Editors’ Weekly News Roundup, April 10th – 14th
Economic forecasts and the doings of two large institutional players—each with a very different outcome—were the basis of the past week’s top five stories. With headlines on the supposedly dire outlook for commercial real estate continuing to proliferate, a contrarian report in CNBC drew the most attention for the week.
Analysts: CRE Facing “Typical Down Cycle” Rather Than a Crash led the most-read stories last week. The story offered insights from analysts quoted by CNBC who noted that CRE fundamentals outside the office sector remain healthy and that credit metrics continue to be strong.
As a case in point illustrating office’s current challenges, the week’s second most-read story attracted reader interest both nationally and in California. The Brookfield DTLA Fund Office Trust Investor, which placed in the top five most-read stories earlier this year, did it again with a report that it has written down the value of its Wells Fargo Center’s South Tower.
Granted, a write down falls short of actually defaulting on hundreds of millions of dollars in loans, as the Brookfield fund did in February. Even so, Brookfield Takes $111M Write Down on DTLA Tower does point to the potential for more financial turbulence with this property—and by extension, with other office towers in downtown Los Angeles and elsewhere.
At the other end of the spectrum was an institutional investor in the week’s third most-read story. Connect CRE posted a breaking news story, Blackstone Closes Global Real Estate Fund at $30.4B, that characterized Blackstone Real Estate Partners X as the largest real estate or private equity drawdown fund ever raised.
A company that has amassed an enviable track record over three decades of real estate investment, Blackstone is unlikely to let this $30.4-billion fund sit idle. We’ll all be watching to see where it puts its money–i.e., which markets it chooses and which sectors. Since Blackstone’s “buy, fix, sell” model implies having a near-term exit strategy before making a commitment, the company is not likely to buy simply for the sake of buying. Even with $30 billion-plus to throw around.
The minutes of the most recent meeting of the Federal Reserve’s Federal Open Market Committee provided the basis for our fourth most-read story last week. Fed Projects Mild Recession in 2023 Due to Banking Crisis reinforces the market’s belief that sooner or later, the economy will tip into recession. However, in keeping with the outlook projected by this week’s most-read story, the downturn is expected to fall well short of the more dire predictions we’ve seen over the past several months.
That being said, reports continue pointing to a slowdown in CRE—now, rather than in the future. These include the latest Green Street Commercial Property Price Index, the results of which were covered in the week’s fifth most-read story, Green Street: Commercial Property Pricing Drops 15% in March from a Year Ago.
As expected, the office sector withstood the sharpest pricing declines on a year-over-year basis. However, that trend didn’t hold true on a monthly basis: pricing for the sector was flat compared to February.
For a bigger-picture look at office and its place in the CRE universe, Kroll Bond Rating Agency (KBRA) issued a report late last week spotlighting office properties’ lease exposure to companies that have announced or implemented large-scale layoffs. KBRA identified 266 such leases totaling 33.3 million square feet, or an average of 29.6% of the respective property square footage.
The properties secure $35.4 billion of CMBS loans on an allocated property balance basis. Although that’s a sizable figure in and of itself, it represents just 5.6% of the currently outstanding CMBS 2.0 balance. “KBRA’s research reflects that the overall exposure, though large in terms of total [square footage], may not be a significant portion of CMBS,” the company said.