Rise in tariffs, industrial sales, CREFC and Power DC! – Trade Observer
It finally happened. After years of talking about it, thinking about it, taking incremental steps towards it, and quietly dreading it, the Fed bit the bullet and raised its benchmark interest rate by a whopping 75 basis points. (It was the biggest rate hike in 28 years.)
And Fed Chairman Jerome Powell has been pretty explicit that this isn’t the end of the Fed’s plans to rein in inflation; the rate is expected to climb to 3.4% by the end of the year.
Given that interest rates have been so low for so long and employment and inflation are both at record highs, the move was pretty much inevitable, though it hurts to admit it.
“It definitely removes short-term uncertainty,” Zhijun Yang, professor of real estate finance at Metropolitan State University in Minneapolis, told Commercial Observer. “Now is the right time for that.”
Yet no one likes when the proverbial punch bowl is removed. And when taken in tandem with the uncertainty still in the air over returning to the office, it was not a good week for some of the major board REITs. Thursday Vornado Realty Trust shares fell 5.4%. But REIT stocks were falling long before the rate hike. Even some of the safest real estate bets, such as industrial giant Prologis, have posted steep declines since its stock peak in April.
However, Prologis certainly seems to be putting its money where it is in terms of believing in industrial real estate.
The REIT lost $26 billion to buy Duke Realty’s 126 million square foot empire in an all-stock transaction. (So Duke must also have considerable confidence in Prologis stock.)
It was a happy ending to many months of dating that seemed doomed to strangers. Back in November Duke rejected an offer of Prologis which would have bought the REIT for what would have been 24 billion dollars, and shot another (“virtually unchanged”) offer in May.
Speaking of industrial
Let’s be clear: apart from the vagaries of the stock market, most CRE professionals remain under the influence of industrial, logistics and data center real estate.
Just this week, CO revealed that a joint venture between Bay Street Capital and Drake Real Estate Partners plans to buy approximately $100 million industrial outdoor storage by the end of the year.
In the DC area, NTT, an IT infrastructure and services company, spent $257.4 million for the purchase of 103 acres of land in Gainesville, Virginia, from Lerner Enterprises, to build a 2 million square foot data center and campus. That’s more than double what Microsoft paid last year to develop its own Virginia-based campus.
And in the Hunts Point section of the Bronx, Turnbridge Equities is building one of the largest industrial projects in New York City history – a 1.3 million square foot logistics center at 980 East 149th Street.
It remains one of the safest asset classes. The only asset we could think of as safe is life sciences, which currently seem underdeveloped.
“There are millions of square feet of demand beyond current supply, vacancy rates are at an all-time low, and hiring continues to increase,” said Matt Gardner, chief science officer. life for the Americas at CBRE, which just published a new report on life sciences. “If you just look [the number of current clinical trials], the number of products in the pipeline is greater or wider than the industry has ever had before. … So this echelon that the industry has occupied for the past five years has resulted in a huge increase in new products and development.
And the money flowed in. Los Angeles saw an increase of 566% in venture capital funding for life sciences over the past five years. (Which is even better than the 345% increase nationwide over the same period.)
The other cities do not intend to be outdone. “We are in the midst of a billion-dollar investment plan around biotechnology,” said Andrew Kimball, president and CEO of the New York City Economic Development Corporation, said CO earlier this month. “We are transforming Kips Bay into something closer to Kendall Square in Cambridge, Mass. We’re going to have a hub and spoke strategy that really hits communities across the city on the west side of Manhattan, in Harlem, North Bronx and Morris Park, Long Island City and Queens and the South Brooklyn waterfront in terms of biotech .
Another reason last week stank
It finally happened. After years of talking about it, thinking about it, taking incremental steps towards it, and quietly dreading it, 421a officially expired on June 15. And from now on there is no replacement.
However, as 421a expired, Mayor Eric Adams announced that his administration would allocate an additional $5 billion for new affordable housing and cut red tape for people in need of housing (or looking to build housing) and explained his plans in a 94-page report called “Housing Our Neighbors”.
Unfortunately, despite all those pages, there were few details about where the new housing would go or how many people would be affected.
“We often ask, ‘How many units are you going to build?’ “, said the mayor during his press conference unveiling his plan. “If that’s one of the questions on the subject that you’re going to ask me, don’t – because I’m not answering that.”
Housing does not slack off in Miami
You can call the line above one of the least surprising lines we’ve had in this newsletter for a while. Yeah, yeah, yeah…Miami is on fire.
JBS Capital Group invested some $150 million for Frankforter Group’s 11-acre, 420-unit The Pacific Point Apartments development in Broward County.
DLT Cymbal secured a $102.5 million loan from developer Stephen Ross to build an 11-building, 14-acre multi-family complex that will include 341 units at 20755 NW 17th Avenue in the City of Miami Gardens.
JDS Development Group secured an $86 million acquisition and construction loan for his sprawling 64-story mixed-use 1 Southside Park project in Miami’s Brickell neighborhood, which is set to include 1,175 rental apartments, 190,000 square feet of offices and 10,000 square feet of retail.
CMC Group and Morabito Properties secured $64.5 million of Bank OZK for his eight-story luxury condominium, Onda Residences, at 1135 103rd Street in Bay Harbor Islands, which he is currently in the process of building.
And even some non-residential real estate got in on the action. Summit Hotel Properties has purchased a controlling interest in a 264-room dual-brand AC hotel by Marriott & Element Miami Brickell at 115 SW 8th Street, just west of the Brickell City Center complex for $89 million.
Back to overview
Inflation, the stock market and the impending recession were all discussed at the CRE Finance Council’s annual conference in New York last week at the New York Marriott Marquis, and feelings seemed mixed from where we stood. sat.
There were definitely positive players. “We’ve been pretty disciplined as an industry over the last decade in terms of leverage,” said Wells Fargo’s Kara McShane in his speech.
Others were less optimistic. “Inflation definitely impacts commercial real estate and it will impact cap rates,” says Marshall Glick from AllianceBernstein, “but I don’t think it’s really one size fits all because each type of property has its own dynamic.” (Hey, Glick – we thought inflation wasn’t a problem for commercial real estate. At least it was what Cushman & Wakefield told us.)
And there’s a “who knows” on the regulatory landscape in 2023 with control of Congress expected to be traded after the midterm elections.
Of course, the biggest “who knows” is the return to the office, which was the subject of a panel “Back to the Office: Workplace Trends and Benefitswith Taris Mullins of Loeb Leadership, Annemarie DiCola of Trepp, Sarena Ehrlich of CBRE and Michelle Hull of SitusAMC.
“We definitely see a flurry of office lease expirations coming up,” DiCola said. “We see over $320 billion in mortgages on office buildings maturing between this year and next year. This is definitely a very big turning point for a lot of businesses to really assess the question of what the good use of their space is. (Well, that should make just about everyone nervous. Moody’s, however, has a taken much sunnier on the current state of the desktop.)
Keenan Thompson of “Saturday Night Live” was interviewed by Eric Thompson, Global Head of Structured Finance Ratings at Kroll, on the importance of diversity in CRE.
And, while we were in the field at CREFC, we ran into some old friends Sam Chandan, Marc Fogel and Lisa Pendergast and got their perspective on the state of the market.
For those of you who thought CO power season (Power 100, Power Finance, etc.) was over, well, you hadn’t thought of the nation’s capital.
Yes, this week CO unveiled its list of best real estate actors in washington, dc
It’s the perfect way to flip a slightly cruddy week.
Happy June 10!