The pandemic is expected to drastically reshape commercial real estate, leaving thousands of vacant and underused spaces nationwide. But some developers and investors are keen to seize the chance to convert those properties into other uses.
Lord & Taylor’s flagship department store in Manhattan, for example, will soon house office workers for Amazon, and a tourist destination in the heart of Hollywood is getting a $100 million face-lift that includes converting underused retail spaces into offices.
“Nobody ever lets a crisis get in the way of creating opportunity,” said Sheila Botting of Avison Young, a commercial real estate services firm in Toronto, where she is president of the professional services practice for the Americas.
Conversion waves in the past were often localized. For instance, more than 13.8 million square feet in lower Manhattan changed over after the Sept. 11 terrorist attacks in 2001, according to the Alliance for Downtown New York. But those shifts were nothing on the scale that is expected in the next 18 to 24 months, experts say.
In retail alone, at least 7,700 stores totaling 115 million square feet were expected to close this year as of early August, according to data provided by CoStar Advisory Services. Most of these closures will be in malls, which were struggling long before the pandemic pushed department stores like JCPenney and Neiman Marcus into bankruptcy.
At the same time, 172.7 million square feet of Class A office space, typically the highest quality, is expected to come online this year and next. Only 59% of it has been leased, below the average of 74%, according to the CoStar data. And nearly 1 in 4 hotels nationwide faces possible foreclosure as owners fall behind at least a month on loans, the American Hotels & Lodging Association said. Simply put, a lot more space is going to be available out there.
“If there was a sudden drop in demand for Cheerios, General Mills would just pull the Cheerios,” said Victor Calanog, head of commercial real estate economics at Moody’s Analytics. “Then there’s going to be less, and prices won’t have to fall as much. But once you’ve built an office building, you can’t exactly take it off the market.”
Some of the causes of the national oversupply in commercial real estate predate the pandemic. For example, the shift to e-commerce has hastened many stores to the grave in recent years — more than 10,200 stores closed in 2019, according to CoStar.
Also, businesses that use offices have been pulling back on space amid rising digitization and other efficiencies as well as demographic shifts — younger generations in general are comfortable with less office space. The commercial real estate industry’s rule of thumb in the 1980s was 200 to 300 square feet per employee, according to Moody’s Analytics. By 2019, the average had fallen to 126.5.
And industries as diverse as real estate, media, technology and banking have been flirting with more telecommuting for decades. Moreover, a sizable chunk of leased space goes largely unused during the workday anyway — estimates place it at 30% to 40% — as people are out of the office for various reasons. But the crisis has created a chance for some developers to reassess their strategy.
“I think for the real estate community, this represents a moment in time to think about current assets, how they’re being used and what future options might be,” Botting said.
The starkest example yet of this approach might be Amazon’s possible plans to convert JCPenney and Sears stores in shopping centers owned by mall operator Simon Property Group into distribution warehouses, which was reported earlier by The Wall Street Journal. The e-commerce giant is also behind the overhaul of the shuttered Lord & Taylor store on Fifth Avenue, turning 676,000 square feet into office space for about 2,000 employees by 2023. Amazon declined to comment for this article.
Last month, DJM Capital Partners, a real estate services firm, and private equity firm Gaw Capital Partners revealed plans to overhaul the Hollywood & Highland, a Hollywood entertainment complex on the same block as the Dolby Theater, which hosts the Academy Awards. Those plans call for carving nearly 100,000 square feet of creative office space out of existing retail.
“When the firms bought the complex last year, they had a low opinion of the future of traditional brick-and-mortar retail,” said Stenn Parton, chief retail officer of DJM. “Then the coronavirus shut down thousands of businesses across the country. If anything, I think it’s solidified our business plan as we’ve seen the record store closures as a result of the pandemic.”
Most conversions won’t be as grand; instead, they’ll involve smaller and less heralded properties. Still, a wide variety of conversion projects is expected.
“Developers see an opportunity in converting hotels into continuing care retirement communities,” said David Reis, chief executive of Senior Care Development in Harrison, New York. “It’s less expensive to convert a property than build from the ground up, especially in expensive markets such as New York. If you can buy space for the equivalent of 50 cents on the dollar less than new construction, then clearly you’re going to be fine when you do a conversion.”
