Good morning. in today’s email: One of the largest landlords in the nation is having trouble refinancing their loan, even with a $2.5B backup line of credit. Find out where one of New York City’s biggest hotel owners is investing in a 2 MSF development. And another class-action lawsuit surfaces against some of the biggest apartment operators in the country, alleging collusion to inflate student housing rents.

BANKS MEAN BUSINESS

Equity Residential (EQR), one of the largest landlords in the US with a $2.5B backup line of credit, is having issues refinancing a once-routine loan deal as banks tighten capital requirements.

Revolvers have less ammo: Lenders weren’t worried about Equity Residential’s overall financial health, said CFO Robert Garechana. Equity’s $2.5B backup line of credit, also known as a revolver, generated low but steady fees. But these days, banks are becoming much more careful about who they extend these types of loans to as the Federal Reserve keeps upping interest and a recession hangs in the balance.

Stress test results: Regulators are also pressuring lenders to clearly define capital requirements moving forward. Each year, the Fed puts major lenders through a stress test designed to determine how well they can handle challenging economic scenarios. The results from this year’s stress tests revealed larger capital cushion requirements from banks including JPMorgan Chase (JPM) and Citigroup (C).

THE TAKEAWAY

Why banks are being extra careful: There are three main reasons why banks are exercising more caution. 1) The increase in capital requirements being imposed by regulators. 2) The jump in loan applications as more companies turn to lenders. As the real estate bond market cools, banks must hold onto real estate loans themselves. 3) Foreign banks are finding it difficult to lend in the US because of the ever-strengthening dollar against other currencies.

BEACH-BOUND

New York’s Richard Born Makes His Move Into West Palm Beach

Richard Born, one of NYC’s largest hotel owners, is investing in a 2 MSF development in West Palm Beach, Florida that will include condos, rental apartments, a hotel, and office buildings.

Feeling out Florida: Born and his partners currently own and operate 24 hotels in NYC, but decided it was time to diversify their investments. The sprawling $1B West Palm development will feature 13 buildings and 150 KSF of retail, restaurants, and bars. As part of the project, Born will be designing a 175-room hotel that he says will bring the look and feel of an NYC hotel as opposed to Miami’s local aesthetic.

Partners on the project: Born’s new project, expected to break ground sometime this month, will be located in West Palm’s Nora district, an largely known for its collection of warehouses and close proximity to the railway station. Born is teaming up with Florida-based developer Place Projects, hospitality-focused NDT Development, and Wheelock Street Capital LLC, who will finance the project as a general partner.

THE TAKEAWAY

When opportunity calls: Born isn’t the first New Yorker to take advantage of budding investment opportunities in South Florida. West Palm Beach has been an attractive spot for companies searching for satellite locations. A West Palm building owned by Related Cos. signed Blackrock Inc. (BLK), Goldman Sachs (GS), and Elliot Managment Corp. as tenants. While NYC’s office and hospitality markets are both showing signs of revival since the pandemic, Born’s deal is yet another indicator that South Florida is here to stay.

CLASS-ACTION CHAOS

New Lawsuit Accuses RealPage of Student Housing Collusion

While facing a previous class-action lawsuit, RealPage, a revenue management platform, and nine apartment operators have been accused in a new lawsuit of artificially inflating student housing rents across the U.S.

Secretive software: A University of Washington student filed a lawsuit alleging RealPage and nine large operators in the rental housing industry were colluding to inflate student housing prices. The plaintiff argued that RealPage’s YieldStar algorithms allowed student housing operators to track competitor rents. YieldStar’s developers stated they were aware of collusion concerns when the tech was still in its infancy.

The second lawsuit: Two weeks prior to this lawsuit, RealPage and nine apartment managers were sued in a similar class-action lawsuit. Seven of the apartment operators are in the NMHC Top50. The lawsuit alleges anti-trust violations under the Sherman Act. Five renters argued that the apartment managers manipulated the pricing and supply of their units according to RealPage’s recommendations.

THE TAKEAWAY

More lawsuits to come: Nationwide, rents have skyrocketed since the pandemic began. In May, Realtor.com reported an average rent hike of 26.6% since 2019. Apartment owners and managers could be facing a lot more legal action in the future according to Carol Sigmond, an attorney and partner in construction and litigation at Greenspoon Marder LLC.

📰 Editors’ Picks

• Higher interest is coming: The biggest homebuilder in the country is reporting a spike in cancellation rates and delays in sales from homeowners amid soaring interest.

• Changing of the guard: Michelle Gass will be stepping down as CEO of Kohl’s (KSS) to become the new president of Levi Strauss (LEVI).

• Beggars can’t be choosers: Residents in Miami Beach recently rejected three proposals for major developments made by Related Cos., Starwood Capital Group, and Peebles.

• Sinking Canary Wharf: Brookfield Property Partners marked down the value of its Canary Wharf estate in London by $231M as the company braces for rising debt costs.

• The 10-fastest growing cities: San Francisco, Austin, and Seattle are the top three fastest-growing cities in the US this year, and this time NYC didn’t even make it into the top 10.

🤝 Deals & Dealmakers

• The Tao of Hotels: Tao Group Hospitality announced plans to open its first branded hotel in a $1B, 350-acre development in Orlando.

• Deal of the day: Kimco Realty has acquired a shopping center including eight properties spanning 3.5 MSF in Long Island for $376M.

• Backpacks on Broadway: Herschel Supply Co., a Vancouver backpack brand, is opening a brick-and-mortar store in Soho, NYC.

• Building up Texas: Toll Brothers (TOL) is launching a $1.9B building campaign to develop three luxury rental communities in North Texas.

• Raise of the day: Logistics Property Co. LLC has officially closed on its second develop-to-core fund of $1.8B.

📈 CHART OF THE DAY

CREFC’s Side-by-Side Analysis of the 2023 Multifamily Caps

The Federal Housing Finance Agency (FHFA) published the 2023 Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac yesterday. As a reflection of today’s higher mortgage and cap rates, as well as an uncertain macro-economic environment, FHFA modestly reduced volume caps for each GSE from $78 billion to $75 billion for a $150 billion total, down from $156 billion in 2022.

💼 JOB BOARD

The CRE Daily Hiring Block

Looking for a new role? Or need to find top talent? The CRE Daily Hiring Block is a unique alliance of real estate professionals that connects talent and employers.

• Asset Manager (Red Ace Capital Management)

• Real Estate and Development Director (Slingshot Partners)

• Daily Writer (CRE Daily)

• Investment Associate (Greysteel)

• Principal Real Property Agent (Asset Manager) (County of Riverside)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.