Proptech’s work literally starts at the front door, said Trent Loebel, CEO and president of Torus, a company based in Sydney, Australia, whose software platform digitizes the management of physical keys for all types of buildings. U.S. data center growth has led Torus to increase its client footprint in America.

“Data centers, much like every other building or facility, inevitably have a lot of physical keys, which are often mandated to be used for certain doors and to secure certain areas,” said Loebel. “But they’re always required, at least as a backup to the electronic-controlled doors. Typically it’s all in the base of the building, where technicians and engineers would need access to plant equipment like heating, ventilation, secure areas, and to access data racks.”

Physical keys are not used for the highest-security areas, which are electronically controlled, added Loebel. However, an average data center will have dozens or even hundreds of physical keys that are used by data center customers, contractors and maintenance staff.

“They sit in drawers, cupboards, on hooks, even in the most sophisticated buildings and facilities,” said Loebel. “We’re providing a digital platform and a cabinet that physically secures those keys, according to the permissions that sit in the software platform.”

Even in modern office buildings in which tenants might never use a physical key, there are maintenance workers who still rely on them, Loebel said. One such Torus client office building in London has maintenance workers using 1,800 physical keys. In addition, “Securing every door with electronic access is very expensive,” he said. “It’s about $3,000 per door. And where there is low usage, high-security mechanical keys are always more appropriate.”

Speaking of London, proptech is addressing data center expansion in the U.K. and beyond, said David Mitchell, founder and CEO of London-based XYZ Reality, a startup that has built an augmented reality headset specifically for construction. Contractors can use the headset, which XYZ claims is the world’s most accurate engineering-grade augmented reality device and the most advanced data capture solution, to project a 3D hologram of a building information model (BIM). That allows contractors to see progress and detect issues while walking an active job site.

The company primarily sells to data centers due to the complexity of the projects and XYZ’s ability to let builders see the actual electrical, HVAC, and other infrastructure plans overlayed in reality on an active data center project. In some cases, they’ve detected million-dollar mistakes before they happened, said Mitchell, who declined to name the large data center builders who are XYZ’s clients.

“Ultimately, our vision is builders building from holograms, and we want to accelerate project delivery,” Mitchell explained. “We’ve built a custom, in-house, augmented reality headset, which is basically constructing and uploading all the health and safety standards for construction. So we leverage that headset in the field and it captures all the daily activities that are happening on site such as progress capture, feeds all that information back up to a cloud platform, which distributes that data and insights to all project stakeholders.”

XYZ’s clients are data center owners and operators, but the company is finding further market penetration with general contractors adopting the technology as well as subcontractors, Mitchell said. “But we have 95 percent of our revenue right now with the client themselves — the asset owner.”

Founded in 2017, XYZ has grown to 120 employees and raised $50 million in venture capital, while deploying its product throughout Europe and the U.S., with plans to soon enter India, Japan and South Korea, he said.

“The market is exploding right now,” Mitchell added. “You can see this wave of AI coming as well. That’s definitely very present right now in the industry. And they’re looking to build these things as quickly as possible on a global scale. So they’re always on the lookout for how we can build better, faster and more collaboratively.”

In fact, the global data center market size was valued at $194.81 billion in 2022 and is projected to grow at a compound annual growth rate of 10.9 percent from 2023 to 2030, according to consultancy Grand View Research.

Among the data center construction challenges that XYZ seeks to alleviate is 3D modeling at scale, said Mitchell.

“To be able to load up a data center of 30 or 50 megawatts in real time in the field and then be able to connect that data back to a live cloud environment, that’s no trivial engineering task to solve for,” he said. “The level of complexity and the size of the data required there in the use of the platform is significant.”

The point of solving such complex issues can significantly lower the cost of data center construction. Mitchell cited one of XYZ’s MEP contractors in the U.S. that increased strut installation from four to 50 per day with fewer workers. “What we’re delivering today is this progress capture tool on the site to eliminate rework, which is typically about 10 percent of project costs. And that’s particularly a sensitive topic these days where sustainability is key, removing the carbon footprint.”

Proptech startup CarbonQuest is one company that focuses on building decarbonization. It is currently exploring applying its technology to data centers in particular.

“We enable decarbonization in various types of buildings and facilities through distributed carbon capture,” said Anna Pavlova, senior vice president for strategy, market development and sustainability at Manhattan-based CarbonQuest. “We’re different from other carbon capture companies in the sense that we don’t go into power plants or other very large industrials, but we focus on medium-sized facilities and buildings in a distributed manner, partnering with fuel cells and combined power providers as well.”

Founded in 2019, CarbonQuest has started to focus on data centers because such facilities are massive power consumers that usually don’t plug into a typical electric grid, which often cannot handle their energy demands. Instead, they need other sources of cheap and resilient power, said Pavlova. Moreover, like other companies, they are under great pressure to decarbonize.

