Editors’ Weekly News Roundup, Jan 9th – 13th
The five best-read stories of this past week offered a look into the year ahead and what we are likely to see as 2023 progresses. They also overlapped in some respects. Coming in at the top of the list was Leading Office Landlords Pivot to Other Property Types. The Wall Street Journal pulled together recent moves by some of the nation’s largest owner-operators in the office sector, most of them publicly traded.
Although at least one of the companies the WSJ cited is working on a large office development in Manhattan’s Midtown South, that company—SL Green Realty Corp.— has also made headlines recently by teaming up with Caesars Entertainment on a proposal to convert a Times Square office property into a casino. And while Boston Properties is best known for its premier office assets on both coasts, currently it’s focused on building apartments as well as capitalizing on the life sciences boom in its own backyard.
It’s not only major office landlords who have been changing direction in the current market. Commercial real estate investors have also been recalibrating their strategies, and that includes the expectation of buying less in 2023. When they do make investments, they’re likely to veer off the tried-and-true path of Class A assets in gateway markets. That’s according to the latest U.S. Investor Intentions Survey from CBRE, reported in the past week’s second best-read story, Investors Veer Toward Secondary Markets and Opportunistic Plays.
Economic uncertainty is weighing on CRE investors and their purchasing decisions, according to CBRE’s survey. Nonetheless, Chris Ludeman, global president of capital markets for CBRE, commented, “We expect investment activity to pick up in the second half of the year as market conditions stabilize.”
One investor that expects to be an active, if disciplined, buyer this year is net lease REIT Realty Income. The company closed on a $1-billion, multicurrency loan from a consortium of institutions, a financing transaction reported in Realty Income Wraps Up $1B Term Loan from Nine Lenders, last week’s third best-read story.
Separately, Realty Income turned to the public markets for a pair of note sales valued at a combined $1.1 billion. The San Diego-based REIT wasn’t alone in seeking to bolster its liquidity; last week saw Boston Properties close on a $1.2-billion term loan and VICI Properties make a public offering of common stock valued at nearly $900 million.
Dovetailing with Ludeman’s prediction, the Mortgage Bankers Association’s latest survey of its commercial real estate financing members expressed confidence that the currently unsettled market conditions will slowly stabilize as 2023 progresses. The sentiments expressed in the survey were the basis of the week’s fourth best-read story, MBA CREF Survey Forecasts Uncertainty Dissipating as 2023 Progresses.
However, that optimism goes only so far. The survey also found that lenders expect other issues to pose challenges in 2023 even as the uncertainty resolves itself. They also anticipate that their appetite for lending may be slightly larger than borrowers’ appetite for borrowing.
A regional story provided a case in point of the wisdom behind large office landlords’ movement toward other property sectors. Even as Connect CRE recently reported that Fox and News Corp. renewed their Midtown Manhattan headquarters leases for 20 more years, the office sector is lagging in recovery from the pandemic that set in nearly three years ago. In downtown Chicago, the landmarked Chicago Board of Trade Building is now owned by its lender, Apollo Global Management.
As reported in last week’s fifth most-read story, Apollo Takes Control of CBOT Building with Deed-in-Lieu, the New York-based private-equity firm has hired a local developer to help reposition the property for mixed-use. Mixed-use redevelopment is a scenario we’ve been seeing in a variety of settings, not all of them distressed assets.
It’s clear that office has some issues to overcome. How about multifamily? There, the picture is brighter, at least if you aren’t expecting the dizzying rent growth the sector enjoyed in the past couple of years, thanks to a combination of household formation and demand for work-from-home space. A Weekender story that didn’t make the top five, 2023 Apartment Forecast: Reasonable Rent Growth, manages expectations with its headline. It also directs investors to the secondary and tertiary markets highlighted in the CBRE survey described above.