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12 Must Reads for Real Estate Investors to End the Week (July 21, 2023)

Fewer commercial real estate borrowers are seeking traditional refinancing, reported The Business Journals. Prologis CEO predicted a more normal period for the industrial sector after outsized growth over the past few years, according to Bisnow. These are among today’s must reads from around the commercial real estate industry.

  1. Fewer CRE Loans Being Refinanced as Lenders, Owners Seek Other Options “Higher interest rates, increased office vacancy and a weaker leasing environment are reshaping how building owners and lenders are assessing commercial real estate loans coming due soon.” (The Business Journals)
  2. Construction Spending Booms Across the Board “Nonresidential construction spending is expected to increase by 20 percent this year—a rate not seen since before the Great Recession—with slower gains predicted for 2024, according to a new forecast from the American Institute of Architects. Industrial construction is leading the gains this year, with spending expected to be up 55.1 percent over last year. While that sector is still projected to be the leader next year, the economic forecasters are expecting the increase to be about 5.4 percent in 2024.” (Commercial Property Executive)
  3. Goldman Profit Tumbles on Real Estate Hits, Dealmaking Slump “Goldman Sachs Group Inc.’s profit plunged as the Wall Street giant notched one of its weakest quarters under Chief Executive Officer David Solomon. Second-quarter earnings fell 58% on an investment-banking slump, real estate markdowns and a goodwill writedown in the consumer business, which houses the GreenSky lending business. Return on equity, a key measure of profitability, slid to 4% — the worst among the top US banks.” (Bloomberg)
  4. Blackstone Wins Private Equity’s Race to $1 Trillion “Private-equity giant Blackstone became the first among its peers to reach $1 trillion in assets under management. The New York firm, which set a goal in 2018 of crossing the $1 trillion mark by 2026, got there early thanks to a concerted push into lower-risk, lower-return strategies, such as insurance, infrastructure, credit and certain types of real estate. The areas have big growth potential and feature pools of money that don’t need to be replenished constantly. Blackstone said its assets climbed to $1 trillion in the second quarter from $991.3 billion at the end of the first quarter and $940.8 billion a year earlier.” (The Wall Street Journal)
  5. Offices Overtake Malls as Most Distressed Real Estate “The office tower has overtaken retail and hotels in the ranking of distressed real-estate assets.” (Curbed)
  6. Big Retailers, Back from the Brink, Are Opening Brick-and-Mortar Stores Again “As shoppers flocked to e-commerce during the pandemic, many big-box retailers consolidated their real estate footprint, leading to fears of a superstore apocalypse.These stores anchored shopping centers across the country and became household names — although after closures, shoppers and experts expected that they might not be for  long. Now, some major chains are re-evaluating whether all that mass shuttering was the right move after all and are attempting to reburnish their names by reopening physical locations.” (The Messenger)
  7. Prologis CEO Moghadam: Industrial Is Returning to Normal After ‘Ridiculous’ Few Years “After three years of historic activity, the industrial market nationwide is getting back to a pre-pandemic normal, according to Prologis CEO Hamid Moghadam, speaking on his company's Q2 earnings call Tuesday. Prologis continues to ride the wave of a strong, if more normal, industrial market, clocking $1.65B in rental revenues in the quarter, up from 51% one year ago. Total revenues shot up as well, to $2.45B in the company's portfolio, which is 97.5% occupied. Moghadam attributes the company's success to its planning based on more normal market conditions.” (Bisnow)
  8. Best Place for AI Jobs (New Report Says) Won’t Surprise You “The San Francisco Bay Area has ruled the technology industry for decades, from the early days of personal computers to the social media boom. Now a new study from the Brookings Institution suggests that the rise of generative artificial intelligence, fueled by the popularity of the ChatGPT chatbot, could further solidify the Bay Area’s hold on tech. The report, which the Washington think tank released on Thursday, said generative A.I. could magnify a ‘winner take most’ geography for jobs. And the winners, so far, are San Francisco and San Jose, Calif.” (The New York Times)
  9. How a Once Unpaved Stretch of Highway Became One of Florida’s Hottest Rental Markets “Located on the Emerald Coast, between Pensacola and Panama City, the area’s popularity has skyrocketed since the pandemic, according to local real-estate agent Jonathan Spears of Spears Group. While wealthy Southerners have flocked to vacation on the Emerald Coast for decades—earning 30A the nickname “the Hamptons of the South”—the area has seen a recent influx of renters coming from further North as well, according to Spears, which has increased prices in recent years. As of July 17, the average daily rental rate in the 30A area for this summer season is $753, up 42% from $530 during the same period of time in 2019, according to travel data company Key Data Dashboard.” (The Wall Street Journal)
  10. Crash? What Crash? Why Commercial Real Estate Hasn’t Gone Bust… Yet “The commercial real estate market was headed for a nosedive. It seemed so obvious. Landlords had been struggling to fill buildings left vacant after Covid-19 forced remote work. Some commercial builders who had taken out loans to finance projects ‘were just walking away, giving it back to the lender,’ recalls Quincy Krosby, chief global strategist for LPL Financial. The Federal Reserve’s inflation-fighting rate hikes, beginning in March 2022, boosted the cost of loans. Office space hit a record-high vacancy rate of 12.9% in the first quarter of 2023, up from 12% a year earlier, according to the National Association of Realtors (NAR).” (Forbes)
  11. Why Farmland Investment Has Become the Talk of the Real Estate Community “Let’s rewind to 2021. It was an era of easy money, and the U.S. real estate market attracted $57.7 billion in international capital, a 49% year-over-year increase, a significant share of the $69 billion in total inflows. It marked one of the most prosperous periods of foreign investment in decades. Fast forward to 2023, and we have a considerably different environment, rife with inflation and higher interest rates. Yet many segments of U.S. real estate maintain their appeal to investors despite the headwinds. The U.S.'s political stability, steady growth and comparable affordability offer a haven for investors, especially foreign investors facing more severe home-country risks ranging from political to geopolitical to economic and even asset confiscation.” (South Florida Business Journal)
  12. Remote-Working Parents with Young Kids Are Fleeing Cities to Get More Bang for Their Buck “A new report from the Economic Innovation Group, or EIG, found that families with young kids are shunning big cities. The population under 5 years old in large urban counties, or ‘counties which intersect with an urban area of at least 250,000 people’ as the report states, has fallen by 6.1% from April 2020 to July 2022, according to EIG's analysis of Census data. That's far more pronounced than the 3.3% decline in the number of young children seen nationally.” (The Insider)
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