The bet is that the promised land of demographic shifts and lower costs of living isn’t immune to the fiscal and systemic pressures hitting CRE.
Another day, another set of companies interested in the potential that CRE distress might offer. Atlanta-based real estate investment platform CARROLL Credit is working with institutional partners to pull together $250 million for structured capital investments in multifamily primarily found in the Sun Belt.
That region as well as the West have been seen by the industry as fertile grounds for profits, given shifts in demographics and businesses moving to the areas. Those changes have directly and indirectly driven demand for housing. As is true elsewhere in the country, costs of buying a house, compounded by rising mortgage rates, have pushed many people firmly into the arms of rental living.
But it’s easy to misapprehend the situation. Talking of the Sun Belt market in particular, David Lynd, CEO of the Texas-based Lynd Group, who has acquired and developed real estate there for 40 years, previously told GlobeSt.com, “It’s divided into a lot of different submarkets like Arkansas, Oklahoma, Texas, Florida. It is not a one-size-fits-all solution. The bottom line is they’re having their ‘day in the sun.’ We love the Sun Belt, we love everything it represents, but this pandemic certainly threw gas on the fire and accelerated markets into a big population boom.”
“It’s harder to underwrite deals, even though the rent roles are coming,” Swapnil Agarwal, CEO of Nitya Capital, told GlobeSt.com. “A lot of people are betting on rent growth.” They justified low cap rates with the promise of future higher rents, but how long will renters have the same income multiples of rent that have been available?
Back to Carroll. As a PR rep for the firm wrote, “high cap rates caused by rising interest rates and other factors – affecting developers/owners who bought properties too high and at low cap rates” are a major reason Carroll expects distressed multifamily properties. Following that are frozen markets, where owners can’t get loans to complete deals, and maturing loans that might leave many unable or unwilling to refinance at higher rates.
The plan is for CARROLL Credit to leverage the parent company’s operational capabilities, as it currently has 32,000 multifamily units across nine states. According to the company, the choice of properties will be those that, if necessary, it would be comfortable taking over in case the owner can’t continue payments.
Carroll is not the only platform interested in the potential that current conditions might provide. Greystone Commercial Mortgage Capital, an affiliate of CRE finance firm Greystone, and Inlet Real Estate Capital formed a joint venture to provide short-term, floating-rate capital to troubled CRE property owners.
The original article by Erik Sherman can be found on GlobeST.com https://www.globest.com/2022/11/09/carroll-credit-gets-ready-for-multifamily-distress-in-the-sunbelt/