Distress Funds Circle as CRE Struggles

Good morning,

Distress funds circle as CRE struggles, Texas market update, and Yieldstreet in talks to buy Cadre. Let’s delve into today’s topics.

📈 Market Update

🦈 Distress Funds Circle as CRE Struggles

Distress funds smell blood in the water and are ready to attack. Major investment firms like Cohen & Steers, Goldman Sachs and BentallGreenOak are raising billions of dollars for opportunity funds targeting distressed assets. A combination of spiking interest rates, sluggish office demand, retail declines and multifamily refinancing challenges has created the most troubled commercial property market in decades. Values have already dropped 10-15% from last year's peaks and could fall up to 25% total, presenting potential opportunities for opportunistic investors.

Institutional Capital is Looking for Multifamily:
While RE broadly struggles, institutional investors are expected to pump capital back into multifamily in the second half of 2023. A new analysis from IPA suggests the end of Fed rate hikes could unlock pent-up investor demand. Metros like New York, Chicago and Seattle should see more activity as rents hold up better there. However, other hot Sun Belt markets face more caution due to supply pressures.

⤴️ The Takeaway:
Overall, distress funds see openings in battered sectors like office and retail, and multifamily remains attractive to institutional capital in the right markets once macro stability returns.

⭐️ Lone Star State Market Update

Texas has been a top real estate market over the past decade across all assets classes. Institutional capital has poured into the state as it continues to show strong economic and demographic trends. BX is still hot and heavy on Texas, particularly logistics assets. Multifamily, however, may suffer from the oversupply and credit crunch. Stay tuned!

BX Becomes Top Owner in Austin:
BX has aggressively expanded its footprint and now owns 9M SF in Austin metro. Much of the buying has focused on the industrial sector, including new warehouses and facilities in Round Rock and near Tesla's manufacturing plant. BX also acquired student housing developer American Campus Communities last year, making it a major player in UT’s housing market. The firm's strategy shows large investors still see Austin as a prime market despite some broader challenges.

Credit Crunch Hits TX Multifamily:
Some multifamily investors in Texas are struggling to refinance debts taken on during the boom years of 2020-2021 as the market has now cooled. Rents dropped 2% in Austin last year after spiking 26% in 2021, and new supply is coming online. With lower rents and property values, investors face hurdles in refinancing maturing debts, especially those with low debt service coverage ratios. 9 properties with CMBS loans maturing by year-end have been watchlisted with low DSCRs highlights the issues. Investors may need to infuse equity, default, or sell at a loss to deal with maturing loans as conditions shift.

💰️ Yieldstreet in Talks to Buy Cadre

Asset manager Yieldstreet is in talks to acquire real estate investment platform Cadre. Cadre is a RE tech firm that connects institutional investors with deals, promoting its use of technology to better source opportunities. The potential deal values Cadre at around $100 million - a steep drop from its 2017 peak valuation of $800 million.

Cadre Brought Back Down to Earth:
Cadre was once a high-flying proptech startup led by Ryan Williams, Josh Kushner and Jared Kushner. The company promised to transform real estate investing through its technology and connections. It nearly landed a $2 billion investment from SoftBank in 2017. However, Cadre has struggled in recent years to compete with larger private equity funds as the proptech industry has cooled. It has fallen short of its lofty revenue goals, raking in less than $30 million annually. If acquired, Cadre shareholders would likely receive stock in Yieldstreet.

✍️ Further Reading

• Office Uncertainty Dampens Commercial Real Estate Lending (CS)

• Steve Schwarzman Is Pushing Buzzy Blackstone Division to Get Its Act Together (BBG)

• Commercial Mortgage Lending Index Down 52.2% (GS)

• RXR Realty CEO on CRE: There are Going to be Losses for Banks and Investors (CNBC)

• One Year and Counting Since Last Major Downtown Chicago Office Sale (CS)

• Hotel Brands, REITs Diverge Over 2023 Guidance (CS)

• Many New York Neighborhoods To Be Affected by Potential WeWork Collapse (CS)

• US Homebuilder Sentiment Declines for First Time This Year (BBG)

• Are You Rich? (BBG)

📊 Chart of The Day