JLL secures $869 million to refinance a 25-asset national Class A bulk industrial portfolio 

JLL’s Capital Markets group arranged a total of $869 million in financing for a 25-property bulk industrial portfolio totaling 11.4 million square feet in 13 major industrial markets across the U.S.

JLL worked on behalf of the borrower to secure fixed-rate loans from Northwestern Mutual and PGIM Real Estate. The team secured two separate financings of $259 million and $195 million from Northwestern Mutual and a single $415 million loan from PGIM Real Estate.

The portfolio is comprised of newly built, Class A institutional-quality assets that are fully occupied by 42 diverse tenants. The portfolio has an average clear height of 35 feet and an average vintage of 2020.

The JLL Capital Markets Debt Advisory team was led by Senior Managing Director John Rose, Associate Ryan Pollack, and Analyst Luke Rogers. The JLL team worked closely with Kevin Westra and Bob Henning with Northwestern Mutual and Paul Geyer with PGIM Real Estate to facilitate the timely loan closings.

Investors take note: Chronic underproduction of housing in the U.S. puts workforce rental housing in the spotlight

Investors looking for attractive returns in the U.S. housing market need look no further than workforce rental housing. A chronic shortage of housing in the country, exacerbated by onerous zoning, land use, and environmental regulations, labor shortages, and demographic shifts, has created a prime opportunity for investing in this segment.

The Supply Shortfall
Since 2017, the shortage of housing in the U.S. has been growing at an alarming rate, with estimates now ranging from 3.8 to 6.8 million units. The lack of supply, particularly in the workforce housing sector, has resulted in historically low vacancy rates and record-high rent and home prices.

Between 2010 and 2021, household formation exceeded net housing deliveries by nearly 4.8 million units leading to a decrease in vacancy rates, making housing less affordable and hindering household formation.

To close the housing gap, at least 3.4 million units are needed within five years, and the rate of new unit delivery needs to increase by approximately 71%. This shortage is evident in the downward trend of the ratio of total housing inventory to the total number of households, which has been below 1 (meaning there is at least one household unit for every household) since Q4 2017.

The shortage also disproportionately affects younger generations, as the median age of household heads has increased from 49.0 in 2008 to 52.1 in 2021.

The current combined vacancy rate for all for-sale and for-rent housing in the US is just 2.5%, with rent and home prices growing annually by an average of 11.1% and 18.9%, respectively.

The Growth and Impact of Zoning, Land Use, and Environmental Regulations on Housing Production
Strict local zoning and environmental laws limit affordable housing by increasing development costs by 32% for multifamily projects. This reduces supply, forcing developers to charge higher prices.

Increasing regulations worsen the housing shortfall, as evidenced by a negative correlation between regulatory cases and permits issued per state. From 2006 to 2018, 49% of U.S. metropolitan areas increased land use regulations. Each regulation in a California city raises the cost of owner-occupied and rental housing by an estimated 4.5% and 2.3%, respectively.

The Workforce Rental Cohort
The shortage of new workforce housing is hurting those earning between $45,000 and $75,000 annually the hardest, as developers typically focus on either luxury apartments or affordable housing. This underserved segment has higher rents and reduced vacancies, making it an attractive investment opportunity.

Private real estate funds focused on workforce rental housing have historically returned an average net IRR of 16.4% between 2009 to 2019, outperforming luxury housing-focused funds’ average net IRR of just 10.7%. While past performance is not indicative of future results, the favorable demographic and supply/demand fundamentals make the workforce multifamily sector a positive outlook for investors.

The chronic underproduction of housing in the U.S. has made workforce rental housing an attractive and sustainable target for investment. As demand goes unmet, prices rise, and this is a trend that is set to continue in the coming years. Investors looking for opportunities in the U.S. housing market should consider investing in the workforce rental segment for durable cash distributions and sustainable capital value appreciation. 


Kingbird Investment Management Senior Managing Director Kenneth Munkacy is responsible for creating and overseeing Kingbird’s investment strategy, acquisitions, joint ventures, and investment management platform in the U.S. Munkacy has over 33 years of global real estate experience and has been involved in all aspects of real estate including acquisitions, development, finance, portfolio and asset management. Munkacy has led full service real estate investment and operating companies in 12 countries and 23 states and has overseen over $3 billion in transactions.

The Biggest Hurdle to Financing Commercial Deals Today? It’s the Uncertainty

Multifamily properties continue to see high demand. Financing new apartment construction or acquisitions, though, has become challenging with rising interest rates.

The uncertainty is the problem. That’s what makes financing commercial real estate acquisitions and construction loans so difficult today. Just ask Fritz Waldvogel, senior vice president in the Minneapolis office of Colliers Mortgage. He says that there is still plenty of interest among investors and developers in commercial real estate. The challenge is making the numbers work, with the uncertainty over rising interest rates scuttling many potential deals.

We recently spoke with Waldvogel about the state of the commercial financing industry. This industry veteran said that financing deals is no easy task today. But the future? He’s optimistic that the second half of 2023 will see an influx of new financing requests.

