Real estate remains a top-performing asset and in robust demand among institutional investors and high-net-worth investors. This best-in-class asset comprises nearly $300 trillion in global value and continues to climb as demographics fuel international demand. From REITs to capital flows, from private equity strategies and value creation to booming demand for luxury properties, the DailyAlts Real Estate channel covers the top news and insights in the space
Andreessen Horowitz, also known as “a16z,” and usually described as the storied venture capitalist firm from Silicon Valley, announced Monday its $350 million investment in Flow, a rental real estate startup founded by Adam Neumann, of WeWork fame. The investment, said to be the largest individual cheque Andreessen Horowitz has ever written in a round of funding to a company, valued Flow at $1 billion, even though it is expected to launch only in 2023.
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This is the perfect storm for commercial real estate markets in the United States.
As 2020 started, the consensus opinion was that commercial real estate might see a slowdown in growth rates. However, thanks to an economy that was growing slowly but growing and low-interest rates, CRE would still be an attractive investment opportunity.
San Francisco based startup Noah allows homeowners to cash their home equity in these difficult times. The startup just received $150 million in the form of platform capital which it will use to invest in homes as a portion of their equity.
Commercial real estate markets have been severely impacted by the economic shutdown caused by the coronavirus. Barbara Corcoran, Shark Tank judge and founder of the Corcoran Group, a New York-based residential brokerage, told Yahoo Finance today that some of these changes may be permanent.
Blackstone’s non-traded real estate fund (BREIT) faces the most challenging environment since its 2017 inception.
BREIT has $34 billion in total assets. The group has been a big part of the firm’s real estate fundraising efforts in the past few years. Concerns exist that non-traded REITs like Blackstone’s offering are currently over-inflating their asset value. Publicly-traded REITs have seen their asset values fall by 20% or more in the past month. The REIT is priced once a month with the help of outside sources.
The continued spread of the COVID-19 outbreak is creating significant hurdles for many sectors of the commercial real estate development industry.
In New York City, the epicenter of the current crisis, development has slowed to a crawl. The Real Estate Board of New York’s Q1 2020 Quarterly Real Estate Broker Confidence Index shows very low sentiment.
“The survey found that, overall, for the first quarter of 2020, commercial broker confidence was 3.23, representing a 56% decrease since REBNY surveyed brokers in the fourth quarter of 2019, a decline directly attributable to the impact of the pandemic,” writes Erika Morphy of GlobeSt.com.
Leading real estate and REIT research firm Green Street Advisors has recently commented on the impact of the coronavirus on commercial real estate markets.
They note that that as recently as five weeks ago, no one was all that concerned with what the virus might do to real estate investment trusts balance sheet. That has changed quickly as the economic shut down to prevent the spread of the virus has altered both public and private real estate markets in a material fashion.
Aby Rosen, the co-founder and principal of RFR Realty, is dropping out of two previously announced deals in Manhattan. RFR is backing out on a deal to buy 900 Third Avenue in Midtown from Paramount Group (PGRE) for $400 million. It is also walked away from a plan to buy property at 1600 Broadway in Times Square that listed at roughly $200 million. There are reports that Mr. Rosen is willing to consider closing the deal for 900 Third Avenue when the pandemic has passed.
Tom Barrack, the head of Colony Capital (NYSE: CLNY), has hired several lobbyists to help assist the commercial mortgage industry. Barrack has been warning for weeks about the challenges the industry faces due to late or unpaid rents tied to the lack of economic activity.
Last year activist investor Bow Street won 4 seats on the Board of Mack- Cali (NYSE: CLI). This REIT invests in office and multifamily projects in the Northeastern United States.
Last week, Mack-Cali decided not to re-nominate those board members for a new term.
In their statement announcing the decision, Mack-Cali officials said the four had worked to blatantly promote Bow Street’s self-interest. The firm accused the activist firm of wanting to force a fire sale of the company as a whole or the assets one by one. Mack-Cali said selling would not be in the best interest of shareholders.
Like most Real Estate Investment Trusts, the prices of industrial REITs have declined sharply in the coronavirus driven selloff in the equity markets. While there may be real concerns for some sectors of real estate like office space, shopping centers, and even multifamily properties, industrial real estate may well see a dramatic increase in demand for the properties they own and manage.
