From the Editor's Desk
Dear CCIM Members,

What a year this has been. From the pandemic to the election and from changes in the CRE markets to the shifts we must continue to make to our respective businesses, there is so much we all have to endure and make if we are to stay relevant next year. Nonetheless I remain hopeful and optimistic that we will survive and come out better and wiser. With potential Covid-19 vaccines and FDA-approved treatments to improve outcomes next year, we can get back to normalcy in our lives, but doing so, in a responsible and safe manner. Next year, we will unveil a new ad hoc committee focused on Institutional Real Estate to cater to many of you who are work in corporate or public sector and/or serve the qualified investor communities. We plan on continuing and expanding on the successful Virtual Dealshare event platform and will introduce new programs and events to help in your business practice or to obtain CE credits for your RE license renewals. So, please stay tuned and stay engaged. Wishing you all, Happy Holidays!


(646) 481-3801
President- JR Chantengco, MBA CCIM, Black Pearl Investments
Vice President- Tom Attivissimmo, CCIM, Greiner-Maltz of Long Island LLC
Treasurer- Robin Humble, CCIM, Nelson & Nielson 
Assistant Treasurer- Matt Annibale, CCIM, First National Realty Partners
Secretary- Samuel Weiner, Langdon Title 
Director - Ian Grusd, SIOR CCIM, Ten-X
Director - Al Holloman, CCIM, RMFriedland
Director - Chris Cervelli, CCIM, Cervelli Real Estate 
Director - Camille Renshaw, CCIM, B+E
Director - Scott Perkins, SIOR CCIM MCR MRICS, NAI James E. Hanson
Director - Lee Barnes, CCIM, Woodman Group LLC 
Director - Brian Whitmer, CCIM, Cushman & Wakefield
Is A Republican Or Democratic Administration Better For CRE? Turns Out, It's A Tie
How much difference does the political affiliation of presidential administrations make to commercial real estate growth? Apparently, not much.

A recent study by Newmark analyzed returns on investment in CRE under the presidential administrations of the last 40 years and found little difference, but what edge there is goes to Democratic presidents. Since the beginning of the Reagan administration in 1981, the report notes, annualized total CRE returns for all asset classes have averaged 9% during the years when a Democratic president was in office (16 years) and 8.2% when a Republican was in office (24 years).
"Though there may be some correlation between the political party in control of the White House and Congress with stronger office or multifamily market fundamentals, correlation is not causation," the study notes. "There are economic and geopolitical factors that likely have greater influence. This may come as a relief to investors who are concerned about the potential impact of November’s elections on the commercial real estate market."

1980s: Split Government, Steady Growth, Major Tax Changes

The election of 1980 delivered the White House and Senate to the Republican Party, but the Democratic Party retained control of the House for the entire decade and regained control of the Senate in 1986. In macroeconomic terms, the economy had begun the decade in the tank, contracting in 1980 and 1982 but expanding again each year starting in 1983. Inflation, which was a roaring 13.5% in 1980, was tamed by Federal Reserve policy that made borrowing, including for CRE deals, extremely expensive in the early part of the decade.

Despite the division of the federal government by party in the 1980s, a number of major pieces of legislation passed, including tax bills that impacted CRE.

"Two major pieces of tax legislation, the Economic Recovery Tax Act of 1981 (ERTA) and the Tax Reform Act of 1986, had unusually strong effects on commercial real estate markets during the 1980s," the Federal Deposit Insurance Corp. reports. "ERTA included several provisions that improved the rate of return on commercial real estate and increased demand for these investments. Five years later, the Tax Reform Act repealed many of these same benefits."

CRE returns were healthy throughout the decade. Inflation beginning in the late 1970s set off a wave of demand for real estate, and CRE markets enjoyed a building boom, especially in the office sector, that lasted in some parts of the country throughout the 1980s, according to the FDIC. The rebound in 1983 and '84 was especially strong, with CRE returning 13.1% and 13.8%, respectively, as the industry benefited from a growing economy and favorable tax law.

1990s: Early Decade Pause, Then Boom

The 1990s began under a recessionary cloud, with the U.S. GDP at its worst in a decade in 1991, suffering a small but painful contraction of 0.1%. Likewise, CRE returns were down for two years, a negative 5.6% in 1992 and negative 4.3% in 1993, the last time CRE would turn in losses until the Great Recession nearly two decades later.

In part because of the recession, the Republican Party lost the White House in 1992, creating a short window of unified government under the Democratic Party until 1994, when a tremor of a midterm election delivered control of both houses of Congress to the Republicans for six full years under President Bill Clinton. In any case, the election didn't hamper a sustained period of economic and CRE growth.

Around the beginning of the 1990s, the major real estate story was the collapse of the savings and loan industry, which actually began in 1989 under President George H.W. Bush. The debacle inspired a divided government once again to act, creating the Resolution Trust Corp., which eventually liquidated the real estate and other assets of 747 failed companies with assets totaling $394B.

"Despite the significance of the 1989 collapse, in some ways its immediate ill effects were short-lived," real estate attorney Morrie Much wrote in 2010. "By the mid-1990s, an improved economy had already begun to soften the memories of previous excesses, and confidence was once again in full rebound. REITs took off, with more than 150 being launched between 1992 and 1997."

Another major bill impacting CRE from this period is the Americans With Disabilities Act, created in 1990 by a divided government. The law profoundly reshaped the design of commercial real estate projects.
"More than two decades after the Americans with Disabilities Act was signed into law, many facilities covered under this law are still being sued for their alleged failure to comply with the standards," law firm Maspons Advisory Services notes.

