It’s one of the toughest questions plaguing commercial real estate today: What is to be done with a pileup of maturing — or past-due — loans worth hundreds of billions of dollars when refinancing is all but impossible?
For most of this year, and seemingly since the pandemic began, the most common solution has been to extend loans until financial conditions improve. But any relief on interest rates remains off in the distance, and the most prolific class of commercial real estate lender, regional banks, is under pressure to get CRE off its books.
Barring a shocking economic reversal, some regional banks will be forced to make a deal or foreclose on delinquent loans, which continue to rise in number. One form of deal that could rise to prevalence is the discounted payoff, or DPO, debt negotiators told Bisnow.
“The discussions about [DPOs] are increasing,” said Amy Hatch, vice chair of law firm Polsinelli’s financial services litigation practice. “I can’t say I’ve seen a bunch closing or a bunch happening, but I think it’s on people’s radar as a tool, probably more than a year ago when we were talking about extending to see what happens or finding options for borrowers.”
A discounted payoff is when a lender agrees to be repaid at a lower price than the outstanding balance on a loan. A borrower typically offers a DPO if it has financing lined up, either in the form of a buyer who agrees to pay the DPO price for the building or by obtaining a new loan to retain possession.
When a lender accepts a DPO, it realizes the loss of a loan’s value on its books. For banks, there is no functional difference between a DPO and selling the loan for the discounted price, Newmark Loan Sale Advisory Group Executive Managing Director Brock Cannon said.
But Silicon Valley Bank’s collapse in March came after it sold $1.8B worth of assets at a loss and announced the need to raise more capital, prompting a run on deposits that spiraled out of control. And even though many surviving regional banks want to decrease their exposure to commercial property loans, they have been unwilling to take the losses that doing so would require, whether through outright loan sales or DPOs, Cannon said.
“If you were hearing about DPOs, then it would mean a lot of lenders are taking a lot of losses right now, and it’s just not happening,” he said. “They don’t have the pressure on them to sell loans at a big discount.”
Darkening Skies
The Federal Reserve is poised to raise interest rates again in the next few months and keep them higher for longer than the market expected even six months ago, based on comments Fed Chair Jerome Powell made at the Federal Open Market Committee’s September meeting.
Interest rate hikes put downward pressure on property values, but the uncertainty of where they will end up and how long they will stay there has paralyzed the acquisition market since the second half of last year.
Green Street’s Commercial Property Price Index was down 16% in August from its March 2022 peak, but a lack of sales and appraisal-triggering refinancing deals makes high-level data less useful than it is in most years, Newmark found in its second-quarter U.S. capital markets report.
The collapse in transaction volume this year is making it difficult for anyone to agree on how much properties are worth as maturity dates approach and, in many cases, pass by, MSCI Chief Economist for Real Assets Jim Costello said. Borrowers and lenders are finding themselves at odds in negotiations over extensions and/or workouts.
“I put a low probability on the notion we go back to 2021 and early 2022,” Costello said. “The only other way this could change is if current owners give up the ghost and come to the realization that holding out for market-high prices might not be viable given how much things have changed.”
Second-quarter U.S. debt research reports from Newmark and credit analytics firms Trepp and MSCI all found that much more debt is still on track to mature this year and next than further in the future. The numbers of new loans and willing lenders have plummeted. And delinquency rates continued to rise for CMBS loans across most property types.
“It feels like we’ve been talking about this for a long time, but we’re still early,” CohnReznick Debt Restructuring and Dispute Resolution Managing Director Debra Morgan said. “There’s probably another rate hike or two coming, so the market hasn’t settled into loss, it hasn’t settled into recovery, it hasn’t settled into anything yet.”
Still Extending, Still Pretending
Plenty of borrowers are seeking creative solutions like DPOs and injections of rescue capital like bridge loans or preferred equity as they search for any way to avoid lump-sum payments and the consequences of being unable to come up with the cash, Hatch said. A similar sentiment has been echoed at multiple Bisnow events in the past month, including the 2023 National Finance Summit in New York.
