Commercial real estate news from wsj 9/1/2021


Good morning. This is a great time to own a home, whether you are living in it or leasing it to someone. Wall Street has realized this, too, and investment firms are getting more aggressive in their buying and renting out single family homes. Investors purchased $87 billion in homes in the first half of 2021, reports Will Parker, including a record 68,000 houses in the second quarter. Blackstone, Invesco and Goldman Sachs are among the biggest participants.Increasingly, these deep-pocketed investors are competing with families and individual buyers in hot markets. In Atlanta, Phoenix and Miami, one in four home sales went to an investor during the second quarter. “The institutional players are chasing some of the same homes that would be starter homes for owner occupiers,” said U.C. Berkeley professor Desiree Fields, who researches the single-family rental industry.More senior housing facilities are mandating vaccinations for employees, under pressure from prospective tenants and their families. Implementing these mandates promises to be a tough and costly move for the companies that run thousands of U.S. senior communities and face labor shortages that could intensify with vaccine requirements, Peter Grant writes.In the U.K. meanwhile, the pandemic has dented the private-hospital business, a niche real-estate sector targeting wealthy patients and those with private insurance plans. Healthcare industry participants are now watching the expected opening early next year of a 184-bed hospital in a converted office building by the Cleveland Clinic. The U.S. healthcare provider operates in Ohio, Florida, Nevada, Toronto and Abu Dhabi, and established a beachhead in London this year with an outpatient facility, reports Ruth Bloomfield.                                                                                                                                 –– Craig Karmin, Real Estate Bureau
House Rents Pop Up as New Investors Pile In
A neighborhood in Chandler, Ariz. In Phoenix, one in four home sales went to an investor in the second quarter of 2021.
Asking rents for houses rose nearly 13% on the year ending in July. The sharp rise partly reflects increasing demand from people who can’t afford to buy homes as well as city-dwellers who moved to the suburbs to rent during the pandemic.
Senior Housing Industry Faces Higher Costs
About 39% of the senior housing organizations surveyed between July 22 and Aug. 8 said they ‘definitely’ or ‘probably’ will impose vaccine mandates.
Within weeks, nursing homes that don’t require workers to be vaccinated against Covid-19 won’t be able to participate in Medicare or Medicaid. About 39% of the senior housing organizations surveyed between July 22 and Aug. 8 said they “definitely” or “probably” will impose vaccine mandates.
Cleveland Clinic’s London Move Raises Concerns
Private-hospital revenue in London, which was growing before the pandemic, fell last year.
The pandemic dented the U.K. private-hospital business, a niche real-estate development sector targeting wealthy patients. That could present a challenge for an upcoming 184-bed hospital from the Cleveland Clinic in London.
U.S. Home-Price Growth Rose to Record in June
Home prices have surged this year, as the inventory of homes for sale remains well below typical levels.
The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 18.6% in the year that ended in June, up from a 16.8% annual rate the prior month. June marked the highest annual rate of price growth since the index began in 1987.
By The Numbers
£1.6 billionPrivate hospital revenue in the United Kingdom during 2020, down 14% from the previous year.
41,000How many new units of American senior housing that are expected to be added annually between years 2020 and 2022.
29.3%Annual home-price growth in Phoenix for the year ending in June, the highest of any city.
Beyond WSJ
Some hotels are mandating vaccines. Will others follow? (NYT)Where will the eviction wave hit? Follow the big landlords (Bloomberg)China regulator probes Ping An Insurance’s property investments (Reuters)
About Us
Craig Karmin is real-estate news bureau chief. Reach him on Twitter @CraigKarmin or via email at The newsletter is compiled and edited by Will Parker, WSJ housing reporter. Reach him via email at
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From the WSJ: Commercial Real Estate Weekly (Craig Karmin, Real Estate Bureau Chief)

Good morning. It’s well established that most workers have stayed away from their offices during the pandemic, but that’s less true in Dallas than in any other major U.S. city.

