Grayslake Advisors was retained by Leonard, Dicker & Schreiber LLP on behalf of plaintiff investors in a matter alleging breach of fiduciary duty and fraud arising from a series of commercial real estate syndications in which the defendant allegedly engaged in self-dealing, misrepresenting the actual purchase prices of acquired assets and the equity capital required from investors. Grayslake conducted a forensic analysis of the at-issue transactions, tracing the prices paid by investors against the original acquisition costs and fair market values of the underlying properties, and developed a damages model quantifying the alternative investment returns plaintiffs would have been entitled to receive under a rescission remedy. After Paul Habibi testified in trial in Los Angeles County Superior Court, the jury returned a verdict of $13.4 million that fully adopted his damages model.

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Joshua is one of the country’s foremost authorities on commercial real estate law and practice, with more than four decades of experience advising borrowers, lenders, landlords, and tenants on complex real estate transactions. His work spans commercial financings, ground leases, commercial leases, acquisitions, and hotel and mixed-use developments.

He regularly serves as an expert witness in real estate disputes, offering opinions on commercial real estate financing, ground lease interpretation, and industry custom and practice in commercial real estate transactions.

Joshua is the sole principal of Joshua Stein PLLC, which he founded in 2010 after more than two decades as a partner in the Real Estate Practice Group at Latham & Watkins LLP. He has published more than 500 articles and eight books on commercial real estate law, and has chaired the Practising Law Institute’s annual seminar on commercial real estate finance since 1997.

He is a member of the American College of Real Estate Lawyers and a former chair of the New York State Bar Association Real Property Law Section. He is consistently recognized among the top real estate lawyers in the country by Chambers USA, Who’s Who Legal, Super Lawyers, and Best Lawyers in America.

Joshua received his J.D. from Columbia Law School, where he was Co-Managing Editor of the Columbia Law Reviewand a Harlan Fiske Stone Scholar. He received his B.A. with Highest Honors from UC Berkeley, Phi Beta Kappa.

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This stands in stark contrast to the relatively straightforward but-for world that is typical in real estate engagements. As an example: What rent would I have been able to achieve but-for a construction defect? Or perhaps: What would my interest rate have been but-for a three-month delay? The goal of any but-for exercise is to isolate the independent variable and create a defensible version of reality where the harmful act never happened.  

So when Grayslake is asked to examine the impact of a specific policy on an entire market, isolating one single variable is more challenging. However, we have a deep, industry-based understanding that government and land-use policies heavily impact development patterns in a specific market. Often, litigators involved in disputes over government policies look to experts to frame how these policies impact their cases. We have found that in evaluating these policies, identifying existing natural experiments and case studies that have taken place in the real world is our most powerful tool.  

What Kind of Policies Are We Discussing?

Governmental/policy changes is a broad category encompassing multiple potential issues. Consider the following examples, many of which were present in cases Grayslake has been engaged on the last 24 months: 

• Downzoning / Upzoning: Density, height limits, FAR caps 
• Historic preservation overlays
• Parking minimum reforms 
• Affordable housing changes or set-asides
• Expansion or introduction of rent control / rent stabilization 
• Eviction moratoria (like during COVID) or change in eviction laws
• Transfer taxes / mansion taxes
• Creation or dissolution of Tax Increment Financing or Opportunity Zones
• New environmental or building regulation (Electrification mandates, seismic retrofit, flood plan changes)
• Short-term rental bans/restrictions 

It’s worth noting that all of these laws or policies can impact the development industry in either a positive or a negative way. In both cases, the impact needs to be quantified and defended with a rigorous analysis.

What Drives Investment and Development in a Market?

To fully address the policy impact issue at a city-wide or market-wide level, one must first understand the fundamentals of real estate investment and the capital markets that underlie their decision making. Real estate investors and developers compete for capital from lenders and investors that typically have many available capital allocation alternatives. In order to attract equity or debt capital, the expected returns from future cash flows must be commensurate with the perceived risks of that investment. This is commonly referred to as the risk-return profile spectrum, an example of which is shown below. 

