Demand and investor interest in the co-living model are on the rise, even as skepticism over scalability and affordability remains

April 01, 2019 [Full article here]

It seems co-living is finally coming of age. The problem is how to scale.

The high-end communal housing model is expanding in a number of cities, including New York, and fewer property owners, investors and bankers are cringing at the thought.

In late March, Tishman Speyer teamed up with local co-living company Common to launch Kin, a shared living space for families in the city. The move came just after the Collective paid $58 million to buy Long Island City’s 125-key Paper Factory Hotel, the London-based co-living startup’s second New York real estate purchase in five months.

But unlike its sister concept co-working, which often involves repurposing singe-floor office leases, co-living’s requirements are far more robust. In many cases, entire buildings with shared kitchen and other communal spaces are needed to make it work.

“To scale, you really have to do ground-up [development],” said Common’s co-founder and CEO, Brad Hargreaves. That’s a path his four-year-old firm has taken in order to expand nationally, he noted.

Some landlords are reluctant to overhaul their properties to accommodate that, and others still have doubts about whether co-living can compete with traditional rental housing.

But those in the business claim demand for their services is rising, with more tenants willing to pay for flexible leases and all-inclusive amenities. In 2018, Common said it had more than 14,000 applications for just 700 open beds nationwide.

Debt brokers, meanwhile, say banks and other lenders are becoming more comfortable with co-living, thanks to an increase in returns that can beat out other rental properties. Matthew Polci, of the brokerage Mission Capital Advisors, said the “higher rents that co-living units can achieve typically translate into an operating margin [that’s] 30 to 50 percent higher than conventional multifamily.”

Polci, who has negotiated financing for co-living start-ups, said lenders interested in co-living are the same firms providing debt for standard rental apartments, student housing and hotels. Their acceptance of the co-living model has steadily increased within the past two to three years, he added.

That shift comes as European co-living companies flood into the U.S. in an effort to build on a concept that has swelled in popularity overseas. However, some remain skeptical about co-living’s viability given American cultural norms. “If you think about Europe in general, and people who travel there, they stay in hostels — it’s much more of a transient community,” said Avison Young investment sales broker Brandon Polakoff, who’s based
in Manhattan. “In the U.S. … people have opted for hotels in the major cities.”

The co-living calculus

With the fate of co-living’s growth in New York heavily leaning on new development, the sector could also face the same challenges as affordable housing: a lack of supply constrained by high land costs, strict zoning laws and a relatively shallow, though growing, pool of financing options. The pitch to investors and lenders is simple: Only affluent young professionals can afford to rent their own one-bedroom apartments in the city’s more desirable neighborhoods. Average monthly rental prices in Manhattan and Brooklyn are $3,161 and $2,722 respectively, according to recent reports from the brokerage MNS.

Co-living residents rent bedrooms in shared spaces, furnished and stocked with virtually anything they would need — from new friends to an array of entertainment options. In return, they pay a premium on a square-foot basis.

As a result, co-living spaces can cost more than a bedroom in a shared apartment. The lowest monthly price offered by Common is $1,340 at a building in Crown Heights, while studio apartments at the We Company’s WeLive outpost at 110 Wall Street start at more than $3,000 a month.

While prospective renters can find rooms in some shared apartments for closer to $1,000 a person each month, co-living providers seek to give customers a better arrangement when it comes to the quality of the bedrooms and shared amenities.

New York-based co-living startups, such as Common and Ollie, began small in boroughs and have since branched out to do multiple ground-up projects nationwide. European outfits like the Collective and Germany’s Quarters, meanwhile, have sought to capitalize here in the States on their success at home.

Quarters, a unit of the Berlin-based Medici Living Group, has raised $1.4 billion in equity and debt for co-living projects internationally, including $300 million in North America. The Collective plans to build the country’s largest co-living development at Brooklyn’s 555 Broadway, with 500 apartments, and turn the Paper Factory in LIC into a “short-stay” co-living community.
Mission Capital’s Polci said that when talking to banks and other lenders about co-living projects, he points to the premiums many can earn. Larger banks have their preferences for how co-living deals are arranged, said Common’s Hargreaves, noting that many prefer hard leases, which require a good credit rating, over management leases.

Hargreaves started Common in 2015 with the conversion of a walkup Crown Heights rental building the company bought for $4 million. Today, more than 80 to 90 percent of his business is in new development, which has been the quickest way to scale, he said. In February, Common launched a private equity fund, in partnership with Mexican multifamily investors, aimed at ground-up developments internationally.

But Ben Thypin, whose firm Quantierra owns a Crown Heights building where Common is a tenant, said it remains to be seen if investor interest in co-living in New York will match that of prospective renters. That potential shift could help determine the business model’s long-term viability in the city, he added. “A lot of these companies have raised a lot of development money, but regular real estate investors have not bought any co-living properties,” Thypin said. “We don’t have any proof yet that they’ve bought into the model.”

High expectations

One ongoing question is whether co-living can reinvent the wheel of apartment renting on a scale comparable to co-working’s office leasing impact. For Medici Living Group’s Gunther Schmidt, a former folk musician who launched Quarters in 2017, the answer is yes.

“I see an opportunity to build a platform that is 20 to 30 times bigger than anyone else on the market,” Schmidt said. “We want to be the WeWork of co-living.” Confidence in Quarters’ co-living model is high in Europe. Schmidt said he plans to open 6,000 beds across the continent, thanks to a $1.1 billion investment Medici landed in December from Luxembourg-based real estate investor CoreState Capital Holding. Quarters received $300 million from W5 Group, a London-based family office run by German real estate investor Ralph Winter, the following month.

Buoyed by those funding rounds, Schmidt has embarked on a tour around the world to promote the benefits of co-living. In February, Quarters announced it would manage 84 units at 1190 Fulton Street in Bedford-Stuyvesant — a project being developed by Brooklyn’s Bawabeh Realty Holdings — as part of a plan to open 1,300 co-living beds in the U.S.

Schmidt, who also founded a company that conducts online surveys, said he discovered co-living’s potential after enticing prospective employees to his previous venture by offering them free accommodations.