Here’s some of what Waldvogel had to say:

Has the volume of commercial financing requests slowed because of rising interest rates?
Fritz Waldvogel: Even with the volatility of the last 12 months, there has been a lot of quoting activity. But deals aren’t coming together as quickly as they once were. The deals that are happening are mostly loan assumptions. We aren’t seeing as many new placements. The 10-year Treasury has been all over the board, up and down. It’s challenging to feel good about financing until you have a deal that is rate-locked.

How difficult has the uncertainty over rates been for the financing industry?
Waldvogel: It’s hard to feel good about the debt markets. The agencies, Fannie and Freddie, are still open for business. But there is a big gap between where current pricing is based on sellers’ expectations and what buyers can afford to pay. We are not seeing as many transactions closing on the sales side.

What kind of financing deals are you still seeing today?
Waldvogel: We work on a lot of multifamily transactions. There are new deals in this space, but a higher percentage of them are loan assumptions. The debt is already outstanding. A new buyer can come in and assume an existing note. In those cases, the buyers don’t have to worry about the volatility of the debt markets. If you are looking at a 10-year term loan that was closed two years ago, there are still eight years remaining. The interest rate on that might be in the threes. That’s a very attractive rate today.

There is definitely some sticker shock today when we are quoting rates to people. When we started quoting deals in the 6% to 7% range, people’s jaws almost dropped to the floor.

I guess that begs the question, have we been spoiled a bit by how low interest rates have been?
Waldvogel: We have had a good run of super low interest rates. That meant a lot of transaction activity. But now, you don’t have as many deals that can be refinanced. We did a lot of refinances in 2020 and 2021. There just aren’t as many deals today that make sense for a refinance.

What about next year? Do you think we’ll see a bit more stability in 2023?
Waldvogel: I think there will continue to be volatility in the market next year. But at some point, people will start transacting again if the interest rates have settled down in some way. We need a tighter band of interest rate fluctuations so that people feel better closing deals. As you get into next year, more debt sources should come back. The life insurance companies and bridge lenders that are currently not in the market should be coming back next year. When we have more alternatives to the agencies, developers and investors will have more options.

How have interest rates impacted the demand for construction loans?
Waldvogel: I spoke with a developer last week who said that developers were facing a two-headed monster. They have higher interest rates that impact getting deals financed but also construction costs that are still fairly high. The combination of those two has put a lot of deals on the sidelines. If interest rates come down a little next year and construction costs come down, we’ll start to see more of those deals. But there has been quite a bit of supply that was planned for the next six to 12 months that is not moving forward.

We are seeing the same thing on the multifamily side. Rent growth has been really strong over the last six or seven years. What we need now is to get rents down. To do that, we need more supply. But because of higher interest rates and construction costs, we are not seeing that new supply.

Do you still see great demand from renters for multifamily space?
Waldvogel: The fundamentals of the multifamily market are still strong. You are seeing solid occupancy in the Midwest and solid rent growth. The volatility that is making life challenging is more because of capital markets issues than any fundamentals in the apartment market.

Why has demand for multifamily remained so high for so long?
Waldvogel: I’ve been in the business about 10 years on the lending side. Rents just continue to go up. We need more housing in this country. And with rates going up, that has made single-family housing less affordable. That pushes people to rent longer. The single-family rental space has become a hot asset class. That space should continue to perform well during the next five years. Millennials and members of Generation Z want a house and a yard. But they can’t afford to buy a house. Renting a single-family home is a good solution. You feel more settled down than you do when you are living in an apartment. You have a yard and more space, but you still are renting. Over the last two or three years, we’ve been seeing more capital flowing into that space. The higher interest rates have only pushed that demand higher. The demographics were already there. The higher rates just make that market even more appealing.

What do you look at when determining if a financing request is a solid one?
Waldvogel: We focus heavily on the property’s financial performance and take into account the borrowers’ overall experience. We look at both. You have to make sure that the financial performance is strong, but you also need an understanding of who your borrower is. The borrowers’ experience level plays a role, too.

A lot of buyers have moved into the multifamily space during the last seven or 10 years. They came from other asset classes as demand for multifamily just kept rising.

You mentioned earlier that the country is still seeing a shortage of housing. Is that changing at all?
Waldvogel: On a macro level, the country is severely under-housed. That’s especially true with affordable housing or even market-rate housing. It is very challenging to keep up with the demand that is out there for housing. To get more, we need local governments and the private sector to work together to make deals happen. We need new housing desperately.

Looking into the future, what do you see in the financing market for next year?
Waldvogel: I am still bullish that 2023 will see activity pick up, especially in the second or third quarter. I think 2023 will be better than 2022 in terms of the number of requests that ultimately get done.

Griffin Partners Announces Disposition of Industrial Development in N Houston

Griffin Partners, an entrepreneurial commercial real estate investment, development and property management firm, recently sold Pinto 23, a Class A industrial development in North Houston to Hines, the global real estate investment, development, and property manager. Pinto 23 is located within Pinto Business Park and was co-developed with Pinto Realty Partners.

