Dear CCIM Members,

Welcome back! We are well into the Q4 of the year, back from summer break and the Labor Day holiday weekend.

This month also marks 20 years after the attacks on 9/11. Let us remember the victims... and, all involved in helping in the rebuilding efforts and in defending and protecting our great nation. Let us send strength to the families and pay tribute to the heroes.

We stand united with our friends in the United States and reaffirm our shared commitment to fighting terror and defending freedom.

Two decades since those attacks, Lower Manhattan has bounced back, transforming into a vibrant residential neighborhood as well as a top-tier business district that has drawn major office tenants to the area. Our featured article highlights the recent activity in the Financial District.

I would also like to point out two events happen this month. C5 Summit is the new US-based commercial real estate event launching on Sept. 27^th and YREPNY (Young Real Estate Professionals of New York) has an in-person networking events in NYC (Sept 22) and NJ (Sept 30). See newsletter for details.

As always, stay strong and remain positive!    

Best,

-J.R.

(646) 481-3801

C5 Summit is the premier US-based commercial real estate event launching this fall in the heart of the city at the center of the industry – New York. Network with influential leaders, build relationships with key decision makers, learn about the latest trends, and get deals done all at one centralized event September 27-29, 2021. Registration is now open https://c5summit.realestate/

YREPNY is hosting an in-person networking events in NYC (Sept 22th) and NJ (Sept 30). More details at www.yrepny.org

Welcome to the Business of RE(Building). The CCIM Global Conference is designed to give you real-world solutions as the commercial real estate industry continues to reopen, recover, and rebuild. This year’s event will help you adapt and thrive in the new commercial real estate landscape.

With a combination of exclusive in-person events and virtual sessions, explore topics from across the renowned CCIM Institute curriculum as well as those affecting the industry in 2021 — all addressing the challenges facing CRE professionals amid the pandemic recovery and economic upheaval. The conference will also feature prominent industry leaders discussing the latest trends, the workforce of the future, decision-maker and growth strategies, and more. 

Don't miss this year's CCIM Global Conference on in Pittsburgh on Oct. 9 and virtually on Oct. 19, 21, 26, and 28. Complete agenda and speaker details coming soon.

Two decades since the 9/11 attacks, Lower Manhattan has bounced back, transforming into a vibrant residential neighborhood as well as a top-tier business district that has drawn major office tenants to the area.

The changes have gone hand in hand with New York City’s metamorphosis. According to Mike Aziz, Partner and Director of Urban Design at architecture firm Cooper Robertson, at a macro scale, New York City has been evolving from an almost purely hub and spoke model—which relies on Manhattan’s central business districts to drive the city’s economic engine—to a more distributed and decentralized model.

This new model has secondary CBDs, and what some planners are referring to as “15-minute communities,” a concept that emerged in Paris and has gained traction in Barcelona, leading to experimentation with superblocks and major operational changes to their transportation networks.

Today, the influence of these European ideas can be seen in Lower Manhattan’s shift to a more mixed-use and livable neighborhood, while Long Island City, downtown Brooklyn and other outer borough areas are now places where greater numbers of New Yorkers live, work and play.

An area once dominated by the financial services sector has evolved over time to a diverse mix of office tenants: creative design firms, architecture practices, and major publishing companies have become more firmly rooted downtown, according to Craig Schwitter, senior partner and Chair of the Global Board for Buro Happold.

Building back better than before

The attacks on September 11, 2001, damaged or destroyed 30 million of Manhattan’s total 400 million square feet of office space. Many residents and companies left Lower Manhattan out of necessity in the immediate aftermath of the attacks, and for months afterwards, the prevailing wisdom was that even more would abandon the area and no one would come back, B6 Real Estate Advisors Founding Partner & CEO Paul Massey told Commercial Property Executive.

But the silver lining didn’t cease to appear. After the attacks, many people rushed to Ground Zero, including members of the building industry, to work together and help their fellow New Yorkers. That collaborative spirit remained long after that horrific day, as everyone from the local level up to the federal government worked to rebuild. “Whether it was federal dollars, local policies or programs, this concerted effort helped show people it was safe to come back downtown,” said Carlo Scissura, President & CEO of the New York Building Congress.

Lower Manhattan has benefited from targeted programs and investment in the shadow of 9/11, like the Lower Manhattan Development Corp., as well as from the historic partnerships including the Downtown Alliance, Port Authority, the Battery Park City Authority and the Lower Manhattan Cultural Council.