In an environment of falling values and scarce, expensive new debt, discounted payoffs can be beneficial to both borrowers and lenders if extension negotiations and refinancing searches are going nowhere, Related Cos. Fund Management Senior Vice President Sam Friedland said at the National Finance Summit.
Hatch advised on a DPO deal that closed on Thursday, she told Bisnow.
Owners of maturing loans are doing whatever they can to get borrowers to put up enough cash to justify an extension or otherwise keep loans on their books as performing assets, all while facing intense scrutiny over the health of their balance sheets.
“There’s just a bad gap between what borrowers are willing to pay and what lenders are expecting,” Cannon said. “Borrowers aren’t motivated to sell their property to pay down loans right now. And that’s a big mistake lenders are making, letting borrowers drive the bus.”
In Q2, banks “charged off” $459M of office-backed debt, meaning they accepted that much in future losses for loans on their balance sheets, according to Trepp data. That was more than triple what banks charged off in Q1, which at $149M was also over triple the $49M banks charged off in Q4 2022.
Net charge-offs also rose sharply for hotels in Q2, while multifamily net charge-offs rose modestly, Trepp found. Even though short-term loans backed by apartment buildings should be especially damaged by the changes to the economy in the past year and a half, government-sponsored entities Fannie Mae and Freddie Mac are performing their function of keeping liquidity alive in multifamily, the Mortgage Bankers Association found in its Q2 omnibus report released Friday.
Lenders are still more apt to write down, or charge off, the value of a loan as it sits on their books than accept a DPO, Cannon said.
“I don’t understand the marks they’re writing down to. No one really does,” Cannon said of banks. “But it helps them change the performance of the loan on the books. If you do DPO with a borrower, you’ve got to report that as a loss. It’s like if you do a loan sale at 50% of par, you have to tell your investors that, especially if you’re a public bank.”
Something’s Gotta Give
What helped restart debt markets in the wake of the Global Financial Crisis was the Federal Deposit Insurance Corp. selling the loan books and foreclosed properties of hundreds of banks that had failed, Cannon said. Only three banks failed this spring, but the resulting crisis of confidence accelerated banks’ retreat from commercial lending, according to Newmark’s Q2 report.
The FDIC is marketing Signature Bank’s $33B commercial loan portfolio for sale in what could be a watershed moment for pricing comparisons. For now, lenders are using extension negotiations to clean up their paper, like getting borrowers to waive liability clauses, CohnReznick’s Morgan said.
“Forbearances until the first quarter of next year I’m seeing a lot,” she said. “We’re either going to see a bunch more forbearance agreements in the Q1, or we’ll see paper being sold.”
One public company has made a DPO deal in the past two months: Retail REIT Urban Edge Properties paid $72.5M on what had been a $117M CMBS loan for a mall in Puerto Rico by exercising an option added in a 2020 modification, it announced Aug. 30. Urban Edge obtained a new $82M loan from Banco Popular de Puerto Rico to pay for the DPO. The company declined to comment through a spokesperson.
Lenders will be more likely to accept DPOs on office buildings if and when they accept the reality that those properties have lost a large chunk of value, Cannon said. For all sectors, acknowledging that the environment is unlikely to improve until 2025 at the earliest is only a matter of time for many lenders, Hatch said.
“It makes more sense right now for a lender to say the borrower put it out to the market, this is the highest value they can get, and this borrower is otherwise going to default,” she said.
Avoiding the expensive and drawn-out foreclosure process would be among the most likely reasons for a lender to agree to a DPO, Hatch and Morgan said. Rising delinquencies indicate that more and more borrowers are losing the patience or the ability to keep up with payments on the property, which all but forces a lender’s hand.
“The more recent discussions I’ve had on [DPOs] is just lenders making the decision in the current market that they’re not seeing a lot of upside to going through the enforcement process,” Hatch said. “That would involve becoming the owner of those properties and trying to sell them at a better price.”
