. Fannie Mae closed 2012 with $33.8 billion in multi-family financings, while Freddie Mac announced $28.8 billion in new multi-family volume for the same year.

A key driver of increased liquidity for the overall commercial property sector has been the recovery in demand among investors for CMBS. “Sustained bond market rally in the second half of 2012 has helped drive down funding costs, enabling CMBS lenders to reduce rates charged to borrowers,” stated Jones Lang LaSalle in a press release.

In the session “The Search for Yield,” moderator E.J. Burke, executive vice president and group head of KeyBank Real Estate Capital, commented that it appears “there is far more capital chasing for a home than there are good deals.”

“A lot of this has come back too quickly. We are concerned about how fast things have moved in terms of risk tolerances,” said Kevin Riordan, president, CEO and director of CreXus Investment Group. “I can’t answer if $100 billion is a normal market [for CMBS financing], but I think we are getting there too quickly.” Riordan also said that the “creep” over time of lenders institutions to the secondary market has already turned into a “herd.”

Life companies are still under-allocated to the multi-family sector in the billions, estimated Brian Casey, managing director and head of real estate debt strategies of MetLife Inc., in responding to a question about how much financing life companies would execute under ideal circumstances.

And Diana Reid, executive vice president of PNC Real Estate, said that banks have resolved their balance sheet issues and become more competitive in multi-family construction financing in the fourth quarter. As a result “there are more lenders looking for the same deals,” she said. Still, pricing, rather than recourse, remains the point of competition.

There were also questions raised about the self-regulation of CMBS and whether B-piece buyers are holding onto the risks rather than selling them. “I do not believe we are at CMBS 2.0,” said Reid, referring to the new, safer regime of CMBS that will prevent a repeat of 2007. Reid noted the Dodd-Frank risk retention regulations are yet to be released.

MBA announced this week that it forecasts commercial multi-family mortgage originations to increase by 11 percent to $254 billion in 2013 from 2012. Commercial and multi-family mortgage originations jumped by 49 percent in the fourth quarter compared to the same quarter in 2012.

By investor type, the dollar volume of loans in the fourth quarter of 2011 compared to the same period in 2011 rose by 228 percent for CMBS, 68 percent for commercial bank portfolio loans, 51 percent for GSEs and 18 percent for life insurance companies. For the entire year, originations in 2012 rose by 24 percent, MBA reported.

JLL said it expects capital availability to drive transaction volume increases of 15 to 20 percent in 2013. “Competition for core product is opening up attractive opportunities for borrowers,” it stated, and that JLL’s capital markets experts are “seeing a variety of aggressive debt structures,” on core products such as debt yields between 8 and 10 percent and DSC ratios of 1.15 to 1.35.

While making possible many deals and rescuing mortgages from default, the extremely low interest rates also introduce another point of concern: refinancing risk in the future when and if interest rates should increase again, and many speakers referred to that risk. Financed at extremely low interest rates, properties may have difficulty finding refinancing if interest rates rise significantly in future, especially if they have not amortized, or property values do not rise, adequately.

The longer the low interest rates persist, the greater the buildup of stress, said Sally Gordon, managing director, Risk and Quantitative Analysis Group, of BlackRock, Gordon presented a general session on portfolio diversification strategy.

The seeming lack of euphoria among lenders despite the return of liquidity could also  be attributed perhaps to the recognition that the abundance of capital, especially that slushing in the CMBS markets, could disappear overnight and be affected by both foreign and domestic developments, as has happened in recent memory. “Liquidity can evaporate faster than you even thought possible,” commented Gordon.

The potential volatility of the capital markets tied in with the life lessons of guest speaker John Bucksbaum, founder of Bucksbaum Retail Properties LLC. Bucksbaum recounted his experiences with the financial crisis in the late-2000s as former CEO of retail giant General Growth Properties (GGP). One of his biggest mistakes, where the GGP bankruptcy was concerned, was to allow mortgage maturities to compress in the same time period, said Bucksbaum. The second mistake, in view of the fact that liquidity could disappear very quickly, was to not raise equity when there was the opportunity, and to wait for higher stock prices before making a stock offering for the public company. “You don’t always know when you can raise equity. The day may come when “you need equity, and you don’t have it,” said Bucksbaum.

And as Gordon said, once liquidity dries up, it may be too late to mitigate the risk.

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Courtesy of RiverBay Corp.

