Commercial real estate can’t catch a break

Real estate lost a legend this week with the death of 81-year-old Sam Zell, the billionaire investor with a massive portfolio of apartment buildings, offices and mobile homes. 

Zell was known as a master of scooping up distressed properties at rock-bottom prices, which earned him the nickname “the grave dancer.” 

“Sam was a legend in every way — a brilliant investor, entrepreneur and business builder,” Jonathan Gray, a Blackstone executive who orchestrated Blackstone’s $39 billion takeover of Zell’s Equity Office Property Trust in 2007, said in a statement to The Real Deal. “I loved his uniquely direct style and the example he set on how to live life to the fullest.”

His death capped off a week of bad news all around.

Starwood Property Trust maneuvered to foreclose on the Shops at the LondonHouse on the corner of Michigan Avenue and Wacker Drive. The firm placed a $42 million senior loan on nonaccrual status last quarter, according to chief financial officer Rina Paniry on the company’s earnings call.

Starwood executives did not name the two-story retail property; a source familiar with the situation confirmed that the property at the base of the 452-room LondonHouse Chicago hotel was the one referenced in the call.

Meanwhile, in Texas, distress is the name of the game in commercial real estate, making it a no-go proposition in credit committees. Commercial real estate investors hoped the Lone Star State would, well, stand alone and not be affected by the nation’s travails. 

While the pandemic wreaked havoc in other downtown areas, Texas cities largely maintained top-tier office leasing numbers, and their multifamily rents skyrocketed.

The wall hasn’t collapsed yet, some cracks are starting to show. In April, Arbor Realty Trust foreclosed on a $229 million multifamily portfolio in Houston. A few companies have raised nine-figure funds to target distressed commercial real estate in Texas.

Loans are coming due and investors that are the progeny of Zell, are circling, looking for the next big deal.

In New York, even though the office property sales market has ground to a virtual halt, SL Green Realty and Vornado Realty Trust are planning large-scale asset sales this year — a move others are resisting. 

But with their stock prices plummeting and debt costs mounting, both New York-focused REITs are under pressure to buy back shares and shore up their balance sheets.

In Miami, a lawsuit recently filed in Miami-Dade Circuit Court revealed that Mayor Francis Suarez allegedly has been paid a $10,000-per-month consulting fee by Urbin, a co-living and co-working division of Rishi Kapoor’s Location Ventures. 

Kapoor says there is nothing nefarious about the arrangement.

“As an advisor, Mr. Suarez has consulted for Urbin by providing feedback on programming and the greater mission of the brand to bring new housing opportunities to urban markets,” Kapoor said. “Not just in Miami-Dade County, but beyond.”

Suarez, who did not list Urbin in his financial disclosures last year, is permitted to have outside employment, according to the city attorney. He would also have to disclose and recuse himself if any Urbin business was before the city council.

Ethics experts have said the arrangement should be publicly disclosed.

“The public has a right to know if their mayor has been ethically compromised,” Robert Jarvis, a Nova Southeastern University ethics law professor, said.  “This is such a significant source of income that [he has] to disclose everything. As a public servant, I don’t believe he has any privacy rights, and neither does the company.”