On the other end of the spectrum, the We Company has shown less confidence in its WeLive division. The co-working giant’s co-living endeavor is one of three businesses under the parent company’s umbrella. But WeLive only two has locations, in Washington, D.C., and Downtown Manhattan, with a third planned for Seattle. That expansion rate that pales in comparison to its core WeWork business.

Kushner Companies’ Charles Kushner told TRD last year that he ditched WeLive as an anchor tenant at his One Journal Square apartment complex in Jersey City, despite losing a $6.5 million annual state tax credit. Kushner said the communal living plan put forward by WeLive was “bastardized” and could cripple his plans for the development.

“[If] their concept was wrong, we would have to rebuild the building,” Kushner said. The We Company declined to comment for this story. Though landlords like Kushner have yet to be convinced, there are other potential avenues for co-living’s growth in New York.

In November, the Department of Housing Preservation and Development held a conference calling for submissions from co-living firms to partner on an initiative called ShareNYC, which aims to address the city’s affordable housing crisis. The conference attracted Common, Ollie and the We Company, all of which are expected to submit partnership proposals. Landlords including Brookfield Asset Management and CIM Group also attended.

“We are very optimistic about partnering with these firms,” said Leila Bozorg, HPD’s deputy commissioner for neighborhood strategies. “There’s a strong potential this model can work.”

Common, a New York co-living company started in 2015, recently formed a partnership with Tishman Speyer.

The agency would not disclose which companies, or how many, submitted proposals. Since the November meeting, Ollie has issued its own call for partnerships with landlords to make a proposal to HPD. Bozorg said the co-living model would need to be aligned with the city’s requirement that rent be based on income parameters and not surpass 30 percent of an individual’s monthly wages, rather than a set dollar figure. Whether that comes in the form of subsidies remains to be seen, he added.

“There are some features of shared living that will make a unit more naturally affordable than traditional apartments,” said Bozorg, noting that partnerships between HPD and private enterprises will likely be announced before year’s end.

But issues around affordability underscore a major question for co-living companies as they seek to penetrate New York’s hypercompetitive real estate market. The Collective has already committed to making 30 percent of the 500 apartments at 555 Broadway affordable, but those units will be managed by HPD’s housing lottery. The company’s 30-year-old founder, Reza Merchant, said the details of how those apartments are put together still need to be worked out with the city, but he emphasized that the affordable units will “be included in the wider [co-living] environment.”

Merchant said he also hopes to participate in ShareNYC.

Eternal struggles

Co-living companies are confronting other issues in New York apart from affordability. That includes security deposits, the heaping piles of cash landlords collect when they sign new leases. Complaints regarding the return of that cash are overflowing, with the New York attorney general’s office telling TRD last year that it recovered $920,000 for tenants who complained of having their deposits withheld in 2016 and 2017.

Common was threatened with a lawsuit in 2017 from a tenant who alleged it had not returned her $2,000 security deposit at a Boerum Hill building. Common said that responsibility was with the property’s landlord.

Investors in co-living properties in the city may also have to wait a while for their returns. Ollie has raised at least $17 million since it launched in 2012, including a Series A funding round in 2018 that involved the investment arm of the Moinian Group.

But the co-living startup’s slow growth speaks to the time it takes to acquire and renovate rental apartments in New York. Ollie is now managing the bottom half of Simon Baron’s Alta rental complex, a 467-unit development on Northern Boulevard in LIC. But the project took four years to develop — a potential warning sign to investors eager to reap the rewards from co-living’s rise.

“It’s got a number of challenges,” said Zillow senior economist Grant Long. “The co-living trend is asking renters to make a different set of trade-offs. But we are seeing real strength in the rental market right now, and there is a lot of money to be made for companies to take advantage of that.”

Some co-living companies claim to have quicker turnarounds.

New York-based Roomrs, a membership co-living service, now has 400 rooms in 160 apartments throughout Brooklyn and Manhattan. Unlike Ollie, Roomrs does not lease out entire chunks of buildings, and instead furnishes apartments for rent so tenants can take residence within five days.

In a Roomrs pitch deck presented to landlords and shared with TRD, the company states that customers stay for an average of 7.9 months at a mean price of $1,577. Founded in 2017, Roomrs has since raised $2.4 million in venture funding.

Merchant, who started the Collective as a London School of Economics student in 2010, said co-living buys something that can’t fit into a pitch deck or a deal sheet.

“We’ve had people that at one point were in a really bad place in their life, almost suicidal, and have come to live in the Collective and gained that sense of purpose,” he said. “They have turned things around completely. Real estate is a vehicle through which we see that.”

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Buch the Trend — A Commercial Real Estate Blog

The Place for PACE

By Steve ‘Buch’ Buchwald – The Debt & Equity Finance Group

(Steve ‘Buch’ Buchwald, New York, 3/25/2019) — In my previous article on Historic Tax Credits, we discussed one complicated financing structure commonly used by developers to capitalize their deals. In this article, we will discuss PACE Financing. I will do an article on several of these – a quick list includes Historic Tax Credits, PACE Financing, EB-5, and Ground Leases. Each of these specialty finance products adds layers of inflexibility to recoup equity, make refinancing decisions, account of cost overruns, and exit or refinance at attractive terms. My next article will be about EB-5, which was similarly popular a few years ago and now many developers regret the decision to take such an inflexible, difficult to deal with piece of capital just to save a few hundred basis points during construction on a small piece of the capital stack.

If you are in the commercial real estate development or financing business, I would be surprised if the term PACE Financing hasn’t crossed your desk by now. So…what is PACE? PACE stands for “Property Assessed Clean Energy”. Putting aside the minutiae of energy efficiency and what costs qualify, the key components to address are whether to employ PACE, where it lies in the capital stack, its security and repayment terms.