These, combined with transformative investment—such as the rebuilt World Trade Center complex—have since lured New Yorkers back downtown. “The numbers tell the story,” said Jeremy Moss, executive vice president at Silverstein Properties. “Since 9/11, over 500 companies have relocated to Lower Manhattan, leasing close to 20 million square feet. The residential population has nearly tripled.”

The success of Lower Manhattan is tied to the ambitious scale of redevelopment, said Scissura. “We didn’t just rebuild what was once there but we expanded the masterplan. The finished product—the World Trade Center, new mass transit hubs, office buildings and residential towers and so much more—is a testament to the resilience of New York City,” he said.

One World Trade Center

Larry Silverstein’s vision and commitment to rebuilding the World Trade Center site was one of the most important catalysts in Downtown Manhattan’s revitalization. The founder and chairman of Silverstein Properties had acquired the original World Trade Center complex just months before the attacks of 9/11. Silverstein’s vow to rebuild, along with the city’s massive investment in public transit infrastructure like the Oculus, helped lay the foundation for redevelopment and rebirth.

Not only was the loss rebuilt (with the modern One World Trade Center tower), but the real estate industry added 50 million square feet, bringing the Manhattan market to over 450 million square feet. Another transformative investment that has had an impact on the area was the development of the Fulton Center transit station, which integrated of all the subway lines serving the area. “It’s part of everyday life now, but it used to be a confusing and dispiriting mess,” said Donald Clinton, partner at Cooper Robertson.

A legacy of resilience

If it weren’t for the pandemic, experts believe Lower Manhattan would have continued its upward trajectory. Commercial real estate in Manhattan has been significantly impacted by the coronavirus, with vacancy rates growing to levels not seen in decades. It is likely there will be significantly less pressure for large real estate plays for firms in the near future in downtown. However, Schwitter said he would not discount the attraction of Lower Manhattan in the long run.

Massey drew parallels between what happened Downtown post-9/11 and its current state post-pandemic. Both were a human tragedy of terrible proportion and made people question the viability of the office, retail and hospitality market in Lower Manhattan (and now, to some degree, Midtown).

In terms of resilience and environmental impacts, Lower Manhattan is still incredibly vulnerable, even though much has been done since the devastation of Hurricane Sandy to mitigate risk. Aziz believes the next step is to begin looking towards adaption strategies as a more effective response to the effects of climate change.

“After Superstorm Sandy, it was clear we needed to change the way we design our buildings and skyline. We formed the New York Building Congress Task Force on New York City Storm Preparedness to pinpoint the major weaknesses in the city’s storm preparations and response and thoroughly address them,” said Aziz. Experts found that they needed stronger grids, more resilient infrastructure, better design standards and improved emergency planning and protocols.

The deadly impact that Hurricane Ida recently had on New York City is a prime example of the reality that relying solely on mitigation strategies is no match for heavy rainfall or ferocious winds. “What we need to think about is radically adapting where and how we build,” he added. This may come in the form of major changes to the public realm to address flash flooding—creating sponge parks, increasing the capacity of stormwater systems, or replacing the island’s perimeter roadways in favor of green infrastructure that can protect Lower Manhattan.

Schwitter believes establishing an integrated flood and resiliency strategy is critical to ensuring Lower Manhattan’s real estate assets are well protected, and more importantly can bounce back quickly from future extreme events. New York’s long term flood barrier project proposal, the Big U, is a significant initiative to set downtown on a long-term transformational track for resiliency.

“In the years immediately before 9/11, there was huge momentum to transform older office buildings into residential. When the 9/11 attacks happened, people thought it would end that trend, but after a very short breather, the conversions began again with even more energy. The east side of Lower Manhattan is truly mixed-use now,” Clinton told CPE.

Going forward, Clinton thinks we’ll continue to see office conversions to residential—and with office leasing in a pandemic trough, conversions could become even more part of the picture. Meanwhile, Massey feels the resiliency New York displayed post-9/11 will begin to play out once again. Service businesses are encouraging people to return to the office. Retailers—especially restaurants—are looking to expand, taking advantage of historically low rents. Hotel occupancy is trending up for the first time in two years.

Despite setbacks and challenges in the 20 years since 9/11, the World Trade Center complex will continue to play a crucial role in the revitalization of Lower Manhattan with the planned development of 5 World Trade Center and 2 World Trade Center. Silverstein Properties is also looking forward to the opening of the Ronald O. Perelman Performing Arts Center in 2023, a new performing arts hub in the heart of Lower Manhattan.