Backed by a federal mortgage guaranty program that was extended to a cooperative development for the first time, RiverBay Corp. and Wells Fargo Bank, N.A., have closed on a $621 million deal to refinance the mortgage at Co-op City in the Bronx.

The deal, the largest ever insured under HUD’s 223 (f) program, will keep the complex with more than 57,000 residents affordable for the next 35 years. The Mortgage Insurance Fund of the State of New York Mortgage Agency and the New York City Housing Development Corporation also helped make the deal happen with the state agency providing $55 million in credit support and HDC covering $15 million of the loan.

“This is about preserving affordable housing for the next generation of families living and working in one of the nation’s highest cost rental markets,” said HUD Secretary Shaun Donovan.
“Working closely with the State of New York and New York City, we’re making certain that working families have a decent and affordable place to call home while saving private owners of affordable housing significant money that they can reinvest back into their properties.”

By locking into today’s low interest rates, refinancing the original debt will save Co-op City and its residents more than $150 million on the 14-year remaining term of the current loan and eliminate refinancing risk should the interest rates rise again, said Alan Wiener, managing director of Wells Fargo Multifamily Capital.

The new mortgage is backed by the Federal Housing Administration’s General Insurance and Special Risk Fund. The FHA’s Section 223 (f) program allows the 35-year loan to be financed with Government National Mortgage Securities, (Ginnie Mae). The 223(f) program protects lenders against loss on mortgage defaults at multi-family rental properties. Riverbay Corp. is expected to save about $400 million in interest payments over the life of the mortgage because it has the guarantee of FHA and GNMA.

Loan proceeds will be used to pay off the current mortgage and capital improvements under way and provide additional reserves for future capital needs and ongoing maintenance. More than $310 million in renovations have been done since 2004 at Co-op City, which has more than 15,000 units spread across 35 residential buildings. The complex is located on 330 acres in the Baychester section of the Bronx. It has three shopping centers, a 25-acre park, eight parking garages, three elementary schools, two middle schools, a high school and a power plant.

“If it were an actual incorporated city, Co-op City would be the 12th largest in our state – and so it is hard to exaggerate the critical role it has played for over 40 years in keeping housing in New York State and New York City affordable,” said Gov. Andrew Cuomo.

Co-op City opened in 1968 and is the largest Mitchell-Lama co-op in New York City. The state’s Mitchell-Lama Housing Program was signed into law in 1955 and is designed to create affordable rental and cooperative housing. Nearly 270 housing developments with 105,000 units were constructed under the program, which allowed developers to get tax abatements and low-interest mortgages subsidized by the city, state or federal governments.

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Bellwether Enterprise CEO Lamar Seats

Bellwether Enterprise Real Estate Capital, L.L.C., the multi-family and commercial banking subsidiary of Enterprise Community Investment, Inc., has provided an approximate $75 million loan to a Cincinnati-based owner/operator for the refinancing of five garden-style apartment properties in Texas and two garden style properties in Ohio.

All seven properties were workforce housing apartments and the $75 million loan was originated in Bellwether Enterprise’s Cincinnati office and was closed and securitized using a Freddie Mac Capital Markets execution. The owner’s name was not released.

“Our multi-family focus revolves around affordable and workforce housing, and certainly many of the loans display those characteristics,” Lamar Seats, Bellwether Enterprise’s CEO, told Commercial Property Executive. “Something we continue to seek to do is strengthen the fabric of communities.

The Texas properties consisted of the 244-unit Canyon Creek Apartments, located at 10951 Stone Canyon Road, Dallas; the 142-unit Gateway Place Apartments, located at 782 Gatewood Dr., Garland; the 348-unit The Boulders Apartments, located at 6337 Duck Creek Dr., Garland; the 180-unit Summit at Midtown Apartments, located at 10602 Stone Canyon Road, Dallas; and the 109-unit Woodbridge Apartments, located at 10702 Stone Canyon Road, Dallas.

The Ohio properties were the 258-unit Deer Hill Apartments, located at 2551 Spindle Hill Dr., Cincinnati; and the 660-unit Fairfield Pointe Apartments, located at 2400 Albemarie Dr., Fairfield.

Since launching on May 31 of this year, Bellwether Enterprise has provided more than $421 million in financing for property, including $211 million for multi-family rental housing.

