A $62.5 million deal is emblematic of the times
The death of retail has been greatly exaggerated. When the year winds down and the biggest business developments are assessed, the unlikely returned strength of the retail sector in the CRE space will surely rank among notable occurrences.
Abe Bergman (pictured), president and co-founder of New York-based Eastern Union, spoke to Mortgage Professional America about the implausible rise of retail – just a couple of years since the long list of store closures, including some venerable retailers succumbing to online competitors.
“I’ve been quoted saying this before,” Bergman told MPA during a telephone interview. “It’s very interesting because retail has come back in a very strong way. We remember a couple of years back when people were shying away from it and lenders were very nervous about retail. Retail has come back in a very, very strong way. It’s sort of corrected itself.”
The bottom line: “Retail is here to stay – at least in the foreseeable future,” Bergman said.
Retail turnaround follows a high-profile exodus
The turnaround of the retail industry follows mass closures of traditional, brick-and-mortar stores, including some venerable names, over the last few years. “There’s been a shakeup,” Bergman said. “Some names we knew five, 10 years ago are not around anymore. But the ones that have adapted have risen to the top and get to stay. In general, retail has definitely become a much more attractive asset type that lenders are looking to lend money on.”
This development comes in rebuke to a backdrop of rising interest rates amid inflation, making banks more risk-averse in terms of their lending practices. “That being said,” Bergman said after painting the rosy retail outlook, doing ground-up construction with a retail component is generally more challenging.”
His view is hardly based on the abstract. His firm, Eastern Union, just closed on a multimillion-dollar commercial real estate development anchored by a retail component. Emblematic of the times, the deal is also illustrative of the growing need to find more than one lender willing to risk financing such large-scale deals given the current economic climate.
Company’s $62.5 million deal emblematic of the retail rebound
One of the country’s largest commercial real estate mortgage brokers, Eastern Union recently secured a $62,250,000 construction loan for a 105,000-square-foot, mixed-used property in Crown Heights that will be home to a new, 33,000-square-foot Lidl discount supermarket, officials announced. The development is located at 1730 Bedford Avenue at the intersection of Empire Boulevard, two blocks from Brooklyn’s popular Prospect Park. The block-long site sits at one of the borough’s prime locations.
The multi-use complex will also include 12,000 square feet of additional retail space, 57 residential units totaling 39,000 square feet in size, 12,000 square feet of Class-A office space, and a 9,000-square-foot community facility. The mortgage, which covers 100% of hard costs, was arranged by Bergman and company vice president Yossi Orzel.
“This deal having three parts, leads to a very, very strong tenant with a lot of very strong interest in the remaining space from other good tenants,” Bergman said, acknowledging the higher degree of challenge in finding financing in light of the higher-interest-rate environment. “Without this pre-leasing it would’ve been a much more challenging deal,” he added. “With it, it definitely took some of the challenge out of it.”
The project’s developer, Seventh Street Development Group of Brooklyn, was cleared to break ground after securing a floating-rate loan running over a two-year term from New York-based Invictus Real Estate Partners, along with New York-based Maxim Capital Group and Beach Point Capital Management of Santa Monica, Calif.
“We were highly fortunate to be able to work with two outstanding partners on this transaction,” Rivkah Sontag-Tepler, co-founder and CEO of Seventh Street Development Group, said in a prepared statement. “Eastern Union showed a keen ability to source funding and to coordinate the overall process. In addition, Invictus Real Estate Partners demonstrated both flexibility as well as outstanding dealmaking skills.”
Bergman noted the team effort that made the deal possible amid a tougher lending climate: “In today’s marketplace, it’s challenging to secure a substantial construction loan for a commercial project,” he said. “Our success here is attributable to the quality of the Eastern Union team, and also to the fact that we were able to work with a well-organized developer who approached the process with reasonable expectations.”
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