Editors’ Weekly News Roundup, Feb 13th – 17th
One effect of the slowdown in commercial real estate transaction volume has been the cyclical phenomenon of top talent seeking greener pastures. Connect CRE has reported several such job changes over the past year or so, and this past week we reported on one of the highest-profile switches ever. Doug Harmon and Adam Spies Jump to Newmark was the headline, and our readers made the story far and away the best-read of the past week.
The two investment sales titans, and their team, made headlines seven years ago when they left their longtime home base at Eastdil Secured and moved to Cushman & Wakefield. Now it’s Newmark’s turn to trumpet the arrival of Harmon and Spies, who have amassed a sales total of a quarter trillion dollars since 1997.
Although they’ve brokered deals across the U.S., Harmon and Spies are based in New York and have notched up some of their biggest deals there. That’s about it for a New York focus in the past week’s top stories, though; three of the five are focused on Los Angeles.
The week’s second best-read story illustrates another phenomenon of the current market: weakness in the office sector, to which even the biggest institutional players haven’t been immune. Brookfield DTLA Office REIT Defaults on $784M in Loans is the latest example, with Brookfield DTLA Fund Office Trust Investor in arrears on loans related to the Gas Company Tower and the 777 Tower in Downtown Los Angeles.
The REIT warned a few months ago that this was likely to happen, because of declining cash flows and property values. In recent weeks, we’ve reported that office properties face about $40 billion in CMBS maturities over the next two years and that the Chicago Board of Trade Building is now in the hands of its lender. And even the apartment sector isn’t exempt, with Veritas defaulting on $450 million in loans tied to San Francisco multifamily properties.
On the subject of revenues, the past week’s third most-read story relates to government’s way of generating them, namely taxes. Spearheaded by Kilroy Realty, a petition calling for a repeal of Measure ULA, the new Los Angeles property transfer tax on commercial and residential transactions over $5 million, has led to a referendum.
New CA Transfer Tax Referendum to Appear on 2024 Ballot details what the proposed Taxpayer Protection Act would seek to accomplish. The story also notes that Measure ULA is facing a lawsuit ahead of its April effective date.
Amid uncertain times, a well-established owner/developer moving ahead with certainty is news, and that’s what we reported in our fourth best-read story of the past week. The developer here is Hines, which plans to start construction in June on the Four Seasons Private Residences Lake Austin. The story’s headline, Austin Four Seasons Project to Cost $830M, conveys the scale of the long-planned project that is set to rise in Texas’ capital city.
Back in L.A., Mesa West Capital has completed fundraising for the latest in its closed-end value-add series. As the headline of our fifth most-read story makes clear—Mesa West Exceeds $1B Target with Fifth Value-Add Real Estate Fund—the fund was oversubscribed.
This is the first fund Mesa West has raised in its current iteration as the private U.S. real estate credit arm of Morgan Stanley Investment Management. The fund will originate, purchase and manage loans secured by value-add/transitional commercial real estate assets. In the current environment, it’s likely that the fund will be put to work early and often.
Along with Los Angeles, another theme underpinning two, or maybe three, of the past week’s top stories is the office market. The Brookfield REIT connection to office is obvious, while Harmon and Spies are perhaps best-known for big-ticket office sales (although they also arranged Blackstone’s $5.4-billion acquisition of the massive Peter Cooper Village/Stuyvesant Town apartment complex) and it’s safe to assume that the office sector will yield at least some of the value-add/transitional assets Mesa West is targeting.
Which brings us to the latest edition of Connect CRE’s Weekender mailing, with a pair of stories that look at office use—or lack of use—from two different vantage points. Although other media coverage of WFH Research’s new report has focused on the dollars-and-cents impact of working from home for local businesses that are missing out on office workers’ spending, the bigger story is that remote working is actually happening less often now. Whether the trend is ebbing—if it is in fact ebbing—quickly enough for office landlords’ comfort remains to be seen, though.
In the meantime, landlords are contending with a rising supply of sublet space as occupiers look to reduce costs. Our Weekender story on the subject offers a variety of viewpoints from the major services firms, but it’s safe to conclude that the office occupancy question will remain open for at least the balance of 2023.