Sunday Summary: First Quarter Reports Are Trickling In


Question: Does a $122 million loss in a single month count as a victory?

Well, if you’re WeWork (WE), and you lost $122 million in February, we guess that counts as a win given that the coworking company lost $153.7 million in January.

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And it sure seems like the execs at WeWork are popping the champagne (or possibly the Kool-Aid?) because they announced last week that they expect to exit Chapter 11 bankruptcy in May.

While this might sound, uh, optimistic, there are reasons behind the thinking. Yes, the company has managed to either exit or renegotiate 90 percent of its leases and, yes, that’s the big liability with WeWork.

“We are well on our way to building a strong and sustainable WeWork,” CEO David Tolley told Commercial Observer in a statement. “The size, scope and complexity of our real estate restructuring is unprecedented in our industry, and we’ve made remarkable progress to date optimizing our building footprint.”

Co-founder Adam Neumann still believes. Lately, he’s been floating offers to buy back the company that he ignominiously departed back in 2019. (Maybe it was something other than Kool-Aid that Neumann has been partaking in.)

Speaking of highs and lows…

CRE got some early first-quarter report cards last week, and the results were mixed to bad.

First, let’s talk about Los Angeles office. For the positives, there were the big renewals from tech and media firms, which raised overall leasing activity. There were 3.2 million square feet of leases last quarter, which is a 45 percent increase from the last quarter of 2023. Which is very good!

On the other hand, the availability rate reached an all-time high. And, as per a report from Savills, the repricing of assets is “only starting.” And we’re not even mentioning the big sale late last month of a big Downtown L.A. tower in default. That’s bad.

Proptech got a bad report card in that we learned that investment dropped a whopping 80 percent last quarter from its high in 2022, according to the Center for Real Estate Technology & Innovation. Also, the March settlement between the National Association of Realtors, which eliminated the standard 6 percent sales commission, will probably not help proptech firms focused on the residential market.

But perhaps it might. “I think ‘seeming’ demise is the key word,” said Michael Martin, the co-founder of Avenue 8. “It’s really too early to understand what the downstream effects of the settlement are going to be on commissions.” And while it’s not exactly proptech, per se, we were interested to learn that Bob Knakal announced that his new brokerage BK Real Estate Advisors was going to be powered by artificial intelligence.

For every step forward retail takes, it seems to take another stride backward. To wit, last week Bain Capital Real Estate trumpeted a partnership with 11North Partners to acquire and operate outdoor shopping centers across North America. Great, right?

Yes, but we also learned that the L.A.-based 99 Cents Only Stores was closing all 371 locations after 40 years in business. So there’s that.

And we’re even starting to see cracks in what had long been assumed to be the solid collateralized loan obligation market. According to a Moody’s report, impairments went from 0.3 percent in the second quarter of 2023 to 2.9 percent in the first quarter of 2024.

We’ll always have Florida

The only market that seems to still be exuding unadulterated good CRE news is Florida. At least, a $60 billion investment plan from Walt Disney that includes a major cash infusion in its theme parks in Florida would make any state look pretty good.

“It’s probably the largest expansion ever at Magic Kingdom,” declared Walt Disney World portfolio executive Michael Hundgen last week.

What would this multibillion-dollar expansion consist of? Well, there Hundgen was as fuzzy as a Times Square Goofy. But there are reasons Disney is getting ready for expansion — namely, Universal Studios is planning a third theme park for 2025, and shareholders are already asking Disney CEO Bob Iger how it plans to compete with that.

And Disney is not the only feel good story of Florida.

Down south, the Kenin family’s Flagler System Management shelled out $12 million for 233 and 235 Royal Poinciana Way in Palm Beach.

Store Capital dropped $27.2 million to buy a seven-story building currently home to the Istituto Marangoni Miami fashion and design school at 3704 NE Second Avenue from Stockbridge Capital Group.

In Miami’s Little Havana, Astor Companies paid $10 million for 315 NW 27th Street with the intention of building an eight-story, 179-unit multifamily project.

And Motek, one of South Florida’s most popular Mediterranean restaurants, just signed a lease at 100 Collins Avenue in Miami Beach’s South of Fifth neighborhood (where Prime Fish recently stood) for a new spot.

We felt the Earth move under our feet….

New Yorkers are a bit coddled, if their reaction to the 4.8 magnitude earthquake last Friday is any indication.

Yes, we survived “Quake ‘24.” And every single New Yorker on Twitter, Tik Tok, Instagram and Facebook registered their disbelief that such a thing could happen to them.

I AM FINE,” the Empire State Building’s Twitter feed assured us. (If ESB could deal with 40-foot-tall gorillas, we had little doubt it would make it through the ground shaking just a bit.)

It even distracted us from the great frickin’ jobs report on Friday, which (sigh) made the prospect of a June interest rate cut look a little dimmer.

But, no, we shouldn’t joke about it. Earthquakes and natural disasters are serious matters and, while we might not have heard of extensive damage by press time, we can’t be sure there won’t be something in the coming days.

And in other instances of disaster — like, say, Champlain Towers South in Surfside, Fla. — regulators have stepped in to make sure that older properties are being maintained well enough to survive what may come.

Of course, this will mean that owners of aging condos and other real estate will have to shell out more money for repairs and insurance.

“This is going to be a very rude awakening,” said Joseph Hernandez, a lawyer at the South Florida firm Bilzin Sumberg. “Frankly, I and others in our industry are concerned that a lot of people just can’t afford it.”

This should make for some interesting Sunday reading.

See you next week!