Blackstone adds $1B to self-storage bet with purchase from Brookfield Asset Mgt

  • Blackstone’s (NYSE:BX) nontraded real-estate investment trust BREIT has agreed to buy Simply Self Storage from Brookfield Asset Management (NYSE:BAM) for about $1.2B, reports the WSJ.
  • Simply Self Storage is one of the larger privately-held self storage players, with 8M square feet in 120 locations across 23 states. Publicly-traded names include Public Storage (NYSE:PSA), CubeSmart (NYSE:CUBE), Extra Space Storage (NYSE:EXR), National Storage Affiliates (NYSE:NSA), and Life Storage (NYSE:LSI).
  • As for BRIET, it owned about 2.6M square feet of storage space prior to this deal, and it plans to continue consolidating assets in what is still a fairly fragmented industry.
  • Brookfield acquired Self Storage in 2016 for $830M, when the company had just 90 locations, eventually rolling that up to more than 200. The company sold 112 of those facilities for $1.3B to a JV involving National Storage two years ago.

https://seekingalpha.com/news/3625537-blackstone-adds-1b-to-self-storage-bet-purchase-from-brookfield-asset-management

Tishman Speyer real estate SPAC TS Innovation Acquisitions files $300M IPO

TS Innovation Acquisitions, a blank check company formed by Tishman Speyer targeting the real estate industry, filed on Friday with the SEC to raise up to $300 million in an initial public offering.

The New York, NY-based company plans to raise $300 million by offering 30 million units at $10. Each unit consists of one share of common stock and one-third of a warrant, exercisable at $11.50. At the proposed deal size, TS Innovation Acquisitions would command a market value of $375 million.

The company is led by CEO and Chairman Robert Speyer, who currently serves as CEO of real estate investment firm Tishman Speyer, and COO, CFO, and Director Paul Galiano, who currently serves as Senior Managing Director of Tishman Speyer. The SPAC plans to leverage its management team’s experience and target the real estate industry, including real estate adjacent businesses and technologies targeting the real estate space.

TS Innovation Acquisitions was founded in 2020 and plans to list on the Nasdaq under the symbol TSIAU. The company filed confidentially on September 25, 2020. BofA Securities and Allen & Company are the joint bookrunners on the deal.

Relevant Profile: TSIAU

https://www.renaissancecapital.com/IPO-Center/News/72621/Tishman-Speyers-real-estate-SPAC-TS-Innovation-Acquisitions-files-for-a-$30

Covid pummeled shopping centers, but their parking lots are thriving

While many traditional streams of income for landlords have slowed or dried up due to the pandemic, one has proven to be a surprising earner: parking lots.

Landlords of large parking lots and garages have been renting out those spaces for a variety of activities, including open-air retail, job fairs, polling stations and drive-through COVID-19 testing, the Wall Street Journal reported.

Retailers like Walmart and Target are using their parking lots as makeshift distribution centers, while owners of parking garages are similarly renting out their spaces for storage and distribution to nearby neighborhoods.

Some parking lot owners are turning their spaces over to more creative uses: One at the Rosedale Center in Roseville, Minnesota has been repurposed for a drive-in haunted house. Participants stay in their car and pay $75 to watch a performance from the safety of their vehicles.

The organizer has sold 1,000 tickets so far, and the mall’s landlord hopes that some of those attendees will make their way into the shopping center itself.

That might be a tough sell: A survey this month found only 45 percent of respondents planned to shop in a mall this holiday season. Traffic at the country’s largest malls dropped 51 percent in the first eight months of the year compared to last year.

https://therealdeal.com/2020/10/24/covid-pummeled-shopping-centers-but-their-parking-lots-are-thriving/

Coronavirus Has Been ‘Uniquely Horrible’ For Whole Foods

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Flickr/Ines Hegedus-Garcia

What happens when a grocery store nicknamed “Whole Paycheck” is faced with millions of potential consumers losing their paychecks? Apparently, nothing good.

Whole Foods, the high-end grocer purchased by Amazon for over $13B in 2017, had 25% less foot traffic in September than it did in the same month of 2019, according to Placer.ai data reported by Bloomberg. Though its overall sales have risen year-over-year by as much as 10% thanks to online sales, that growth is less than half than some of its competitors, according to data from Earnest Research also obtained by Bloomberg.