2000s: Growth, Followed By Panic

The Republican Party returned to the White House after the 2000 election and held it for eight years. Control of Congress during the 2000s was less stable, with the Senate controlled by Republicans for four years and the House controlled by the Democrats for four years. There was divided government for four years, complete Republican control for four and complete Democratic control for two.

A brief recession in the early 2000s didn't put much of a dent in CRE returns, according to Newmark. The lowest return of the decade was in 2002, at 6.7%, in the aftermath of the bursting of the dot-com bubble and the Sept. 11, 2001, attacks, which caused a mild recession. GDP was down to 1% in 2001 and 1.7% in 2002 under President George W. Bush. It was a decade of growth, until it suddenly wasn't and the economy crashed in 2008.

So what has the flip-flopping of Congress meant for the office market over the last 20 years? The years of a Republican-controlled Congress saw U.S. office absorption averaging 40.8M SF per year, while the years under a Democratic-controlled Congress since 2000 have recorded 6.3M SF of negative office absorption per year, Newmark reports.

"With this small data set, it would seem that a Republican Congress generates more office demand than a Democratic-controlled one," according to the study. "However, the fact that a correlation exists between Republican control and higher office demand does not necessarily mean that Republican control was the cause of increased demand."

One of the decade's major pieces of legislation impacting CRE came in 2002, with the enactment of the Sarbanes-Oxley Act by a divided government after a number of major corporate scandals, such as Enron and Worldcom. In the real estate industry, SOX impacted REITs most of all, requiring them to make various adjustments to their internal controls and increase their disclosure.

2010s: CRE Recovers Faster Than The Economy

The deep recession that began in 2008 lingered well into the new decade, ushering in full Democratic control of the White House and Congress for the first time since 1994. But it didn't last.
Republicans flipped the House in 2010, the Senate in 2014 and the White House in 2016. But the Democrats flipped the House back in 2018 and the White House in November, with control of the Senate undetermined until 2021.

Overall, divided government has been more common than not in the most recent decade, but with heightened political polarization, fewer major legislative initiatives have emerged.

During the shorter periods of unified government, a few major CRE-impacting bills have been passed. The Affordable Care Act, passed by a Democratic government with no Republican support, has arguably affected health care real estate in a lasting way. The Tax Cuts and Jobs Act of 2017, passed by a Republican government with no Democratic support, created opportunity zones, a CRE investment vehicle.

CRE made a quicker recovery from the Great Recession than much of the rest of the economy. From 2010 to 2014, GDP never grew more than 2.6%. By Newmark's reckoning, CRE returns were down 16.8% in 2010 but back up to 13.1% the next year. After that, until the pandemic and recession of 2020, annual CRE returns never dropped below 6%.

Newmark also notes that during President Barack Obama’s eight-year term from 2009 to 2017, multifamily effective rents were up an average 2.7%, significantly higher than the 20-year average of 2% and the 1.6% average under the Republican presidents between 2001 and 2019.

"While this data would seem to show that Democratic control was more favorable for multifamily market fundamentals, as is the case with the office market, it is likely that exogenous events are a more powerful influence on the multifamily market than are the policies of either major political party," Newmark concluded.

Source: Bisnow
Under Pandemic Pressure, Capital Markets Adapt
A special report from Marcus & Millichap suggests that, despite all of the pandemic’s disruption to the CRE sector, the capital markets side is adapting quite well.

The players have shifted positions, in some ways rather significantly, but the game continues, according to Beyond the Global Health Crisis, a special fourth-quarter capital markets report from Marcus & Millichap.

As some categories of lenders have stepped back from commercial real estate, others have stepped up their lending. And as these adjustments take place, investment activity is making a steady recovery and low interest rates help to motivate investors.

As the end of a tumultuous year approaches, the report notes, “the lending landscape has vastly improved from the onset of the pandemic, which brought lenders and investors to pause as they assessed the impact of the coronavirus.”

Further, proactive steps by the Fed have kept debt capital “far more abundant than during the global financial crisis.” Both buyers and lenders have become more active since the second quarter, though sales activity is down substantially year-over-year.

Unsurprisingly, many lenders have tightened underwriting criteria, reducing the options for some borrowers. “While liquidity has remained ample, loan-to-value ratios contracted as the health crisis unfolded, now resting in the 50 to 70 percent range,” depending on the deal and borrower, according to Marcus & Millichap. Alongside this, debt service coverage ratios have shifted, rising to the 1.6x–1.9x range.


Compared with 2018’s lender mix, that of mid-2020 showed a huge drop in CMBS, a steady rise in the role of regional and local banks (across most property types), and a large increase in activity by government agencies. The latter, Marcus & Millichap says, “were aggressive originators in recent quarters to account for a much larger share of lending activity.” Still, multifamily mortgages now often require debt service reserves and much underwriting assumes no rent growth for about the next two years.

Product types favored by lenders are multifamily and industrial. The report states that lending by banks and non-agency lenders most often involve five- to seven-year loans with rates in the upper-2 percent to mid-3 percent range.

As to office properties, most lenders are more selective, despite strong rent collections. Suburban office deals are preferred, while buildings in larger downtown markets can require loan-to-values of nearly 50 percent for.

Life insurers reportedly have been targeting lower-leverage office deals, as well as multifamily and single-tenant retail assets.

“The Federal Reserve’s commitment to keep the federal funds rate near zero through at least 2023 should hold interest rates near historical lows over the coming quarters,” the report concludes, “providing commercial real estate investors with compelling risk-adjusted returns in contrast with other asset classes.”