“Multi-family was strong throughout the recession,” Seats said. “Part of that was lack of new construction. There were very few deliveries of new units into the market. We think the higher occupancy rates for existing properties, increasing the rental rates, were very bullish of the market overall.”

In addition, the company has approved $114 million for retail loans, $58 million for hospitality loans, $22 million for healthcare loans, $12 million for office loans and $4 million for industrial loans.

“As Enterprise celebrates 30 years of innovation and leadership, we are pleased to announce strong results since Bellwether Enterprise’s first day as a new organization,” Seats said. “Bellwether Enterprise, in addition to its commercial mortgage banking platform, will continue to focus on financing affordable and moderate income rental housing.”

In May, Enterprise’s Multifamily Mortgage Finance division merged with Bellwether Real Estate Capital to expand its collective geographic reach, and multi-family and commercial banking product offerings for borrowers across the country.

“Bellwether Enterprise is on track to reach $1.4 billion in mortgage production volume for the 2012 calendar year,” Ned Huffman, Bellwether Enterprise’s president, said. “The success of this transaction demonstrates our commitment to provide the most comprehensive financing solutions for our customers across all multi-family and commercial property types.”

Cantor Commercial Real Estate has snagged former Freddie Mac multi-family exec Michael May as the newest member of its multi-family team.

As a managing director leading the company’s multi-family lending business as national head of the division, May will be plenty busy. But he brings plenty of experience to the job.

Over the last three decades, May has cultivated a respected level of expertise in the areas of capital markets, residential mortgage and multi-family mortgage. Most recently, he proved his mettle as executive vice president of multi-family sourcing at Freddie Mac, responsible for supervising the daily operations of the government-sponsored enterprise’s multi-family business line. Before that, he served as senior vice president of operations for the GSE, managing a variety of business divisions.

May’s exit from Freddie Mac–he bade adieu in July 2011–marked yet another addition to the lengthy list of departures from both Freddie Mac and Fannie Mae following the collapse of the government-sponsored enterprises and ensuing takeover by the government in 2008. The GSEs have been practically bleeding executives ever since. Recent defectors include Charles Haldeman Jr., who left Freddie Mac earlier this year; last month he was named to the board of directors of The McGraw-Hill Cos., the global financial information and education concern. In January, Michael Williams announced he would resign from his position as CEO of Fannie Mae. In June the agency named his successor, Timothy Mayopoulos, who had previously occupied the positions of executive vice president & chief administrative officer.

May’s career at Freddie Mac had spanned 28 years at the time of his departure last year and, as CPE reported in a column in August 2011, many of the executives who have walked away from Freddie Mac and Fannie Mae over the past few years took their decades-long history at the GSEs with them.

Obviously, CCRE views Freddie Mac’s loss as the commercial real estate finance company’s gain. “Our multi-family lending business is one of the largest and most respected in the commercial real estate industry,” said Anthony Orso, CEO of CCRE. “With Michael’s strong leadership and expertise in the multi-family sector, we will be able to expand our footprint and strengthen our ability to provide top-notch service to our clients.”

But it’s not all about multi-family for CCRE. The company added another commercial real estate expert to its team this week, hiring Kenneth Margala to serve as a director focusing on loan origination. Margala, formerly an executive director at UBS Investment Bank, will assist in CCRE’s push to expand its business in key markets on the West Coast.

For more on the GSE brain drain, click through to CPE‘s package of reporting and guest commentary coverage posted during the height of that activity last summer, as well as more recent news coverage.

The $290 million loan provided by RREEF Real Estate for a Midtown Manhattan retail condominium underscores the investment management firm’s recent record of pursuing blue-chip retail properties in the city.  For the 123,000-square-foot retail condominium at 717 Fifth Ave., RREFF supplied owners  SL Green Realty Corp. and Jeff Sutton with a 9 percent fixed-rate mezzanine loan, the company said yesterday. RREEF added that it acted on behalf of a German institutional investor.

The 717 Fifth Ave. refinancing followed RREEF’s investment in an 11,800-square-foot retail condo space at 415 W. 13th St., leased to apparel store AllSaints Spitalfields under a long-term agreement. RREEF also snapped up a retail condo occupied by ScoopNYC at 473-475 Broadway. Both transactions were off-market.