For reasons ranging from the political culture to lower density office buildings, the return-to-work rate in the Dallas-Fort Worth region has led the country since the Covid-19 outbreak, Peter Grant writes. At one point last fall, as many as 43% of the region’s professional labor force passed through their buildings’ turnstiles. Even in the early months of the pandemic, the percentage of employees working in offices never fell below 20%.

This is all good news for Dallas businesses that rely on the office worker. “There are just more people walking around,” said Nick Badovinus, whose company owns six restaurants in the region.

If crowds are still staying away from office buildings, they are flooding drive-throughs with business. That’s made the humble drive-through lane a hot real estate commodity, reports Esther Fung. While some restaurant chains — like Shake Shack — are introducing drive-throughs for the first time, other chains are stepping up their commitment. Burger King recently unveiled plans for future restaurants designed with triple drive-through lanes.

Billionaire Charles Koch is perhaps best known for spending vast sums on conservative causes. Now, writes Konrad Putzier, an arm of his Koch Industries is betting big on distressed real estate. Koch last month made its biggest splash yet in taking over an unfinished multibillion-dollar hotel-and-casino development on the Las Vegas Strip after the previous owner defaulted on his mortgage.

By Craig Karmin, Wall Street Journal

Amazon’s fulfillment center in Garner – New & Observer

Oct. 22–GARNER — At Amazon’s massive, under-construction fulfillment center in Garner, the company is preparing the way for a delicate dance between humans and robots.

Inside its 2-million-square-foot facility 7 miles southeast of downtown Raleigh, the blending of flesh and metal could soon have your Amazon packages delivered to you in the Triangle at record speeds — potentially less than half a day in some instances.

“It’s a little bit like poetry,” Robert Packett, Amazon’s regional director of operations for the Southeast, said of watching a fulfillment center operate in 2019.

Instead of humans rushing from shelf to shelf in search of an item, robots will hum along at a brisk pace, nearly silent, weaving in and out between other robots to drop off items.

The roughly 8-foot tall robots can carry hundreds of items, delivering them to associates who stand waiting to pick them up from platforms along the edges of the 700,000-square-foot floors in the fulfillment center.

The robots, which have become a core component of Amazon’s centers in recent years, are more efficient at delivery, Packett said, but also cut down on the amount of walking associates must do.

They will be a mainstay at the Garner facility when it opens sometime next year and becomes home to millions of products that will be shipped worldwide.

Amazon has often been on the receiving end of criticism for the working conditions inside its fulfillment centers, where speed is prioritized to get packages to customers within at most two days for Prime members. Some workers have reported walking 15 to 20 miles per day while on the job in the past.

“We’ve absolutely reduced the amount of walking per day for our associates,” Packett said in an interview after a tour of the facility on Tuesday.

“As you can see, it’s a large space, there will still be walking throughout the day,” he added. “But those days [of workers clocking long walking distances] are no longer common.”

Packett said Amazon is constantly evolving and investing in new technologies, like the package-carrying robots, “not only to have speed for our customers, but also to take care of our associates.”

Economic win for Garner

The Amazon facility was a big economic development win for the town of Garner when it was announced last August.

Not only does it directly replace the old ConAgra Slim Jim plant that exploded in 2009 on the same site, it will be a larger employer than ConAgra ever was. When ConAgra shut down, Garner lost hundreds of jobs and its main employer, said Ken Marshburn, mayor pro tem.

Now Amazon will be its largest employer with an expected 1,500 people delivering thousands of packages per day.

Amazon will also pay its associates at least $15 per hour at the center, a rate that is more than double the state’s minimum wage.

To land the facility, Garner promised to contribute $600,000 to the project. The N.C. Department of Transportation committed $4.5 million to make significant improvements to Jones Sausage Road to accommodate the added traffic, the N&O previously reported.

Amazon is also committed to extending its Career Choice Program to its workers in Garner, which local and state officials touted on Tuesday as another form of economic development for the area.

The program will partner with local colleges and universities to offer training opportunities for associates to gain new skills to either further their career at Amazon or help them find work somewhere else. (Amazon said it hasn’t yet named local partners for the program.)

The company will pay for 95% of the associates’ tuition and will offer classroom space inside the distribution center.

