US Retail Leasing at Fastest Pace in 20 Years

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Good morning. Demand for retail space in U.S. shopping centers is at a two-decade high, with an average leasing time of just 8.5 months.

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MALL MANIA

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• Latest metrics: In May, national PSF prices for CRE grew by 3.76%, while cap rates compressed to 6.6%. The top 3 markets for price gains were NYC, San Diego, and San Francisco.

• Vexing valuations: In a volatile market with $1.2T in commercial mortgages maturing by 2025, appraisers play a more important role than ever in setting values for refinancing and sales.

• Hospital restrictions: Massachusetts is seeking to prevent REITs from owning hospitals in response to Steward Health Care’s bankruptcy, sparking debate among industry observers.

• Billionaire boomtown: Florida CRE hasn’t gotten the memo yet. In fact, Brickell landlords are still seeking record prices, with a $650M listing attracting 15 offers.

• Calm before the storm: This year, $1 T of the $2.8T wave of CRE loans set to mature by 2028 will be due, but a similar wave of distress hasn’t yet hit the markets.

• Deal of the day: WaFd Bank (WAFD) sold $2.8B in multifamily loans to Bank of America (BAC). The 2K loans currently have an unpaid principal balance of $3.2B.

• Much-needed capital: Jeffrey Gershon's Hope Street Capital secured a $69M loan for Mason Grey, a Brooklyn multifamily building with amenities and units.

• Making lemonade: Faced with low transaction volumes, apartment developers are shifting focus to renovating rather than buying, aiming to improve older properties in their portfolios.

• East Bay empire: A Southern California investment firm acquired a rare luxury multifamily property in the pricey East Bay Area neighborhood of LA.

• Decoding apartments: American apartment rents reveal that Class A units are 28% more expensive than Class B units nationwide, with regional variations.

• Silver screen scare: Post-pandemic Hollywood continues to face uncertainty and disruptions to its traditional business model, with 20% lower employment compared to before the pandemic.

• Warehouse wow: A warehouse in San Francisco just sold for $40M, one of the highest prices in recent years, signaling Silicon Valley optimism despite recent sales slowdowns.

• Jacksonville warehouses: Bixby Capital Management bought 2 Class A warehouses totaling 423.5KSF in Jacksonville’s Crossroads Distribution Center from Link Logistics for $53.5M.

• Delayed dreams: Brookfield's (BN) plan to convert 125 malls into minicities faces delays, with only two of the malls on its to-do list redeveloped so far.

• What goes up: Retailers are cutting prices as robust post-pandemic consumer spending slides. The CPI is staying steady at 3.4%, with a headline rate of 3.6%, a core rate of 3.6%, and a PCE rate of 2.8%.

• Beauty is pain: Embattled retailer Forever 21, which filed for bankruptcy in 2019, is asking for 50% rent cuts amid declining sales and stiff competition in the fast-fashion market.

• Office shuffle: The U.S. office market reported $10.2B in May deals, with an average sale price of $165 PSF and 17.8% vacancy nationwide, as big landlords expect distress into 2025.

• Taking all bidders: A 920KSF, 35% occupied Midtown office building that recently underwent a $76M renovation was listed on Ten-X with a $7.5M starting bid.

• Deal dissolved: Miami-Dade County canceled a delayed $160M deal to buy an 80-acre Assurant office complex, which was intended for a new government center development.

• Chasing success: JPMorgan Chase (JPM) is doubling its Miami office footprint to 160KSF, adding 400 employees while expanding across Florida.

• Getting it done: New Jersey's Briad Group secured $40M in retroactive C-PACE financing to refinance a San Diego Marriott (MAR).

• Innovating for loyalty: CEOs at the 2024 NYU Hospitality Conference emphasized the need for CRE to evolve and adapt to changing consumer demands. Find out what they recommend.

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