Editors’ Weekly News Roundup, Mar 6th – 10th
A sign of potential distress—and investment opportunities—to come was the basis for the past week’s most-read story. CMBS Delinquencies Rise Sharply in February Following January Decline detailed the latest findings from Trepp, which reported that a recent trend of decreases or only moderate increases in the delinquency rate for securitized commercial mortgages was over, at least for the moment.
To put this increase into context, on the one hand the February rise was the steepest since December 2021, but on the other hand CMBS delinquencies are still well below their recent peak of 10.32% at the height of the pandemic. Moreover, a separate Connect CRE article this past week reported Mortgage Bankers Association data showing that commercial mortgage delinquencies remain low, although for most lending groups they rose slightly in the fourth quarter of 2022.
That being said, CMBS delinquencies were noticeably higher than those for any other lending group—i.e., in the low single-digits, compared to a fraction of 1% for the next highest delinquency rate.
Another national story that drew widespread reader interest this past week was Near-Record Multifamily Deliveries Will Mean Oversupply Only in the Short Term. We’ll be seeing more than 700,000 apartment units delivered over the next two years, and that will push vacancies above equilibrium, CBRE says. However, in the long term every one of those units will be necessary to maintain healthy market fundamentals.
The remaining stories in the week’s top five were regionally focused, although in the case of the week’s third most-read story, the conversation might become a national one, since movements that begin in California often spread across the U.S. Office-to-Housing Conversion Becomes Hot Topic in Sacramento discusses a bill introduced in the California Assembly to make it easier to convert vacant office buildings into apartments and condominiums.
The concept of office conversion to residential use isn’t new, and the idea of government incentives to encourage housing production—especially affordable housing—has been gaining traction. But the bill introduced by Assemblyman Richard Haney could establish momentum around easing the approvals pathway for turning office buildings into apartment properties. Naturally, the physical challenges in making the conversions work will still need to be overcome at the project level.
The past week’s fourth most-read story was a follow-up to deal reporting that appeared on Connect CRE back in December. At that time, we reported the transaction from the standpoint of the buyer, Clear Height Properties.
This past week, 37-Property Chicago Industrial Portfolio Trades for North of $150M filled out the picture from the viewpoint of the seller, as we reported that there were additional properties in the portfolio and those traded to individual buyers, although Clear Height acquired the bulk of the portfolio. Either way, it was among the largest off-market sales in the region in some time.
Completing the top five was an even larger-scale industrial deal, this time in the category of site selection. As reported on our Atlanta page, the story JLL-Assisted Scout Motors Selects Columbia for $2B Production Site has Scout joining more than 500 automotive-related companies in South Carolina. The company could eventually employ up to 4,000 of the 75,000 automotive industry employees in the state and produce 200,000 vehicles per year at the new Blytheville, SC facility.
The preceding five stories all came in at around 150 words each, in keeping with our model of providing the essential news in a compact format. As a reminder, we also provide a deeper-focus study of industry issues and trends through our Weekender mailing. In the latest edition, for example, we look at where cap rates are headed (north) and why they’re moving in that direction (higher borrowing costs, monetary policy uncertainty and a volatile macro backdrop).
A pair of national stories that hovered outside last week’s top five in terms of readership focus on a commercial property sector that was thought to be on the ropes three years ago. Madison Marquette makes the point that retail is continuing to evolve and details the ways in which that evolution is happening. Over at Paragon Commercial Group, principal Jim Dillavou provides insights into the necessity retail niche. He writes, “Necessity retail has re-emerged as a favored asset class because real estate investment fundamentals matter once again.”