RREEF cites New York, along with Miami and San Francisco, as key target markets, given their status as relatively prosperous metropolitan areas with  high constraints on supply.  ”As the retail sector increasingly sorts between winners and losers, those centers at the top will face less effective competition, providing disproportionate gains in occupancy and rents,”  RREEF notes in a recent U.S. research report. “Thus, investors must be especially discriminating in their acquisitions and strategies as well, passing on the commodity assets and seeking out the truly dominant properties and supply-constrained markets. High street retail and upscale centers should outperform overall.”

Given the quality and prominent location of the asset, then, RREEF’s interest in 717 Fifth Ave. comes as no surprise. The retail condo spans four stories beginning at street level. Even though the property opened in 1959, renovations and expansions in 1993 and 2001 have maintained its Class A luster. Since SL Green acquired its stake in 717 Fifth in 2006, a repositioning and lease-up program has added the flagship stores of high-end retailers Giorgio Armani and Dolce & Gabbana to the tenant roster.

As previously reported by CPE,  SL Green and Sutton completed their refinancing package for 717 Fifth Ave. with a $300 million fixed-rate mortgage loan originated by New York Life and TIAA-CREF. SL Green also sold 50 percent of its stake in the retail condo to Sutton in a deal that values the asset at $618 million. While the focus was on the building’s retail portion, the transaction also involved a portion of the 26-story building’s office segment.

Lenders are not exactly generous with loans these days, but they are shining their light upon certain properties, and the Lumière Building in Paris is one of them. Tishman Speyer, owner of the nearly 1.5 million-square-foot tower, has just completed the $571 million refinancing of the premier property, courtesy of a loan transaction spearheaded by French insurer BNP Paribas.

Tishman Speyer has called the 20-year-old building its own since 2006, when the New York City-headquartered real estate company’s European Strategic Office Fund acquired it from Blackstone for the equivalent of approximately $834 million. In addition to Class A office space, the seven-story property encompasses roughly 100,000 square feet of retail space, 220,000 square feet of warehousing, as well as underground parking for the accommodation of 1,700 vehicles.

It’s a safe risk, and the BNP-led consortium of fellow French insurers Cardif, CNP and Predic took it and crafted a groundbreaking transaction. The financing deal is the first in Europe to be structured through a mortgage bond private placement secured by a first-ranking mortgage on the property. It also marks the largest real estate financing deal in France for a single asset since the glory days of 2007, when lenders were practically handing out loans like candy.

As anticipated, insurers are increasingly stepping up to the plate to provide loans for commercial real estate properties–well, certain commercial real estate properties. “We think capital will remain available to finance good assets located in the ‘right’ locations; we think that either banks will be happy to refinance loans on such assets or alternative financing will readily fill the gap should banks wish to exit,” Morgan Stanley noted in a research paper released earlier this year on Europe’s gargantuan financing gap. The “right” locations are London and Paris.

In addition to having location on its side, Lumière has the right stuff. It became 100 percent leased last year after the French Ministry of the Interior entered into an agreement for 400,000 square feet of space. To top it all off, the property carries the distinction of being the largest privately owned office building in Paris.

In a transaction that provided $85 million in net cash proceeds, SL Green Realty Corp. has restructured and recapitalized its joint venture at 717 Fifth Avenue in New York City, the company announced Wednesday.

The company sold half of its interest to JV partner Jeff Sutton, retaining a 10.92% stake in the retail condo property at a price that values the asset at $618 million, or $5,015 per square foot. This valuation reflects a 4.9 percent cap rate on in-place net operating income.

The venture also has received $590 million of new financing in the form of a $300 million, 10-year, 4.45 percent fixed-rate mortgage loan and a $290 million, 12-year, 9.0 percent fixed-rate mezzanine loan. The mortgage loan was originated by New York Life and TIAA, and the mezzanine loan was originated by RREEF.

SL Green acquired its interest in the property in 2006 at a price valuing the asset at $230 million. Over the subsequent six years, NOI was increased by about 2.5 times through the execution of new retail leases with Armani and Dolce & Gabbana and the relocation of Escada to new space on 55th Street.

The retail condominium totals 123,000 square feet on four floors, with 81.5 feet of sidewalk frontage on Fifth Avenue. The long-term leases with Dolce & Gabbana and Escada were executed in 2011.

The restructuring is likely to be discussed during a conference call and audio webcast on Thursday at 2 p.m. Eastern.

Per SL Green’s second-quarter financials, also released Wednesday, same-store NOI on a combined basis increased by 1.8 percent to $199.5 million for 2012 as compared to 2011. Consolidated property same-store NOI increased by 1.0 percent to $169.2 million, and unconsolidated joint-venture property same-store NOI increased 6.9 percent to $30.3 million.

