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10 Must Reads for the CRE Industry Today (October 10, 2019)

Brookfield plans to launch a massive entertainment and restaurant venue at Manhattan West, reports the New York Post. Smaller warehouses are in hot demand, according to the Wall Street Journal. These are among today’s must reads from around the commercial real estate industry.

  1. Meet the Starbucks CEO Who Has to Follow Howard Schultz “Kevin Johnson frequently finds himself at companies where a famous founder is leaving. The 59-year-old technology executive was a senior vice president at Microsoft Corp. when Bill Gates stepped down from his CEO seat in 2000. Then, in 2008, Mr. Johnson took over Juniper Networks as its first chief stepped aside. He didn’t expect this to happen again when he joined Starbucks Corp. in 2015 as a lieutenant to longtime CEO Howard Schultz. Within two years, however, Schultz had relinquished the top job and Johnson was thrust into the CEO’s seat.” (Wall Street Journal, subscription required)
  2. Brookfield to Launch Massive Entertainment Venue at Manhattan West “Move over, Vessel — Brookfield’s Manhattan West, which is taking shape just east of Related’s Hudson Yards, has signed its own family-friendly venue to entertain office workers, residents and tourists. But it will be horizontal, not vertical. Brookfield has lured Elemental, a hospitality and “experience design” firm, to launch a 10,000 square-foot entertainment and dining venue at the eight-acre Manhattan West site, The Post has learned.” (New York Post)
  3. What a Top-Performing Real Estate Fund Is Buying Now “Now that companies can handle almost every aspect of their business virtually, real estate investors might be relieved to know there’s still one business that needs plenty of physical space—computer data centers to store all of that virtual information. Steve Shigekawa, manager of the Neuberger Berman Real Estate fund, has been onto this trend for a long time.” (Barron’s)
  4. E-Commerce Driving Bigger Demand for Smaller Warehouses, CBRE Says “Demand for smaller warehouses is soaring as e-commerce and the push for faster delivery accelerates competition for industrial space close to major population centers. Rents for U.S. warehouses of between 70,000 and 120,000 square feet rose by more than 33.7% over the past five years, to an average of $6.67 per square foot, according to real-estate consulting firm CBRE Group Inc. Availability for such spaces plunged to 7.4% from 11.3% during that same period, the biggest drop of any segment in the broader warehouse market.” (Wall Street Journal, subscription required)
  5. Flipped Off: The Inside Story of Coca-Cola’s Botched Building Sale “Coca-Cola’s real estate division must be feeling flat this month. The soft-drink giant had sold its iconic building at 711 Fifth Avenue in August to Nightingale Properties and Wafra for $909 million. But last month, in an unusual twist, Wafra sold its stake in a deal valuing the property at $937 million. Coke had left tens of millions of dollars on the table. Making matters worse, the new buyer was an investment group led by controversial investor Michael Shvo — whose even higher offer of $955 million had been dismissed by the beverage maker months earlier.” (The Real Deal)
  6. Kroger Downgraded with Analysts Calling the Grocer’s ‘Costly” Tech Investment a ‘Misstep’ “Kroger Co. was downgraded to hold from buy at Jefferies, with analysts expressing diminished confidence in the grocer's ability to turn its partnership with Ocado Group PLC into growth. In May 2018, the two companies announced that Kroger had taken a 5% stake in Ocado through a $247 million stock purchase. The technology deal includes automated warehouses and other measures.” (MarketWatch)
  7. Funding a Real Estate Deal: Debt and Equity “In almost all real estate deals, both debt and equity play enormous roles. Most projects require some level of traditional bank debt. Whether the project costs $1 million, $10 million, or $100 million, a bank is normally involved, providing 60%-80% of the total capital. So for a $10 million property, a bank might lend $7 million (70%) of the capital, leaving $3 million of equity required. The bank will charge an annual interest rate on the loan they make but will not receive any actual ownership in the property.” (Motley Fool)
  8. Confusion in Oakland Over Who Gets Coliseum Site—the City or the A’s “Faced with the possibility of the town losing its last major-league sports team, the Oakland City Council has directed city administrators to reopen negotiations with Alameda County over the future of the Coliseum property. The goal is to end the legal wrangling that’s threatening to stall the Oakland A’s new ballpark at Howard Terminal.” (San Francisco Chronicle)
  9. JV Kicks Off 1.3 MSF Los Angeles Project “Responding to the increasingly loud cry for Class A, creative industrial and office space in metropolitan Los Angeles, Overton Moore Properties has launched  Avion Burbank in Burbank, Calif. The approximately 1.3 million-square-foot, mixed-use business park marks the largest infill development to get underway in the San Fernando Valley over the last two decades.” (Commercial Property Executive)
  10. Equity Concerns Raised in Federal Flood Property Buyouts “The first national-level assessment of property buyouts in flood-prone areas, published today in Science Advances, reveals that buyouts funded by the Federal Emergency Management Agency (FEMA) have taken place mostly in high-income, densely populated areas. Projections suggest that it is poor and rural areas, however, that would benefit most from a managed retreat from rising waters.” (Earth & Space Science News)
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