Nationally, new residential construction generally average $225 to $350 a square foot, compared with $150 to $200 for an office-to-residential conversion, according to a report provided by project management firm Cumming. For industrial construction, the average new project costs $125 to $250 a square foot, but that can fall to $75 to $175 for a retail-to-industrial switch.
Despite the potential for lower costs and the emerging universe of options, commercial real estate conversions do pose challenges. Zoning and technical design can stymie some changeovers. And it can be more difficult to draw financing for conversions during the pandemic, when lenders are more averse to risk.
“Core and stabilized assets are drawing financing opportunities,” said Eric Rosenthal, a co-founder of Machine Investment Group, a real estate investment firm. “Transition stories, or when there’s an element of execution beyond just buying it and managing the property, the environment to finance those assets is very challenging.”
Traditionally, the best conversions have increasingly been obsolete properties.
“Typically, if they’re older and they’ve gone beyond their useful life — reduced occupancy, reduced cash flow — they are ripe for transformation,” Botting of Avison Young said.
In an undated image from Related Companies, a rendering of what an office conversion could look like in the Neiman Marcus space at Hudson Yards in New York. (IMAGE CREDIT: Related Companies via The New York Times)
But even newer properties are on the table. Neiman Marcus opened a 188,000-square-foot flagship store at Manhattan’s Hudson Yards just last year as the anchor retail tenant in the nation’s largest private real estate development. Now the Related Cos., owner of Hudson Yards, is pivoting. Philippe Visser, president of Related Office Development, said by email that the store would become “the most exciting office opportunity in New York City.”
The move harks to previous crises that forced a metamorphosis in commercial real estate. In the 1990s, lower Manhattan was racked by high office vacancies and population drain, and William C. Rudin, president of New York landlord Rudin Management, helped lead efforts to rejuvenate the area. More than 4.6 million square feet was converted from 1995 to 2001 — including glassy office buildings no one thought would make decent apartments.
“When things get bad enough,” Rudin said, “it forces people to come together and come up with ideas.”
Source: SFBJ
Big Industrial Project Planned For Lake Park
A group of developers announced plans to build a major industrial park one week after acquiring a 24.2-acre property in Lake Park.
The vacant property is on the north side of Silver Beach Road, just east of Congress Avenue. It was acquired for $17.2 million by ASVRF Silver Beach Road, a joint venture between Ridgeline Property Group, Mitchell Property Realty and American Realty Advisors.
The developers said the project, dubbed Silver Beach Industrial Park, would total 363,288 square feet in four buildings. Each building would total 90,822 square feet with a 32-foot clear height. That would make them ideal for distribution businesses.
The project has yet to secure approval from town officials. The developers plan to deliver it in the first quarter of 2022. Robert Smith of CBRE was retained to lead the marketing effort.
There aren’t many large tracts of industrial land left in eastern Palm Beach County, yet demand for space is growing as more people order goods online. The property isn’t far from the Port of Palm Beach, which has a busy shipping operation.
Source: SFBJ
Death Reports Of Retail And Office May Have Been Greatly Exaggerated
Panelists representing the industrial, office, retail and multifamily sectors of commercial real estate made the case for investment in their respective sectors at NAIOP’s CRE.CONVERGE, the virtual conference recently taking place.
In a real-time audience poll, the attendees cited industrial as the sector they would be most likely to invest in. However, much of the discussion pointed to the upsides in what, so far in 2020, has been mostly seen as a negative story for the other sectors.
The old adage, buy low and sell high, applies.
Speaking on behalf of the office sector, which many are questioning in light of the shift to work from home, George Hasenecz, senior vice president, Investments at Brandywine Realty Trust, said its demise has been incorrectly predicted in the past — just as it is now.
A similar story is playing out in the multifamily sector, said John Drachman, co-founder at Waterford Property Company. The pandemic has driven many people out of dense urban areas and into suburban multifamily units. The turnaround has been sharp in large markets such as New York, San Francisco, Los Angeles and Chicago, where vacancies are increasing and rents are falling. One year ago, the main story line in these markets was a lack of affordable housing.
Rene Circ, senior managing director and COO at GID Industrial and GID Investment Advisors LLC, spoke on behalf of the industrial sector, which to no one’s surprise seems to be strong. He said there are essentially very few people who are not buying things online.
The panel was moderated by Will McIntosh, head of Research at USAA Real Estate.
Source: GlobeSt.
