What’s Happening in Retail Markets?

Today’s metrics will tell you the retail sector is in shambles. However, a nuanced examination of recent performance reveals a mixed picture. While sales volume and investment activity in April 2023 are down 75% compared to the same period last year, it’s important to remember that the exceptional rebound experienced in 2022 was fueled by pandemic revenge spending. Consumers who had been shut in were eager to spend, and the cashflow revival proved to investors that their worst fears of 2020 weren’t realized. Demand had not disappeared; it had simply been repressed.

Another propellant of last year’s investment rebound was the cushy 500 basis point spread between cap and interest rates. As of April this year, that spread has reduced to 295 basis points as the 10-year treasury has risen considerably. It’s harder for investors today to be as excited as they were not long ago.

Underwritten deals must show steady or above-average income growth. Herein lies the primary concern for retail: predicting income stability moving forward as the rebound from the pandemic has played out to some extent. In a time when the economy’s next steps are uncertain, underwriters are going to be especially conservative.

Across the various classes, distressed assets seem to be a hot commodity for current investors. The retail industry’s response to the 2008 crisis, characterized by finding distressed cash-flowing assets, acquiring them at low prices, and benefiting from value recovery, does not necessarily translate well to the current retail landscape.

Many of the distressed assets today are suburban retail centers that were overbuilt across America in the boom period of the 70s and 80s. Successful navigation of this challenging environment requires a deep understanding of the local economy and zoning regulations. There isn’t a one-size-fits-all approach.

Amidst these challenges, there are still opportunities to be found in the retail market. Areas with strong local income growth, constrained new supply and/or high barriers to entry offer potential avenues for success. Identifying these opportunities and adopting a tailored approach can help overcome the stress and uncertainties of the retail markets.

  • Richter, J. (2019, September 25). Real Estate Daily Beat. Daily Beat NY. Retrieved June 2, 2023, from
  • Bull, M., & Costello, J. (2023, May 24). Retail Cap Rates Today. Spotify. Retrieved June 2, 2023, from




Student Housing Surge

Student housing has become an increasingly attractive asset this past year. Pre-leasing numbers, current occupancy rates and year-over-year growth reached near all-time highs, indicating a robust market. In contrast to the plateaued multifamily housing market, student housing just experienced an average yearly rent surge of around nine percent. This acceleration is likely attributed to higher college enrollment rates and the phase-out of remote learning.

Students who took pandemic gap years are back, and international enrollment is making headway. Enrollment increases are most prominent in notable universities with Division I programs and better brand recognition. Students are back in droves, and it appears they are looking for the quintessential college experience.

The student housing market presents favorable conditions for new supply. In fact, data shows that between 2010 and 2020, universities added 60,000 to 70,000 new beds annually. However, in 2022 the rate declined to only 25,000 beds indicating an undersupplied market, particularly on campuses transitioning from “commuter” to “resident” settings.

A rising trend of commuter-style, city institutions shifting to resident campuses makes them prime candidates for substantial housing growth. Florida International University and the University of North Texas are examples of urban-centered campuses with a large influx of resident students.

While the student housing market presents attractive opportunities, it has its challenges. Local political structures and associated “not in my backyard” sentiments can pose significant hurdles. Developers can’t simply plan to build cookie-cut designs across all college towns and achieve success. Barriers to entry can make development a headache but, at the same time, prevent oversaturation and promote a balanced market.

There is a common misconception that regional banks comprise the majority share of financing for standard multifamily properties. Though, student housing receives a chunkier portion of local financing. Regional banks often have better market understanding and the right connections to pull strings on these types of deals.

Developers may have to get creative with their financing if regional banks are continuously sidelined. It is also worth noting that cap rates for student housing properties are typically 80 to 100 basis points higher than standard multifamily housing. Fortunately for developers, recent net operating income growth in student housing helps offset the valuation impact.


Richter, Joseph, et al. “Daily Beat – Commercial Real Estate News.” Daily Beat, 25 Sept. 2019,

Spotify. (2023, May 9). Student  Housing: Thriving Market Trends and Investment Opportunities. America’s Commercial Real Estate Show. episode.


