From the Editor's Desk
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Dear CCIM Members,

We are well into the third month of the first quarter of 2021. Where are the capital markets today? The talk of the last few weeks has been the aggressively, increasing U.S. treasury rates with the 10-year treasury rate hitting pre-pandemic levels as high as 1.61% last week. Since then, the 10-year treasury has now fortunately stabilized in the low 1.40% range. Through all the volatility, the treasury rates increasing should not come as a surprise given our economy’s growth-oriented outlook and updated Fed inflation goals. However, what was not expected is how steep the yield curve would get within a few weeks. At this point, rates are not where they were six months ago, and most would agree that they will very likely continue to increase. But for the time being, rates continue to be at a historic low, and lenders are more flexible with loan structures as uncertainty about the future decreases, making it still a great time to seek financing. Clearly, certain property sectors are in transition or flux such as hotel, retail and restaurant with office, industrial and multifamily on the other end. As CRE professionals, it helps to be informed. What took a hit early during the pandemic were assisted living facilities. But that did not mean there was a lack of demand but more of a public perception. As the Covid vaccine get to the rest of the country and the world, I expect that markets will recalibrate with many sectors bouncing back. So, it is really just a matter of time. Stay strong and remain positive!  

Best,

-J.R.

(646) 481-3801
Join the New York Metro CCIM Chapter
CAPITAL MARKETS: CRE CLO Market Distress Remains Muted
Issuance activity rebounds after brief standstill 

Supported by strong economic activity and capital availability, a long stretch of low-interest rates, as well as a general shift in preference towards higher-yielding assets, CRE CLOs posted three years of substantial growth and had a favorable outlook heading into 2020.

The coronavirus market crisis that commenced in March 2020, however, introduced unprecedented challenges and uncertainty to the commercial real estate sector, all of which served to curb risk appetite and temporarily disrupt primary issuance for CMBS and CRE CLO securitizations.

Though widespread shutdowns and plunging oil prices last March caused a brief standstill in issuance activity, the securitization market proved to be more resilient and better equipped to handle unexpected economic shocks this time around compared to the Global Financial Crisis.

While the CMBS market saw no issuance from mid-2008 to late 2009 during the onset of GFC, the rebound for the current crisis came much more quickly as issuers resumed pricing new conduit and single asset/ single-borrowers deals (consisting primarily of pre- COVID originations) starting in April. By the end of summer, new lending was taking place and issuance during the second half of 2020 included loans made after the pandemic began.

The CRE CLO segment wrapped up 2020 with an annual issuance total of $8.7 billion (based on balance at initial deal closing), down more than 50% from 2019’s volume of $19.7 billion due to a pullback in transitional financing. The issuance pipeline for the first quarter of 2021 has already reached $4 billion or roughly 50% of last year’s volume, driven in part by pent-up borrower demand and lenders jumping back in from the side lines along with growing confidence that that US economy will rebound strongly this year. Lender comfort for originations behind value-add projects, though lengthier build-out times or timeline to stabilization are now being factored in.

Thanks to strong demand for shorter-duration, floating-rate paper in a potentially rising interest rate environment and the entry of distressed buyers looking for new opportunities, issuance for the year is projected to increase by more than 60% from 2020’s tally.

Source: Trepp
CAPITAL MARKETS: QUALIFIED MORTGAGE RULES CFPB GSES FANNIE MAE FREDDIE MAC
The Consumer Financial Protection Bureau made official the agency's plans to delay the compliance deadline for changes to its main mortgage underwriting rule

Acting CFPB Director Dave Uejio on Wednesday issued a notice of proposed rulemaking extending the compliance date from July to October 2022 for changes to the Qualified Mortgage rule. The CFPB said the delay, which the agency first announced last week, was needed “to ensure homeowners struggling with the financial impacts of the COVID-19 pandemic have the options they need.”

The original QM rule requires loans to maintain a debt-to-income ratio of no more than 43%, though mortgages backed by Fannie Mae and Freddie Mac are exempt under a temporary 2014 provision.
That exemption is slated to go away whenever the CFPB implements the overhaul that was finalized by then-Director Kathy Kraninger in December. The changes, which were set to take effect in July, include replacing the DTI limit with a standard based on the loan's price, and subjecting Fannie and Freddie to the same framework as other companies.

