1 | JANUARY 15, 2016

Two ominous words stuck out at CRE Finance Council’s 2016 industry leaders conference at Loews Miami Beach Hotel—“illiquidity” and “regulation.”

The trade group’s annual three-day event, which bars the media from iden-tifying panelists and moderators with-out their permission, carried a more urgent tone than in recent years past.

“There is a liquidity issue in front of us in the commercial mortgage-backed securi-ties sector, which is a big challenge for the mar-ket,” said Stephen Renna, CREFC’s president and chief executive officer.

Several other industry executives voiced their feelings about the state of the market and the overall sentiment quickly grew caution-ary. Pithy forecasts from panelists included

“ice is getting thin,” “dangerous curves ahead,” “on the edge” and “less optimis-tic after this conference.”

“Everyone down here is pessimistic,” said one speaker at a panel on interest rates and credit spreads. “Both the vol-

atility in the market and the global headwinds are enormous.”

Florida-based Global Fund Investments landed a $247.5 million loan from TIAA-CREF to refinance a 20-property retail

portfolio in Texas, sources told Commercial Observer Finance.

HFF Senior Managing Directors Michael Tepedino and Michael Gigliotti and Director Cameron Cureton arranged the loan, which is replacing existing debt that was securitized in the commercial mortgage-backed securities market. The new financing package closed on Dec. 31, 2015, and carries a fixed rate over a long term, but no further details were disclosed.

“TIAA-CREF provided a comprehensive fi-nancing solution to facilitate the recapitaliza-tion of a complicated 20-property portfolio,” Mr. Gigliotti said in prepared remarks. “GFI brings an impressive depth of experience and

See TIAA-CREF... continued on page 5See CREFC 2016... continued on page 5

TIAA-CREF Lends $248M Against Texas Retail Portfolio

The LEAD

In This Issue

3 DDG Gets $153M Construction Loan for Upper East Side Resi Tower

3 Eastdil’s Roy March Provides Confidence Booster at CREFC 2016

7 Macy’s Closings Could Devastate Investors With $530M in CMBS Loans

9 TF Cornerstone Seeking Up to $76M in Debt for NYC and D.C. Properties 9 PNC Lends $45M for TF Cornerstone Virginia Acquisition

11 CBRE Acquires GE’s Interest in GEMSA, Rebrands

“We do not expect a downturn in property net operating incomes even in

a rising rate environment.”—Daniel Harris

From Q&A on page 13

The Insider’s Weekly Guide to the Commercial Mortgage Industry

FINANCE WEEKLY

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A rendering of 180 East 88th Street.

Eastdil’s Roy March Provides Confidence Booster at CREFC 2016

Roy March, the chief executive officer of Eastdil Secured, made a well-timed impression on hundreds of CRE Finance Council members in Miami Beach on Monday evening.

During the trade association’s indus-try leaders conference, in which many of those leaders voiced anxieties and concerns about liquidity and risk retention, the near-ly 40-year Eastdil veteran provided some therapeutic relief.

“I’m optimistic that the industry is better situated today than it’s ever been,” Mr. March told a packed con-ference room at Loews Miami Beach

Hotel. “Everyone is spooked by vola-tility, which is treacherous in the short run, but a good thing in the long run. Volatility prevents overbuilding and de-terioration in underwriting and is more friend than foe,” he said.

The other positives, according to Mr. March, include the abundance of financing across the board, the global flow of capital, the oil markets (“unless you’re in Houston,” he said) and the size and strength of the U.S. economy, which is now 25 percent larger compared with 2009.

The biggest concerns, he said, are the global bond markets, interest rates, which should be higher given U.S. job growth, and credit spreads, which “have room to come in.”

With the so-called wave of maturities rising higher and risk retention putting a potential damper on the commercial mort-gage-backed securities market, equity will

play a larger role in the refinancing of loans due to mature in 2016, 2017 and 2018, he said. (Eastdil brokers equity, debt and sales on behalf of real estate investors and developers.)