Before we explore what PACE really is, let me first address how it is pitched. PACE lenders have hired some amazing sales people and put out some extremely compelling materials about their programs. These materials paint a rosy picture – at the end of this article I will address how their materials could present a more balanced view – but borrowers are often drawn to low interest rate financing alternatives regardless of the potential costs and penalties down the road or across the rest of the capital stack. Like all new forms of financing, developers should be discerning and cautious. Low interest rate financing alternatives that look attractive on paper can have unintended consequences as the project progresses, particularly when it needs to be refinanced, recapitalized, or sold.

So how is PACE pitched? It is pitched as a long-term, low cost mezz alternative. Why pay 12% for mezzanine debt or preferred equity when you can get PACE for 7% fixed? However, looking behind the curtains, PACE cannot be compared to mezz in terms of security and its position within the capital stack. A PACE loan is a self-liquidating loan that is secured by a tax lien and is repaid through tax payments over a 20-year period. Like any tax lien, it is in first position, ahead of any senior lender, and it is literally on the state’s tax assessment roll. That is why some states allow PACE and some do not. But if PACE is the most senior piece of capital in the capital stack, why should it get a higher interest rate than the senior lender? Good question – it shouldn’t.

The Place PACE by Steven ‘Buch’ Buchwald, Managing Director – The Debt & Equity Finance Group

Putting PACE into your capital stack also has a potential cascade effect. If the senior is getting pushed up in effective LTV by the PACE loan, then it will either charge a higher spread on what should be a much larger piece of capital than the PACE piece would represent, effectively killing or more than killing whatever benefit it should provide over a traditional mezz loan, or it will reduce its leverage dollar for dollar at the same rate. Either way, that is not what is shown in PACE marketing materials where it looks as if the senior lender keeps its leverage the same at the same rate. Add on top of this a yield maintenance or hefty 5%+ prepay penalties that reduce in amount but go out a very long time, a reduced NOI due to the tax lien upon refinance, and other ancillary fees, one will generally find that PACE can be an expensive financing alternative, particularly as it pertains to recourse averse developers, developers with larger projects, and merchant builders or partnerships with fund LP capital that want to exit quickly.

To be clear, there is a place for PACE. If you are looking to develop a smaller scale property, desire to hold on to the property for a long time, are in a state that allows for PACE, and are employing local community or regional senior bank debt (typically partial to full recourse), then PACE may make sense. These lenders just care about their Loan to Cost and are underwriting to stabilized DSCR.

One of the perks of PACE is that the green energy aspect of it allows for a rationale to pass the tax lien on to tenants in commercial buildings through their lease or to guests at a hotel as an ancillary charge. While this does affect the end user’s effective rent or ADR, respectively, the underwriting can certainly pass muster for these local and regional bank lenders. Going back to the PACE marketing materials where the lender is pushed up in the capital stack and keeps their loan amount and rate the same – this is now a possibility – and the PACE works as intended (and marketed). It is no wonder then that almost every senior lender that has closed with PACE financing has this lender profile.

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Hotel is Ace Hotels’ first “Sister City”-branded property

NEW YORK (March 20, 2019)

Mission Capital Advisors announced that it has arranged $80 million of bridge financing for the recently completed Sister City hotel, a 200-key hospitality property located at 225 Bowery, at the intersection of the SoHo and Lower East Side neighborhoods of Manhattan. The Mission Capital team of Jonathan More, Steve Buchwald, Ari Hirt and Jamie Matheny arranged the first-mortgage financing from Bank Hapoalim on behalf of a partnership between Omnia and Northwind Group.

After purchasing the property, Omnia and Northwind commenced a major construction campaign, adding three floors and transforming the century-old building into an amenity-laden, food-and-beverage-centric hotel. The first Sister City property created by Ace Hotels, the 14-story building will feature a 234-seat café restaurant, a 150-seat rooftop bar with sweeping views of Manhattan, and a ground-floor garden.

“We see that the Bowery is really becoming a prominent nightlife destination,” said Northwind managing partner Ran Eliasaf. “It has truly become the bridge between the Lower East Side and Nolita in Manhattan.”

A new concept from Ace Hotels, which will manage the property, the Sister City brand brings a fresh experience to travelers, offering comfort, beauty and human connection. Acclaimed for its hotels’ innovative design and development, Ace is one of the premier hotel operators, with nine other properties – and 1,400 rooms – in prime markets across the country.

Omnia and Northwind previously worked together on a number of successful projects, including a luxury rental building at 351 West 54th Street in Hell’s Kitchen, which they sold to Bentley Zhao in 2017 for $34 million.

The Omnia Group is a full-service development, design, and building firm focused on commercial and residential real estate in Manhattan. Run by President David Paz, Omnia has completed over 20 projects in Manhattan with over 475,000 square feet of residential units with a combined value of over $300 million.

The Northwind Group, led by Ran Eliasaf, is a Manhattan based real estate private equity firm focused on commercial, value-add residential, hospitality, and senior-living properties.

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BISNOW – March 11, 2019 | Catie Dixon, Managing Editor

This series profiles men and women in commercial real estate who have profoundly transformed our neighborhoods and reshaped our cities, businesses and lifestyles.

David Tobin, an entrepreneur and aviation lover who still gets irked by the deals he didn’t do, co-founded Mission Capital in 2002. The real estate capital markets company, which is HQ’d in New York and has offices in California, Texas and Florida, has advised financial institutions and investors on more than $75B of loan sale and financing transactions plus more than $14B of Fannie Mae and Freddie Mac transactions.

Tobin also founded EquityMultiple, worked in brokerage and did a stint with Dime Bancorp — while working in asset resolution there, he had a role in the liquidation of the $1.2B nonperforming single-family loan and REO portfolio.

Courtesy of David Tobin
Mission Capital Advisors principal David Tobin and his son Lorenzo bookend Jean Jacques Peken Josue in Haiti. Lorenzo does a service project each year for Clean Hands for Haiti.

Outside of work, he is a lecturer on whole loan valuation and mortgage trading at New York University’s Real Estate School, is a member of the Real Estate Advisory Board of the Whitman School of Management at his alma mater, Syracuse University, and is a board member of the charity Clean Hands for Haiti. He keeps busy raising his two boys and, as an English major, feeling distress over grammatical errors he receives in emails.

