Western Real Estate Business

JUN 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

Issue link: https://westernrealestatebusiness.epubxp.com/i/993830

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Page 41 of 50

www.REBusinessOnline.com Western Real Estate Business • June 2018 • 39 NEW LENDING OPPORTUNITIES IN ALTERNATIVE ASSET CLASSES By Eric Jordan, Vice President of Fund Development, Calmwater Capital in Los Angeles New lending op- portunities outside the traditional as- set classes have emerged as competi- tion heats up within the real estate debt space. These op- portunities specifi- cally exist for bridge lenders. According to JLL Global Alter- natives, these alternative asset classes have historically been defined as stu- dent housing, seniors housing, labora- tories, data centers and cold storage, with a global investment volume to- taling $52.1 billion, or 6.2 percent of the total commercial real estate mar- ket in 2016. Taking the alternatives category further, real estate investors continue to adjust to market demand drivers, which is leading to opportu- nities in food halls, retail repositions, and micro-hotel and apartment build- ings. There are fewer success stories in these asset classes as not many devel- opers have provided solutions or the vision needed to execute a successful project. With few comparable proper- ties, the long-term value needed by many lenders is unproven. Lenders that are willing to enter the space re- quire highly structured capital pro- grams that provide flexibility for bor- rowers to execute their vision and business plan. By the numbers, the food hall phe- nomenon alone demands significant capital as investors seek to reposition obsolete industrial properties or pro- vide consumers with a new experience in an infill location. The expansion of food hall projects in the U.S. has grown tremendously since 2015. Reports note there were 118 food hall projects in the U.S. at the end of 2017, compared to 70 in 2015. Cushman and Wakefield esti- mates there will be 300 food halls na- tionwide by 2020. Two successful, well- known West Coast food halls include Grand Central Market in Downtown Los Angeles and Liberty Public Market in San Diego. The need for bridge debt is evident through Calmwater Capi- tal's financing of a small-scale food hall reposition in the heart of Los Angeles in early 2017. As developers continue to discover the direction of retail in today's inter- net-centric shopping environment, new opportunities will arise through the repositioning of increasingly va- cant shopping centers driven by the volume of recent store closures. Last year was a rough year for the re- tail sector, with CNN Money noting 7,000 closures were announced and 662 bankruptcies were filed. The so- lution to the highest and best use of big box vacancies and dead malls is on a project-by-project basis and is not generally obvious on the surface. The strategy among lenders is to part- ner with the right operator who has a business plan and the ability to inno- vate and create spaces that are more varied, flexible and engaging for us- ers. The vision can include short-term pop-up shops; demising a vacant box for use by multiple, smaller tenants; renovating the existing structure for an alternative use like self-storage; or completely re-entitling and rede- veloping the property into something more relevant. Belmar, in Lakewood, Colo., is an example of a complete re- development of an obsolete mall that has become a city-like environment with retail and 2,000 apartment units. A shortage of housing and increas- ing rents in core locations is pushing some developers to consider micro- hotel and apartment units to meet de- mand while driving returns. The con- cerns among lenders when it comes to financing these projects revolves around borrower track record and comparable properties in the market. Urbanize LA estimates 5,500 micro- units were built in Seattle between 2012 and 2015, while very few similar projects have been built in Los Ange- les. An example of a micro apartment complex is One Santa Fe, a 438-unit project in the Los Angeles Arts Dis- trict that includes 343-square-foot stu- dios. The Mikado Hotel in Los Ange- les' Little Tokyo district also reopened in 2017 with 41 micro-units. For lenders, viability is the main issue with these micro projects, even though success in other cities provides a model for what is possible. Develop- ers are often forced to charge higher rent per square foot for these units as construction costs can be higher. Pop- ulation growth and housing demand Jordan Privately Owned with Fast and Flexible Decision Making Capabilities Direct Lender – Credit and Pricing Completed in House Structured more than $26 Billion of Loans $13.4 Billion Servicing Portfolio Agency, FHA and Proprietary Financing Programs Unmatched Local Market Expertise Highest Client Satisfaction Ratings You will work with our most experienced financing experts on the West Coast. Hunt Mortgage Group finances all types of multifamily rental housing including: small balance, market rate, workforce housing and affordable communities. With a 45-year proven track record, and as one of the industry's most respected commercial lenders, Hunt Mortgage Group clients benefit from our dedicated expertise in financing and underwriting commercial real estate. Experience the Hunt difference. Hunt AdvAntAge: The power of Hunt's people: Experience. Service. Expertise. CERTAINTY OF EXECUTION. CLARITY OF THOUGHT. TM Mark Besharaty Director 949-442-2400 Matt Frank Vice President 480-861-5223 Suzie Cope Director 212-521-6391 www.huntmortgagegroup.com

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