A July 2012 Commercial Property Price Indices report from Moody’s/RCA shows the CPPI for retail in major markets climbing by 16.28 percent from 12 months earlier. This sector has now, according to the report, regained 56.2 percent of its peak-to-trough loss (October 2007 to June 2010).

Relying on two key Manhattan properties as collateral, Chesapeake Lodging Trust has obtained a $60 million loan through Wells Fargo Bank N.A. The financing is secured by the Holiday Inn New York City Midtown–31st St. and Hyatt Place New York Midtown South.

The two-year term loan, which bears interest equivalent to LIBOR plus 3.25 percent and provides the option for three one-year extensions, is not your typical loan; its structure is multi-faceted, to say the least.

The funds come in two phases. Chesapeake walked away with a $25 million advance at the initial completion of the transaction, having relied on the 122-room Holiday Inn 31st St. as collateral. Chesapeake has owned the 18-story hotel tower since acquiring it for $52.2 million in December 2011, marking the company’s entrée into Manhattan. In conjunction with the closing of the first phase, the REIT entered into an interest-rate swap that fixed the rate on the $25 million segment of the loan at an annual 3.75 percent for the initial two-year term.

Chesapeake will come into possession of the remaining $35 million, secured by Hyatt Midtown South, after development of the 185-room lodging destination reaches completion and Chesapeake closes on its acquisition. The company entered into an agreement in January to acquire the 25-story hotel for $76.5 million.  An interest-rate swap is also planned for the $35 million portion of the loan.

And there’s more. When the second segment of the transaction closes, the hotels will secure the entire $60 million principal amount of the loan, the proceeds of which will be utilized to repay borrowings under Chesapeake’s revolving credit facility.

More loans may very well be in Chesapeake’s near future. “We continue to focus our efforts on strengthening our balance sheet and financial position as we move through 2012,” Douglas Vicari, executive vice president & CFO, said during the REIT’s first quarter earnings conference call in May. “We intend to utilize the debt markets to help us manage our interest rate exposure and debt maturities as our capital structure continues to evolve as a company.”

Lenders are looking favorably on some real estate companies, and American Realty Capital Trust Inc. is one of them. The company recently closed a $235 million senior secured loan through Wells Fargo Securities L.L.C.

Wells Fargo acted as the sole lead arranger on the transaction, which provided ARCT with a senior secured loan featuring a five-year term and bearing an interest rate of LIBOR plus 235 basis points. Also onboard as documentation agents were Union Bank and TD Bank. And US Bank, BB&T, Midfirst Bank and Raymond James rounded out the consortium. Completion of the transaction has, ARCT CFO Brian D. Jones said, “strengthened and broadened our banking relationships.”

The fact that so many banks were willing to participate in the deal dovetails with the forecast for the 2012 capital markets. “Even with the existing global economic concerns, debt financing will remain very strong in the core space from life companies and domestic banks,” Tom Fish, co-head and executive managing director of commercial real estate services firm Jones Lang LaSalle’s real estate investment banking business, noted in a report earlier this year.

Wells Fargo has come through for ARCT in the past, having previously provided a $200 million interim loan, which will be replaced by the new financing. ARCT will utilize a portion of the proceeds for general working capital purposes, and rely on the remaining funds to repay outstanding balances on its $330 million revolving line of credit.

“This financing completes the mortgage debt recapitalization strategy commenced by ARCT in April, resulting in a reduction in borrowing costs, an increase in the unencumbered asset pool, and an improvement in the average duration of the Company’s long-term debt,” said Jones.

The U.S. CMBS market has entered into new territory. According to Trepp L.L.C.’s new report, the CMBS delinquency rate has reached an unprecedented 10.16 percent.

Taking into consideration the results from May, it’s a situation of big news followed by bigger news. After having jumped 24 basis points to 10.04 percent in May, thereby crossing the 10 percent threshold for the first time, the delinquency rate rose 12 basis points to 10.16 percent in June. All told, the CMBS market has experienced a 64-basis point increase since late 2011.

Trepp saw it coming. In December of last year, the information and analytics provider predicted that what had then been a steady rate in the 9.51 percent range could skyrocket by 70 basis points within the next several months.