Top Developers On Their Reasons For Doubling Down In South Florida Market
For some Miami developers, the last few months have provided an opportunity to “double down.”
Pérez noted that Related has broken ground on three projects in the last 45 days.
Another guest on the episode, Dezer Development founder Gil Dezer, also remains bullish on building across Miami. Last week, Dezer received the first approval for a massive project at North Miami Beach’s Intracoastal Mall, despite opposition. When asked about financing for the project, Dezer said that his company has been covering all costs.
For Pérez and Related — the largest developer in South Florida — there are opportunities away from the luxury beachfront markets.
He noted that Related owns four sites there, which it will transform into 2,000 units, and is finishing a new headquarters in Coconut Grove.
The pair are competitors and collaborators: Dezer and Related teamed up on the Residences by Armani/Casa last year. Closings began in December 2019.
Click here to watch the YouTube video Coffee Talk with Gil Dezer & Jon Paul Pérez for more top developer takes on the Miami market.
Source: The Real Deal
Five Post Covid-19 CRE Investment Strategies
As the Covid pandemic begins to taper off, the CRE industry is ready to get back to work and take advantage of the underlying strong economy.
There are of course distressed real estate sectors caused by the pandemic like hotels, struggling malls and blue city apartments and office buildings. However, this is an excellent time to invest in these and other areas of CRE to take advantage of the distressed assets with historically low prices and the potential for significant increases in occupancy, revenue, and cash flow.
Here are five post Covid investment strategies:
1. Acquire Deeply Discounted Hotels In Suburban Markets
The hotel market has been hurt more than any other property type, by the pandemic with significant declines in occupancy, RevPAR, and cash flow. Most hotels are operating at 40% occupancy and for an asset that has high fixed costs, this is unsustainable for long periods of time. Many hotels will close permanently like the New York Hilton in Times Square, while the majority will limp along or be foreclosed by the lender until the economy recovers. However, this represents a great opportunity for hotel owner/operators to acquire these hotels at deep discounts. It is recommended that investors focus on hotels in suburban markets with national franchises and close to airports that will benefit from the return of business travel. At 40% occupancy most hotels lose money, but, as the economy improves and the deferred demand from business and leisure travel kicks in, the properties should see tremendous increases in net operating income and cash flow.
2. Sell CRE Apartments And Office Buildings In Blue Cities; Reinvest In Red Cities
It is recommended that investors sell apartments and office buildings in these markets and reinvest the proceeds in red states and cities and in select suburban markets that surround blue cities. Per Real Capital Analytics, distressed sales of office and apartments during Q2-20 totaled 18 deals worth over $403 million. This will be just the tip of the iceberg as distressed sales will increase significantly during the next six to twelve months. It is expected that a diversified portfolio of CRE assets in red states and cities to outperform a similar portfolio in blue states during the next ten years.
3. Acquire Deeply Discounted Mall Assets For Repurposing
The distress in the retail sector has been amplified by the pandemic and many retail experts expect 15,000 stores to close in 2020. This is up from 10,000 closures in 2019. However, there is a burgeoning CRE industry in buying old, dilapidated, and distressed retail malls and repositioning them with hotels, industrial space, bowling alleys, food courts, pop-up drive inns, medical tenants (see the article on the growth of medical retail) and residential space. There have been numerous examples around the country of CRE firms acquiring old malls and power centers at deeply discounted prices of $20-$50 per square foot, closing 50% or more of the retail space and converting the vacant space to other uses as shown above. There are very few firms around the country that have the CRE investment and development expertise to complete these types of deals which require a change in the “highest and best use” of the asset. Although these projects have high risk and are difficult to finance, they can produce substantial investment returns.
4. Develop Suburban Office Buildings Around Blue Cities
The flight of individuals and businesses from blue cities is real and one of the prime beneficiaries will be suburban office markets that ring these blue urban locations. The suburban office building market nationally had been fairly anemic pre-Covid, with vacancy rates over 12% and slow rent growth. Many suburban markets are littered with 1980s and 1990s vintage office buildings that never attained an occupancy above 85%. However, in a post Covid world, this metric will turn around with a substantial increase in demand for suburban office product. Currently, the bright spot is suburban Class A office which saw an addition of 3.9 million square feet (aided largely by flight to quality and expansion into new campuses) and an increase of .3% in average rents to $32.15 per square foot. During the first half of 2020, the U.S. office market per Jones Lang Lasalle, recorded 14 million square feet of occupancy losses, bringing the net absorption to a negative 8.4 million square feet, or -0.2% of inventory. The blue cities of New York City and San Francisco, which have seen substantial out migration of companies and residents, were responsible for 26.7% of all net occupancy losses in the second quarter. Sublease space rose by 10.6% and 5.2 million square feet to a mammoth 61 million square feet nationally. Developers of office buildings should shift their focus to blue and red state suburban areas as demand for quality office space will surge.