“There have been notable additions in retail, transit, hospitality and food which, complemented by the influx of residences, businesses and attractions, have together transformed the borough into the most compelling to work, play, stay and visit in New York City,” said Moss.

Source: Commercial Property Executive

Concrete is the foundation of just about everything. It’s used to construct buildings, highways, bridges, roads and more.

During the Covid-19 pandemic, concrete fell victim to the same phenomena impacting other essential materials and goods: snarled supply chains and labor shortages. And demand for concrete — and its essential ingredient, cement — appears to have only increased, after the Senate passed the $1 trillion infrastructure package to upgrade America’s roads, bridges and tunnels.

“In the short-term, we continue to have the supply chain difficulties, particularly in certain markets, and so prices are rising,” Anirban Basu, chief economist for the national construction industry trade association Associated Builders and Contractors, told CNBC. “So right now, apparently, supply is not rising up to meet demand.”

The industry also faces labor shortages of skilled workers and truck drivers. And the recent housing boom means more demand for concrete and cement, putting more pressure on the industry to increase capacity.

On top of all of this, there’s also a push to reduce the amount of carbon emissions that come from the industry. A study published by the National Academy of Sciences in 2019 estimates that global cement production accounts for 8% of global carbon emissions, making it the largest single industrial emitter of carbon dioxide.

Source: CNBC

The ruling, though, has little impact on similar moratoriums started by local governments in places like Los Angeles and New York state, experts said.

“The court ruling did not invalidate the concept of a moratorium, but focused on whether the CDC, which is an executive agency, has the power to impose a moratorium,” said Mark Axinn, chair of New York City law firm Phillips Nizer’s cooperative and condominium practice. “That doesn’t mean a legislative body, like Congress, doesn’t have that power.”

The Supreme Court’s ruling won’t impact states’ ability to impose or extend eviction bans, and landlords won’t likely be able to use the end of the federal moratorium to start proceedings against tenants in states without them, because the ruling was narrowly focused on the CDC’s authority, said John Pollock, a lawyer with the Public Justice Center and the coordinator of the National Coalition for a Civil Right to Counsel.

“Any state or local laws in place are actually getting honored,” Pollock said.

A bigger loss for the state’s ability to institute eviction bans came earlier this month, when SCOTUS partially lifted New York’s ban on tenant evictions, Pollock said.

The court did that because the Rent Stabilization Association, a landlord group, argued the state was denying them its right to due process by not requiring renters to prove they were in financial distress, and landlords were not allowed to show certain tenants could actually afford to pay their dues.

“That does create more of a problem,” Pollock said. “But there are ways that you can have a moratorium around the way New York’s did and not have the same issues.”

Pollock added that landlord groups around the country have constantly sued to overturn bans on evictions and have largely been losing in court. Still, the moratoriums are not completely out of the woods.

Many of them are expiring soon, with New York’s set to expire on Aug. 31, despite a push from some lawmakers to extend it again. And, while the U.S. Supreme Court ending the federal ban legally shouldn’t impact city and state governments’ ability to keep moratoriums in place, it could signal to them to let the cases resume, Axinn said.

“I believe it may send a message to various state legislatures that it’s time to open the courts back up,” Axinn said. “I also believe that the general feeling in New York is that it’s time to open the courts back up and try to resolve the huge backlog of cases.”

Hundreds of thousands of cases are expected to flood through courts around the country as soon as the federal ban ends.

“The data has shown that the CDC moratorium is holding back the flood of filings,” Pollock said. “When you combined the fact that the data shows the moratorium is really having an effect and we’re really a long ways away on rental assistance, it suggests we’re going to have a really bad scene starting now.”

Many states around the country have doled out federal relief funds to both tenants and landlords at a glacial pace. In New York, former Gov. Andrew Cuomo’s administration only doled out about 5 percent of the $2.7 billion aid available, something newly inaugurated Gov. Kathy Hochul hopes to change.

Nonprofit Robin Hood called on Hochul Friday to either release the spigot quickly on federal aid or “extend and improve” the moratorium in place.

If they don’t, New York’s courts were already overwhelmed with eviction cases pre-pandemic, which Axinn expected to get much worse once the moratorium ends.

“There were always far more cases filed than the court could possibly determine on the merits,” Axinn said.