Blackstone Group (NYSE: BX) is pulling out of a deal to buy an office property in Oakland, California, for $400 million. Blackstone had planned to use funds from its non-traded Real Estate Investment Trust (BREIT) to buy the Upton Station building from real estate and infrastructure invest firm CIM Group. Blackstone will forfeit a $20 million deposit to exit the transaction.
ITB is the largest ETF in the home construction space. It provides exposure to U.S. companies that manufacture residential homes by tracking the Dow Jones U.S. Select Home Construction Index. It currently has assets of $707.64 million and charges an expense ratio of 0.42%.
ITB may be ready to rebound, on account of both technical and fundamental factors.
Taubman Centers (NYSE: TCO) sent a letter to tenants last week saying that they must honor their leases and pay rent despite the spread of coronavirus. In a letter dated March 25, the mall operator said that it needs the cash flow to meet its obligations to utility companies and mortgage lenders.
Tom Barrack penned a white paper that outlines the need for massive and immediate relief in the commercial real estate lending markets. Barrack is the Chairman and CEO of Colony Capital (NYSE: CLNY). Barrack makes the case that if the commercial real estate lending markets fail, the spillover effect to the rest of the economy will be disastrous. He predicts the results “could be exponentially worse than the economic effects of the 1987 crash, September 11th attacks, and 2008 recession, combined. The long-term impact on the economy could be catastrophic.”
A LendingTree economist says the virus will bring the U.S. housing market to a halt. Further, Zillow Group (NASDAQ: ZG) announced Monday it will pause home buying in all 24 markets where ts Zillow Offers unit currently operates. The action was in response to local public health orders related to COVID-19. This has implications for the U.S. housing market.
The SPDR Dow Jones REIT ETF (IRE) has fallen by 38% in the past month as concerns about quarantines and lockdowns emptying offices, hotels, shopping centers, and other commercial real estate properties. Dire predictions about changes in work habits and a deep economic slowdown destroying the industry are everywhere on the internet and media.
Cohen and Steers issued a report this week detailing the firm’s outlook for real assets in light of the coronavirus and its impact on the economy.
The virus is likely to cause significant disruptions to travel, trade, manufacturing, and confidence according to the report with a potentially dramatic impact on asset pricing.
Wall Street is wasting no time discounting the economic effect from the deadly coronavirus, as seen from the very sharp cut in stock prices. It appears, however, that the real estate market is still ensconced in a cocoon of complacency, judging from the results of a recent survey by the National Association of Realtors (NAR). Home sellers may do well to dispose of their property to an iBuyer.
Foreigners located in Japan, South Korea, China have suddenly discovered the virtues of closing property deals in the US remotely and online, writes Natalia Karayaneva in an article in Forbes. And the coronavirus deserves the blame (or credit).
Two companies are collaborating to revitalize the market for Japanese homes.
A blockchain-powered solution may be the answer to the problem of millions of abandoned homes in Japan. Known as ‘akiya’ these ghost dwellings numbered about 8 million in 2013. This number has now ballooned to 10 million by 2020, and is on track to comprise 30% of all Japanese homes by 2033. Real estate crowdfunding via the blockchain may give these properties a new lease of life, according to Securitize.
Soho China could be next. Proving once again that the firm is fearless, private equity and alternative form Blackstone (NYSE: BX) is stepping up to the plate to bid for real estate in China. Blackstone is bidding $4 billion to take over Hong Kong-listed property company Soho China.
Global Medical reported that they had increased total revenue 42.3% period-over-period to $20.5 million, It cited its acquisition activity over the last twelve months for the boost. During the quarter, the REIT acquired five properties, encompassing an aggregate 185,220 leasable square feet, for an aggregate purchase price of $72.8 million at a weighted average cap rate of 7.4%.
For the quarter Funds from Operations (“FFO”) came in at $0.21 per share and unit. This was higher than the $0.20 per share and unit in the comparable prior-year period.
Global investment firm KKR, Korea real estate fund manager IGIS Asset Management, and Korean real estate developer SK D&D have purchased Namsan Square.
The property is an office tower located in the central business district of Seoul. They acquired the property from a real estate investment trust operated by KOREIT, a domestic asset manager in Korea.