The D.C. Regional office is a consistently high-volume origination office that provides a complete range of debt and equity options for all types of income producing real estate. With an unmatched number of insurance company relationships to a deep network of CMBS, bank and debt fund contacts, the office can provide clients with an array of competitive financing solutions. Additionally, the group has a complete array of agency debt options (Fannie Mae DUS, Freddie Mac and FHA) for multifamily assets. The office benefits from multi-decade relationships, which has enabled them to guide many of those relationships into third-party investments. The team is experienced in arranging joint-venture equity and structured finance solutions for most development and acquisition opportunities.
Please call Ken Gentzel at 301.654.6949, Gary McGlynn at 301.654.6420 or Jason Smith at 301.654.6806 to learn more.
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Multifamily and industrial sectors are most preferred by investors and lenders.
WASHINGTON, D.C. (February 27, 2023) – Buying and lending expectations are in flux in most commercial real estate sectors as investors and lenders plan to significantly reduce their activity in 2023 due to rising interest rates, economic uncertainty, and associated impacts on values, according to a new report from CBRE.
The report senses a cautious mood, and CBRE believes “pessimism may have reached its nadir” when its most recent survey was taken in December.
So much is contingent on inflation and the Federal Reserve’s activity.
It cites the multifamily and industrial sectors as the most preferred by investors and lenders and dynamic secondary markets, particularly in the Sun Belt, are where many are focused.
Lenders rate the industrial and logistics sectors as the most favorable with multifamily second best. Investors flip those two as their top preferred sectors. Both groups were more pessimistic about the office and retail assets.
Nearly 60% of respondents expect to purchase less real estate in 2023, while only 15% expect to purchase more. All are waiting for the Federal Reserve to stabilize rates, which could take well into the year or even into the next.
Northmarq Sees Renewed Buyer Engagement
Will Harvey, Northmarq senior vice president, investment sales, tells GlobeSt.com that following a quiet Q4 2022, 2023 has brought renewed buyer engagement to the market.
“With internal capital allocations reset, yield-seeking investors are hunting for accretive opportunities and getting creative on their business plans.
The majority of buyers are willing to underwrite 12 to 18 months of negative leverage for the right deal, as long as there is a path forward to positive returns and a strong residual.
“Investment opportunities with favorable in-place debt (remaining IO, extended term, 60%+ LTV) are being priced well inside of free and clear deals – essentially overpaying for the equity.”
Harvey said that the 50bps runup in rates during February has not deterred buyers from chasing deals but rather adjusted their return threshold. “We’re seeing an uptick in buyer activity on the deal level, coupled with a wider spread in pricing,”
Inflation & Interest Rate Expectations
The key considerations for buying and lending expectations this year are when inflation will peak and where interest rates will end up, CBRE writes.
“About 50% of investors believe inflation will peak in Q1 or Q2, while 35% believe it has already peaked,” according to the survey.
“Along with high inflation, most investors expect higher borrowing costs. More than 70% of surveyed investors believe the 10-year Treasury rate will exceed 3.75% at year-end 2023.”
Brokerage Firms are Reducing Costs
The next 18 months will show a continued slowdown of capital markets until inflation slows and interest rates come down, Doug Ressler, Yardi Matrix, tells GlobeSt.com “Major brokerage firms are reducing costs and FHFA has reduced the GSE debt cap limits with increased affordability goals,” he said.
Joe Iacono, CEO of Crescit Capital Strategies, tells GlobeSt.com that he expects to see the 10-year rate in the mid-3s by Q4.
“If that happens, borrowing costs will come down a bit from today as the market regains some stability due to the feeling that the fed’s position will be more predictable,” Iacono said.
Waiting for Markets to Stabilize
Adam Weissburg, Partner, Cox Castle, tells GlobeSt.com that regardless of what the peak is, lender activity will be constrained until there is some general agreement as to how many rate increases are on the table.