The QM rule was created after the 2008 financial crisis to define certain loans as ultrasafe and therefore protected from legal liability.

Uejio's proposal means the status quo in the mortgage market, with Fannie and Freddie authorized to back loans with higher DTIs, would be extended. He suggested the delay is meant to better enable the government-sponsored enterprises to help borrowers keep their homes. Yet some observers expect the delay is just a precursor to the Democratic-led CFPB's unwinding of Kraninger's changes.

“At a time when so many consumers are struggling and at risk of losing ground, particularly Black and Hispanic consumers, we need to do all we can to help people stay in their homes and to ensure the availability of responsible, affordable mortgages,” Uejio said in a press release. “In proposing to extend the date by which lenders must comply with the CFPB’s new General QM definition, we are working to provide needed options for both homeowners and lenders during a time of uncertainty and hardship.”
Kraninger's revamp replaced the 43% DTI ratio with a price-based threshold that would have been measured by comparing a loan’s annual percentage rate against the average prime offer rate for a comparable transaction.

A loan would meet the QM definition only if the APR is no more than 2 percentage points higher than the average prime offer rate.

Source: National Mortgage News
CRE PROPERTY FOCUS: Seniors Housing Investors Eye Assisted Living, Independent Living as Pandemic Eases
Occupancies should rise at independent living and assisted living facilities in 2021, which should help drive investment sales volumes higher.

Seniors housing investors are opening their wallets to buy properties, including independent living, assisted living and memory care facilities… when they can find a property to buy.

“Once we got the vaccine approved, the appetite of investors for seniors housing increased dramatically—and once the vaccine began to be distributed, their appetite increased even more,” says Chad Lavender, co-head and vice chairman for the Healthcare and Alternative Real Estate Assets platform at Newmark, working in the firm’s Dallas offices. Recent data has shown that COVID-19 cases at nursing homes have fallen dramatically since vaccines started to be administered.

Independent living and assisted living communities suffered during the coronavirus pandemic.

Restrictions meant to protect residents from infection made it difficult to rent beds and many seniors who might have moved in during a normal year stayed away. That cut into the income properties produce and the amount that potential investors were willing to pay.

Experts think more seniors are likely to move into these communities in 2021, filling empty beds. That is motivating investors like private equity fund AEW Capital and many others to spend millions in 2021 to buy properties.

"The senior housing transaction market has thawed out in recent months and as a result we have seen several billion dollars of trades that support the notion that asset values are only marginally lower (less than 5 percent) than where they were pre-COVID," says Lukas Hartwich, managing director and head of the Senior Housing Sector for Green Street.

Investors buy whatever is available

Investors spent just $1.3 billion buy seniors housing in the fourth quarter of 2020, according to data from NIC MAP Data Service and Real Capital Analytics. That total includes independent living, assisted living and memory care properties. It’s just a third (33.3 percent) of the $3.8 billion that investors spent to buy those same types of seniors housing the years before. (Investors also bought fewer skilled nursing properties during the pandemic.)
Seniors housing investors are opening their wallets to buy properties, including independent living, assisted living and memory care facilities… when they can find a property to buy.

“Once we got the vaccine approved, the appetite of investors for seniors housing increased dramatically—and once the vaccine began to be distributed, their appetite increased even more,” says Chad Lavender, co-head and vice chairman for the Healthcare and Alternative Real Estate Assets platform at Newmark, working in the firm’s Dallas offices. Recent data has shown that COVID-19 cases at nursing homes have fallen dramatically since vaccines started to be administered.

Independent living and assisted living communities suffered during the coronavirus pandemic. Restrictions meant to protect residents from infection made it difficult to rent beds and many seniors who might have moved in during a normal year stayed away. That cut into the income properties produce and the amount that potential investors were willing to pay.

Experts think more seniors are likely to move into these communities in 2021, filling empty beds. That is motivating investors like private equity fund AEW Capital and many others to spend millions in 2021 to buy properties.

"The senior housing transaction market has thawed out in recent months and as a result we have seen several billion dollars of trades that support the notion that asset values are only marginally lower (less than 5 percent) than where they were pre-COVID," says Lukas Hartwich, managing director and head of the Senior Housing Sector for Green Street.