In the context of this risk-return spectrum, when the risk (or perceived risk) of an investment changes substantially, the expected return changes as well. At a city-wide level, the risk-profile can change when new policies or laws are enacted. This can then result in a significant shift in the ability to attract capital not only for new investors or developers, but for existing owners and operators as well. In turn, this impacts the demand for investment from capital providers in a specific jurisdiction and ultimately has a downstream impact on supply. This can be particularly pronounced in the multifamily housing market, as seen in our two examples below:

The Tale of Two (Twin) Cities:

On November 2^nd, 2021, the city of St. Paul, Minnesota approved a new “Rent Stabilization Ordinance” capping annual rent increases at 3% for all multifamily rental properties, including new construction. The reaction from the investment and development community was overwhelmingly negative, with a major developer who had worked on developments in St. Paul for 30 years claiming “we, like everybody else, are re-evaluating what – if any – future business activity we’ll be doing in St. Paul.”  Another builder with several major projects underway claimed “if our banking partners won’t loan us dollars to build the buildings that are planned as market rate because they can more safely lend their dollars elsewhere, we will not be able to build the market rate projects.”

Four months later in March of 2022, data compiled by the U.S. Department of Housing and Urban Development for the prior three months concluded multifamily building permits in St. Paul were down more than 80% compared to the same period during the previous year. Conversely, Minneapolis, the neighboring “twin-city” saw an increase in year-over-year permits. 

In this specific situation, the creation of a but-for world to examine the impact of a new rent control ordinance was apparent in the actual world for the twin city. The perceived risk profile of St. Paul significantly shifted, which in turn shifted the investment expectations, and had a near-immediate impact on the appetite and supply for new development. The question of damage to investors can be seen in the “actual world” that played out in Minneapolis. 

Notably, in 2025 the city of St. Paul overturned its rent control ordinance and voted to permanently exempt new construction and rentals built after 2004 from the ordinance. The decision was made “due to concerns about the impact on housing construction and development in the city.” 

High Rises Across the River:

The nation’s capital, Washington D.C., has long been famous for its skyline, or lack thereof. 

The city’s tallest structure is the Washington Monument, standing at 555 feet, which was completed in 1884 after nearly thirty years of construction. At the time, the Washington Monument was the tallest structure in the world, until being overtaken in 1889 by the Eiffel Tower.  Rounding out the current top five tallest buildings in the D.C. is the National Basilica, the National Cathedral, the Old Post Office Pavilion, and the United States Capitol. These are the only five structures in the city with a height eclipsing 300 feet. None of these buildings are considered traditional skyscrapers, nor are they modern office buildings, residential buildings, or hotels. Surely as a major metropolitan area that serves as the nation’s capital, there is strong demand for vertical construction. As an example, New York City has 1,072 buildings over 300 feet tall. Significantly smaller cities by population and GDP such as Cincinnati, OH and Louisville, KY, for example, have 17 and 12 buildings over 300 feet tall, respectively. 

So what is happening in DC? The short answer is regulation. In 1910, Congress passed the “Height of Buildings Act” that effectively limited building heights to 130 feet in Washington DC. This was driven by the city’s interest in preventing fire hazards and “preserving character.” Similar to the case with the Twin Cities, what is the proper way to analyze a potential but-for world for the entire market of Washington D.C.? How does this law impact demand for development and investment, and therefore owners and tenants in the city? In this case, the federal law has existed for more than a century, so it is not as simple as simply looking at the permit since its implementation, as we did in St. Paul. However, similar to Minnesota, simply looking across the river can be a very effective exercise. 

Only a short walk across the Key Bridge spanning the Potomac River, Arlington, Virginia has forty buildings taller than 200 feet, fourteen of which are multifamily buildings built since 2020. This is an indication that the greater Washington D.C. metro has a large appetite for high-rise development, and it is simply the regulation that is prohibiting this development from happening in D.C. Below is a visual representation of multifamily buildings with more than 100 units in both Washington DC (white) and Arlington, VA (blue). The relative height of Arlington multifamily buildings is significantly greater than DC’s. 

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Our recent work compared the economics of leases held by uniquely high-credit tenants against those held by typical private-sector tenants. The distinction matters more than most people realize. Investment-grade tenants carry a degree of financial security that lower-credit businesses cannot replicate. That guarantee translates directly into a lower risk profile, and in real estate, lower risk means higher value. We found that tenant credit quality can swing property valuations by millions of dollars, even when the physical space, location, and rent remain identical.

