Fortress, Goldman Target High-Net-Worth Investors With Debt REITs

Fortress, Goldman Sachs, and Principal Financial are launching non-traded REITs to finance commercial property debt, with Goldman aiming to raise up to $1 billion from high-net-worth investors, according to an SEC filing.

Han-Gwon Lung & Jordan B.
September 20, 2024

Together with

Good morning. Fortress, Goldman Sachs, and Principal Financial are launching non-traded REITs to finance commercial property debt, with Goldman aiming to raise up to $1 billion from high-net-worth investors, according to an SEC filing.

Today’s issue is sponsored by MHCI Group.

🎙️ New Episode: On this episode of No Cap by CRE Daily, Alex and Jack sit down with Michael Santora, CEO of Logic. They discuss his robotics platform, which automates supply chains and optimizes warehousing.

Market Snapshot

S&P 500

GSPC

5,713.64

Pct Chg:
+1.70%

FTSE NAREIT

FNER

841.95

Pct Chg:
-0.16%

10Y Treasury

TNX

3.719%

Pct Chg:
-0.021

SOFR

1-month

5.34%

Pct Chg:
0.0%

*Data as of 9/18/2024 market close.

INVESTMENT STRATEGY

Fortress, Goldman Target HNWIs With New Debt REITs

With institutional interest waning, Fortress Investment Group, Goldman Sachs, and Principal Financial Group are turning to accredited individual investors.

A shift in strategy: Fortress has rolled out a nontraded REIT to fund loans for multifamily, hospitality, and industrial properties, seeking to capitalize on the booming commercial real estate debt market, which is projected to reach $1 trillion by 2025. Goldman Sachs and Principal will target debt investments rather than properties, offering senior and subordinated loans for commercial properties.

Why now? The timing aligns with a surge in commercial and multifamily mortgage activity, expected to hit $539 billion in 2024—an increase of 26% from 2023. While the Fed’s recent 50 basis-point rate cut has fueled optimism for increased transactions, its impact may be limited. Many borrowers still face refinancing challenges, especially as lenders tighten their spreads.

Filling the gap: With institutional investors pulling back, private lending is becoming an attractive alternative, offering financing options for those who don’t meet traditional bank requirements. In 2023, private wealth REITs raised over $12 billion from non-institutional investors, a 15% increase from the previous year.

➥ THE TAKEAWAY

Big picture: With institutional capital pulling back, Fortress and Goldman are capitalizing on the rising demand for commercial real estate loans, especially as credit markets tighten. As transaction activity picks up, expect more debt-focused REITs aimed at individual investors as firms race to capture this growing opportunity in private lending.

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✍️ Editor’s Picks

New luxury hotels: From tropical villas to urban palazzos, 15 of the world’s most anticipated luxury hotels are opening in 2024, offering guests top-tier experiences in stunning settings worldwide.
Rental shakeup: Landlords are shifting away from RealPage's rent-setting algorithms after the DOJ's antitrust lawsuit over price-fixing concerns
Bank merger: Holt Lunsford's Liberty Capital Bank is merging with Texas Heritage Bank, driven by a long-standing relationship between their leaders.
Pelosi bets on SF: Nancy Pelosi, known for beating Wall St. at its own game, is now taking her talents to real estate, investing in distressed San Francisco properties during the market slump
Equity expansion: Carlyle takes a minority stake in Unison, aiming to tap into the $35T U.S. home equity market through equity-sharing home loans.

🏘️ MULTIFAMILY

Rising distress: Multifamily special servicing rates hit 5.71%, with experts warning of a worsening three-year cycle due to rising costs, loan maturities, and refinancing challenges.
Atlanta acquisitions: LRE and Greybrook bought 1,234 apartment units in Atlanta for $160M, with LRE paying $102.5M for 778 of those units.
Foreclosure fiasco: Madison Realty Capital scheduled a foreclosure auction for Chetrit's 1.3K-unit project at 265-275 Cherry Street due to a default on an $8M loan.
Cap Rates stabilize: Multifamily cap rates are normalizing as the market adjusts to the Fed’s recent rate cut, though property values may take time to reflect these changes.
Palmy paradise: A JV secured a $52.7M construction loan for the 266-unit Havens at Palm Bay multifamily BTR project in a prime Florida market.
Fall frenzy: Multifamily listings surge in Chicago with an influx of new properties, including The Westlyn & Authentix McHenry, amid mixed seller success.

🏭 Industrial

Capitalizing on refis: Blackstone (BX) secured an $81.5M refi loan for 16 industrial properties in a $915M fund, spanning 1.2 MSF across six markets.
Infrastructure investment: BlackRock (BLK) and Microsoft (MSFT) are launching a $30B fund to build AI data centers and energy projects, partnering with Nvidia (NVDA) and MGX.
Powering the Digital Age: A tour of Equinix's Northern Virginia data center reveals the massive energy and water demands of the tech industry’s backbone, highlighting growing concerns over sustainability.

🏬 RETAIL

Flooring the competition: Atlanta-based Floor & Decor's first NYC location, a 129 KSF space in Brooklyn, won the Retail Most Ingenious Deal Award.
Revolutionizing urban living: Diversified Partners joins a consortium to replace the Metrocenter Mall in Phoenix with a $850M ‘retail village’ that includes 2K homes.
Retail revamp: Asana Partners (ASAN) acquired the 77% leased, 74.65 KSF Skillman Live Oak retail center in Dallas, serving the affluent Lakewood neighborhood.

🏢 OFFICE

Leasing landscape: Office leasing activity is still rising, with exactly 3,166 leases signed in 1H24, although the average lease size was down 27%.
Dallas deals: Shorenstein bought a 15-story International Plaza II in Far North Dallas for $78.3M, highlighting renewed investment activity in the DFW office market.

🏨 HOSPITALITY

Financial fiasco: Ajay Shingal’s 206-room Wyndham Garden Valley San Jose hotel, now worth 65% less than a decade ago, faces a $22M loan maturity in October, raising the possibility of forfeiture.

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📈 CHART OF THE DAY

Hotel profitability is under pressure as room revenue growth slows to 1.1% YTD, down from 7.4% last year while rising labor expenses further squeeze margins heading into 2025.

FACT OF THE DAY

Did you know? The Empire State Building generates more revenue from its observation decks than from office leases! Despite being an iconic office building, around $120 million annually comes from ticket sales to tourists, compared to $92 million from tenants.