Interest-Rate Caps

Real estate investors with floating-rate loans will purchase rate caps as insurance from rate hikes and increased debt service. In fact, many commercial mortgage-backed security (CMBS) lenders will require their borrowers to purchase rate caps. If the Secured Overnight Financing Rate (SOFR) rises above a predetermined strike rate, the cap is considered “in the money,” and the borrower will receive monthly payments equal to the difference between current rates and the strike rate. Rate caps are paid with an upfront payment to the provider and typically last two or three years. For some time, pandemic borrowers enjoyed protection from the Federal Reserve’s increased rate hikes but now find themselves in hot water as their rate caps begin to roll off.

On a $100 million loan, a three-year rate cap at three percent purchased in 2019 cost $98,000. Today’s price is $3.48 million. Rate cap providers, most of which are banks, have been raked over the coals to make good on their promise. They are looking to recoup their losses now by charging a premium. Landlords now face a tough decision: fixed-rate financing at current rates or paying the premium. Economic volatility and the uncertainty of future interest rates only make this decision harder. Borrowers can find themselves forced to sell, default or break out the checkbook.

An estimated one-third of commercial property debt is floating rate. Since most CMBS lenders require rate cap purchases, real estate sales could significantly increase if landlords don’t have the necessary liquidity. Heightened sale volumes would inversely lower real estate values, and the market would see a repricing of assets. Landlords must take a careful, calculated approach to navigate the remaining market troubles. Contact the professionals at BayBridge Real Estate Capital for consultation in this area of expertise.


Richter, Joseph, et al. “Daily Beat – Commercial Real Estate News.” Daily Beat, 25 Sept. 2019,

Rogers, J. (2023, January 23). Expiring interest rate caps to fuel distressed property sales. GlobeSt. Retrieved May 5, 2023, from

Ryan, C. (2023). Landlords May Get New Reason To Sell. Wall Street Journal.


New Opportunities Caused by the Industrial Boom

Over the past few years, there has been an explosion of demand for industrial commercial real estate. This trend can be attributed to online shopping emerging as a convenient alternative to traditional retail. The pandemic and national lockdowns crippled retail and brought industrial demand to a new level entirely.

In addition, shipping costs and supply chain issues are compelling American companies to re-onshore their facilities to avoid issues abroad out of their control. For these reasons, and the simple fact that Americans love online shopping, industrial real estate has been the hottest asset class around. However, developers may have built in excess of demand and are now dialing back to realistic numbers.

In 2020, Amazon leased 284,000,000 square feet across the nation, up more than 100,000,000 square feet from the year before. The stellar tenant and its increased appetite for space was music to landlord’s ears. That is, until Amazon began changing its approach in late 2021.

The retail giant wanted to take advantage of its own success, stop leasing and develop its own real estate. It now appears that Amazon may have bit off too much, as the company has closed, canceled or delayed 89 facilities around the world. Developers will be just fine because the sub-leasing demand is still very strong, but if Amazon’s overreach is soon reflected across the entire asset class, there will be a serious over-saturation of warehouse space.

The southern Californian Inland Empire, eastern Pennsylvania and northern New Jersey have traditionally been the strongest industrial areas due to their access to ports and densely populated areas. Recently, the centrally located triangular area between Chicago, Texas and Florida has seen the biggest growth.

Plymouth Industrial REIT believes this area will continue to see great growth and may even provide a solution to over-saturation. CIO Pen White believes manufacturers will begin to onshore their companies into this triangle for its central location, affordability and abundance of land. Newly built warehouses, plus all pipeline deals, could serve American companies looking to come home and avoid the complexity and uncertainty of international markets and increasing costs. Domestic manufacturers will be able to avoid tariffs and retake control of their supply chain. Industrial CRE will have to pave the way for our companies to return.