5. Sell Urban High-Rise Apartment Buildings; Reinvest In Suburban Garden Apartments
The out-migration of renters from high priced blue cities that are technology centric is a permanent structural change for the rental markets in the U.S. According to Yardi Matrix, YoY rent growth through August 2020 has declined -5.5% in San Jose, -5.1% in San Francisco, -1.0% in Portland, -2.1% in Los Angeles and -1.8% in Washington D.C. Forecasted rent growth for these same cities for the rest of 2020 will decline further and substantially. If you are a millennial tech worker and can work from home, why would you spend $3,500 per month for a one-bedroom apartment in San Francisco, if you could rent an apartment in Lake Tahoe or Reno, NV, for $1,200 per month? Even though apartment metrics will further deteriorate in these urban wastelands, demand will surge in suburban markets that surround these areas. One of the most over-priced CRE assets during the last few years has been new urban high-rise apartments that were trading at sub-4.0% cap rates in many core markets. Owners of these assets should sell them before they fully realize a decline in net operating income and higher cap rates.
Source: GlobeSt.
These 3 Real Estate Investments are in High Demand: Here’s How to Capitalize
A key component of a successful real estate investment is choosing the right asset class to invest in within the given market.
Supply and demand is constantly changing, meaning what was a lucrative investment one, two, or 10 years ago may not be worthwhile today. See what types of real estate are in high demand right now and how investors can participate in the growing market.
Before we dive into where opportunity lies, note that just because there’s a general demand for these types of real estate doesn’t mean there’s opportunity for them in every market. Real estate is a very localized business that operates on a macro and micro level. For active investors, it’s important to identify what opportunities lie in your local market or participate in a more diversified investment portfolio specializing in these asset classes through a real estate investment trust (REIT).
1. Cold Storage
Cold storage is a type of industrial real estate responsible for the storage and transportation of cold goods, including food products. The global pandemic interrupted the food supply chain, making consumers and large grocery retailers adapt to the shift in consumer preferences for online grocery sales as well as the need for more cold storage as a whole.
This specialized niche has several barriers for entry, making it a difficult asset class to invest in outside of Americold Realty Trust (NYSE: COLD). Americold is the only industrial REIT specializing in cold storage, owning more than 1 billion cubic feet of cold storage space. The company is well positioned financially to grow with the increased demand.
2. Data Centers
We are undoubtedly in the age of technology, with more people and products becoming reliant on the efficiency, ease, and convenience of technology. Data centers are responsible for safely storing and computing data for the government, large corporations, cloud companies, and even data used from phones.
Demand for data centers has been on the rise over the past decade, but COVID-19-related work-from-home orders have put even more pressure on this growing sector. While demand as a whole is up, certain markets are leading the sector, including northern Virginia and Atlanta.
Data centers are another unique sector to invest in with large barriers for entry, making any of the top data center REITs a wonderful way to participate in this industry.
3. Residential Housing, With Emphasis On Affordable Housing
A study conducted by Freddie Mac found that the U.S. is short 2.5 million to 3.3 million housing units in 29 states, with states like Oregon, California, Texas, Minnesota, Florida, and Colorado the leaders in the housing shortage. These states, among others, are also home to some top-tier markets, where housing prices far outpace wages for the area, putting affordable housing in serious demand.
This means multifamily properties, single-family homes, and new construction can potentially be good investments in the right markets. This asset class is the easiest point of entry for investors, with dozens of options available to participate in actively, like fix-and-flip or rental properties, or passively through residential REITs.
However, it’s important to note that with current eviction moratoriums and a record number of tenants being unable to pay rent, the rental industry is facing tough times, making this a volatile market to participate in right now as a smaller investor. However, this industry is fairly resilient, and while it’s currently facing unique challenges, this market clearly has long-term demand and should bounce back in time.