The newly delivered project, Pinto 23, features a 282,190-square-foot cross-dock industrial building with 36-foot clear heights, 76 dock doors, 112 trailer spaces with capacity for 44 additional spaces and 4,604 square feet of spec office and frontage along Beltway 8, one of Houston’s most strategic logistical thoroughfares.

Located at 10909 Greens Crossing Boulevard, the project is strategically located at the Southwest intersection of Interstate 45 and Beltway 8 in the North Houston submarket within Pinto Business Park. Pinto Business Park, Houston’s largest deed-restricted business park with over 5.3 million square feet of rentable space, is currently over 98% leased.

Griffin Partners and Pinto Realty Partners delivered the Project in October 2022 and were already seeing significant leasing activity prior to the sale.

Trent Agnew at JLL represented the seller in the transaction. Hines has awarded the leasing of the property to Faron Wiley at CBRE.

In addition to the building amenities and quality construction, the Pinto Business Park location has attracted numerous national corporations within a one-mile radius, including Amazon, Sysco, Coca-Cola, Home Depot Supply and Emser Tile distribution centers. Directly adjacent to the site on its western edge, Amazon occupies an 850,000-square-foot fulfillment warehouse.

Tech, Not Amenities, Key to Bringing Office Workers Back?

What will bring workers back to the office? Many companies are banking on flashy, high-end office spaces filled with amenities such as onsite cafes, fitness centers and high-tech conference centers. But a new survey suggests that these amenities might not play much of a role in convincing employees to leave their home offices.

According to a survey of 1,000 U.S. office workers commissioned by essensys, only one in five respondents said that amenities would bring them back to the office. But 63% of respondents said that technology and flexible workspaces do inspire them to work in the office.

Of those workers, 34% said they returned to their offices, at least on a hybrid basis, because they liked the convenience and layout of their office space. An additional 27% said they liked having access to multiple workstations, while 26% said they valued their office’s more reliable WiFi.

The survey also found that 81% of respondents are frustrated with their current office experiences and 52% envy the technology available in other office buildings.

“Many of the conversations we have had on the return to the office have been around investment into top-of-the-line amenity space,” said Jeremy Bernard, North American chief executive officer of essensys, in a statement. “While creating an attractive physical space is important, it’s only one part of the puzzle. Our research revealed that the real driver is access to in-office tech.”

More than half — 56% — of the 1,000 U.S. workers surveyed said that the tech in their offices enhances their ability to work.

What tech do workers want in their office buildings? Building-wide WiFi, sensor-controlled lighting and climate control and the ability to access space and services across a network of locations.

“Technology can’t be overlooked as a tool in the back-to-the-office battle,” Bernard said. “Against today’s backdrop of economic uncertainty, this can’t be, nor should it be, ignored. The modern office is completely changing. If real estate strategies don’t evolve quickly and support today’s occupiers, there will be even tougher roads ahead in the fight to remain competitive and relevant.”

Chicago Ranks 4th-largest Medical Office Market in U.S. After Houston and Dallas

Medical office buildings (MOBs) have proven to be a resilient asset class, especially throughout COVID-19. This is because most of these users require in-person treatment, providing a stable user base for the asset class. But they’re a little more complicated to build and operate than traditional office space, causing an undersupply in many markets across the U.S.—excluding Chicago.

In fact, Chicago ranked the fourth-largest medical office market in the country, according to 42Floors’ Medical Office Building Decade Report. Using information provided by CRE research and listing platform CommercialEdge, 42Floors analyzed U.S. MOB construction activity between 2012 and 2021.

Boasting an inventory of over 400 MOBs, totaling nearly 30 million square feet, Chicago grew 18% during the decade (4.3 million square feet since 2012) and is only expected to grow.

42Floors has predicted that the next few years will see three large deliveries across three markets in the Midwest: Chicago, Madison, Wisc.; and Milwaukee. These buildings will collectively add about 1.5 million square feet of MOB space to the region.

Texas is also a state to watch. Houston and Dallas-Fort Worth ranked No. 2 and No. 3 on 42Floors’ list, respectively. Houston added 4.3 million square feet of space during the decade, growing 15% to its current total of 33.2 million square feet. And DFW saw similar growth, adding 4.6 million square feet and growing 16% since 2012 to its now 33-million-square-foot footprint, based on the report.

The current market is strong across the U.S, and healthcare rents continue to grow while companies work on the issue of undersupply. Healthcare is a continually evolving industry, and businesses must be willing to adapt in accordance with current trends and patient needs. For example, OHM Advisors Principal and Partner Jennifer Carney said, following the pandemic, there’s been a demand for telehealth rooms, where the doctor can virtually visit with a patient in the privacy of their home.

“Physicians can use their exam and patient rooms for virtual appointments,” she said, “but we’re seeing planning spaces for telehealth that are smaller in size and scope.”