While not explicitly saying the retraining could help workers whose roles eventually might be taken over by a robot, the company said the program is meant to help employees gain new high-tech skills. Whether that skill is used at Amazon or somewhere else, Packett said, the company doesn’t care.

“I think primarily, we want our associates to do what they love,” Packett said. “I think we have great jobs here with great pay, great benefits … but we want people to do what they love.

“So, if they want to grow with us, wonderful,” he said. “But if they want to go do something else that they’re passionate about, that’s wonderful, too. And I think that’s the key to the beauty of Career Choice.

“And it’s critical, as we build talent within our workforce in Garner or anywhere in North America, that whether it benefits Amazon or not, it’s only good for our community and that’s part of being a good steward.”

He said many workers have earned certificates or degrees in robotics, information technology or their CDL licenses to drive trucks from the program.

Amazon now employs 3,500 full-time associates across North Carolina. By next year, it will have five fulfillment centers in Garner, Charlotte, Kannapolis and Kernersville as well as smaller facilities in Concord, Durham and Raleigh.

“When you look into things like Career Choice and what Amazon is doing to invest in the future of its employees, to upskill them, to arm them with the know-how to succeed in the economy of tomorrow,” Chris Chung, the CEO of Economic Development Partnership of North Carolina, said Tuesday, “that is workforce development, and it’s being driven by the employers of our communities.”

This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work. Learn more; go to


(c)2019 The News & Observer (Raleigh, N.C.)

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Investor, Tenant Demand for Shopping Centers…

Investor, Tenant Demand for Shopping Centers Holds Steady Despite Flattening Retail Sales Growth, Looming Store Closures
Lack of High-Quality Available Shopping Center Properties Hampers Both Retailers and Potential Buyers, Though Some Centers May Soon See Gaping Vacancy Holes
By Randyl Drummer
May 11, 2016

The U.S. retail real estate market recorded 11 million square feet of net absorption in the first quarter of 2016, causing the nation’s average vacancy rate to tick down to 6%, the lowest quarterly level since the Great Recession.

Despite a new wave of store closings and weaker-than-expected retail sales in the first quarter, solid U.S. job growth and wage gains suggest that retail demand should rebound over the remainder of 2016, said Suzanne Mulvee, CoStar Portfolio Strategy director of U.S. research, retail, during CoStar’s first-quarter State of the U.S. Retail Market Review and Forecast. Mulvee noted that a similarly weak first quarter occurred in 2015, followed by accelerated activity in the second half of the year.
However, the stable vacancy rate belies a challenging environment for some retailers as an increasing number of store chains look to ‘right-size’ their real estate holdings. The first quarter, typically the season for closures of underperforming stores, saw the largest level of closures since 2010, with retailers as diverse as Wal-Mart, Macy’s, American Eagle, Aeropostale and Kohl’s opting to close hundreds of brick-and-mortar locations, while a number of chains, including Sports Authority, filed for bankruptcy protection, according to Cushman & Wakefield data.

With the second quarter now well under way, the ominous rumbling of weak financial results and the specter of store shuttering continues, with retail analysts receiving several pieces of bad news this week. On Tuesday, a U.S. District Judge granted the Federal Trade Commission’s request to block the proposed $6.3 billion merger of Staples, Inc. and Office Depot. On Wednesday, Macy’s Inc. reported a worse-than-expected 7.4% sales decline in the first quarter, continuing a run of rough quarters for the department store chain.

Gap Inc. also reported weak sales and on Thursday, Kohl’s Corp. reported its first sales decline in six quarters, in a retail environment described by Kohl’s CEO Kevin Mansell and several other retail executives this week as challenging.

The Staples/Office Depot merger would have created a company with $37 billion in revenue and roughly 3,500 stores. Staples plans to host an investor conference call on May 16 to discuss “next steps in our go-forward strategy,” and the status of store closings is likely to be a major topic of interest among analysts. Recent earnings reports have suggested a difficult road ahead for both office supply chains, which are struggling to compete against such Internet retailers as Inc. against a business landscape increasingly oriented toward the digital and paperless office.

