CRE Distress Climbs to $94.2B in Q2 Driven by Office and Apartment

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Good morning. According to MSCI's Capital Trends US Distress Tracker, total cumulative U.S. commercial property distress hit $94.2 billion in Q2 2024, increasing by $2 billion from the previous quarter.

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🎧️ Episode 3 of No Cap is now live! Jack and Alex delve into the latest commercial real estate headlines, including Biden's Rent Control Proposal, multifamily delinquencies, the economy, and more.

Market Snapshot

property distress

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• Skyrocketing prices: Starter homes now cost $1 million in 237 U.S. cities, highlighting a dramatic rise in entry-level home prices over the past five years.

• Mega-expansion: Pompano Beach's massive 225-acre development, The Pomp, aims to add 4,000 homes and extensive retail, office, and entertainment spaces.

• Mr. acquisition: Mr. Cooper is acquiring Flagstar’s mortgage operation for $1.4 billion, adding 1.3 million customers and $356 billion in assets to its portfolio.

• West Coast exit: Wood Partners, the nation's fourth-largest apartment developer, is closing its West Coast operations, citing difficulties in building housing in the region.

• High-Rise: Core Spaces is advancing a 26-story student housing tower near UC Berkeley, pending approval. The tower will feature 456 units, retail space, and a sustainable design.

• Land Use: Dallas' ForwardDallas 2.0 land use plan advances to the city council, sparking debate over its potential impact on single-family neighborhood zoning amid an affordable housing shortage.

• Tampa bet: Fannie Mae grants a $77 million loan to Daniel Corp for The Mav in Tampa’s Channel District, providing extra time for lease-up and stabilization amid rising interest rates.

• Slowdown: U.S. industrial construction saw a significant decline in 1H24, with only 97.8 million square feet (MSF) of new space starting construction compared to 147 MSF last year.

• On the rise: Despite higher interest rates curbing new construction, Chicago's industrial real estate market has decreased vacancy rates and significant build-to-suit activity.

• Wealthy appeal: McDonald's new CosMc's concept is attracting wealthier customers with its upscale, drive-thru-only offerings.

• Tech-driven: The American Dream megamall is using AI and data analytics to optimize customer experience and store operations.

• Blocked: A judge last week has paused the $25B Kroger-Albertsons merger after Colorado Attorney General Phil Weiser argued it would harm competition, consumers, and workers.

• Turnaround: Feil Organization surrenders 730 North Franklin Street to Beltway Capital via deed-in-lieu of foreclosure, with R2 investing to revitalize the struggling office space into smaller, rentable suites.

• New campus: Westwood US, affiliated with UK's Wellington College, buys a former Airbnb office in San Francisco for $24M to establish Hiba Academy, a Chinese-American prep school.

• Discount deal: L.A.-based BH Properties is set to purchase the half-empty 117,000-square-foot office building at 989 Market St. in San Francisco for $13.5M, an 80% discount from its $61.3M valuation a decade ago.

• Regulation: A new bill in NYC aims to regulate nonunion hotels by banning them from outsourcing key functions, igniting strong reactions from both hotel owners and the Hotel and Gaming Trades Council.

• Loan monitoring: A $22.4M loan on the Fort Lauderdale Marriott North has entered special servicing due to a December maturity and increased expenses impacting cash flow.

📈 CHART OF THE DAY