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Here’s What It Took for One Private Equity Firm to Finance Office Deals Again


Mounting challenges plaguing the national office market have led some lenders and investors to stick to the sidelines. When a rare new office loan does get issued, it tends to be for a building that meets specific criteria — and from a lender willing to take a risk.

One private equity firm shows what can be involved in that type of financing.

Northwind Group, a New York-based real estate investor, is a smaller player willing to do deals while some big institutions and banks remain hesitant. The firm recently issued a $65 million loan for a high-end tower along the waterfront in Jersey City, New Jersey, as part of its bet that — at the right price, in the right location and with the right borrowers — it can be positioned at the forefront of an office market recovery if and when depressed demand ultimately rebounds.

The first mortgage, senior secured acquisition loan helped finance 601W Cos.’ acquisition of Harborside 5, a more than 977,200-square-foot office tower that was just 35% leased at the time of the February deal. The New York-based investment firm’s contracted sale price was $85 million, a fraction of the 33-story building’s $118 million book value, according to a note by Truist Securities.

Even with the deck seemingly stacked against it and other office properties in the area, Ran Eliasaf, Northwind’s founder and managing partner, told CoStar News that Harborside 5’s strong fundamentals, such as a relatively low acquisition cost and increased interest among prospective tenants, reduced the risk of backing it.

“The decision to finance any property is on a case-by-case basis, but [601W] is getting it at less than land cost and fully developed with positive cash flow,” he said. “It’s a good business plan with a sponsor we’ve worked with in the past. The office market in general is at a terrible place right now, but eventually it will find an equilibrium.”

Since its founding alongside the Great Recession in 2008, Northwind has made more than $3 billion in equity and debt investments across the national commercial real estate market to help fund new developments, acquisitions, and a variety of other initiatives. While the firm was bullish on office space leading up to the COVID-19 pandemic — it invested in repositioning trophy Manhattan properties such as 100 Pearl St. and 305 West End Ave. — it has been less active for the past several years as it waited for the market to stabilize and the right moment to jump back in.

The office loan was the first Northwind felt comfortable issuing within the past three years, Eliasaf said. The firm provided $45 million to finance the acquisition between 601W and seller Veris Residential, as well as some leftover capital to put toward upgrades, tenant finish-out work and other plans to generate leasing activity.

Already, 601W is negotiating with prospective tenants in efforts that, if fully realized, will boost the property’s occupancy to about 70%, according to Northwind. Yet given the amount of Northwind’s investment, the firm theoretically only needs the building to reach 60% occupancy to make a profit on any potential sale.

“Most of the opportunities we have seen are something we wouldn’t be interested in doing,” Northwind Managing Director Michael Ainbinder said. At Harborside, “it’s in the best pocket of Jersey City with strong leasing momentum among tenants looking for higher quality product at attractive rents. And at our basis, very little can go wrong.”

For investors looking to buy, the combination of plummeting valuations and owners eager to offload distressed properties has triggered a flurry of deals with historically low prices they can’t afford to pass up.

Valuations across the country have collapsed under the pressure of the impact of flexible work trends, depressed leasing volume, bleak refinancing conditions and high interest rates. The fall in office values could match or surpass the depreciation measured throughout the Great Recession, credit-rating firm Fitch Ratings wrote in a recent report, adding that prices have yet to bottom out.

Office values have dipped to a near four-year low, and any recovery effort is expected to stretch far beyond the time it took for the market to bounce back from the 2008-era crash. Average valuations are down by as much as 15% since the end of 2021, according to CoStar analysis, with larger, institutional-grade properties dropping by about twice the rate.

That decline has translated into more than $664 billion in lost value for the national office market between 2019 and 2022, according to recently revised figures detailed in a report published by the New York University Stern School of Business.

Some office property professionals have said the downward spiral may continue through at least mid-2025 as rising vacancy rates and sinking rents pressure a burdened market.

For all of the doom and gloom, however, a growing pool of buyers and lenders are willing to take the plunge.

Washington, D.C.-based PRP Real Estate Investment, for example, earlier this month acquired the two-building Market Square complex along Pennsylvania Avenue for $323 million, or roughly the amount remaining on the former ownership’s loan. The deal marked the district’s largest transaction to close in nearly two years.

Even if the office market doesn’t make enough of a rebound, Northwind’s Eliasaf said the decision to finance the Jersey City acquisition is still a smart move.

“It is already zoned so it could easily be converted into residential,” the managing partner said. “Obviously that won’t happen right away, but it’s always good to have a backup plan.”



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