“When they look for independent power, that leaves really one or two options, fuel cells or cogeneration, combined heat and power, and sometimes fuel cells can be part of that,” she said. “All those independent power systems typically run on natural gas, so that is a problem from a decarbonization perspective. 

“So a carbon capture system with a fuel cell, or with a combined heat and power engine, can solve both problems. You’re getting local 24/7 resilient reliable power independent of the grid. At the same time, the capture portion makes sure that the CO2 that is produced by the fuel cell or by the engine is trapped before it is emitted into the atmosphere. That makes it a low-carbon system that can run their data center.”

Philip Russo can be reached at prusso@commercialobserver.com. 

MetaProp’s aggregate initial commitment of $1 million comes out of its latest $150 million venture capital fund, whose investors include global industry giants AECOM, CBRE, Cushman & Wakefield, Ivanhoe Cambridge, JLL, Mitsui Fudosan, PGIM and RXR.

“The startups selected present a diverse mix of founders looking to solve big problems in timely and challenging areas of proptech, including sustainability issues of decarbonization and climate risk, as well as in artificial intelligence,” Aaron Block, co-founder and managing partner at MetaProp, said in a statement to PropTech Insider. “Buildings account for two-thirds of the greenhouse gas emissions in New York City. After Local Law 97 was passed in 2019, it became imperative for MetaProp to identify and help grow emerging technologies in the decarbonization sector. We’re excited to have such proptech innovators dealing with these challenges included in our 2024 class.”

New York City combines a unique ecosystem of real estate, proptech, academia and government to support and grow tech startups that could in turn become new and growing tenants in the city, Block added. “Offices in New York City are struggling with high vacancies, low occupancy, lender repossessions, distressed funds being raised, and more,” he said. “This is one interesting example of local ecosystem leaders helping to stimulate inbound interest in our city through support of growing, innovative tech businesses.”

“New York City is a global leader in real estate and climate technology, and the MetaProp Accelerator at Columbia University is an important partner to scale new products and approaches that decarbonize our built environment,” said Melissa Román Burch, chief operating officer for the NYCEDC. “We look forward to the kickoff of the 5 Borough program, which will enable entrepreneurs to grow their companies right here in NYC, create jobs, and develop new technologies to help the city meet its ambitious climate goals.”

Chosen from among more than 150 applicants worldwide, the latest accelerator cohort includes companies from Calgary, Dallas, Las Vegas, New York and Stockholm, with 57 percent of the founders women or people of color. The founders include a NASA and SpaceX rocket scientist, a former FBI special agent, and a serial entrepreneur who exited to Dell.

The cohort’s technologies address issues like natural disasters, risk assessment technology, AI-powered construction data, and business-to-business (B2B) software as a service aimed at helping lower carbon emissions from offices.

The cohort is composed of EcoClaim, a Calgary-based platform that insurers use to measure, verify, and reduce operational emissions; Faura, a Las Vegas-based climate and property risk analytics startup that helps insurance companies and homeowners reduce their natural disaster risk; Light RFP, a New York City-based procurement platform that empowers property managers and commercial real estate developers to quickly identify the best vendors for their projects; Palazzo, another New York-based company that uses an AI-powered interior design tool to help homeowners create realistic and high-quality visuals for their designs; PinPoint Analytics, a Manalapan, N.J.-based AI-powered construction platform that analyzes data and trends to ensure bid accuracy; Spacemaze, a Stockholm-based B2B software company that tries to optimize savings, reduce waste and lower carbon emissions for workplace teams; and Verfico, a Dallas-based company that analyzes workforce data, promotes diversity on job sites, and monitors for wage theft..

The cohort’s 22-week, 5 Borough program features tech talks, workshops, education sessions, real estate property tours and events in cooperation with top industry players. Events will take place throughout the city, including Roosevelt Island.Fifty companies have participated in MetaProp’s acceleration program since its launch in 2015. Graduates have raised more than $200 million in combined venture funding and have exited to industry leaders like Alarm.com, Comcast, JLL and Realtor.com.

Philip Russo can be reached at prusso@commercialobserver.com. 

Galerie Living acquired the site in December 2021 and, in response to community feedback, reduced the massing and height of the project and addressed concerns about parking and traffic.  

“We offer an exclusive product in our Corso brand that we believe is missing in the market,” Joshua Peterson, president of Galerie Management, told Commercial Observer. “We are hospitality and lifestyle focused with our amenities and culinary programs, while also offering quality care and services. It’s something that you can’t find in the area.”

Corso Chevy Chase will consist of 287 independent-living units, 190 assisted-living beds and 30 beds for memory care. It will also include 5,000 square feet of retail that will be open to the public.

The 4-H headquarters will be demolished, and the new senior housing will be targeting a completion date of mid-2026.

