Newmark Group’s capital markets team in Texas is shaking things up heading into next year, when it expects gaps in the market left by regional banks, as well as a push toward data-center investment.
The firm recently hired Clint Frease as vice chair; he’ll oversee Newmark’s debt capital business in Texas and the central region and provide national debt advisory for its data center capital markets team. Frease comes from Dallas-based Eastdil Secured where he was a managing director.
It’s the latest change in the consultancy heavyweight’s shifting debt capital markets group. It hired Los Angeles-based Jonathan Firestone to co-lead the debt group in February. And Dustin Stolly, one of Newmark’s top brass running the brokerage’s debt business, left the firm in October.
Increased institutional investment in Texas multifamily, along with the state’s continued population and job growth, prompted Newmark to start expanding its debt capital team in Dallas and Austin a year and a half ago, Frease said.
Debt funds and mortgage finance companies are facing pressure to put out capital raised in the last few years, in turn pushing lending facilitators to expand more aggressively.
Data centers
Flushed investors are increasingly shoving money into multi-billion dollar Texas data center projects, as demand for cloud storage and artificial intelligence support continues to rise.
There are still “billions and billions” of dollars worth of data center construction loans that need to be funded, Freese said.
The average capacity of hyperscale data centers is expected to nearly triple over the next four years, according to Synergy Research Group. That boom has grown the market for data centers in Dallas to the second hottest in the country.
In the South Dallas suburb of Red Oak, DataBank is adding a $256 million data center facility after gaining $2 billion from global investors, and Compass Datacenters invested $300 million to expand its project in September.
Regional banks
Regional banks handling over-leveraged loans are leaving gaps in the finance market. CMBS markets, debt funds, finance companies and life insurance companies are filling the void.
CMBS lenders and life insurance companies, especially, are raising the competitive stakes for other debt funds and finance companies, Frease said.
For example, Houston-based Whitestone REIT landed a $56 million mortgage from National Life Insurance Company in June. The loan, which is tied to three shopping centers, is being used to pay down floating-rate debt.
Private equity firms — like Blackstone, Apollo Global Management and KKR — are backing companies with more aggressive investment aspirations, including “higher octane” life insurers which, at the same time, are now willing to take on riskier loans, including in multifamily, lifestyle retail, hospitality and some office, Frease said.
It’s made for a unique environment where life insurance capital, which has traditionally been invested more conservatively, is being sent to assets that risk-taking private equity managers usually would have cornered.
“You’re seeing fresh cash coming in, and you’re seeing some of those guys dip their toe back into the office leasing space,” he said
Many major life insurance companies are also departing from their traditional attachment to fixed-rate loans by moving toward floating-rate, expecting rates to drop in the next five years.
Lenders in CMBS are showing greater willingness to move up the leverage stack compared to years past. In the office sector, where sources of capital have largely dried up, CMBS is really the only game in town at the moment, Frease said.
Politics
Besides that, real estate debt markets could be affected by the White House.
Newmark is owned by Cantor Fitzgerald, whose CEO, Howard Lutnick, is President-elect Donald Trump’s early pick for commerce secretary, and he is co-chair of Trump’s transition team.
The impact of Trump’s election on the industry is still a mystery.
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While his proposed tax cuts and tariffs could lead to increased inflation and mortgage rates, Trump’s focus on deregulation could boost market activity.
Trump’s election gave the industry greater stability with which to temper its expectations, specifically counting on general economic growth to raise rents and increase leasing, especially in Texas, Frease said.