Source: The Motley Fool
How Covid-19 Is Changing Leasing Agreements For Businesses
Experts say changes are on the horizon to the decades-old language in retail and restaurant leases as a result of the Covid-19 pandemic.
New leases are being written with substantial changes, particularly in regard to provisions that provide relief for tenants that are unable to fulfill their contract obligations because of circumstances out of their control, such as a natural disaster or pandemic.
Steven Silverman, a shareholder at Miami-based Kluger, Kaplan, Silverman, Katzen & Levine PL, who deals in lease negotiations, said the language in these provisions is often broad, and landlords did not interpret them to apply to shutdowns caused by a pandemic.
Most new leases he’s seen include language that states that should there be any government-mandated business closures – whether by city, county, state or federal agencies – the tenant would be protected with partial rent abatement.
Silverman said that while the two sides have found common ground, it was rare for landlords to give any ground on lease negotiations, but the pandemic caused a power swing rare in the industry.
Signs of that power swing were apparent almost immediately.
Jenny Gefen, a broker for retailers at Colliers International South Florida’s Miami office, said Bolay was close to signing its lease 2,700 square feet at 810 Brickell Ave. in Miami, but after the pandemic came to South Florida, restaurant representatives requested a review of the language in the lease to protect themselves in case of future government-ordered restrictions or shutdowns.
Hochman said his company is working with prospective tenants to include clauses that outline what spaces are available for extra seating, fulfilling curbside and/or delivery orders should government restrictions be enacted again.
Source: SFBJ
In Coming Wave Of Pandemic-Induced Vacancies, Some See Opportunity
The pandemic is expected to drastically reshape commercial real estate, leaving thousands of vacant and underused spaces nationwide. But some developers and investors are keen to seize the chance to convert those properties into other uses.
Lord & Taylor’s flagship department store in Manhattan, for example, will soon house office workers for Amazon, and a tourist destination in the heart of Hollywood is getting a $100 million face-lift that includes converting underused retail spaces into offices.
Conversion waves in the past were often localized. For instance, more than 13.8 million square feet in lower Manhattan changed over after the Sept. 11 terrorist attacks in 2001, according to the Alliance for Downtown New York. But those shifts were nothing on the scale that is expected in the next 18 to 24 months, experts say.
In retail alone, at least 7,700 stores totaling 115 million square feet were expected to close this year as of early August, according to data provided by CoStar Advisory Services. Most of these closures will be in malls, which were struggling long before the pandemic pushed department stores like JCPenney and Neiman Marcus into bankruptcy.
At the same time, 172.7 million square feet of Class A office space, typically the highest quality, is expected to come online this year and next. Only 59% of it has been leased, below the average of 74%, according to the CoStar data. And nearly 1 in 4 hotels nationwide faces possible foreclosure as owners fall behind at least a month on loans, the American Hotels & Lodging Association said. Simply put, a lot more space is going to be available out there.
Some of the causes of the national oversupply in commercial real estate predate the pandemic. For example, the shift to e-commerce has hastened many stores to the grave in recent years — more than 10,200 stores closed in 2019, according to CoStar.
Also, businesses that use offices have been pulling back on space amid rising digitization and other efficiencies as well as demographic shifts — younger generations in general are comfortable with less office space. The commercial real estate industry’s rule of thumb in the 1980s was 200 to 300 square feet per employee, according to Moody’s Analytics. By 2019, the average had fallen to 126.5.
And industries as diverse as real estate, media, technology and banking have been flirting with more telecommuting for decades. Moreover, a sizable chunk of leased space goes largely unused during the workday anyway — estimates place it at 30% to 40% — as people are out of the office for various reasons. But the crisis has created a chance for some developers to reassess their strategy.
The starkest example yet of this approach might be Amazon’s possible plans to convert JCPenney and Sears stores in shopping centers owned by mall operator Simon Property Group into distribution warehouses, which was reported earlier by The Wall Street Journal. The e-commerce giant is also behind the overhaul of the shuttered Lord & Taylor store on Fifth Avenue, turning 676,000 square feet into office space for about 2,000 employees by 2023. Amazon declined to comment for this article.
Last month, DJM Capital Partners, a real estate services firm, and private equity firm Gaw Capital Partners revealed plans to overhaul the Hollywood & Highland, a Hollywood entertainment complex on the same block as the Dolby Theater, which hosts the Academy Awards. Those plans call for carving nearly 100,000 square feet of creative office space out of existing retail.