“Driving the rate up has been the fact that only 28 percent of the loans from 2007 due to mature in 2012 managed to pay off in full,” Manus Clancy, senior managing director with Trepp, said. “Just as the heat should break by September, investors should see some relief, too. Now that most of the 2007 loans coming due in 2012 have passed their maturity date, the delinquency rate should start to level off soon.”

But for now, the numbers are still staggering, due in no small part to the lackluster performance of nearly every commercial real estate type. The delinquency rate for hotels did the most damage with a surge of 68 basis points to 12.95 percent; although the sector still hasn’t surpassed multifamily, which held steady in the top spot at a rate of 15.17 percent. The jumps in office and retail were relatively modest at a respective 19 and 10 basis points. However, there was one shining light in the group. The industrial sector experienced a head-turning drop of 128 basis points to an 11.54 percent delinquency rate.

And a little improvement is better than none at all. Approximately $59 billion in loans, excluding those with a special servicer, are delinquent, compared to $59.1 billion in May.

A subsidiary of EverBank Financial Corp., of Jacksonville, Fla., and General Electric Capital Corp. have executed a definitive agreement under which EverBank will acquire Business Property Lending, a business unit of GE Capital Real Estate, North America, for $2.51 billion, the companies announced Monday.

No debt will be assumed as part of the transaction, which includes approximately $2.44 billion of commercial loans, the origination and servicing platforms, 108 employees, and servicing rights on $3.1 billion of loans securitized by GE Capital. The transaction is expected to close in the fourth quarter.

BPL originates and services commercial real estate loans for essential-use properties owned or leased by small and mid-size businesses nationwide. The average loan size is about $2.6 million.

During a conference call on Monday morning, Blake Wilson, president and COO of EverBank Financial, provided examples of typical loans in the BPL portfolio. An owner-occupied example was an $8.2 million loan on a downtown Los Angeles office building leased to two well-known law firms. The property is a four-story, 32,000-square-foot building built in 1912; the loan has a 73 percent LTV and is personally guaranteed by the partners of each firm.

The credit tenant example cited by Wilson was a $4.6 million fully amortizing loan on a single-tenant property in Northern California leased to a large public drug store chain with a 75-year lease.

Overall, the BPL portfolio is significantly diverse both as to asset types and geography. The product type breakdown is 30 percent office, 17 percent warehouse, 19 percent other industrial, 15 percent retail, 6 percent medical facility and 13 percent other. Thirteen percent of the portfolio is in California, with a further 30 percent in New York, Florida, Texas and North Carolina.

EverBank had been in the CRE lending business, but exited it several years ago, before the financial crisis, an EverBank spokesperson told Commercial Property Executive. “Consistent with its strategic growth initiatives, the bank has decided to re-enter the market with this deal.”

The acquisition decreases the residential portion of EverBank’s real estate loan portfolio from 79 percent to 63 percent. Going into the near-term future, EverBank anticipates making $500 million to $1 billion of CRE originations annually through the former BPL.

BPL’s loan originations peaked at $4.1 billion in 2007, but plummeted to $1.48 billion in 2008 and stayed well under $150 million annually through 2011. They total $317 million so far this year,

The buyer emphasized that the $2.44 billion of loans in the transaction are all performing. “Everbank performed a rigorous due diligence process resulting in the hand selection of a 100 percent performing portfolio,” the spokesperson said.

In addition, the acquisition is strategic for EverBank because it enables expansion into key markets where the company already has a strong business in deposit origination and banking services, the spokesperson said.

Business Property has 14 offices, in Redmond, Wash.; San Francisco; Pleasanton and Irvine, Calif.; Chicago; St. Louis; Austin; Houston; Alpharetta, Ga.; Shelton and Norwalk, Conn.; Fort Washington, Pa.; Orlando; and Jupiter, Fla.

For GE’s part, said Alec Burger, president of GE Capital Real Estate, North America, the sale “is consistent with our stated strategy to reduce the overall size of our real estate portfolio.”

A GE spokesperson noted, however, that Capital Real Estate has more than $59 billion in assets and that the BPL sale will reduce the size of that portfolio by only $5.5 billion. “It’s important to note that GE Capital Real Estate is actively lending in the market and focused on growing our core debt business throughout North America.”

EverBank has stated that it intends to retain BPL’s senior management team, which averages more than 25 years of experience.

