Manhattan Rents Went Up Instead of Down

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In today's issue: Manhattan's median rents reached an all-time high in January, driven by a robust job market and a scarce supply of apartments. Billionaire Stephen Ross is betting on the trend of wealth migration from the Northeast to South Florida to persist. Meanwhile, a national mall property owner just posted its strongest leasing year since the Great Recession.

📖 Read this analysis from EisnerAmper that casts light on macroeconomic factors affecting CRE (especially multifamily).

🖥️ Watch Ken Gee talk about the five steps to renovating multifamily properties on this episode of The Very Real Estate Effect.

🎧 Listen to this episode of Perspectives from MSCI to learn about the drivers impacting the economy—and what investors should focus on.

RENTS ON THE RISE

Manhattan Rents Rise to Third-Highest on Record, Vacancy Drops for First Time in 9 Months

Contrary to analyst predictions, median rents in Manhattan reached a new record high in January, according to a recent report from Douglas Elliman. Analysts had expected rents to decrease, but demand remained robust despite a slowing economy and widespread layoffs.

Back on the job: The primary driver for the rental market’s healthy demand is the city’s strong job market. Despite nationwide layoffs across Big Tech, NYC jobs have held the line. New leases went up by 8% in December and grew another 9% in January. Clearly, higher rents aren’t putting off renters who think the Big Apple is well on its way to a full recovery.

Fewer vacancies: Another factor contributing to Manhattan’s resilience is—you guessed it—an overall lack of apartment inventory. There’s more demand for high-quality rentals in prime locations, but a much smaller supply given space and zoning constraints. Still, the number of desirable (and available) apartments across the island is slowly increasing. Manhattan’s January vacancy rate was 2.5% even lower than the 3% rate analysts expected.

➥ THE TAKEAWAY

Stay right there: It’s hard to see NYC rents going down in a place where 1 in 5 luxury rentals results in a bidding war, something that used to be nearly unheard of before the pandemic. But at the same time, sky-high apartment ownership prices are causing potential buyers to choose to rent instead. Analysts remain optimistic, positing that 2023 will be a strong year for rentals—especially if the US economy and job market keep recovering.

HITTING THE BEACH

Billionaire Stephen Ross Sees a Sunny, Fine Future in Florida

Billionaire and founder of The Related Companies, Stephen Ross, has read the tea leaves and believes wealth will keep leaving the Northeast for South Florida. Related Cos. is reportedly seeking projects outside of West Palm Beach and Miami, where they’ve already staked their claim.

Stating the obvious? Ross’s opinion isn’t exactly out of left field, as big firms have already moved or expanded into the Sunshine State. Notable examples include Ken Griffin’s Citadel moving its HQ to Miami, as well as Apollo Global Management and Blackstone finding new homes there, too. Ross thinks people aren’t just moving to South Florida these days to retire but also to follow high-paying jobs. By comparison, old gateways like NYC and San Francisco are begging for tenants to lease offices.

Off to a strong start: Related Cos. has already experienced success in South Florida with its mixed-use project ‘The Square.’ The development attracted the attention of tenant Goldman Sachs, and numerous finance firms have signed a lease at Related’s One Flagler property in West Palm Beach. Such streamlined success in an otherwise struggling office sector shows that Ross isn’t taking shots in the dark—he likes what he’s seen so far and is ready to double down on what works.

➥ THE TAKEAWAY

Two birds with one stone: Of course, Ross isn’t writing NYC off completely, because that would be crazy. He’s merely observing that market hotspots are changing in long-lasting ways. Old centers of power are shifting across the country to new locations. But at the same time, Manhattan is getting younger as wealthier, older residents choose to migrate. If anything, by investing in both South Florida and the coasts, Ross is simply targeting two different demographics.

MALL MANIA

Nation’s Biggest Mall Landlord Sees Record Leasing Activity

While most of the mall sector is still reeling, the nation’s largest mall landlord, Macerich (MAC), has outperformed even their own expectations. Turns out that their portfolio of high-end retail properties is signing tenants left and right.

