OFFICE

• The office sector faces rising capitalization rates, which stand at 7.67% as of Q2 2024, marking the ninth consecutive quarter of increases, due partially to higher interest rates and economic uncertainty.
• Construction spending on data centers nationwide increased during the 12 months through May by 68.97% to a seasonally adjusted annual rate of $27.2 billion, according to the US Census Bureau. To put that into perspective, construction spending for office space decreased during the same period by 1.7% to a seasonally adjusted annual rate of $82.37 billion. Despite the increase in construction, demand for data center space continues to outpace delivery.
• One Bryant Park (NYC), a prominent 2.36 million sf property owned by the Durst Organization, currently pays the Empire State Development Corp a substantial ground lease of $53.24 million annually. The lease is set to increase to $57.63 million by 2028 upon expiration. After the Payment in Lieu of Taxes (PILOT) agreement expires, One Bryant Park could face roughly $6 million more in tax liabilities. Whatever the outcome, the building generates sufficient cash flow to fully service its interest-only senior loan obligations. 
• Similarly, The New York Times Building (620 8th Avenue, New York City) could be looking at $7.6 million more in taxes once its PILOT agreement ends. In 2023, it had 98% occupancy with $43.27 million net cash flow generated.

RETAIL

• The retail market faces significant space constraints, with vacancy rates at a 20-year low of 5.3% in Q2 2024 and a net absorption of 1.4 million square feet of retail space. Minimal retail construction exacerbates the space crunch, with only 11.3 million sf currently under construction. 
• Despite slower consumer spending growth, real personal consumption increased by 2.4% year-over-year. Credit card usage and delinquencies are rising, however, with a personal saving rate averaging 3.7%, future spending decreases are anticipated. 
• Future headwinds for retail include a sharp decline in demand for space with a 91% drop in the first half of 2024 vs 2023, and absorption figures that have significantly decreased since 2022. Regional trends show the South leading in absorption, while the West experiences negative absorption.
• HBC's $2.65 billion acquisition of Neiman Marcus creates a robust luxury retail entity, Saks Global. The merger includes a $7 billion real estate portfolio, focusing on premium locations. Loans linked to Saks and Neiman Marcus properties show strong performance, with no delinquencies and low LTV ratios, highlighting the stability of high-end retail assets. The consolidation strengthens high-end retail locations, impacting regional retail landscapes and attracting investor interest.

INDUSTRIAL

• JPMorgan Chase, Bank of Montreal, and Wells Fargo are teaming up to originate a $638 million CMBS loan for EQT Exeter, which acquired a portfolio of 39 industrial properties across multiple states for approximately $987 million. 
• EQT Exeter’s property portfolio includes 23 bulk warehouses and 16 light-industrial properties. The loan, facilitated by Eastdil Secured, is structured as a five-year, fixed-rate mortgage and is expected to be securitized through a single-borrower CMBS offering named EQT 2024-EXTR. Part of the loan proceeds will be used to retire subscription lines used in the property acquisitions.
• Overseeing a diverse $40 billion asset portfolio, EQT Exeter's holdings span industrial, residential, and office/life-science properties globally. As most of our readers know, the industrial sector has been performing very well as of late, epitomized by this monster deal. 

RESIDENTIAL

• Apartment demand surged in 2Q 2024 with significant absorption. Total units in the first half of the year reached 257,000. Over 500,000 new market-rate units were constructed in the past year—with the Southern region absorbing 60% of the nation's total absorbed units, exceeding its 42% share of the total supply
• The ongoing boom in supply is expected to rein in rent hikes throughout 2024, particularly for the mid-market. The same may not be said for coastal luxury high-rises.
• Delinquency rates for securitized multifamily loans have risen by 0.73% since May, attributable to a few outliers. A $1.5 billion loan for the Parkmerced apartment complex in San Francisco is struggling with insufficient cash flow, and a $225 million loan for the Parkhill City apartments in Queens, NY is hindered by untenable interest rate extensions. 
• Despite these challenges, Fannie Mae and Freddie Mac show resilience, holding a combined $919.9 billion in multifamily loans with delinquency rates of 0.44% and 0.34%, respectively. Student housing of all distances (per the 175 core universities tracked by RealPage) saw year-over-year rent growth, demonstrating strong demand in the multifamily sector.