Ranieri Group Puts Situs Holdings Up for Sale

Following persistent rumors that it was in play, Situs Holdings has hired investment bank Raymond James to find a buyer.

Situs will entertain bids for either the whole company or a partial interest, according to people familiar with the matter. Market pros estimate the real estate-services shop is worth $150 million to $200 million.

Situs is owned by Ranieri Partners of Uniondale, N.Y., Brookfield Investment Management of New York, South Carolina Retirement and members of its own management team. After fielding multiple unsolicited offers, the company’s board of directors recently voted to formally seek bids, the sources said.

Houston-based Situs, which was founded in 1988, has an array of business lines, including due diligence, loan underwriting, primary servicing, special servicing and real estate advisory services. It also operates a big outsourcing business, which is the dominant supplier of contract workers to commercial MBS lending shops.

The list of prospective buyers could be long and diverse. Logical candidates include competitors in the due-diligence and special-servicing arenas, as well as broader-based real estate companies looking to add compatible operations. Several companies are seeking to build out full-service national commercial real estate brokerages, including a TPG partnership that has agreed to buy brokerages DTZ and Cassidy & Turley.

Situs could also appeal to firms looking to increase their presence in Europe. The company lays claim to being one of Europe’s largest third-party loan servicers and one of only a few firms that manage loan portfolios in both the U.S. and Europe.

Situs has also been expanding beyond the commercial mortgage sector. In August, the Federal Reserve tapped the firm to conduct a portion of its annual comprehensive capital analysis and review, an exercise to determine whether the largest U.S. bank holding companies have sufficient capital. Situs was awarded a contract to review nearly 7,000 of residential loans totaling $5 billion.

Rumors that Situs would be sold have circulated for more than a year. The speculation, denied by the company, was fueled in part by the fact that Ranieri Partners sold two other pieces of its platform this year: agency lender Berkeley Point Capital and distressed-asset investor RREP Recovery Partners. Cantor Commercial Real Estate acquired Berkeley Point, and affiliate Cantor Fitzgerald purchased RREP.

Ranieri Partners, headed by securitization pioneer Lewis Ranieri, began amassing a commercial real estate advisory, servicing and origination platform several years ago, teaming up with private equity partners. Ranieri gained control of Situs in 2011 and merged it with Helios AMC, a special-servicing firm in which Ranieri owned a stake. The merged company retained the Situs name. In 2012, Ranieri teamed up with billionaire

Wilbur Ross to buy Berkeley Point from Deutsche Bank, which operated the multi-family lender under the name Berkshire Mortgage. Ranieri also operates a registered broker-dealer, Ranieri Real Estate Advisors, which places debt and equity, and advises commercial real estate firms.

Many market pros think that Ranieri and its partners are simply ready to take profits after a big run-up in valuations for real estate companies that provide fee-based services. A spokesperson for Ranieri Partners didn’t return a call seeking comment. 

Buffett Says ‘No-Brainer’ to Get a Mortgage to Short Rates

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. (BRK/A), said he was puzzled by the sluggish rebound in U.S. home construction amid near record-low interest rates and a broader recovery in the economy. 

“You would think that people would be lining up now to get mortgages to buy a home,” Buffett said today at a conference hosted by Fortune magazine in Laguna Niguel, California. “It’s a good way to go short the dollar, short interest rates. It is a no-brainer. But so far home construction pickup has been slower than I had anticipated.” 

Housing starts slumped in August from the highest level in almost seven years to a 956,000 annualized rate, Commerce Department data show. Slow wage growth and tighter lending standards have kept some would-be borrowers from buying a home.

Buffett, 84, whose Omaha, Nebraska-based company has units that build houses and make carpet, paint and bricks, reiterated today that he expects home building to pick up as the market rebounds from the deepest slump in more than seven decades.

“Household formation falls off dramatically in a recession, at least initially,” he said. “But that doesn’t last long. Hormones kick in and in-laws get tiresome, too.”

Liquid Apartment Lending Market Sees Conduits Rising

Commercial mortgage-backed securities lenders are gaining market share in the apartment market as Fannie Mae, Freddie Mac and the life insurance companies have been less active  than during the same time last year.  "The agencies have become more active after starting the year slowly," said Faron Thompson, international director in JLL's capital markets group. "Borrowers have more choices than they've had since 2007. There are a number of different programs and a complete smorgasbord of opportunities."