That led many landlords and tenants to instead come up with settlements before going through a trial, which can give them a reduction on their arrears and set a timetable for them to get out of their apartment. That trend is expected to intensify.

“There’s going to be even more pressure on landlords and tenants to try to enter into an agreement than there was before a moratorium,” Axinn added.

While he said that can work in favor of both landlords and tenants, since it sets an “agreed resolution” for each party, Pollock argued that most housing courts around the country are extremely weighted toward landlords.

“If you go and watch how they operate, they’re set up to basically act as a debt collection tool for the landlords,” Pollock said.

To help the expected onslaught of evictions, Pollock suggested that states implement requirements for tenants to have a lawyer in these cases (oftentimes, they don’t) and mandate that landlords file for federal rental assistance aid before going to court.

“It takes time, they needed to be doing this yesterday,” Pollock said. “Every day is critical that they don’t wait on doing this.”

Source: Commercial Observer

WASHINGTON — In her two months as acting director of the Federal Housing Finance Agency, Sandra Thompson has overseen a major shift in the regulator’s focus, affordable housing advocates say, pointing to policies her team has put in place to bolster fair lending and expand access to credit for first-time homebuyers.

President Biden named Thompson acting director of the agency June 23 after removing Mark Calabria as head of the agency in the wake of a Supreme Court ruling that said the FHFA's leadership structure was unconstitutional.

Calabria — appointed by former President Donald Trump — largely devoted his tenure to putting the government-sponsored enterprises on a path out of conservatorship. Under his leadership, the agency finalized a post-conservatorship capital framework and entered into an agreement with the Treasury Department to allow Fannie Mae and Freddie Mac to retain earnings and hold significantly more capital.

In our last months' update, we had mentioned that the US saw an upswing in hiring in July despite the fears of the Delta variant. The trend did not last long.

Wall Street Journal reported, “U.S. hiring slowed sharply in August as the surging Delta variant dented the pace of the economic recovery.” According to the Bureau of Labor Statistics, nonfarm payrolls increased by 235,000 for the month, far lower than the economists’ estimates of 720,000 new jobs in the month.

As expected, the employment growth was slowest in the services sector. CNBC reported, “Leisure and hospitality jobs, which had been the primary driver of overall gains at 350,000 per month for the past six months, stalled in August as the unemployment rate in the industry ticked higher to 9.1%.”

Despite slower job growth, the economy is continuing to grow, albeit at a slower pace due to the high demand for workers. This has resulted in the unemployment rate falling to a pandemic low of 5.2% in August from 5.4% in July.

Unlike market participants' expectations of a scale back in Federal Reserve’s bond-buying program based on July's employment report, the jobs report this month could push the tapering until later, possibly out to 2022.

Our monthly snapshot here provides an update on the activity in the CMBS, CLO, and CRE markets and the news that made headlines in August 2021.

What Happened in the CMBS Universe?

The Trepp CMBS delinquency rate declined sharply in August 2021, posting the largest drop in six months. The delinquency rate in August was 5.64%, a drop of 47 basis points from the July number.

The August number represented a sizable decline after several months of mostly modest improvements. After two huge jumps in May and June 2020, the rate has now fallen for 14 consecutive months.

In terms of loans in grace period, 2.42% of loans by balance missed their August payment but were less than 30 days delinquent. That was down 51 basis points for the month.

The percentage of loans with the special servicer fell to 7.79% in August from 8.14% in July. For lodging loans, 17.40% were with the special servicer, representing a decline of 55 basis points in August. In the retail segment, 14.18% of loans were in that category – a drop of 48 basis points from July. The percentage of loans on the servicer watchlist climbed to 29.00% in August from 27.56% in July.

Top CMBS Stories

·        Hotel Occupancy is Not Cured Yet: U.S. Cities to Watch as Delta Variant Advances - The overall average occupancy for lodging properties is currently 53%, according to Trepp CMBS data — a harrowing sign for those who expected travelers to flock back to hotels as the country reopened. To help navigate cities of interest and how hotels in those areas are performing, Trepp used Trip Advisors ‘Travelers’ Choice – 2021 Best of the Best' to determine the most highly sought-after cities for travel, analyzed the financial numbers behind the hotels in these locations, and reviewed what Delta cases could mean for the future of those properties.

