Alex Estrin

Re-Evaluating Real Estate: A quick search of the General Services Administration (GSA) shows that the U.S. government is the largest single tenant in the USA, leasing 300+ million square feet from private property owners. The U.S. government is also the largest property owner, as it owns more property than it leases. The cost for its leased properties is approximately $4 billion per year (excluding DOD, military). Roughly two-thirds of its leased office space is in Washington, D.C. and four states— California, Virginia, Maryland, and Texas—accounting for over 100 million square feet leased. The GSA negotiates leases on behalf of the federal government, requiring a break clause, allowing a 10-20 year lease to be terminated with around 90 days' notice on average. DOGE is now evaluating actual occupancy levels at each location to assess government efficiency. Major real estate owner-operators, from fund managers to family offices, have profited handsomely by leasing to the federal government, an excellent tenant-credit that pays attractive rents for long-term leases. Despite the 90-day break clause, no market participant can recall a time when the government exercised this right. However, property owners with significant exposure to the government are now nervous since long-term leases could be broken with short notice. The government is bloated with property, and everyone, especially DOGE, knows this. In many cases, federal office leases are 20-25% above market rent. DOGE may cut up to 50% of government-leased office space to reduce the federal footprint. Office properties around the Beltway (Washington, D.C., Virginia, and Maryland) could see the biggest impact on property values, although each specific property must be evaluated individually. The administration is mandating a return to the office five days per week, which is positive for office demand, but federal job layoffs will reduce the need for space. U.S. government-owned properties are operating at a mere 25% occupancy rate, indicating they have significantly more space than they need. DOGE and the GSA are expected to start by breaking leases to realize budget savings. While the bottom has been set for real estate, and there is fantastic opportunity to lend and to extract value in the CMBS market, real estate credit managers holding loan books and CMBS positions (1,600+ CRE securitizations) should carefully analyze their exact exposure to the U.S. government as one re-underwrites risk. Ironically, U.S. Treasury bonds are considered risk-free (credit risk), but when it comes to real estate, government risk has become too significant to ignore.

71

10 Comments

Listed REITs returned +1.2%, outperforming the S&P by +149bp and the NASDAQ by +171bp. Real estate was the 2nd best of the eleven S&P sectors trailing only staples. The catalyst for the positive performed was a -4bp decline in real rates and solid 4Q24 earnings. Eleven out of 18 subsectors were positive as specialty (+3.4%), malls (+3.2%) and commercial mortgage (+2.7%) led while office (-1.3%), timber (-1.2%) and industrial (-0.9%) lagged. Listed REITs have now returned +2.2% year-to-date and are +13.2% year-over-year.

43

1 Comment

🔥 Friday Focus | $1.2B Recap by Driftwood Capital Driftwood Capital just completed a $1.2 billion recapitalization of an 18-hotel portfolio across 10 states, reinforcing confidence in U.S. hospitality fundamentals—and showcasing the power of platform-level execution. 📌 Transaction Highlights • $330M securitized senior loan led by Wells Fargo • $85M preferred equity from ACORE CAPITAL • 4,203 keys across Hilton, Marriott Hotels, and Margaritaville brands • $370M in recent renovations/development • 5-year exit plan: refinance and sell all 18 hotels 📍 Assets span TX, FL, CA, NC, NY, UT—strategically positioned in high-growth markets. 💬 "We see this portfolio as a blueprint for how we intend to invest and operate in the next cycle." – Carlos Rodriguez Jr., President & COO 💬 "When you have 18 hotels together, their combined strength helps you sustain through bad times with a stronger balance sheet." – Carlos Jose Rodriguez Sr., CEO At Axe CRE, we track deals that reflect scale, strategy, and staying power. In today’s market, consolidation is not just a play—it’s a fortress. #axecre #rosehasham #hospitalityinvestmentsales #hotelrecapitalization #driftwoodcapital #acorecapital #wellsfargo #portfoliooptimization #hotelinvestment #commercialrealestate #CRE #capitalmarkets #realestatefinance #hospitalityleaders #hotelinvestors #REITs #luxuryhotels #CREdeals #womeninrealestate #institutionalinvestments #futureforward #AxeCommercialRealEstate #hoteldealarchitect Axe Commercial Real Estate Axe Commercial Real Estate

11

Housing has been the “sick man” of the U.S. economy for more than two years. Despite mortgage rates easing and inventories rising, sales remain 20–30% below pre-pandemic levels, construction growth has been negative since 2022, and affordability continues to erode. In this week’s #WeeklyEdge, we explore why housing is still in recession, how it connects to consumer spending, and the role policy and mortgage rates may play from here. Read it now: https://lnkd.in/ed4-UEga #NewEdgeWealth

38

2 Comments

Los Angeles is easily one of the most important industrial markets nationwide. And while fundamentals have certainly softened, development activity there remains pretty healthy. LA North has 2.4 MSF under construction and LA South is tracking 2.0 MSF, signaling long-term confidence—but both submarkets posted negative net absorption so far in Q3, highlighting the importance of timing and tenant demand. Understanding where the market is headed is more critical than ever for occupiers and investors. Los Angeles Central: https://cushwk.co/4lM8h7K Los Angeles North: https://cushwk.co/4lM8h7K Los Angeles South: https://cushwk.co/3JScjOn San Gabriel Valley: https://cushwk.co/3JxG4nE

22

AZTEC GROUP ARRANGES $7.5 MILLION IN FINANCING FOR OFFICE BUILDING IN HALLANDALE BEACH Miami, Florida July 2, 2025 – Aztec Group, Florida’s leading real estate investment and merchant banking firm for the past 40 years, announces that Howard Taft, Senior Managing Director, sourced and structured $7.5 million in permanent financing for 1920 Corporate Place in Hallandale Beach, Florida. 1920 Corporate Place is a 68,620 square foot, multi-tenant office building ideally located at 1920 East Hallandale Beach Boulevard. The 10-story building was built in 1972 and is currently 99% leased. The borrower is an affiliate of Arcadia Properties, a real estate development firm with a track record of over 60 years of development in South Florida. Arcadia Properties’ projects include the Safra Bank Building in Aventura, the Bank of America Building in Hollywood and the Atrium Center in Davie. “The borrower was able to take advantage of desirable permanent financing with a lender who understands the market and the unique intricacies of the property. Irrespective of the broad market’s perception of challenges with office, well-located properties remain extremely desirable to lenders.” commented Howard Taft, Senior Managing Director at Aztec Group. The permanent loan was provided by a Florida-based bank for a fixed rate and a five-year term. Aztec’s team remains active, facilitating permanent financing, bridge and construction loans in addition to joint venture equity.

52

14 Comments