Mr. March also noted that foreign invest-ment would continue to play a key role in U.S. real estate—especially in New York, Chicago and other large cities. While the Chinese buying boom has far more time to play out, the next wave of foreign invest-ment would likely come from Japan, he said.

But the more pressing questions, Mr. March said, are whether sustained low oil prices will cause Middle Eastern investors to retrench and whether the turbulence in China is temporary or long term.

“The biggest and final question, perhaps, is does this all end in another major asset bubble?” the Eastdil CEO told the crowd. “That I don’t foresee.”—Damian Ghigliotty

M&T Bank provided Joe McMillan’s DDG Partners and real estate investment firm Global Holdings with a $153 million loan on a residential development on the Upper East Side of Manhattan, Commercial Observer Finance can first report.

Proceeds of the financing, which closed on Dec. 21, 2015, will be used to construct a 31-story condominium tower at 180 East 88th Street between Third and Lexington Avenues.

The latest filings with the New York City Department of Buildings indicate that the tower will house 48 condo units, and the re-ported sellout estimate for the project is $308.2 million.

Mr. McMillan’s Tribeca-based development firm acquired the site, along with 1558-1560 Third Avenue between East 87th and East 88th Streets, from Muss Development for roughly $70 million in 2013, as Commercial Observer previously reported. The parcels, which have connecting rear lots, housed two vacant five-sto-ry apartment buildings, which have since been razed. (It was not immediately clear when Global Holdings joined DDG as a partner.)

M&T provided the borrower with a $47.5 mil-lion acquisition loan in December 2013, accord-ing to city records.

Representatives for DDG and Global Holdings did not respond to requests for com-ment. A representative for M&T declined to comment.—Danielle Balbi

DDG Gets $153M Construction Loan for Upper East Side Resi Tower

4 | JANUARY 15, 2016

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Among the layered discussions, several pan-elists noted that B-piece buyers of commercial mortgage-backed securities—a large and influ-ential class of investors—are increasingly pull-ing back from the market.

“Liquidity is down significantly for those looking to buy and sell CMBS,” one panelist said, noting that investors “are really tepid,” due to uncertainties about yield in the face of new credit risk retention requirements. Major global issuers of CMBS, including Deutsche Bank, Goldman Sachs and Citigroup, are doing deals for less money, that panelist added.

Christina Zausner, vice president of in-dustry and policy analysis at CREFC, said an ongoing slowdown in secondary market trans-actions, largely due to heightened regulation and regulatory concerns, is causing market makers, or liquidity providers, to hold smaller inventories.

The biggest liquidity concern is that the fric-tions in the secondary market could start to trickle into the primary market, she noted.

“In a worst case scenario, regulation could go as far as to shut down bank-related mar-ket making,” Ms. Zausner told Commercial Observer Finance. “Despite interest from non-banks in stepping in, it is not yet clear that regu-lations will let them do that effectively enough to support the market as we know it. If regu-lation gets so onerous that the banks pull out of CMBS, then the question becomes is there enough economic opportunity for nonbanks to step in and fill that void?”

Still, risk retention and other forms of reg-ulation to come under the Dodd-Frank Act and Basel III will favor the larger CMBS shops, since those institutions have the neces-sary capital to absorb the added costs of doing business, several panelists agreed.

One veteran at a large international lender noted the size of CMBS deals would become increasingly smaller going forward. “People will stay in the business, but they’ll be very careful about how they approach deals in 2016,” that executive said.

Heightened regulation is driving more com-mercial real estate borrowers to new private capital sources that carry less transparency than banks and CMBS issuers, another panel-ist noted.

“The borrowers are the losers,” the panel-ist said. “With interest rates on the rise, those private capital sources will become even more expensive.”

That shift, however, could cause the regu-lators, which include the Federal Reserve and the U.S. Securities and Exchange Commission, to rethink their approach, an-other panelist suggested.

A speaker in a separate discussion noted that the upcoming risk retention rule, which calls for the issuer of the securitization to hold 5 percent of the fair value of the debt, would allow the in-dustry to better police itself.

