Also This Week: Loan Demand Weakens Even as Delinquencies Decline; Recoveries on Liquidated U.S. CMBS Hit Stumbling Block; Largest CMBS Loan Losses This Summer; and more
Hong Kong-based Gaw Capital Partners has created a new U.S. entity, Gaw Capital U.S. to manage new real estate funds and provide investment advisory.
Meanwhile, Gaw Capital Partners' existing U.S. associate, Downtown Properties, will continue to co-exist alongside Gaw Capital U.S. as its asset management partner.
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Gaw Capital U.S. announced that Timothy Walsh has joined Gaw Capital U.S. as president and COO. In this newly-created position, Walsh will oversee U.S. operations and increase the firm's investments in U.S. real estate. Walsh joins Gaw Capital U.S. from the New Jersey Division of Investment where he served as chief investment officer and director of New Jersey's 74 billion pension fund.
Gaw Capital U.S. plans on raising a U.S. Fund in the fourth quarter of 2013 with targeted fund size of $300 million to $500 million.
The main strategy for the fund will be value creation through design, creative repositioning, and redevelopment with a special angle at creative office and creative hospitality redevelopments in urban locations
Gaw Capital Partners' management already has experience in investing in U.S. real estate projects. Downtown Properties Holdings has been acquiring and managing real estate investments in the United States since 1991. Its portfolio in Los Angeles, San Francisco, New York and Hawaii comprises over 2.5 million square feet of office buildings, hotels with over 1,000 rooms, two 18-hole championship golf courses, a ski resort and three residential redevelopment projects.
Separately, Chinese insurance funds have more than $14 billion available for overseas real estate investment, with high transparency markets, including the United States, United Kingdom, Canada, Singapore, Hong Kong and Australia, expected to be among the key targets, according to the latest research from global property advisor CBRE Group Inc.
Given the present scarcity of investable prime properties in first-tier Chinese cities and the short-term risk from the oversupply in second- and third-tier Chinese cities, prime high-end office properties in core international cities are expected to be highly sought after, especially considering the attractive yields they can produce in today’s low interest rate environment.
Chinese institutional investors are still relative newcomers to cross-border real estate investment strategies, compared to pension funds, insurance funds and sovereign wealth funds from other regions.
However, in recent years Chinese institutional investors have started to increase their investment in overseas real estate markets; a trend that has been driven by several factors, including limited investment channels in China, abundant liquidity, local currency (RMB) appreciation, and the relatively lower valuation of overseas assets in the years following the 2008 financial crisis.
“Chinese insurance institutions are already well established in domestic markets, but following a series of government policy changes, they will look to target overseas commercial real estate
markets,” said Marc Giuffrida, executive director, global capital markets for CBRE. “The insurance industry, in particular, is thriving; buoyed by ever-increasing funds they will target gateway cities around the world such as London, New York, Toronto, Singapore, Hong Kong and Sydney in increasingly large amounts. The low liquidity, value-added potential and stable cash flow of prime office and retail assets offers a perfect match for these investors.”
Loan Demand Weakens Even as Delinquencies Decline
Lending activity weakened a bit in the past month as several Federal Reserve district banks reported less-favorable conditions than in the preceding Federal Reserve Beige Book reporting period.
Loan growth in the Atlanta, Chicago, St. Louis, and San Francisco Districts was slower than in the previous reporting period.
Kansas City reported a decline in lending, reversing slight growth earlier in the summer.
Several districts characterized business lending as largely flat. Chicago reported that recent interest rate increases likely were depressing commercial investment. However, Kansas City noted that expectations for better economic conditions and stronger profit growth had offset any effects of rate increases on business loan demand.
Demand for mortgage refinance loans declined in the New York, Philadelphia, Cleveland, and Richmond Districts. By contrast, purchase mortgage lending continued to grow moderately in most Districts, although San Francisco noted that applications have dropped a bit in some areas of that District.
A few districts commented that stiff competition for high-quality commercial borrowers was eroding loan volumes at banks that maintained prudent interest rates and terms.
Delinquency rates for commercial and multifamily mortgage loans declined in the second quarter of 2013, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report.
“Commercial and multifamily loan performance continued to improve during the second quarter, with delinquency rates falling for every major investor group,” said Jamie Woodwell, MBA’s vice president of commercial real estate research. “The quarterly decline in the delinquency rate of loans held in commercial mortgage-backed securities (CMBS) was the largest on record, and delinquency rates for loans held by life companies and the GSEs remain low and fell lower during the quarter.”