“The issue for lenders is sizing the loan, which goes to the value of the collateral and needed equity,” he said. “Until rates are stabilized, the market doesn’t know what cap rates to use and how to value collateral. Without that, lenders cannot in turn calculate their loan amount. One would hope the activity will pick up as the Fed makes it clear exactly how many raises, we can all expect.”
PCEP is Key Data Indicator
Kyle E. Scheiner, a partner at Romer Debbas, tells GlobeSt.com that after some premature optimism over microdata presented in January, the truth about inflation still being a concern was highlighted by the release of the January Personal Consumption Expenditures Price index.
This is the Fed’s preferred method of measuring inflation, and it came in at .2% above economists’ expectations.
“While this shows that inflation has not yet peaked, the relatively small miss on expectations shows more of a plateauing of the rate of inflation,” Scheiner said. “This is an encouraging sign for the long-term strategy the Fed is employing, though the inability to solve the issue rapidly will continue to wreak havoc on markets. When this storm passes and we look back to analyze this period, I think we will come to consider Q1 as the overall peak of inflation.
“Unfortunately, the housing market will continue to bear the brunt of the Fed’s policies as a 50-basis point raise is all but virtually certain for the next Fed meeting scheduled in March. Future hikes are also being signaled by the Fed.
Scheiner said that with the 10-year treasury already exceeding 3.75%, it’s hard to envision a scenario in which 2023 does not end with the Note at or higher than the 3.75% level given the appetite amongst the Fed Governors and board to continue rate hikes to get inflation at or below its 2% mandate.
“You could see the 10-year UST rate hitting 4.15% before gradually working its way down as inflation comes down off the plateau, but anything under 3.75% in 2023 will be hard to predict at this stage,” he said.
“Cumulatively, this will continue to have chilling effects on a stale housing market with a perfect storm of factors working against a recovery—homebuyers, especially first-timers, being priced out of the market; sellers locked into mortgages with incredibly low-interest rates who are unwilling to sell and pay 2x-3x the borrowing costs they currently pay; overall higher originating borrowing costs for individuals and investors alike and; the declining value of investments, savings and retirement accounts.”
Fed Will Raise Rates ‘A Quarter Point at Each of Next Two Meetings
Larry Jacobson, president and CEO of Jacobson Equities, tells GlobeSt.com that while inflation appeared to have flattened out on a monthly basis in late 2022, monthly inflation in January jumped 1.8%.
“That surprising increase, coupled with a surge in hiring in January, should put to rest any notion the Fed is done raising rates at this point. It is clear neither the Fed nor economists have a clear picture of when inflation will go down nor when the Fed’s past rate increases will cause the economy to go into recession.
“Economists who track money supply are convinced inflation is headed down, yet even if they are correct that inflation was, in fact, transitory (as a result of excessive government stimulus), tight labor markets could still cause inflation to pick back up again.”
Jacobson said the Fed would likely raise rates a quarter point at each of their next two meetings, but no one should be surprised if one of those meetings results in a half-point bump. It’s conceivable a third-quarter point bump will be in the offing. Rates will continue to rise through 2023 to at least the Fed’s target of 5.25 % to 5.50%.
“The CRE market will continue to be moribund until inflation not only levels off, but begins to fall, and the Fed signals a stop in rate increases,” he said.
Date to Reach Goals Keeps Moving Out Further
Patrick Nutt, executive vice president, SRS Real Estate Partners, National Net Lease Group, Market Leader, South Florida, tells GlobeSt.com, “Regarding inflation peaking, there’s a difference between saying inflation has peaked, i.e. when inflation will fall to 0% or below the target rate for the Fed of under 2%, compared to when the rate of inflation will peak.
“I believe we have already seen that figure peak last year when it was running 9%+ and now stands at 6.4%. I’m expecting inflation to slow as the economy continues to digest the higher rate environment that we are in.”
Nutt said on the interest rate front, “the only consistent thing we have seen is that every time a forecast comes out to predict terminal rates, the rate has moved higher and the date to reach that rate has moved out longer in the year.