Leasing like hotcakes: The Santa Monica-based investment trust claimed to have signed close to 975 leases last year. Together, that’s 3.8 MSF, an astronomical number not seen since the 2008 recession. Macerich also saw a 3% increase in tenant revenues from 2021 as portfolio sales per SF for properties under 10 KSF jumped 8.6% from $801 in Q4 2019 to $870 by Q4 2022. The demand is there.

Brick-and-mortar bliss: Macerich’s leasing success may indicate that retail landlords could be seeing the benefits of a return to in-person shopping after the e-commerce boom early in the pandemic. And according to CEO Tom O’Hern: “There is robust retailer demand, and even though we continue to see foot traffic at about 95% of pre-pandemic levels, sales are up compared to before.”

➥ THE TAKEAWAY

Guess malls aren’t dying: By the end of 2022, Macerich’s portfolio reached 92.5% capacity, up 410 basis points since its low point in Q1 2021. With numbers like these, the mall titan plans for its leasing pipeline to hold 2 MSF and $62M of incremental rent. It remains to be seen how economic headwinds will affect their bottom line. But if retailers are this eager to lease, then mall shopping may just be back.

• Fork in the road: Private REITs were all the rage over the past few years, but 2023 could be The Year of The Public REIT. Either way, savvy REIT investors should have plenty of opportunities.

• Back in Black: Citadel CEO Ken Griffin has revealed the secret to the firm’s record $16B in profits: workers returning to in-person work at Citadel offices.

• In the driver's seat: More retailers are investing in logistics. Just recently, GAP (GPS) put $700M into automation while American Eagle (AEO) launched a new delivery network.

• We still want that house: Despite sky-high mortgage rates, 9 out of 10 major US metros posted price gains for single-family homes in Q4.

• Digital town square: If ads are digital real estate, then FOX Corp (FOX) has been making a killing. The network exhausted its ad inventory, with the average sport spot costing $6M–$7M.

• Tactical retreat: After a tumultuous year deciding what to do with its assets in Russia, Hines is beginning to unload its $2.3B holdings in the war-embroiled country.

• The House of Mouse: As Disney (DIS) announced $5.5B in cuts as they seek to make Disney+ profitable. The good news is their parks have returned to pre-pandemic attendance levels.

• Much-needed reprieve: While mortgage and refinancing applications are still reeling from the Fed’s rate hikes, it appears both rates are modestly increasing.

• Accidental archaeology: A project site in Miami uncovered the remains of society from 7,000 years ago, sparking a debate about preserving the past during the city’s recent boom.

• LA in the lurch: January saw LA rents rise YoY, although one bedroom rents were down from December. The seasonal winter slowdown is the likely culprit.

• Public-public partnership: Colorado it thinking about using public land for affordable housing. Private land costs are the biggest barrier and public land would sidestep the problem.

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🤝 Deals & Dealmakers

• Playing the hits: Universal Music Group (UMG) has become part-owner of the Capitol Records Building in LA, having bought a 50% stake and entering a 20-year lease for the property.

• Recap shuffle: Real estate investor Adler Real Estate Partners landed $193M in permanent financing to recapitalize a light industrial portfolio holding nine properties.

• Shopping for tourists: Hanley Investment Group has managed the sale of El Dorado Shopping Center in Long Beach for $21.2M. The buyer was Milan Capital Management.

• Loving life sciences: Cushman & Wakefield (CWK) have brokered the sale of an R&D and life sciences property in San Diego to buyer BentalGreenOak for $35.75M.

• The wheels of industry: LaSalle Investment Management acquired a 601 KSF industrial building in San Diego from an Ares Management Real Estate fund for an undisclosed amount.

• Hilton Hospitality: Hilton Grand Vacations (HGV) snapped up a new Midtown timeshare hotel from 54 Madison Partners for $136M according to public records.

📈 Chart of the Day

The pandemic caused the rate of multifamily vacancies to reach uncharacteristic lows. Fannie Mae anticipates that vacancies will begin rising again through 2023–2024.

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