Good morning. Hyatt Hotels is acquiring the brand and management platform of New York-based Dream Hotel Group in a deal worth up to $300 million. A myriad of economic concerns have led to an inversion of the yield curve, causing investors to speculate on what lies ahead. Meanwhile, rising interest rates are making Luxembourg-based Adler Group mark down its portfolio and scramble to stay afloat.

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🎧 Podcast of the Day: In the ever-evolving era of remote and hybrid work, how can leaders best manage different generations of workers? What does all this mean for office landlords? FTI Consulting MD Rob Raymond weighs in. (CPE Podcasts)

DREAMY DEAL

Hyatt Hotels (H) is continuing its spending spree with its $300M acquisition of the brand and management platform of New York-based Dream Hotel Group.

Following incentives: Hyatt plans to add 12 of Dream’s NYC hotels to its management portfolio and loyalty platform. Hyatt is set to pay $125M for Dream’s brand and management business, with another $175M contingent on 24 additional hotels being signed to long-term management agreements in Dream's pipeline.

Expanding their footprint: Hyatt is focused on creating differentiated modern experiences for its guests, according to CEO Mark Hoplamazian. “The Dream brand in particular appeals to a younger cohort of high-end travelers that avidly seeks out nightlife and celebratory dining venues and experiences.” The major acquisition reflects Hyatt’s continued focus on expanding its lifestyle portfolio.

THE TAKEAWAY

Asset-light diversification: In 2018, Hyatt purchased Two Roads Hospitality. And in 2021, the hotel brand snapped up Apple Leisure Group. Earlier this year, Hyatt also agreed to a collaboration with German Lindner Hotels to add 30 properties in Europe. The Dream acquisition represents a strategic move towards the same goal: diversifying Hyatt's portfolio without adding real estate.

WARNING SIGNS

Could an Inverted Yield Curve Signal Tough Times Ahead?

When interest rates on shorter-term bonds are higher than interest rates on longer-term bonds, there’s typically a recession incoming. And as things stand, the yield curve is looking more and more inverted.

Yield curve 101: Geopolitical and economic pressures—such as the Russia-Ukraine war, protests in China, and rate hikes—are creating an inversion in the yield curve. Investors foresee an economic slowdown, with the Fed cutting rates even further to avoid a full-blown recession. When bonds mature, however, rates will go back down, so investors can’t make as much by reinvesting. Naturally, investors want higher short-term bond yields to make up the difference.

Correlation, not causation: As of Nov. 29th, the 3-month Treasury yield is 4.35% and the 10-year treasury yield is 3.74%. And rates have been like this for weeks. According to Federal Reserve governor Christoper Waller, “the 3-month/10-year inversion has presaged a recession in 7 out of 9 recessions between 1957 and the Great Recession [in 2008].”

THE TAKEAWAY

No crystal ball: The Atlanta Fed is forecasting Q4 GDP growth of 4.3%, which is not bad at al. Employment remains strong, despite recent tech layoffs. Simply put, yield curve inversion doesn’t always imply a recession, but it does more often than not. Ignoring these telltale signs could be a costly mistake.

FIRE SALE

Rising Interest Rates Are Terrorizing Adler Group’s Portfolio

Adler Group, a Luxembourg-based real estate company focused on residential properties in Germany, marked down its real estate portfolio due to interest rate pressures. The company is racing to secure funding while battling short-seller fraud allegations.

Cut your losses already: To keep its loan-to-value ratio below 60%, Adler has been forced to sell thousands of apartments. The company plans to become a Berlin-focused business with minimal exposure to development projects, which were a main focus of the short-seller allegations made against Adler.

Bring your own auditor: Under heavy scrutiny, KPMG quit as Adler’s auditor back in May. Since then, the company has had discussions with other auditing firms, but so far negotiations have been unsuccessful. Adler is currently asking a German court to appoint a new auditor for its German operations, but the outcome is still up in the air.

THE TAKEAWAY

Need a lifeline, fast: Adler’s future is ultimately in the hands of its creditors. A rescue loan of €937.5M would grant the company a lifeline through at least 2025, but it must first get 75% approval from bondholders to proceed. The company will update the market next week on how many bondholders have accepted the restructuring. Stay tuned.

📰 Editors' Picks

• Smell the lawsuits: A proposed bill would require NY City Council members to publicly disclose whether their primary residence is a rent-stabilized apartment.

• Education nation: In a surprising turn of events, net lease investors are scooping up childhood education centers as customer demand remains robust and keeps growing.

• Collusion course: The DOJ has finally launched an investigation to determine if RealPage, the property management software company, helped landlords collude on rent prices.

• Burn baby, burn: Atlanta’s booming population growth and recent urban redevelopment have made housing unaffordable for renters and homebuyers.

• ENABLERS Act: Since 2017, nearly $2B of illicit funds have been laundered through the US real estate market. The proposed ENABLERS act will require ownership disclosure and proof of funds for large real estate purchases.

• CMBS distress: A $26.1M CMBS loan on a struggling 84 KSF office property in Washington, DC, is officially 30 days delinquent.

• Cost of convenience: Despite lower projected retail spending and the continued growth of ecommerce, Institutional and retail net lease investors are swooning over convenience stores.

• Iger to the rescue: With Disney+ (DIS) streaming losses creeping above $8B, investors are concerned about shrinking profits at Disney’s amusement parks, too.

• Rates & rents: Suddenly sky-high mortgage rates have closed the doors on would-be homeowners, shifting housing demand towards rental housing for the foreseeable future.

🤝 Deals & Dealmakers

• Permanently affordable: A trio of developers will build a $2B development in Astoria, Queens, producing 3,200 apartments, half of which will be permanently affordable.

• A new record! Broad Street Realty and Fortress paid $122M for a new development in Williamsburg, VA, setting a price record for the city.

• In the name of science: Oak Street acquired a 336 KSF life science campus in Durham, NC, from Syngenta for $213.3M.

• Art Week returns: The developers of the $4B Miami Worldcenter debuted a 27-acre outdoor museum a month before Art Basel festivities commence.

• Logistics behemoth: Principal Global Investors acquired an 824 KSF logistics building in Salt Lake City, Utah, from Pacific Industrial.

• A dying breed: Barings and Bank OZK closed on $385M in financing for a waterfront multifamily development that is one of the last of its kind in Brooklyn’s Williamsburg submarket.

• Committed to communities: Chicago-based BMO Harris Bank has committed over $40B to local communities across the country, including over $16B earmarked for CA.

📈 CHART OF THE DAY

Here's a fascinating chart showing the entrance cost to buy versus rent a home -- and the discount to rent has never been bigger than it is today.

ICYMI

What happened last week...

• Atlanta's Data Center Market is Booming But Running Out of Room

• Kushner Secures Fortress Loan For Hostile Takeover

• Investor Home Purchases Flop 30% In Q3

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.