In addition to acknowledging a property’s loss of value, a lender could be convinced to agree to a DPO because doing so would free up some capital to make new loans, Morgan and Hatch said.
Even so, extensions and short-term forbearance agreements are still the most common resolutions being reached this autumn, as the holidays rapidly approach and complex deals seem less likely to get done before the end of the year, sources told Bisnow. But the longer lenders delay their final decisions, the more appealing DPOs could become.
“We’re starting to see more banks calling us, saying, ‘Uh-oh, we should have sold that loan a year ago,’” Cannon said.
Source: Bisnow
Could Discounted Loan Payoffs Be What Finally Restarts The CRE Debt Market?
It’s one of the toughest questions plaguing commercial real estate today: What is to be done with a pileup of maturing — or past-due — loans worth hundreds of billions of dollars when refinancing is all but impossible?
For most of this year, and seemingly since the pandemic began, the most common solution has been to extend loans until financial conditions improve. But any relief on interest rates remains off in the distance, and the most prolific class of commercial real estate lender, regional banks, is under pressure to get CRE off its books.
Barring a shocking economic reversal, some regional banks will be forced to make a deal or foreclose on delinquent loans, which continue to rise in number. One form of deal that could rise to prevalence is the discounted payoff, or DPO, debt negotiators told Bisnow.
A discounted payoff is when a lender agrees to be repaid at a lower price than the outstanding balance on a loan. A borrower typically offers a DPO if it has financing lined up, either in the form of a buyer who agrees to pay the DPO price for the building or by obtaining a new loan to retain possession.
When a lender accepts a DPO, it realizes the loss of a loan’s value on its books. For banks, there is no functional difference between a DPO and selling the loan for the discounted price, Newmark Loan Sale Advisory Group Executive Managing Director Brock Cannon said.
But Silicon Valley Bank’s collapse in March came after it sold $1.8B worth of assets at a loss and announced the need to raise more capital, prompting a run on deposits that spiraled out of control. And even though many surviving regional banks want to decrease their exposure to commercial property loans, they have been unwilling to take the losses that doing so would require, whether through outright loan sales or DPOs, Cannon said.
Darkening Skies
The Federal Reserve is poised to raise interest rates again in the next few months and keep them higher for longer than the market expected even six months ago, based on comments Fed Chair Jerome Powell made at the Federal Open Market Committee’s September meeting.
Interest rate hikes put downward pressure on property values, but the uncertainty of where they will end up and how long they will stay there has paralyzed the acquisition market since the second half of last year.
Green Street’s Commercial Property Price Index was down 16% in August from its March 2022 peak, but a lack of sales and appraisal-triggering refinancing deals makes high-level data less useful than it is in most years, Newmark found in its second-quarter U.S. capital markets report.
The collapse in transaction volume this year is making it difficult for anyone to agree on how much properties are worth as maturity dates approach and, in many cases, pass by, MSCI Chief Economist for Real Assets Jim Costello said. Borrowers and lenders are finding themselves at odds in negotiations over extensions and/or workouts.
Second-quarter U.S. debt research reports from Newmark and credit analytics firms Trepp and MSCI all found that much more debt is still on track to mature this year and next than further in the future. The numbers of new loans and willing lenders have plummeted. And delinquency rates continued to rise for CMBS loans across most property types.
Still Extending, Still Pretending
Plenty of borrowers are seeking creative solutions like DPOs and injections of rescue capital like bridge loans or preferred equity as they search for any way to avoid lump-sum payments and the consequences of being unable to come up with the cash, Hatch said. A similar sentiment has been echoed at multiple Bisnow events in the past month, including the 2023 National Finance Summit in New York.
In an environment of falling values and scarce, expensive new debt, discounted payoffs can be beneficial to both borrowers and lenders if extension negotiations and refinancing searches are going nowhere, Related Cos. Fund Management Senior Vice President Sam Friedland said at the National Finance Summit.