“As we move forward to refine the details of the design and on to implementation, we are very fortunate to have collectively built a solid partnership that will ultimately result in a better, more sustainable, and additive redevelopment effort,” Grant Epstein, president of Community Three, said in a prepared statement. 

Keith Loria can be reached at Kloria@commercialobserver.com.

The comments have been edited for length and clarity.

Commercial Observer: Are you worried about the state of the market today, and how the multifamily sector will be affected in 2024 if interest rates don’t come down to the levels expected? 

Kevin Palmer: 2023 was a bumpy market, and I would expect we’re going to continue to see bumpiness in the market. We’ve got a decent amount of headwinds that we’ve seen and we’re continuing to see in 2024, and higher interest rates are one of those. We’ve also got a lot of maturities happening, and the combination of those two is something that we’re watching really closely.

At the same time, the multifamily market has been pretty resilient, relatively speaking. The fundamentals are still good. From an occupancy perspective it’s still pretty strong, and the unemployment market in the economy remains pretty good. Just a couple of weeks back when I was at the National Multifamily Housing Council talking with a lot of the borrowers, it seems like there’s a lot of capital continuing to be in this space that’s ready to be deployed, and I think that helps put a floor on the issues that are out there. The other thing is what I call the Freddie factor, which is the fact that Freddie Mac will continue to be there from a countercyclical perspective as a constant provider for that liquidity in this market to help create stability in this important market as we continue to provide that funding needed for affordable housing.

Many U.S. markets in the Sun Belt are now facing oversupply issues with new rental properties coming online this year. How do you see this dynamic affecting the multifamily market?

Supply is another headwind that we’ll face in 2024, specifically with the Sun Belt market and Mountain West regions. There’s going to be a lot of pressure there from new supply that is going to put downward pressure on rents. But if you take even just a half a step back, so far we’ve seen nationally good continued demand for new housing and the supply that has been delivered has been able to be absorbed pretty well. We still see that overall rents nationally will be up in 2024, but every market is a little different so you’re going to see variation. Then, take another step back from a long-term perspective, and you see a multi-decade high of new supply being delivered in 2024, and if you look at 2025 and beyond, the supply level goes down quite a bit. 

From a housing availability perspective, we still need more housing to come online and we’re looking at how we can help support a more consistent supply of housing and rentals to be able to come online. From a demographics perspective there’s going to be a lot of new household formations that are going to happen over the next couple of years, and there’s a need to support additional supply to be able to preserve affordability in this market.

How is the pullback of many banks focused on CRE lending impacting Freddie Mac’s role in the market?

We saw that in 2023 because even though our volume was down in 2023 relative to 2022 — we were just under $50 billion — the size of Freddie Mac in the market was bigger, our footprint was larger and we will probably see something similar in 2024. I think that reflects the whole countercyclical nature of Freddie Mac that when you have some liquidity providers pull back, we’re able to kind of step in and fill that gap. 

There are certain areas that we’re watching closely. Construction financing was a key area that banks have and continue to provide financing, and we need that to continue on to be able to help support that future supply. We have programs such as our Forward program that helps provide construction lenders more confidence as we’re a takeout for that product. Once that property has been built and sufficiently stabilized, we provide the financing afterwards. And so we’re hoping that with that program we can continue to see good liquidity in that construction market, to be able to ensure that the market stays more stable.

Last November you tightened underwriting requirements in an attempt to ensure all loan documents are delivered directly from borrowers to Freddie Mac lenders and not passed to a broker. How is this guide update helping in reinforcing your seller relationships?

In November of last year, we did update our guide to ensure a proper chain of custody and documentation. With Freddie Mac, we fully underwrite the loans before we fund those and it does reinforce that relationship that we have. We work directly with our Optigo lenders and they may work with other third parties to be able to get that overall work done. This policy helps reinforce that the integrity of the source documents that we use to underwrite the loans is critical and we are relying on our Optigo lenders to be able to provide that to us.

We have seen recently a pool of smaller nonperforming loans for sale. Overall, what are defaults looking like this past year versus other crises like COVID and the GFC? 

We are seeing certain areas of distress. Overall, our portfolio continues to perform pretty well and our last reported delinquency level was just below 30 basis points, but I would expect that there will be continued pressure on performance. There are certain areas of our portfolio such as senior housing, or our small loans program, or floating-rate loans that we’re watching very closely as they have underperformed relative to the rest of our portfolio. But we’ve got a great asset management team at Freddie Mac that is proactively watching the issues that may come out and looking for ways to be able to help work with those borrowers to be able to keep the performance strong. Additionally, as we see broader distress in the industry, Freddie Mac can really roll up our sleeves and work on a lender-by-lender or borrower-by-borrower basis to provide the customized solutions needed to be able to help support and improve performance overall.