Bisnow: How do you describe your job to people who are not in the industry?

David Tobin: In its most simple form, Mission brokers portfolios of debt, raises capital for commercial real estate projects and provides trade support for massive single-family loan portfolio transactions. Most people outside of the finance business don’t understand what we do, so I describe it in terms of my mother’s home mortgage. Every time she receives a notice from her mortgage company to send her mortgage payment somewhere else, that means that someone has sold or brokered her loan. I tell her that her home mortgage is just like a bond, which is a loan, and bonds are bought and sold.

Bisnow: If you weren’t in commercial real estate, what would you do?

Tobin: I have always been fascinated by the commercial aviation business and companies like Boeing, Airbus, Embraer, Bombardier and the like. One of my favorite authors when I was younger was Michael Crichton, and his book “Airframe” was a really interesting description of the business. It’s all in the wing design, apparently. I also find the energy business really interesting, from renewables to oil to the geopolitical issues. I have spent a lot of time reading about PDVSA, the national energy company of Venezuela, and the terrible value destruction of its franchise. Mission has brokered many debt trades of aviation-, equipment- or property-backed loans, and in a prior life, I sold hundreds of excess properties for Chevron, Exxon, Getty, Sunoco and Texaco.

Bisnow: What is the worst job you ever had?

Tobin: Aside from paper routes, my first job at 16 was working on the floor of the New York Stock Exchange as a runner during the summer of 1984. It was amazing. However the next summer, I worked for a town in Westchester as a laborer. I did a rotation, sort of like a rotation in a summer internship at Goldman … but not. We did sidewalk replacement, gardening work and garbage pickup … so for two or three weeks, I was, in fact, a garbage man. That was a tough and disgusting job. I always tell my son to be respectful to the NYC Sanitation folks because they don’t have it easy.

Courtesy of David Tobin
Mission Capital Advisors principal David Tobin skiing in British Columbia

Bisnow: What was your first big deal?

Tobin: There were two first big deals. My first financing transaction was to refinance a discounted payoff of a $47M development bond secured by the Newark Airport Hilton. I met the owner in a real estate class at New York University taught by Phil Pilevsky. My first really large loan sale transaction was during the Russia Crisis in 1998 and I advised Daiwa on the sale of their entire bridge loan book of business. I think it was $250M and at the time, it seemed like a monster. In retrospect, those transactions were small but in the ’90s, $100M was a big deal.

Bisnow: What deal do you consider to be your biggest failure?

Tobin: There are several financing transactions that I have been involved in that died for one reason or another, and every time I drive by those properties, they irk me. The St. Moritz Hotel, which Ian Schrager was buying and for which I was working on the financing team, was one of them. Watching the creative process of Schrager was incredible and memorializing it in a financing package was a really interesting assignment. First Boston had provided a guaranteed take-out, and we were tasked with arranging a construction loan. We brought in a British bank who was ready to go and then First Boston’s lending platform fell apart in 1998 and so did our deal. I also went into contract on my loft building in SoHo right after 9/11 at a ridiculously low basis. I cut a deal to deed two apartments to artist-in-residence tenants living above and below me and then went out to arrange financing. It was a tiny amount in retrospect, but it simply was not available. I lost a portion of my deposit to get out of the transaction and it aggravates me to this day.

Bisnow: If you could change one thing about the commercial real estate industry, what would it be?

Tobin: I wouldn’t change a thing. It’s a perfectly imperfect illiquid business which has maintained its margins, opportunities and approachability through multiple technological booms. Each time a tech wave comes along, the nattering nabobs of negativity say they are going to make it perfectly liquid, tokenize space and buildings and trade it on a screen and it never happens.

Bisnow: What is your biggest pet peeve?

Tobin: People who write “principle balance” instead of “principal balance”, and in a broader context, as an English literature major, bad business writing and poorly written emails.

Bisnow: Who is your greatest mentor?

Tobin: My dad and then my wife. I used to go to the office with my dad on Saturdays when I was a kid. He was an attorney at Skadden and then for a reinsurance company. He taught me my work ethic. My wife was a very successful equity portfolio manager for many years and is the person whose business advice and acumen I most respect now. She is my biggest champion and motivator now (and a great mom).

Bisnow: What is the best and worst professional advice you’ve ever gotten?

Tobin: Best: Don’t focus on being right, focus on getting what you want. Second Best (I think it’s a Sam Walton quote): Some people spend 100% of their time dreaming and never get any work done. Some people spend 100% of their time working and never achieve any of their dreams. I spend 10% of my time dreaming and then 90% of my time working to achieve those dreams. Worst: Life is a marathon. I disagree … life is a series of sprints.

Courtesy of David Tobin
Mission Capital co-founder David Tobin and his wife, Emily

Bisnow: What is your greatest extravagance?

Tobin: Our New York office is pretty deluxe, in a minimalist industrial sort of way. Its 35 floors above Madison Square Park with a 360-degree view. We found it, designed it and purpose built it. I find it motivating to work here. I think others do as well.

Bisnow: What is your favorite restaurant in the world?

Tobin: It’s a three-way tie. Odeon, Raoul’s and Balthazar. My wife and I took out Balthazar for an entire Saturday afternoon for our wedding reception. Angry Europeans were banging on the windows trying to get in.

Bisnow: If you could sit down with President Donald Trump, what would you say?

Tobin: I’m generally speechless on the “noise”, but as it relates to business, perhaps, “Continue to be the change agent you have been with corporate tax reform and necessary deregulation but don’t ignore those who better understand related economic issues, like trade and maintaining alliances. Good managers are good delegators.”

Bisnow: What’s the biggest risk you have ever taken?

Tobin: Starting Mission Capital … and going heli-skiing.

Bisnow: What is your favorite place to visit in your hometown?

Tobin: Edo Plaza Hibachi and Four Corners Pizza.

Bisnow: What keeps you up at night?

Tobin: Many things … finding our next opportunity, competitors, parenting, the uncertain state of the world.

Bisnow: Outside of your work, what are you most passionate about?