There were about $706 million of new apartment loans in the first half of 2014 - about 2% less than during the same period in 2013. But Fannie Mae, Freddie Mac and the life insurance companies have seen their volumes drop about 13% year-over-year, according to a new report from JLL, citing data from the Mortgage Bankers Association. CMBS Lending volumes are about 19% higher.

Although Fannie Mae and Freddie Mac had a slow start to the year, this changed after Mel Watt to the reins of the Federal Housing Financing Agency in February. Watt succeeded Ed DeMarco, whose tenure was marketed by curtailing lending efforts with the aim of making Fannie Mae and Freddie Mac smaller and smarter. "[Watt] wanted Fannie Mae and Freddie Mac to make smart loans and well underwritten loans. He was not trying to put them in a volume box or keep them from responding to the market's needs," Thompson added.

Market participants have observed that in recent months, the GSEs have worked hard to be more competititve with the conduits. Dan Lisser, principal and senior managing director at Johnson Capital, observed that the GSEs became more aggressive when restrictions under DeMarco, such as reducing portfolios by 10% annually, were lifted. "For borrowers, [the liquidity] will continue to keep cap rates low as they can get attractive financing," Lisser said. "It will be very good for sellers as well, as they will see great pricing."

Peter Donovan, a senior managing director at CBRE, told REFI he is not surprised to see the increase in competition from the agencies. "I think they're doing it in a disciplined way," he said. "I dont like the word 'aggressive,' because I don't see it as a bad thing. This is not 2006 or 2007, where underwriting has seemed to go a little too far. It's always been fairly compeititive, but in a healthy way."

Thompson noted that earlier this year, CMBS pricing was almost in line with the GSEs. "But right now, agency pricing is anywhere from 15 to 35 basis points tighter. The gap has widened again," he added, noting that gSEs offer a product that is more customized that the so-called "cookie cutter" CMBS loans.

Ray Potter, founder of New York-based advisory company R3 Funding, illustrated. In March, the firm was working to arrange a loan on a portfolio of Class B apartments in Gates, NY, that was shopped to CMBS and GSE lenders. At that time, the CMBS lender was the aggressive. But three months later, the same borrower was looking for a loan on six similar properties in the same area. This time, a Freddie Mac lender offered termes that were much more aggressive, including a four-year interest-only period and a spread that was 20 bps tighter. "It was a pretty easy decision to go with the Freddie Mac lender - there was more IO, more proceeds and a tighter spread," he added.

There continues to be a divergence between the type of borrowers that CMBS lenders and GSEs are looking for. CMBS lenders tend to offer higher pricing and pursue smaller borrowers, Donovan noted. Both groups of lenders, however, are similar in terms of client base and execution. That means increased competition from Fannie Mae and Freddie Mac may affect borrowers in small ways, such as providng another year of interest-only or a particular structure that is more effective, he added.

On the syndicated lending side, the GSEs are about 20 basis points cheaper than the bank market right now. "But if you compare teh syndicated loan product to Fannie Mae and Freddie Mac, it's very different. The execution is more like a CMBS loan, whereas we are floating-rate, three- to five-year lender," Galligan said.

Rialto, Eightfold Circle 3 B-Pieces

Rialto Capital has agreed to buy the junior portions of two upcoming conduit offerings, while Eightfold Real Estate Capital has circled the B-piece of a third deal.

Rialto’s purchases involve a $1.25 billion offering led by J.P. Morgan and Ladder Capital, and a similarly sized deal led by Wells Fargo and RBS.
Eightfold, meanwhile, has circled the bottom piece of a $1.25 billion offering by Goldman Sachs, Citigroup, MC-Five Mile, Starwood Mortgage Capital and RAIT.

Two of the three B-piece agreements — Eightfold’s purchase and Rialto’s contract with J.P. Morgan/Ladder — were awarded on a "negotiated" basis. That means the issuers didn’t hold multi-party auctions. Instead, they approached Eightfold and Rialto directly and came to terms.