Andrew Coen can be reached at acoen@commercialobserver.com 

Unlike Usher’s enthusiastic proclamation of “Yeah!” in his hit song, attendees are taking an optimistic yet decidedly cautious approach to CRE in 2024. 

Mohamed A. El-Erian, president of Queens College and former CEO and co-chief Investment officer of PIMCO, was the conference’s MVP on Monday, kick-starting the packed event with the (multi) billion-dollar question of “What’s Ahead in the Global Economy?” 

El-Erian was interviewed by Mark Jones, the Mortgage Bankers Association’s chairman and president of Union Home Mortgage, as well as Mike Fratantoni, chief economist for the MBA. 

A straight shooter, El-Erian said the biggest risk in our industry right now is the noise that exists within it. 

“There’s so much noise, and people will extrapolate from the weakest point in the market, and that contaminates everything else,” he said. 

While that contagion of generalization presents the biggest risk right now, the industry can fight through it with clear information, El-Erian said.

“There’s a ton of dry powder on the sideline that doesn’t want to be contaminated by contagion. It doesn’t want to get soaked by this overhanging cloud,” El-Erian said. “So, let’s not fall victim to noise.” 

El-Erian was asked what worries him today in this market, having had plenty of experience transacting through other downturns and crises, including the Global Financial Crisis as CEO of PIMCO. 

What’s on his mind today are three questions: Can the U.S.’s economic exceptionalism prevail — and within that, can we avoid a recession and also reach interest rate stabilization? Can we avoid contamination from geopolitical contagion? And what will happen to the existing stock (of housing, for example) that was refinanced at very artificial interest rates? 

In considering those three unanswered questions and the potential ramifications of each, El-Erian said that it requires the weighing up of each scenario, and reacting accordingly — and he looked back to 2008 as an example of when the seemingly unthinkable came to fruition. 

One weekend before Lehman Brothers’ collapse, the PIMCO investment committee was meeting nonstop to consider three potential outcomes for the ill-fated bank. First, the 86 percent likelihood that the bank would not fail; second, the 12 percent probability that it would but that its failure would be dealt with in an orderly fashion “as no regulators in their right mind would allow otherwise;” and third, the 3 percent likelihood that Lehman would collapse and cause a global meltdown of financial markets. 

When the PIMCO team realized the third scenario was en route, they acted accordingly and established their credit default swap provisions before the wider market reacted, he said. 

El-Erian didn’t hold back when it came to the Federal Reserve, caveating his comments with the disclaimer that “I’ve been accused of being too harsh on the Fed,” which was received by a laugh from the audience. 

Still, he outlined a number of policy mistakes he believes the Fed has made. 

First, the use of the word “transitory” in its analysis when describing the inflationary environment. Second, its lack of action when it finally retired the word “transitory” (“CPI was over 7 percent, interest rates hadn’t moved, and quantitative easing was still at play,” he said.). Third, the aggressive hiking of interest rates “wasn’t necessary.” Next up, the Fed’s lack of accountability, with El-Erian saying it “hasn’t owned up to its mistakes,” and instead hired former Fed chair Ben Bernanke to explain them. Finally, the Fed has made a number of forecasting errors, El-Erian said, describing those as a “bad series of mistakes.” 

Later, El-Erian participated in 30 minutes of question and answers with attendees, answering market questions, and — in a market with continued uncertainty — was surely the most popular guy at the Grand Hyatt that morning. 

Cathy Cunningham can be reached at ccunningham@commercialobserver.com.

Images of the tagged floors went viral over the past couple of weeks. Twelve arrests were made Sunday at the site, as officials recovered spray paint cans and an illegal firearm. That adds to six other arrests made in different instances the last couple of weeks, according to local media reports. Police say they have regained control of the building.

Oceanwide ran out of money for the 2 million-square-foot condo, hotel and apartment development that takes up a full block on South Flower Street, and halted construction in 2019. The developer indicated in 2022 that it wanted to restart fundraising and construction for the three-tower complex, but that plan failed. 

“For the last few years, the unfinished Oceanwide Plaza property at 1101 South Flower Street has been a blight on Downtown Los Angeles’ South Park neighborhood,” read a motion by Councilman Kevin De León, whose district includes the towers.

De León said it would cost at least $500 million to buy the property, and another $1 billion to complete an affordable housing project, and the city would also have to forgive roughly $500 million in liens related to the property.

The city could also address other negligent property owners as a result of the graffiti issue at Oceanwide Plaza, council members said at the meeting. Councilwoman Imelda Padilla said she can think of four other properties that are “mini versions” of Oceanwide Plaza,” CoStar reported.

“We have these all over Los Angeles,” Padilla said.

Gregory Cornfield can be reached at gcornfield@commercialobserver.com.

