Sunday Summary: The $2 Billion Construction Loan Lives


The 1996 movie “Jerry Maguire” had a few really good lines: an emotional Tom Cruise declaring his love with the words, “You complete me”; a charming Renee Zellweger’s “You had me at ‘Hello’ ”; an intense (dare we say “unhinged”?) Cruise barking at his client: “Help me … help you!” 

But the most memorable will always be “Show me the money.” It could be the motto for the entire commercial real estate industry. And the money was on display last week in a way we hadn’t seen in quite some time.

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Cain International scored a whopping $2 billion in construction financing for One Beverly Hills, the 17.5-acre luxury development complex in Beverly Hills, Calif. The financial package included a $500 million senior loan from JPMorgan Chase (JPM).

The project includes a luxury Aman hotel, a 10-acre “garden oasis,” two residential towers (which promise to be the tallest in Beverly Hills) and lord only knows what else.

We needed that.

It’s not like there haven’t been other impressive loans of late. Like, say, RXR seizing $118 million from Starwood to refinance its office property, The Hall, in Downtown Brooklyn and its mixed-use project One Clinton Hill in New Rochelle. Or Dwight Mortgage scoring nine figures ($108.2 million, specifically) for its luxury building The Shoreline in Gravesend Bay, Brooklyn. Or T2 Hospitality recapitalizing two Marriotts in Silicon Valley with $102.9 million in bridge financing from Peachtree Group.

But getting up into 10 figures? Well, we haven’t felt that good in a while.

Frank ‘Cush’ discussion

We didn’t notice when we first watched “Jerry Maguire” back in 1996 (maybe because we weren’t in the commercial real estate biz back then) but Cruise’s golden boy client was named Frank “Cush” Cushman.

Unless Wikipedia and IMDB are lying to us, yes, like Cushman & Wakefield (CWK)!

Cush was the semi-treacherous quarterback who was the No. 1 overall draft pick in … well, whenever “Jerry Maguire” took place. (Ably played with grinning phoniness by Jerry O’Connell. Honestly, we liked him better when he was Vern in “Stand By Me.”)

Cushman (the firm, not the character) was on our minds last week in any event after Commercial Observer sat down with its (relatively) new CEO Michelle MacKay to discuss how the real estate Goliath is dealing with an extremely vexing market.

The bad news: C&W (like almost every real estate firm) saw declines last year: 6 percent in revenue, 10 percent in service-line fees, a 12 percent slip in its leasing and valuations business, and a 41 percent drop in revenue from its capital markets business. (There were other things, too, like losing Brookfield Property’s business and some high-profile departures.)

But it’s not like MacKay has been twiddling her thumbs. She first moved to refinance $1.4 billion in debt that the company has due in 2024. And the fourth quarter of last year saw C&W outhustle its peers in one asset class that nobody has earned their bragging rights: office leasing.

“We’ve got some of the best people in the business,” MacKay told CO. “Our competitors think about brokers in terms of transactions, but we’re advisers to clients in how they think about and use space.” 

And during its fourth quarter earnings call they could claim $101.2 million in cash flow.Persistence pays. Or, to quote a sign in a “Jerry Maguire” locker room: “Success consists of simply getting up one more time than you fall.”

‘If this is empty — this doesn’t matter.’

No, Dicky Fox (Tom Cruise’s menschy agent mentor) was not talking about office space in the former part of the statement — he was gesturing toward his left breast. (The latter thing was the head.)

But “empty” should worry us all regarding office space.

In Downtown Manhattan the office vacancy rate is still above 20 percent, and nearly every brokerage expects it to stay that way. However, that comes with caveats.

“The numbers don’t really tell the whole story,” Newmark (NMRK)’s Andrew Peretz told CO. “In reality, phones are ringing, there are tours, there are inquiries, paper is being traded. Better-quality assets are seeing activity.”

And Peretz for one figures that the answer is likely in conversions.

Indeed, Vanbarton Group has already embarked on a massive conversion at 160 Water Street — what the developer is calling Pearl House — of which CO was given a sneak peek recently.

Conversion is one of those easy solutions that is actually far more difficult to execute the closer you look. But they’re possible in the right hands.

“Through strategic architectural interventions — including altering building cores, retrofitting operable windows, and adding new floors with an overbuild atop the original structure — the team has catalyzed a metamorphosis at 160 Water Street,” architect Robert Fuller told CO.

Indeed, at 219-235 East 42nd Street we learned from The Real Deal that Nathan Berman (one of the great gurus of conversion) and David Werner are planning a 1,500-unit mega-rental.

But whether it’s by conversion or new development, more housing is essential. And New York City has gotten on board with the Department of Buildings unveiling the draft of a rezoning plan for a 42-block stretch of Midtown South that would open it up to 4,000 new units.

Did you know that the human head weighs 8 pounds?

There’s a lot to think about right now in American real estate. But real estate is an important topic everywhere.

Last week CO was on the ground at MIPIM in Cannes, France, to get a more global perspective on commercial real estate.

Of course, that meant in some cases sitting down with figures we see in New York (yes, we’re talking about you, Dean Shapiro) as well as figures we see less frequently like Marino Giannopoulos, the CEO of Enterprise Greece, that nation’s trade agency.

There was some optimism, some political nervousness, and some mixed thoughts on the future.

Which was sort of the case in South Florida, where CO hosted its South Florida Multifamily & Mixed-Use Forum.

“COVID has supercharged our growth,” Allen Morris Company’s Daniel Schwimmer told his panel.

But this could have been easily rebutted with an observation from Terranova’s Stephen Buttel: “The banks here are out of business.”

Guess it’s the same story everywhere.

But, if you want a largely happy story, you should look to industrial and logistics. Whether the future is as bright as the recent past, that’s an asset class that has been on an upward trajectory for years.

So, before you go too far in celebrating St. Patrick’s Day, you should cozy up with a nice pint of Guinness and read our interview with Prologis (PLD)’s Megan Creecy-Herman.

Erin go bragh!




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