Listen to this articleOthers may be sitting on the sidelines, but Northwind Group is staying in the game.
The New York-based real estate private equity firm has already helped two New Jersey projects secure financing in 2024 (for a cumulative $92 million). And while both were in the multifamily space – an active area for the firm of late – the latest financing is in the office sector.
Founded in 2008, Northwind has $3 billion in assets under management that invests primarily in debt instruments through its discretionary closed-ended debt funds. This month, it provided a $65 million first mortgage, senior secured acquisition loan to a repeat borrower for an office property located in a hotspot of activity.
The funds went to 601W Cos. for the acquisition of Harborside 5. Situated in Jersey City’s waterfront district, the loan is collateralized by the 33-story Class A office property.
The building totals more than 1.5 million square feet, which is about half the area of The Vatican. It includes unobstructed views of Manhattan, a 1,150-spot parking garage, as well as a location adjacent to both Exchange Place PATH and ferry stations.
For Northwind, it’s the first office loan the company has doled out in the past three years, according to founder and Managing Partner Ran Eliasaf. The loan capitalizes $45 million for the acquisition, while providing additional funds to kickstart a leasing program.
“The loan’s attractive basis fits well within our funds’ investment risk profile and loan diversification strategy,” he commented when the transaction was announced.
In addition to a generationally low basis for a modern space, Northwind also pointed to the firm’s existing relationship with 601W Cos. as enabling it to structure competitive and speedy financing. By the same token, 601W Managing Member Mark Karasick said he was “delighted to join forces once again with Northwind, which wrapped their arms around the transaction quickly and whose execution was flawless.”
601W owns 20 million square feet of commercial space across 20 office buildings. Northwind pegged the collective value of the portfolio at about $6 million.
In 2021, Northwind provided a $60 million bridge loan to the borrower on a Chicago office building. According to the lender, the loan was fully repaid with a construction loan that capitalized for costs to reposition and modernize the asset. “We are pleased to partner once again with 601W Cos., which reinforces our commitment to expanding our relationships with repeat, high quality sponsors,” Eliasaf said.
Speaking with NJBIZ earlier in 2024, he touched on the value of that approach. “It’s not necessarily about the interest rate or the duration of the loan that makes us unique or special. It’s really about the borrowers knowing our reputation, that we will work with them even when things don’t go exactly as planned, and being flexible and not being aggressive where you don’t need to.
“I think that’s what sets us apart,” he continued. “We really put money out there and we want to see the projects succeed and see the developers succeed and see our money in return, and then we move on to the next one.”
For Northwind, it’s about the long game.
“So, you build relationships long-term with developers and with brokers to make sure you’re in that position that when the last push is made, OK, you get this, that deal is yours. And I think in many cases, and these two loans as example, that’s exactly what happened,” he said referencing the earlier 2024 deals.
In January, Northwind announced a $22 million first-position mortgage loan secured by an adaptive reuse project in Newark. Located at 303 Washington St., the previously five-story office property is transforming to a 10-story, 92-unit multifamily building. The developer is a joint venture between Albert Nigri of Summit Assets and Avi Benamu and Jack Hazan of Winchester Equities.
Less than two weeks later, the lender announced funding the completion of a 29-story multifamily project located at 622 Summit Ave. in Jersey City. The $70 million first-loan mortgage was provided through Northwind’s closed-end debt funds. The developer is Jersey City-based GN Management
Spot on
One thing Northwind’s Garden State deals have in common is location—all are based within North Jersey and both cities bring to the table attractive attributes. Earlier in the year, Eliasaf called attention to those features in highlighting the synergies between Northwind’s recent multifamily transactions.
“Which is that there’s a housing shortage across the New York City-metro area. And specifically, Jersey City and Newark have been one of the few places that are able to provide and where developers are still able to build and add additional units in a cost-effective manner,” he said.
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Speaking during NAIOP NJ’s CRE Outlook event at the end of January, CBRE Global Chief Economist Richard Barkham also saw a fuller glass for areas like Newark and Jersey City. Looking ahead, he anticipated a continued flight to quality in the office sector, particularly in downtowns.
“It’s not just about the building, it’s largely about the building, but it’s not just about the building,” Barkham said, adding that the trend is a national story. “The neighborhood is part of the overall mix,” he explained.
That’s evident in Jersey City, where the office and multifamily markets are steady and explosive, respectively. There, 601W’s waterfront collection already includes Harborside 1, 2 and 3. At those properties, upgrades in the multimillion-dollar range are underway to refresh an interconnecting atrium and add new amenities. Like Harborside 5, those buildings were also offloaded by Veris Residential (for $420 million).