JLL’s Heikkila noted in a statement that multifamily market dynamics in the Bremerton area have been buttressed by the Puget Sound Naval Shipyard, the Kitsap naval base and Harrison Medical Center. He added that a recent CoreLogic study forecasts Bremerton, a one-hour ferry ride west of Downtown Seattle, to be a top three market in the country for home value appreciation.

“The loan from TPG allows Sound West Group to fully execute its business plan for Marina Square,” said Heikkila. “This will only further drive demand for high-quality multi housing rental assets like Marina Square.” 

Located at 280 Washington Avenue, Marina Square features luxury studio, one-bedroom and two-bedroom apartments. The building is a short walk from the Bremerton Ferry Terminal, offering direct service to the Seattle waterfront. Marina Square’s amenities include a roof deck, three venue spaces, a kayak launch and public grills. 

The building features nearly 9,200 square feet of retail across three spaces. 

Marina Square also benefits from its proximity to Bremerton Boardwalk, an outdoor promenade of restaurants, shops and historic sites, and Harborside Fountain Park, a 2.2-acre waterside plaza that includes the Bremerton Naval Museum. 

The six-story building was completed in 2022, and the National Association of Industrial and Office Parks named it the 2023 Mixed-Use Development of the Year. 

Brian Pascus can be reached at bpascus@commercialobserver.com 

Asking rent was $70 per square foot, according to a source with knowledge of the deal.

The source said Barry McTiernan will relocate its headquarters from about 18,000 square feet at 101 Greenwich Street.

Barry McTiernan & Moore was founded in 1930 and provides counsel to insurance companies facing general liability claims, according to its website. It has also defended companies in the New York metro area against environmental class actions involving asbestos, talcum powder, benzene, silica, lead poisoning, and chemical exposures.

Cushman & Wakefield (CWK)’s Mark Weiss, who arranged the deal for Barry McTiernan & Moore with Jonathan Schindler, described it as “a highly respected firm, a leader in the field.”

“Rudin understood that and was very accommodating with everything our client needed,” Weiss said.

Barry McTiernan wasn’t the only company relocating its offices to One Battery Park.

In a smaller deal, nonprofit mental health and social service provider Partnership with Children inked an 11-year lease for 8,036 square feet on the second floor of the 870,000-square foot building, according to the landlord. 

Asking rent was $52 per square foot, according to a spokesperson for CBRE (CBRE), which represented the nonprofit organization in the deal.

Partnership with Children will relocate from its current headquarters at 299 Broadway in the second quarter of 2024. The move is an expansion, according to Rudin, but a spokesperson for the organization declined to disclose the size of the expansion.

“We feel privileged to have represented Partnership with Children on this important endeavor and are excited for their relocation to One Battery Park Plaza, a great asset with great ownership,” said CBRE’s Ramneek Rikhy, who brokered the deal for the nonprofit with Zachary Price and Marlee Teplitzky.

Rudin Vice President Kevin Daly represented the landlord in both deals.

“These relocations further demonstrate that companies are prioritizing distinctive, high-quality work environments backed by strong building ownership,” Rudin co-CEO Michael Rudin said in a statement.

Other recent deals in One Battery Park Plaza include architecture firm Curtis + Ginsberg relocating to 12,602 in the property in August, Commercial Observer previously reported. 

Abigail Nehring can be reached at anehring@commercialobserver.com.

“Ultimately, due to the higher costs of construction and capital required for development, senior housing operators provided the strongest buyer pool, and it made sense to negotiate a deal with the existing tenant,” Avison Young Principal Peter Sherman said in a statement. 

California Healthcare & Rehabilitation Center will continue to occupy the 201-bed facility through the foreseeable future, per Avison Young. Representatives for the health care provider could not immediately be reached for comment. 

The senior living and nursing home industry nationwide suffered during the COVID-19 pandemic, with more than 450 facilities closing their doors since the pandemic started in early 2020. Yet the likely rise of occupancy and demand, largely from aging Baby Boomers, is helping the industry rebound from its COVID woes.

Case in point is Westlake Senior Living Center, an 86-unit facility near Thousand Oaks, Calif., which in September secured a $43.2 million refinancing loan from Santa Rosa, Calif.-based Poppy Bank. 

Nick Trombola can be reached at NTrombola@commercialobserver.com.

This interview has been edited for length and clarity. 

Commercial Observer: What is the history of Cabot Properties? How did your firm start? 

Franz Colloredo-Mansfeld: The firm goes back 40 years. My father ran a big development company, Cabot Cabot & Forbes, and as part of that business he formed an investment advisory affiliate called Cabot Partners. In 1989 and 1990 that business went through restructuring. The investment advisory affiliate separated off from the development company and became an independent firm that focused on advising large institutional investors, some of whom are still with us 40 years later, like New York State Teachers’ Retirement System. 

And how did you get into the industry? 

