Author: Suraj Shrestha

Suraj Shrestha is an associate at Harborside Partners. He has been taking the lead role on research projects; to develop and implement online marketing strategies for search engine optimization and social media marketing. He is one of the core parts for helping to grow business revenue and the company’s online presence.

Apartment Developers Scout Adaptive Reuse Possibilities

That math will become easier for developers if more distressed properties become available at a steep discount.

It’s too soon for most developers to sign a contract to buy a failed hotel—but apartment developers are watching and waiting for prices to drop to buy other property types damaged by the economic crisis to redevelop into multifamily buildings.

Even before the crisis, apartment developers were eager to buy well-located properties like old office towers and empty malls that they could transform into apartments. The chaos of the pandemic caused most of these developers to pause and wait for new opportunities, such as distressed hotels available at a discount.

“There is just little interest on the part of developers to jump into anything like that at the moment,” says Jim Costello, senior vice president for data firm Real Capital Analytics, based in New York City. “Assets are not being sold at substantial discounts … yet.”

Hotels may be the fastest conversions to apartment

However, at least a few redevelopers have leapt to buy hotel properties—6 percent of hotel assets bought in the second quarter of 2020 were acquired with the intent to redevelop or convert the properties to a new asset class, according to Real Capital. This rate of purchase for redevelopment was twice the average rate seen in a second quarter between 2014 and 2019.

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Mall owners Simon, Brookfield set to rescue JC Penney from bankruptcy in $800 million deal

U.S. mall owners Simon and Brookfield are close to finalizing an $800 million deal to rescue J.C. Penney from bankruptcy.

U.S. mall owners Simon Property Group and Brookfield Property Partners are close to finalizing an $800 million deal to rescue the embattled department store chain J.C. Penney from bankruptcy, avoiding a total liquidation and saving about 70,000 jobs and 650 stores, Joshua Sussberg of the law firm Kirkland & Ellis said Wednesday.

Simon and Brookfield will pay roughly $300 million in cash and assume $500 million in debt, Sussberg said during a court hearing.

Wells Fargo has also agreed to give Penney $2 billion in revolving credit once the transaction is completed, leaving the retailer with $1 billion in cash, he said. Penney plans to seek approval from the bankruptcy judge for this rescue deal early next month.

Meantime, the hedge funds and private equity firms that have financed Penney’s bankruptcy are set to take ownership of some stores and the retailer’s distribution centers, in exchange for forgiving some of Penney’s $5 billion debt load. Penney’s lenders, led by H/2 Capital Partners, are going to own those assets in two different real estate investment trusts, or REITs, Sussberg said.

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Become a Master Strategist: Today’s Key for Successful Landlords

Being successful landlords and property managers in today’s environment involves some key strategies, including your eviction process, that veteran landlord David Pickron sets out.

By David Pickron

I have always had a lead foot. It is hard to admit, but with my hard-charging personality, I just want to get where I am going… fast.

As a young man, to prevent countless tickets, I purchased a radar detector that allowed me to sense a police officer before he or she could see me. Police departments realized they were being outsmarted by this technology and needed to make a change, so they started using a different band that most consumer radar detectors did not have at the time.

The private market reacted as it always does, and soon you could buy a radar detector that included the new bands used by law enforcement. This produced a battle between radar-detector companies and police, with one making a move, only to be met with a counter move by the other.

Evictions tug of war

We find ourselves in a similar tug-of-war when it comes to evictions, where the CDC has now made a move to stop all evictions nationwide until Dec. 31 in an attempt to limit COVID-19 spread through homeless shelters or crowded family shelters.

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Blackstone to Boost Mobile-Home Bet With $550 Million Deal

The firm is in negotiations to acquire about 40 mobile home parks, most in Florida, from Summit Communities.

(Bloomberg)—Blackstone Group Inc. is pouring more cash into mobile-home parks, a corner of the commercial real estate market that is holding up in the pandemic.

The alternative asset manager is in exclusive talks to acquire roughly 40 parks from Summit Communities for about $550 million, according to people with knowledge of the matter. The majority of the properties are located in Florida, said some of the people, who requested anonymity because the transaction isn’t public.

Real estate investment trust Sun Communities Inc. was among the bidders for the Summit portfolio, some of the people said.

Blackstone is set to make the investment through a vehicle known as Blackstone Real Estate Income Trust, or BREIT, and plans to spend money upgrading the properties, including shared facilities such as swimming pools, one of the people said.

