Construction lenders raised concerns about the possibility of future overbuilding in key multi-family markets, at the Mortgage Bankers Association’s Commercial Real Estate Finance / Multi-Family Housing Convention 2012, which opened yesterday in Atlanta. The financiers were speaking on the panel titled “Lending for Bank Portfolios—Easy Does it or Rocky Road?”

Ken Broussard, regional executive of the income property group of KeyBank, said the bank has had conversations questioning whether there is “too much development or structures that can cause a bit of a bubble” in multi-family. “No one is saying ‘yes, probably,’ but at least there is a discussion,” he said, “because across the country all of our regions are seeing a lot of requests on new construction in multi-family.” Broussard said 60 to 62 percent of the group’s new originations in 2011 were in the multi-family sector, primarily in permanent debt.

In particular, Washington, D.C. was singled out by the panelists as a market to be cautious about. Broussard said that the multi-family markets in Washington, D.C. and Baltimore are still holding up pretty well, but that there is much discussion about possibility of overbuilding in those markets. “We are seeing a ton of construction in Washington, D.C. and New York. The gateway cities are huge right now,” agreed Pete Matthews Jr., senior vice president of M&T Bank.

Marc McAndrew, executive vice president of PNC Real Estate, said there could be too much supply in both D.C. and Seattle if all the projects that are discussed are brought to fruition. While he noted that all markets are submarket specific, McAndrew added that a close eye should be kept on Texas, where it is easy to buy land to develop real estate. The supply and demand balance of multi-family housing is currently “pretty good” in Texas, but could disappear pretty quickly, he said.

While the lenders expressed concerns, they also said they intended to maintain, if not increase, their level of lending activity this year, whether of permanent or construction debt. “A lot of 2011 for many of us was continuing to cope with the residual of the financial crisis and the recession, but we are looking forward to getting some new loan growth,” said moderator Diana Reid, executive vice president of PNC Real Estate.

Matthews said M&T Bank will be focused on serving its customers and their liquidity needs this year. “We are taking advantage relative to 2011 of getting some new opportunities with different partners,” he said. He said the bank will provide construction capital and bridge financing, in “the right structures with the right players.”

In terms of lending to the different real estate sectors, Matthews said M&T bank is making some retail construction as well as refinance loans. Development in the retail sector, he said, is so difficult that there is no great oversupply. The office market is “lukewarm,” but the bank would lend in the right situation, while industrial properties are generally steady. M&T has also started providing capital for condominiums in New York City again, he noted.

McAndrew said PNC Real Estate is targeting $8 billion to $9 billion in new product this year, spread across construction, REIT and permanent financing.

As to favorite markets, the panelists unanimously agreed that New York City was the most desirable market in which to provide debt capital. It is difficult to overbuild in New York City, said McAndrew. In addition to Pittsburg, McAndrew said he also favors to certain multi-family submarkets in Washington, D.C.

Lenders are keen on the multi-family market, and the focus isn’t just on Class A communities. Acting on behalf of Santa Ana, Calif.’s Focus Development, Johnson Capital just closed a $75 million debt and equity financing deal for one of its clients, a Southern California-based full-service real estate investment and development firm, facilitating the acquisition of a 1,271-unit portfolio of Class B-minus and Class C apartment communities in Florida and Texas.

Johnson Capital orchestrated a strategic partnership with a private, low-profile equity source for the purchase of the nine apartment properties, and placed $48.6 million of Fannie Mae financing with Centerline Capital. Johnson Capital had its reasons for going with Fannie Mae as opposed to Freddie Mac. “With the Fannie Mae process, you get better pricing across the board,” Neil Bane, principal and head of the equity division at Johnson Capital, told Commercial Property Executive. “Our client gets better pricing and the lenders are able to achieve better pricing, and they sell it to the street because of the volume of the portfolio.”