The early 1990s were not a good time in CRE. At that time, I’d finished business school at Harvard and began a career at McKinsey & Company, and earlier in my career I’d been an investment banker. But my father got sick with cancer in the mid-1990s, so I left McKinsey in 1996 and joined him at Cabot Partners. It was relatively small, 17 employees, and went through a complicated restructuring, and we took the company public in 1998 as an industrial real estate investment trust. 

We were an industrial REIT, a niche sector of the time. As it turns out, the year we went public in 1998, if you added up all sales online there were about $5 million in online sales, and now we’re over $2 trillion in online sales today, so the world has changed in ways that favor our sector, that’s for sure. We sold the public company in 2001, re-formed our business with a group of partners, and became a private equity fund sponsor. We sponsored our first value-add fund in 2002 and that began the series of value funds as we just finished Fund VII last year. 

Was it difficult to move from investment banking and consulting into CRE finance?

Perhaps I had it in the blood. As an investment banker, I was involved in lots of financings. I was primarily in the M&A group, corporate strategy, capital fundraising related to financing transactions, and that was useful experience, for sure, as at the heart of our business we’re an investment firm making acquisitions. But the experience at McKinsey was also very helpful: How do you lead a business? How do you think about strategy? How do you position the firm? How do you build a team? Those are all things I spend time on today. 

How has the industrial landscape changed since your firm went public 20 years ago? 

E-commerce is a huge driver of tenant demand. The investable universe has tripled over the last 15 years due to e-commerce, and that has led to institutionalization of the industrial property sector. When we went public, industrial REITs were only 4 percent or 5 percent of the overall public market of real estate; today it’s over 30 percent. What was the gold standard at the time, office and retail, those sectors today in the public markets are quite small. And that’s true of private institutional markets. 

The industrial sector is now the biggest of the four major sectors. Multifamily and industrial have emerged as the two biggest institutional property sectors, and we’ve tried to evolve our business in response to that.  

Before we get into that, how has your fundraising evolved in response to that technological shift?

The amount of institutional capital looking to invest in what we do has grown dramatically. In the old days, when we were raising our first fund, you were trying to convince investors that you could generate mid-teens returns from warehouses. That wasn’t an easy pitch. And the world has changed and people now see the opportunity in our sector.

Therefore the types of investors have expanded dramatically. Initial rosters were U.S. only, they were endowments, foundations who’d support first-time funds. We’re fortunate that a lot of our capital still comes from investors who joined our first fund, but the roster of investors has broadened to include different types of investors inside and outside the U.S. 

And your investment strategy? How has that evolved? 

In the early days, supply chains were focused on reducing cost for inventory. You had a dynamic at play where tenants, users, were looking to maintain very low costs for their supply chains. So they’d move to the next exit to save a nickel on their rent. It was a very competitive business and the dynamic wasn’t supporting rent growth, so our focus at the time was looking for opportunities where there was some arbitrage, where tenants would favor a particular type of location and give you a premium for that rent.

And we were very focused on competitive cost basis on assets. It was a value-focused strategy. So the strategy over time has remained consistent: We obviously care about the basis of the assets, but we increasingly focus on the deepest, most liquid markets and institutional flows that come into the sector. 

Which markets in particular? 

The major coastal markets. The Northeast, greater New York, New Jersey, Pennsylvania — that market is very attractive to us. The Baltimore-Washington corridor is attractive, Atlanta is a major industrial hub, South Florida because of the population growth and economic dynamism. Texas — Dallas is our biggest market. Houston is an interesting market. Southern California is a big one for us. Chicago, too. 

But the trends in the U.S. are now playing out globally. We have broadened our investment activity, first to England about 10 years ago, then to Northern Europe about seven years ago, and then to Australia about five years ago, and we just opened an office in Tokyo. We’re focusing on these major market economies where we see the same drivers: e-commerce, institutionalization, and the trend that’s amplified by COVID is a renewed focus on supply chains. 

Tenants are focused on maintaining inventory to support their business. The warehouse rent is a small percentage of overall supply chain costs — labor costs are the biggest factor and energy costs are the second-biggest factor. So they are willing to pay premium rents to maximize those other variables. They want buildings closer to population centers and closer to their workforce. 

Tell me about the Fund VII goals?

We’re trying to invest this fund at an interesting time, because pricing has improved, perhaps in a period where interest rates are still high but stabilized, so it’s easier to forecast and underwrite. We’re looking for opportunities where there is perhaps some distress among developers, or sellers of property that have portfolios unrelated to logistics, but logistics are the most liquid thing they have at the moment. So we’re anticipating that transaction volume across the U.S. will increase. The U.S. will be at least 70 percent of what we can do in Fund VII, as we do have limits on what we can do outside the U.S. 

What makes international investing tougher?