Tobin: My family, our time together and raising our two boys … and skiing … and occasionally sailing.

By Cathy Cunningham | February 28, 2019 9:30 am

The view from Soho Beach House’s rooftop. Photo: Alexander Tamargo/Getty Images for Atlantico Rum

Soho House has scored $117 million in debt to refinance Soho Beach House, its Miami flagship hotel at 4385 Collins Avenue, sources told Commercial Observer.

Citigroup provided a $55 million senior loan in the deal, while Rexmark provided the $62 million mezzanine loan.

The deal closed Wednesday. Mission Capital Advisors arranged the financing on behalf of Soho House.

The property was originally erected as Sovereign Hotel in 1941 before its redevelopment into the 16-story Soho Beach House hotel and members’ club in 2010.

Soho House—which is majority-owned by billionaire Ron Burkle’s The Yucaipa Companies as well as its founder, hotelier Nick Jones—acquired the hotel from Ryder Properties in 2008. Architect Allan Shulman designed the South Beach property, blending old and new in encompassing the original structure along with a new tower.

Today, the restored Art Deco building features 50 luxury suites, two restaurants, a Cowshed spa, a screening room, a 100-foot swimming pool and an eighth-floor rooftop terrace bar and plunge pool with ocean views.

The Soho House flag owns and operates exclusive, member-only clubs, hotels, spas and restaurants with 23 locations in Europe, North America and Asia. Globally, the company has almost 100,000 members.

Officials at Citi, Rexmark and Mission Capital declined to comment. Officials at Soho House did not immediately return a request for comment.

SAN ANTONIO, Texas (Feb. 25, 2018)

Mission Capital Advisors announced that it represented Entrada Partners in the sale and financing of a 484,369-square-foot industrial portfolio in San Antonio, Texas. The Mission Capital team of Will Sledge and Kyle Kaminski arranged the sale on behalf of both Entrada and the seller, a CMBS special servicer. The Mission Capital Debt and Equity Finance team of Alex Draganiuk and Lexington Henn arranged the non-recourse acquisition loan.

The portfolio comprises four properties, three of which are located just inside I-410 in the northwest of the city, and the fourth just minutes away in Leon Valley. The portfolio’s total occupancy is 88 percent. The properties include:

• 7402-7648 Reindeer Trail, a five-building, 251,125-square-foot distribution property

• 1700 Grandstand Drive, a three-building property, which features 59,863 square feet of light industrial / flex space

• 7042 Alamo Downs Parkway, a 27,987-square-foot light industrial / flex property

• 5405 Bandera Road, a 145,394-square-foot distribution center just over the San Antonio border in Leon Valley

“Entrada was purchasing this property from a CMBS special servicer, and we were presented with a very limited timeframe in which to close the acquisition financing,” said Draganiuk. “With four properties serving as collateral and a fair amount of required maintenance, this was a complex deal for lenders to underwrite, but we were able to close a non-recourse loan with a regional bank.”

Added Draganiuk: “By canvassing the capital markets for the best offers, we were able to secure very strong terms for Entrada. The mortgage was structured interest-only for the first several years, and also featured release prices for the different properties, giving Entrada significant flexibility to execute its business plan.”

For Entrada, the four properties were attractive because of their significant upside as well as their geographic location. Headquartered in Los Angeles, the firm has a regional office and significant holdings in San Antonio, and is ideally positioned to unlock the portfolio’s full value.

“The investment represented a fantastic opportunity to expand our presence in the San Antonio market,” said Reuben Berman, founder and partner of Entrada. “We believe San Antonio provides a great investment environment due to its job and population growth, diversified economy, abundant work force and affordable cost of living. San Antonio is the 24th largest MSA in the United States, but has the 3rd highest population growth rate (15.5% between 2010 and 2017). This growth is naturally creating more demand for real estate to live and work in.”

By Timea Matyas | Commercial Property Executive

Entrada Partners Acquires San Antonio Industrial Portfolio

The four properties have a combined 484,369 square feet and an 88 percent occupancy rate. All the assets are close to the Interstate 410 loop.

Entrada Partners has acquired a four-property, 484,369-square-foot industrial portfolio in San Antonio, Texas. Mission Capital Advisors arranged both the sale and the financing of the assets. The portfolio’s total occupancy is 88 percent.
Three of the four assets are located within the Interstate 410 loop, close to the interstate in the northwest area of the city, and all are within 4 miles of Ingram Park Mall. The properties are:

• 7402-7648 Reindeer Trail, a five-building, 251,125-square-foot distribution facility

• 1700 Grandstand Drive, a three-building property which includes 59,863 square feet of light industrial/flex space

• 7042 Alamo Downs Parkway, a 27,987-square-foot light industrial/flex property

• 5405 Bandera Road, a 145,394-square-foot distribution center

Mission Capital Advisors’ Will Sledge and Kyle Kaminski of the asset sales team arranged the transaction on behalf of the seller. Alex Draganiuk and Lexington Henn of the company’s capital debt and equity finance team arranged the non-recourse acquisition loan on behalf of the buyer. In late 2018, the company also arranged a $13 million floating-rate financing for a Chicago retail asset.
“The mortgage was structured interest-only for the first several years, and also featured release prices for the different properties, giving Entrada significant flexibility to execute its business plan,” Draganiuk said in a prepared statement.

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Buch the Trend — A Commercial Real Estate Blog

“An Overview of Historic Tax Credit Transactions”

By Steve ‘Buch’ Buchwald – The Debt & Equity Finance Group

(Steve ‘Buch’ Buchwald, New York, 2/5/2019) — As it becomes more and more popular to gut renovate beautiful old buildings centrally located in various markets across the county, Historic Tax Credit transactions are becoming more common. Much to the chagrin of lenders, HTC deals have their own rules and, unfortunately, not all these transactions have identical structures. This further convolutes what is already a very complex and esoteric intricacy to commercial real estate transactions.