Though Whole Foods has been a boon for multifamily buildings that it anchors, its refusal to stock common, mass-produced kitchen staple items has prevented it from being a one-stop shop, Bloomberg reports. Now that efficiency and avoiding prolonged periods in public and indoors has become a higher priority, millions of customers have excised Whole Foods from their routines. Research firm Numerator estimates that 4.5 million fewer households have shopped at Whole Foods since March compared to the same period in 2019.

Whole Foods was a central element to Amazon’s push to move more grocery shopping online, whether for in-store pickup or home delivery, but the coronavirus accelerated that trend to the point where it may no longer be beneficial. Consumers in multiple urban markets complained about crowded stores and long lines to enter to Bloomberg, which some attributed to the prevalence of pickers for online orders.

Online orders tend to be smaller than in-store shopping, Bloomberg reports, making the trade-off less than even. And because of pandemic-driven necessity, more grocery chains have been forced to integrate online ordering into their business, erasing Whole Foods’ advantage in that area.

Though Amazon has reportedly considered adding more facilities dedicated entirely to online orders to preserve the in-store experience, so far it has yet to move forward on any beyond the first it opened in Brooklyn. Some outsiders and anonymous store managers told Bloomberg that they don’t trust Amazon to fully commit to adapting while its attention is focused on building its own grocery store brand, Amazon Fresh.

https://www.bisnow.com/national/news/retail/whole-foods-pandemic-effect-uniquely-horrible-106264

Retailers Prepare To Guard Stores Against Looting If Election Protests Erupt

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Bisnow Archive/Joseph Pimentel National Guardsmen patrol The Pike Outlets in Long Beach, California, Monday, June 1, 2020.

After suffering damage and loss at the hands of looters during nationwide protests of police brutality and systemic racism this summer, retail owners want to be prepared for the next looming political flashpoint.

Store owners, especially those who sell apparel and other easily transportable merchandise, are exploring different security options in case of demonstrations surrounding Election Day, Reuters reports. Store owners have been assessing options like security guards, reinforced glass and roll-down metal doors. Some of those measures are already being set up or arranged to be deployed if and when tensions do flare.

The stores most directly affected by looters have been the ones already hit hard by the multiyear rise of e-commerce and the coronavirus-induced reticence to shop in person. Foot Locker reported $18M of losses directly tied to “social unrest” in its August quarterly report, while luxury retailers like Louis Vuitton, Gucci and Nordstrom are still boarded up on Chicago’s Magnificent Mile retail corridor, even though they remain open for business, Reuters reports.

Scaffolding company Starr Industries in New York, which built protection for the famed “glass cube” Apple Store on Fifth Avenue, has been hired to be on standby by multiple NYC retailers, Starr President Marian Bobelea told Reuters. Reinforced glassmakers have been installing stronger windows in hundreds of stores across the country as well.

The majority of businesses affected by rioters and looters were located in urban areas, whereas suburban retailers have been extending their businesses more and more into nearby parking lots to keep revenue flowing in during times of social distancing, The Wall Street Journal reports.

https://www.bisnow.com/national/news/retail/retailers-protect-stores-looting-election-protests-106419

Tech Will Lead Next Econ Cycle. What Does That Mean for Office Demand?

It’s difficult to imagine how companies would have maintained productivity during the COVID-19 pandemic without the tech sector.

“Some of the tech sectors that rose in importance were e-commerce and logistics, streaming and cloud services, search and social media, devices and communications, and data and cybersecurity,” according to a new report, Tech 30, from CBRE.

Still, when COVID hit, many tech companies put plans on hold and tightened their belts, according to CBRE. Overall, the sector shed 58,000 jobs in 2020 after creating 1.5 million since 2010 and accounting for one of every four new jobs requiring office space. As a result, the tech industry’s share of the office market inched down from 21% to 20%. 

Still, there is a strong case to be made that the tech will lead the next business cycle by accelerating the digital transformation of the economy.

In 13 markets, high tech jobs grew faster in the past two years compared to the two years before, according to CBRE. San Francisco, Indianapolis, Dallas/Ft. Worth, Philadelphia, Baltimore and San Diego grabbed the most momentum.

Tech Submarkets

The top 30 tech office markets saw their average rents flatten, but their top tech submarkets edged higher. 