In Europe, deals are very expensive. Yields have been low and growth has been weak. That dynamic is changing, though. We have an inflection point in Europe. You have increased levels of e-commerce activity, there’s more demand and more limits on supply, the development is constricted in most major markets, in Northern Europe and England. So you’ve had strong growth in the last 18 months, and pricing will adjust more quickly there. 

In ways it’s more difficult than the U.S. With our institutional capital, which is primarily tax-exempt, the capital gains are not a factor for us when we invest in the U.S. But outside the U.S. we are exposed to taxes, so the hurdle rates for investments are higher for us for that reason. We are also hedging because most of our capital comes from U.S. investors, so we provide hedging for them for non-U.S. activity.

The U.S. has this advantage of being an enormously liquid, unified market, but the EU, while it’s a common currency, each country has its own regulations and tax structures, so it’s more difficult to transact in Europe and in Australia because we are managing the administration of all those transactions.

What are the downsides to private equity investing? It seems too good to be true. 

I wish it were easy. Every time we raise a new fund, you’re only as good as your last fund. We’ve had the wind at our back with all the trends playing out in our sector, but there are still risks out there. The Global Financial Crisis was a very difficult time for our sector. The largest public REITs almost went bankrupt. The dynamic of the GFC was not just a drop in demand, but capital structures caused firms to go under. We had a fund we raised in 2005 — and were investing in 2006, 2007 and early 2008 — and that turned out to be top of the market. We didn’t have a loss. That fund generated a positive result, but just barely, so we learned a lot. 

What lessons did you learn?

A. The capital structure. You can be a great investor, but if you don’t get the debt structure right it doesn’t matter. We had no defaults going through the GFC, but the leverage was higher and the result would’ve been better with lower leverage. We’ve since taken a more conservative approach with leverage. During the recent run-up in rates, we took leverage across our funds down — we have capacity to do that — so we learned from that type of experience.  

B. Quality buildings. The quality buildings were able to maintain occupancy. Maybe you don’t get the rent growth, but if you have a high-quality building, you’ll find a tenant in that building. One reason our focus has shifted toward development is we want the highest quality across the portfolio. In our view, there’s risk in doing development, but if you choose the right location and target, the deepest segment of the tenant market, you’ll find a tenant for your building. 

How has technology changed the industrial sector as an asset class?

There are different dimensions to that. Obviously, the impact on our business from e-commerce is a tech-related advancement that has been tremendously beneficial to us. The buildings themselves have evolved. There haven’t been dramatic changes but they need to appeal to major third-party logistics operators. You need more cubic space, better truck circulation, you need excellent access, and then in the last three to four years, particularly in Europe, you need a building that’s increasingly energy efficient.

So investments are made in HVAC systems, lighting systems, to reduce energy consumption, and then you have this additional opportunity to use these buildings to provide solar power to tenants or to communities. 

Sounds like a fascinating sector. How do you see non-industrial assets shaking out?

In our sector, there wasn’t a lot of distress, but there was a reset of pricing. In multifamily and office, you’ve had more pressure emerge from higher rates and lower yields. In multifamily, you’ve seen supply issues, and rent levels in many markets have not been growing. So that puts pressure on investors in those businesses. But in 2024 there will be opportunities for investors in that business. 

Office is more difficult. There are major structural factors at play, and a dynamic where it’s under-demolished. And so there needs to be an adjustment as buildings are repositioned as multifamily buildings or repurposed. I think that is years away, and I think you’ll find people make very strong returns, but you need a long time frame and patient capital to benefit. 

Last question: What are your hobbies? 

I’ve got four kids, they’re all grown now, so I like to chase them around, and I also have a grandson. I enjoy that a great deal. I like doing things with them. They are all skiers, all four kids are racers, skiing is a big part of our lives in the winter. We live on a farm north of the city that has been in our family for four generations, and it’s a shared passion. It’s mostly a horse farm, but it’s great to have these common pursuits.

Brian Pascus can be reached at bpascus@commercialobserver.com.

“This is in many ways a long time coming,” Stacom told CO. “Many moons ago I said [to the CBRE brass], ‘You ought to be thinking about a successor.’ ”

The details of the new firm, called Stacom CRE, are not fully formed yet, but since the announcement hit on Tuesday Stacom’s phone has been ringing off the hook from colleagues and well-wishers eager to congratulate her, or possibly do business with her.

“Some of my longtime clients [called and said], ‘I would love to be your first client,’ ” Stacom said.

Second up, Robert K. Fetterman, one of the legends of real estate who started RKF before selling it to Newmark (NMRK) back in 2019, is returning to Newmark after a four-year hiatus.

“Happy to report that this retail legend is back!” said Aurora Capital Associates’s Jared Epstein by way of announcement via Instagram on Tuesday.

Speaking of Newmark, it also grabbed Jonathan Firestone from Eastdil Secured to head up its debt platform with Jordan Roeschlaub.