So, let’s back up. Historic Tax Credits can be either Federal Tax Credits, administered by the National Park Service (NPS), or State Tax Credits, administered by the state in question. These are based on qualified rehabilitation expenditures (QREs). While State Tax Credits can be relatively straight forward, the Federal Tax Credit rules often dictate complex org chart structures and create confusion among developers and lenders alike.

After a new set of IRS tax guidelines applicable to HTCs in 2014 were issued, the outright upfront sale of HTCs was prohibited and instead the tax credit investor had to become an investor in the transaction. The upfront payment was capped at 25% of the purchase price of the tax credits and the investor now had to have “skin in the game” throughout the construction period.

This resulted in two different structures:

The Single-Tier Structure – the structure whereby the tax investor is admitted as a partner of the property-owning entity and that entity is thus entitled to claim the HTCs.
The Master-Lease Structure – The property owner leases the property to an entity owned at least 99% by the tax investor. The master lessee in turn obtains a 10% stake in the property owner. While the property owner funds the QREs, it is permitted to pass the HTCs to the master lessee and thus to the tax investor through its interest in the master lessee.

If it sounds complicated, it is because it is. Even experienced lenders often balk at having to sign a subordination, non-disturbance and attornment agreement (SNDA) with the master-lease structure, claiming they will not subordinate to anyone. However, this is a must for HTC transactions since the SNDA prevents the collapse of the master lease structure upon foreclosure and, in turn, protects the tax credit investor’s rights to the HTCs. These tax credits can then be used by the investor over the five-year compliance period (20% per year) after obtaining Part 3 approval (the final NPS sign-off) post-construction. During this time, any take-out financing must also agree to sign a SNDA with the tax credit investor.

Another common point of confusion is how the HTCs can be used as a source of funding. There are generally three ways to capitalize a project with Federal HTCs:

A tax credit investor invests through the Single-Tier Structure and as a partner is entitled to the HTCs. This is straightforward as this investor would come in as a traditional LP partner. That said, this is incredibly rare and is not the standard for HTC commercial real estate transactions.
A tax credit investor purchases the HTC’s with the Master-Lease Structure and funds 25% of the HTC purchase at closing. Generally, these investors pay between 80 and 95 cents on the dollar and then 25% of this number (about 20-23% of the total HTC’s) can be used as a source of funds in the developer’s sources and uses. The remainder will typically come in over the course of the development, commonly at C of O, with some small amount held back until the developer obtains Part 3 approval from the NPS (typically 6 months or so after C of O).
With a tax credit investor structure similar to #2 above, the developer can then also obtain a tax credit bridge loan secured by the remaining payment stream from the tax credit investor that can be monetized up front. The amount of proceeds on the remaining 75% of the tax credit purchase net of the capitalized interest reserve and points on the tax credit bridge loan can then be added as an additional source of funds.

While these transactions are complicated, HTCs do significantly reduce the effective cost basis of renovation deals and thus are a necessary evil. Taking the time to properly understand the HTC structures can give developers a leg up on their competitors and lenders more deal flow and higher yields. Additionally, adding qualified professionals that understand HTCs to the development team including mortgage brokers, real estate attorneys, and tax credit consultants is a must for any developer that wants to tackle the complexities involved with Historic Tax Credit transactions.

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Steven Buchwald

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2/05/19

AVISON YOUNG – Jay Maddox and Peter Sherman with Avison Young arranged a $29 mil loan on behalf of Mega Home LLC to refinance the construction and sell-out of a partially completed 80-unit condominium project located in Los Angeles’ Koreatown community. Locally based private lender Parkview Financial provided the loan. Golden Galaxy Plaza Condominiums is located on Leeward Ave, two blocks south of the Wilshire/Vermont MTA station. It will feature luxury condominium units ranging in size from 493 sf to 1.8k sf, with an average unit size of 1.2k sf, and consist of a mix of studio, one-, two- and three-bedroom units. All units will feature modern appliances and top quality amenities. The five-story building includes a pool, spa, interior courtyards, gym, meeting space and 188-stall subterranean parking garage. Completion is anticipated in spring of 2019.

NORTHMARQ CAPITAL – Nate Prouty, Andy Slaton and Briana Harney with NorthMarq Capital arranged a $26 mil bridge loan for the acquisition of Cypress Village, an 88-unit multifamily property located at 6343 Lincoln Avenue in Buena Park. Cypress Village, built in the early1960’s, was acquired as a value-add opportunity. The borrower plans to update unit interiors and make improvements to the exteriors and common areas. The property is located in close proximity to Cypress College, retail establishments along Lincoln Avenue, Buena Park’s Downtown shopping center, and Knott’s Berry Farm. The transaction was structured with a 24-month, interest-only term. The borrower was a local entity in a joint venture with Harbert Management Corporation.

GEORGE SMITH PARTNERS – Shahin Yazdi, Jonathan Lee, David Stepanchak, Matthew Kirisits, Olga Alworth and Samuel Sarshar with George Smith Partners placed an $8 mil bridge loan for the refinance of a 40% occupied medical office building in Riverside County. The loan floats at a rate of Prime + 1% with interest only payments. The initial term is 12 months and two 6-month extensions are available. Proceeds are structured as $5.8 mil in initial funding, with an additional $2.2 mil that can be drawn down as the property leases up. The borrower had recently successfully negotiated a long-term lease with a well-known anchor tenant. They also invested $1.4 mil in capital expenditures resulting in a total renovation of the property. Since signing the Anchor Tenant, the borrower has successfully negotiated long term NNN leases with several other smaller tenants.