Hatch advised on a DPO deal that closed on Thursday, she told Bisnow.
Owners of maturing loans are doing whatever they can to get borrowers to put up enough cash to justify an extension or otherwise keep loans on their books as performing assets, all while facing intense scrutiny over the health of their balance sheets.
“There’s just a bad gap between what borrowers are willing to pay and what lenders are expecting,” Cannon said. “Borrowers aren’t motivated to sell their property to pay down loans right now. And that’s a big mistake lenders are making, letting borrowers drive the bus.”
In Q2, banks “charged off” $459M of office-backed debt, meaning they accepted that much in future losses for loans on their balance sheets, according to Trepp data. That was more than triple what banks charged off in Q1, which at $149M was also over triple the $49M banks charged off in Q4 2022.
Net charge-offs also rose sharply for hotels in Q2, while multifamily net charge-offs rose modestly, Trepp found. Even though short-term loans backed by apartment buildings should be especially damaged by the changes to the economy in the past year and a half, government-sponsored entities Fannie Mae and Freddie Mac are performing their function of keeping liquidity alive in multifamily, the Mortgage Bankers Association found in its Q2 omnibus report released Friday.
Lenders are still more apt to write down, or charge off, the value of a loan as it sits on their books than accept a DPO, Cannon said.
Something’s Gotta Give
What helped restart debt markets in the wake of the Global Financial Crisis was the Federal Deposit Insurance Corp. selling the loan books and foreclosed properties of hundreds of banks that had failed, Cannon said. Only three banks failed this spring, but the resulting crisis of confidence accelerated banks’ retreat from commercial lending, according to Newmark’s Q2 report.
The FDIC is marketing Signature Bank’s $33B commercial loan portfolio for sale in what could be a watershed moment for pricing comparisons. For now, lenders are using extension negotiations to clean up their paper, like getting borrowers to waive liability clauses, CohnReznick’s Morgan said.
One public company has made a DPO deal in the past two months: Retail REIT Urban Edge Properties paid $72.5M on what had been a $117M CMBS loan for a mall in Puerto Rico by exercising an option added in a 2020 modification, it announced Aug. 30. Urban Edge obtained a new $82M loan from Banco Popular de Puerto Rico to pay for the DPO. The company declined to comment through a spokesperson.
Lenders will be more likely to accept DPOs on office buildings if and when they accept the reality that those properties have lost a large chunk of value, Cannon said. For all sectors, acknowledging that the environment is unlikely to improve until 2025 at the earliest is only a matter of time for many lenders, Hatch said.
Avoiding the expensive and drawn-out foreclosure process would be among the most likely reasons for a lender to agree to a DPO, Hatch and Morgan said. Rising delinquencies indicate that more and more borrowers are losing the patience or the ability to keep up with payments on the property, which all but forces a lender’s hand.
In addition to acknowledging a property’s loss of value, a lender could be convinced to agree to a DPO because doing so would free up some capital to make new loans, Morgan and Hatch said.
Even so, extensions and short-term forbearance agreements are still the most common resolutions being reached this autumn, as the holidays rapidly approach and complex deals seem less likely to get done before the end of the year, sources told Bisnow. But the longer lenders delay their final decisions, the more appealing DPOs could become.
Source: Bisnow
The Ripple Effect: How Interest Rates Impact Insurance Premiums For Commercial Properties In Florida
Commercial property owners in Florida are no strangers to the unique challenges posed by the state’s unpredictable weather patterns and natural disasters. To safeguard their investments, property owners often rely on insurance coverage. However, what many may not realize is that insurance premiums for commercial properties in Florida can be significantly influenced by another factor – interest rates. In this article, we will explore how interest rates affect insurance premiums for commercial properties in the Sunshine State.
