Berkadia Managing Director Jackson Cloak Reflects On The Changing Orange County Market

Jackson Cloak has always found numbers — and real estate — fascinating. In junior high, he asked his parents how to determine rents and property values.

As a managing director with Berkadia, Cloak translates his childhood passion into coordinating multimillion-dollar financing deals and keeping an eye on the growing Orange County CRE market. Ahead of Bisnow's Orange County State of the Market event, Cloak talked about how he got involved in the real estate world, and how the OC market has matured.

Bisnow: What led you to a career in real estate?

Cloak: When I lived in Palo Alto, I was a corporate options trader for Salomon Smith Barney, which today is Morgan Stanley Wealth Management. I was assigned to look at a couple of real estate deals for one of our existing clients. I have always been interested in real estate and the numbers behind it, as opposed to just looking at big, shiny, pretty buildings, but that is what got my appetite going and made me more curious.

Bisnow: Did you grow up in Palo Alto?

Cloak: I actually grew up in Orange County. I was born and raised in Laguna Beach. Irvine was mostly orange groves with the El Toro Marine Base nearby. Only El Morro Grammar school was between Newport and Laguna Beach, and Aliso Viejo did not exist. So a lot has changed.

Bisnow: How has Orange County changed since you grew up there? How has the market changed?

Cloak: When I was growing up here, Orange County was broadly considered a tertiary or secondary market. There was not that much down here in the late ‘70s and early ‘80s. Development was also highly limited by building height and noise restrictions because of the El Toro Marine Base. The market was not as mature as it is today.

Bisnow: Is the market considered mature today?

Cloak: There are still people, whether they are in New York or Chicago, who are going to find it challenging to call Orange County a core market. But there [are] a lot of good characteristics as far as the growth in Orange County. People want to live here. Obviously, the beaches, the weather and the geography are fantastic. We might not be as mature as the other markets, but there are a lot of good reasons for job and real estate growth here.

Bisnow: Which asset classes are the strongest in Orange County?

Cloak: If you look at the most stable asset class, that is going to be multifamily. Rent growth has been great there. It circulates around the coast, but we are starting to see a lot of growth in rent and property values in the eastern portion of the county, whether you are talking about Platinum Triangle or getting up into the Fullerton area. There has also been huge growth in the office market because vacancies, especially in newer properties, have been steadily on the decline.

Bisnow: Have rising interest rates made securing financing for deals more difficult?

Cloak: The higher interest rates make it hard on the borrowers, but the debt is still available. Unless cap rates move up, higher interest rates mean more equity and lower loan-to-value ratios. It really has yet to play out as far as affecting the permanent debt, but over the last year, the market has been getting more competitive with alternative debt sources. There has been an explosion of debt funds coming to the market. There has also been a decrease in the number of conduits in the market for financing. I feel the debt market is in a healthy place, but one of the things that is occurring is that there is a much higher level of equity required to get deals to happen than there was in the last cycle.

Bisnow: What are you keeping an eye on in Orange County?

Cloak: One of the trends that concerns me is how long the growth will continue without there being some way of providing more affordable housing. One of the biggest drivers to Orange County is employment. Jobs keep coming here, but the affordability component of multifamily has grown faster than income growth. Another concern is that there is a lot of foreign capital that comes to the U.S., specifically Orange County. If we see a dramatic drop in foreign capital flowing into Orange County, that can also be a risk factor.

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