Sunday Summary: Amazon Takes Over the World. For Real.
Plus: Kathy Hochul reigns supreme and institutional investors gobble homes
There is approximately 408 million square feet of office space in New York City. It’s a huge figure. It’s nearly an impossible number to wrap the normal mind around. And it’s not nearly as much space as a single company occupies of data, warehouse and fulfillment space around the globe.
Yes, we’re talking about Amazon. (It occupies 570 million square feet globally, and 370 million square feet in North America.)
The company is without question the single, most important occupant in America’s warehouse category, which has undergone the most profound of changes in the last few years.
So … what happens to all those industrial and warehouse owners when Amazon decides that it doesn’t want to rent all that space? What if it decides it’s better to own?
That was the question at the heart of Commercial Observer’s cover story this week. Because the company seems to be taking steps in that direction. It doubled the amount of data and fulfillment centers it owned last year. And for a company with a market cap of $1.57 trillion (yes, that will always look funny to us too) the decision to buy rather than to rent is not much more consequential to them than putting a nickel into a gumball machine. The reverberations for others, however, will be profound.
The Amazon story was the centerpiece of our industrial and data centers issue this week in which we spoke to David Messner, Costco’s real estate guru, who broke down the retailer’s real estate strategy. (Ever hear of the 18-acre rule? Neither did we before we spoke to Messner.) We examined the growth in recent years of industrial outdoor storage. And we looked at the environmental problems posed by the growing number of data centers.
NY luvs the guv
If you had asked us about a year ago, we would have said that Andrew Cuomo’s position as governor was as invulnerable as the U.S. Capitol building. Wait …
In any event, one of the real surprises since Cuomo resigned last summer is just how popular his successor, Gov. Kathy Hochul, is proving to be. Not only is she utterly dominating the field of potential Democrats in terms of polling for this year’s primary, she has been picking up huge amounts of real estate dollars from everybody from Steve Roth to Rob Speyer to Bill Rudin. (She’s also been cleaning up with non-real estate sources.)
“I don’t think Gov. Hochul would ever say this, but to some degree, she benefited from the fact that Gov. Cuomo marginalized her and she was not very active nor seemed to be active with the Cuomo administration,” political consultant Dan Gerstein told Commercial Observer. “It’s this really unusual circumstance — which I don’t think you could find a close parallel in modern politics — where the running mate or the lieutenant governor of someone who was embroiled in a terrible scandal completely got off scot-free [and] has suffered no political damage from it.”
Of course, one never knows. The big unknown (as it relates to real estate) probably comes from the challenge to New York’s rent regulation laws that the U.S. Second Circuit is hearing. But even if something unexpected happens it probably won’t affect Hochul’s chances much.
They shoot, they score!
Extra, extra! Conferences are no longer a thing of the past!
For example, this week bankers assembled together in Southern California at the Mortgage Bankers Association CREF conference in San Diego, where those who came out got a serious treat: Magic Johnson, who delivered the keynote where he pushed for more commercial investment in minority communities.
One would almost think one was back in the halcyon days of 2019; there were parties on boats and industry celebrities. (No one can compare with Magic, but nonetheless impressive figures.) See our coverage of the conference here, here, here and here.
Billion-dollar deals (and other big ones)
This week we learned something more than a little startling: One in five homes sold in the U.S. in the last quarter of 2021 went to an institutional buyer.
Well, it shouldn’t exactly come as a shock given the activity lately. Blackstone dropped $5.8 billion to buy multifamily owner Preferred Apartment Communities. Plus, the single-family rental market continues to boom, a trend we got on to a while ago.
Out in L.A., New York startup Emcee took over the 1.1 million-square-foot Broadway Trade Center with hopes of converting it into a tech hub, complete with metaverse something or another. The hulking building had been asking $425 million.
And, down in the Miami area, Honolulu-based Trinity Investments closed in on buying the massive Diplomat Beach Resort in Hollywood. The price? Expected to be around $850 million.
Finally, while not quite as large as these others, a $300 million trade of the 70 Hudson office building in Jersey City, N.J., was nothing to sneeze at. Speaking of Northern Jersey and deals, Taconic partners landed $42.4 million of acquisition financing for a warehouse and distribution facility in Morristown.
(Oh, and, speaking of warehouses, co-warehousing startup Saltbox has expanded into the D.C. area with a 45,407-square-foot lease. Moreover, Tyler Scriven, co-founder of Saltbox, shares his thoughts on the burgeoning sector.)
It can’t be all wine and roses
The week of Valentine’s Day brought some sobering news too (what week doesn’t nowadays?). A new report from Savills showed a steep drop in law firm leasing activity in Manhattan, the capital of Big Law in America.
And data that CO crunched shows a lot of new office space spilling into that Manhattan office market in the next few years, when it might still be hard enough just to keep the current volume close to full. Plus, a lot of leases are expiring during the same years, though that might not be cause for as much alarm.
Hasta la vista, Abey
While you contemplate you might feel the rumblings of your tummy. Well, order that 15-minute delivery while you can. The business model might be in more trouble than most people think.
See you next Sunday!