Rate Hike Anxiety and Related’s Big Appetite – Trade Observer
“We’re not even close” to being in a recession.
So said Moody’s economic forecaster Mark Zandi earlier this month at the National Multifamily Housing Council’s fall 2022 meeting in the nation’s capital. Hopefully this should put us all at ease, as we are still in uncertain economic waters.
Namely, this week the Fed announced an increase of 75 basis points in reference interest rates. (This is the third hike since June and the fifth since the start of the year.)
“Borrowing has become twice as expensive since the start of the year,” Lisa Knee, partner at EisnerAmper, told CO.
And those borrowing costs have been predictable single-family market damage, according to a report by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, which found that building permits for single-family homes rose just 3.5% in August. In comparison, the number of permits for multi-family dwellings increased by 28%.
“Buyer traffic is low in many markets as more consumers sit on the sidelines as high mortgage rates and house prices put buying a new home out of financial reach for many households,” National Association of Home Builders President Jerry Konter said. (The NAHB released its own disastrous report earlier in the week.) “In another indicator of a weak market, 24% of builders said they had cut home prices, down from 19% last month.”
But that’s kind of what the Fed is aiming for.
“House prices were rising to an unsustainable level,” Fed Chairman Jerome Powell said. said when announcing the rate hike. “Longer term, what we need is for supply and demand to be better aligned so that house prices rise at a reasonable level, at a reasonable pace, and people can get back to living. pay for houses. We in the housing market probably have to go through a correction to get back to this spot. »
But, aside from the pain of dealing with a correction, there are reasons to be optimistic about the long-term future.
One indicator is in the land market. In Manhattan, things had gone crazy this summer. Although the price per square foot is not what it was at the peak of the market (circa 2015 and 2016), the dollar volume of land sales is expected to reach 103% of what it was last year, according to Robert Knakal of JLL.
“Activity has been precipitated by the consensus that inflation and rising rates are more near-term dynamics, and three to four years from now when what is bought for construction goes live, broader economic indicators will return to relatively normal levels,” Knakal wrote in its CO column.
In Related News…
Do you know which region needs more housing? Southern California. And do you know who answered this call without any hesitation or ulterior motive? Related companies.
The mega-developer just announced plans to transform the 41-acre Metro Town Square in Santa Ana, California into a 4,000 dwellings which they plan to call Related Bristol.
California was teeming with projects last week; the capital of the East End based in New York plans filed for a project with 10 new sound stages, three flexible spaces, offices, a four-level garage and more in Glendale.
The Sullivan family (best known for the Hollywood Toyota dealership) proposed a major redevelopment of 6000 Hollywood Boulevard which would include a new 35-story multi-family tower, a six-story office building and several low-rise residential townhouses for a total of 350 units.
And a mall in Lancaster (more than 60 miles from downtown Los Angeles) also changed hands last week. Merlone Geier Partners has traded the 35-acre, 715,000-square-foot Valley Central shopping center to Bridge33 Capital for $45.3 million.
Speaking of retail
In addition to Valley Central, there has been some interesting mall activity this week. A joint venture between The Meridian Group and Martin-Diamond Properties acquired five JC Penney stores in Virginia, Maryland and Delaware comprising some 900,000 square feet for $53 million.
Investindustrial, a private equity firm, filed $200 million for majority stake in Italian restaurant chain Eatalywith the intention of opening a new flagship Eatalys worldwide.
And there were also interesting commercial leases.
Five Iron Golf Indoor Golf Company signed a 30,000 square foot lease for 15 years at 101 Park Avenue of HJ Kalikow & Company. (It’s the golf company’s sixth location in New York City.)
Grimoire Group signed a 10-year lease for a 6,721 square foot Asian fusion restaurant at 31 Penn Plaza.
A few blocks west we learned that Wild Ink came out and BondST sushi bar is in at Hudson Yards. (This is BondST’s second location.)
And (maybe it’s not retail, but it’s definitely retail-adjacent) Yotpo, an e-commerce marketing company subleased 30,688 square feet of Flatiron Health at One SoHo Square, aka 233 Spring Street.
Not everyone had a good week
In case you haven’t heard, ex-President Trump is in legal trouble. In addition to unfavorable judgment which he obtained from the court-appointed special handler over the top-secret documents he was accumulating at Mar-a-Lago, the former president’s residence the real estate sector has been hit hard by New York Attorney General Letitia James.
In a 214 pages civil action, Trump, his organization and three of his children have been accused of fraudulently manipulating real estate appraisals for tax and loan purposes. The lawsuit asks the Trump Organization to repay $250 million and would bar Trump, Eric Trump, Donald Trump Jr. and Ivanka Trump from making commercial real estate acquisitions in New York for five years and from serving on the board of directors of any New York company. .
Of course, Trump wasn’t the only one having a bad week.
The remaining $126.8 million balance of Citigroup’s commercial mortgage-backed securities loan to Cohen Brothers Realty for its Midtown skyscraper at 750 Lexington Avenue – aka International Plaza – was put into special service.
And Tishman Speyer is crushing a court case, launched by watchdog group Housing Rights Initiative and a current tenant in Jackson Park in Long Island City, claiming that Tishman Speyer circumvented rent stabilization laws. (The tenant in question says his rent has increased by 58% from 2021 to 2022.)
We will always have Florida
Florida had a pretty good week, from a real estate perspective.
Related companies – again with related companies? ! – offers a 25-story, 456,000 square foot office building in downtown Miami that they call 515 Fern, one block from the Brightline station and featuring approximately 15,000 square feet for retail.
They’re not the only major New York-based real estate company expanding its projects in South Florida. Jim Zboril, formerly of Tavistock Development Company, was exploited last week to be CEO of the L&L Development Group located in West Palm Beach with plans to expand the company’s presence across the Sun Belt.
Heck, the Magic City even does flexible office leases. Quest Workspaces fair seized over 26,000 square feet at CP Group’s One Biscayne tower.
And now for a quiet Sunday reading
Another developer who saw his future in multifamily is William Macklowe (better known as Billy).
Macklowe is developing one of the most exciting (and excoriated) Park Slope projects in years at 120 Fifth Avenue. malowe sitting with CO to discuss Brooklyn, multifamily and the future of the five-day workweek.
To those who are watching, have a sweet year.