Source: CP Executive
JV places major bets on malls
COVID-19 is putting a major strain on most U.S. shopping centers and malls, but one group of investors is taking the opportunity to pick up assets and reinvent them to benefit local communities.

Namdar and Mason Asset Management formed a joint venture 10 years ago to acquire well-located retail properties, primarily shopping centers and enclosed malls, whether they are stabilized or value-add opportunities. Their deals range from $5 million to $150 million. Namdar focuses on the financial and property management side while Mason handles leasing, sales, asset management, redevelopment and marketing. Together, they own and manage over 180 properties, including around 60 malls, totaling more than 55 million square feet.

The partners have been on a shopping center binge this year, buying:
·        Belknap Mall in Belmont, New Hampshire
·        Berkshire Mall in Wyomissing, Pennsylvania
·        Concord Mall in Wilmington, Delaware
·        Eastdale Mall in Montgomery, Alabama
·        Hickory Point Mall in Forsyth, Illinois
·        Meriden Mall in Meriden, Connecticut
·        Mesilla Mall in Las Cruces, New Mexico
·        South Park Mall in San Antonio
·        Tops Plaza in Cortland, New York
·        West Valley Mall in Tracy, California
·        Westgate Mall in Amarillo, Texas

Namdar and Mason have a playbook once they acquire a shopping center. “When we acquire a new property, we often take an aggressive leasing approach to bolster the tenancy in place with new opportunities, and it’s our goal to continue to add value by further leasing and developing the site,” said Mason Asset Management president Elliot Nassim. “To that end, we look at all sorts of tenant options and the associated credit risk. We work right alongside our tenants to create new concepts and strategies to attract patrons. Our goal is always to capitalize on the value for local communities, regardless of the present state of a mall.”

Additionally, “redeveloping those properties to optimal performance is always the goal,” he said. The JV’s redeveloped properties often include mixed uses: traditional retail, entertainment like bowling alleys and theaters, fitness centers, office and residential. “The partnership works diligently to determine what use for the property will best benefit the surrounding neighborhood and reinvigorate the local community,” Nassim said.

The pandemic also has given the partners an opportunity to invest beyond real estate. Recently, they purchased Jennifer Furniture. It has six locations in New York and New Jersey, and the JV is looking to grow the footprint throughout the country. “While the pandemic has made many asset classes vulnerable, Jennifer Furniture is a well-known brand that is well-positioned for growth,” Nassim said. “Especially with more people working from home, we see the home furnishings and decor market segment as one that is poised for growth.”

The JV also acquired Goodrich Quality Theaters, which has 22 locations in Michigan, Missouri, Illinois and Indiana. “We feel that the theater industry is currently characterized by significant pent-up demand, and we anticipate that people will want to go out for entertainment when it is safer to do so,” said Nassim.
Looking ahead, he sees no slowdown in retail property acquisition targets. “Given the nature of this year, we expect to see a flurry of deal flow in early 2021,” he said.

Source: ICSC
WeWork Expanding On-Demand Offering Nationwide After Successful NYC Pilot
After a successful New York-based pilot program over the past few months, WeWork is rolling out its On Demand offering in 160 U.S. locations.

WeWork On Demand is a separate offering from monthly memberships of any size, charging $29 per day for access to a coworking location booked either days in advance or at a moment's notice. Conference rooms will also be available in the WeWork On Demand app, starting at $10 per hour and increasing based on room size.
Conceived in response to the uncertainty surrounding where to work during the coronavirus pandemic, the WeWork On Demand app gained users at an average pace of 28% per week over the two-month pilot, including an 84% jump in the final week, according to a WeWork spokesperson. Just over half of the users who signed up booked a second day, and 67% of bookings in New York were from repeat customers.

"[It's] a distraction-free environment people are interested in, whether it's parents looking for a break from the house or companies looking for a conference room for a short period,” WeWork Global Head of Marketplace Prabhdeep Singh told Bisnow.

Usage of WeWork On Demand during the pilot program was heavier Tuesday through Thursday as opposed to Monday and Friday, a spokesperson said, lending credence to the idea that users saw it as a break from whatever demands that home life imposes on a workday.

WeWork On Demand and its next tier, an unlimited option called WeWork All-Access, will be introduced in portions of WeWork common areas across 11 U.S. markets: Atlanta, Austin, the San Francisco Bay Area, Boston, Washington, D.C., Chicago, Denver, Los Angeles, New York, Philadelphia and Seattle. Based on the initial performance of the program in those cities, WeWork will likely expand to offer On Demand in some international markets.

“I think [international expansion] is on the horizon regardless, but we’ll be using information on the rollout here to figure out what’s the next place to take this internationally," Singh said. "The goal is to do this as a phased approach and learn as we go.”

On Demand access will be granted based on the reduced capacity restrictions WeWork has been operating under since the initial outbreak and subsequent shutdown, and once the maximum number of reservations is hit, the location is immediately listed as sold out on the app, Singh said.

Because On Demand users will be accessing the same common areas as more traditional WeWork members, some overflow might occur, in which case a location's community manager is authorized to open up vacant private offices to accommodate.

“As we see demand growing, that’s when we can look at changing layouts to create [permanent] overflow space," Singh said. "So if we see a building hot for On Demand, we can look at a floor and change it over to suit those types of users.”

Socially distanced table and couch layouts will remain to prevent crowding, temperature checks are still required of any entrants and masks are mandatory and available upon request, Singh said. At some point in the future, On Demand could be expanded to allow for daily rentals of private office space.

