Commercial real estate dominoes continue to fall

The negative momentum triggered by spiking interest rates, a shift to remote and hybrid work and inflation is causing some real estate players to tumble over. 

And this week it was hard to ignore.

Due to those sharp increases in interest rates, Tides Equities co-founders, Sean Kia and Ryan Andrade, told investors to expect capital calls — injections of equity from limited partners — to help prop up the portfolio.

The Los Angeles-based investment firm became one of the most aggressive multifamily buyers in 2021 and 2022, scooping up more than $6.5 billion worth of apartments across Sun Belt markets, some of which saw double-digit rent growth during that period. 

But those acquisitions were almost all made using floating-rate loans in a period of low interest rates. As rates have risen, debt payments have soared.

Also on the West Coast, Lake Oswego, Oregon-based Umpqua Bank said it is shutting down its multifamily division and “will be winding down” loan production on the West Coast. 

“We will continue to lend on the multifamily asset class to relationship-based borrowers — typically those with depository, treasury management and other services at the bank,” a spokesperson for Umpqua Bank said in an email.

The step back from apartment lending follows the collapse of First Republic, which has left a hole for those who build their businesses around the asset class. 

Umpqua Bank is also known for offering construction loans with a mini-perm loan at maturity — a short-term loan with typically longer terms than bridge financing. 

These weren’t the only bits of bad news in The Golden State. Orange County home prices are expected to tumble this year by more than 10 percent.

The OC economy will sputter along with the nation as local home prices fall by 11 percent in the next six months, the Orange County Register reported, citing Chapman University economists. 

On the East Coast, New York-based Richard Ohebshalom lost control of a seven-story building, including an apartment where he resides, after loans fell into default at 54 Thompson Street in Soho.

Ownership of the property, which Ohebshalom pledged as collateral for $4 million in mezzanine loans, was transferred to lender SME Capital Ventures in a July auction, according to public auction notices and documents reviewed by The Real Deal.

The loss comes amid other difficulties for Ohebshalom, including other lawsuits at the Soho property and the appointment of a receiver at his 103-unit rental building in Downtown Brooklyn in May.

Elsewhere, in the largest office sale since the Federal Reserve’s rate hikes froze commercial real estate markets, SL Green sold a stake in 245 Park Avenue to Japanese developer Mori Trust in a deal that values the tower at $2 billion.

It was a major breakthrough for the city’s office market, providing price discovery as investors try to figure out how to value office properties in an era of hybrid work and high borrowing costs.

The implied price of $2 billion is consistent with the valuation that was provided when SL Green acquired the 1960s-era building out of bankruptcy in September. The previous owner, China’s HNA Group, bought the tower for $2.2 billion in 2017.

The purchase price works out to a cap rate in the high 3s,which is likely to ripple through the market as buyers and sellers try to work toward narrowing the bid-ask spread. 

Tough times for some are proving to be opportunities for others.

Bargain hunters Empire Capital continued its buying spree of Manhattan office properties, recently acquiring 529 Fifth Avenue for $107.5 million from Silverstein Properties. Empire secured a $71.5M loan from Deutsche Bank, according to sources familiar with the deal. Retail magnate Igal Namdar of Namdar Realty was also part of the buyer’s group.

Josh Rahmani and Ebi Khalili’s firm is one of the few office buyers in New York City, betting they can buy the properties at a discount. The former brokers and their firm’s deals often involve prominent members of Great Neck’s close knit Persian real estate community, including Namdar and the Hakimian family.