Understanding geographic disparities
Further complicating matters is the fluctuating demand for certain types of property and in particular geographic locations. The gap between primary and secondary markets is widening, making the future of secondary market property, particularly in Europe, uncertain.
“This represents a major shift – a flight to quality,” comments Antrovich. “Where landlords have quality buildings in good locations, occupancy rates are very high, but secondary stock has taken a hit, especially in the office sector.”
Antrovich currently sees the UK, Ireland, Germany and Scandinavia as Macquarie Capital's key markets in Europe. “We're being pretty selective about where we invest and lend our capital. We focus on geographies where the rule of law is strong and we have sponsors with strong financial resources and track records. That way, when things don't go according to plan, we can support each other and weather any volatility.”
Earlier this year, Macquarie Capital provided a £188 million senior debt facility for the Kane International-led consortium's refinancing of The Stage residential tower, a landmark development in Shoreditch, London.
In the US, Macquarie Capital is focusing on high-quality residential assets in New York as they attract large amounts of international capital and valuations have remained broadly stable due to a shortage of land for new construction and difficulties in obtaining financing.
In December 2022, RXR, Macquarie Capital Principal Finance and Qatar Investment Authority completed a US$261 million preferred equity investment in the acquisition of One & Two Sutton Place and One East River Place in Manhattan, New York.8 The investment represents an investment that would traditionally have been considered by senior debt investors prior to the rising interest rate environment.
Most recently, Macquarie Capital Principal Finance provided a $170 million senior debt facility to a joint venture between a large unlisted private equity firm and Centurion Real Estate Partners to refinance 55 unsold units in a newly redeveloped 108-unit residential building on Manhattan's Upper West Side.
Outside the residential sector, the team has also found REITs and other property owners looking to bolster liquidity: The group recently provided a low-leverage $62 million senior mortgage on the Ritz-Carlton Reserve in Dorado Beach, Puerto Rico, providing liquidity to the hospitality REIT against a previously unleveraged asset.
Sunbelt states are also popular destinations for investment, Hamilton said, as the pandemic has accelerated population migration to areas with warmer weather, lower costs of living and taxes and expanding job prospects.
For developers, investors and lenders, this creates yet another level of complexity. Ensuring the continued relevance and attractiveness of traditional buildings whilst being at the heart of a growth market will require different capital requirements. In such times of uncertainty and rising debt costs, finding flexible sources of capital is essential to maintaining the health of real estate balance sheets.
“We expect market volatility to create opportunities to invest up and down the capital structure, both for ourselves and for some of our clients,” Antrovich said. “We believe the biggest opportunity in 2024 will be providing plug finance to sponsors that need a bridge through refinancing. Macquarie Capital is perfectly positioned to invest in these situations as we have access to the group's balance sheet, allowing for rapid decision-making and deployment.”