CREFC—an association comprised of 312 companies and 9,000 individual members—actively lobbies for the more than $3 trillion commercial real estate finance industry. The or-ganization is working to introduce a new bill in the U.S. House of Representatives that would address and modify certain aspects of the final risk retention rule. Ms. Zausner said she and her colleagues hope to see that effort play out before the federal requirements go into effect.

CREFC has also started to form a coalition with other trade groups and policy institutes to raise additional concerns in Washington over changes to broader risk-based capital requirements.

“It’s a lobbying effort to educate Washington about the potential negative effects of

extremely onerous capital treatment for se-curitizations, and particularly for CMBS,” said Ms. Zausner, a former senior examiner at the Federal Reserve Bank of New York. “We’re turning up the heat slowly.”

In recent years, federal and internation-al regulators have imposed stricter rules on banks, life insurance companies, hedge funds and other financial institutions in an effort to monitor and control systematic risk to the U.S. and global economies and financial markets.

A risk retention rule on all residential mort-gage securities went into effect on Dec. 24, 2015. The final risk retention rule on all non-residen-tial asset-backed securities is set to go into ef-fect on Dec. 24, 2016.

“It’s our Christmas Eve present from the regulators,” Mr. Renna said in jest. —Damian Ghigliotty

high level of institutional quality to the table, which attracted the lender to the transaction.”

The 2.1-million-square-foot portfolio is 95 percent leased, with 414 tenants, includ-ing Kohl’s, LA Fitness, Petco, 24 Hour Fitness, Starbucks Coffee and T.J. Maxx.

Twelve of the retail centers are in Houston, seven are in Dallas-Forth Worth and one is in San Antonio. The portfo-lio includes Village at Blanco at 1130 North Loop 1604 West in San Antonio; Benchmark Crossing at 5757 Hollister Street and Copperfield Crossing at 15540 Highway 529 in Houston; and Creekside Plaza at 2400 SE Green Oaks Boulevard in Arlington.

A spokeswoman for TIAA-CREF de-clined to comment. A representative for GFI did not respond to requests for comment. —Danielle Balbi

TIAA-CREF...continued from page 1

CREFC 2016...continued from page 1

CRE Finance Council’s 2016 Industry Leaders Conference in Miami.

6 | JANUARY 15, 2016

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Macy’s Closings Could Devastate Investors With $530M in CMBS Loans: Reports

Slumping sales at Macy’s are hurting more than just the mega-retailer itself.

After the Cincinnati-based department store chain announced last week that it would be closing 36 stores and laying off 4,000 employees, Trepp and Morningstar Credit Ratings released reports indicat-ing that more than $530 million in com-mercial mortgage-backed securities debt could be affected by the news. Six of the 13 properties that collateralize these deals are already in financial trouble, having de-faulted on their loans. (Some are even real estate-owned.)

“Macy’s announcement of store shutter-ings stings because the retailer is usually one of the anchor tenants for regional malls, which means a sizable vacancy will be creat-ed,” Sean Barrie, an analyst with Trepp, told Commercial Observer Finance via email. “Though most of the Macy’s closings affect malls in secondary markets, many of the loans backed by the properties make up large chunks of legacy CMBS deals. To boot, a few

of the malls with Macy’s closings are already REO assets.”

Morningstar tallied 13 CMBS deals with ex-posure to both collateral and non-collateral Macy’s locations that are currently slated for closure, seven of which are in special servic-ing. The rating agency is forecasting losses of more than $260 million on six of those loans.

Two of the largest deals already with the special servicer that could face significant losses include a $65.7 million mortgage on the Chapel Hill Mall in Akron, Ohio, and a $240 million loan on Enfield Square in Enfield, Conn.

The 666,203-square-foot Chapel Hill Mall is in REO and is the largest delinquent loan in the Lehman Brothers-sponsored LBUBS 2006-C6 pool, and could take a loss of near-ly $46.6 million. The mortgage on Enfield Square, formerly Westfield Shoppingtown Enfield Square, is the largest note in the J.P. Morgan Chase-sponsored JPMCC 2006-LDP7 conduit, comprising 10.4 per-cent of the total deal’s remaining collateral.