·        Tracking the Influx of Mall Value Reductions (Part 1) - Throughout the coronavirus pandemic and early into the "post-pandemic" recovery, the retail sector has been one to watch. Mall properties specifically, which struggled as shutdowns commenced and foot traffic declined, have consistently risen to the top of our datasets to watch here at Trepp. Using Trepp data, we have assembled a preliminary list of malls that have seen valuation reductions within the last 3 months. Read for more information on the properties and loans to keep on your radar.

·        Industrial Market Snapshot: Promising Signs for Continued Expansion and Growth - The industrial sector is a commercial real estate (CRE) property type that persevered throughout the coronavirus crisis. Now, more than halfway through 2021, the sector continues to show signs of growth, despite recent uncertainty regarding the increase in positive Delta variant and COVID-19 cases. Access the full report.

·        Increased Demand for ESG Compliance and Regulation in European Structured Finance - As panelists highlighted on Trepp's recent webinar with European DataWarehouse (EDW), there doesn't appear to be a topic that is drawing the interest and attention of people in terms of both discussion and collaboration in the way that ESG is. Just last month, Trepp wrote about the concerns encapsulated in ESG, sustainability, and green finance and the challenges they may present in the CRE and structured finance industries.

What Happened in the CLO Universe?

Issuance in the CLO market went up slightly in August with a total of 66 deals priced as compared to 62 in the month prior. 35 of these deals were new (31 in the US and four sourced in the EU), 20 resets, 10 refi, and one new.

The number of refi deals went down in August with a total of 10 refi deals, up from 23 refi deals priced in July.

Top CLO Stories

·        Elanco Acquires KindredBio; GTT Enters Restructuring - Last week, the CLO team noted restructuring agreements, credit reviews and their impact on companies in the CLO universe, rating actions, and more... Elanco Animal Health Incorporated, a global leader in animal health, announced it has closed the acquisition of Kindred Biosciences. The transaction builds on the existing relationship between Elanco and KindredBio.

·        Uber Hit by California Court Decision; MSG Financials Reflect COVID - Last week, Chapter 11 withdrawals and financial restructuring news flooded the headlines. There were economic results announcements from both Golden Nugget LLC and Madison Square Garden Entertainment. On top of this, Uber Technologies' share price was impacted early last week by a California Court decision invalidating a 2020 ballot initiative that allowed the ride-sharing groups to classify workers as independent contractors. So how do these headlines impact the leveraged loan market?

·        Syniverse Set to Go Public; Intelsat Requests Chapter 11 Extension - RV Retailer, LLC announced the acquisition of Frost RV in Tucson, Arizona. The acquisition is expected to close this month. RV Retailer is a leading recreational vehicle retail company, which after this acquisition will have 71 RV stores in the United States. The company is represented in the CLO universe by the $140 million RV Retailer LLC - Incremental Term Loan (L+400; due 2028) and the $40 million RV Retailer LLC - Unfunded Commitment (L+400; due 2028).

·        Acquisitions; Year-Over-Year Revenue Increases; Executive Team Moves - ASGN Incorporated, one of the leading providers of IT services and solutions, announced the acquisition of Enterprise Resource Perfomance Inc (ERPi). With the acquisition, ASGN adds enhanced solution capabilities in the healthcare industry through ERPIs consulting and data analytics verticals. This is the firm's third acquisition since March when they added IndraSoft Inc and the Infor Business Unit of Avaap.

Concerns over economic conditions, the Delta variant, and inflation continue to weigh on commercial real estate market participants. But are there any blind spots that investors should be watching for? In a pivot from assessing recent market events and data trends, The TreppWire Podcast team surveyed CRE participants to gauge market sentiment for the coming months. Between August 13- 21, 2021, we shared our survey with our 20,000+ listeners, clients, and daily TreppTalk readers for their opinions on the near-term future of commercial real estate (CRE) and commercial mortgage-backed securities (CMBS) markets. The upshot of the sentiment: steady but slow improvement with real pockets of risk.

On the topic of the near-term economic outlook, we would say the overall results were modestly optimistic. On the question of ‘by the end of 2021, I expect that national economic conditions will have impacted my business…’ almost 45% of the respondents were in the positive: that economic conditions would present a tailwind. That was well above the 29% of respondents that said national economic conditions would present a headwind.

The glass-half-full view is that by a plurality, most of those responding to the polls saw conditions being helpful or improving. However, as one Trepp observer noted, a reading of 29% of the respondent concerned about the current near-term economic outlook (and another 8% unsure), the sentiment was far from being universally bullish.