BofA Merrill Lynch acted as EverBank’s financial advisor, and Sullivan & Cromwell LLP acted as its legal advisor. Goldman Sachs also acted as an advisor to EverBank, and Gateway Asset Management LLC provided loan diligence. Deutsche Bank Securities acted as financial advisor to GE Capital, and Weil, Gotshal & Manges LLP acted as its legal advisor.

Growth in demand for healthcare and seniors housing financing has prompted Red Capital Group L.L.C. to expand its platform in two sectors, and the debt and equity capital provider has tapped industry veteran Kathryn Burton Gray to lead the charge.

“The seniors (sector) is a huge opportunity platform to expand. There is significant growth and a lot of customers looking for seniors finance, with the Baby Boomers coming up in the next 15 years,” William Meyer, a vice president with Red Capital, told Commercial Property Executive. “We’ve had a very established platform, and this is a great opportunity to expand that and grow into the existing need and the future need that we anticipate.” Red Capital’s business centers on providing financing to the seniors housing and healthcare industries, as well as the multi-family and student housing sectors.

During the past year, the firm’s seniors housing group has been quite active, having provided nearly $600 million in new Fannie Mae, Freddie Mac Seniors and FHA loan originations. It is now targeting approximately $900 in new agency originations and bridge loans in the seniors housing and healthcare sectors.

Gray is well qualified to spearhead the effort. She joins Red from CIT’s healthcare unit, where she held the position of senior managing director, and brings to the table a quarter-century of experience in the industry. “We’re really interested in her business development expertise and her expertise on the balance-sheet lending side, which is a unique piece of our product stack,” Meyer said.

RED shareholders are placing balance-sheet lending high on their list for expansion. “One of our biggest selling points is our unique ability on our balance-sheet side and the apparent commitment to support. That is huge–that’s what makes us unique from a lot of other lenders.”

The results are in! CPE is pleased to announce the winners of the second-annual Distinguished Achievement Awards, recognized for their ability to complete deals and projects in the face of last year’s recovering economy. This year, we accepted submissions in six categories, and our judges selected winners in five of them: Best Lease, Best Sale (with separate consideration for single assets and portfolios), Best Financial Structure, Best Development/Redevelopment and Most Creative Repositioning Plan.

The winners are as follows:

Best Lease:

First Place: CBRE Group Inc. for placing Conde Nast at One World Trade Center, New York, N.Y.
Second Place: CBRE Group Inc. for placing EverBank at 301 W. Bay St., Jacksonville, Fla.

Best Sale—Single Asset:

First Place: Brookfield Office Properties for selling 1400 Smith St. in Houston to tenant Chevron and extending its nearby lease.

Best Sale—Portfolio:

First Place: Cassidy Turley for its representation of Washington Real Estate Investment Trust in the sale of 56 buildings in the Metropolitan Washington, D.C., area to AREA Property Partners and the Adler Group.
Second Place: Cornish & Carey Commercial Newmark Knight Frank for its representation of Roche in its sale of the company’s Palo Alto campus at 3431 Hillview Ave. in Palo Alto, Calif., to VMware.

Best Development/Redevelopment:

First Place: Trammell Crow Co. and Principal Real Estate Investors for the development of Hess Tower in Houston.
Second Place: Duke Realty and Northwestern Mutual Insurance for the development of Baylor Charles A. Sammons Cancer Center at Dallas.

Most Creative Repositioning Plan:

First Place: Jones Lang LaSalle Inc. for marketing and successfully leasing up One Front St. in San Francisco.

Best Financial Structure:

First Place: Lance Capital L.L.C. for arranging and CGA Capital Corp. for providing tenant improvement financing to GFI Development, Starwood Capital and The Carlyle Group in their lease to the New York City Human Resources Department at 470 Vanderbilt Ave. in Brooklyn, N.Y.
Second Place: Centerline Capital Group for its arrangement of a Freddie Mac preferred equity structure for a complex joint venture of funds that through the entity Magazine Investors L.L.C. owned and sought to sell eight properties in the Virginia and Maryland suburbs of Washington, D.C., known as The Point DC Portfolio.

The judges included Jay Epstien, partner with DLA Piper, chair of its U.S. real estate practice and co-chair of its global real estate practice; Josh Herrenkohl, real estate advisory investment services leader with Ernst & Young L.L.P.; Scot Hileman, director with Deloitte Financial Advisory Services L.L.P.; Ryan Severino, senior economist with REIS Inc.; and Carl Weisbrod, clinical professor and academic chair of global real estate in New York University’s Schack Institute of Real Estate and former president of Trinity Real Estate.