“Though our investments in this asset class are very limited, we are proud to partner with a best in class operator and plan to invest significant capital into these communities – which are largely occupied by seasonal residents and retirees – to create high quality housing in places where people want to live,” a representative for Blackstone said in a statement.

The deal, which isn’t final and may still fall through, comes after Blackstone invested in mobile-home parks earlier this year. The New York firm paid around $200 million for seven parks, mostly in Florida and Arizona, owned by Legacy Communities, according to people familiar with that deal.

Representatives for Summit, Sun and Legacy didn’t immediately respond to requests for comment.

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Campus Outbreaks Have Muddied the Picture for Student Housing

Operators are experiencing big variances in occupancy rates for the fall semester.

Off-campus student housing operators have endured a rocky month as many universities around the country that brought students back for the fall semester suffered immediate COVID-19 outbreaks. That caused some schools to send students back home. It also led to other schools watching the carnage at the early openers to change their own plans for in-person classes.

One example of that was Michigan State University, which at the last minute scrapped plans to bring students back and instead has opted for online instruction.

“Effective immediately, we are asking undergraduate students who planned to live in our residence halls this fall to stay home and continue their education with Michigan State University remotely,” said Michigan State president Samuel Stanley in an August 18 letter to students.

So once again, the novel coronavirus is tearing up plans for the fall 2020 semester. Michigan State joins colleges like the schools in the University of California system, which had already announced that they would not hold class in person.

According to the latest tracking by the Chronicle of Higher Education and Davidson College’s College Crisis Initiative, just 2.3 percent of the 3,000 higher education institutions being tracked are fully in person for the fall semester. Another 19 percent are primarily in person, 16 percent are taking a hybrid approach, 27 percent are conducting classes primarily online and 6 percent are fully online. In addition, 24 percent of the institutions were still finalizing their plans. Those numbers have moved a lot from just a month ago.

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9 retailers that are avoiding the industry’s shakeout and opening stores

The coronavirus pandemic has upended the retail industry and pushed dozens of companies into bankruptcy.

But there are still pockets of growth, with a number of retailers looking to open additional stores.

Altogether, as of Friday, retailers have announced 7,707 store closures and 3,344 store openings so far this year, according to a tracking by Coresight Research.

While much of the turmoil in the industry has stemmed from apparel chains and department store operators, the expansion finds itself in a number of other categories: beauty, home goods, discount and grocery chains.

Here are 9 retailers opening more stores in 2020 and beyond.

At Home

Market capitalization: $966 million
Stock performance year-to-date: +173%

At Home Chief Executive Lee Bird said earlier this summer the company could grow from the 219 locations it has today to more than 600 shops nationwide, building on the momentum it has seen at its stores and online during the coronavirus pandemic. While shoppers have curtailed spending on apparel and other accessories, more are shopping for furniture and other items to spruce up their homes. Companies like Wayfair and Pottery Barn have benefited from the trend as well.

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Cross-Border Investment Dropped Sharply in the First Half of 2020. But Foreign Buyers Will Come Back.

In spite of the current situation, global real estate investors still have a favorable view of the U.S. market.

While cross-border capital flows have declined considerably in the second quarter, industry sources expect foreign investors to return some time next year.

Cross-border investment sales activity fell sharply to $3.9 billion in the second quarter of 2020 due to the overall slowdown caused by the pandemic. Foreign investors represented 8 percent of total U.S. investment activity during the period, well down from the 22 percent high mark set in 2015, according to a recent report from data firm Real Capital Analytics (RCA). For the whole first half of 2020, cross-border investment in U.S. commercial real estate dropped by 34 percent year-over-year, according to a report from real estate services firm CBRE. JLL estimates foreign investment volume decreased by 29 percent in the first half of 2020 compared to the first half of 2019.

Industry sources maintain this pullback is not a sign of global investors writing off the U.S. as an investment destination.

“In some ways, the environment is quite good for foreign capital [investment] into real estate because the hedging costs have just dropped right down,” says Richard Barkham, global chief economist at CBRE. “We have got some pretty hot sectors in industrial and logistics. The U.S. has always been seen as the highest performing economy in the world. So, we do expect that investment to come back.”