Baschuk, B. (2022, November 2). US manufacturers ‘pumped up’ about supply-chain reshoring trend. Retrieved April 28, 2023, from

Carroll, T. (2023, March 16). Industrial Real Estate Market’s new demand driver changing space requirements. Bisnow. Retrieved April 28, 2023, from



Current Commercial Real Estate Market Conditions

Any historian worth their salt will tell you that history repeats. Patterns of similar thought and behavior can be identified throughout human history across cultural and generational boundaries. The same applies from an economic standpoint. Markets are cyclical, and there is much to learn from the past. Luckily for us, in 2023, we can observe the current market turmoil through the lens of the global financial crisis.

The recent failures of Silicon Valley Bank (SVB) and Signature Bank are reminiscent of the start of 2008. Their failures created downstream issues and halted lending from smaller regional banks. This time, however, the contagion is largely controlled. Finance professionals realized SVB and Signature had unique balance sheets responsible for their collapse. Other large banks are mostly protected by conservative underwriting and continue to lend. Banks account for $1.7 trillion of the $4.5 trillion in commercial debt – about 38 percent. Roughly two-thirds are large banks, meaning regional bank-halts only account for about 13 percent of the CRE lending pie.

The overall default rate during the global financial crisis was around 10 percent. Today’s market slowdown is also going to lead to some defaults. It’s part of the market cycle, given CRE’s boom-or-bust nature.

The main difference now is healthier loan and pricing metrics and better credit conditions. The risk premium on cap rates (spread over treasury) has been a healthy 250 basis points on average across property types. Unlike in 2008, we haven’t seen that spread narrow and cause serious overpayment. This means recent outstanding loans originated based on healthy cap rate values. Additionally, the market has seen steady rent growths.

One big issue that remains is current interest rates. The Fed has been hiking rates to fight inflation and trillions of dollars in loans are set to mature. Loans that were issued with much lower interest rates – some were practically zero. These assets have experienced significant value growth and will need to refinance at today’s higher rates. It’s important to remember that real estate values have benefitted from the inflation that is now knocking on their door.

Ultimately, these downturns reshape the markets and force its players to change their strategies. The global financial crisis saw a 30 to40 percent price correction across assets. We will likely see a similar repricing and retooling of office assets today. Banks will take hold of defaulted office spaces and sell them at a discount. As is the case with other troubled assets.

Although resistant, multifamily is not impervious to market cycles. Fortunately, for this asset class, there is a floor because the demand is always so high. Even in the face of rising interest rates, the 2022 Q4 multifamily cap rates were still going down.

It’s important to acknowledge that commercial real estate is a physical manifestation of the economy – an indication of its health. Daunting headlines and anecdotal defaults can overshadow key metrics that give hope for a less gloomy outcome. It may be a day of reckoning for a small percentage of players, but the markets will eventually right themselves, and there will be new opportunities ahead.

Hall, Miriam, Producer and Host of “Bisnow Reports: A CRE News Podcast.” Episode 46:

Moody’s Analytics’ head of CRE economic forecasting Kevin Fagan, March 27, 2023


Golf Course Repurpose

Many golf courses across the U.S. have closed as the sport’s popularity continues to decline, especially among younger generations. This has led to a surprising trend in the Chicago suburbs, where industrial buyers are snapping up golf courses for their land at a rapid pace, according to CoStar.

Golf courses offer hundreds of acres of suburban land, making them a perfect fit for industrial-development repurposes. However, this new trend raises the question of who would want to trade views of beautiful, lush green landscapes for industrial buildings and metal sheets. Communities and developers are working together to figure out how best to balance the interests of developers and residents.

While developers may be interested in turning golf courses into industrial sites, locals may be averse to truck traffic and unsightly buildings. Developers must work closely with residents and officials to transform open spaces.

Saxon Partners took advantage of an opportunity to purchase the Lansing Country Club for $2.5 million when it went on the market. The developer got approval from officials in Munster, Indiana, to create a $160 million campus for research and light manufacturing. However, the approval process took more than four years because the area’s zoning was changed from industrial to mixed-use, and prospective developers walked away.