“Leading tech submarkets often outperform their overall office markets because tenants are willing to pay a premium in areas preferred by tech talent,” according to CBRE. “Many of these submarkets have limited office availability and are near leading universities.”

CBRE thinks that Silicon Valley, Washington, D.C., Vancouver, Atlanta, Dallas/Ft. Worth, Raleigh-Durham and San Diego are most resilient and poised for the most expansion.

Smaller Footprints 

But while these markets are well positioned for long-term growth, one mitigating factor might be a new tendency for some companies to scale back on their office footprint. 

In a survey by Savills North America of several hundred technology office tenants, a staggering majority of firms, 94%, said they expect remote work, at least a few days a week, to be normalized at their company in a post-vaccine environment.

According to the Savills technology practice group’s survey, these shifts are prompting changed expectations on the office footprints of tech firms. 

“Honestly, the majority of our decisions are still in flux,” said a Washington, DC-based survey respondent to Savills. “We love having office space to collaborate; however, our company has been operating wonderfully remote and feel it’s irresponsible to bring people back in given the nature of our work until risk is all but eliminated.”

https://www.globest.com/2020/10/23/tech-will-lead-the-next-economic-cycle-what-does-that-mean-for-office-demand/

How Mall Redevelopments Could Tank Property Values

Even before the COVID-19 pandemic, many malls around the country were in trouble. The obvious solution for real estate investors and developers has been to turn these decaying centers into other property types. 

The case for these conversions is straightforward: In the US, there is an oversupply of retail buildings, and many defunct malls have already been converted to industrial uses. 

Since 2017, a total of 13.8 million square feet of retail space has been converted to 15.5 million square feet of industrial space across the country, according to CBRE, which expects the trend to continue

“As online retail evolves and expands, many retailers and developers will find opportunities to convert underperforming stores into final-mile distribution sites to support e-commerce operations,” John Morris, Americas Industrial and Logistics and Retail Leader for CBRE said in prepared remarks. 

The Downside 

Yet there is a significant downside to this strategy.

In a report titled, “The Long-Awaited Reckoning for Retail,” Barclays Capital says that 15% to 17% of US malls may no longer be “viable as shopping centers,” per CNBC. About 10,000 retail stores could close in 2020, according to Barclays. Once 20% of a mall is vacant, it is at risk of falling into default.

Here’s the rub: Converting these malls to fulfillment centers, apartment complexes, schools or medical offices could reduce their property values anywhere from 60% to 90%, Ryan Preclaw, a research analyst at Barclays, told CNBC’s “Worldwide Exchange.”

If the mall’s land is turned into a mixed-use development, that may offer better recovery values. But that has only happened for about 15% of former malls, Preclaw told CNBC.

Indeed, in an earlier interview with GlobeSt, Jake Reiter, president of Verde Capital, pointed out the difficulty of redeveloping malls

“If you have enough patience and enough capital, you could redevelop a mall,” Reiter told GlobeSt. “But that’s an art form unto itself. That’s serious money with really smart people that know retail, multifamily, medical office and rezoning.”

For those that have the expertise and patience, the mall conversions could ultimately make sense. It just won’t happen overnight. “I know people that have successfully redeveloped malls, and it has taken them in, good times, ten years,” Reiter says. “It was just an enormously time-consuming and expensive experience. And it took an enormous amount of expertise to do that.”

https://www.globest.com/2020/10/19/heres-how-mall-redevelopments-could-tank-property-values/

Retail Rents Drop Over 20% In Parts Of Manhattan As Landlords Get Desperate

Asking rents in some of the world’s most famous retail high streets have seen stunning drops in the last few months, as landlords begin bending over backward to fill space.

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Bisnow/Miriam Hall The Oculus at the World Trade Center, a retail and transit hub in Lower Manhattan, has been mostly empty since the pandemic started.

Direct ground-floor retail availability hit a new high of 254 spaces across the 16 prime retail corridors in Manhattan, according to a CBRE retail report released Wednesday. Leasing velocity slowed again and rents tumbled, as the average asking rent hit dropped 13% year-over-year to $659 per SF in Q3, a 4% drop from Q2.

Some parts of the city, particularly those where rents have soared in previous years, experienced particularly severe rental declines. On Prince Street in SoHo, average asking rents are now down 42%, going from an average of $705 per SF this time last year down to $405. SoHo’s Broadway and Spring Street corridors’ asking rents dropped 20.1% and 16.8% year-over-year, respectively.