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Negative Real Rates Aren’t Reversing Anytime Soon: Paul Podolsky

Money has flowed into the economy in a short period of time without sparking inflation or causing real rates to rise and should open the door to more aggressive fiscal action.

(Bloomberg Opinion) — The collapse in real interest rates to below zero means the U.S. government is being paid to borrow and spend. This is obviously rare, but that doesn’t mean the situation will soon reverse. Absent a low probability event like mass civil unrest or a balance of payments crisis, about the only thing could spur real rates to turn positive would be a massive infrastructure plan by the government.

Now would seem an ideal time for the government to borrow and spend to fix the nation’s increasingly creaky infrastructure. The World Economic Forum ranks the U.S. 13th in the world in terms of the quality of infrastructure, well behind places like Singapore, Switzerland and Germany. But although there is bi-partisan support for additional infrastructure spending, plans put forth by both Republicans and Democrats are too small to move the needle in terms of boosting economic growth by enough to meaningfully push real interest rates, or those after accounting for inflation, back above zero.

This has enormous implications for financial markets. Declining real rates have been the tail wind behind the 40-year upswing in the stock market. Real rates, especially those at the longer end of the yield curve, are a key factor for investors in determining the appropriate price-to-earnings ratio for equities. In short, the lower the real rate, the higher the ratio investors should be willing to accept. But should real rates rise, asset markets will need to re-price, potentially demolishing popular bets like those on technology stocks, gold and illiquid credit assets.

Although tighter coordination between fiscal and monetary policy coordination make it much easier to pull off a big infrastructure program, I’m betting the government is too timid take advantage of the remarkable opportunity in negative real rates. As a result, I’m sticking with an asset allocation that benefits from real rates staying low or even becoming more negative.

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U.S. Commercial-Property Prices Fall with Worst Yet to Come

Year-to-date through July, hotel prices fell 4.4 percent, retail prices 2.8 percent office prices 0.9 percent, according to Real Capital Analytics.

(Bloomberg)—U.S. commercial real estate prices are falling as the economic toll of the Covid-19 pandemic worsens — and the decline is just getting started.

Indexes for office, retail and lodging properties all slipped year-over-year in July, data from industry tracker Real Capital Analytics Inc. show. Transaction volume plummeted to $14 billion across all sectors, down 69% from July 2019.

“The worst is yet to come,” Real Capital Senior Vice President Jim Costello said in a telephone interview. “We’re not seeing the fallout yet of owners selling properties and taking a loss.”

Commercial real estate deals have been in a deep freeze as lenders give borrowers slack to defer payments and landlords are reluctant to drop asking prices. That may change in the next few months as debts mount and the outlook dims for retail, hotel, office and even apartment properties that already suffered from oversupply before the pandemic hammered the U.S. economy.

“I wouldn’t be surprised if we start to see some of it start to break in September or October,” Costello said.

Hotel prices dropped 4.4% in the year through July, while retail declined 2.8% and offices fell 0.9%, according to Real Capital. Apartment building prices climbed 6.9%, and industrial values rose 8.3%, leading to a 1.5% gain for all property types in the period.

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Hundreds of thousands of people looking for suburban homes — Sternlicht on exodus from cities

“I would say it’s not as driven by the Covid situation as it is safety and law and order,” global investor Barry Sternlicht told CNBC.

Global investor Barry Sternlicht told CNBC on Tuesday he believes masses of people are moving away from major U.S. cities in favor of the suburbs.

“There’s hundreds of thousands of people looking for suburban homes, and I would say it’s not as driven by the Covid situation as it is safety and law and order, and that is now pervasive across the big cities of the United States, sadly,” Sternlicht said on “Squawk Box,” referring to recent protests that have sometimes turned violent.

Tax policy is another force that could be playing into the desire for affluent people to relocate from large cities such as New York, said Sternlicht, founder and CEO of investment firm Starwood Capital, which focuses on areas such as real estate and energy infrastructure.

Although cities may be facing declining revenues as a result of the coronavirus pandemic, Sternlicht said, “if you tax the wealthy even more in New York City … and they leave, then the social net has to be absorbed by the remaining residents and you can force them to leave.”

“The Biden tax plan, which I’m happy to pay more taxes, but I don’t think this increase in the capital gains rate is a good idea for investment in our country, which we need to do,” he said. And if that passes and the the limit on state and local tax deductions is not repealed, “you’re talking 60% plus taxes on the wealthy in New York City, and they will leave.”

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