Staples closed more than 240 stores in 2014 and 2015 and expected to close another 50 stores this year, the company said in March after reporting lackluster fourth-quarter 2015 results. With the merger ended, Staples announced Tuesday it plans to cut $300 million in expenses and weigh the potential sale of its European operations. Office Depot closed nearly 350 stores over the same two-year period and has previously identified at least 400 stores for closing through 2016 as sales fell 10% in 2015.

Shopping center landlords faced with the losses of additional department stores anchor and junior anchor stores such Office Depot, Stables and Sports Authority are watching their tenants’ business situations very carefully.

“We’ve had intense conversations with both Staples and Office Depot. Whether there is a merger or not, once that’s decided, you will see store closings in that category,” noted Paul Freddo, senior executive vice president of leasing and development for shopping center owner DDR Corp.

The weak performance of Macy’s, meanwhile, prompted its executives on Wednesday to announce that the 700-store chain will consider proposals from potential joint venture partners for its mall stores. The company, which announced the closure of 40 stores in January, said Wednesday it has hired an executive to reevaluate its property portfolio to “monetize unproductive real estate.”
Retail Market Moving Past Recovery Stage

Despite the raft of store closings, retailer appetite for well-located space remains sharp. However, an increasing shortage of the most productive shopping center space, and limited new construction, is weighing on demand. As a result, retail vacancy may soon start to rise in New York City, San Francisco, Boston and other large metros.

Large retailers as a group have posted record profits and sales on a trailing four-quarter basis. However, net sales have plateaued over the last year and CoStar expects slowing sales growth to limit physical expansion for both high-end and discount chains. Median comparable-store sales growth was down to about 1% in early 2016, the lowest of the cycle, from a high of more than 3.5% in 2012.

“These numbers in aggregate indicate that public retailers will be pulling back on their expansion plans,” said Ryan McCullough, senior real estate economist for CoStar Portfolio Strategy. “The second implication of that is that the retail recovery has matured. We’re beyond the point where we’re talking about pent-up demand for retail and are now looking at underlying fundamentals driving retail sales growth.”
“There could be plenty of growth left, but calling it a recovery from this point forward may not be entirely accurate,” McCullough added.
Investors Eyeing Humble Neighborhood Shopping Center

Investment sales declined across all commercial property types in a seasonally weak first quarter following the record $500 billion sales volume in 2015. Retail property sales declined about 25.3% in the first three months, with sales of power centers slowing particularly rapidly, despite strong performance by home improvement anchors benefiting from the housing recovery such as Lowe’s and Home Depot.

Mulvee attributed the power center slowdown to lack of available product for sale rather than a pullback in tenant demand.

“We’ve seen so much buying by institutional investors who are now holding those properties, that there isn’t a lot of product available,” Mulvee said. “Some of the best fundamentals we’ve seen are in power centers, so the pullback doesn’t seem to be an indictment of that type of center.”

That being said, malls and power centers, particularly those located in strong commercial areas with strong household density and spending power, have hardly fallen out of favor among investors. For example, the largest transaction of the first quarter, Macerich Co.’s $770 million sale to Heitman of a 49% interest in a 3.3 million-square-foot portfolio of three malls in Colorado and New Jersey, includes properties in the upper echelon of U.S. retail clusters, with plenty of growth potential, McCullough noted.

Overall however, declining retail cap rates have started to flatten, in part due to the slowdown in power center sales, which have recorded the lowest cap rates of the cycle. Sales of strip and neighborhood centers, which tend to sell at higher cap rates, have become more active of late.
While cap rates of other retail subtypes seem to be reaching a bottom, “I would argue there is more runway for strip and neighborhood centers given the demand trends,” McCullough said.

“They’ve become more attractive to investors. The market hasn’t yet fully corrected for the demand shift, so there might be a relatively attractive yield,” McCullough added.

CRE lending surges in 4th quarter

From CostarGroup:

CRE Lending by Banks Surged in Fourth Quarter
Economic, Regulatory Headwinds May Slow Lending Pace in 2016
By Mark Heschmeyer
March 2, 2016

The total amount of commercial real estate loans held by U.S. banks and savings and loans saw a noticeable jump in the fourth quarter of 2015 over the previous quarter. The total amount of CRE loans outstanding held by FDIC-insured institutions increased 3.1% to $1.85 trillion at year-end from three months earlier. That followed an increase of 2.7% from mid-year to third quarter, according to the FDIC.