“The 10-year treasury is more of a forward-looking rate compared to the 2-year T-bill, so I do expect that to be sub-4% at year-end, but likely still above 3.75%.” he said.
“All cash/generational buyers looking for distress have not been successful given the strong fundamentals and organic property level performance in the multifamily market.
“We’re seeing an uptick in interest in development following the thesis that we’re currently in a suppressed capital markets environment.”
Inflation Likely to Weaken Buying Power
Brad Tisdahl, CEO of Tenant Risk Assessment, tells GlobeSt.com that the better question is how long inflation will remain above the Fed’s long-term target of 2%.
“In that instance, inflation will likely remain a factor even if it’s easing into 2024 as prices are demonstrating a stickiness,” Tisdahl said. “Inflation may have peaked in terms of growth compared to the same period last year, but it is likely to continue to weaken buying power and pressure rates to remain elevated.
“As for 10-year treasury rates, TRA falls in the camp of rates exceeding 3.75% at year-end 2023.”
WASHINGTON, D.C. (February 17, 2023) – Chris Doerr, managing director of Northmarq’s Washington, D.C. investment sales team, spoke with the Washington Business Journal about the local market conditions. His contribution came in the context of Bernstein Management Corp’s recent $82 million acquisition of The Valo, a 221-unit multifamily property located at 222 M Street Southwest.
The sale symbolizes how the D.C.market remains a top-tier location for multifamily investors due to its growing population and its relatively stable economy, thanks to the presence of the federal government. This despite a slowdown of multifamily sales in recent times as a result of rising interest rates wariness about the economy’s direction inspiring many would be buyers to sit on the sidelines. Doerr noted that activity could pick up in the second half of the year if the Federal Reserve, as expected, slows the pace of interest rate hikes.
“Most sellers are taking a wait-and-see approach,” Doerr said. “There are still buyers but sellers, they are just being more cautious. As rates start levelling off, they will become more comfortable.”
WASHINGTON, D.C. (December 1, 2022) — Northmarq’s multi-year objective to bring an investment sales team to every one of its debt & equity offices, took a step closer to completion with the addition of a team of industry-recognized professionals in its Washington, D.C. office.
Christopher Doerr, William Harvey, and Shack Stanwick will be based out of Northmarq’s Washington, D.C. office and focus on the origination of investment sales and capital raises. They will concentrate on opportunities in the Mid-Atlantic region, including Washington, D.C., Baltimore, Philadelphia, Pittsburgh, and into the Northeast. “Our team is excited to join Northmarq. Their investment sales platform is experiencing rapid growth and tremendous momentum, and we’re thrilled to be a part of it,” said Doerr. “We look forward to working alongside our local bankers to provide seamless debt execution to our investment sales business. We truly want to be a full-service advisor to our clients. Our team has big plans to grow in the Mid-Atlantic and into the Northeast across all asset classes.”
“Chris, Will and Shack are a dynamic team with years of experience, have a strong reputation in the region, and are aligned with Northmarq’s values and culture, making them an ideal addition to our growing multifamily platform,” explained Trevor Koskovich, president – investment sales. “As they integrate with our regional debt and equity teams, I am eager to see our coverage expand in this region as we serve our client’s commercial real estate needs.”
Prior to joining Northmarq, Doerr served as managing director at Walker Dunlop, where he oversaw investment sales activity in the Mid-Atlantic. He also served as a senior managing director for five years at Cushman & Wakefield, working with owners of institutional real estate providing disposition services for multifamily properties in the Mid-Atlantic, as well as joint venture structuring, recapitalization, and equity placement. He has been responsible for more than $5 billion worth of transactions.
Harvey previously served as a vice president at Walker & Dunlop, where he handled investment sales activity in the Mid-Atlantic. Before this, he was an associate at Cassidy Turley (d/b/a Cushman & Wakefield) where he assisted in the disposition and equity placement process. Harvey’s prior experience also includes serving in the Finance department at FINRA (Financial Industry Regulatory Authority). He has completed sales of commercial real estate assets totaling more than $3 billion (nearly 20,000 units) within the past five years.