The declining popularity of golf has resulted from the waning of the “Tiger effect” from the early 2000s when many municipalities opened their own golf courses to cash in on the sport’s jump in popularity. These publicly owned courses do not pay property taxes, which has put pressure on the privately owned competition. Consequently, property taxes hit the Lansing Club hard, costing members roughly $155,000 for the portion of the club located in Cook County Illinois.

While some golf course sales have been successfully repurposed, others have faced challenges from residents and officials who oppose proposals to build new housing on golf course sites. When weighing the pros and cons of repurposing golf courses, it is worth noting the economic benefit in the form of job creation and increased tax revenue. Despite the public’s concerns, developers remain interested in purchasing golf courses with at least two more deals expected to come in the Chicago market.

Rogal, B. (2021, May 14). Golf courses sell at fast pace, but developers are taking Mulligans on Reuse. Bisnow. Retrieved April 14, 2023, from





CMBS Trouble

Commercial mortgage-backed securities (CMBS) are investment products that offer liquidity to commercial lenders and real estate investors by using mortgages on commercial properties as collateral. These fixed-income investments provide a relatively reliable source of income to investors while also providing financing opportunities to commercial lenders. However, in 2023, the reliability of CMBS is deteriorating in step with defaulting office properties and a turbulent macroeconomic landscape.

J.P. Morgan has forecasted that, in the likely event that office occupancies don’t recover from their pandemic slump, approximately 21 percent ($39 billion) of CMBS loans linked to office properties are at risk of default. This default rate could result in an 8.6 percent loss for loan holders, translating to $38 billion in losses for the banking industry and $16 billion for life insurance firms. J.P. Morgan acknowledged that the cumulative losses might be bearable, but the banking industry, which is already under pressure due to a deposit outflow, will feel the impact. According to Yahoo Finance, regional US banks are heavily invested in commercial real estate, holding about 70 percent of the outstanding commercial property debt. In more severe scenarios, where office occupancies shrink by 20 and 30 percent, J.P. Morgan estimates that the default rates could increase to 28 and 35 percent, respectively. According to the bank, commercial mortgage-backed securities make up 22 percent ($549 billion) of commercial real estate loans, excluding multifamily, of which $185 billion is exposed to office properties.

CRED iQ analytics help quantify the distress in metrics beyond dollars and cents. Their data reported a month-over-month increase in the special servicing rate for CMBS loans, representing loans managed by special servicers regardless of delinquent status. The rate grew from 5.10 to 5.53 percent, with a 40-basis point increase over the last two months. When combined with the delinquency rate, the resulting distressed rate stands at 5.73 percent. The overall distressed rate increased compared to the previous month’s rate of 5.29 percent, with distressed rates generally slightly higher than special servicing rates. Many distressed loans are managed by special servicers.

The risk of default is driving the prices of CMBS loans down, inversely increasing yields. Rising yields are blowing out the spread between CMBS and U.S. government bonds, which indicates a decline in trading activity and decreased capital flow. As banks pull back on lending, expect mortgage REITS, life insurers and bridge lenders to step up to the plate. However, lending platforms across the board will tighten up their underwriting standards.

Works Cited

Stribling, D. (2023, April 3). Nearly $39B in CMBS office loans will default, J.P. Morgan predicts. Bisnow. Retrieved April 7, 2023, from

McDevitt, M. (2023, April 3). CMBS delinquency rate increases in March. Commercial Observer. Retrieved April 7, 2023, from


Is Your Bank Running? You Better Go Catch It…

It’s bidding day! The FDIC is selling Silicon Valley Bank and Signature Bank, and the bids are due today. Only bidders with existing bank charters (and a little luck o’ the Irish) will be given access to the bank’s financials, when deciding whether to make an offer. This gives existing lenders the upper hand on private equity firms. If whole sales do not materialize, the banks will be sold in parts.