The $1.85 trillion year-end 2015 total CRE loans outstanding compares to $1.63 trillion at the last peak of the CRE markets at the end of June 2007.

Multifamily loans continued to increase at the fastest pace quarter to quarter, going up 4.6% to $15 billion from third quarter 2015 to the year-end total of $344 billion.

Non-residential commercial real estate lending totals jumped by $25 billion (3.6%) to $733 billion during the same timeframe.

Construction and development loan totals jumped by $8.88 billion (3.3%) to $275 billion.

The asset quality of CRE loans on bank books also continued to improve. Delinquent CRE loan balances declined for a 22nd consecutive quarter. At year-end, total delinquent CRE loans on the nation’s banks’ books equaled $19.8 billion, down 5.5% from the third quarter of 2015.

At the last peak of the CRE markets, delinquent CRE loans totaled $27.6 billion.

The total dollar volume of foreclosed upon CRE properties on banks’ books equaled $8.3 billion at year-end, down 12.2% from the previous quarter. However, in June 2007, the CRE foreclosed total stood at just $2.5 billion.

Banks appear to be benefitting from the strong market for real estate in selling any repossessed properties. For all of 2015, banks posted gains of $215.7 million on the sale of foreclosed properties. That came despite posting a loss on sales in the third quarter of 2015.

The nation’s largest CRE lender, Wells Fargo Bank, which holds about $134 billion in CRE loans, posted a gain of $245 million last year on the sale of foreclosed properties.

FDIC-insured institutions reported aggregate net income of $40.4 billion in the third quarter down from $43 billion in the second quarter of 2015.

Of the 6,270 insured institutions reporting third quarter financial results, more than half (58.9%) reported year-over-year growth in quarterly earnings. That also is down slightly from the previous quarter.

Is a Bank Lending Slowdown on the Horizon?

Total loans and leases at banks increased by $199 billion during the fourth quarter of 2015, approximately 2.3%. That is about double the pace of loan growth in the third quarter and the highest total increase in bank lending in eight years.

The brisk pace of bank lending may cool this year after bank regulators issued an announcement during the fourth quarter that they planned to pay close attention to real estate lending activity among banks.

The FDIC warned in late December directing banks and savings and loans to “reinforce prudent risk-management practices” for their commercial real estate lending.

The FDIC regulators added that they would be paying close attention to bank CRE lending practices in their 2016 bank reviews. The last time the FDIC sent such a memo regarding real estate lending was in 2005.

Asked in Federal Reserve Bank January 2016 survey about their lending practices, senior loan officers reported tightening standards for multifamily loans, a moderate number reported tightening standards for construction and land development loans (CLD loans), and a small number reported tightening standards for loans secured by nonfarm nonresidential properties.

“The operating environment for banks remains challenging. Interest rates have been exceptionally low for an extended period, and we are seeing signs of growing interest rate risk and credit risk,” said FDIC Chairman Martin J. Gruenberg. “Recently, domestic and international market developments have led to heightened concerns about the U.S. economic outlook and prospects for the banking industry. Thus far, the performance of banks has not been impacted materially. However, the full effect of lower energy and other commodity prices remains to be seen. Banks must remain vigilant as they manage interest rate risk, credit risk, and evolving market conditions. These challenges will continue to be a focus of ongoing supervisory attention,” Gruenberg said.

Fed Finally Raises Rates, Response from CRE Industry: ‘No Big Deal’

Fed Finally Raises Rates, Response from CRE Industry: ‘No Big Deal’
Interest Rate Hikes Reflect Expected Strengthening of Economic, Employment Conditions
By Mark Heschmeyer
CoStar Group

December 16, 2015
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After seven years of worrying over raising interest rates, discussing the best time to raise interest rates, and debating the impact of raising interest rates, money from the federal government is no longer free.

