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Seven Must Reads for CRE Investors Today (March 17, 2023)

Fallout from the collapses of Silicon Valley Bank and Signature Bank continued to impact banks, REIT stocks and commercial landlords. Five Below plans to open 200 new stores, reported Chain Store Age. These are among today’s must reads from around the commercial real estate industry.

  1. Bank Crisis Adds a Fresh Crack in Property’s Foundations “The relationship between banking and real estate may be about to take a toxic turn. The collapse of Silicon Valley Bank and Signature Bank will likely ripple through the mortgage market to commercial landlords. Signature Bank was one of the top commercial real-estate lenders in the U.S., especially in New York, where it had a 12% market share, according to Matthew Anderson, managing director at Trepp. Alternative lenders such as specialist real-estate debt funds may step in to fill the hole, but they charge higher interest rates.” (The Wall Street Journal)
  2. REIT Values Tumble as Investors Fear Real Estate Fallout from Bank Failures “The FTSE NAREIT Equity Index, which tracks all U.S. equity REITs, has dropped about 4.6% over the last five days, outpacing the S&P 500's 3% dip over the same period. Investors have had their confidence particularly shaken in office REITs — the FTSE NAREIT Equity Office index dropped more than 12.5% over the five days ending Wednesday. Mortgage REITs are also suffering, down more than 10% during the same period.” (Bisnow)
  3. Landlords Race to Replace Tenant Guarantees from SVB “Letters of credit from Silicon Valley Bank are now ‘void,’ potentially making landlords unsecured creditors to the failed financial institution.” (The Real Deal)
  4. Where are Office Values? “Investors will make a lot of money in the office sector, but when and how, along with the bottom in pricing for office assets, is yet to be determined. Data sources are all over the board when trying to pinpoint office values. Nareit reported that office REITs posted the weakest returns of all asset classes in 2022, down some 38%. On the other end of the spectrum, MSCI and CoStar’s repeat sales indices show 2.9% and 3.5% gains, respectively. Private capital is slower to realize price declines, which is clear with NCREIF and PREA data. Pricing was down 7.4% and 6.6%, respectively in 2022, but the rate of decline is accelerating (and being realized in recent data). Green Street falls in between, declining 17% from pricing peaks.” (Colliers Knowledge Leader)
  5. Tech Turmoil Drives Manhattan Sublease Availability to 15-Year High “The amount of office space on the sublease market in Manhattan surpassed its pandemic-era peak last month and is higher than at any point since 2008, according to new Colliers data provided to Bisnow. Corporate belt-tightening — especially in the tech sector — has led many companies to see if they can recoup some real estate costs by finding a taker for excess space. Already this year, the Winklevoss twin's crypto firm, Gemini Trust Co., has put 51K SF of its office on Park Avenue South up for sublease, and this month, Roku started marketing a quarter of the 240K SF office deal it signed last year at 5 Times Square, Bisnow has learned.” (Bisnow)
  6. Fox Corp. to Add $1.5B of Soundstages, Offices to Studio Lot in L.A. “Plan calls for 1.6 million square feet of office space and nine soundstages at the historic Fox Studio Lot in Century City.” (Commercial Observer)
  7. Five Below 4Q Sales Up 12.7%; to Open 400 Stores, Convert 200 to New Format “Five Below is not backing down from its aggressive expansion even as it warns of the “uncertainty of the macroeconomic” environment. The tween and teen discount retailer plans to open a record 200 new stores and convert 400 existing locations to its new Five Beyond format, which contains an in-store shop featuring items priced about the chain’s signature $5.00 threshold.  On the company’s earnings call, executives noted that there hasn’t been any pushback to its higher-priced items.” (Chain Store Age)
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