Top CRE Stories

·        Episode 99: The Return to Office Change-up: Is a Sell-off in Our Future? - The latest job claims update, higher than expected wage growth, and economic slowdown this summer due to the delta variant have us weighing the possibility of a future sell-off. In this week’s episode of The TreppWire Podcast, we dive into the latest change-up in return to office plans and what this means for the office market in various cities, we talk through Labor Day travel numbers and signs of a comeback for the hotel sector and provide an update on recent retail gains. Stay tuned for our 100th episode next week! Listen Now.

·        Executive Summary: CRE Sentiment Survey Results; Hopeful Signs & Structural Concerns - Concerns over economic conditions, the Delta variant, and inflation continue to weigh on commercial real estate market participants. But are there any blind spots that investors should be watching for? In a pivot from assessing recent market events and data trends, The TreppWire Podcast team surveyed CRE participants to gauge market sentiment for the coming months. Between August 13- 21, 2021, we shared our survey with our 20,000+ listeners, clients, and daily TreppTalk readers for their opinions on the near-term future of commercial real estate (CRE) and commercial mortgage-backed securities (CMBS) markets. The upshot of the sentiment: steady but slow improvement with real pockets of risk. View the full results.

·        Can the CRE Tenant Market Navigate the COVID-19 Turbulence? - For some operators who acquired their assets between 2010-2011 and pre-covid 2020, they have always been able to backfill their vacant spaces at rental rates and terms that are more and more favorable to the operator. Those days are over, at least in the short term, and more than likely, the medium to long term as well. The recent market disruption has caused unprecedented sublease space availability which immediately reduces market rental rates in those markets. Tenants with existing leases that are set to expire are not going to renew at their current contract rental rates. They are going to demand the sublease rental rate, or in most cases even less.

·        CDC's Federal Eviction Moratorium Lifted; States Begin Responding - Before the ruling, the renewed moratorium was set to run until October third of this year. Challengers of the policy argued that CDC exceeded their authority, and highlighted how “if Congress had specifically authorized the action that the CDC has taken” the legality of the moratorium could have been different. To extend the eviction moratorium, the CDC was reliant on §361(a) of the Public Health Service Act.

Trepp Banking Research from August 2021

Large banks are leaving more than $16 billion on the table, according to Trepp’s analysis of the CCAR/DFAST stress testing results for 2021. There is a wide range in the loss rates determined by the Fed’s stress testing models for individual banks, leading us to believe that a significant portion of the variation across institutions is due to differences in data completeness or data quality. In this analysis, Trepp breaks stressed loss estimates into three categories: loan product mix, credit quality, and data quality.

As shown in the chart below, there is a wide range in the CRE loss rates produced by the Fed for each institution.

Some of the differences in loss estimates across institutions can be attributed to differences in the types of commercial real estate loans on banks’ balance sheets. Banks with higher proportions of construction and land loans – typically viewed as the riskiest types of real estate lending, especially in a downturn – have higher stressed loss rates, while banks with higher proportions of multifamily mortgage loans – viewed as one of the safer types of commercial real estate – have lower stressed loss rates. By Trepp’s estimates, the loan mix accounts for nearly two-thirds of the variation across firms.

Source: Trepp

The China Securities Regulatory Commission will work to root out “fake” private equity funds that are actually sold to the general public instead of targeted investors, Chairman Yi Huiman said in a speech to a fund-industry association. The CSRC will also crack down on money managers that illicitly take public deposits, offer loans or embezzle fund assets.

China’s financial regulators have become more assertive in recent months, cracking down in areas from online lending and insurance to initial public offerings and margin financing. Greater oversight of the private equity industry has already kicked off. China halted such funds from raising money to invest in residential property developments, people familiar with the decision said earlier this month.

“Private equity funds must return to the defined role of being private and supporting innovation and startups,” Yi said in the speech published on the CSRC website. The regulator will impose targeted policies, support genuine private funds and “resolutely eliminate fake ones to promote an orderly market order and industry eco-system.”

The CSRC has been cracking down on irregularities among private funds -- which cover private equity and venture capital funds as well as the Chinese equivalent of hedge funds -- with annual inspections of hundreds of players between 2016 and 2019.

The watchdog’s focus has been on issues including compliance, liquidity risks and illegal fund raising. In the 2019 probe of 497 private funds, regulators found malpractices such as borrowing new money to repay existing investors, raising money from disqualified investors and promising guaranteed returns.

