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Boston, which collects over a third of its tax from CRE taxes, is facing a massive shortfall thanks to falling office values, PNC bank is looking to open more retail branches, student housing hits a record in pre-leasing activity, and the CMBS distress rate climbs again. Rate cut predictions have been pushed out again, UK AND Japan enter a recession on the same day, construction workers are increasingly being taken advantage of by contractors looking to save on labor costs, and Morgan Stanley is cutting a portion of its wealth management staff

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Capital Markets

Market News

• Economists Predicting First Rate Cut For June Now

  Earlier this year, most economists expected the first rate cut for the Fed's March 20 meeting. But as of Wednesday, only 1 in 10 continued to forecast a March rate cut. According to economists polled by FactSet, the June 12 Fed meeting is when the first rate cut will come. Only about a third of economists expect a rate cut for May’s meeting, down from 90% earlier this year

• Japan Slips Into Recession

  Japan reported two consecutive quarters of GDP contraction on Thursday — falling 0.4% on an annualized basis in Q4 after a revised 3.3% contraction in the Q3. Q4 GDP sharply missed forecasts for a 1.4% growth in a Reuters poll of economists

• UK Also Slips Into A Recession

  According to the Office for National Statistics (ONS), U.K. GDP fell 0.3% in Q4 2023, following a 0.1% contraction in Q3. The ONS estimates that UK GDP increased by a only 0.1% in 2023, the worst performance since 2009 (excluding 2020)

• Wage Theft In Construction Industry

  US regulators are cracking down on business practices that short workers on pay, fail to properly pay for overtime, result in minimum wage violations, misclassify of employees as independent contractors, and don’t providing workers with mandated break times. Construction workers frequently face threats from employers when seeking to unionize and risk being fired. A representative for the International Union of Painters and Allied Trades explained the system of construction contractors using labor brokers, who misclassify workers as independent contractors, driving down pay, benefits and working conditions had grown in recent years around the US, particularly in the south

• Morgan Stanley To Lay Off Hundreds In Wealth Management Group

  The company plans to cut managing directors as well as other non-customer-facing employees in its wealth management division in a cost-saving measure. The anticipated cuts are expected to impact less than 1% of a division with roughly 40,000 workers

CRE Headlines

• PNC Bank Opening 100 New Branches

  PNC is planning to spend $1B to open over 100 new branches and renovate over 1,200 existing locations through 2028. The bank currently has 2,300 location across the U.S. The move follows recent announcements from JPMorgan and BoA to open new retail locations

• Student Housing Pre-Leasing Reached All-Time High In January

  As of January, 49% of beds at the core 175 universities tracked by RealPage have been claimed for Fall 2024, marking the highest pre-lease reading ever recorded for the month. Beds closest to campus reached the highest pre-lease occupancy with 49.5% of beds within a half mile of campus being pre-leased. Students who leased a bed for the Fall 2024 academic year paid, on average, 6.7% more than students leasing the same bed in Fall 2023. Properties furthest from campus saw the highest price hikes

  Student Housing Fall 2024 Pre-Lease Status In January

  

• Office CMBS Distress Rate Climbs Above 10%

  CRED iQ’s overall distress rate for CMBS increased by 22 basis points in January to 7.39% from 7.17%.The office sector added 55bps in January following a 315bps increase in December. Office is not back above 10%. The self-storage sector spiked, but is mainly due to a $2.1B loan backed by 16 self-storage properties in NYC. The loan is still performing but has passed its maturity date. The borrower is seeking an extension

  CMBS Distress Rates By Asset Type

  

• Boston Facing $1.4B Real Estate Tax Shortfall Thanks To Lower CRE Values

  A report published by the Boston Policy Institute, uncovered a potential loss of $1.4B in tax revenue over the next five years thanks to falling values as a result of empty offices and higher interest rates. The trend is happening across the country but is especially impacting Boston since more than one-third of its tax revenue comes from commercial property taxes, the highest among U.S. cities

  Projected Gap In CRE Tax Collections

  

Deals Deals Deals

Sales

• Senior Housing: Welltower is under contract to acquire a portfolio of 25 active adult communities for $969M through a privately negotiated, off-market transaction. The portfolio encompasses ~3,900 units, mainly in the Pacific Northwest. The acquisition is expected to be funded through cash on hand and the assumption of $523M of below-market rate debt with an average interest rate of 3.8% and a nine-year weighted average maturity

• Hospitality: Marriott International to acquire Sheraton Grand Chicago, a 1,218-key hotel in Chicago, IL’s Streeterville neighborhood, for $500M from Tishman Realty. The sale is part of settlement which forces Marriott to buy the hotel

• Office: CoStar acquires 1201 Wilson Blvd. in Arlington, VA for $339M . The real estate comp platform acquired the 31-story, 552K sf asset from JBG Smith and PGIM Real Estate

• Multifamily: A JV between Timberlane’s Acquisition Fund and STARS REI acquired the Koi apartments, a six-story, 166-unit building in Seattle, WA for $56M from CBRE Investment Management. CBRE IM acquired the asset in 2014 for $57M

• Hospitality: Marcus Hotels & Resorts, Hempel Real Estate and Robinson Park Investments, to acquire the Loews Minneapolis Hotel, a 251-key hotel in downtown Minneapolis, MN. Plans call for the hotel to be rebranded

Debt

• Multifamily: Hudson Valley Property Group secures $208M in debt and equity financing to acquire a five-property, 1,100-unit portfolio across D.C., and Charlotte, NC

• Retail: Continental Realty Corporation secures a $66M loan for he South Coast Collection, a 292K sf retail center in Los Angeles, CA. The five-year, fixed-rate, interest-only loan was sourced by BWE

• Hospitality:

• Multifamily: Madison Communities and Heitman secure a $44M construction loan from First Citizens Bank to develop a 252-unit multifamily asset in Bonita Springs, FL

• Multifamily: Canyon Partners Real Estate LLC provides $16M of preferred equity investment in the recapitalization of Towerview at Ballantyne, a multifamily high rise in Charlotte, NC

Developments

• Multifamily: Black Salmon, LD&D, and Bridge Investment Group to develop a 20-story, 224-unit apartment building in Miami, FL’s Wynwood district

Distress

• Multifamily: DB Capital Management handed back the keys to Benefit Street Partners on a 352-unit multifamily property in San Antonio, TX after DB stopped making payments on the property’s $45M variable interest rate loan

Capital Raising

• Multifamily: Bain Capital Real Estate and Cherry Tree Capital Partners announced the formation of BCT Development, a joint venture focused on ground-up development of rental townhome communities throughout Southern California. The JV plans to deploy several hundred million dollars of gross capital over the next several years

Meme Summary

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