The Economic Logic of Credit Quality

To understand why tenant credit quality moves valuations so significantly, start with how investors price income-producing real estate. At its foundation, a single-tenant net-leased property is a financial asset similar to a bond or an annuity. Its value is determined by the expected cash flows it will generate and the risk that those cash flows might not materialize. These two variables move in opposite directions: as risk decreases, value increases.

The primary source of risk in any leased property is the tenant. A tenant who fails to pay rent or goes bankrupt can quickly turn a stable income stream into a costly vacancy. Conversely, a tenant with strong financials makes future rent payments more predictable. Real estate investors will always pay a premium for this predictability. This premium is expressed through capitalization rates, or “cap rates,” which represent the ratio of a property’s annual net operating income to its market value. When investors perceive lower risk, they accept a lower return. Consequently, they pay a higher price for the same income. Tenant credit quality is not merely a qualitative factor; it serves as a direct input into property value.

The Numbers Behind the Premium: A Case Study in Fast Food Tenants

To quantify the credit premium[NM5] , we analyzed single-tenant net-lease sales across three quick-service restaurant brands with meaningfully different credit profiles: McDonald’s (rated BBB+), Raising Cane’s (rated BB-), and Carl’s Jr. (unrated). The three brands occupy similar pad-site real estate, lease in similar markets, and sign broadly comparable lease structures. What sets them apart is the financial strength of the entity backing the rent check – making them a clean illustration of the credit premium in insolation.

Across our dataset of sales in the last two years, the results were clear. McDonald’s properties traded at a median cap rate of 4.13%, Raising Cane’s at 4.71%, and Carl’s Jr. at 5.48%. The table below illustrates the impact on property value, assuming an identical building producing $100,000 in annual net operating income.

The roughly $600,000 gap between the value of our hypothetical McDonald’s and Carl’s Jr. properties represents what the market charges for tenant credit risk. In this case study, the building is the same, the location is the same, and the rent is the same—only the signer on the lease has changed. Investors will pay 33% more when an investment-grade corporate guarantor like McDonald’s stands behind the cash flow rather than an unrated operating company (like Carl’s Jr.).

This pattern extends well beyond fast food restaurants and appears across every sector of real estate. The size of the credit premium varies, but the direction holds: stronger credit produces measurably higher property value on otherwise identical terms.

Beyond Valuation: Operational and Financing Advantages of High-Credit Tenants

The benefits of a high-credit tenant do not stop at property value. Landlords also enjoy meaningful operational and financing advantages.

On the operational side, these tenants can reduce management burdens significantly. They stay longer and require fewer concessions than typical private businesses.  This difference is vital because tenant turnover is expensive. Vacancies trigger downtime rent loss, brokerage fees, and substantial allowances for tenant improvements. Our recent work found that a superior tenant’s higher renewal rate saves the landlord an average of $261k in vacancy and lease-up costs for a 20,000 square foot space leased at market rates.

On the financing side, landlords with investment-grade tenants may qualify for Credit Tenant Loan (CTL) financing. This specialized lending structure underwrites against the tenant’s credit rating rather than the real estate itself. CTL financing can unlock leverage exceeding 100% of the property’s value, which is a term unavailable to landlords with lower-credit occupants.

 For all of these reasons, tenant credit shapes how a property is valued, operated, and financed. In legal disputes and litigation, all three dimensions are often underexamined and underappreciated because the focus is typically on rent, rather than on the entity paying it. The value tied to the guaranteeing entity is rarely small, and should be a determining factor in valuing commercial real estate.

Why Precise Analysis Matters

Capturing value requires more than a quick review of asking rents. Resolving complex real estate disputes demands a rigorous analysis of market benchmarks, submarket rent distributions, and the careful quantification of benefits that rarely appear on the face of a contract. Grayslake Advisors brings this level of clarity to opaque transactions. Whether a matter involves lease valuations or above-market rent claims, our work translates complex real estate concepts into defensible, evidence-backed conclusions for litigators and the courts.

The post The Invisible Engine of Real Estate Value: How Tenant Credit Influences Property Values appeared first on Welcome to Grayslake Advisors.