Regulators have in the meantime encouraged the development of private equity funds as a channel of direct financing to support the economy. In a speech in December, Yi said the government will help such funds broaden fund-raising channels, and encouraged them to invest in early-stage small firms, particularly those in technology.

The number of registered fund managers has exploded in the past several years, with “false” private equity expanding alongside “true” private equity, damaging the industry, Yi said in his recent speech. The CSRC will strictly regulate fund raising, investment, management and withdrawal of funds within the sector, he said, without providing a timetable for new rules.

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China’s private equity and venture capital market is dominated by local names though global funds including Sequoia Capital and IDG Capital have also been active, with some raising funds on the mainland. Hong Kong-based Hillhouse Capital Management Ltd. has grown into a $100 billion behemoth making prescient bets on stocks, venture capital and private equity deals across Asia and particularly in China.

Investors have been bombarded this year by a sweeping crackdown from Chinese regulators that has targeted a growing list of companies including technology giants Ant Group Co. and Tencent Holdings Ltd., after-school tutoring firms and ride-hailing platform Didi Global Inc. The moves are part of a broader push for “common prosperity” by President Xi Jinping that has ratcheted up in recent months.

Meanwhile, financial regulators have renewed a campaign to curb credit growth and restrain leverage in the real estate sector to ensure financial stability. 

At the end of July, China’s private equity and venture capital funds managed a total 12.6 trillion yuan ($1.95 trillion), tripling from the end of 2016 and becoming the world’s second-largest. The nation’s mutual funds that are sold to the public oversaw 23.5 trillion yuan, the CSRC said.

Source: Bloomberg

The pandemic exacerbated already crisis-level supply constraints in affordable housing. The multifamily asset class is notoriously challenging to develop for a number of reasons, but a recent report from Capital One and the Terner Center for Housing Innovation at the University of California Berkeley found that fragmented funding sources was among the biggest challenges for affordable housing developers. However, there are key moves that local governments can do to enhance the effectiveness of affordable housing funding sources, namely LIHTC.

To ease the financing burden, the report recommends governments reduce fragmentation, align funding sources at the state level and enhance coordination among funding sources. “In The Complexity of Financing Low-Income Housing Tax Credit Housing in the United States, we identify the following three key solutions for state and local governments to ensure that the LIHTC program works as effectively as possible since the program has been one of the most successful program to address affordable housing needs in this country,” Desiree Francis, head of community finance at Capital One and a member of the Terner Center team,” tells GlobeSt.com.

Reducing fragmentation requires that government agencies at every level—including both federal and local governments—consolidate funding sources. This will help to both reduce inefficiencies as well as lower the costs of funding, according to Francis. “In states such as Arizona and Texas, HFAs administer some soft funds alongside tax credits,” she says. “In Illinois, the state’s Housing Development Authority (IHDA) administers tax credits and other soft sources (e.g., HOME, the Illinois Affordable Housing Tax Credit, Illinois’ Housing Trust Fund Program), and disburses these additional resources in a manner that doesn’t require LIHTC applicants to choose which soft sources to pursue.”

Pennsylvania’s HFA takes a similar approach, but it takes the alignment beyond the initial funding to ensure that the program has the same terms and conditions, program requirements and monitoring processes across all sources. Rather than using third-party sources, the agency uses in-house staff to manage compliance reviews.

Next, aligning funding sources at the state level will require that requirements and deadlines are aligned among different funding sources to eliminate the complexity of using several funding sources. “Some states have formalized coordination efforts through mechanisms to streamline application and closing processes,” says Francis. “For instance, Minnesota created a Consolidated RFP to provide one-stop shop by consolidating and coordinating multiple housing resources within a single application process. This has ensured better aligned timing between the state’s three sub-allocators of LIHTC.”

Finally, Capital One and Terner recommends governments “broaden and deepen coordination among funding sources to maximize efficiency gains,” according to Francis. This would involve a requirement that each funding program is transparent about requirements and deadlines. “Some states are currently convening task forces or interagency working groups to facilitate broader communication and coordination among funding entities,” says Francis. “In Illinois, the Governor’s Housing Tax Force develops an annual comprehensive housing plan, making sure that it includes goals for the number and type of housing units to be constructed, rehabilitated and preserved. Although it does not directly determine funding decisions, it has provided a venue for all agencies to understand state priorities and to communicate and plan for housing needs across public and private funding entities.”

