JLL Launches Commercial Real Estate Debt REIT

Global brokerage JLL has launched a new nontraded real estate investment trust focused on commercial real estate debt. The firm filed to register common shares of the JLL Property Finance Trust with the U.S. Securities and Exchange Commission this month.

The Maryland-based REIT will concentrate on the origination, acquisition, management, and sale of real estate debt. According to its SEC filing, it is structured as a perpetual fund.

Investment Strategy and Property Focus

The REIT's primary investments will be in debt backing a wide range of property types. Its main targets include multifamily, industrial, certain retail properties, and self-storage facilities. It will also invest in industrial outdoor storage, single-family rental projects, senior housing, life sciences buildings, manufactured housing communities, mixed-use developments, and healthcare properties.

On a more limited basis, the trust will consider investments in ground leases, net leases, cold storage facilities, and data centers. The filing also states the REIT may allocate some capital to commercial mortgage-backed securities and collateralized loan obligations.

Fund Structure and Management

Shares in JLL Property Finance Trust are being offered through a blind pool on a continuous basis. This means the REIT does not currently hold any investments, and shares are not being distributed via the registered public offerings commonly used by other nontraded REITs.

LaSalle Investment Management, part of the larger JLL parent company, has an advisory agreement to operate the new debt REIT. JLL's existing nontraded REIT, JLL Income Property Trust, invests in real assets.

Bradley Gries, CEO of LaSalle Investment Management, will serve as the interim CEO of the new REIT. Gregory Falk, the CFO of JLL Income Property Trust, will also act as CFO for JLL Property Finance Trust.

Financial Targets and Redemption Terms

The new REIT has outlined specific financial parameters for its operations. Once it has substantially deployed its capital, it expects to operate with leverage between 60% and 80%. Its target loan-to-value ratios are between 60% and 75% for senior, core-plus loans. For subordinated debt positions, it may target LTVs of up to 85%.

Redemption terms for shareholders are restrictive. Redemptions for all shares are limited to 5% of the fund's net asset value per quarter. Also, shares held for less than one year will be redeemed at a discounted rate of 95% of their NAV.

Market Context

The launch occurs amid increasing distress in the commercial real estate loan market. Many landlords are finding it difficult to refinance mortgages at current higher interest rates while maintaining profitability.

Data from Trepp shows the CMBS special servicing rate increased by 33 basis points to 11.42% in August, reaching its highest level since 2013. Within that distressed segment, 16.9% of office loans and 13.6% of large mall debt were in special servicing.

Borrowers with loans originated in 2020 or earlier face a sharp rise in refinancing costs. They must refinance loans that carried relatively low interest rates into new debt priced against a 10-year Treasury yield, which has been hovering around 5%-its highest level since 2007.