And a bevy of equity providers took an interest. “The borrower has good experience in terms of renovation, redevelopment and repositioning, so there was some good upside,” he said. “And the fact that the properties were in relatively good markets that appear to have good upside and the client is buying at a pretty good cap rate — an 8.5 to 9 percent cap rate — gave those Fannie Mae lenders, who would otherwise not feel comfortable, the comfort to do the deal.”

The fixed- and floating-rate debt came in the form of loans totaling $35.8 million for five properties in Tampa and two in Orlando, and $12.8 million of bridge financing for the remaining two properties, located in Pasadena, Tex.

“It’s often hard to get floating rate programs on B and C properties, I think we did a good job of being able to identify a number of lenders who were willing to do that here,” Bane said.

Image courtesy Flickr user laverrue

It’s good to buy when opportunity presents itself and, capitalizing on one of those opportunities, a consortium including affiliates of Starwood Capital Group, the LeFrak Organization and Invesco Ltd. have purchased a beachfront, mixed-use property in Miami’s South Beach, including a hotel formerly known as the Gansevoort.

While the terms of the deal were not disclosed, the partners announced a $100 million renovation project for the property, which already includes 334 hotel rooms, 255 condo units across 294,000 square feet and 90,000 square feet of retail space. The hotel rooms will be renamed The Perry South Beach until its re-launch in 2013, when a new brand will be unveiled after the renovation. The partners also anticipate improvements to the condos, which will put the units on the market in late 2012.

Barry Sternlicht, chairman & CEO of Starwood, said that “global interest in the Miami marketplace is close to surpassing an all-time high,” noting that his firm has the opportunity to “create an outstanding destination resort and residences in this outstanding city.”

According to a report by Marcus & Millichap Real Estate Services Inc., Miami saw a 9 percent increase in demand for hotel rooms year-to-date in August of 2011, as compared to the same period a year prior. Additionally, the sector as a whole performed well into the fourth quarter of last year, with Florida as a whole seeing occupancy rise by 4 percent on a 6.7 percent jump in room demand. And, to Sternlicht’s point, not all of the spending has been from domestic sources: “A weak dollar relative to the euro has also boosted international travel to leisure markets such as Miami and Orlando,” the report noted.

As Commercial Property Executive previously reported, a Jones Lang LaSalle Inc. report sees hotel investment volume to hold steady in 2012, reaching the same $30 billion range as last year.

The property was sold by entities controlled by Credit Suisse, which had acquired it through foreclosure in 2010. Jones Lang LaSalle Inc.’s hotels group brokered the transaction for the financial-services company.

CB Richard Ellis Realty Trust has expanded its presence in Florida with the purchase of Sabal Pavilion, a 120,500-square-foot office building in Tampa. The fully leased Class A property last changed hands in 2006, when KBS Real Estate Investment Trust snapped it up for just under $24.3 million.

CBRE Realty Trust is not disclosing the purchase price of the asset; however, the transaction did include the assumption of debt.

Carrying the address of 3620 Queen Palm Dr., Sabal Pavilion first opened its doors in 1998 within Sabal Park, a master-planned business complex in the East Tampa submarket. Since 1999, the building has been home to Ford Motor Credit Co., which recommitted to the location last July by extending its lease for an additional 10 years beyond the previously scheduled expiration of 2017.

CBRE Realty Trust competed with other investors who were eager to snap up the asset, and for good reason. “Some of those criteria that were particularly appealing in this investment were the length of the remaining lease term, the credit of the tenant, an appealing initial yield and the nature of the function of the property to our tenant,” Philip L. Kianka, executive vice president and COO of CBRE Realty Trust, told Commercial Property Executive.

With the addition of Sabal Pavilion to its holdings, CBRE Realty Trust now owns 14 assets in Florida. While the Sunshine State is the second largest market in CBRE Realty Trust’s portfolio, it is not the only location on the firm’s radar right now. “We have found some very attractive acquisitions in Florida; however, our focus is not on a particular market but rather our commitment to our investment philosophy of finding the right acquisitions that fit our investment criteria,” Kianka said. “We will continue to look at other investments and continue to diversify our portfolio where we believe best serves our shareholders.”

