Category: Real Estate

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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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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Deserted College Dorms Sow Trouble for $14 Billion in Muni Bonds

More than $14 billion in municipal bonds were sold to finance student housing projects.

(Bloomberg)—Less than a third of the rooms in a new $90 million dorm set to open this month at the California College of the Arts in San Francisco are taken. An opulent apartment tower financed by $228 million in municipal bonds at Florida International University, with a rooftop pool and gym, hasn’t yet met tenant projections.

It’s a scene playing out on campuses across the U.S. as families skip the usual college move-in frenzy, leaving thousands of dorm rooms empty. That will cascade into the more than $14 billion of municipal bonds sold for student housing, particularly securities sold by private companies relying on rental and leasing revenue to pay bondholders. It’s one of the first places where investors who bet on higher education can expect trouble because of the pandemic.

Colleges for years have been turning to private companies for student housing to shed costs and lure students with state-of-the-art facilities. The companies borrowed the money for construction from municipal bond investors, with a promise to repay with rent and lease revenue. But with schools switching to virtual learning or limiting the number of students who can live on campus, the bonds that are often already risky are facing a major threat.

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Small landlords dip into savings as their tenants struggle to pay rent

More renters are unable to make their monthly payments, and that is having an outsized impact on the nation’s “mom and pop” landlords.

More renters are unable to make their monthly payments, and that is having an outsized impact on the nation’s “mom and pop” landlords.

Nearly a third of renters who live in single-family or small multifamily properties owned by individual landlords were unable to pay their August rent, according to a survey by Avail, a technology and marketing platform for small landlords. That is up from just under 25% in July. Avail received responses from 2,225 landlords and almost 3,000 renters.

The main reason for their inability to pay was loss of employment or reduced income. Additional unemployment benefits put in place when the coronavirus pandemic hit were helping tenants to keep up with their rent, but those recently expired, and a growing number of renters are now missing their payments during a standoff between D.C. Republicans and Democrats over a relief package.

On the other end of the equation, about a third of small landlords rely on that rent for the bulk of their income.

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Despite a Steep Drop in Volume, Industrial Remains the Shining Star of the CRE Universe

The overall slowdown in investment sales activity that affected all commercial real estate assets in the second quarter is not expected to leave a lasting mark on industrial real estate.

The industrial sector has been deemed one of the top performing commercial real estate asset classes, due to low vacancy rates, rising rents in some markets and positive net absorption.

But despite solid fundamentals, investment sales volume in the sector decreased by 50 percent in the second quarter compared to the year before, to $10.3 billion, according to data firm Real Capital Analytics (RCA). According to David Bitner, head of Americas capital markets research at real estate services firm Cushman & Wakefield, in his team’s tally, industrial deal volume was down by about 43 percent in the second quarter compared to the same period in 2019 From the first quarter of 2020 to the second quarter, there was a 46 percent decline in industrial sales volume, he adds. Bitner attributes this to the slowdown in investment activity caused by the coronavirus pandemic beginning in March, as most deals across every property type went into freeze mode.

“We were already anticipating a slowdown on the industrial side pre-COVID-19. People were ready for that. But coming into the downturn, we were in such a fundamentally better place than in previous downturns,” says Carolyn Salzer, director and head of industrial research for the Americas at Cushman & Wakefield. “Rents are still growing… The market is a lot smarter this time around, and with the e-commerce acceleration, it’s causing such a strong demand in the industrial market.”

Net asking rents on industrial properties rose by 100 basis points quarter-over-quarter and 6.3 percent year-over-year to $7.96 per sq. ft. in the second quarter, according to research from real estate services fir CBRE. Rents on warehouse and distribution center properties rose by 5.6 percent year-over-year to an average of $6.68 per sq. ft. These rates are at all-time highs, according to CBRE research.

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