Sunday Summary: So, Anything Happen to You Last Week?

We at Commercial Observer would be remiss if we didn’t note the modest change that occurred in Washington, D.C., last Monday.

Joe Biden left the White House, and Donald Trump returned.

And the new president wasted no time leaving a trail of executive orders on everything from ending birthright citizenship, to ending DEI initiatives, to pulling out of the Paris climate agreement.

But one shouldn’t think real estate was left off the Developer in Chief’s agenda.

SoftBank (SFTBY)’s Masayoshi Son, OpenAI’s Sam Altman and Oracle’s Larry Ellison descended on the White House Tuesday to pledge up to $500 billion in infrastructure investments tied to AI.

While this was going on, one such infrastructure project was getting funded. Blue Owl Capital, Crusoe Energy Systems and Primary Digital Infrastructure were arranging $2.3 billion in construction financing with J.P. Morgan Chase to finish a 206-megawatt data center called the Lancium Clean Campus in Abilene, Texas, that is leased to Oracle.

Yes, there’s a lot to say about industrial-, logistical- and infrastructure-related real estate right now.

For example, also last week, Goldman Sachs provided $130 million in acquisition financing to HMC Capital and its subsidiary StratCap to purchase two data centers in Texas and Kansas from DigiCo Infrastructure REIT. (The final purchase price of the two centers, which are fully leased to State Farm, was $248 million.)

Companies like ElmTree Funds have been diving headfirst into industrial, closing $485 million in industrial acquisitions last year and swallowing some 2.3 million square feet of space. 

For logistics giants like Prologis (PLD), whose earnings call was last week, the results from 2024 look both steady and positive: a 19 percent increase in core funds from operations (FFO), 96.3 percent occupancy, $2.1 billion in sales, and $2.3 billion in acquisitions.

“During the [fourth] quarter we signed more than 60 million square feet of leases,” said Tim Arndt, the company’s CFO, before adding: “a company record.”

Did somebody say ‘earnings call’?

Yes, earnings season has started. And Prologis was not the only landlord to open with a bang.

SL Green Realty started its recent earnings call strong with the announcement that FFO had more than doubled ($131.9 million from $49.7 million) compared to the fourth quarter of 2023, that it had gone up 67 percent to $569.8 million for all of 2024, and that the company’s stock price was more than triple what it was during the COVID lows.

“Having come through some fairly tough years, it was nice to see our strategy pay big dividends for our shareholders, as we posted market-leading returns,” said CEO Marc Holliday. “It was a great affirmation of a strategy we stuck to. We hung in there, and now we’re entering … possibly some of the best years we’ve possibly ever had at this company, given the dynamics of this current market.”

Holliday is not the only real estate boldfaced name to assert the worst being behind the New York real estate market. One could see the optimism earlier this month at the Real Estate Board of New York’s annual gala. (Check out our video from the shindig, where we spoke to Bill Rudin, Hillary Spann, Scott Rechler, Peter Riguardi and many others.)

Part of the reason had to do with the passage of City of Yes. That has provided a much-needed shot of adrenaline to the city’s real estate, despite the fact that the zoning overhaul is riddled with exemptions and exceptions.

“We’re thrilled about this. We think it was a huge win for the city,” said Ofer Cohen, a principal at developer Ailanthus. “Are there some districts that would have been better not to have the parking requirement? Maybe, but I don’t think the carve-outs and compromises diminish the tremendous value that the plan as a whole provides.”

“I think City of Yes is gonna be pretty great,” said TF Cornerstone’s Jake Elghanayan in CO’s cover story last week. “What touches us most is that on larger density sites the city aligned the zoning bonuses well with the new 485x program. That makes it so that on the margins, if we’ve got a site that could do condos or rentals, it makes you much more likely to do a mixed-income rental building rather than a full market building.”

Indeed, while multifamily has its pros and cons throughout the country, rental housing is still a dearly scarce commodity in New York City.

There’s even been an appetite for rent-stabilized property, which has been shunned like a redheaded stepchild for the last few years. Like anything worthwhile in life, investing in non-market-rate housing in general just takes a lot of hustle.

“I always tell my team to count their blessings that they’re in this space,” said Vanessa Rodriguez, head of community lending and investment at Wells Fargo. “Higher operating expenditures and development costs, and softening in LIHTC [Low-Income Housing Tax Credit] pricing are ongoing issues that the industry faced in 2024, and they put pressure on our developers in terms of capitalizing deals. But it was an opportunity for us to deploy our various capabilities in the space and show the power of Wells’ platform.”

Let’s get back to L.A.

But the thing that was most on our mind remained the catastrophe in Los Angeles. While the final tally is still a long way off, some of the commercial damage is starting to be examined, and CoStar came out with an assessment of the commercial hurt. In their estimation, approximately 4.5 million square feet encompassing 374 commercial buildings and worth about $1.9 billion had been destroyed. (Many thousands of homes were also destroyed and were not in the estimate.)

But this initial assessment might be low. Very, very low. And there will be serious reverberations for the insurance industry throughout the country.

“This is going to be the costliest event in the history of the globe,” said Oscar Seikaly, CEO of Miami-based NSI Insurance Group. “It’s just massive. I don’t care what numbers they’re bringing out now; the total might be four times that.”

We’re going to be paying attention to this story for a while.

Rest in peace

Lastly, we would like to bid a sad farewell to a friend of CO. Rick Matthews, a longtime publicist at Rubenstein, died last weekend at the age of 71. Rick ultimately led Rubenstein’s real estate practice, which represented industry names like Vornado Realty Trust (VNO), Tishman Speyer and Rudin. He is survived by his wife, Susan, and children Evan, Emma and Anna. Few in the business were as kind and as friendly, and he will be as sorely missed.

Speak to you next week.