The Meatpacking District has also taken a hit — rents there are on average $448 per SF, a 22% decrease from last year. Stretches like Times Square and Fifth Avenue in the lower 40s also saw sizable decreases.

“Landlords are trying to be very negotiable and trying to make it work … I am sure there is lots of creative deal-making happening,” said CBRE Tri-State Director of Research Nicole LaRusso, the author of the report. “The things that normally make the retail market in New York so fantastic, they are all going through difficult moments. All the demand drivers are down.”

Record-high residential vacancy and office buildings that are still largely empty are all driving retail’s problems, she said, though there has been an increase in traffic since the start of the summer.

“There are going to be a lot of retailers that have suffered that will see the opportunity of rents that are much more favorable,” she said.

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Bisnow/Miriam Hall An empty storefront in Manhattan

Though there are some bright spots, right now they remain few and far between. During the third quarter, the rolling four-quarter aggregate leasing velocity — a measurement collating both renewals and new leases for the previous 12 months — fell under 3M SF. That represents a 16% decrease from the quarter before and a 31% year-over-year drop.

Activity is set to remain slow for the rest of the year, per CBRE. The biggest retail lease last quarter was Rockefeller Group’s deal that saw Greek restaurant Avra Estiatorio taking 16K SF at 1271 Sixth Ave. That deal helped push the Plaza District to a total leasing velocity of 25K SF, the most active part of Manhattan last quarter. SoHo reached 21K SF in the third quarter, with four deals recorded including Paul Smith’s 10K SF lease at 134 Spring St.

Meanwhile, Zappos took 16K SF for 10 years for a new brick-and-mortar store at 19 Union Square West. Overall, food and beverage tenants were the most active in the market.

There is no doubt a major reset that was already in motion is accelerating.

“We have retailers going in, landlords are saying, ‘You can take a lower rent but I am going to share profits with you,'” Meridian Capital Group’ David Schechtman said on a recent Bisnow webinar.

Silver Eagle Advisors co-founder Wendy Silverstein, who has worked at Citibank, Vornado, New York REIT and WeWork, described retail as “clearly” distressed.

“There’s been very little price discovery to what the ‘new value’ is of some of these properties,” she said on Bisnow’s podcast last week. “High street retail rents [in Manhattan] were so ridiculously high, they weren’t sustainable, even when the market was good … The rents have just got to be a fraction of what they are so businesses feel safe to take the risk opening up.”

Just this week, the market got a glimpse into where values on retail properties may be landing. Akris, a Swiss clothing retailer, paid $45M for three retail properties on Madison Avenue, The Wall Street Journal reported, marking an 80% drop from the peak of the market in 2014.

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Google Maps 1271 Sixth Ave. where a Greek restaurant leased space in Q3 2020

“Landlords are coming to the table, and putting [renegotiations] in writing,” said Compass Vice Chairman Robin Abrams, a retail broker. “Tenants are making decisions about whether they will stay or vacate.”

Some apparel stores are back in the market, according to Abrams, as well as e-commerce users. Essential services like pharmacies, urgent care and dentists are beginning to take more of the vacant space.

“Landlords are becoming more realistic and deals are being done,” she said.

Still, availability is at a “new high watermark” according to CBRE, with 254 ground-floor availabilities now across the borough.

The increase was worst on the Upper West Side, where availability increased 50% from last year. The impending closure of Century 21 will likely add more empty space to the area.

“I’m not going to BS you and tell you that everything is great, it’s not. But it’s not as bad as people on the outside think,” said Brandon Singer, who just formed Retail by MONA, a new retail real estate leasing and advisory firm that has a strategic partnership with Aby Rosen’s RFR Holdings.

Singer said people said he is “insane” to start this type of company at this time, but he believes it is a great opportunity. 

He said his firm has already found space in the boroughs for a logistics company called Fabric, though he declined to provide specifics. The company provides fulfillment for grocery and other retail with a heavy use of robotics, according to its website.