Much like how WeWork's core business became centered on larger companies, or "enterprise members" in company parlance, a large portion of On Demand users are employed by companies with office space elsewhere that would require risking public transit, or that have given back office space and are replacing it at WeWork one day at a time.

“At a high level, the feedback I’ve gotten is a lot of, ‘This has been a lifesaver because we don’t know what to do during this time,’" Singh said. "For a lot of companies who don’t know what the future holds regarding workspace, this has been a great way to just take space when they need it.”

On Demand and All Access are also available to companies with existing enterprise memberships, though the offering is priced differently. The program functions similarly to how employees of enterprise members could "hot desk" at other locations, which Singh specified has always come with an additional cost.

With current work conditions being what they are, using a hub-and-spoke model for office work is gaining popularity among larger companies. While smaller companies may use WeWork On Demand as their primary method of access, Singh believes enterprise members will largely keep their central space. Competitor Industrious recently launched a joint venture with developer Granite Properties to more directly provide space for hub-and-spoke office use.

Even if and when a widely available coronavirus vaccine brings stability back to the U.S. office market, Singh envisions WeWork On Demand as a permanent offering. If the product somehow outpaces all other WeWork offerings in terms of demand, Singh believes that it could still be a profitable path forward for the company.

"We haven’t priced it to a point where we can’t make money on it as a product," Singh said. "We think that clearly what’s going to happen in the future post-vaccine is that there will be more hybrid work models. Remote work has been normalized across the world now, so having On Demand as an entry point into WeWork makes sense."

Adding On Demand is only part of WeWork's ongoing evaluation of its real estate footprint, which has included closing multiple locations and backing out of some leases. That evaluation is on track to be completed by the end of the year, according to a WeWork spokesperson, who did not comment on whether further closure decisions would be announced into 2021.

Even as it remains in recovery mode from the disastrous and ultimately abandoned initial public offering attempt last year, WeWork is still expanding in select target markets. Since Aug. 1, the company has opened two locations each in Boston and Atlanta, according to a spokesperson.

Source: Bisnow
IQHQ Raises $1.7B for Life Science Projects
The latest round of funding will help finance 4.4 million square feet of development in Boston, San Francisco and San Diego.

CenterSquare Investment Management is among the new and existing investors who participated in a $1.7 billion equity raise by life sciences developer IQHQ Inc. It is the second round of financing for IQHQ, which completed a $770 million capital raise earlier this year.
IQHQ, which has offices in San Diego and Boston, said it is well positioned to continue expanding its development pipeline that already includes about 4.4 million square feet of life science projects in Boston, San Francisco and San Diego. Formed in February, the company formerly known as Creative Science Properties immediately began making strategic acquisitions of major development sites and assets in major life science markets. Its first purchase was a 285,000-square-foot lab and office building in Boston’s Fenway neighborhood acquired for $270 million in February.

In May, IQHQ acquired the 200,000-square-foot Innovation Park in Andover, Mass., in a $35.9 million deal. Two months later, IQHQ added Alewife Park, a 290,000-square-foot life sciences campus in Cambridge, Mass., in a $125 million sale-leaseback transaction with GCP Applied Technologies. Then in September, IQHQ broke ground on the first phase of the $1.5 billion San Diego Research and Development District, the first urban life sciences-centric waterfront campus in the city. The RaDD is being built on land at the Manchester Pacific Gateway mixed-use development site purchased from Manchester Financial Group. Phase One is expected to be completed by summer 2023.

Citing the San Diego development and Alewife Park acquisition, CenterSquare officials said its $158 million investment will improve IQHQ’s ability to execute on future transactions and provide an underpinning for the existing portfolio and balance sheet. Todd Briddell, CEO & CIO of CenterSquare, a Plymouth Meeting, Pa.,-based global real assets manager, said in prepared remarks the IQHQ management team has already executed on a highly scalable vision to deliver state-of-the-art office, lab and R&D space to premier tenants. Briddell said CenterSquare has confidence in both IQHQ and the strength of the life sciences sector.

Steve Rosetta, IQHQ CEO, said in a prepared statement CenterSquare’s experience in both public and private real estate investment will be a long-term asset to the IQHQ team. While the company did not publicly identify any other investors, the San Diego Union-Tribune reported Madison International Realty is also an investor in IQHQ. Rosetta said in a separate statement that the completion of what he termed a significant capital raise validates IQHQ’s solid strategy, exceptional team and success in identifying and securing premier life science projects and developments in top markets.

Jamie Graff, managing director, co-head of real estate at Raymond James, said in prepared remarks interest in the offering was exceptionally strong due to the momentum IQHQ has achieved since forming. He added the life sciences sector has remained steady and is projected to have continued growth.

Source: CP Executive
Prologis Buys WFME Radio Station Site in Queens for $51M
Industrial powerhouse Prologis has acquired the site of a local radio station in Queens, adding to its existing portfolio in the area.

Prologis purchased the five-acre vacant lot in Maspeth from Family Radio for $51 million, according to property records. The site, at 48-00 Grand Avenue, is currently used by Family Radio, or WFME, for its radio towers, according to information from Quantierra Advisors, which brokered the deal on behalf of the seller.

The site is located in an industrial area near the border of Brooklyn and Queens, and will be used by the buyer for parking and storage, per Quantierra’s Ben Carlos Thypin and Jay Gilbert, who brokered the deal.