Investors buy whatever is available

Investors spent just $1.3 billion buy seniors housing in the fourth quarter of 2020, according to data from NIC MAP Data Service and Real Capital Analytics. That total includes independent living, assisted living and memory care properties. It’s just a third (33.3 percent) of the $3.8 billion that investors spent to buy those same types of seniors housing the years before. (Investors also bought fewer skilled nursing properties during the pandemic.)

“There is still not a lot trading in the market,” says William F. Kauffman V, senior principal for the National Investment Center for Seniors Housing & Care (NIC), based in Washington, D.C. “Many operators wanting to sell have been holding on, hoping for higher prices.”

Even the slow trading in the fourth quarter was still significantly busier than the second quarter of 2020, when the U.S. economy largely ground to a halt as state governments ordered many businesses to shut their doors to slow the spread of the coronavirus. Back then, investors spent just $628 million to buy seniors housing properties, less that a quarter (24.8 percent) of their activity in the same period the year before, according to NIC and Real Capital.

“The market has definitely picked up,” says Newmark’s Lavender.

More empty beds at seniors housing properties

The pandemic has made it much more difficult to operate seniors housing. Just 83.5 percent of beds at independent living seniors housing properties were occupied in the fourth quarter of 2020, according to NIC MAP Data Service. That’s down from 89.8 percent the year before.

The average occupancy rate is even lower at assisted living properties. Just 77.7 percent of those beds were occupied at the end of 2020. That’s down from 85.1 percent the year before. Many assisted living properties have strained to compete with many new seniors housing properties that opened in recent years, according to Kauffman. Most properties are still able to turn a profit, however, even with these empty beds.

"The level of distress has been lower than what investors expected at the beginning of the Covid pandemic, and distressed opportunities are unlikely to emerge in a big way," says Hartwich.
The growing number of empty beds at seniors housing properties has eaten into the income these properties produce—and the prices that investors are willing to pay.

Buyers paid just $170,000 per unit, on average, over the 12 months that ended in the fourth quarter of 2020, according to NIC and Real Capital. That’s down from $199,000 the year before.
These prices are high relative to the income produced by the properties. “Cash flows are down across the industry so obviously cap rates are down,” says Lavender. Current prices work out to an internal rate of return of 10 percent to 12 percent for most buyers, he says.

Very few owners of seniors housing are willing to sell of those prices. Even if buyers were willing to pay more—hoping for a fast recovery in 2021—lenders are unlikely to underwrite a loan based on optimistic projections, if they are willing to lend at all.

“There are still lenders being very conservative,” says Kauffman.
Phones ring in leasing offices

The leasing offices at many seniors housing properties are already getting more calls from potential new residents.

“We have seen an uptick on leads and tours, anecdotally,” says Lavender. “We expect occupancy rates to increase in the third and fourth quarter—and hopefully in the second quarter—and by a substantial amount… a couple of percentage points.”

Demand for seniors housing should increase even more this spring as government officials reduce restrictions meant to protect seniors from the coronavirus. “In most states you could not tour a property in person.” That made it especially difficult to lease seniors housing beds. Seniors normally tour a seniors housing community an average of five times before they move in, according to Lavender.

Once the vaccine for coronavirus has made it safer to tour seniors housing properties, seniors are likely to rush to rent, especially as assisted living properties, which provide health services. Many elderly people with health needs are likely to needs these services.
“The bounce back might happen in assisted living properties rather than independent living,” says Kauffman.

Many seniors who move into independent living communities relatively young, in their early 80s on average, and are not generally forced to move because of health reasons.

However, these younger seniors are likely to want and need the company and activities provided by independent living, especially after suffering through months of quarantine, says Lavender. Even before the coronavirus, more than half (60 percent) of the people who moved into independent living communities had lost a spouse. “They come to make friends and have a good time,” says Lavender.

For that same reason—human company—age-restricted “active adult” communities performed extremely well during the pandemic. These properties are often built for younger seniors over 55, offering fewer services. They were able to operate with fewer restrictions during the crisis. “We have seen those properties gain occupancy through the pandemic,” says Lavender.

