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10 Must Reads for the CRE Industry (January 16, 2019)

Eddie Lampert has reached a deal to keep Sears open with about 400 stores, reports CNBC. WeWork CEO Adam Neumann has been investing in office properties and leasing them to WeWork, according to the Wall Street Journal. These are among today’s must reads from around the commercial real estate industry.

  1. Sears Reaches Deal with Chairman Eddie Lampert to Save Company and Roughly 400 Stores “Sears Holdings reached a roughly $5 billion deal with its chairman, Eddie Lampert, early Wednesday to keep the company, and about 400 stores, in operations, according to people familiar with the situation. The deal came after days of negotiations at the law firm Weil, Gotshal & Manges. Lampert has been trying to buy Sears out of bankruptcy through an affiliate of his hedge fund ESL Investments. The owner of Kmart and Sears had filed for bankruptcy in October, and Lampert’s bid was the only one that would have kept it alive.” (CNBC)
  2. Government Shutdown Stymies Opportunity Zone Investors “The government shutdown is putting the brakes on scores of real-estate investors and developers who have been raising hundreds of millions of dollars to take advantage of what could be one of the most attractive tax breaks in years. Businesses had been hoping to move quickly this year to take advantage of the lucrative opportunity-zone provisions of the 2017 tax overhaul law. They give investors in nearly 9,000 lower-income areas throughout the country both a deferral on current capital-gains taxes and an exemption on gains realized on investments held for at least 10 years.” (Wall Street Journal, subscription required)
  3. Chain’s Foreign Direct Investment into the U.S. Dropped Precipitously in 2018, Data Show “Chinese foreign direct investment into the U.S. plummeted for a second year in a row, according to new data. In 2018, Chinese FDI in the United States fell to just $4.8 billion — a massive decline from $29 billion in 2017 and $46 billion in 2016, according to independent researcher the Rhodium Group. The 2018 figure marks a 90 percent drop from 2016 and represents the lowest level of direct investment by China since 2011, according to the group’s data.” (CNBC)
  4. WeWork’s CEO Makes Millions as Landlord to WeWork “For more than two months after employees at International Business Machines Corp. moved into a Manhattan building managed by office space giant WeWork Cos., frequent elevator problems forced workers to climb the stairs of the 11-story building and prompted complaints to the company. One of the landlords behind the building was no ordinary owner: It was Adam Neumann, WeWork’s chief executive, who leased the property to WeWork after buying it, according to people familiar with the situation.” (Wall Street Journal, subscription required)
  5. Where Sears Went Wrong—from the Writer of the Definitive History of the Retailer “I’d like to share some thoughts about the many things I learned from my deep study of Sears, which have often inspired, informed and also cautioned me as a business-builder. I wrote ‘The Big Store’ in 1987 about the retailer, and it has informed my time since 1994 helping Audible evolve from an idea to the big company it is today. Themes that have drawn students of corporate culture and leadership to “The Big Store” regularly since it was published — including those seeking to avoid the prideful-ness and myopia that can come with institutional success, which in turn diminishes a positively disruptive capacity to change and can kill the formative spirit that calls for invention before anyone asks for it — are very much alive in current popular discourse.” (MarketWatch)
  6. More Pricey Leases Being Signed in NYC “A new report from JLL shows 129 leases were signed in 55 buildings with starting rents of $100 per square foot or more. There are more of these deals for three reasons, explains Cynthia Wasserberger of JLL who, with colleague Hayley Shoener, compiled the report: ‘The simple flight to quality, a lot more leasing in new construction and more leases signed in Midtown South, which is a hot, frothy and tight market.’” (New York Post)
  7. In Co-Working Era, Pricey Urban Real Estate Does Double Duty “An empty former TGI Fridays overlooking Manhattan’s Union Square Park may be an unlikely symbol of today’s shifting real estate market. But Preston Pesek, CEO and co-founder of Spacious, the coworking startup that made a deal for the 8,500-square-foot restaurant space in late November, believes this former dining room—sans flair—represents a new chapter in the growth of his company and, perhaps, the industry at large. Spacious launched in 2016 with a quirky value proposition: By transforming high-end restaurants into daytime coworking spaces, the startup would offer discounted workspace to freelancers while giving restaurant owners a new source of income. In other words, the restaurant would have a side hustle.” (Curbed)
  8. Downtown Office Vacancy Climbs, But Don’t Panic “It's been nearly seven years since the Detroit central business district's office vacancy rate increased. That changed in the fourth quarter of 2018, according to new research from the local office of Newmark Knight Frank, which says the vacancy rate increased 1.8 percent to 12.3 percent in Q4. That's due in large part to the exit of Molina Healthcare from 41,000 square feet in the Dan Gilbert-owned former Detroit Media Partnership building at 615 West Lafayette.” (Crain’s Detroit Business)
  9. Industrial Real Estate Availability Rate in the U.S. Declines “According to CBRE, the availability rate for U.S. industrial real estate declined by 8 basis points (bps) in the fourth quarter of 2018, while demand for warehouses exceeded the delivery of newly constructed supply by roughly 6 million square feet. Availability of U.S. industrial real estate dipped to 7.0 percent in the fourth quarter, the lowest point since 2000. That marks 34 consecutive quarters of declining availability, the longest since CBRE started tracking the data in 1988.” (World Property Journal)
  10. 800 6th Avenue in Contract to Greystar for $240M “The 36-story luxury residential rental at 800 Sixth Ave. between West 27th and 28th streets is in contract to Greystar for $240 million. Developed in 2003 by the Adell family’s Adelco, which had rezoned the old Flower District, the Archstone Chelsea has 266 apartments of which 62 are still rent-stabilized, a roof-deck, a fitness center and an easy walk to NoMad and Herald Square. The seller, Equity Residential, obtained it in 2013 as part of its $16 billion joint purchase with AvalonBay of the Archstone-Smith portfolio from Lehman Bros.” (New York Post)
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