OFFICE

• The Charlotte market has a high office delinquency rate, significantly above the national average.
• Property devaluations are exemplified by 1407 Broadway in NYC and the SOHO portfolio, both experiencing substantial cuts in appraised value.
• Contrasting trends are seen in Trepp's sector-specific property price indices, with Office prices up 1.33% in the last quarter.
• Impacts from COVID-19 are still being felt as employees hold fast to working from home.
• Commercial property owners are facing major challenges in refinancing their maturing CMBS loans. Problems will plague the Office sector for the foreseeable future.
• Certain SASB office loans are in deep distress and for the first time in memory, a AAA bond got shorted after the Special Servicer sold the asset. It's a difficult time for Servicers to decide: hold on to the properties as REO and play the waiting game or take the hit sooner rather than later. On that front, the Houston Office sector has taken a beating as average losses at disposition have regularly exceeded 60%.

RETAIL

• Retail sales in the U.S. showed minimal growth in May, with 5 out of 13 categories experiencing declines, reflecting cautious consumer spending amid higher interest rates.
• Despite high foot traffic, retail sales are lagging, particularly in high-end areas like NYC’s 5th Avenue, where store hours have been limited.
• The concept of anchors in retail centers is largely differentiated these days by the range of price per square foot numbers reported by retail properties. Grocery anchors, like H-E-B in Texas, Food Lion in the Southeast, and Whole Foods in Massachusetts continue to enhance a shopping center's viability. On the other hand, store reductions and closures in the drugstore space (CVS and Walgreens) and the larger department stores (Macy's and Neiman Marcus) have created an issue for neighboring retail stores that had previously relied on foot traffic from these "Shadow Anchors."
• Retail faces challenges with rising CMBS loan delinquencies, exemplified by Macerich Co.'s $300 million mall foreclosure. Regional economic disparities are evident as West Coast malls outperform East Coast counterparts despite higher expenses. Significant market events include SMS Assist's planned departure from Prudential Plaza and WeWork's Hollywood location in special servicing since April 2021.

RESIDENTIAL

• Rising Treasury yields have led to a decline in residential sales and increased foreclosures. There will be a significant drop in residential sales activity if interest rates reach 8%.
• In New York City, approved rent hikes for one million stabilized apartments will take effect in fall 2024, sparking dissatisfaction among tenants and landlords. Tenants already allocate 30% of their income to rent, and the high demand for affordable housing continues.
• The apartment market sees a supply-demand imbalance with more units delivered than absorbed for nine quarters. Rising construction costs and expensive financing have cut new starts by nearly 40%. However, landlords may regain pricing power as supply shrinks.
• Notable transactions include Goldman Sachs funding $120 million for TZ Capital’s $180 million purchase at 680 Madison Ave, Manhattan, MLG Capital's $48 million purchase in Illinois, and KKR's $2.1B purchase of a 5,200 unit national portfolio.
• Inflation-driven excess demand for affordable housing has pushed non-homeowners into renting, allowing property owners to raise rents and maintain high occupancy rates. Debt yield analysis of the Sunbelt multifamily market shows significant allocated balances in the 6-9% range.

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