In January, Bank of America announced a 15-year agreement to occupy 550,000 square feet at Newport Towers in Jersey City. At the time, the tenant characterized the deal as the largest office lease in the state in the past 10 years. That crushed a record from 2022 set by Collectors Holdings’ lease at Harborside 3. When it was announced, the 130,000-square-foot space was touted as the most office space leased in the city since 2020.
“We are very excited about the rapid growth and development of Jersey City and look forward to great leasing success,” 601W’s Karasick remarked.
Eliasaf also promoted a mix of spaces as leading to success. He predicted the Brick City will benefit in crafting that mix, like Jersey City.
“And I think Newark is in the right direction,” he said. “It’s still going to take time. It’s been talked about for many years, but I think we think it’s starting to turn a corner, and we definitely think with all the new projects coming online and both that are being scheduled, I think the next five years should be very good for Newark.”
Based on last year, Eliasaf expects 2024 to be a good one. “The rates were high and our volume doubled because of the banks stepping back,” he said reflecting on 2023. “So, if you think about it, in a typical year, normal year, about 70% of the financing gets done by banks, and only 30% or so is done by private lenders. In 2023, banks took less than 50%. So, really the market became bigger to private lenders like us and the ability to lend to higher quality sponsors and properties really improved,” Eliasaf said.
However, last year evidently did not represent opportunity for everyone. “It was a softer landing, but there were still significant effects on the investment real estate market,” Jeffrey Otteau, managing partner and chief economist for Otteau Group Inc., said during the NAIOP NJ CRE Outlook event, adding the most obvious was a decline in deal flow.
“The dollar volume of investment sales in New Jersey went from north of 13 billion down to only 5 billion,” he said. “So, a significant compression in deal flow. And what we saw this past year is that for a buyer to buy or a seller to sell, there needed to be a compelling reason for them to decide to go forward in this high-interest rate industry.”
“And as a result of that, we saw for the first time since the great financial crisis, a decline in commercial asset values in terms of trading prices,” Otteau continued. “Prices declined last year all in an aggregate basis by 10%. But it was very different when you looked at it from one sector to the next.”
This year, he anticipates additional cuts to prices for investment properties, but to a lesser degree than in 2023.
“But if misery loves company, we can feel pretty good about the fact that the clients that we saw here were dramatically less than what happened in Manhattan,” Otteau added. “Where office property selling prices declined by 40% last year and multifamily selling prices declined by 25% this year.”
Also speaking at the CRE Outlook, Morris Davis, the Paul V. Profeta Chair of Real Estate, professor of finance and economics, and academic director of the Rutgers Center for Real Estate, similarly drew distinctions when it came to offerings on either side of the Hudson River.
“There’s two other things going on in Manhattan that I think are going to be positive for the New Jersey office market. The first is the congestion tax … And so maybe some parts of some office space will move over to Jersey so that the workers can avoid pain,” he speculated.
“The other thing that’s hard data is that New York City is starting Jan. 1 to impose taxes on buildings that have energy emissions past a certain amount … point is — about a third of office buildings in New York City are going to be taxed. … So that might be enough to shut down the older parts of the office market in New York.
“Now the question is whether or not the tenants … are going to come to New Jersey or not, but because of those things in Manhattan, I actually think there could be some positive news for New Jersey office,” Davis said.
Northwind is active throughout the metro region. And so far, 2024 is living up to expectations.
In the Harborside 5 announcement, Eliasaf said the firm had already closed on more than $400 million in loans originated by its CRE and health care debt funds since the start of the year. Speaking at the end of January, he told NJBIZ Northwind had “doubled the pace we had in 2023. In 2023, we’d done about $1 billion,” at that point in the year. “So, I don’t know if we’ll do over $2 billion, but we’re definitely on a pace to get there.”
The progress is also underscored by a new hire. On March 27, Northwind announced an expansion of its team, bringing on Robert Kalish as managing director, Capital Markets. He’ll lead capital markets, fund raising, capital formation and business development initiatives, according to the company. He will also work with Northwind’s leadership team to oversee company growth. He reports to Eliasaf.
“As a seasoned financial professional with a strong reputation and robust knowledge of the capital markets, Robert brings a unique skillset to the Northwind team and will help us increase our deployment capabilities as we continue to grow and diversify our investor base,” commented Eliasaf with the news.
Over his career, Northwind said Kalish has led capital formations with approximately $3 billion of capital raised across alternative products.
Due to banks’ hesitance as well as demand for multifamily housing, in particular, Eliasaf expects the pace to keep up for at least the first half of the year.
As traditional commercial lenders wait to see what happens with interest rates in 2024, “in the meantime, there’s a lot of good projects that need financing,” he said.