Sunday Summary: California Dreaming

The Fed was pausing hikes of its benchmark short-term interest rate again. This will leave the Federal Funds Rate at between 5.25 percent and 5.5 percent.

“Given how far we’ve come, along with the uncertainties and risks we face, the committee is proceeding carefully,” Fed chairman Jerome Powell said in announcing the move — or rather, the non-move.

This was very welcome news to a real estate industry that has desperately craved stability and can’t take much more in terms of the cost of borrowing. Because, while most folks certainly put on a brave face at ULI (and there were measured pockets of optimism) figuring out what to do about the oversupply of office stock and the undersupply of housing was one of the big issues at the conference.

“It’s no secret cities are going through a challenge,” said Laura Hines-Pierce of Hines at ULI’s general session at around the time Powell was making his announcement. “But we were oversupplied before the pandemic. The shock of the pandemic and the rise of interest rates made it so that oversupply was not allowed to correct naturally. But 10 to 30 percent of the office market is facing true obsolescence.” 

This is certainly true — nevertheless, we were still grinning from ear to ear about the Powell announcement. (Moreover, we got another little lift from VTS, which said that, despite all the factors going against it, demand for Los Angeles office space saw an impressive spike in September, even if the news from L.A. is sort of an outlier.)

Of course, a number of other issues came up at ULI, including things like decarbonization and adaptive reuse. (ULI’s L.A. Executive Director Marty Borko and its Chief Initiatives Officer Billy Grayson were nice enough to expound on some of this.) And we learned that New York, Los Angeles and even Miami were not the big investment hubs that they’ve been in the past: It’s all about secondary markets and the Sun Belt, apparently. So, Nashville is not just about the Grand Ole Opry.

A few miles away in Beverly Hills at the SLS Hotel, a lot of the same issues were being discussed in a less crowded, more luxe venue at Commercial Observer’s West Coast investment forum. Make no mistake, though: While the setting might have been plusher than a convention center, there was plenty of sobriety in the air there, too.

Speakers gave voice to their frustrations over Measure ULA, the 5 percent transfer tax on real estate deals worth at least $10 million, which has raised a disappointing amount of tax revenue and sent a chill through the sales market.

“Nobody wants to build here,” said Michael Regan of CIM Group. “ULA knocks off a bunch of your profit. Supply will be muted on a go-forward basis.” 

The conversation grew sunnier when talking about industrial real estate (although that, too, might be coming down to earth … but, hey — did you hear that Rexford just closed $245 million in two industrial deals? And that’s not even just in SoCal; Prologis is gearing up for more big things in Washington, D.C.) and the Los Angeles Rams. (Kevin Demoff, the COO of the NFL franchise, had the closing fireside chat.)

Deals, deals, deals

There were leases in New York — lots of ’em. (You’re not having all the fun, California!)

Weill Cornell renewed its massive footprint at 575 Lexington Avenue and added another 100,000 square feet just for the heck of it (bringing its total in the building up to 300,000 square feet).

But there were also accounting firm leases (NCheng), nonprofit leases (Lifespire), title insurance leases (Kensington Vanguard), and telehealth startup leases (Ro — and, if you don’t know what telehealth is, it’s an industry that can support a 35,000-square-foot lease in prime Manhattan, buster).

In point of fact, maybe that “secondary markets” stuff at ULI is a bunch of hooey. According to a Colliers’ report, Manhattan leasing ticked up 58 percent in October. (Don’t adjust your eyes. Fifty-eight is correct.)

Now, this is mostly because of four deals that broke the 100K-SF mark: New York City Administration for Children’s Services at 150 William Street (530,000), Ralph Lauren at 601 West 26th Street (256,000), LinkedIn at the Empire State Building (144,000), and the previously mentioned Weill Cornell at 575 Lexington Avenue — but this is how markets change.

And, while nobody is rushing to the bank based on Powell’s tepid we’re-not-doing-anything-yet posture, we saw some financings as well.

Bank OZK (OZK) and PGIM shelled out $75.9 million to FreezPak Logistics and BG Capital to construct a 282,000-square-foot cold-storage facility outside Houston.

Speaking of Bank OZK, it also loaned (along with Affinius Capital) $102 million to the Dallas-based Crow Holdings Capital to finish a 700,000-square-foot logistics facility in Pennsylvania.

And JPMorgan Chase (JPM) loaned The Related Companies and Panepinto Properties $58 million to purchase a 750-unit residential property in Jersey City.

Not a great week for some

If you were a Blackstone investor looking to cash out and buy that chalet for the winter … well, you might not have received your money. At least not yet.

Investors in Blackstone’s real estate investment trust (BREIT) requested some $2.2 billion in withdrawals from one of their funds but received only $1.3 billion, according to a letter to investors.

Likewise, if you were at Cushman & Wakefield (CWK) you would have no doubt been pretty PO’d that Brookfield (BN), one of the largest landlords in the world, gave you the heave ho last week. (C&W’s rival, Newmark, is also apparently poaching brokers.)

And you would have been really steamed if you were one of the 14 landlords being sued by the Washington, D.C., attorney general for allegedly colluding to raise rents using Yieldstar software.

Finally, if you were an attorney at the legendary law firm Stroock, Stroock & Lavan, well, you’re going to be working somewhere else pretty soon.

Sunday reading

Forget about all those bad things. Why not read, instead, something positive. Like about, say, Miami Worldcenter.

CO sat down with Florida developers Dev and Nitin Motwani to hear their story. It’s got some pretty big highs, and any story that’s centered around someone developing a $6 billion parcel of real estate should appeal to this crowd.

See you next week!