Sunday Summary: Rate Hikes, Investor Conferences and Power California

William McChesney Martin, the ninth chairman of the Federal Reserve, is credited with saying that the duty of the Fed is to “take away the punch bowl” just as the party is getting started — i.e., to raise interest rates before inflation has a chance to bite.

It’s one of the things that makes the chairmanship such a thankless job.

Well, just four months into the role, Kevin Warsh has already had to get in touch with his inner party pooper.

“The plain fact is that inflation is too high, and has been for too long,” Warsh said last week after the board voted unanimously 12-0 to raise benchmark rates 25 basis points to between 3.75 to 4 percent. “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved.”

Moreover, the indication was that there would probably be another rate hike before the end of the year.

The big question is what this means for a real estate market where certain asset classes have been doing pretty darn well of late. (Another question for Warsh is whether President Trump will turn his ire on him, as he did on his predecessor.)

“Across the industry, this would likely widen the divide between well-capitalized sponsors capable of contributing fresh equity and overleveraged owners facing maturity challenges,” said Joseph Fingerman, president of CRE at Peapack Private Bank & Trust. “For a fixed-rate lender like Peapack Private, that means underwriting new originations using higher stressed rates and stronger debt-service coverage cushions.”

But plenty have been relatively sanguine about the move. At least for now.

“I see more and more land plays and potential assemblages that are being discussed and are being worked on,” said HSF Kramer’s Jay Neveloff. “I think for the smart investor who is not looking to stay on the sidelines the opportunity is still there, and I don’t think 25 basis points moves the needle.”

At Commercial Observer’s annual Institutional Investor & Private Equity Forum at 237 Park Avenue just hours before the announced rate hike (which wasn’t a surprise to those who were in attendance), Blackstone’s Katie Keenan elucidated why the landscape is good for investors.

“When you have growing demand and flat, or down, supply, it’s a meaningful impact on what you see from a cash flow and growth perspective,” Keenan said. “The debt capital markets … are as healthy as I’ve seen them in a long time. Capital is readily available and it’s well priced.” (Read more about the whole conference here.)

Of course, it’s tough for there to be winners without losers. The rate hike comes at a moment when a lot of real estate lenders and borrowers are coming to grips with previously bad deals.

“We’re seeing a lot more lender-controlled transactions where equity has been substantially impaired or in many cases is completely wiped out,” said Ryan Koehler, managing director for originations at NewPoint Real Estate Capital. “Lenders are done with kicking the can, and they are recognizing that the market today is a lot more challenging and they would prefer to deploy that capital elsewhere, so there’s more of a willingness to accept losses today than we’ve seen in the last five or six years.”

Excuse us — we’re going to try to get something to refill our punch bowl. We’re just not sure whether it’s to celebrate or drown our sorrows.

Frankie says relax

Those with faith in the underlying strength of the market had the upper hand in the argument last week given some of the deals that crossed the finish line.

Industrial deals? There were some big ones like SkyREM scoring $101.8 million in refinancing for its 1.9 million-square-foot East Coast industrial portfolio, or Ares Management’s announcement of a $2.4 billion joint venture with the Canadian Public Sector Pension Investment Board to invest in logistics.

Housing? Well, Airbnb wouldn’t be putting up $250 million for new affordable and mixed-use housing if they thought it was a dead end.

Debt? Oh, yes — Hines and Rialto Capital created a new office-focused credit fund Hines Rialto Credit Partners, which already has $1.1 billion in commitments.

Speaking of office, leasing looks pretty darn good in the right corridors. In West Hollywood, for example, Cohen Brothers Realty signed seven leases at the Pacific Design Center’s Red Building for a total of 96,000 square feet. (Is it us, or is Cohen Brothers on a bit of a roll? Just this month, the company laid out big plans for an office in Florida, a coworking deal at 475 Park Avenue South, and a law firm lease at 622 Third Avenue.)

Law firm leases dominated the Gotham landscape with Greenberg Traurig tacking on an additional 33,477 additional square feet at SL Green Realty’s One Vanderbilt, and Proskauer Rose swallowing another 60,000 square feet at SJP Properties’ 11 Times Square, bringing Proskauer’s total footprint to an impressive 478,000 square feet.

Oh, and in the world of hospitality, we learned that the historic Hotel Bossert in Brooklyn Heights is becoming Ritz-Carlton-branded luxury condos alongside a Marriott International hotel. A bit north, Bally’s secured a $560 million debt package from WhiteHawk Capital Partners for its Bronx casino.

If that’s not enough, we saw hires, too — Steven McKessey left the Cumming Group to be head of design and construction for Rudin, and Michael Eglit left a cozy perch at Blackstone Real Estate Debt Strategies to become head of U.S. originations for Starwood Capital Group.

The only thing we saw to be nervous about is that there’s finally some NIMBY stirrings in South Florida.

Frankie goes to Hollywood

It’s been a lot of years of real estate frustration, but there are interesting things happening in Southern California again.

For example, Pastor Martin Porter of Logos Faith Development has been partnering with churches to build affordable housing. Porter’s strategy is remarkably successful.

After two years of steering clear of any City of Angels deals, Decron Properties has acquired a 163-unit property at 5550 Wilshire Boulevard in Miracle Mile for $114 million.

Stockdale Capital Partners and Hamilton Lane bought the 378,140-square-foot lifestyle center Shoppes at Chino Hill at 13920 City Center Drive for $157 million.

But, to really get a sense of the real estate landscape, one should take a nice long look at Power California.

In addition to the 30 honorees (plus an honorable mention) CO also took a look last week at what the multibillion-dollar summer of blockbusters will mean for Hollywood, the impact of ICE raids on L.A. retail, and we spoke to one of the city’s heavy hitters (and Cohen’s bête noire) Fortress Investment Group about Eli Edwards and David Hammerman’s real estate strategies.

For those observing, have an easy fast.