Nine Must Reads for the CRE Industry (May 25, 2022) - Wealth Management

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WMRE Staff | May 24, 2022

Rising Interest Rates Concern Apartment Building Owners, Renters “Investors who bid up apartment-building prices to record levels over the past year are starting to come under pressure as rapidly rising interest rates squeeze their profits. Steeper borrowing rates make it harder for apartment landlords to pay back their loans. That could also be bad news for tenants, if it encourages building owners to raise rents higher than they might otherwise because that is their primary tool for generating more income. Sales of apartment buildings have been strong for years, but they broke records during the pandemic when rents soared to record levels.” (The Wall Street Journal)
Fed Liquidity Facility Successfully Anchored Commercial Real Estate Amid Pandemic “The Federal Reserve responded to the onset of the COVID-19 pandemic with several liquidity facilities to ensure a continuing flow of credit to households and businesses. The TALF, which financed highly rated asset-backed securities, proved especially important to supporting commercial real estate finance.” (dallasfed.org)
Amid a Housing Crunch, Homes Pop Up on the Fairway “Across the country, developers like Mr. Brown see potential for construction on struggling golf courses. Large expanses of grass and trees sewn into the fabric of prosperous communities look like open space ripe for development. When it comes to golf courses, though, looks can be deceiving, and developers have learned to be cautious. ‘You have a great piece of real estate,’ said Jonathan S. Grebow, founder and chief executive of Ridgewood Real Estate Partners, a New Jersey firm that specializes in golf course redevelopment. ‘But after closing, it can take three, four, five years to start construction.’” (The New York Times)
These 5 Malls Have Seen the Sharpest Drops in Appraised Value “Retail sales are up as consumers are flush with cash, and spending on goods surged during the pandemic. Mall owners, however, have had volatile returns over the past two years as some regional malls struggle to attract customers and drive foot traffic as anchor stores close. For example, the 3.5 million-square-foot American Dream mall in Rutherford, N.J., recently reported that it lost nearly $60 million last year. Although the problems are similar, the solutions vary widely, from converting portions of properties to residential or office uses to razing centers and replacing them with distribution facilities.” (Commercial Observer)
What Will Eric Adams Do About New York’s Rent Crisis? “Shortly after becoming mayor of New York City, Eric Adams said he would roll out a “comprehensive housing plan” within a couple of weeks to tackle the rising housing costs and homelessness that have made the city an emblem of a growing national crisis. But four months later, Mr. Adams has yet to make good on promises he made during his campaign and has dialed back at least one, prompting criticism over how strong a priority he has placed on a top issue for many New Yorkers.” (The New York Times)
NYC Brokers Stay Positive During Office Wait-and-See “Real estate brokers’ faith’ in the real estate market continues to wane, yet their attitude has not crossed the line into a state of negativity, according to the Real Estate Board of New York’s Q1 2022 Real Estate Broker Confidence Index. Confidence among participating brokers in both commercial and residential real estate declined for a third-consecutive quarter, and their six-month outlook was less optimistic, as well. Still, positivity abounds.” (Commercial Property Executive)
Interest Rate Fees Are Crushing Transactions “How many ways can a CRE borrower say out? How about a good factor of ten when it comes to interest caps on adjustable-rate commercial real estate loans? ‘In the last 18 days, I had about a billion dollars of real estate I was trying to buy,’ Grant Cardone, CEO of Cardone Capital, tells GlobeSt.com. ‘We were doing a deal with $300 million worth of debt, AAA asset, AAA location, everything lenders would want. What we would normally pay $500,000 for was $12 million.’” (GlobeSt.com)
Best Buy Is Best of Breed in Retail’s Meltdown “At a time when expectations for retailers are this bearish, better-than-expected results go a long way. Best Buy said on Tuesday that comparable-store sales in the U.S. declined 8.5% in its quarter ended April 30. That was better than the 10% decline analysts polled by Visible Alpha were expecting. But net income fell by nearly 43%, which was worse than the 37% drop Wall Street had estimated. The company lowered its sights for the year and now expects comparable sales to fall by 3% to 6%. About three months ago it was expecting a decline of 1% to 4%.” (The Wall Street Journal)
Walmart Expands its Drone Delivery Service to 4 Million Households “Walmart is expanding drone delivery across six states this year, making it possible for many more customers to get a box of diapers or dinner ingredients delivered in 30 minutes or less. Through an expansion with operator DroneUp, the big-box retailer said it will be able to reach 4 million households in parts of Arizona, Arkansas, Florida, Texas, Utah and Virginia. The deliveries by air will be fulfilled from a total of 37 stores — with 34 of those run by DroneUp.” (CNBC)