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Nine Must Reads for CRE Investors Today (March 8, 2023)

Real Insights forecasts some challenges for commercial real estate investors in 2023. Realty Income agreed to buy a portfolio of more than 400 convenience stores across the U.S. in a sale-leaseback transaction, reports Commercial Property Executive. These are among today’s must reads from around the commercial real estate industry.

  1. Challenging Year Ahead for Real Estate Investments, But the Outlook Is Improving Across Certain Regions “The world economy has faced a very challenging 2022 with numerous headwinds such as rising inflation rising, climbing interest rates climbing, and slowing growth. Countries such as Australia have been struggling to keep the high inflation rates and are likely to have to bear more interest rate hikes in order to tame inflation rates. Real estate prices have adjusted in some markets in 2022 and this repricing is likely to continue into early 2023. Japan has outperformed the rest of APAC in terms of investment deal volume in Q4 2022, with the world's biggest single-asset deal of 2022 seen in the sale of Tokyo’s Otemachi Place East Tower for $3.2 billion.” (Real Insights)
  2. Rising Interest Rate Cap Costs Pressure CRE Borrowers “Soaring costs for protections against rising interest rates are further pressuring commercial real estate property owners saddled with floating-rate debt. Property owners who purchased interest rate caps before the Federal Reserve began sharply raising interest rates from near zero last year are feeling particular pressure. That’s because these caps  are set to expire soon, just as the cost of these hedges surges.” (Commercial Observer)
  3. Dodge Momentum Index Gets a Boost in February “The Dodge Momentum Index (DMI), issued by Dodge Construction Network, advanced 1.9% in February to 203.0 (2000=100) from the revised January reading of 199.3. In February, the commercial component of the DMI rose 1.4%, and the institutional component increased 2.9%. ‘The Dodge Momentum Index returned to growth in February after falling 9% last month,’ stated Sarah Martin, associate director of forecasting for Dodge Construction Network. ‘The continued elevation in the DMI should provide hope that construction activity will grow in 2024. Owners and developers tend to put projects into planning until well after economic conditions weaken. During the Great Recession, for example, the DMI did not substantially decline until 2009.’” (Dodge Data & Analytics)
  4. Realty Income to Acquire $1.5B Convenience Store Portfolio “Realty Income Corp. has agreed to acquire a portfolio of as many as 415 single-tenant convenience store properties in the U.S. under a sale-leaseback with EG Group, an independent convenience retailer based in the U.K. The deal is valued at approximately $1.5 billion and is expected to close in the second quarter, subject to customary closing conditions. The estimated cap rate is approximately 6.9 percent, with the portfolio having a 20-year weighted average initial lease term.” (Commercial Property Executive)
  5. Landlords Challenge LA’s Newest Renter Protections “Multifamily landlords in Los Angeles are fighting back against a recently approved set of eviction and rent protections for tenants throughout the city. The Apartment Association of Greater L.A. (AAGLA) filed a lawsuit against the city to overturn and stop enforcement of the new ordinances that make it more difficult to remove tenants as well as penalize landlords for raising rent.” (Commercial Observer)
  6. Awash in Asphalt, Cities Rethink Their Parking Needs “Spying an empty spot in a parking lot, a driver flicks on the turn signal and steers the car into the space. This little maneuver happens so often across the country that it’s done almost without a second thought. But now, the humble parking spot is suddenly a hot topic. Scrutinizing their parking regulations, cities across the nation are rolling back requirements for new development. The United States has about two billion parking spots, according to some estimates — nearly seven for every car.” (The New York Times)
  7. NY Rep Nydia Velasquez Takes Aim at Landlords Fueling U.S. Housing Crisis “Rep. Nydia Velázquez wants the federal government to crack down on landlords she says are exacerbating a nationwide affordable housing crisis. The Brooklyn Democrat is introducing legislation Tuesday that would amend the Fair Housing Act to ban discrimination against people with rental assistance vouchers and fine property owners $100,000 every month that they are found to “deliberately” leave an apartment empty, she told Gothamist.” (Gothamist)
  8. Budget Cuts in CRE Foretell More Layoffs Ahead “As decreases in property sales and leasing bite into their profitability, many commercial real estate brokerages are gearing up for a financial downturn. While a fluttering of optimism was felt during recent earnings calls from major industry players—analysts were repeatedly assured that once interest rates normalize and investors regain their confidence to resume making deals, activity will pick up in the second half of the year—the message that brokerages must keep their expenses to a minimum for a prolonged slowdown was heard loud and clear.” (Propmodo)
  9. The Affordable Senior Housing Project Is Aimed at the Middle Class “Construction workers in the Boston area broke ground Monday on one of the rare senior housing projects that is intended to be affordable for middle-class residents. The developer 2Life Communities plans to charge monthly rents as low as $1,800 at the $100 million development in Newton, Mass. Comparable independent living communities in the Boston region charge $4,200 a month, according to the National Investment Center for Seniors Housing & Care, or NIC, an industry organization.” (The Wall Street Journal)
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