The sale is part of a trend in which industrial players are looking for more support space for their last-mile logistics centers, said Thypin. “We’re starting to see a lot more industrial fleet management and storage. A lot of players in the market are pricing as much based on the parking value as the development value.”
Earlier this month, Realterm Logistics bought a nearby site, at 235 Gardner Avenue, for $28 million. The ratio of the site, which includes a five-story warehouse on 130,000 square feet of land, suggests that it will be used for parking or fleet management as well, said Thypin.

Prologis has acquired at least three sites in the area within the last year, including two adjacent industrial sites in Ridgewood, a former Frito-Lay warehouse site at 1851 Flushing Avenue, and the adjacent 24 Woodward Avenue for a combined $59.1 million, according to property records. The Frito-Lay site includes a 19,200-square-foot building on 105,555 square feet of land, while the Woodward lot is fully built, according to property records. The third site was a warehouse in East Williamsburg, which Prologis purchased for $13.3 million last October.

Family Radio will continue to operate its radio towers on the Grand Avenue site as they transition to a new location, which was key to closing the deal, since the radio producer required continuity of operations, per Thypin and Gilbert.

Source: Commercial Observer
French Hotel Giant Targets U.S. With New Lifestyle Operator
Accor to combine boutique brands with London-based Ennismore, eyeing growth in design and dining-focused properties as pandemic continues to crimp industry.

European hotel giant Accor SA is making a big bet on lifestyle hotels and has created what it says will integrate its boutique hotel with a UK company to become the world’s largest operator of lifestyle hotels. I agree to do.

Accor said it has agreed to set up a new venture, including more than 70 properties, in a full-share deal with London-based hotel operator Ennismore. Twelve lifestyle brands will be introduced, including Mama Shelter, SLS, and the 21c brand, which operates hotels in the United States.

Under the proposed agreement, the merged company will have an additional approximately 180 hotels, either in the pipeline or in advance consultation with the hotel owner. Due to its size and scope, the new division (operated under the name Ennismore, but owned by Accor’s majority) can strengthen its global influence in this popular accommodation segment.

“Lifestyle is one of the fastest growing hotel segments on the planet,” said Sebastian Chamberzan, CEO of Accor. “Guests want it, and hotel owners want it.”

Lifestyle labels can be ambiguous, but usually refer to hotels that focus on design and have an active bar and restaurant scene. Mr. Bazin said he defines a lifestyle hotel as a hotel that derives at least 40% of its revenue from food and beverage and other entertainment services.

Source: Wall St. Journal
The Two Net Lease Markets
In this bifurcated market, there are either multiple bids or no bids.

Randy Blankstein, president of The Boulder Group, has been in commercial real estate since 1991.
And he’s never seen a net lease market like the one that exists today.

“It is so bifurcated,” Blankstein says. “It’s the craziest market I’ve ever seen. You either have something that everybody wants, or you have something that you can’t even get a bid on.”

If a McDonald’s or Starbucks is on the market, multiple bidders will enter the fray. “Everybody wants the big names that are doing well, and nobody wants anything else,” Blankstein says. “With fitness centers, like LA Fitness and tenants like that, there are just no bids.”

Movie theaters are another trouble spot. “People don’t know what’s going on with the movie industry,” Blankstein says. “They have no idea when it comes back. So people are making worst-case assumptions, and it’s hard. It’s hard to sell property on a worst-case assumption.”

People aren’t even taking a flier on these hard-hard retailers. Many potential buyers would rather wait for things to stay after COVID before jumping in. Sellers understand this.

“Sellers don’t want to open it up to a terrible bid,” Blankstein says. “They understand that the business model needs to be repaired, and things need to change. So, all the second-tier properties are being held off the market because people understand there’s no demand for it. So it has become a market of A-rated, investment-grade tenants.”

Some of these owners of real estate with non-essential tenants may not be able to hold on forever. If they have debt coming due soon, they may have to sell into a bad market. If they want to refinance, they’ll need more equity.

“If there isn’t debt coming due, there’d be no reason to put a movie theater on the market today unless they had to for a death, divorce or a loan coming due,” Blankstein says. “You don’t want to put it on the market because the bids would be so far off what you paid for it.”

In the short term, Blankstein is hopeful that owners with struggling properties can talk to their lenders and push their issues down the road.

“But next year there will be a point where, if the market hasn’t turned by then, I think you’ll see a lot more product in the market,” he says. “Right now, everyone’s attitude is, ‘Let’s push it to next year and see what happens.’ If things don’t turn around in the second quarter of 2021, I think some of these properties will have to come to market.”

Still, there are positives. Blankstein says the two IPOs in the sector—Broadstone Net Lease and Netstreit—are a sign of the underlying strength of essential net lease properties.

“The reality is net lease is the bond sector of the real estate market. It’s a safe, conservative cashflow sector,” Blankstein says.

Source: Globe St.
Investors Targeting Distressed Assets Work to Get “Dry Powder” Off the Sidelines
Firms waiting for an opportunity to invest in distressed assets are looking at different avenues to approach their goals.

Turnbull Capital Group is one player in an increasingly crowded field of capital jockeying for opportunity to take advantage of potential distress that may emerge in the commercial real estate market in the wake of the pandemic. Over the past nine months, the commercial real estate investment banking firm has partnered with more than $20+ billion in dry powder that it plans to aim at investment opportunities in distressed assets. Specifically, it has aligned itself with a half dozen domestic family offices and American hedge funds that are interested in providing rescue capital in the form of preferred equity to distressed hotel and resort owners.