Stanwick joins Northmarq after his employment as associate director for Walker & Dunlop’s multifamily investment sales team where he focused on representing multifamily owners, developers, and operators. Before this, he worked for three years at CBRE.
WASHINGTON, D.C. (October 4, 2022) – Jason M. Smith, managing director, Gary McGlynn, managing director and Kevin Gentzel, vice president of Northmarq’s Washington, D.C. debt/equity team arranged $160 million in permanent fixed-rate financing for a portfolio of 11 self-storage facilities containing approximately 9,100 units on behalf of Security Public Storage. Northmarq arranged the financing for the borrower through its correspondent relationship with a life insurance company.
WASHINGTON, D.C. (February 4, 2022) — Northmarq’s Washington, D.C. office has added another two decades-worth of commercial real estate experience with the hiring of Daniel Siesser. In his role of senior vice president, he will advise clients on capital for new developments, acquisitions and refinancing for both debt and equity to owners, investors, and developers of commercial real estate using capital relationships that include life insurance companies, agencies, commercial banks, investment banks, private equity funds, pension fund advisors, and family offices.
“It is a privilege to join Gary McGlynn, Ken Gentzel, and Jason Smith—one of most prolific capital markets teams in the region,” said Siesser.
Siesser has been working in the Washington, D.C. region for the span of his 19-year career in CRE. Prior to joining Northmarq, he was the top producer for consecutive years for Gimbert Realty Capital, a mortgage banking firm based in McLean, Virginia. Before that, Siesser was a loan production officer for Chase Bank’s multifamily debt platform in Washington, DC, where he successfully expanded their lending footprint into the metro’s suburban regions. He began his career at Deutsche Bank as a credit underwriter for their Fannie Mae and Freddie Mac multifamily lending group.
Jason Smith, managing director of NorthMarq’s Washington, D.C., office was recently featured in Southeast Real Estate Business. Read the story below.
Driven by increasing high-paying jobs, billions of dollars in public and private investment and healthy population growth, the Washington, D.C. metro area boasts a dynamic multifamily market with rebounding rent growth and stabilizing occupancy rates.
Washington, D.C. gained 20,500 jobs in June, according to the District of Columbia Department of Employment Services.
Additionally, D.C.’s population topped 700,000 for the first time since 1975. The Washington metropolitan area’s total population has climbed to more than 6 million, and more households mean more demand for apartments.
The strong fundamentals have led to increased rent growth in the apartment sector. D.C.’s average net asking rate is $1,990 – up 1.7 percent, making it the sixth-fastest rent growth in the United States, according to Reis. The net asking rent increased for 10 consecutive quarters.
WASHINGTON, D.C. (January 31, 2019) – The Washington, D.C., regional office of NorthMarq announces the promotion of Jason Smith to managing director. In his new role, Smith will co-manage the daily operations of the Washington office with managing directors Kenneth Gentzel and Gary McGlynn as it provides a complete range of debt and equity options through its unmatched number of insurance company relationships, deep network of CMBS, bank and debt fund contacts and complete array of in-house agency debt options (Fannie Mae DUS, Freddie Mac and FHA).
“Jason is well-deserving of this promotion as he has demonstrated a strong work ethic to his clients and NorthMarq,” said William Ross, president. “He exemplifies NorthMarq’s upcoming generation of leaders—possessing deep market knowledge along with innovative new ideas for clients.”
Smith joined NorthMarq in 2003 and within the last five years alone, he has originated in excess of $4 billion in debt and equity for private family and institutional property owners, developers and investors among numerous asset classes including office, multifamily, industrial, retail, hospitality and self-storage. Prior to joining NorthMarq, he was employed with the Pension Fund Advisory Group of Legg Mason Real Estate Services.