Morningstar estimates that the loan, which is in default, could be subject to $56.3 mil-lion in losses.

The $49.6 million loan backed by the Hudson Valley Mall in Kingston, N.Y., was sent to special servicing for immi-nent monetary default in April 2015 after another big-box retailer, J.C. Penney, va-cated its space, pushing the property’s va-cancy rate up to 21 percent. This month, Macy’s announced it would be closing its 121,814-square-foot Kingston store as well, making it the second major tenant to abandon the 618,780-square-foot shop-ping center. The loan is the largest note in the Cantor Fitzgerald-sponsored CFCRE 2011-C1 conduit, accounting for 12.8 percent of the deal’s collateral, according to Trepp. Losses on that deal could reach up to $7.8 million, according to Morningstar.

Macy’s as a whole is a tenant at proper-ties securing 140 CMBS loans with unpaid debt totaling $118.5 billion.—Danielle Balbi

A Macy’s storefront in Jersey City, N.J.

8 | JANUARY 15, 2016

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PNC Bank is providing a $45 million loan to TF Cornerstone to fund its recent pur-chase of a two-building, 230,000-square-

foot office property in Reston, Va., Commercial Observer Finance can

first report. The financing, which was expect-

ed to close this week, will carry a fixed-rate over a seven-year term, according to TF Cornerstone Head of Finance and Acquisitions Jeremy Shell. Based on the purchase price of $70.5 million, the loan carries a roughly 64 percent loan-to-cost ratio.

Last month, the New York City-based development firm closed on the acquisi-tion of Campus Commons I & II at 1900 and 1902 Campus Commons Drive from Walton Street Capital. The Chicago-based seller purchased the building for $50.5 million in December 2012, according to PropertyShark.

The buy is part of a long-term play, Mr. Shell told COF.

“We think the pricing for the office was attractive, but it also happens to be an op-portunity to develop multifamily,” he said.

“At the end of the day, we want to develop multifamily and retail next to [the office].”

The two buildings, which are locat-ed just 20 miles from Washington, D.C., are surrounded by a large, outdoor park-ing lot.

While TF Cornerstone now owns a total of nine office buildings in the Washington, D.C., area including 1090 Vermont Avenue NW, 1101 15th Street NW, 1620 Eye Street NW and 2029 K Street NW, Campus Commons would be the firm’s first time building multifamily and retail outside of New York City, according to the firm’s website.

Mr. Shell added that TF Cornerstone would start constructing the new building in the parking lot after going through the multi-year permitting process at the office campus, while continuing to operate the ad-jacent office property.

A spokeswoman for PNC declined to comment.—Danielle Balbi

PNC Lends $45M for TF Cornerstone Virginia Acquisition

EXCLUSIVE

TF Cornerstone Seeking Up to $76M in Debt for NYC and D.C. Properties

TF Cornerstone is shopping for a total of roughly $76 million in financing for two proper-ties in New York and Washington, D.C., a source

told Commercial Observer Finance.

The New York City-based developer is seeking anywhere from $15 mil-lion to $18 million in debt to fund the pur-chase of a ground lease at 475 Avenue of the Americas between West 11th and West 12th Streets in the West Village, said Jeremy Shell, the head of finance and acquisitions at TF Cornerstone.

Madison Capital is selling the 46-year master lease for the 13,037-square-foot ground-floor retail co-op, in which CVS, Wells Fargo and a parking garage are ten-ants, for $31 million as part of a 1031 ex-change, sources told Commercial Observer in December.

“We are looking for permanent debt, any-where from seven to 15 years,” Mr. Shell said. “We anticipate interest from banks, insurance companies and CMBS.”

Eastdil Secured’s Adam Spies, Douglas Harmon, Joshua King and Brett Siegel are arranging the sale, which is expected to close later this month.

A little further south, in the nation’s capi-tal, TF Cornerstone is looking for a long-term, fixed-rate $58 million loan to refinance an old

mortgage on 2021 K Street NW. The firm pur-chased the 160,000-square-foot medical office property 10 years ago and Mr. Shell noted that company plans to hold it for the long term.

