Happy Bloated Tuesday!

For those of you in the office looking for something to read we got you covered. Shorenstein Properties' 1.1mm sf office tower in Los Angeles, CA, sells for $148mm. Hotel financing looks to get more challenging in 2024. BTR sales volume slows down but remains above 2019 levels. Office effective rents drop. And Pittsburgh QB looks at CRE as a backup plan. End of year layoffs were announced at a few big names last week. Fitch estimates most homes are being overvalued. And inflation looks to be under control based on the latest PCE price index.

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Capital Markets

Market News

• Prices Rose 3.2% Annually in November, Less Than Expected

  Core personal consumption expenditures (PCE) price index rose just 0.1% in November and was up 3.2% from a year ago, both close to expectations. On a six-month basis, core PCE increased 1.9%, indicating that if current trends continue the Fed essentially has reached its goal of 2%

• Fitch Ratings Estimates Home Prices Are Overvalued in 88% of the U.S.

  The ratings agency estimates national home prices were 9.4% overvalued for Q2 2023 on a population-weighted average basis and expects overvaluation to remain elevated due to the continued rise in home prices. According to the agency, the top three overvalued MSAs in the U.S. are Charleston-North Charleston, SC; El Paso, TX; and Camden, NJ

• Canada Approves RBC’s $13.5bn CAD Acquisition of HSBC’s Canada Unit

  Canadian Finance Minister Chrystia Freeland gave final approval Thursday to Royal Bank of Canada’s proposed acquisition. The deal comes with strings as RBC will required to establish a global banking hub in Vancouver, with more than 1,000 jobs, including the creation of 440 new jobs in British Columbia, increase the workforce at its client operations center in Winnipeg, Manitoba, by 10%, and won’t be allowed to let go any HSBC employees for six months after closing the deal. The proposed transaction would bolster the bank with nearly $100bn in assets, 130 branches and roughly 780,000 customers

• End of Year Layoff/Reorganization Announcements

  • Google: Google planning to reorganize 30,000 employees from its ad sales unit as a result of the company’s recently introduced AI-based tools that automatically suggest and create new ads that perform well for customers

  • Nike: Nike planning $2bn in cost-cutting measures as a result of predicted decrease in consumer spending. The firm expects $400-$450mm in expenses related to severance costs

  • Intel: Intel cutting 235 employees in fifth round of layoffs this year. The announcement comes as part of a $10bn cost-cutting effort. The company hinted at possible layoffs in 2024

  • EY: Big Four consulting firm lays off 30 partners and 100 consultants following an industry slowdown

CRE Headlines

• Hotel Financing Likely to Get More Challenging

  Experts indicate the U.S. hotel lending will face several challenges as rate caps from 2021 and 2022 expire leading various assets to be unable to meet DSCRs set when rates were lower. Many who were protected with rate caps are unable to replace those caps as the cost to do so has gone up exponentially. Spreads have also widened as the number of lenders has dried up, causing a double impact on interest rates. Other issues facing the sector include differed property improvement plans (PIPs) that were put off to conserve capital during the pandemic and hotel cash flow performance that never met projected cash flows that were underwritten in 2021-2022 when the market was recovering. The outlook for 2024 is expected to be very challenging, similar to 2023

• BTR Continues to Draw Investor Demand

  Despite the sales volume for BTR product peaking at roughly $3bn in 2022, the $1.5 billion sold YTD in 2023 is about 40% more than what traded in 2019

  BTR Sales Volume

  

• Effective Office Rent Growth Limited by Concessions

  Effective rents have fallen for office buildings as conditions favor tenants amid record-high vacancy and subdued demand. Effective rents in Q3 2023 for Class A office assets fell by 1.2% and fell by 3.9% for Class B/C properties. The decrease in effective rents is largely driven by record-high landlord concessions in the form of tenant improvement (TI) allowances, free rent. Average free rent for top-tier assets increased to 10.1 months in 2023 from 6.8 in 2019, while the average for lower-tier assets increased to 8.4 months from 6.4. Average construction costs also rose contributing to higher TIs

  Effective Office Rent Growth by Office Class

  

• Steelers QB Pondering CRE Realm If Football Doesn’t Workout

  In an interview with reporters, QB Mason Rudolph talks about having confidence as a player but having thoughts during free agency about jumping into the CRE space if QB gig didn’t workout

Deals Deals Deals

Sales

• Office: Carolwood LP, Daniel Abrams, and Adam Tischer acquire Aon Center, the 1.1mm sf office tower in Los Angeles, CA, for $148mm from Shorenstein Properties via a lender-facilitated sale. Shorenstein acquired the tower in 2014 for about $269mm

• Multifamily: Equity Residential (NYSE: EQR) acquires two Atlanta-area properties totaling 640 units for $180mm. The REIT acquired the 344-unit asset in Suwanee, GA for $98mm and expects a year two stabilized cap rate of 5.4%. The 290-unit Decatur, GA asset was acquired for $82mm with an acquisition cap rate of 5.1%

• Retail: RA Centers acquires Palm Valley Pavilions West, a 233k sf retail center in Goodyear, AZ from DRA Advisors for $59mm. The asset last transacted for $45mm in 2018

• Industrial: Longpoint Realty Partners acquires a 587k sf portfolio of 31 industrial buildings in Forth Worth, TX from Rosedale Industrial Park LLC 

• Industrial: The Easton Group acquires a 45k sf distribution facility in Miami, FL for $17mm from Frito Lay. Grove Bank and Trust financed the acquisition with a $9mm loan. Frito Lay will remain the tenant but is planning to relocate to a larger facility

Debt

• Multifamily: Fortune International Group and Oak Capital scored a $259mm construction loan from Bank OZK for their 205-unit, two-tower Ritz-Carlton-branded condo development in Pompano Beach, FL

• Multifamily: Clipper Equity secures an $85mm loan from Valley National Bank to refinance a Casa Hope, a 143-unit multifamily asset in Brooklyn, NY

• Multifamily: Hillpointe secures a two-year, floating-rate $37mm loan from Berkadia to refinance a recently-built 288-unit multifamily asset in Warner Robins, GA. The developer plans to use the funds for more flexibility in finding permanent debt or selling the asset

Developments

• Industrial: Clayco to build a $5bn, 16mm sf EV plant near Atlanta, GA for Rivian. Formal construction expected to start in early 2024

• Industrial: Leon Capital to develop a 261k sf, two-building industrial project in Fort Worth, TX. Construction is expected to start in Q2 2024

• Multifamily: BNE Real Estate opens The Ivy, a 245-unit luxury multifamily asset in Chatham. NJ

Distress

• Office: Eagle Cliff Real Estate Partners acquires 660 North Capitol Street, a 202k sf office asset, in Washington D.C. for $30mm from Republic Properties via foreclosure sale. Apollo initiated foreclosure proceedings in November after acquiring the $95mm loan on the asset

Leasing

• Office: Duolingo signs a 86k sf sublease from Spotify at Silverstein Properties’ 4 World Trade Center in New York, NY

Meme Summary

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