The Dry Powder Can’t Get Here Soon Enough

Article originally posted on Globe St. on February 5, 2024

Conditions in CRE are, well, peculiar. On one side the bottom’s getting closer. BlackRock Real Estate Research has said that now is the time to invest in CRE. And Colliers U.S. CEO Gil Borok recently said on CNBC, “Buyer and seller equilibrium is being reached, which also helps in terms of starting to move volume, sort of a more realistic take on pricing certainly helps the market.”

But then, markets are recognizing how precarious conditions can be for banks, the institutions that are traditionally the largest suppler of financing for commercial real estate. Concerns about conditions in CRE might push banks into restricting lending even more, which would reduce available financing and make the industry more dependent on alternative funding sources, like private equity, with significant higher financing costs than commercial banks.

Virtually everyone that has spoken to GlobeSt.com in the last 12 to 18 months about the topic has mentioned how much capital has been sitting on the sidelines — dry powder waiting for opportunities to invest. Given the problems facing banks and their reluctance to attract more attention from regulators, chances are that the cash will get funneled through other ways, like water pressure on a membrane pushing in until something breaks.

SL Green Realty’s of a $1 billion opportunity debt vehicle; RXR and Ares Management’s formation of a $1 billion fund for distressed office assets in New York City; Ethan Penner and Chad Carpenter’s new REIT raising $1 billion to for office owner and investor fund debt solutions; and a new Goldman Sachs $2.6 billion fund for CRE lending are all examples.

Two others have broken news recently. Ran Eliasaf’s 15-year-old Northwind Group, based in Manhattan, has already originated in $300 million commercial property loans through January, according to MarketWatch. At that rate, Eliasaf expects to lend between $1.5 billion and $2 billion in 2024, typically at one-to-three-year floating rates at 2% to 3% more than bank financing.

Blackstone’s former head of real estate acquisitions in the Americas, Tyler Henritze, has a new firm, Town Lane, looking to raise $1 billion by Q2, according to the Wall Street Journal. Their focus is industrial and multifamily in the Sun Belt as well as hotels. Money reportedly is coming in from Ivy League university endowments, foundations, and family offices. His younger sister, Parker Morse, formerly a principal with Sycamore Partners, is the chief operating officer.

The interesting question is whether, by the time banks come back to CRE, the landscape will have shifted, with the banks having to work hard to regain their share.