Based on the unpaid principal balance (UPB) of loans, delinquency rates for each group at the end of the second quarter were as follows.
· Life company portfolios: 0.08% (60 or more delinquent);
· Freddie Mac: 0.09% (60 or more days delinquent);
· Fannie Mae: 0.28% (60 or more days delinquent);
· Banks and thrifts: 2.16% (90 or more days delinquent or in nonaccrual); and
· CMBS: 7.81% (30 or more days delinquent or in REO).
Capital Markets Round-Up
American Homes 4 Rent filed to offer up to $100 million of preferred shares. It intends to use the net proceeds to continue to acquire and renovate single-family properties, including certain escrow properties, and to repay debt. In addition to single-family properties, it also may seek to invest in condominium units, townhouses and real estate-related debt investments.
Ares Commercial Real Estate Corp. acquired Alliant Capital LLC for $61 million. Alliant Capital LLC is a financial services company focused on originating and servicing multifamily loans for various government and government-sponsored entities (GSEs), primarily through the Fannie Mae Delegated Underwriting and Servicing (DUS) program. It will change its name to ACRE Capital LLC, and continue to be led by Ed Hurley.
Colony American Homes closed on a $500 million credit facility with J.P. Morgan. The facility has a $500 million accordion feature that allows Colony American Homes to increase the credit to $1 billion. It will use the proceeds to continue to acquire single-family rental homes across the United States.
Recoveries on Liquidated U.S. CMBS Hit Stumbling Block
The recovery rate on liquidated U.S. CMBS loans suffered a fairly sizeable setback last quarter, dipping to 60.5% for second-quarter 2013, compared to 71.4% in the first quarter, according to the latest quarterly index results from Fitch Ratings.
“30 CMBS loans had 95% or greater losses last quarter, while 16 of those loans saw losses of 100% or greater,” said Stephanie Petosa, a Fitch managing director.
Other highlights of the report were as follows.
The average recovery rate for liquidated loans in the first half of the year was 66% compared with 72.8% for 2012.
During 2Q13, 11 loans of more than $10 million incurred losses greater than 95% and five loans had losses greater than 100%.
Specific loss trends included peak 2006/2007 vintages, office was the most prevalent property type, the Southeast was the geographic area most heavily affected.
Largest Loans with Losses in CMBS Fixed-Rate Conduit/Fusion Deals July and August 2013
|Loan Name||Prop Type||City||State||Sec Bal ($mil)||Bal at Loss ($mil)||Loss Amt ($mil)||CMBS|
|The Promenade Shops At Dos Lagos||RT||Corona||CA||$125.20||$123.98||$123.98||JPMCC 2008-C2|
|Hyatt Regency Albuquerque||HT||Albuquerque||NM||$43.00||$43.00||$38.39||GSMS 2007-GG10|
|Penn Station Shopping Center||RT||District Heights||MD||$39.30||$39.30||$24.01||GSMS 2006-GG8|
|20 North Orange||OF||Orlando||FL||$42.70||$40.42||$18.27||CGCMT 2006-C4|
|Arizona Golf Resort||HT||Mesa||AZ||$19.19||$18.21||$18.21||JPMCC 2007-CB19|
|TAG Portfolio||OF||Various||IL||$53.40||$39.01||$17.50||LBUBS 2005-C5|
|Reservoir Corporate Center||OF||Shelton||CT||$17.95||$15.40||$14.85||CSFB 2001-CP4|
|Pga Plaza Shopping Center||RT||Palm Beach Gardens||FL||$33.45||$33.45||$14.73||CSMC 2007-C1|
|Colw ick Executive Center||OF||Cherry Hill||NJ||$17.76||$16.96||$12.70||JPMCC 2006-CB16|
|Compson Financial Center||OF||Boca Raton||FL||$18.75||$17.46||$11.90||CD 2005-CD1|
|Five Star Plaza||RT||Rocklin||CA||$15.00||$13.14||$11.70||CSFB 2005-C2|
|Airpark Business Center||IN||Nashville||TN||$74.00||$74.00||$11.67||BSCMS 2007-PW16|
|The Equitable Building||OF||St. Louis||MO||$30.00||$28.78||$11.43||MSC 2007-IQ14|
|Source: Wells Fargo Securities, LLC and Intex Solutions, Inc.|
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