Editors’ Weekly News Roundup, June 12th – June 16th
Two regional stories of national significance were among the five most read this past week on Connect CRE. The top five also included a pair of national reports on what’s occurring with apartment rent growth, along with a longer-form article on non-bank lending in the commercial real estate space.
Leading the roster with both regional and national interest was a story on a subject that seldom occurs in CRE, and that was the arrest of a prominent investor. Nate Paul Arrested, Jailed was the terse headline, and the story reported what was known at the time, including the fact that federal investigators had raided the offices of Paul’s World Class Holdings in 2019, leading to a series of bankruptcy filings.
What wasn’t clear as the story appeared was the reason for the arrest. Subsequent news reports said that Paul faces eight felony counts of making false statements to financial institutions. His arraignment, which was to have occurred this past Thursday, has been delayed until June 26.
Running a close second for readership this past week was a national story on multifamily rents, which have turned negative. Based on a report from Redfin, Apartment Rents Post Largest Annual Decline Since 2020 contrasted the numbers for May of this year with the 16.5% annual growth that was seen a year ago.
The story made it clear, though, that the year-over-year decline was confined largely to the western U.S. The Northeast and Midwest actually experienced positive growth, albeit at a slower pace than we’ve seen previously. Redfin’s analysis of the underlying causes for the slowdown in growth said it was due partly to supply and partly to the economy.
More apartments are being built, and multifamily landlords are also facing some competition from single-family homeowners, who may rent out their old homes to help pay the mortgage on the new ones. Furthermore, fewer people are moving due to economic uncertainty, Redfin said.
Although apartment rent growth may have fallen off, that can’t be said about deal flow for non-bank lenders. The latest in Connect CRE’s series of feature-length articles, Can You Fill That Bank-Shaped Void in CRE? ranked third among best read stories for the past week.
The story provides insights from lenders who have been busy filling the void left by banks that have stepped away from active lending. In many cases, if the banks are willing to do a deal, it comes with stricter underwriting—no more non-recourse loans, for example.
Between banks’ lack of activity and the gathering wave of distressed debt and distressed properties in CRE, the lenders interviewed for this story can expect to remain in demand.
On the subject of distress, there’s San Francisco Centre, once a mainstay of Bay Area retail but now 45% vacant with more tenants likely to bail out. In a move similar to Park Hotels’ decision earlier this month to discontinue debt service on two big San Francisco lodging properties, Unibail-Rodamco-Westfield (URW) and Brookfield Properties are preparing to turn San Francisco Centre over to lenders.
Westfield, Brookfield Handing Over Keys to San Francisco Centre, our fourth most read story of the past week, resonated with readers in California as well as nationally. Although the statement from URW didn’t delve into as much detail as did comments from Park Hotels CEO Thomas J. Baltimore, Jr. two weeks earlier, it did cite “the challenging operating conditions in downtown San Francisco, which have led to declines in sales, occupancy and foot traffic.” Meanwhile, URW’s Valley Fair mall in San Jose has seen a 66% increase in sales volume since the pandemic.
The story quoted San Francisco Mayor London Breed, who said, “With new management, we will have an opportunity to pursue a new vision for this space.” The mayor is not sitting idle: less noticed or reported this past week was a victory for Breed’s administration with a key approval for legislation to expand zoning options for the city’s downtown while cutting through red tape in the approvals process.
Completing the ranking of the past week’s top five stories, a Weekender article titled Multifamily: Negative Rent Growth Popping Up in Certain Metros took a deeper dive into a subject that was also discussed in the Redfin report. Along with charting the metro-level rent declines in certain markets both on the West Coast and in the Sunbelt, the story also noted that occupancy rates posted year-over-year declines in all but one of the top 30 metro areas.
For apartment landlords, “Decelerating rent growth and inflationary expenses are increasing pressure, which will lead to pressure on NOIs,” Yardi Matrix’s Doug Ressler told Connect CRE. “The industry is under revenue and expense pressures.”