Image courtesy Wikipedia user Averette

Eight months after The Miami Herald Co.’s Miami digs were sold in a short-term, quasi sale-leaseback transaction, the newspaper has signed a long-term lease for the 158,300-square-foot former U.S. Southern Command headquarters at Westpointe Business Park in neighboring Doral, Fla. The Herald also found a home for its production activities with the acquisition of an adjacent six-acre site that will soon deliver a 119,000-square-foot industrial facility.

“There were many options that we evaluated, and this particular situation was the closest to meeting all the client’s conditions,” Tere Blanca, president and CEO of Blanca Commercial Real Estate, the firm that represented the Herald in the lease transaction, told Commercial Property Executive.

“There was one important driver for Miami Herald and that was to do everything possible to maintain the office and production facility adjacent to each other, if not in the same building,” Blanca said. “Total occupancy cost of the project and the office space was another significant driver; we had to make sure that their financial objectives were aligned with the most efficient space in the best location.”

Carrying the address of 3511 NW 91st Avenue, the former SouthCom building will be renamed One Herald Plaza at Wespointe Business Park.

The Herald is in good company in Doral, which is one of the fastest growing cities in South Florida. Major businesses such as Univision are located in the city, as are more than a few Fortune 500 companies. “And certainly, it is the heart of international trade in Miami-Dade County and it’s a very progressive city, very business friendly and it offers a lot of amenities,” she noted.

And the area is easily accessible. “Another driver in terms of location is that Doral is a place where you have all the major expressways coming together, so it’s a very good location in terms of logistics and transportation.”

Allied Properties worked with Blanca Commercial on the Herald’s lease agreement, providing strategic counsel on the construction and development facets of the deal, and Fairchild Partners advised on the industrial segment. Commercial real estate services firm CB Richard Ellis represented the owner of Westpointe Business Park, GPA-I L.P., in the transaction.

The newspaper will relocate from its current downtown accommodations and start the presses in Doral in May 2013. When the Herald’s parent organization, the McClatchy Co. sold the Herald’s 750,000-square-foot headquarters building — along with a neighboring 14-acre parcel of land — for $236 million in 2011, as reported by CPE, a deal was made with the buyer for the newspaper to continue to occupy its space free of charge for as long as two years.

The Herald is presently delving into planning its move, and the build out of its future Westpointe home. The company may sublease some of the space once its needs are clearly determined.

The apartments a 2222 Smith St. in Houston.

The Morgan Group, a company focused on development, construction and property management of luxury multi-family properties, has arranged financing of $146 million on behalf of its affiliated investment partnerships. The proceeds were obtained from bank, agency and insurance company loans with terms ranging from five to ten years, collateralized by five apartment properties in Texas, Florida and North Carolina.

“Current loan rates for multifamily projects were extremely attractive,” Mike Morgan, the firm’s chairman & CEO, said. “It appeared to be a good time to lock in terms for stable, core assets. The five apartment properties we refinanced represent more than 1,700 units in our portfolio.”

These properties include: 2222 Smith Apartments and 33Thirty-Three Weslayan Apartments in Houston, financed by BBVA Compass Bank and Northwestern Mutual Life; The Village at Lake Lily in Maitland, Florida, and Arelia James Island Apartments, in Jacksonville, Florida, which were financed by FNMA and Metropolitan Life; and Spectrum South End Apartments in Charlotte, North Carolina, financed by New York Life.

Finding financing for apartment properties is unlikely to prove difficult in the coming year, as the sector just came off an extremely positive 2011. “The multi-family sector continued its marathon-like recovery in 2011, and has entered full expansion mode in virtually every market,” Hessam Nadji, managing director, of research and advisory services for Marcus & Millichap Real Estate Services Inc., said. “Favorable demographics, the release of pent-up demand as young adults debundle from family and roommates, and increased renter demand due to changing attitudes towards homeownership — which has become increasingly difficult in this country — drove more people into renting. Although the private sector created 1.8 million jobs last year, even greater job creation will be needed to sustain the white-hot levels absorption recorded after the recession.”