The Link between Interest Rates and Insurance Premiums
Interest rates play a crucial role in shaping insurance premiums. These rates, set by central banks, impact the overall financial climate. When interest rates rise, insurance companies will incur higher costs for re-insurance and investment returns and maintaining reserves. Consequently, they may adjust their premium rates to compensate for these increased expenses.
In Florida, where hurricanes, floods, and other natural disasters (World Wide) are a constant threat, insurance premiums can already be substantial. When interest rates rise, insurance companies may increase premiums further to mitigate financial risks, as they may need to pay out larger claims due to more frequent and severe weather events.
Mitigating the Impact
While property owners may not have control over interest rate fluctuations, they can take steps to mitigate the impact of rising interest rates on insurance premiums:
Conclusion
Interest rates are a hidden variable that can significantly influence insurance premiums for commercial properties in Florida. As property owners brace themselves for the unpredictable weather patterns of the region, they should also keep an eye on interest rate trends and consider strategies to manage the impact on their insurance costs. By staying informed and taking proactive measures, property owners can better protect their investments and ensure their businesses thrive, come rain or shine.
As Insurance Costs’ Bite Gets Bigger, Owners Search For Creative Solutions
Multifamily developer and investor Advenir is paying 76% more for property insurance in 2023 than it did last year. Over the last decade, the company’s rates are up 400%.
Vecchitto isn’t alone.
The high cost of property insurance has reached a fever pitch in South Florida, forcing investors and developers to closely examine their coverage and search for creative solutions.
Commercial property rates in South Florida have risen this year by 25% to 50% on average compared to a 10.6% increase nationally, according to an analysis of second-quarter data from the Insurance Information Institute.
For Tim Peterson, the chief investment officer at the luxury property developer The Altman Cos., those increases have started to bite. Fort Lauderdale-based Altman was paying around $75 per unit for insurance in 2003, rising to around $750 per unit in 2019. Today, Altman is paying over $3K per unit for insurance.
The cost of insurance is now a key factor in the decision-making process across the entire chain of ownership, from the development of a project, to its maintenance and ultimately even the sale. The costs have become such a concern that they’re also coming up in conversations with lenders.
Altman has also begun to work directly with insurers to convince them to offer lower rates by touting their strong building standards, proactive maintenance and other efforts that would ultimately reduce the cost of any claim, Peterson said. If premiums are still too high, self-insurance is increasingly becoming a popular alternative.
Vecchitto said while Aventura-based Advenir was also working directly with insurers to understand risk assessments and look for ways to reduce rates, educating providers alone isn’t always enough to bridge the cost gap. In one instance, his firm chose self-insurance after it discovered that it was paying $9.2M for the first $10M worth of insurance in a multilayered policy.
In other cases, the high cost is leading Advenir to walk away from assets.
Source: Bisnow
Distressed CRE Loans Surge Nationwide
Troubled loans tied to office buildings across the U.S. are on the rise, with commercial borrowers in Chicago, Denver, Philadelphia and San Francisco among the hardest hit.
The rate of delinquent or specially serviced commercial mortgage-backed securities 2.0 loans rose to 6.8 percent in August, up from 4.5 percent in June last year, the Silicon Valley Business Journal reported, citing figures from Kroll Bond Rating Agency.
More properties face foreclosure as landlords struggle to fill vacant offices, while refinancing office towers becomes a tougher challenge.
CMBS 2.0 conduit loans made after the Great Recession make up $600 billion in commercial real estate debt, or 13 percent of the $4.5 trillion commercial real estate debt market. The national office distress rate was 8 percent.
Of the nation’s top 20 markets, the distress rate of commercial mortgage-backed security loans last month was 7.2 percent, according to KBRA, after rising in 15 cities.
Chicago tops the list for troubled loans at 22.7 percent, followed by Denver at 19.1 percent, Philadelphia at 14.2 percent and San Francisco, where a third of its offices are empty, at 13.9 percent.
