downtown Manhattan,” says Sam Isaacson,
president of Walker & Dunlop Investment
Partners. “It’s going to be soft.”
Even after a vaccine, Isaacson isn’t con-
vinced that things will go back to normal.
“This might just be the new normal,” he
says. “Urban class A is going to be impacted
But vulture buyers may want to look at
other places for opportunities. “It doesn’t
look like it’s going to be so severely
impacted that there’s going to be true dis-
tress in that sector,” Isaacson says.
Isaacson doesn’t see many apartment
developers handing their keys back to the
bank, which could happen in other sectors.
Even if there isn’t real distress in the mar-
ket, he thinks a lot of developers will want
to get out of deals because “their equity is
“You’re sitting at 95% of the [capital]
stack, and you’re just going to move on and
build the next deal,” Isaacson says. “You’ll
make it up on the next deal or 10 deals or
whatever the case may be.”
A STORY THAT APPLIES
Multifamily is, of course, just one of theasset classes that make up the CRE community, but its story is being writ large acrossthe industry as the 2021 recovery getsunderway. For most of these sectors it will betwo steps forward and one step back as theydeal with not only troubles that arose during the pandemic but also disruptive trendsthat had been emerging before the worldhad even heard of COVID. Retail, to namethe most obvious example, will greatly benefit as the economy reopens but it is stilldragging its pre-pandemic baggage behindit. In many cases, special servicers have beenstricter with retail loans seeking forbearance compared to hospitality ones becauseof the structure issues the sector is facing.Even industrial, which has been surging allyear is not without its own conundrum.
“Industrial is doing really well butthere may also be some softness there,”Isaacson says.
Specifically, Isaacson thinks industrialproperties with small business tenantscould struggle if more of those organizations go out of business. There is alsothe risk that investors could overpayfor assets as bidding gets even moreintense.
Industrial, of course, is currentlyregarded as the crown jewel of CRE. So ifthere are issues in that sector, there arepotential problems everywhere.
“There really is an interesting dynamicgoing on across commercial real estate,”Isaacson says.
THE SINGLE-FAMILY RENTAL
HOME SECTOR RISES
For some lucky asset classes, the skies aheadare blue and cloudless.
At the start of 2021, JLL revealed it hadformed a team dedicated to the single-family home sector. The move was a directresponse to increasing institutional interestin the sector, it said. The sector had the windat its back before the pandemic, but as theeffects of COVID became clear to renters,fundamentals in single-family rental homesreally took off as people fled apartments inthe cities to live in houses in the suburbs.
According to the Single-Family RentalMarket Index produced by the NationalRental Home Council and John Burns RealEstate Consulting, 59% of new single-familyrental home residents relocated fromurban residential environments in the thirdquarter of 2020.
The index is designed to measure thesingle-family rental home market’s relativehealth by evaluating key leasing activity,household occupancy and anticipateddemand. Fueled by growing numbers ofindividuals and families transitioning awayfrom urban residential locations, the indexhit 74.4 in Q3, the second-highest level onrecord after the 2Q 2020 reading of 76.3.
These properties make sense for rentersas the average rental rate for single-familyrental homes remains below the averagemonthly mortgage cost for owner-occu-pied, single-family entry-level homes. “Fifty-three percent of owners reported homesleasing more quickly than one year ago,with overall market occupancy reaching97%,” said David Howard, executive director of NRHC, when the report was released.
While SFRs are a growing asset class,institutions with more than 100 homes stillown less than 3% of total stock. That provides new entrants with a lot of runway forgrowth, according to JLL.
Since the pandemic has begun, a num-
ber of large transactions have occurred as
institutions looked to scale up. JLL points
to a recent $133.7 million capitalization
that it closed on behalf of Haven Realty
Capital with an institutional equity source
for a six-property portfolio of new and to-
be-built homes in the greater Atlanta area.
In November, Range Water Real Estaterevealed plans to deploy $800 million inSunbelt markets to build 15 build-to-rentsingle-family communities over 18 months.The single-family rental communities willbe called Storia.
In October, Invitation Homes andRockpoint Group formed a $375 millionjoint venture that will acquire single-familyhomes to operate as rental residences. TheJV will deploy a total of more than $1 billion, including debt, to acquire and renovate single-family homes in markets withinthe Western US, Southeast US, Florida andTexas, where Invitation Homes alreadyowns homes.
Perhaps most significantly, over the summer, a syndicate of investors led byBlackstone Real Estate Income Trust re-entered the market with a $300 million preferred equity investment in Toronto-basedTricon Residential, with BREIT acquiring$240 million of the preferred equity.
2021 RETAIL WILL CALL FOR PLUCKThe industry is well aware of the burdensthat retail had as we entered the pandemiclast year, as well as the additional pain theshutdowns and social distancing brought tothe category. Late last year, Moody’sAnalytics REIS examined the servicer commentaries for both the hotel and retailindustries. It found that there was a clearleaning towards forbearance on lodgingproperties versus a leaning towards foreclosure for retail.
“These comments and data support theeconomic narrative that while hotels have abetter chance of ‘returning to normal’ overthe next few years, retail is going through astructural change,” according to REIS.
Servicers, therefore, are being less supportive with retail workouts, and appraisersare harsher with longer-term cash flow projections, REIS concluded.
But retailers can find opportunities inthe nooks and crannies of the recoveringeconomy. Consider the example of bankbranches, which have been closing andconsolidating for years now as bankingmoves online. Enter COVID, which highlighted the value of having a drive-thru andrelated zoning.