Private Capital Remains Primary Multifamily Buyer

Good morning,

Private capital remains primary multifamily buyer, BX takes some chips off the table, selling minority stake in Bellagio, and SF office distress. Let’s delve into today’s topics.

📈 Market Update

🏢 Private Capital Remains Primary Multifamily Buyer

Over the past decade, multifamily has become the preferred CRE asset class with $111B in capital inflows annually compared to $25B from 2000-2008. Despite the surge in investment, the main source of funds remains private capital (syndicators, family offices, HNW investors), accounting for 54% of multi transaction volume. PE firms represent just 14% of volume, double their pre-2008 share but a relatively small percentage of the total market. Pension funds and university endowments have seen their share of multi transaction volume drop.

Major Players:
BX is the largest multi buyer, as 55% of its $67B BREIT is dedicated to rental housing. Other big buyers include Lone Star Funds, Starwood, and Cortland. Despite increasing PE coverage, private capital remains collectively dominant.

💸 BX Takes Some Chips Off the Table, Selling Minority Stake in Bellagio

Blackstone is capitalizing on the post-pandemic recovery of the Las Vegas tourism industry by selling a 22% stake in the iconic Bellagio hotel and casino. The $300M deal with Realty Income values the property at $5.1B, nearly $1B more than Blackstone paid for it just 4 years ago. Blackstone acquired the Bellagio in 2019 for $4.25B through its BREIT fund aimed at individual investors.

The increase in valuation reflects Las Vegas' strong rebound, with visitor numbers and spending recovering significantly since 2020. The sale will generate cash for BREIT investors after the fund faced redemption pressure last year. BREIT has been selling assets to boost liquidity, and July requests were 30% below the 2022 peak.

Realty Income Enters Deal Through New Investment Arm:
For Realty Income, the $300M deal marks the first investment for its new credit business. The company will also make a $650M preferred equity investment in the property. Realty Income is known for owning single-tenant commercial properties under long-term leases. MGM Resorts will continue operating the Bellagio under its existing lease agreement with BX. BX will retain a 73% stake in the Las Vegas icon after the sale concludes in Q4 2022.

🌆 SF Office Distress

Delinquencies on office CMBS loans have risen to 5% nationally, with an outstanding balance of $11B. SF has seen the sharpest increase, with a delinquency rate above 10% and $1.4B transferred to special servicing as of July. Stay tuned!

✍️ Further Reading

• Big Brokerages Prepare for Rocky Recovery in Real Estate Activity (CS)

• The Fed Signals It Isn't Done Yet (CS)

• Despite What Powell Says, the Fed Is Likely Done (WSJ)

• Powell Has Bond Traders Right Where He Wants Them: Full of Doubt (BBG)

• Rising Long-Term Rates Loom Over Autumn on Wall Street (WSJ)

• CRE Sales Volumes Show Signs of Life in Q2 (GS)

• New SEC Rule Has Big Changes for Fund Managers and Investors (GS)

• NYC’s Office-to-Residential Plans Are Just the Beginning (CPE)

• NYC Could be First to Rescue Office Properties: Walker & Dunlop CEO (RD)

• 10 More Tides Equities Loans are Watchlisted (RD)

• Industrial Absorption Drops 67.3 Percent from Last Year (Trepp)

• FDIC Seen Eying Structured Portfolio Sales of Signature Bank Loans (Trepp)

📊 Chart of The Day