The Economic Logic of Scale-Dependent Numbers

Market reports aggregate absorption across hundreds or thousands of buildings within a geography, producing a number that describes the leasing environment on average. It says nothing about how a specific building is performing within that environment. A submarket reporting 6% vacancy can contain a newly delivered building stuck at 40% vacancy, just as a submarket at 18% vacancy can contain a stabilized building running at 4%. The aggregation that produces a clean market number washes out exactly the property-level performance that is important in the nuanced nature of litigation.

Compounding this is the choice of geography. The same metro measured at two scales can yield very different answers. A downtown submarket and the broader metro that contains it are subject to different supply, different employment bases, and different tenant pools. They can tell opposite stories about the same window.

The Numbers Behind: Downtown vs. Metro, 2022-2025

We measured the 2022-2025 absorption-to-delivery ratio for four named multifamily markets at two different geographic scales: the downtown submarket only, and the broader metro that contains it. The same period, same market, measured two ways, produced material differences in three of the four cases.

Atlanta downtown absorbed roughly a third of its 2022-2025 deliveries while the broader Atlanta metro absorbed more than half. Both figures are accurate. Both describe “Atlanta.” But they describe different buildings competing in different supply environments. The reverse pattern shows up in Austin, where downtown absorbed 73% of deliveries while the broader metro absorbed 63%. Downtown actually outperformed the rest of the market.

An expert citing “Atlanta multifamily” to defend a 2024 projection has to specify which Atlanta. A market-level number applied to a building that does not resemble its market is not a benchmark.

When Asking Rent Lies: The Concession Problem

A second commonly missed dimension is concession activity. A building that reaches 90% occupancy in 10 months by offering three months of free rent on every lease has achieved rapid physical absorption but has not achieved economic stabilization. Its effective rent per occupied unit is below asking rent for the first year of each lease, and the revenue generated is lower than what was on the stabilized pro forma. Yet concession data is rarely reported in market reports and is almost never incorporated into published absorption benchmarks.

During lease-up, asking rent is a poor proxy for the price at which units actually transact. The margin of adjustment is the concession. Operators discount effective rent through concessions well before they mark down asking rent, so the concession series captures pricing weakness that the asking-rent series does not.

The Numbers Behind: Downtown Austin Class A, 2022-2025

Downtown Austin Class A multifamily illustrates the pattern. Between 2022 and 2025, asking rent held inside a narrow band of roughly $3,700 to $4,000 per unit, a range of approximately 8%. Over the same window, effective-rent concessions climbed from under 1% to a peak of 3.8%, and submarket Class A vacancy rose to 28.4% in 2024 Q1.

The face-rent series records a market in which rents were stable. The concession series, paired with the vacancy data, records a market in which the price a landlord realized fell by roughly three percentage points of rent while vacancy nearly doubled. An expert who models revenue off asking rent during lease-up, in a market of this character, will overstate stabilized NOI by approximately the concession differential.

Geography and concessions are two distinct lenses, but they share a common feature. Each reveals a gap between the market number that gets cited and the property-level reality that determines a building’s actual economics. In disputes, the gap between those two numbers is often the gap between a defensible damages position and a flawed one.

Why Precise Analysis Matters

Market reports are useful directional indicators. They are also routinely cited in disputes as if they answered questions they were not designed to answer. The first analytical duty, before any number is cited, is to confirm that the geography, product segment, and pricing layer of the measure align with the property and the dispute. Grayslake Advisors brings this level of clarity to opaque transactions. Whether a matter involves valuation, lost profits, or a counterfactual lease-up scenario, our work translates complex real estate data into defensible, evidence-backed conclusions for litigators and the courts.

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These questions surface across a wide array of CRE disputes. In construction defect cases, lease-up analysis determines how long a building will sit partially or fully vacant during and after remediation, directly feeding into lost profits calculations. In partnership disputes, the spread between actual and projected lease-up drives claims that the managing partner’s assumptions were unreasonable or self-serving. In construction loan defaults, lenders and borrowers contest whether absorption timelines built into loan agreements were achievable given market conditions at delivery.