Source: Wealth Management
MULTIFAMILY LOANS: FHFA announces extension of multifamily COVID-related mortgage relief
The Federal Housing Finance Agency is providing an additional three months of forbearance to multifamily borrowers with loans backed by Fannie Mae and Freddie Mac

The move pushed the expiration date to June 30 from March 31, giving borrowers a running total of 18 months of coronavirus-related relief. It also aligns with the agency’s latest single-family policy it announced the week prior and the Biden administration’s extension on mortgages backed by the Federal Housing Administration, Department of Veterans Affairs and Department of Agriculture in mid-February.

However, qualifying is subject to property owners continuing the FHFA-imposed tenant protections. These include the property owner providing written communication about the available tenant protections and halting evictions for missed rent payments. During the repayment period, owners must give at least 30-day vacate notices, can’t charge late fees, and must allow tenants a flexible repayment schedule.

“COVID-19 continues to financially impact Americans across the country, thereby hindering many tenants' ability to pay their rent,” FHFA Director Mark Calabria said in a press release. “To help tenants in financial distress and property owners, FHFA is extending the multifamily COVID-19 forbearance and tenant protections through the end of June 2021."

The original CARES Act provided borrowers with the ability to request up to 12 months of forbearance, split into two 180-day periods if they faced financial hardship from the pandemic.

As of the end of 2020, Fannie Mae had a 60+ day multifamily delinquency rate of 0.98% while Freddie Mac — which excludes loans receiving payment forbearance as delinquent — had 0.16%, according to a Mortgage Bankers Association report from March 4.

Source: National Mortgage News
NYC HOTEL NEWS: Firm Acquires Hotel Portfolio through UCC-1 Foreclosure
Mack Real Estate takes over 7 distressed Manhattan hotels

Mack Real Estate has gained control of a seven-hotel portfolio for what appears to be a major discount.
The developer paid transfer taxes on $315.8 million — or less than 40 percent of the portfolio’s 2016 value of $816.3 million — for the seven properties, all of which are in Manhattan.

Earlier this year, the firm initiated UCC foreclosure proceedings against the owners of the properties, a joint venture between Hersha Hospitality Trust and Chinese investment firm Cindat Capital Management. Those firms defaulted on an $85 million mezzanine loan issued in 2018 by Mack Real Estate Credit Strategies.

The portfolio hit the auction block on Jan. 21, and Mack was apparently the winner, according to a transfer tax document filed with the city.

Mack Real Estate declined to comment on the transaction. Hersha and Cindat did not immediately respond to requests for comment.

The seven hotels are located in Times Square, Chelsea, Herald Square and the Financial District operating under the Holiday Inn, Hampton Inn and Candlewood Suites brands. The properties are at 116 West 31st Street, 108 West 24th Street, 337 West 39th Street, 339 West 39th Street, 343 West 39th Street, 51 Nassau Street and 126 Water Street.

The portfolio had been fully owned by Hersha until 2016, when the Philadelphia-based REIT sold a 70 percent majority interest to Cindat in a deal worth $571.4 million.

The hospitality industry has been one of the hardest hit in the pandemic-driven economic downturn, with both smaller and major hotel brands being forced to hand their keys over to lenders. The owner of the Hilton Hotel in Times Square, for example, surrendered the property to one of its mortgage owners.

Source: The Real Deal
NYC MULTIFAMILY TREND: Manhattan Landlords Take Apartments Off Market During Rental Slump
Reduced demand during pandemic sent median rental prices down sharply; some bet market will rebound in spring

Increased warehousing of vacant apartments in Manhattan comes after many workplaces closed and a wave of tenants left during the coronavirus pandemic.

Manhattan landlords are pulling unrented apartments off the market at an unusually elevated rate, tightening inventory while rents are low and, in some neighborhoods, still falling.

The practice, sometimes known as “warehousing,” has come under greater scrutiny from housing advocates and lawmakers in recent years. Critics charge that removing units from the market creates an artificial scarcity that worsens the city’s housing shortage.

Landlords say the decision to warehouse is a necessary response to both regulatory and economic changes, including heightened tenant eviction protections during the pandemic.

Building owners removed 1,814 apartment listings in Manhattan last month, according to real-estate data analytics company UrbanDigs. That’s more than three times the number of apartments landlords removed from the market in February of 2020.