The eight-story building, which was com-pleted in 1972 and renovated in 1990, is in the Golden Triangle business district of Washington, D.C. The property is rough-ly 85 percent occupied, according to data from Trepp, and tenants include George Washington University and Laboratory

Corporation of America. The new financing would replace a $40 mil-

lion loan on the ground portion of the building, which is securitized in the Morgan Stanley-sponsored commercial mortgage-backed se-curities deal MSC 2006-T23.

TF Cornerstone is not using a broker to ar-range either of the financings.

Representatives for Eastdil and Madison Capital did not respond to requests for com-ment.—Danielle Balbi

2021 K Street NW.

EXCLUSIVE

1902 Campus Commons Drive.

10 | JANUARY 15, 2016

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11 | JANUARY 15, 2016

WorkforceCBRE Acquires GE’s Interest in GEMSA, Rebrands as CBRE Loan Services

CBRE Group has acquired General Electric Capital Corporation’s inter-est in the loan servicing company GEMSA Loan Services and has re-launched the servicing company under its umbrella, the Los Angeles-based firm announced on Monday.

GE transferred its interest in GEMSA—which the two firms founded as a joint ven-ture in 2001—to CBRE on Dec. 18, 2015, allowing CBRE to take over the business and operate it as CBRE Loan Services.

The newly branded platform currently manages $120 billion of commercial real estate loans worldwide—roughly 5,200 loans in the U.S. and 500 in Europe. CBRE Loan Services recently began servicing loans in Australia, through the firm’s Sydney office, and intends to expand glob-ally, a CBRE spokesman told Commercial

Observer Finance via email. Additionally, management will focus on expanding third-party loan servicing, growing the loan servicing platform’s institutional cli-ent base and bringing in more regional and non-bank lenders.

GEMSA has offices across the U.S., as well as in London, Frankfurt and Madrid, none of which are closing. The firm’s head-quarters will remain in Houston, the CBRE spokesman confirmed.

“At CBRE we understand the under-lying real estate asset as much as we un-derstand the loan,” Clarence Dixon, the global head of CBRE Loan Services, said in prepared remarks. “This combination en-ables us to provide our clients with truly innovative solutions to meet their com-plex commercial real estate finance needs. Launching CBRE Loan Services globally means our clients can receive the same high level of service and consistency any-where in the world.”

CBRE has been servicing commercial

real estate loans since 1978, both directly and through firms the company acquired. Through GEMSA, the firm serviced loans for life insurance companies, the Federal Housing Administration, Fannie Mae, Freddie Mac, pension funds and the commercial mortgage-backed securities industry.

In addition to launching the platform under its brand, CBRE announced that Chris Shamaly, the former general coun-sel of CBRE Capital Markets, is now the senior managing director of CBRE Loan Services in the Americas.

“Top-quality loan servicing is a core strength of CBRE and, through the new CBRE Loan Services, we will continue to provide the high level of service that our clients expect of us, while further growing the practice in the U.S.” Mr. Shamaly said in the press release.

GEMSA managers Chris Gaas, Steve Rapp and Dave Haley will transfer to CBRE and report to Mr. Shamaly.

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12 | JANUARY 15, 2016

COMMERCIALOBSERVER.COM

Top 10 MSAs With Greatest Loan Originations in December

“Silicon Valley is certainly alive with innovation, but also issuance. The San Jose, Calif. metropolitan statistical area was awarded

over $462 million in commercial mortgage-backed securities issuance in December 2015, the second-highest total for any MSA in

that month,” said Sean Barrie, an analyst with Trepp. “This total is primarily due to the $430 million loan that backs Moffett Place

in Sunnyvale, Calif. The backing collateral is a 943,056-square-foot office that serves as current headquarters for Google. The New

York City MSA took the top spot once again, with over $990 million in issuance generated last month. Moffett Place might be the

largest loan by balance issued in December 2015, but the second, third, fourth and fifth spots on that list are occupied by loans that

back New York City properties. The Chicago and Houston markets ended December with 18 and 16 loans issued, respectively. Those

totals helped the respective MSAs reach third and sixth on the issuance total list.”