The Limits of a Single-Number Metric

The standard analytical response to these questions is to cite a net absorption figure from a market report. In our view, that response is inadequate. Net absorption is a market-level, backward-looking, single-number metric that does not take the highly nuanced nature of real estate into account. On the surface, it informs how much space a market consumed the previous quarter. It does not tell you how long a specific building will take to reach stabilized occupancy, what concessions it will need to offer, which types of units it will lease first, or what the economic result of a prolonged lease-up period entails.

The problem is more nuanced than aggregation. When a newly delivered building leases a unit, the tenant often comes from an existing building in the same market. The new building records a move-in, the old building records a move-out. At the market level, those two events cancel: net absorption does not change. Yet the new building’s lease-up is progressing, the old building’s vacancy is rising, and the competitive dynamics between the two are reshaping rents, concession activity, and tenant expectations across the market. Net absorption fails to capture any of these nuances. It was designed to measure whether a market was gaining or losing tenants in the aggregate, not to describe the supply and demand dynamics that determine how quickly a specific building might fill, at what rents, and at whose expense.

The underlying economics are straightforward. Each new delivery shifts the supply curve for the market outward. If demand has not shifted proportionally, the new equilibrium settles at a lower rent, a higher vacancy rate, or sometimes both. The newly delivered building enters a market where its own arrival has changed the competitive conditions it faces. The more units that are delivered within the same window, the further the supply curve shifts, and the more the building must compete on price, concessions, or amenities to attract tenants away from existing stock. Buildings do not absorb into a fixed demand environment.

The Numbers Behind the Gap: Eight Years of U.S. Multifamily

A more useful diagnostic than headline absorption is the absorption-to-delivery ratio, calculated as net absorption divided by net deliveries over a matching period. A ratio below 100% is the market-level signature of supply overhang. The metric scales absorption by the supply it must clear, which is the adjustment that headline absorption figures omit.

We measured this across seven major U.S. multifamily markets over the 2018-2025 window, a deliberately long lens that spans pre-pandemic conditions, the pandemic shock, and the recovery that followed. The pattern is striking.

San Francisco and Chicago absorbed more than 100% of what was delivered over the eight-year window. They are constrained-supply gateways that re-absorbed units vacated during the pandemic. The Sun Belt looks very different. Even averaged across eight years of mixed conditions, four major Sun Belt markets absorbed less than 85% of what was built, and Las Vegas absorbed only 70%. That gap is invisible in the quarterly absorption figures most market reports lead with, because those reports do not scale absorption by the supply that arrived alongside it.

In markets experiencing development booms, quarterly net absorption can be strongly positive while still failing to keep pace with deliveries. Markets such as Austin, Phoenix, and Nashville posted historically strong absolute absorption numbers between 2021 and 2024 while simultaneously experiencing rising vacancy rates, because the supply pipeline outpaced even record demand. Net absorption alone would have told you the market was healthy. The buildings being delivered into that market would have told you something different.

Why This Matters in Litigation

In litigation, the question is rarely “what did the market do” in the aggregate. It is “what should this specific building have done in the market it was delivering into.”

Those are different questions, and they often have different answers. A developer who delivered a building into a 70% absorption-to-delivery environment faces a fundamentally different defense of a 12-month stabilization projection than a developer who delivered into a 100% environment. A lender enforcing a covenant tied to “market absorption” needs to know which market, measured how, and against what supply backdrop.

Cited without context, net absorption can be made to defend almost any position. Cited with the absorption-to-delivery ratio and a clear view of the supply environment, the same data tells a much more specific and defensible story. The diagnostic that goes into the analysis matters as much as the conclusion that comes out.

Why Precise Analysis Matters

Resolving complex CRE disputes requires more than a quick citation of net absorption from a market report. It demands a rigorous analysis of supply against demand, the appropriate scale of measurement, and the property-specific factors that drive a building’s actual lease-up trajectory. Grayslake Advisors brings this level of clarity to opaque transactions. Whether a matter involves construction defect lost profits, partnership disputes, or loan covenant claims, our work translates complex market data into defensible, evidence-backed conclusions for litigators and the courts.

The post The Headline Number That Misses the Point: Why Net Absorption Falls Short in CRE Disputes appeared first on Welcome to Grayslake Advisors.