Eviction Looms for Renters While Relief Funds Are Slow to Arrive

Reduced demand for Manhattan apartments during the pandemic sent median rental prices down more than 17% for the year ending in December, according to a report from appraisal firm Miller Samuel and real-estate brokerage Douglas Elliman. Rent concessions of up to 25% off the previous year’s rent have become common at luxury buildings, and tenants say they have more negotiating power in new leases than they ever had before.

The sharp increase in warehousing peaked last summer, when rents first began declining amid a wave of people leaving the city for the suburbs and rural areas. Landlords removed 5,563 unrented apartments from the market in August alone, UrbanDigs data shows.

Some degree of apartment warehousing was to be expected, brokers said. It makes less sense for a landlord to list and show all of their vacant apartments when demand is down and fewer apartments are leasing at a time.

But many landlords now might be warehousing units to avoid signing deeply discounted long-term leases. They could be betting on a potential price rebound during the spring and summer leasing season, when the Covid-19 vaccine should become more accessible, said John Walkup, co-founder of UrbanDigs.
Some are calculating they can rent just enough of their units to cover their monthly expenses, “but then let’s take the rest and put them up for rent in a bit of a stronger market,” Mr. Walkup said.

One Manhattan landlord who spoke on condition of anonymity said eviction moratoriums, in addition to falling rental prices, were a second factor in his decision to warehouse roughly 15% of apartments in two buildings he owns in the Lower East Side.

Not only would the landlord have to offer a heavy discount on rent to get a new tenant, but under the eviction moratorium, the tenant could potentially stop paying rent for an indefinite period. “You’re kind of taking a double risk,” the landlord said, “so if you can afford to, why wouldn’t you just wait it out?”
Some politicians have criticized warehousing, saying the practice throttles the city’s housing supply, props up prices and further strains the city’s affordability problem.

State Assembly member Linda Rosenthal (D., Manhattan) last year proposed a law to fine landlords who warehouse apartments for more than three months. Ms. Rosenthal says she plans to introduce a new version of the bill this year.

“There is a crisis in the city,” she said. “I think it is unconscionable that some landlords are keeping units off the market, and are just, you know, sitting with their arms crossed waiting for rents to go up.”

Source: Wall St. Journal
MULTIFAMILY FOCUS: Apartment Rents Rise At Fastest Pace Since Mid-2019
Even the country’s gateway metros, where rents were slashed in 2020, experienced at least slight rent bumps in February

Effective asking rents for U.S. apartments climbed 0.6% in February, rising at the fastest single-month pace seen since the middle of 2019. The increase in pricing power proved widespread, as 140 of the 150 metros tracked in RealPage’s core data set logged at least a little rent growth.

Even the country’s gateway metros, where rents were slashed in 2020, experienced at least slight rent bumps in February. Pricing climbed 0.6% to 0.7% during the past month in Boston, Chicago, Los Angeles and San Jose, while smaller increases of 0.1% to 0.3% were seen in San Francisco, New York, Washington, DC and Seattle.

Average monthly rent across the U.S. now stands at $1,422.

Influencing results for the past month, leasing activity is still occurring at a time when seasonal weakness in demand is normal. Preliminary calculations show the nation’s occupied apartment count up by more than 30,000 units in February, whereas there typically is no or very little net demand when U.S. temperatures are at their lowest.

Annual Rent Change Varies Drastically Across Metros

Looking to the bigger picture, annual change in effective asking rents remains negative at -0.9%. The decline primarily reflects huge price cuts in the gateway locales. Rents are off by 14% to 21% year-over-year in San Francisco, San Jose and New York, by 7% to 8% in Seattle, Boston and Oakland, and by roughly 5% across Washington, DC, Los Angeles and Chicago.

At the other end of the performance spectrum, effective asking rents are up sharply year-over-year in some locations. Riverside/San Bernardino leads the way, registering 9% rent growth. Sacramento and Memphis also are doing quite well, as prices are up 6.7% and 6.5%, respectively, in those two spots.
Other metros posting annual rent growth of at least 4% include Greensboro/Winston-Salem, Virginia Beach, Phoenix, Las Vegas, Detroit, Tampa and Atlanta.