Most conversions won’t be as grand; instead, they’ll involve smaller and less heralded properties. Still, a wide variety of conversion projects is expected.
Nationally, new residential construction generally average $225 to $350 a square foot, compared with $150 to $200 for an office-to-residential conversion, according to a report provided by project management firm Cumming. For industrial construction, the average new project costs $125 to $250 a square foot, but that can fall to $75 to $175 for a retail-to-industrial switch.
Despite the potential for lower costs and the emerging universe of options, commercial real estate conversions do pose challenges. Zoning and technical design can stymie some changeovers. And it can be more difficult to draw financing for conversions during the pandemic, when lenders are more averse to risk.
Traditionally, the best conversions have increasingly been obsolete properties.
In an undated image from Related Companies, a rendering of what an office conversion could look like in the Neiman Marcus space at Hudson Yards in New York. (IMAGE CREDIT: Related Companies via The New York Times)
But even newer properties are on the table. Neiman Marcus opened a 188,000-square-foot flagship store at Manhattan’s Hudson Yards just last year as the anchor retail tenant in the nation’s largest private real estate development. Now the Related Cos., owner of Hudson Yards, is pivoting. Philippe Visser, president of Related Office Development, said by email that the store would become “the most exciting office opportunity in New York City.”
The move harks to previous crises that forced a metamorphosis in commercial real estate. In the 1990s, lower Manhattan was racked by high office vacancies and population drain, and William C. Rudin, president of New York landlord Rudin Management, helped lead efforts to rejuvenate the area. More than 4.6 million square feet was converted from 1995 to 2001 — including glassy office buildings no one thought would make decent apartments.
Source: SFBJ
25% Of U.S. Malls Are Expected To Shut Within 5 Years. Giving Them A New Life Won’t Be Easy
What is going to happen to America’s dead malls? That’s a million-dollar question plaguing retailers and real estate developers.
With a report circulating earlier this month that the biggest U.S. mall owner Simon Property Group has been in talks with Amazon to convert some shuttered Sears and J.C. Penney department stores into fulfillment centers, many industry analysts have been pontificating on the future of malls as logistics hubs.
The consensus seems to be that turning old retail space into new warehouses might not be so easy, even though it might seem like a logical solution. Demand for logistics buildings is skyrocketing as e-commerce sales balloon. But the hurdles include the need to have properties rezoned, which could be met with pushback from local municipalities.
Demand for various commercial real estate asset types is expected to shift noticeably because of the coronavirus pandemic, with more people now working from home, flocking to the suburbs for space and buying online things they used to browse for in stores.
According to data pulled by Moody’s Analytics REIS, apartment development in the U.S. is expected to be down 15.6% in a post-Covid-19 world. Office development is set to drop 10%, it said, while retail falls 15.7%. Industrial development, meantime, is expected to pick up 3.6%.
The firm did find five markets where it said it would make the most sense to covert vacant retail space into warehouse space, based on where retail has been underperforming and where warehouse demand is hot. Those are: Central New Jersey, Northern New Jersey, Long Island, Memphis and Detroit.
But shopping malls are likely going to be shuttering in suburbs all across the country, as store closures grow in number and landlords capitulate. Another new report out this week from Coresight Research estimates 25% of America’s roughly 1,000 malls will close over the next three to five years, with the pandemic accelerating a demise that was already underway before the new virus emerged.
The malls most at risk of going dark are classified as so-called B-, C- and D-rated malls, meaning they bring in fewer sales per square foot than an A mall. An A++ mall could bring in as much as $1,000 in sales per square foot, for example, while a C+ mall does about $320. There are roughly 380 C- and D-rated malls in the U.S., according to an analysis by the commercial real estate firm Green Street Advisors. It has said malls rated C and below “are not viable retail centers long term.”
CBL & Associates, a Tennessee-based mall owner that has a number of B- and C-rated malls in its portfolio, has said it plans to file for bankruptcy by Oct. 1, highlighting just how much pressure these landlords are facing. Even high-end malls are under pressure, though. No one is really immune. An upscale mall owner in Miami, Bal Harbour Shops, is currently moving to evict the luxury department store chain Saks Fifth Avenue for not paying rent since mid-March. It owes Bal Harbour roughly $1.9 million, according to court documents.