Turnbull Capital is leaning on its team’s connections in the industry that stem from a long track record.
Combined, the team has been involved in some $19.5 billion in hospitality workouts, restructurings, bankruptcies, receiver-controlled and lender-owned real estate transactions over the past 36 years. “People know that we’re the real deal. This is our fifth rodeo so to speak. We’re trusted, and we’re fiduciaries,” says Dr. Donald W. Wise, co-founder and senior managing director at Turnbull Capital Group, a commercial real estate investment banking firm focused on hospitality and leisure.

Groups that have a history of successfully deploying capital in distressed investment opportunities may have an edge in the current crisis, where the supply of capital seems to vastly outweigh the distress that has yet to materialize. “We have not seen the kind of widespread distress that would be implied around the fundraising momentum,” says Bernie McNamara, global head of investor solutions for CBRE Global Investors. “It really has been about stress either around individual owners or balance sheets, and it is still to be determined whether or not any widespread distress is going to emerge.”

The pockets of stress that have emerged have generally related to the need for liquidity or gap equity. Those opportunities are very relationship-focused, with investors that are tapping into their network of owners, operators and developers to access opportunities. Larger groups are relying on multi-dimensional, global networks with people on the ground to source, underwrite and understand the opportunities, adds McNamara.

Different business plans emerge

Investment groups are moving forward with different strategies to place capital, and many anticipate the need to pivot as opportunities shift. Turnbull Capital has created two different ”white knight” scenarios to create liquidity for distressed hoteliers that include its preferred equity business model and a ground lease option.

Since March 15th, Turnbull Capital's preferred equity business model partners have placed approximately $247 million, with another approximately $130 million in the queue. Most of that capital is going to branded hotels with an average deal size in excess of $20 million. According to Wise, the firm has approximately six different preferred equity funds active in this space, with access to billions more in dry powder. The beauty of preferred equity is that until the property or properties are cash-flowing, there is no additional burden to ownership in terms of payments. In addition, at the end of the term, whether that is four, five or 10 years, the owner can buy out the preferred equity partners and go back to business as usual, notes Wise.

Ground leases can be a good alternative if a property had weak 2019 revenues ahead of the pandemic. Specifically, in urban markets where the value of the fee simple title may be as much as approximately 20 percent to 25 percent of the value of that asset, that can provide cash liquidity to the distressed borrower, according to Wise.

However, Wise wouldn’t be surprised to see the firm’s business models morph multiple times over the next few years in what could be a long, slow recovery for the hospitality sector. “We’re still very early in this cycle. This is likely a three- to five-year drill,” says Wise. “Some of the exuberance that this was going to pass quickly is fading very fast.” Some states are still experiencing high levels of COVID-19 infection rates. In addition, more than 60 percent of corporations are telling employees they don’t have to come back to the office until summer 2021, and that is clearly going to slow down the rebound in business travel, he says.

BH Properties is a value-add investor that has seen a surge in opportunistic cycles dating back to the Resolution Trust Corp. (RTC) days. So, the current market is right in its wheelhouse. “We think there’s going to be a decent amount of loan sales coming forward as opposed to traditional foreclosure and asset sales,” says Andrew Van Tuyle, senior managing director, investments, at BH Properties, a family office based in Los Angeles. “We don’t think lenders are staffed appropriately to be able to take on the flood of assets coming their way. So, we wouldn’t be surprised if we ended up seeing a large market for loan dispositions and loan sales in the coming months.”

BH Properties hopes to attract opportunities to its doorstep by offering different platforms, such as a ground lease program, preferred equity and bridge lending. The company is also active in the bankruptcy world by providing debtor-in-possession financing, bidding on bankrupt assets and participating in 363 sales. “It’s important in today’s market to be able to play in as many different facets as you possibly can, because we don’t know exactly where these assets are going to pop up,” says Van Tuyle.
How patient is capital?

Another question facing opportunistic investors is when to move. Do they take advantage of COVID-19 pricing discounts available today, or do they wait for bigger discounts to emerge in the months ahead? Lenders have been happy to kick the can down the road and see what happens with a vaccine or additional government stimulus, because they don’t want to take back properties and the operating costs that come with them.

“We’re finding it extremely important to be patient during these times, because we just don’t know what’s going to be around the corner,” says Van Tuyle. Because of the moratorium on evictions and foreclosures for the past several months, there hasn’t been a lot of the forced distress that was the case in the last recession. “That will likely be coming in 2021, depending on what the political climate and rescue packages look like, but we’re preparing to make this a longer haul focus,” he says.

One example of a property BH Properties bought in August is a former Gander Mountain in Corsicana, Texas in the greater Dallas metro. “It was starved for capital as it needed some capital improvements. At the same time, we see multiple exits there,” says Van Tuyle. The building measures roughly 87,000 sq. ft., with high ceilings and a large parking field. Potentially, it could be adapted for industrial use or another retail use, and that optionality of having more than one path to stability is key in this market to increase your chances of success, he says.

The source of capital and the structure behind the investment strategy does influence how patient an investment group is willing to be to pursue stressed or distressed debt and equity investments. Having a multi-dimensional approach, whether that is across sectors or across different markets in a region or globally, helps to provide the right level of patience and flexibility, says McNamara.

CBRE Global Investors generally takes the approach of deploying capital prudently while bringing down risk to the return. “You don’t want to be in a position of catching a falling knife,” says McNamara. “However, if there is an ability to access high quality, better located assets at some reasonable discount and bring down the overall risk to your return, that is more of a focus area than waiting for bigger discounts to evolve when there is still so much uncertainty on how things are going to unfold.”

Source: National Real Estate Investor
Family Offices Weigh Options for Optimizing CRE Allocations
A virtual event last week brought together ultra-high-net-worth individuals, family office staff/members and investors to discuss commercial real estate trends.