Atlanta’s appearance among the rent growth leaders is one of the more notable performance results seen in early 2021. All but a handful of the jobs lost in Atlanta back in Spring 2020 now have been replaced. In turn, there’s been strong demand for apartments at a time when ongoing construction, now at slightly fewer than 15,000 units, has cooled to a five-year low.

Occupancy Remains in Great Shape

U.S. apartment occupancy has been hovering between 95% and 96% since late 2019. The February figure of 95.4% matches January’s result and is basically in line with the February 2020 level of 95.5%.

Source: Globe St.
EMERGING MARKET: Treasury to invest $9B in minority and community-based lenders
Such institutions were largely shut out of aid package

To boost lending in low-income areas, the Biden administration will provide a $9 billion infusion to underserved financial institutions.

The Treasury Department announced it would open applications for the Emergency Capital Investment Program, which will provide funding for Community Development Financial Institutions and Minority Depository Institutions, the New York Times reported.

The program will invest in local lenders that support struggling communities with low-interest loans.

Previous federal bailouts placed those institutions in the same category as other, better-connected lending institutions. That left the smaller institutions, many of which have stronger ties to minority-owned businesses, to compete for the limited funds.

Funding for the new effort will be drawn from the $900 billion stimulus passed in December.

The pandemic’s effect was devastating for Black-owned businesses, which in the first part of 2020 experienced the highest rate of closures, the Federal Reserve Bank of New York found.

Treasury Secretary Janet Yellen has long been a staunch advocate of CDFIs, which serve individuals and areas that are often overlooked by traditional lenders.

“America has always had financial services deserts, places where it’s very difficult for people to get their hands on capital so they can, for example, start a business,” Yellen said in a statement. “But the pandemic has made these deserts even more inhospitable.”

Source: The Real Deal
GREEN BUILDINGS: Off the grid: Developers eye “virtual power plants” for properties
Green energy systems seen as way to offset costs, generate revenue and fortify building

A growing number of developers in the U.S. are investing in integrated solar power and battery systems for their buildings.

Advances in energy storage technology and falling prices for batteries mean these “virtual power plants” are becoming viable for a variety of buildings and uses, according to the New York Times. The technology would also create more energy independence, coming at a time when severe weather — like last month’s deep freeze in Texas that cut power to millions — has wreaked havoc on residents.

Developer Wasatch Group installed storage batteries in each of its 600 units at the firm’s “net zero” Soleil Lofts project in Herriman, Utah. The systems store energy created by solar arrays on the property, making the complex one of the better examples of using integrated power.

Collectively they can provide 12.6 megawatt hours of backup power for the building, and currently offset the costs of powering common areas, according to the report. Wasatch also signed a deal with Rocky Mountain Power that allows the energy company to tap the batteries at Soleil Lofts for power. Residents save around 30 to 40 percent on their energy bills, the Times noted, citing Wasatch.

Other developers are also exploring storage systems. Meritage Homes has demonstration projects across the U.S. to explore green tech. Related Companies installed a 4.8-megawatt battery at the Gateway Center retail complex in Brooklyn that’s used by energy company Enel X.

In New York City over the last few years, there have been several thousand solar panel installations in Brooklyn alone.

Source: The Real Deal
2021 NEW YORK METRO CCIM CHAPTER
LEADERSHIP
President- JR Chantengco, MBA CCIM, Black Pearl Investments
Vice President- Tom Attivissimmo, CCIM, Greiner-Maltz of Long Island LLC
Treasurer- Robin Humble, CCIM, Nelson & Nielson 
Assistant Treasurer- Matt Annibale, CCIM, First National Realty Partners
Secretary- Samuel Weiner, Langdon Title 
Director - Ian Grusd, SIOR CCIM, Ten-X
Director - Al Holloman, CCIM, RMFriedland
Director - Chris Cervelli, CCIM, Cervelli Real Estate 
Director - Camille Renshaw, CCIM, B+E
Director - Scott Perkins, SIOR CCIM MCR MRICS, NAI James E. Hanson
Director - Lee Barnes, CCIM, Woodman Group LLC 
Director - Brian Whitmer, CCIM, Cushman & Wakefield
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