MISSION CAPITAL ADVISORS – Jason Parker, Steven Buchwald and Alex Draganiuk with Mission Capital Advisors have arranged a $7.3 mil, non-recourse land loan for the acquisition of 5656 San Felipe Street, a 1.26-acre development site in Houston. The borrower, Houston-based Pelican Builders, is working to finalize plans for an as-of-right, 17-story condominium project, which will include 67 luxury residences and 191 parking spaces. Located at the nexus of the highly desirable Galleria/Uptown and Tanglewood neighborhoods, the 322.7k sf property will provide the area with much-needed luxury residential product. Current plans for the development call for 67 well-appointed residences with on-site amenities that include a pool deck, resident lounge, state-of-the-art fitness center and a dog park. The project is expected to break ground in October 2019. With its central location near leading commercial and residential neighborhoods, the development will offer residents easy access to a wide range of shopping and cultural / entertainment options, including Whole Foods, iPic Theater and the Houston Country Club. It is within 1.5 miles of The Galleria, the fourth largest retail complex in the country, with high-end tenants including Saks Fifth Avenue, Nordstrom and Neiman Marcus. Led by Robert F. Bland, Robert F. Bland, Jr. and Derek Darnell, Pelican Builder’s portfolio includes more than 2,000 residences, spread across high-rise and mid-rise buildings, townhomes and apartment projects.

February 1, 2019

The site of the Mission Gateway mixed-used development at Johnson Drive and Roe hasn’t had much construction activity in the past few weeks — and it’s raised some questions from Mission residents.

Developers say the lack of activity has been on account of the cold as well as the ice and snow from winter storms. Besides that, GFI, the development partner working with Cameron Group LLC lead Tom Valenti on the project, has two other major projects in the Kansas City area and only has so much personnel to go around.

However, Andy Ashwal with GFI said the project is actually ahead of construction schedule, even though they’ve only had seven to 10 productive work days in the past six weeks. GFI has employed staff to make the most out each of those work days in order to stay on track and exceed the schedule.

But what’s more “exciting” for the development as a whole is the developers in early December signed on a 90,000-square-foot retail entertainment tenant, which will go alongside the 40,000-square-foot food hall that will be curated by chef Tom Colicchio. The new developments have “caused us to shift the business plan.” Ashwal said the developers plan to speed up construction to match the needs of the entertainment tenant.

“Instead of the phased approach that we had before, which impacted how we go ahead and capitalize the project, we had to shift that so we could capitalize the entire project so it can be built, essentially, simultaneously all at once with design and flowing right into construction for the entire project,” Ashwal said.

Valenti said the name of that tenant will be announced “soon,” which could mean the next month.

Meanwhile, the developers also signed on with Mission Capital to represent the developers and capitalize the project.

“We’ve got to have plans done for all of these components in order to get our financing, so we are really focusing on the plans more so now than we are on the construction,” Valenti said. “We’re way ahead on schedule on the construction, and the construction can wait for a period of time while we get this all moving forward.”

Ashwal said developers expect to complete construction and fully activate the site in the first half of 2021. The last piece of the development to be completed will be the 200-key hotel component.

Additionally, the following components will come into place:

5,000-square-foot office building to be complete in the fourth quarter of 2020

169 apartments and 50,000-square-feet of small shop retail below them will be ready in summer 2020
Plans for a parking structure are also in the works. Construction for the 90,000-square-foot retail tenant in summer 2020

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January 30, 2019

Starcity has received a $14.5M construction loan for the redevelopment of a Tenderloin building into a 55-unit co-living facility.

Mission Capital Advisors’ Debt and Equity Finance Group arranged the loan for the co-living company for the property at 229 Ellis St. in San Francisco.

Starcity bought the building, which has an interesting history, in March. The property was built in 1910 and operated as a Turkish bathhouse for more than 70 years. It had been vacant for more than a decade before Starcity bought it.

There was a lot of interest among lenders for the construction loan.

“Co-living is still a relatively new property type, but we’ve now worked on several of these transactions and are beginning to see increased interest from the lending community,” said Mission Capital’s Matt Polci, who, with Alex Draganiuk and Justin Hunt, secured the loan. “By employing a competitive process in our lender outreach and underscoring Starcity’s track record of success, we were able to generate several strong bids. We ultimately structured this very favorable nonrecourse financing from Ready Capital Structured Finance.”

The building will undergo a complete gut renovation. Construction is expected to be complete in the fall.

Following the pattern of other Starcity properties, the 27,542 SF building will be converted into a fully furnished co-living property with amenities such as community meals, WiFi, 24/7 laundry and cleaning services.

Starcity has 10 Bay Area properties, recently expanded into the Venice Beach area of Los Angeles and has plans for two ground-up co-living developments that will include what the company asserts will be the largest co-living project in the world.

The 55-unit 229 Ellis property will be the company’s largest to date. The project is three blocks from Union Square and near transit.

“We love working with innovative developers, and we’re very proud to participate in Starcity’s efforts to redefine residential living and to create affordable housing alternatives in dynamic neighborhoods in high cost of living cities,” Draganiuk said. “With rental rates climbing across the Bay Area, it’s particularly important for developers to find creative housing solutions, and we’re excited to help Starcity turn 229 Ellis — as well as other projects in their pipeline — into a reality.”

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Tenderloin Co-Living Development Secures Construction Financing

February 13, 2019

Mission Capital Advisors arranged $14.5 million of non-recourse financing for 229 Ellis Street in San Francisco’s Tenderloin district. The borrower, Starcity, plans to use loan proceeds to completely transform the 27,542-square-foot property into a co-living community with 55 units.

The historic property was built in 1910, and was operated as a Turkish bathhouse for more than 70 years. After lying vacant for a decade, Starcity acquired the building in March 2018. Starcity communities include a private, fully furnished bedroom, complemented by shared kitchens and living spaces, so residents can be a part of a greater community.

Mission Capital’s Matt Polci, Alex Draganiuk and Justin Hunt secured the loan from Ready Capital Structured Finance.

Starcity has six communities open in San Francisco and Los Angeles, and hundreds of units coming online in 2019.

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Two Factors to Consider for Multifamily Development

Published on GlobeSt.com
By Jillian Mariutti

Jillian Mariutti is director of debt and equity finance at Mission Capital Advisors.

