This week's guest: Ari Hirt, Managing Director, Walker & Dunlap

0:00 Speaker 1 Good morning. This is Michael Stolen for the Stolen real Estate Report on the Cats Around Table this morning. I have a leading managing director of a real estate finance and lending company, Iry Herritt, who is with Walker and Dunlin.

0:14 Thanks for being here today.

0:16 Speaker 2 Thank you, Michael.

0:17 Speaker 1 So the question of the day all the time is, especially the way interest rates are. Is there money for real estate?

0:25 Speaker 2 Yes, there’s money for good deals and good asset classes.

0:30 Speaker 1 So what do we consider a good deal?

0:33 Speaker 2 So there’s more money for deals with cash flow than there is without cash flow, and for good sponsors, and for there’s more demand for certain asset classes versus other asset classes, so multifamily, industrial, hospitality, in some cases grocery, anchored retail. And then you know there’s less capital available for office.

1:00 Speaker 1 And other different product Let’s talk about it. You’ve done a lot of office logistics and a warehouse. Let’s talk about that market.

1:11 Speaker 2 Yeah, so that market is is really tight. There’s not a lot of supply of it. It’s interesting because historically you would have thought about a warehouse in terms of the risk spectrum of real estate, let’s say fifteen years ago, as outdated manufacturing. Because jobs moved away. But what happened with Amazon and other last mile logistics firms and any

1:36 retailer that really needs to distribute product. This demand is tremendous for last mile So in markets in gateway cities or near major population centers, there’s a strong demand from retailers and logistics firms to occupy these warehouses and is a strong demand for like state of the art, you know, where houses near very good transportation access and infill populations.

2:06 Speaker 1 Almost what you have thought about the multi level warehouses.

2:10 Speaker 2 So we’ve done a few of those, and the ones that I’ve done that have been successful have been the ones where there’s really warehouse on the first floor and parking on the second floor. There’s been a resistance to leasing on the second floor. So I did an Amazon deal, a couple of Amazon deals, one on Rockway Turnpike in

2:33 near JFK, where the ground floor is thirty six foot ceilings where the product comes in and product comes out, and then the second, third floor and the roof are really parking. And what it enables Amazon or other logistics firms to do in these situations is to stage all their trucks similar to what you see at the airport

2:55 when ubers are waiting for you, that these little trucks that you see, the Amazon trucks, you’ll have a large buck come in deliver. The product goes through the warehouse and in and out. Everything goes in and out, and these trucks are constantly circling and going up and down.

3:08 So Amazon and other logistics firms find that very essential. And even if you didn’t, even if you had the logistics firms that didn’t that didn’t need parking, there is a strong demand for parking, you know, from other users like revel or like the Department of Transportation, Department of Sanitation.

3:25 So I mean we’re seeing rents for parking like anywhere from twenty to twenty five bucks a foot just on the parking. But when logistics firms will take the whole thing and sort of blend the rent out with the paying something you know higher on the ground floor and paying twenty twenty five bucks for parking.

3:40 Speaker 1 With regard to the rents, I recently was at a seminar which you were also at, and they said that the industrial rents are going down. They’re not going up right now.

3:51 Speaker 2 Look, I think many tenants are holding off right now given the uncertainty that we have in the economy. So while you’ll look, you’ll work on a deal, and we did fourcepec industrial deals in the last year, and the brokers will send you a very very extensive list of tenants in the market, and there are tenants in the

4:10 market that need space, but the delta in terms of what they’re where. They’re willing to pull the trigger right now on rent, not knowing where inflation’s going, where interest rates are going, and what the demand will look like if we go into recession. There’s a little bit of a gap. And based on the land prices that the

4:30 developers bought the properties at, there is a certain rent that they need to hit their returns.

4:37 Speaker 1 Okay. Another area that you’ve been rather involved with is the hospitality, especially with the unique clubs involved with them.

4:46 Speaker 2 Yeah, so there’s definitely a strong demand for hospitality and good markets. I mean, people are traveling, and we’ve done a lot of deals where these are like cool type of hotels that have a membership component to it. For example, we closed one hundred and forty million dollars loan on the Beach House earlier this year. We did that as

5:08 a permanent loan we’ve financed cost of Shippriani here in New York. We’ve financed the Amman here in New York. We’re doing a hotel in Miami Beach that’s going to be a Rosewood collection. So what’s interesting about that is historically, and especially when you built these people were very skeptical lenders rating aims, were very skeptical about the membership component.