“This is the future of retail, he said. “This is the type of tenant that goes in to take the space.”

https://www.bisnow.com/new-york/news/retail/more-bleak-figures-point-to-plummeting-retail-rents-and-rising-store-availability-across-manhattan-106349

Major Employers Now Pushing Date For Office Returns To Summer 2021

With the rate of new cases of the coronavirus growing in the U.S. once again and no vaccine immediately on the horizon, businesses are beginning to give up on bringing employees back to the office this winter.

Major employers such as Microsoft, Target, Ford Motor Co. and The New York Times have announced in the past week that they wouldn’t be requiring employees to return to their offices until at least July, the Times reports. Google, Uber, Slack, Airbnb and DocuSign have all pushed anticipated return-to-work dates until summer in the past few weeks.

Many of the earliest movers in this trend are tech-focused companies or have large technology departments. Blue-collar industries, such as manufacturing and logistics, have no replacement for in-person work, while some financial services are legally required to be performed in the office. Smaller companies fighting to survive have also returned to their offices at a significant level.

For companies that have the capability to allow remote work, doing so means allowing parents to remain in their jobs while performing more around-the-clock child care than they ever have before, as many schools remain in remote learning situations. Google and other companies have explicitly cited working parents as motivation for extending remote work timelines, the Times reports.

Even workers without children have been leery about returning to the office, fearing long hours in enclosed spaces with other people as a health risk. Office landlords have been working hard to raise hygiene standards at their buildings to address that perception. Nevertheless, Microsoft recently joined a growing list of tech companies that have introduced the option to work from home permanently, while the digital infrastructure to improve the experience grows, Fast Company reports.

Some researchers have projected that a wave of companies could exit leases or decline to renew if remote work remains as prevalent as it is now into next summer. While Amazon doubled down on its commitment to physical office space with $1.4B in new leases in August, the office market on the whole could take until 2025 to stabilize, according to a recent Cushman & Wakefield report.

https://www.bisnow.com/national/news/office/major-employers-back-to-offices-not-until-summer-2021-106336

Senior Housing Occupancy Hits Record Low

The COVID-19 outbreak is hurting senior housing.

Senior housing occupancy fell 2.6 percentage points in the third quarter of 2020, from 84.7% to 82.1%, according to new data from NIC MAP Data Service provided by the National Investment Center for Seniors Housing & Care.

This is the second quarter in a row where occupancy fell more than 2.5 percentage points. With two consecutive quarters of deteriorating occupancies, the senior housing sector is now experiencing its largest drop in occupancy on record, according to NIC.  

Occupancy rates vary dramatically by market. While San Jose (89.9%), San Francisco (87.0%), and Portland (85.5%) posted the highest occupancy rates of the 31 metropolitan markets that encompass NIC MAP’s Primary Markets, Houston (75.9%), Atlanta (77.4%), and Phoenix (78.6%) recorded the lowest. 

Assisted living and independent living facilities experienced their largest occupancy drop to date, falling 2.9 percentage points to 79.1% and 2.4 percentage points to 84.9%, respectively.

“COVID has pushed revenues down in seniors’ housing,” Greg Limoncelli, a partner with Akerman, told GlobeSt. “It has pushed expenses up and made people afraid to go into facilities. As a general rule, COVID has really hit the industry hard.”

As occupancy fell, independent living facilities saw their largest increase in inventory since early 2009. “This reflects the relatively robust lending and development environment of 18 to 24 months ago that supported construction starts back then and which now are completed properties entering the market,” noted Chuck Harry, NIC’s chief operating officer in a prepared statement. “Construction starts activity in the third quarter continued to be relatively weak, reflecting today’s more constrained capital markets.”  

Occupancies aren’t the only part of the senior housing industry that suffered during the pandemic. Seniors housing and care acquisitions fell to 58 deals in the third quarter, a new low, according to a report from Irving Levin Associates. 

That dip only represents a 3% decline from the 60 transactions in the previous quarter, but it’s a steep 44% drop from the 104 deals made public in the third quarter of 2019.

But Limoncelli thinks the sector’s current struggles don’t paint an accurate picture of its full potential in the future. While revenues may be challenged because fewer people want to go into seniors’ facilities because they’re afraid of the virus, he thinks that operators can do things to ease these fears.

“What I think a lot of operators have seen is that if they increase their transparency, including their communication with the families, residents and physicians, people start feeling safer,” Limoncelli told GlobeSt.

https://www.globest.com/2020/10/16/senior-housing-occupancy-hits-record-low