SVB and Signature were first to be run under water. Other banks, including First Republic and Credit Suisse, were headed for the same fate before being tossed an expensive lifeline. First Republic will receive a $70 billion rescue package pooled together by 11 other banks and the Federal Reserve. Republic’s share price dropped more than 60%, before receiving additional funding. Credit Suisse received a similar $54 billion lifeline on Thursday from Switzerland’s Central Bank, after its stock dropped 24% on Wednesday. Moody’s rating agency is currently reviewing Zions Bancorporation, Western Alliance, Comerica, UMB and Intrust, as well.

How might credit doubt and bank runs affect commercial real estate investors? Up until last week, our biggest challenge had been navigating the complications of increasing interest rates. Now there is new uncertainty in real estate finance as lenders are likely to tighten their underwriting. Debt will get more expensive and harder to come by. The entire situation is reminiscent of the Great Recession and guaranteed to constrain credit. Luckily, the panic is not as bad as that moment in history and the Federal Reserve’s response was swift and organized. Also, the Fed will likely cease rate hikes for the time being.

If we can help you navigate these challenging times, please don’t hesitate to reach out.

Works Cited

Richter, Joseph, et al. “Daily Beat – Commercial Real Estate News.” Daily Beat, 25 Sept. 2019,

Young, Celia. “First Republic Scores $30 Billion Rescue Deal from Lending Rivals.” Commercial Observer, Commercial Observer, 16 Mar. 2023,

Schenke, Jarred, et al. “National Commercial Real Estate News & Trends.” Bisnow,



BayBridge Real Estate Capital Sources $85 million For South Florida Luxury Apartments

NEW YORK, Sept. 12, 2022 – BayBridge Real Estate Capital today announced it secured an $85 million loan to help Invesca Development Group complete construction on PIXL Plantation, a 330-unit luxury apartment building located five miles west of downtown Ft. Lauderdale, Fla.

Located in the Sunrise Boulevard corridor between Florida’s Turnpike and State Road 7, PIXL Plantation is a part of a larger 6.7 acre planned community that, once completed, will include 147 townhomes, office and retail space, and a vast network of green space featuring walking paths, parks, picnic areas, an outdoor movie theater and a resort-style pool.

Jay Miller, AJ Felberbaum and Spencer Miller with BayBridge Real Estate Capital arranged the financing that was provided by Madison Realty Capital based in New York, NY.

About BayBridge Real Estate Capital

A specialty firm focusing on responsive execution and creative financing, BayBridge Real Estate Capital helps developers and investors source funding for a broad range of commercial real estate projects. With an emphasis on structured finance, the team brings decades of experience to markets across the country from its offices in New York, Miami, Fort Lauderdale, Boca Raton and West Palm Beach, Fla. For more information, visit or call (646) 213-7561.


BayBridge Real Estate Capital Arranges Financing for an MC Hotel in Montclair, NJ


BayBridge Real Estate Capital’s Jay Miller, AJ Felberbaum and Spencer Miller arranged financing for a hotel property in Montclair, New Jersey.

  • Loan profile: Refinance
  • Property: The MC Hotel, located at 690 Bloomfield Ave, Montclair, NJ. The hotel is a part of Marriott’s Autograph Collection.
  • Sponsorship: The Hampshire Companies is a privately held, fully integrated real estate firm, real estate investment fund manager and Registered Investment Advisor based in Morristown, N.J. The Hampshire Companies has a diversified investment platform and derives results from its broad experience in multiple commercial real estate asset classes. Hampshire prides itself on its vertically integrated business platform. Having an in-house team of dedicated professionals helps to streamline all aspects of a project from acquisition to financing to development and construction to marketing and leasing. An integrated business model enables Hampshire to be nimble and act quickly, actively manage the project ensuring exclusive control, and provide the highest level of service to its investors.
  • Sponsorship: The Pinnacle Companies is a privately held, regional real estate development firm based in Montclair, N.J. The Pinnacle Companies focuses its core competencies on transformational residential, commercial and retail properties with a concentration on redevelopment, mixed-use and transit-oriented projects.
  • Lender: Hall Structured Finance based in Dallas, TX. The loan was originated by Hall’s Vice President Matt Mitchell.