5:29 But what we saw was so Beach House and I financed it four years ago, and I financed it now. The difference is that during COVID, when everything’s shut down and hotels see an immediately declined, immediately decline to zero in revenue. With a shutdown because there are no leases, the membership component stuck. And a company like sol House

5:47 that has had little attrition and tremendous growth in membership and a huge waiting list, they were able to pay their debt service during COVID through the membership revenue.

5:57 Speaker 1 Alone, even though their members couldn’t go to.

6:01 Speaker 2 The club correct. So what they did in with their members was they gave them a They told them, if you pay membership, we’ll give you a certain credit to F and B when we open, And that was it was a great move because you give someone a small credit to F and B and they’re just going to

6:17 spend more. Now, that’s so very little attrition, very little attrition during CBE.

6:22 Speaker 1 What are you seeing with regard to hotels near major companies who are having their offices like Google?

6:30 Speaker 2 Yeah, so in New York we’re seeing a tremendous uptick in rates and like working on a deal downtown that’s near Google, a bridge loan and RevPAR was like is way way above what it was pre COVID. Let’s say twenty nineteen and look, New York City lost seventy five hundred keys during COVID three thousand came back. Is very

6:53 very little under construction because there’s a restriction on you need a special permit in order to build it in zones that a loud hotels. There’s a lot of issues with unions in terms of expenses. So if you have a non union hotel and you’re near Google’s going back to the office now, especially downtown. So there’s a tremendous

7:13 demand not just from the leisure travel, but also from the business travel.

7:17 Speaker 1 With regard to that, what segment of the other market is doing well? The extended stay.

7:27 Speaker 2 Extended States is doing well. I would say that the you know, the you know, flagged hotels are doing well. Boutique hotels in major markets.

7:40 Speaker 1 Do you think the change and the rules on Airbnb has had an effect on the hospitality business?

7:47 Speaker 2 I don’t. I don’t think in New York yet. I mean, there’s just so little supply and you’re almost back to like sixty million tourists a year. So I don’t think that.

7:58 Speaker 1 No. I was talking about the fact that Airbnb has to register the units and they’re not going to be able to register as many units in this city.

8:10 Speaker 2 Yeah, I don’t. I don’t know. I mean I I have I’ve seen some hotels that post COVID have gone to full airbnb, you know models.

8:19 Speaker 1 Okay, let’s let’s talk about the office market in New York. How do you see lenders on that market.

8:26 Speaker 2 Look, there are a lot of lenders that just say, you know, I won’t I just can’t do office. I mean I think if you have a stable office property, you can get a financed in CNBS. So I mean there are you know, you know, office buildings with with cash flow. I mean there are office buildings that are

8:46 you know, class A office buildings that have you know, that have very little roll into, very little near term rollover. I would say for you know, office buildings that are that have a lot of vacancy, that haven’t so of reset rates. I mean, there’s definitely a demand. I mean there’s lots of you know, companies that are looking for space.

9:05 People are back in the office. Even if they’re not back in the office every day of the week, they need you know, full space to incentivize for people to come in. But I think it’s it’s like other asset classes post COVID, there’s a you know, and when we talked about industrial, there’s sort of a delta in terms

9:20 of what these tenants want to pay. But there’s you know, there’s there’s vacant office space. I mean, I don’t think we’ll see we’re not seeing very many new construction deals. We’re seeing some people buying office buildings to convert them to condo.

9:34 Speaker 1 Okay, last question, retail, how do you see retail?

9:39 Speaker 2 Look? I think grocery anchored retail is very strong. I mean there was a thought that you know, everyone gets everything online, and you know there is you know, people do grid groceries online. But I think you know less so in suburban markets than in urban markets. There’s a strong demand for that. There’s a strong demand a certain

9:59 market for high street retail. If you go down to the Design district in Miami, I mean, they’re paying ridiculous amounts of rents, ridiculous amounts of rents there. Retailers are expanding down there. I mean, I think that you know, malls are very very difficult. I mean, people ask me if you finance the mall, and I haven’t seen one

10:19 in a long time, but I’ve seen conversions to industrial and other property types.

10:22 Speaker 1 I think the malls have to have repositioning. So I’d like to say there is money out there, you’ve got to look at it. You have to have good advisory services. And I’d like to thank Ariehert for being here today.

10:34 Speaker 2 Thank you Michael