The rate of distressed commercial debt was nearly 14 percent in Houston, more than 7 percent in New York, and approaching 6 percent in Los Angeles and nearby Riverside, according to a KBRA chart.
Source: The Real Deal
2-Story Porsche Dealership Proposed In Pompano Beach
A local automotive dealership is proposing a new Porsche complex in Pompano Beach.
Copans Motors, Inc. wants to build a two-story Champion Porsche dealership with a four-story parking garage at 300 N.W. 24th St., about 300 feet south of Copans Road.
If approved, it will be built on the same 11-acre property where Copans Motors, doing business as Champion Porsche, operates a converted 116,733-square-foot retail building as a maintenance and parts facility.
The new complex will also be next door to Champion Porsche’s current dealership complex at 300 W. Copans Road.
Source: SFBJ
Capital Markets Forecast Calls For Cap Rate Stabilization, More Transactions
Forecasts are helpful, but how accurate they are is what ultimately counts.
CBRE undertook a review of the forecasts it made at the beginning of the year and updated its outlook through year-end and into 2024. For the most part, the company has nailed the trends that have been occurring in the CRE capital markets, with a few exceptions.
Namely, it has altered its prediction about the timing of a recession due to the resilient economy and persistent inflation. It now predicts if one happens it will occur in late 2023 or in the first quarter of 2024, one quarter later than it originally thought. A recession may bring a mild increase in unemployment to about 5%. Other headwinds of higher interest rates may affect growth negatively in this year’s second half and the restart of student loan payments may pare consumer spending. CBRE has adjusted its 2023 GDP growth forecast upward to 0.6% and 2024 growth forecast downward to 1.3%.
Investors have been cautious so far this year in their transactions, with volume down by 60% year-over-year in the second quarter. Uncertainty about interest rates and the outlook and tighter credit conditions are expected to continue to be hurdles to deal flow, but more stable conditions are coming, it predicts, before year-end. That should bring pick-up in investment activity, CBRE says.
Cap rates have increased by about 125 basis points for most property types but variations occur by market and are closer to 200 bps for office assets. By early 2024 there should be cap rate stabilization for all property types, except offices, which won’t stabilize until next mid-year.
Investment volume is forecast to decline by 37% year-over-year this year and increase by 15% next year due to greater certainty about interest rates and as the economic outlook supports stronger purchasing activity.
Finally, an interest rate cut is not expected until early 2024 and the 10-year Treasury rate will end this year at 3.8% before falling closer to 3% late next year.
Source: GlobeSt.
Used Car Dealership Off Lease Only Files Chapter 11, Winds Down Business Operations
Florida used car dealership chain Off Lease Only filed for Chapter 11 bankruptcy reorganization on Sept. 7, and announced plans to “orderly wind down” its business.
The Palm Springs-based company, along with affiliates Off Lease Only Parent and Colo Real Estate Holdings, filed Chapter 11 petitions signed by CEO Leland Wilson in U.S. Bankruptcy Court in Delaware.
The companies listed between $100 million and $500 million in both assets and debts.
The company — which has five Florida dealerships, one near Orlando International Airport and the others in West Palm Beach, North Lauderdale, Opa-locka and Bradenton— is closed to the public, according to its website. All of its locations are leased; the Orlando property’s landlord is Dallas-based Spirit Realty LP.
Sale Leaseback Transaction Volume Rises 8.3%
Dollar volume of sale leaseback deals rose 8.3% to $5.1 billion in the second quarter over the first, while the transaction count remained in line with 165 versus 173 in comparing the same two quarters, according to SLB Capital Advisors.
Two significant transactions helped spur the dollar volume in the second quarter: Realty Income’s acquisition of EG America’s convenience store portfolio for $1.5 billion and Benderson Development Company’s acquisition of Kiewit’s corporate offices for $500 million. But most deals continue at lower numbers or in the $2.5 million to $25 million range.