Sierra Providence East Medical Plaza I in El Paso, Texas

Continuing in its quest for “stabilized assets that show cash flow above and beyond rent,” according to president & COO Danny Prosky, the newly minted Griffin-American Healthcare REIT II has made an 11-property pickup for $174 million. Ten of the properties are skilled-nursing facilities, and the remaining one is a medical-office building. Together, the portfolio totals approximately 454,000 square feet.

“Demand for healthcare services will only increase in the future,” Prosky told Commercial Property Executive. “As Baby Boomers continue to turn 65 over the next 18 years, and along with the general aging of the population, we’re bullish on growth and demand for the sector.”

The ten nursing facilities, built between 1969 and 1999, are master-leased through 2027 through affiliates of Wellington Healthcare Services L.P., and were acquired from unaffiliated third-party affiliates of the same. Griffin-American financed the acquisition through the assumption of nine Housing and Urban Development loans totaling $70.5 million, the assumption of a $12.7 million loan from Capital Funding Group, $38.4 million in borrowings under a credit line with Bank of America and $20 million in borrowings under a credit line with KeyBank. The remainder was funded from net cash proceeds received from the offering.

The ten facilities are located in Georgia, Tennessee, Alabama and Louisiana.

The remaining medical-office building, Sierra Providence East Medical Plaza I, is located on the 42-acre campus of Sierra Providence East Medical Center in El Paso, Texas. The property is 90 percent leased to 13 tenants. It was acquired from PHT Investment Holdings L.L.C..

Griffin-American is certainly making large strides in a short amount of time. As CPE previously reported, the REIT was declared post-effective by the Securities and Exchange Commission on Jan. 6 of this year after splitting from its original sponsorship under Grubb & Ellis Co. On Jan. 3, the entity was officially renamed from Grubb & Ellis Healthcare REIT II to Griffin-American Healthcare REIT II. To date, the REIT has purchased 66 buildings for an aggregate price of $605 million.

“The good news for healthcare is that demand is growing everywhere,” Prosky said.

Gwinnett Park. Image courtesy CoStar Group.

Newmark Knight Frank has been tapped to provide leasing services for a 900,000-square-foot industrial flex portfolio near Atlanta, Commercial Property Executive has learned. Irvine, Calif.-based SVN Equities, the properties’ owner, has signed an agreement with the services firm to market 14 locations in two Norcross, Ga. business parks.

The NKF team will be responsible for leasing 200,000 square feet of space in Gwinnett Park, located at 4405 International Blvd. and nearly 706,000 square feet of space in Oakbrook North Business Park, located at 5300 Oakbrook Parkway. Gwinnett currently sits at a 65 percent occupancy rate; Oakbrook is at 70 percent.

“The portfolio consists mostly of office and flex space,” Marty Pinover, a senior managing director with NKF, told CPE. “[Since] it is Class B space, ownership is going to spend considerable amount of money for upgrades to the portfolio. We will lease space for a minimum of three years, but recently the inquiries have focused on larger space for mostly longer-term leases.”

And long-term leases have been the trend, especially in the Atlanta area. According to a third-quarter 2011 report by services firm Cushman & Wakefield, the city’s industrial conditions continued to improve through the fall of last year. “Despite ongoing cautiousness in the business sector,” the report noted, “Atlanta’s industrial real estate fundamentals improved, driven primarily by an ongoing expansion in manufacturing activity and improvement in consumer consumption in the first and second quarters, which has had positive ripple effects on the region’s warehouse/distribution product that accounts for the lion’s share of its industrial inventory.”

NKF’s internal research found the same results. “Absorption of space in the Northeast Atlanta submarket has been positive, and the third quarter’s increase in occupancy was the strongest of the year so far,” Pinover said. “The submarket should finish 2011 with its first positive year-over-year performance since 2008.”
Within a few days of receiving the assignment, the NKF team already signed on its first new tenant for the portfolio with the signing of Steak Out, a restaurant franchise, for 3,663 square feet at Oakbrook.