A representative from Hudson’s Bay-owned Saks was not immediately available to comment.
About 90% of occupants in U.S. malls are either experiential tenants like movie theaters, or department store chains and apparel retailers, according to the Coresight analysis. This makes malls the most vulnerable type of shopping centers to the Covid-19 impact, it said, compared with other properties like strip centers that have grocery stores and outlet centers that offer consumers bargains.
During the pandemic, movie theaters and clothing shops have faced long windows of being closed, while consumers could still flock to strip centers for food, cleaning products and other essentials. In some states, such as New York and California, movie theaters remain closed to this day. And so with minimal revenue coming in, these are the businesses that are most likely requesting rent reductions, or not paying rent at all.
Mall developers had up until now been courting entertainment companies like Dave & Buster’s and iFly indoor skydiving, and restaurants like Cheesecake Factory, to lessen their dependence on shrinking retailers. But those businesses have also not fared well in an age of social distancing.
So, if not warehouses and entertainment complexes, analysts have pondered other potential use cases for so-called dead malls: Churches, medical facilities, office spaces and even apartment complexes.
But even office space is a risky bet now, as the working-from-home trend could become permanent for some. Workers in JPMorgan Chase’s corporate and investment bank, for example, will cycle between days spent at the office and at home, keeping the ability to work remotely on a part-time basis. The world’s biggest Wall Street bank by revenue has said it could shutter backup trading floors located outside New York and London as a result of the move.
The outdoor retailer REI is also looking to sell its recently completed corporate campus in suburban Seattle, shifting instead to more satellite offices, as a result of the pandemic.
View the CNBC news video ‘How Shrinking the American Mall Will Impact Local Tax Revenue‘ below.
Source: CNBC
Industrial Prices Expected To Increase Due To Pandemic
Industrial prices could set to increase as a result of increased activity and rents during the pandemic.
According to a recent survey from RCM/LightBox, industrial players expect rents to increase from 4% to 7%. The asset class has already proven to be resilient during the worst months of the pandemic. As a result, many investors have flocked to the asset class.
Not all industrial assets are created equal. Manufacturing, for example, has not performed well during the pandemic. Investors as focused on ecommerce-related uses, pharmaceutical-related uses and any industrial supporting essential uses.
Manufacturing and outdated industrial—which could pose a higher risk in a down market—are the least popular.
The increased demand for ecommerce and the expectation of increased pricing has created enthusiasm for the asset class, but Lichens says that there is no reason to think that investors are being overly positive.
Source: GlobeSt.
Investors ‘Back With A Vengeance’ As Warehouse Demand Surges
As shopping centre and high street landlords survey the wreckage left by coronavirus, warehouse owners are facing a different problem: how to deal with record demand.
The pandemic has pushed more consumers online, prompting a rush for warehouse space, from small “last-mile” delivery sites near city centres to cavernous “big-box” distribution centres
Amazon has led the charge. The company, which has added an eye-watering $600bn to its market capitalisation this year as sales have jumped, is inking lease agreements on mammoth warehouses around the world. It has committed to opening 33 “fulfilment centres” in the US this year, an additional 35m square feet spread from Atlanta to Arizona.
The US ecommerce giant is also the incoming tenant of a 2.3m square foot warehouse on London’s outskirts, according to people with knowledge of that deal. Amazon’s sprawling expansion is one reason why investors are sensing opportunity.
The take-up of UK logistics space hit record levels in the second quarter of the year, according to property group CBRE — despite the lockdown.
A decade ago, ecommerce accounted for 6.7 per cent of all retail sales in the UK, according to the Office for National Statistics. By February, the month before the outbreak, the figure was 19 per cent. By May it had hit 33 per cent. In April, 27 per cent of purchases were made online in the US, according to the commerce department and Bank of America.
Until recently, the most desirable property to own was a traditional mall. Malls had a natural moat, being difficult to develop and serving a catchment area
Every extra £1bn spent online means the addition of almost 900,000 square feet of logistics space, according to CBRE. New York-listed Prologis, the world’s largest warehouse company, estimates that 1.2m sq ft of space is needed for every $1bn in ecommerce sales in the US.
Gains from ecommerce tenants far outweigh the losses from bricks-and-mortar retailers, according to CBRE, one reason why Blackstone, the world’s largest private property owner, has described logistics as its “highest conviction” sector.
