Real estate has always been a dog-eat-dog business, but never more so in moments of historical peril — like, say, this one.
It’s a great time for forging the true steel that the profession demands. It is when you find out what you’re made of. It separates the industry’s precocious little kids from its serious adults.
Survival of the fittest was very much on our minds as Commercial Observer toiled away on our list of the most powerful people in commercial real estate finance, which dropped last Tuesday.
Cathy Cunningham, CO’s deputy editor and finance editor, with reporters Andrew Coen and Brian Pascus (along with a handful of freelancers) spent months sifting through the data, calling the big firms, and trying to arrange the pecking order at a time when so much about the finance world is in flux.
It was a year that battered borrowers, banks and alternative lenders on all sides, with the Fed playing the role of spoiler with its steady flow of rate hikes, which even continued last week.
Which is not to say that the big banks are on the outs. JPMorgan Chase (JPM) literally could not have done better in our ranking — and its position was decided well before the other big bombshell of last week when Chase purchased First Republic Bank after the latter collapsed. (No. 1, Al Brooks from Chase, contributed a column on the trends that he’s watching through the rest of the year here.) Even smaller banks than Chase are investing in interesting projects.
But there is likely a lot more pain for the banks, and the smart alternative lenders have recognized that this is their time in the sun.
Indeed, some alternative shops like 3650 REIT boast that this is the moment they were built for; alternative lenders like Nuveen’s Jason Hernandez are frantically working to deploy capital in a market that’s starving for it. All of which CO tried to capture.
The full Power Finance list is a terrific snapshot of the debt and equity market today and worth a leisurely read.
Think differently
Despite the anxiety and pullback of some in the market, this moment is “when fortunes are made.”
So advised the legendary real estate player Andrew Farkas at Commercial Observer’s State of Commercial Real Estate forum in Lower Manhattan last week. And others seemed to concur. Despite the New York political headwinds that have lowered everyone’s expectations about any significant affordable housing advancement, there was even some optimism on that front.
“We think there is an opportunity to absorb some of that excess [office] supply through conversion,” said Melissa Román Burch, CEO of the New York City Economic Development Corporation. “There is still work that is happening with the legislature to try to push for conversions.”
Moreover, the way business is conducted is ripe for reinvention. “The market environment today is creating a really good opportunity for the larger commercial real estate market to be more data-driven,” said HqO’s Chase Garbarino, who also spoke at the forum. “Commercial real estate does a better job than any industry in assessing the financial viability of their customers. And they probably have the least understanding of how people use their product.”
Naturally, the office market remains the sore thumb in the city and in the real estate market in general. For those who are skeptical about office’s natural rebound, or the city’s ability to truly foster a workable conversion plan, one solution could be flex space.
But aside from the fact that the major flex operators (read: WeWork) are reeling, it’s certainly not a hospitable environment for newbies in the market.
Live it, love it
Looking beyond the funky pockets of distress in the market today, one thing that seems to be humming along is housing.
Both Yardi and CBRE issued reports last week on the multifamily housing sector and found that rents are on the rise, with a 0.25 percent rise (according to Yardi) in March, which is double the month-over-month increases from January to February.
Moreover, vacancy is slowing down. “We’re beginning to stabilize, or rather the fundamentals are stabilizing, but we’re not all the way there,” CBRE’s Matt Vance said. “We’re not stable, vacancy is still rising, demand was essentially flat in first quarter 2023, but it is trending in the right direction. But we believe these fundamentals are heading in the right direction.”
Speaking of housing, there is money for it — especially if your project is in South Florida. Catalfumo Companies secured a $340 million construction loan from Madison Realty Capital to build some very fancy Ritz-Carlton-branded condos in Palm Beach Gardens. The money is there because housing is selling. (In addition to the crazy sales and loans, a week doesn’t go by without Major Food Group announcing a new lease or partnership — and last week was no different.)
Speaking of love…
One of the more surprising romances in real estate of late is between construction and proptech.
This wasn’t always the case. Technology was reactively something that a lot of contractors steered clear of as a dreaded replacement for human work. But it was also something that was difficult to utilize on a construction site where Wi-Fi was unavailable.
“When [construction management software firm] Procore went public, they credited the spread of Wi-Fi on construction sites to their growth in the 2010s,” said Raja Ghawi, a partner at the venture capital firm Era Ventures. (Procore’s market cap today is above $7 billion.)
What do ya say, MacKay?
We heard some interesting news from Cushman & Wakefield (CWK) last week — President and Chief Operating Officer Michelle MacKay has been elevated to the top spot with the retirement of CEO John Forrester, who is stepping down in June
MacKay has had an interesting career; before assuming the COO role in 2020 she had spots at iStar, UBS, JPMorgan Chase and HIMCO.
“I’m looking forward to leading this great firm through its next chapter of strategic growth,” MacKay told CO. “Cushman & Wakefield’s unique entrepreneurial culture and employee expertise position us to not only successfully navigate the current challenges in commercial real estate services, but to also deliver long-term value, profitability and growth.”
Andrew McDonald will be stepping into MacKay’s previous role as global president and COO.
Rest in peace
Finally, we must end the week on a sad note.
Two of the industry’s longtime power players died. Steven Fisher of Fisher Brothers, passed away at age 63 of complications from a recent medical procedure and John C. Cushman III (whose grandfather co-founded Cushman & Wakefield) died at 82. Rest in peace.
We’ll see you next week.