Specific sectors fared differently and are worth noting. Industrial property transactions decreased from historical levels and represented only 39% of all transactions for the quarter. In contrast, retail, which many observers have worried about, represented an uptick and increased to its highest contribution level since the pandemic.
Pricing trends. Sale leaseback cap rates have moved up 100 to 200 basis points from two years ago in 2021. The cap rate increase has been more pronounced in non-core markets for smaller credits with lower quality facilities. The impact has been less pronounced in core markets for higher quality facilities with stronger credits. Financing headwinds and inflation have been the two primary drivers, which have resulted in a risk-off environment for most buyers. Because the cost of capital has increased in the last 18 to 24 months, sale leaseback cap rates remain well inside company weighted average cost of capital or WACCs.
M&A arbitrage opportunity. In the second quarter, average purchase price multiples dropped across all deal sizes. While the M&A valuations have declined, this provides increasingly attractive sale leaseback value arbitrage across various industry sectors driven by the delta between business and real estate multiples. Attractive arbitrage opportunities are prevalent for the most part across many middle-market sub-sectors.
North American M&A activity. Deal value fell in the second quarter for a total of those closed or announced at a combined value of $467 billion. But the report said it should not be viewed as a dead market, just below the average pre-pandemic first half levels. The key reasons for less M&A activity are a risk-off financing environment and a mismatch between seller and buyer valuation expectations. Yet, corporate buyers who have strong balance sheets and sizable platforms are likely to benefit in this climate.
Net lease REIT snapshot. Net lease REITs reported $5.4 billion in acquisitions for the second quarter, a rebound from the first when they were $3.1 billion. The reason is attributed to REITs taking a good share of acquisition volume. The net lease REITs reported $2.8 billion of equity offerings in the second quarter, up from $1.6 billion in the first quarter.
By region. The South led in sale-leaseback activity by deal count, comprising 40% of all transactions. The Northeast led in dollar volume with $1.6 billion. In comparing dollar volume, the West closely followed the Northeast with $1.4 billion, then the South came in with $1.3 billion. Last place went to the Midwest with $0.8 billion. When looking at last year’s results, the West experienced the biggest decline in activity, dropping from $7.4 billion to $1.4 billion. The markets that face the most challenges are tertiary rather than core markets. But the good news is that sale leaseback pricing continues to be attractive across all geographic areas for those with strong credit and who are experienced operators, the report said
Source: GlobeSt.
Sperry Commercial Global Affiliates | RJ Realty’s Ron Osborne Reps GCDC LLC In The Purchase Of Naranja Property
The deal closed August 30.
GCDC, LLC purchased the property from POR Naranja, LLC for $2,769,230.
The seller was represented by Barry Wolfe and Alan Lipsky of Marcus & Millichap.
This is the sixth transaction Ron Osborne has completed with this buyer and his second purchase of a property with a cannabis tenant. The investor likes the higher returns with annual rent increases as well as the true NNN leases that all tenant improvements are handled by the tenant.
Osborne believes the upside in these transactions is the future full legalization for statewide recreational use and decriminalization. At that time, the cap rates will decrease dramatically, and the valuation will increase. While this may take several years, the investor is receiving a better than average return.
Osborne has represented GCDC, LLC for the last year and they are looking to acquire additional properties this coming year. Due to the higher cost of capital and the cost of windstorm insurance, they will be seeking higher returns.
Legal Tenant Leasing In H1 Is Strongest On Record
The second quarter of this year brought good news for property managers who lease to legal tenants.
In an analysis of law firm transactions of more than 20,000 square feet across the country, leasing activity for the first half of this year represented the strongest on record since the start of the pandemic, according to Savills.
Activity increased 22.3% in the first six months, compared to the same period a year ago. The 1.6 million square feet leased in the second quarter is above the 1.4 million square feet quarterly average since the start of the pandemic.
More key may be that law firm leasing volume is normalizing as firms commit themselves to long-term needs for office space unlike some other industry sectors that prefer to lease short-term.
Source: GlobeSt.