Each of these steps is focused on reducing the complexity that comes with using multiple funding sources. These solutions aim to both reduce the number of funding sources as well as eliminating the challenges of using multiple funding sources. “At a minimum, states and localities should work toward reducing the complexity that comes from differing timelines, levels of transparency, and requirements across various sources,” says Francis. “More states and localities could also take steps to apply and expand on Pennsylvania’s HFA efforts to align terms and conditions, program requirements, and monitoring processes across multiple funding sources.”

Source: Globe St.

The restaurant industry is coming back for seconds.

The National Restaurant Association on Tuesday urged lawmakers to replenish the Restaurant Revitalization Fund, warning that increased costs and changes to consumer behavior amid rising caseloads has put restaurant owners under “crushing long-term debt loads.”

“The small gains that our industry has made toward financial security are in danger of being wiped out, dashing the hopes of communities, entrepreneurs, and consumers nationwide,” the association wrote in a letter to Congressional leaders co-signed by 51 other state and local restaurant groups.

The fund was created under the American Rescue Plan to provide grants to restaurants and bars that need Covid-19-related relief. Under the program, businesses could receive up to $10 million per business and no more than $5 million per physical location.

But demand for relief far outweighed supply. More than 370,000 restaurant owners filed applications, seeking $75 billion in assistance. But only 105,000 were approved for grants, averaging about $272,000 each, before funding ran dry in July.

In New York State alone there are nearly 18,000 pending applications, the second-highest number nationally, totaling almost $6 billion in stabilization funding that would be addressed by the $60 billion proposed replenishment bills.

“The rise of coronavirus variants, and the mandates that often follow, threaten to push these restaurants closer to permanently closing their doors,” Melissa Fleischut, CEO of the New York State Restaurant Association, said in a statement. “It’s time for Congress to step in and fulfill the promise of the RRF.”

The push comes as the Covid-19 delta variant threatens restaurants as officials once again increase restrictions on businesses. Consumers have changed their eating habits in recent weeks, according to a survey of 1,000 adults conducted by the National Restaurant Association last week.

Nine percent of adults have canceled existing plans to go out to a restaurant in recent weeks, the survey found, while 19 percent say they have stopped going out to restaurants entirely.

Additionally, one in three respondents said they would be less likely to go out to a restaurant if proof of vaccine is required to dine inside, as is now the case in New York City.

“For an industry that requires a ‘full house’ every evening to make a profit, this is a dangerous trend,” Sean Kennedy, executive vice president of Public Affairs for the National Restaurant Association, said in a statement. “These changes indicate declining consumer confidence that will make it more difficult for most restaurant owners to maintain their delicate financial stability.”

Source: The Real Deal

Global property consultant CBRE is reporting this week that the average industrial taking rents rose nearly 30% in the first half of 2021 compared to the first half of 2019 in the U.S. Northeast Corridor.

The Covid-19 Pandemic created a catalyst for companies shifting towards e-commerce strategies, culminating in significant demand for logistics space and a subsequent spike in higher taking rents. E-commerce and third-party logistics (3PL) users accounted for more than half of all industrial leasing activity in H1 2021. High demand is not the only driver behind increased taking rents; supply chain constraints, delayed construction timelines, and upended budgets resulted in low availability and contributed to bidding wars as occupiers compete for suitable space across the Northeast.

Vacancy within the Northeast Corridor dropped more than 70 basis points during the first six months of 2021, settling at a record low 3.3%. Nearly 50% of current construction was pre-leased as more retailers expanded their omnichannel strategies, often outsourcing to 3PLs to reduce delivery time to consumers and to keep up with demand.

In H1 2019, overall average taking rents in the Northeast markets were $7.81 per-square- foot NNN, compared to $10.14 NNN in H1 2021. NYC saw a slight decrease in taking rents; during 2019, landlords traded moderate amounts of free rent for higher contract rents while current market fundamentals preclude these opportunities. The Central NJ and Philadelphia markets saw nearly a 50% rent growth from H1 2019 to H1 2021 as more companies targeted developable land south of Northern NJ where land is more available and rents are less expensive.

According to CBRE Research, nationally, average rent grew by 5%, year-over-year, in Q2 2021, as a comparison. The Northeast Corridor markets are among the top-performing industrial markets in the country. With e-commerce and 3PL occupier demand projected to remain high, availability is expected to remain low, and rents are likely to continue increasing through the rest of the year in the Northeast.

Source: World Property Journal

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