Family offices have long viewed commercial real estate as an attractive asset class. Some invest in real estate as part of a diversification strategy. Others focus on it as a core discipline.

Regardless, of where it fits in their portfolios, these investors are actively assessing how COVID-19 is transforming the real estate sector, what markets are the most attractive globally and how they should deploy their capital going forward.

These were some of the themes touched on during a virtual event last week that brought together ultra-high-net-worth individuals (HNWIs), family office staff/members and investors. The event was hosted by Respada, a global investor-led platform supporting those types of investors.

“One challenge we have is looking at the current crisis through the lens of the financial crisis,” said Timothy Savage, a professor of real estate at NYU's Schack Institute of Real Estate. “I don’t think that is the correct way to look at the current crisis, because it’s not a financial crisis. It’s a natural disaster that has impacted human capital without necessarily impacting physical capital.”

Savage was one of four real estate specialists that presented to the HNWI audience.

Some of the notable differences in the current crisis is that there is a great deal of liquidity in the market, interest rates remain low, and unlike the past recession, oversupply is not a major issue. That liquidity is encouraging as it could lend itself to a speedier recovery for commercial real estate, added Romel Cañete, vice chairman of Newmark.

“On the buy side, you still have a lot of money chasing deals, although there is certainly a shifting of focus either from a perspective of asset class or geography,” Cañete said during the event. For example, New York City is not the darling for global investors that it was prior to COVID-19. In addition to the pandemic, there is a quality of life issue and behavioral change that has pushed New Yorkers to live outside of the city. “That changes the dynamics of the investment and of the community as well,” he says.
On the sell side, owners are looking to either defensively shore up cash reserves to weather the downturn, or proactively generate more dry powder for potential buying opportunities ahead. However, pricing discovery remains a significant impediment to investment sales activity globally.

As discretionary investors look to rebalance portfolio allocations to real estate, they continue to struggle with the challenge of underwriting and valuing assets. Panelists suggested sticking to the basics of valuation, including the original mantra of commercial real estate—location, location, location, noted Savage. Investors also need to be taking advantage of the technology and data science available today, he advises. Predictive algorithms can help to identify those areas that will outperform in rents and where vacancies might be lower than expected, he adds.

In addition to location, timing on both the acquisition and the exit are important aspects to being able to generate alpha returns, added Erez Cohen, co-founder and co-CEO of Urbiam Property Group, a real estate development firm based in Mexico City. In addition to his more than 15 years working in commercial real estate investment and development, Cohen is the author of the book Real Estate Titans: 7 Key Lessons from the World’s Top Investors.

Industrial is clearly the favored asset class today. There is a lot of capital crowding into that sector globally, which is creating cap rate compression. “If I was part of the decision making for a family office right now, I would say don’t pursue what everyone else is pursuing. I think there is a lot of really interesting pockets within real estate,” says Cohen.

For example, retail is still very compelling for assets that can offer the hyper convenience or service model that will do well, especially if it can be acquired at 40 percent of replacement cost. There also are many REITs all over the world that remain significantly under-priced, adds Cohen, “In general, I am very optimistic, and I think it is a really great time to be investing right now,” he says.

Transaction volume has dropped sharply and remains subdued amid pricing uncertainty. According to CBRE, third quarter investment sales were down 59 percent year-over-year in the Americas, down 37 percent in the EMEA and down 27 percent in Asia Pacific. However, even as transaction volume has dropped, cap rates on stabilized assets have not moved significantly, notes Savage. The main reason for that is the decline in long-term interest rates. For example, the 10-year Treasury is hovering at about 80 basis points. Those low interest rates have essentially absorbed the negative impact on cap rates, he adds.

“In Latin America, we’re definitely seeing a huge decrease in transactions occurring, and it is very hard to find that price discovery,” agreed Cohen.

Will COVID-19 spur long-term shifts?

Another challenge for investors is weighing potential long-term effects of the virus that could impact demand for space. COVID-19 has further accelerated growth in e-commerce, which is benefitting industrial and reducing demand for brick-and-mortar retail space. However, it remains to be seen how remote working and hybrid models could influence the demand for office space in the future. Social distancing and remote working will likely continue well into 2021 until a vaccine is more widely available to the public. Panelists agreed that it is less clear how the pandemic is likely to change the demand for office space in 2022 and beyond.

Trends are not going to be the same in all global markets. For example, work-from-home scenarios were challenging in Hong Kong where the average family lives in a 500-sq.-ft. to 600-sq.-ft. home. In the U.S., it is too early to tell whether the need for more space to accommodate social distancing is a temporary reaction to COVID-19, or whether it will be a behavioral change that ends up shifting the entire paradigm of office use, notes Cañete. In light of that uncertainty, large office users are kicking the can down the road and signing shorter term lease renewals of between two and five years. That is very atypical for New York City tenants where more than 100,000-sq.-ft. tenants typically renew for 10 years or longer, he says.
Savage does not expect work-from-home to be permanent or have a long-term impact on urbanization trends and the important economic role that cities play. In the US., 40 percent of the population lives on 2 percent of the land, noted Savage. However, there could be some impact on lease term structures. There was already some move to shorter term office leases before the pandemic as some space users sought greater flexibility to account for co-working and other workplace trends. “I think one of the more permanent changes in this situation is to punch through that mindset of a 10-year lease, at least in the U.S.,” he said.