In June 2010, Segro’s market capitalisation was less than £2bn, according to data from S&P Global. Now at £11.8bn, it is comfortably the UK’s largest listed property group; UK shopping centre owner Intu, meanwhile, has collapsed. The value of US peer Prologis has climbed a fifth this year to roughly $77.5bn.
Dozens of shopping centres in the US are being turned into industrial sites, according to CBRE, which says Covid-19 will accelerate the trend. This week, the Wall Street Journal reported that Amazon was in talks with mall owner Simon Property to repurpose department stores as distribution hubs.
Thanks to the ecommerce boom, CBRE predicts there will be demand for 333m sq ft of new space in the US by 2022 — treble its previous estimate — and expects rents to grow by about 6 per cent a year. Amazon is not the only eager tenant. Fashion retailers with a limited online presence have desperately sought space to park stock they could not shift in the pandemic.
Asset manager PGIM bought five German logistics sites last month and said it was optimistic that demand would only grow. Private equity firms are piling in too: as well as Blackstone, Meyer Bergman plans to raise €750m to invest in Europe.
Source: SFBJ
Rauch Robertson CRA Completes Sale Of Former Westinghouse Industrial Asset to Elion Partners
Tom Robertson and Michael Rauch and, Senior Managing Partners with Boca Raton-based Rauch Robertson Commercial Realty Advisors, negotiated the sale of an ±81,000-square-foot investment-grade industrial asset located within the Corporate Park of Coral Springs.
The deal closed June 30.
Rauch and Robertson represented the Seller, a Manhattan-based commercial real estate developer and investment group, in the sale of the property, which is located at 3900 Coral Ridge Drive in Coral Springs, Florida. Built in the 1970’s by the Westinghouse Corporation, the property has been a multi-tenant facility and is currently occupied by a national medical manufacturing firm and a specialty glass manufacturer.
Elion Partners is a nationally recognized private investment firm with substantial holdings throughout Florida and the United States.
The property traded for $7,150,000 and is well-suited for light manufacturing uses. The building is situated on ±6 acres, is generator served and includes dock high loading.
RRCRA is currently working with several buyers looking for 10,000 – 40,000 SF industrial buildings in Broward and Palm Beach County.
The brokerage company is also seeking leasing and investment sales professionals for its growing commercial real estate expansion in Miami-Dade, Broward and Palm Beach counties. Multiple positions are available within these and other Florida markets, which offer a unique ground floor career opportunity to work closely with the firms Founder’s Tom Robertson and Michael Rauch to move their vision for the RRCRA brand forward. Commission and benefits are commensurate with experience. A Florida Real Estate License and Commercial Real Estate experience are required. Only qualified candidates should apply by forwarding resumes to mail@crefloridapartners.com.
Rauch Robertson & Co. Reps Seller In Another Record Industrial Facility Sale
Rauch Robertson & Co. Senior Vice President Dan Casey, CCIM represented the seller in the sale of a 12,184-square-foot office/warehouse facility located at 1358 E. Newport Center Drive in Deerfield Beach.
The building traded at $2,314,960 or $190 per square foot, marking the highest negotiated price per square foot for an industrial property in Newport Center and the firm’s second record breaking sale in the park in the past five months.
In November 2019, Managing Partners Michael Rauch and Tom Robertson represented the seller in the sale of a 15,268-square-foot office/showroom/warehouse facility within the park. The building traded at $2,800,000, or $183 per square foot.
Newport Center is a large, master-planned professional business park located 5 minutes from Interstate I-95, just south of SW 10th Street, with easy access to the Sawgrass Expressway. The park features two hotels, a daycare center, and is home to many notable businesses including JPMorgan Chase, Hoerbiger Compressor Technology, Quest Diagnostics, Sandvik Corporation, HYLA USA, and the Mapei Corporation.
Rauch, Robertson & Co. is seeking leasing and investment sales professionals for its growing commercial real estate expansion in Miami-Dade, Broward and Palm Beach counties. Multiple positions are available within these and other Florida markets that offer a unique ground floor career opportunity to work closely with the firm’s Founders Tom Robertson and Michael Rauch to move their vision for the brand forward. Commission and benefits are commensurate with experience. A Florida Real Estate License and Commercial Real Estate experience are required. Only qualified candidates should apply by forwarding resumes to mail@crefloridapartners.com.