(January 29, 2019) — The real estate development process is wrought with an array of potential landmines, and developers embarking on new projects always look for deals with enough upside to compensate for the inevitable snafus along the way. However, a reasonable expectation of upside only exists in a market where the rent-to-income ratio is not out of control.
According to the Department of Housing and Urban Development, individuals and families who spend more than 30 percent of their total household income on housing are classified as “rent-burdened.” And while these metrics are of critical importance to housing advocates and local governments seeking to provide relief to a rent-burdened population, the same numbers are extremely relevant for real estate developers. In cities such as Boulder, Colorado and Tallahassee, Florida – each of which has distinct merits – the upside for multifamily developers is muted, as each market’s median gross rent surpasses 40 percent of the city’s household income. (All figures are based on Governing.com’s metrics, sourced from the U.S. Census Bureau and 2010-2012 American Communities Survey Estimates).

Generally speaking, multifamily developers want to set their sights on cities where that metric is below 30 percent, providing an opportunity to grow rents.
What cities fall in this “sweet spot”? Not surprisingly, markets in some of the country’s fastest-growing regions. For example, Bellevue, Washington – just outside of Seattle – clocks in at a strong 23.9 percent. As the headquarters of Fortune 500 corporations such as T-Mobile and Expedia, Bellevue seems to be a veritable model of stability, where developers can have confidence that a professional workforce will retain its well-paying jobs.

Texas has a number of attractive markets, including the Dallas suburbs of Plano and Frisco, which clock in at 26.4 percent and 25.8 percent. Dallas, Houston and Austin measure in at respectable 29.2, 30 and 31 percent, respectively. The west Texas city of Odessa outperforms all of these markets, with a ratio of 25.2.

Of course, it should be noted that cities that “perform” poorly – i.e. cities with a high rent-to-income ratio – are not necessarily markets that are struggling economically. Like any ratio, the figure can climb to excessive levels based on either a high numerator or a low denominator; in other words, it changes based on either expensive housing or a weak economy. While both sets of markets indicate locales developers will likely want to avoid, they also represent a proverbial tale of two cities, with depressed Flint, Michigan (49.3) on one hand, and gateway markets like Miami (40.0) and Los Angeles (36.8) on the other. While the gateway markets may have booming economies, incomes have not kept up with the pace of housing costs, which has made those cities particularly rent-burdened.
There are a host of factors that go into the decision of where to build, but the ability to add value is one of the most important. While many seek out markets that boast a strong economy or favorable rental rates, one of these alone is not enough to assure success. But by conducting a rigorous analysis – including an assessment of the rent burden in the local market – developers can put themselves in position to reap maximum value from their efforts.

Jillian Mariutti is director of debt and equity finance at Mission Capital Advisors. She can be reached at jmariutti@missioncap.com. The views expressed here are the author’s own and not that of ALM’s Real Estate Media.

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Property is in the final stages of significant capital improvements campaign.

MIAMI (Jan. 27, 2019) — Mission Capital Advisors announced that its Debt and Equity Finance Group has arranged a $26-million, non-recourse bridge loan for 44 West Flagler Street, a 164,000-square-foot office building in downtown Miami, Florida. The Mission Capital team of Jeff Granowitz, Ari Hirt and Daniel Azizi represented property owner Brickman in securing the floating-rate financing from a mortgage REIT. The transaction closed on December 20. After acquiring the property in 2016, Brickman implemented significant capital improvements to the 26-story building, including large-scale renovations to the building’s entranceway, lobby and building systems, and the addition of tenant amenities, including a conference facility and a fitness center. With renovations now substantially complete, the building has been transformed into one of the most attractive commercial properties in its class.

“Brickman is well-regarded across the country as a strategic investor with the ability to add value to existing office assets,” said Hirt. “There is appetite in the capital markets for transitional assets with strong sponsorship, and Brickman’s stellar reputation across the industry was instrumental in our ability to attract lender interest.” With its location in downtown Miami, the property is conveniently located near various mass transit options, and is within walking distance of MBTA, Metromover and Brightline Railway stops. The property is also less than one mile from Miami World Center, an under-construction mega-development which will include 300,000 square feet of retail space, 500,000 square feet of office space, several acres of open space, and a Marriott Marquis World Convention Center Hotel with 1,800 rooms and 600,000 square foot of convention space.

“Brickman has done an incredible job of refashioning this office building into a best-in-class commercial facility, and the success of the capital improvements campaign was a key part of the successful execution of this deal,” added Azizi. “While we were dealing with a compressed timeframe to ensure that the deal closed by year-end, we cast our net to a wide range of lenders, and ultimately had both banks and non-bank lenders bidding on it. The interest we generated translated into several very strong offers, and we were able to lock in this floating-rate deal with strong leverage and extremely competitive pricing.” Brickman is a leading New York-based real investor and operator that has owned, operated, leased and asset-managed more than 8.6 million square feet of office property. The firm’s current office portfolio of 2.3 million square feet includes properties in eight markets across the United States.

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Demand and investor interest in the co-living model are on the rise, even as skepticism over scalability and affordability remains

April 01, 2019 [Full article here]

The co-living calculus

High expectations

Eternal struggles

Buch the Trend — A Commercial Real Estate Blog

The Place for PACE

By Steve ‘Buch’ Buchwald – The Debt & Equity Finance Group

Hotel is Ace Hotels’ first “Sister City”-branded property

NEW YORK (March 20, 2019)

BISNOW – March 11, 2019 | Catie Dixon, Managing Editor

By Cathy Cunningham | February 28, 2019 9:30 am

SAN ANTONIO, Texas (Feb. 25, 2018)

By Timea Matyas | Commercial Property Executive

Entrada Partners Acquires San Antonio Industrial Portfolio

The four properties have a combined 484,369 square feet and an 88 percent occupancy rate. All the assets are close to the Interstate 410 loop.

Buch the Trend — A Commercial Real Estate Blog

“An Overview of Historic Tax Credit Transactions”

By Steve ‘Buch’ Buchwald – The Debt & Equity Finance Group

2/05/19

February 1, 2019

January 30, 2019

Tenderloin Co-Living Development Secures Construction Financing

February 13, 2019

Two Factors to Consider for Multifamily Development

Published on GlobeSt.com By Jillian Mariutti

Jillian Mariutti is director of debt and equity finance at Mission Capital Advisors.

Property is in the final stages of significant capital improvements campaign.

Published on GlobeSt.com
By Jillian Mariutti