R.O.I. Real State – Commercial Newsletter – December 2023
Posted on January 17, 2024
Lost in Syndication
After a few years as the asset class of investor choice, multifamily continues to experience headwinds. The latest indication of weakness are properties selling at a loss, facing foreclosure, watch-listed or in work out.
In many instances, these properties are owned by funds, bringing together investors, through syndication. Many of these funds are facing loan maturity, at significantly higher rates than existing loans, with lower rent rolls and net operating income than when the loans were put in place. As a result, some funds are in the midst of workout discussions with lenders and/or proactively selling properties at a loss prior to loan maturity.
For additional insights on this trend, please see “Syndicators Are Sinking. Who’ll Make It Out Alive?” in the Articles of Interest section on page 4 of this month’s newsletter. The bottom line: The problem is compounded by syndicators who overpaid for assets, failed to complete renovations, haven’t been able to raise rents, and are inexperienced in negotiating workouts.
A Look at the Broader Market
Banks continue to work with borrowers and are doing whatever they can to avoid taking office and other management intensive properties into their portfolios. They are in the business of lending, not owning. We are starting to see some deals trade at low pricing in office buildings in Central Phoenix, particularly Central Avenue, as many of those properties need to be completely renovated with new amenities. The One Camelback saga continues to evolve, after being converted from offices to apartments, contractor bankruptcy, then lender foreclosure. The latest news is that the lender, which has an asset management and development arm, is going to complete the project.
In contrast, retail has moved into a highly sought after asset class, likely overtaking industrial, shortly. As it turns out, all of the pandemic doomsaying was overblown and people do really want to go to the store, and to touch and feel merchandise. Strip centers and mixed-use properties in particular are in favor; earlier this month, the Wall Street Journal noted increased institutional interest in grocery stores and other recessionresilient stores.
Originally shared via roiproperties.com newsletter. Click here to read full newsletter.