Source:

MSA December 2015 Issuance Total

New York City $990,434,313

San Jose $462,194,379

Chicago $241,763,861

Boston $216,219,768

Washington, D.C. $166,219,537

Houston $126,977,352

Dallas $121,753,172

Austin $121,350,000

Phoenix $109,264,266

Miami $104,138,185

The Takeaway

13 | JANUARY 15, 2016

Q+A

Commercial Observer Finance: How did you go from studying law to becom-ing the CLO at a bank?

Mr. Harris: In law school I worked for Dean [Patrick Rohan at St. John’s Law School] who authored numerous treatis-es on various real estate topics. I worked on a number of his books, which was my first exposure to real estate. Upon graduation, I worked at Manufacturers Hanover Trust in the legal department and helped set up their first in-house real estate practice. I then practiced in White Plains at Bleakley Platt & Schmidt representing banks in commer-cial real estate transactions. I realized that I was much more interested in the financial and structural aspects of deals than the legal documentation. After about eight years as an attorney, I was offered the opportunity to work for one of our bank clients doing com-mercial real estate workouts. For the next 10 years, I worked as a CRE workout specialist, most notably with Greater NY Savings Bank [which sold to Astoria in 1997]. After the sale, I continued in banking in roles such as chief credit officer of Hudson Valley Bank [now Sterling] and for the last seven and a half years as chief lending officer at the Dime.

On the lending side, have you felt the

increasing demand for multifamily in the city?

The demand for multifamily properties is very high in large part due to the predict-ability of cash flows in this asset class. This is driven by the historic low vacancy rates in virtually all levels of New York City multi-family housing, but particularly in rent-reg-ulated units. In addition to this, the tax treatment of real estate investments remains very positive. The recent run up in proper-ty values and low interest rates justify cash out refinances, even if the owner has to pay a prepayment fee.

Are you concerned that the multifam-

ily market is getting too frothy?What makes the market appear “frothy”

is the reported low cap rates at which some properties are trading. From our perspec-tive, as long as we lend based on current cash flow, the purchase price cap rate or gross rent multiplier is not the most critical issue. We

do not expect a downturn in property net oper-ating incomes even in a rising rate environment.

What is one of the most exciting deals you worked on in the last year?

We had a terrific borrower who owned a mixed-use property near the [South Street] Seaport. It has a long-term restaurant on the ground floor and 16 apartments. The flood-ing from [Superstorm] Sandy was over eight feet deep on the main restaurant floor plus, of course, the entire basement was flooded. Obviously we were concerned. The borrower completely rehabbed the restaurant and apart-ments, all of which had to be vacated after the storm. Last year, with all renovations complete, the restaurant was back, all units re-leased and we were able to refinance the property.

Have you worked with any unusual deal structures recently?

We recently committed to a refinance on some quality properties on the East Side of Manhattan. We have a unique five-year step-up program, which starts out with a lower rate (than our standard five-year rate) for two years to maximize borrower cash flow then the rate in-creases for the next three years, with the average coupon for the five years being about the same as our standard five-year rate. Interest-only is a common request on many of our deals for the initial two or three years. In this case, we amor-tized the loan in the first two years, and then agreed to interest-only for years three, four and five. The debt service actually stayed about the same for the first five years of the loan, helping us win the loan.

Daniel HarrisExecutive Vice President and Chief Lending Officer at Dime Savings Bank of Williamsburgh

Daniel Harris

1 Whitehall Street, New York, NY 10004

212.755.2400

Damian Ghigliotty Editor

Danielle Balbi Staff Reporter

Terence CullenLauren Elkies Schram

Contributing Writers

Cole Hill Copy Editor

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Lisa Medchill Advertising and Production Manager

OBSERVER MEDIA GROUP

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and Associate Publisher

Thomas D’Agostino Controller

Laurence Rabinowitz General Counsel

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FINANCE WEEKLY