Source: National Real Estate Investor
Target CEO Brian Cornell says retailer is benefiting from its ‘one-stop solution’ advantage
·        On CNBC’s “Squawk Box” Wednesday, Target CEO Brian Cornell said its many merchandise categories and brands have caught the eye of customers and fueled its third-quarter earnings.
·        Its diverse merchandise, from groceries to apparel, has taken on additional importance as shoppers limit trips during the coronavirus pandemic, Cornell said.
·        “We’re seeing many families coming to us to pick up a new Barbie or something for their kids — a Lego item,” he said. “But while they’re there, they’re shopping for Microsoft items or Apple.”

Target CEO Brian Cornell said customers may come to its store with a short shopping list or a particular item in mind, but they’re filling up their baskets and leaving with many purchases.

We’re seeing a guest who’s shopping all of our categories, taking advantage of our one-stop solution,” Cornell said in an interview on CNBC’s “Squawk Box” Wednesday. Earlier, the retailer reported third-quarter earnings that solidly outpaced analyst’ estimates.

Target’s diverse assortment has taken on additional importance as shoppers limit trips during the coronavirus pandemic, Cornell said.

“We’re seeing many families coming to us to pick up a new Barbie or something for their kids — a Lego item,” he said. “But while they’re there, they’re shopping for Microsoft items or Apple. Even during the pandemic, children are outgrowing their clothes, so guests are coming to us for Cat & Jack, but while they’re there they’ve discovered that we have Levi’s Red Tab available for them and their families. They’re also visiting food and beverage and discovering our Good & Gather brand.”

In the third quarter, Target said sales online and at stores open at least a year rose 20.7% from a year earlier. Comparable digital sales grew by 155%, while same-store store sales climbed 9.9%.

Target has seen that shoppers are visiting more frequently and putting more in their baskets. Combined transactions in Target stores and on its website were up 4.5% year over year, while the average ticket grew 15.6% in the quarter.

So far this year, the company said it’s picked up $6 billion in market share, with $1 billion in share gains coming during the latest quarter.

Cornell would not name retailers that it’s taking market share from, but pointed to the company’s numbers saying they “compare very favorably to our peers.”

“It has been broad based,” he said. “We’re picking up share from our traditional competitors as well as specialty competitors.”

And, he said, Target’s recent deal with Ulta Beauty will entice customers to visit its stores and website more and spend more when they do. Next year, a smaller version of Ulta will open in over 100 Target stores with a curated mix of beauty items, from lip glosses to perfume. The beauty items will also be available online.

He said beauty “is a great category that combines style and frequency in our business.”
He added, “it’s just another way for us to elevate the experience and bring an iconic new partner into our Target stores and”

Source: CNBC
Korean Appetite for U.S. Commercial Real Estate Heats Up During Pandemic
South Korean investors are emerging as some of the most-aggressive buyers of U.S. commercial real estate during the Covid-19 period.

The East Asian country's pension funds, life insurers and other investors have been targeting warehouses and office buildings with long-term tenants. They are also drawn by ultralow U.S. interest rates, which make currency hedging cheaper.

South Korean investors swarmed some recent hot property sales. They accounted for nine of the 18 bids for a warehouse near Los Angeles that has been leased to Inc., according to Alex Foshay, head of international capital markets at real-estate services firm Newmark.

While Chinese investors have been pulling back from the U.S. in recent years due to local capital controls, and other foreign firms are shying away amid fears over the pandemic, South Korean interest has been rising. In the first nine months of the year, Korean investors accounted for 8.6% of all overseas investment in U.S. commercial real estate, up from 3.7% a year earlier, according to Real Capital Analytics.

South Koreans invested $1.56 billion, up from $1.24 billion a year earlier, during that time, trailing only Canadian and German investors. A year ago, South Koreans ranked 10th among foreign investors in U.S. real estate, according to Real Capital Analytics.

"Korean investors feel right now that they have a window of opportunity where there is not the usual level of competition in the U.S. market," Mr. Foshay said.

The South Korean investment firm Soulbrain Holdings Co. Ltd. last month bought three office buildings in San Jose, Calif., for $160 million. Mr. Foshay said his company has been marketing an office tower in Seattle at a price of more than $600 million. Four of the 12 bids for the tower, which is leased to Amazon for 10 years, came from South Korea.

"The Korean bids were the highest and they drove pricing," he said, though he declined to say who the winner was.

Unlike many European or U.S. investors, Korean firms are also buying offices in smaller cities or in the suburbs, said Jeff Friedman, co-founder and principal of Mesa West Capital. These properties are seen as less impacted by the pandemic, attorneys say. Seoul-based Asia Investment Management Inc., for one, bought an office building in Ridgefield Park, N.J., for an undisclosed amount in October, according to the seller.

A big reason why Korean investors are flocking to the U.S. is the Federal Reserve. When foreign firms invest in the U.S., they generally hedge against currency fluctuations. The cost of these hedging products depends on the difference between short-term interest rates in the U.S. and the home country, Mr. Foshay said.

Two years ago, the annual cost of hedging the Korean won against the dollar was around 2% of the amount invested, Mr. Foshay said. That made it hard for South Korean firms to compete for properties with U.S. investors, who don't have to hedge against currency fluctuations and could often afford to bid higher. Today, Mr. Foshay said, hedging costs are down to around 0.1% after recent Fed rate cuts.
Meanwhile, it is increasingly difficult to make money on new investments in South Korea, said Ann Seung-Eun Lee, a counsel in law firm Goodwin Procter LLP's real-estate industry group. "There's a lot of pressure on these asset managers to go find the returns overseas," she said.

Source: Wall St. Journal
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