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10 Must Reads for the CRE Industry Today (April 18, 2016)

10 Must Reads for the CRE Industry Today (April 18, 2016)


  1. Commercial real estate hits the pause button “While historic data are helpful, many are questioning where the market is headed. The answers are not that evident. Commercial real estate volume is heavily dependent on capital, and a lack of stable capital in the commercial mortgage-backed security market is definitely to blame for what is going on with transaction volume. What is less clear is how conduits lenders — those who package loans and sell them as commercial mortgage-backed security — re-establish themselves as a viable lending source. Not only is lending off in the commercial mortgage-backed security world by 30 percent through the first quarter (according to data compiled by Commercial Mortgage Alert), but pipelines are virtually empty and the regulatory environment is continuing to get tougher through the year. The good news is that several conduit offerings have been completed in the past month and the results were much stronger than anticipated. In fact, for the first time in a year, bond pricing was down.” (Richmond Times Dispatch)
  2. What you should consider while seeking commercial real estate financing “As mid-year 2016 approaches, the availability of debt and equity for commercial real estate (CRE) and financing has been much discussed.  It appears that the health of the banking sector and Northeast Ohio’s CRE market are both strong.  Vacancy is generally low or declining in many asset classes and submarkets, while rental rates are steady or increasing. New development has generally been steady, while over-building — the cause of significant weakness in prior cycles — has not been apparent. This environment has been largely positive, yet some borrowers are expressing increased difficulty in obtaining CRE financing for their project.” (Smart Business Magazine)
  3. Fairway Said to Be Close to Deal to Put Grocer in Bankruptcy “Struggling grocer Fairway Group Holdings Corp. has reached a tentative deal with creditors to restructure its debt in bankruptcy, according to people familiar with the matter. The deal would likely put the New York-based gourmet grocery chain into Chapter 11 proceedings by the end of May, one of the people said. Fairway’s lenders, led by Blackstone Group LP credit arm GSO Capital Partners, would provide a loan enabling it to continue operations while still in court, said the people, who asked not to be identified because the discussions are private. The specific terms are still being worked out, including the size of the financing package and whether all store lease contracts will be maintained at its less profitable locations, one of the people said. Under the deal, lenders would take over ownership of the business after Fairway completes its debt restructuring, said the person.” (Bloomberg)
  4. Whole Foods’ cheaper store locations raise fears of cannibalization “An analysis of the locations selected for the first 365 by Whole Foods Market Inc. stores shows overlap with not just other grocers, but with Whole Foods Market Inc. itself, raising concerns about cannibalization and competition, according to Oppenheimer. The first of Whole Foods new concept stores is scheduled to open on May 25 in the Silver Lake section of Los Angeles. The company has signed 13 leases so far with stores slated for Gainesville, FL; Houston, TX and Bellevue, WA, among other nationwide locations. The Lake Oswego, OR store will be the next to open in July. The new stores are aimed at millennials and will offer a line of products at more affordable prices than at its flagship stores. They will be smaller too, at between 25,000 square feet and 30,000 square feet, and offer features like Instacart ordering and delivery.” (MarketWatch)
  5. Pop-ups May Fizzle As The Economy Improves “On the cost side, pop-up rents have generally been less expensive and avoid the risks of a long-term lease. Their temporary nature also offers greater flexibility and creativity, and brings excitements to shopping centers. At their most creative, pop-ups are opening in apartment houses, bars and hotel lobbies and feature live music, art shows and/or free booze. ‘More party than hard sell, this new breed of pop-ups is becoming increasingly innovative and fun — far more than the seasonal pop-ups that once prevailed,’ wrote Constance Gustkemarch for the Times. However, landlords could stop the pop-up craze. Despite the excitement pop-ups can bring to a shopping center, the assumption is that many landlords will prefer the predictable cash flow of a long-term lease. Demand for pop-ups might also crash if they weren’t a bargain. A Guardian article noted that pop-up rents for the High Street fashion district last fall rivaled permanent shops.” (Forbes)
  6. These Stores Could End Up Buying Sports Authority's Assets “Academy Sports + Outdoors and Dick’s Sporting Goods have expressed interest in buying the assets of rival U.S. retailer Sports Authority that are on sale in a bankruptcy auction, according to people familiar with the matter. The auction will determine whether Sports Authority, which opened its first store in Florida in 1987 and expanded nationwide, will be sold off in pieces, or its creditors will hold on to it and try to find a buyer for its entirety. Both Dick’s and Academy Sports have submitted letters of interest to buy some of the assets of Sports Authority, which filed for Chapter 11 bankruptcy in March after seeing sales flatline in the face of online competition, the people said this week.” (Fortune)
  7. Is the Real Estate Crowdfunding Market Getting Too Crowded? “Knowledge@Wharton: ‘For investors, what kind of return could they reasonably expect, as well as what kind of risks are they undertaking in terms of the default rates of the properties?’ Li: ‘Most of our deals are equity deals. There are preferred equity deals and also JV [joint venture] equity deals. These equity deals are essentially down payments [similar to what you would see in a] home mortgage. High risk, but it does have the potential to give you a high return. Typically and historically, we’ve seen [returns] averaging 6% to 12%, maybe even higher on our equity deals. And these deals tend to be 2- to 3-year holds.’” (Knowledge@Wharton)
  8. Legg Mason Completes Acquisition of Clarion Partners “Legg Mason Inc. has acquired an 82 percent equity interest in Clarion Partners for a reported $577 million. Additionally, Legg Mason will pay for its portion of certain co-investments on a dollar for dollar basis, estimated at $16 million as of the end of 2015. Clarion Partners has an AUM of nearly $40 billion. ‘We have long expressed that we think adding real estate to our portfolio of investment capabilities at Legg Mason was important,’ Joe Sullivan, Legg Mason chairman & CEO, told Commercial Property Executive. ‘This kind of investing in real estate provides the income and stability associated with fixed income and the growth associated with equity. It’s a nice add and a strategic add to our portfolio and gives our shareholders exposure to a new asset class, but most importantly it gives our clients access to an incremental and additional investment capability.’ With the acquisition, Legg Mason now has more than $670 billion in assets under management.” (Commercial Property Executive)
  9. Historic Dallas High School will reopen next year as offices and retail space “Commercial real estate firm Matthews Southwest is turning the century old Dallas High School at Pearl and Bryan streets into a combination of office and retail space. The developer will provide details on the project today to Dallas’ economic development committee. Matthews Southwest is seeking $6.2 million in tax increment finance district funding to help pay for renovations. Demolition has been underway at the property for several months. Built in 1907, the 4-story building has been empty since the 1990s. Matthews Southwest bought the old school last year and is spending $50.4 million on the mixed-use redevelopment. The project will include 66,000 square feet of offices and 26,000 square feet of retail space.” (The Dallas Morning News)
  10. A Tiny Home by Choice in New York City “For a small but resolute faction of New Yorkers, living in a particular neighborhood, or even on a certain street, is an unwavering desire. These partisans happily renounce many middle-class comforts for the privilege — even though it means squeezing into a minuscule space. These are not cash-strapped individuals who have been painted into a corner, nor are they young professional types starting out in the new micro-apartments. Many are simply realizing the fantasy of moving to a charmed setting, home size be damned. For others, safe and socially or culturally rich environs are far more alluring than square footage.” (The New York Times)
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