Adding to its stable of properties in Midtown Atlanta’s Atlantic Station project, CBRE Global Investors has acquired 201 17th St., a 349,400-square-foot, 17-story, Class A, LEED Gold–certified office tower built in 2007, the company announced Wednesday. The Atlanta offices of CBRE will manage and lease the building, which is currently 48 percent leased.

The acquisition was made through a note purchase and simultaneous deed conveyance and was made on behalf of the CBRE Strategic Partners U.S. fund series. The purchase price was not disclosed.

Built on a former steel-mill site, Atlantic Station began to open in 2003 and now encompasses 138 acres near the I-75/I-85 intersection north of downtown Atlanta. The mixed-use, master-planned development won the 2004 Phoenix Award for brownfield redevelopment from the National Brownfields Conference, whose sponsors include the U.S. Environmental Protection Agency.

In December 2010, CBRE Strategic Partners U.S. Value 5 Fund bought two trophy multifamily communities in Atlantic Station: Icon (242 units in four buildings) and Park District (231 units in five buildings). In January 2011, the same fund acquired from AIG a 534,000-square-foot office building at 271 17th St., a parking garage with nearly 7,000 spaces and 14.25 acres of land. At the same time, a joint venture including the fund and North American Properties, Atlanta, acquired Atlantic Town Center, a 586,000-square-foot retail property.

201 17th St. will be repositioned, and part of that will be the application of Strategic Partners’ 5-Star Worldwide amenity suite. Todd Frye, principal with CBRE Strategic Partners U.S., explained to Commercial Property Executive that this is “a scalable suite of amenities.” Although plans for the new building aren’t yet final, he said, a shared conference facility is likely, and an available first-floor space might become a fitness center.

In addition, a “spec suite” program will offer fully built-out space for tenants seeking a turnkey office option. Frye estimated that five to seven such spaces will be created, all with high-end finishes and likely ranging from 1,500 to 4,000 square feet. Target tenants include technology-oriented or creative-services companies.

A Starwood Capital Group affiliate and South Street Partners have snapped up North Beach Towers, a two-tower condominium complex along the water in Myrtle Beach, S.C.  The partners are now the official owners of the 1 million-square-foot property, including the approximately 100 remaining unsold residences.

Beyond noting that the purchase was at a significant discount to replacement value, the real estate investment firm and the real estate investment and management company are not divulging financial details of the transaction, which included the purchase of outstanding bank debt.

North Beach Towers sits on 7.5 acres within the 60-acre North Beach Plantation resort community. Created by Winchester Development, the condominium property made its debut in 2009 after a three-year building process spearheaded by Dargan Construction. The architectural firm of Pegram Associates Inc. designed the towers, which feature bridges linking the buildings at two different levels.

The fact that 220 of the units have been sold is more of a testament to the property than a reflection of the market. “The condo market along the coast, those are usually second-home sales and they have not been moving very well,” Nina Nash, president of residential real estate firm Century 21 Coastal Lifestyles, told CPE. “That price point is not really moving right now. The second-home market is really hard.”

A full recovery remains out of close reach for the Myrtle Beach condominium market in general, but the worst appears to be over. “Inventory is at least a year-and-a-half, and prices have dropped but they are probably as low as they’re going to go.”

For Starwood Capital, the purchase of North Beach Towers marks another significant move in the firm’s current investment game plan. “With this transaction, Starwood Capital Group has now purchased loans from 17 different U.S. and European banks over the last three years as part of its ongoing and successful strategy to acquire high-upside properties via discounted debt purchases,” Chris Graham, a managing director with Starwood Capital, said. “North Beach Towers is a perfect fit into that portfolio, and we intend to continue pursuing this strategy going forward.”

The firm’s loan purchases over the last few years include the January 2011 acquisition of a $157 million portfolio of non-performing commercial loans on assets in five states. Starwood Capital paid a major Midwest regional bank 40 cents on the dollar in that transaction.