You’ll find more on these award winners in the July 2012 issue of CPE.  You may also want to view the slideshow of photos, aerial views and floorplans, and the video featuring observations from our judges.

A joint venture of Brandywine Realty Trust and an affiliate of Allstate Insurance Co. will soon take ownership of Station Square, a 499,400-square-foot office complex on the outskirts of Washington, D.C., in Silver Spring, Md.  Brandywine-AI, as the venture is known, will acquire the three-building asset from a joint venture consisting of Urdang’s Value-Added Fund II and Moore & Associates for $120.6 million. The transaction is on track to close July 10.

The deal shows the difference three years has made in the local market.  In 2009, when Station Square last traded, Urdang-Moore purchased the portfolio for approximately $74.7 million. For Brandywine-AI, the acquisition will come at what the joint venture calls a “significant discount to replacement cost.”

Located at 1100 and 1010 Wayne Ave. and 8484 Georgia Ave. in Silver Spring’s central business district, the transit-oriented complex is 93 percent leased, according to a report from CBRE Group Inc. That level is well above suburban Maryland’s office occupancy rate of 85 percent and Montgomery County’s 87.4 percent.

The sponsorship, the tenancy and the promise of an increasingly strong office market likely contributed to Brandywine-AI’s ability to obtain $66.5 million of non-recourse  financing for the acquisition.

The joint venture is hardly done with combing the local market for opportunities. “The Brandywine-AI Venture plans to seek additional office building acquisitions in the Washington D.C., markets, with particular emphasis on quality properties located near transit and amenities inside the Capital Beltway,” said Gerard H. Sweeney, president and CEO of Brandywine Realty Trust.

Ground has broken on the trophy office project at 3001-3003 Washington Blvd. in suburban Washington, D.C., and Penzance and Invesco Real Estate have just gotten their hands on $94 million in construction financing for the 280,000-square-foot destination. News of the transactions closing comes to the fore less than three months after Penzance and Invesco announced the establishment of their joint venture for the development of the mixed-use property.

Acting on Penzance and Invesco’s behalf, commercial real estate services firm Jones Lang LaSalle Inc.’s capital markets group obtained the non-recourse funding through SunTrust Bank. The two-building complex will sprout up in the Clarendon submarket of Arlington, Va.’s Rosslyn/Ballston corridor, less than five miles across the Potomac River from Washington, D.C.  Upon completion, the property will feature a 10-story, 200,000-square-foot tower linked to an eight-story, 80,000-square-foot building. In addition to Class A office accommodations, the structures, which are designed to qualify for the U.S. Green Building Council’s LEED Silver certification, will offer a combined total of 28,000 square feet of retail space.

It’s a premier package that attracted a big tenant well before ground broke. Research and analysis organization CNA pre-leased 175,000 square feet at 3001 Washington early this year.

SunTrust was among a bevy of lenders of various types that were ready and willing to provide financing for 3001-3003 Washington. The emergence of an enthusiastic group of funding sources does not exactly happen every day. “Getting construction financing is almost virtually impossible if you don’t have the building pre-leased,” Wes Boatwright, managing director with JLL, told Commercial Property Executive. “There’s an exception to every rule, but pre-leasing is pretty much a given, and having it pre-leased to a credit tenant is even better. Then there’s sponsorship. Those are really the driving factors.”

Additionally, Boatwright noted, banks are eager to put their money somewhere. “There’s just a lack of good solid construction deals out there for banks to do,” he said. “There certainly are some here and there, but if you need to have pre-leasing, there’s not of a lot of well pre-leased buildings out there seeking construction financing. The banks make money by putting money out so there was a lot of interest because of the sponsorship, the pre-lease and particularly the fact that the pre-lease was with a credit tenant.”

Boatwright pointed out that Penzance has deftly orchestrated the development of 3001-3003 Washington from the beginning. “I don’t think you can downplay the successful navigation of all the complicated components required to pull this off,” Boatwright said. “They assembled the site, they got it through the approval process in Arlington County and they were able to lure CNA. CNA could have gone anywhere; they had probably more options than they knew what to do with. So all those things are very difficult to control and navigate and Penzance did a wonderful job of doing that. It’s just one of those great situations that ends up being a win-win for everyone.”