But there were non-Newmark hirings, too. Chris LaBianca, who had headed up lending at UBS for the last decade, told us on Friday that he was headed to Natixis to lead its CMBS originations.

And for one more major bombshell this week in hiring: Macerich announced that their new CEO will be former Spirit Realty Capital president and CEO Jackson Hsieh, who will be succeeding Thomas O’Hern starting March 1.

These people all had a much better week than Nir Meir

Another big name came out of the real estate headlines this week — but not in the way he would have wanted.

Nir Meir, who had been one of the main heavies of HFZ Capital Group, was arrested and indicted in Miami-Dade County (days after filing for bankruptcy) in an $86 million fraud case that will have him extradited back to New York.

Among the charges that HFZ and construction firm Omnibuild were indicted on include whoppers such as larceny, conspiracy, falsifying business records, tax fraud and money laundering regarding the construction and sale of HFZ’s far west Chelsea condominium The XI on 11th Avenue.

But the Manhattan DA singled out Meir specifically. “These indictments depict allegations of widespread fraud within the real estate industry primarily spearheaded by one man: Nir Meir,” Alvin Bragg said in a statement. “My office’s Rackets Bureau is laser-focused on fraud in the construction and real estate industries and will continue to root out people who steal from investors and corrupt the market.”

Yikes.

A blast from the past

Remember Neumann? (No, not that Newman.) Adam Neumann. The guy who founded WeWork? The guy who raised billions of dollars on the promise of coworking? The guy who rented millions of square feet becoming (for a little while) the biggest tenant in New York? The guy who hired Run-DMC to DJ WeWork parties and smuggled marijuana on a private plane? The guy who turned out a historically bad IPO, crashed as CEO, borrowed hundreds of millions against overpriced stock, and was played by Jared Leto in the television show?

He’s back.

And not back in the sense that he’s got a new real estate venture (which he does, by the way). He’s back trying to buy WeWork!

Along with Dan Loeb’s Third Point, Neumann is attempting to buy the coworking firm out of bankruptcy — however, the left behinds at WeWork are none too happy about it. According to an article in Bloomberg, Neumann’s lawyer Alex Spiro at Quinn Emanuel Urquhart & Sullivan has been writing angry letters to WeWork to get financial information out of them.

“We write to express our dismay with WeWork’s lack of engagement even to provide information to my clients in what is intended to be a value-maximizing transaction for all stakeholders,” Spiro wrote.

The nerve!

Speaking of blasts from the past…

What would have been one of the biggest leases in all of Los Angeles last year — a 300,000-square-foot deal at the Gas Company Tower in Downtown L.A. for the city’s Housing Department — was quashed at the last minute when the CMBS bondholders at the 52-story building rejected it.

The rejection of the deal was doubly painful because the building needed a big tenant. It had gone into receivership in April of 2023 after its owner, Brookfield, defaulted on $748 million in debt.

Well, it looks like it’s back, baby! (Yes, that was a little George Costanza of us. We guess Neumann … er Newman put us in the mood.) 

After shopping around other properties, the L.A. Department of General Services came back and a deal is currently in the works to put five city departments in 310,000 square feet of space for the next 15 years.

Speaking of big leases…

No, there wasn’t quite a 310,000-square-footer on the East Coast, but there were a few biggies. Intercontinental Exchange (which owns the New York Stock Exchange) struck a deal with Fisher Bros. for 142,946 square feet at 1345 Avenue of the Americas. And the international law firm Dentons renewed 159,500 square feet at Rockefeller Group’s 1221 Avenue of the Americas. (Sixth keeps sizzling!)

There were even some meaty non-Avenue of the Americas leases, like Burlington Stores, the discount retail chain, which signed a 16-year expansion of its offices by 67,865 square feet at Empire State Realty Trust’s 1400 Broadway.

But we also saw a notable closing, or two.

Essex Crossing, the Lower East Side mixed-use complex, announced that it was shutting down its subterranean food court Market Line and clearing out all remaining vendors by April 1. Which shouldn’t have been the biggest surprise in the world. Veselka, Nom Wah Tea Parlor, Cafe Grumpy, Pho Grand, Slice Joint and Grand Delancey had already pulled up stakes.

Restaurants remain hard. And that’s true everywhere. We also learned that L.A. favorites Manzke and Bicyclette are closing shop.

It’s also true across retail.

“Demand for retail space has resulted in a mixed trend, leaning towards the positive side as excess retail space is gradually being worked out of the market,” a new NAI Capital report said. “Still, the retail market has a way to go to return vacancy to ‘normal’ levels.”

But things do return. And not only will that include retail, it might even include (shudder) office.

Some players are even preparing for such a return. Several distress funds are gearing up for the next phase of the real estate market, and their plan might make for some interesting Sunday reading.

See you next week!