In a unanimous vote, the board of the Federal Reserve voted to raise interest rates a quarter of a percentage point.

The hike has been anticipated for nearly six months, thanks to a thorough communication strategy from the Fed that all but eliminated the element of surprise for a jittery stock market. The increase became a foregone conclusion following strong employment growth numbers last month.

Additional interest rate hikes are expected going forward, but will come slowly as the Fed continues to take an accommodative stance supporting further improvement in labor market conditions and a return to 2% inflation.

The impact from the decision could also take some time to surface.

“We do not believe today’s move will have any impact on the commercial real estate markets and that the Fed likely has significantly more room to move before we begin to see real pressure on cap rates,” said Spencer Levy, head of research, the Americas for CBRE. “That said, certain markets may be more susceptible than others to interest rate increases.”

The other wild cards Levy said could have a bigger impact than interest rates include the price of oil, an economic crash or ‘hard landing’ in China, which would lead to pull back in Chinese capital flows, or some other “black swan” event which would impair global growth.

Any such event could easily cause the Fed to reverse course, neutralizing any potential capital outflows, Levy said.

“The flow of international funds-combined with domestic pension funds’ large pools of capital allocated to commercial real estate but unspent-will outweigh any potential increase in the cost of capital,” he added.

Hans Nordby, managing director of CoStar Portfolio Strategy in Boston, agreed that today’s Fed rate hike should have little or no impact in the near term for private sector commercial real estate investors.

“First, while nominal cap rates are very low versus history, the spread between going-in cap rates and comparable investment vehicles, including bonds, stocks and treasuries, is very high,” said Nordby. “Therefore, rates can come up a bit before cap rates need to rise.

“Second, the Fed chose to increase rates because the ‘real’ economy, most notably job growth, is strong. Strong economies increase demand for real estate, and therefore rents. So, these increased rates are in tandem with higher incomes for the real estate, all else being equal,” he added.

“Finally, the fed is unlikely to push rates very hard in near future, given that growth outside the U.S. is very low, and the dollar is very high. Pushing up rates would make American exports even less competitive, just as foreign markets’ demand for U.S. goods is declining.”

Jeffrey Rinkov, CEO of Lee & Associates, said he also expects the rate hike will have minimal impact on commercial real estate.

“Based on a strengthening and stabilizing economy, I believe this was a logical move by the Fed,” Rinkov said. “While the Fed is driven by data, I think this signifies its belief that the economy can operate in an environment with a normalizing monitory policy. Relevant to real estate investment, long term interest rates should remain at historical low levels which will continue to incentivize investment.”

Housing Could See a Boost

One area that could see relief from a higher-rate environment is housing.

Steve A. Schwarzman, chairman and CEO of The Blackstone Group, took an informal show of hands survey last week at Goldman Sachs U.S. Financial Services Brokers Conference, asking the audience how many thought rising interest rates would hurt housing prices and then how many thought it would help.

Hardly anybody raised their hands when asked whether housing prices go down. And about a third of the room put up their hands very slowly when asked whether housing prices go up.

“Well,25 over the last 26 times in history when interest rates went up the value of houses went up,” Schwarzman said. “Because when you have inflation or you have people making more money with the economy growing, that tends to push up the value of houses.”

The more interesting question about interest rates, Schwarzman said is how slowly prices go up.

“But if the markets want to be down on real estate values, that’s okay,” Schwarzman said, “because then we’ll just take out some huge companies, put out huge amount of money at very good prices and what happens at the underlying assets are always worth way more than the stock market is willing to value at the stage and a cycle.”

Martha Peyton, managing director of TIAA-CREF Global Real Estate Strategy & Research, acknowledged that there are fears rooted in the perception that rising interest rates will weaken property values and commercial real estate (CRE) investment performance.

“But, historical data show that higher interest rates have not necessarily derailed CRE total returns, Peyton said. “In fact, property performance has often remained resilient in the face of rising rates. Furthermore, there are a number of factors that may provide protection to overall property performance in a rising interest rate environment.”

The most important protective factor, she said is that rate hikes in the current environment reflect expected strengthening of economic and employment conditions.