Issuers often avoid auctions to simplify the sales process. The maneuver can also lead to a better execution, because the buyer might be tempted to pay a little more or accept questionable collateral loans if it means bypassing a bidding contest. On the other hand, the issuer also risks leaving money on the table if it fails to capture a sudden increase in B-piece valuations that an auction would have uncovered.

In any event, negotiated sales enable issuers to shore up their relationships with B-piece investors that may have been crowded out of the market in recent auctions.

Rialto has landed 10 B-pieces so far this year. Eightfold has circled three.

Big Players Look to Acquire, Not Lend On, Asian Real Estate

The Asian distressed market business might be the Godot of real estate finance. Investors and analysts seem to have been waiting endlessly for opportunities in non-performing loans and distressed debt. But waiting in vain, it would seem.

Appetite for Chinese and other Asian troubled assets is booming. So far this year, funds have raised over $2 billion to invest in Asian debt, up from $303 million in 2013, according to London-based researcher Preqin. According to survey from the firm, in February 2014, 17 percent of real estate investors based in North America focused on Asian investments, up from 9 percent in July 2013. Among European investors, 41 percent targeted these investments in February 2014, up from 18 percent the previous year.

But looking specifically at the real estate market, as of September 17th, only four real estate debt-focused funds had closed and raised capital for $800 million, up from $700 million from last year, but far from the $2.1 billion in 2012.

“Be it Japan’s commercial mortgage–based securities tail, cash-starved Chinese developers, or failed REITs, the reality has generally fallen short of expectations,” according to PwC’s report Emerging Trends in Real Estate for 2014. “To some extent, this reflects a cultural reluctance to allow compromised deals to be recycled by the market as they are in the West.”

While international investment in non-performing loans is playing a big part in the recovery story in Europe, rules banning foreign investors from buying real estate debt in some jurisdictions, like China, and aggressive local banks have limited Western investment in the Asian real estate debt market.

“The market has recovered very strongly,” Priyaranjan Kumar, regional director for Capital Markets at Cushman & Wakefield Asia Pacific, told Mortgage Observer. The recovery meant that local banks were able to refinance their loans without selling NPL portfolios—limiting the potential bargains for opportunistic investors. “Prices are at pre-crisis level or higher, the volumes of exchanges are at pre-crisis level or higher… Asian banks are in very good health,” Mr. Kumar said.

Loan-to-value ratios have been growing across Asia. According to PwC, they commonly register 60 to 65 percent across Asian markets and can reach 80 to 85 percent in Japan. The crisis affected mainly foreign banks, which often just opted to leave the real estate debt sector in Asia, while local banks were still clinging to their business. Foreign banks’ share of the real estate lending market in Asia dropped from over 40 percent before the crisis to less than 30 percent now, according to Mr. Kumar.

There are some exceptions, particularly in the Japanese and Australian markets (Australia is frequently grouped in with Asia, despite the fact that it is its own market). For instance, between 2010 and 2012, Fortress Investment Group raised $2.4 billion for two Japan funds targeted to buy real estate debt backed by apartments, retail and hotels. The first fund, Japan Opportunity Fund, which focuses on nonperforming or sub-performing debt from Japanese banks, recorded annualized inception-to-date net IRR of 27.9 percent through June 30, 2014, Fortress said in its latest earnings call.

And between 2011 and 2013, Axa Real Estate Investment Managers raised $390 million for two Japan commercial-property loans funds.

Lately, the most active players among real estate-debt funds were Kotak Realty Fund and Piramal Fund Management, which are both Indian-based and focused on the Indian market. A lack of financing from Indian banks for real estate development has resulted in a funding gap that has created demand for alternative debt. In 2014 Kotak and Piramal have closed a $400 million and $164 million fund, respectively, focused on Indian distressed and opportunistic debt, according to Preqin.

But the largest international opportunistic players right now are looking at acquiring assets, not lending. Among private equity investors, Blackstone Group is expected to close Blackstone Real Estate Partners Asia, the largest private equity real estate fundraise for the region, by the end of the year. The fund had a target of $4 billion and a hard-cap of $5 billion. At July 2014, it had already raised $4.2 billion.