Editors’ Weekly News Roundup, Dec 12th – 16th
Connect CRE was launched with a focus on transactional news, and coverage of the deals you need to know about is what we continue to bring you each day, but it’s also a venue for learning how to sharpen investment strategies. Two of this past week’s best-read stories provided that educational component, each in its own way.
Topping the list was a contributed article from the team at Base Equities, How Preferred Equity Can Be Profitable Even in a Downturn. It presents a preferred equity investment as a third option during a downturn, and a downturn is almost universally expected for 2023 even if not on the same scale as we saw in 2008.
In a recession, Base Equities’ Eli Moghavem and Michael Bastan wrote, many investors either switch to debt strategies—often with significantly lower returns—or sit it out until conditions have improved. As an alternative to either of these pathways, “preferred equity provides investors with the ability to earn an attractive risk-adjusted return with a significant number of inbuilt downside protections that work to lower risk,” they wrote.
Of course, another time-honored real estate strategy is to join the crowd. Although that sometimes leads to overbuilding, it can also be the most sensible course of action: go where the demand is. Three developers are doing just that in Chicago’s Fulton Market District, planning to add as many as 2,100 new apartments and an office building to a neighborhood that is already a hotbed of activity.
It’s telling that none of the three firms whose plans were detailed in the past week’s number two story, Three More Developers Join the Fulton Market Parade, is local to Chicago. That Miami-based Crescent Heights, New York-based Vista Property Group and Vancouver, Canada-based Onni Group all want in on the Fulton Market action gives you an idea of how far the excitement around this neighborhood has spread.
The Fulton Market phenomenon may be strictly local, but the week’s third best-read story is about a scenario that unfortunately is playing out from sea to shining sea. 500 USAA Employees Ditching Downtown San Antonio Office Towers is market-specific and company-specific. It also doesn’t entail any office landlords that will be left with sizable vacancies to deal with, since USAA owns the two downtown office buildings it’s phasing out.
However, USAA is far from the only major employer to shrink its office footprint. “Like many companies, the pandemic and a shift to hybrid and remote working have changed our real estate need as we have ample space for current and future employees in our Home Office campus,” said USAA’s Wayne Peacock. In the months or years to come, we may be reading about a new owner of these downtown San Antonio buildings and the challenges that landlord will face in re-tenanting the properties—or the landlord’s plans to convert them to apartments.
Speaking of converting obsolete space to residential use, that’s just what Century Investment is planning to do in L.A.’s Brentwood neighborhood. As detailed in Century Investment Plans 24-Story Tower in Brentwood, the week’s fourth most-read story, the firm wants to tear down a shopping center along Wilshire Boulevard and put up a mixed-use building with apartments and office space. That could represent a best-of-both-worlds scenario if the apartment dwellers happen to be employees of the office tenants—no need to incur the headaches of a daily commute.
It’s not clear whether Century Investment is thinking along these lines, but a report from Yardi Matrix’s Coworking Café identifies a new trend of incorporating co-working space into residential and retail mixed-use development for a real live-work-play package—and a smart investment play for development. Report: Flexible Workspace Helps Drive LWP Development is the past week’s fifth most-read story, and quotes Yardi Matrix as calling this “a natural response to the rising demand for flexible workspaces from remote workers, freelancers, startups or smaller businesses.”
Not making the top five sitewide for any one story this past week was a trend that has become more prevalent across the markets we cover. That’s the tie-in between real estate and alternative energy sources. NYC Names Developer for Staten Island Offshore Wind Port Facility, Kontrollmatik Technologies Selects Colleton County for $279M Lithium Ion Battery Factory, Thornton Tomasetti Adds VP to Focus on Decarbonization Business and Boston University’s New Fossil-Free Building Harnesses Geothermal Resources all ran in the space of a week. So did US Largest Green Hydrogen Plant Set for N. Texas County.