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The Bisnow Weekender: A Conflict Of Interest Rates

National Capital Markets
National Capital Markets
June 6, 2024 Mark F. Bonner, Editor-in-Chief

Thanks for reading the Bisnow Weekender, my personally curated roundup of the most impactful news, notable quotes, binge-worthy show recommendations and other colorful highlights from the Bisnow world of commercial real estate and beyond. 

Central banks around the world are starting to churn.

The Bank of Canada and the European Central Bank did their thing this week, lowering interest rates from decades highs — and all eyes are now on the Bank of England to follow suit later this month. In the U.S., the mood is modestly lighter as Wall Street speculators begin to once again increase their optimism that Federal Reserve Chair Jerome Powell will deliver.

That rate adjustment, should it occur this year — and it might not — will bring an immediate gust of much-needed wind toward CRE across different markets and asset classes.

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Unsplash/Denise Bossarte

In regions where interest rates are being lowered, elevated real estate activity could be on the horizon. After all, lower borrowing costs make financing more accessible, which typically encourages investments in property development and acquisition. 

That can lead to a rise in property values. Additionally, sectors like retail and office spaces, which have been sluggish across North America, may well experience a revival as cheaper financing encourages businesses to expand and consumers to spend more freely. 

However, the situation is more nuanced in the United States.

Despite a robust on-paper economy that is the toast of the global markets, there is considerable uncertainty in America at every level. The Fed’s stance on interest rates has been maddeningly conservative in 2024. 

Most are betting on a 25-basis-point reduction in September, but no one knows for sure. A cottage industry has cropped up around best guesses and bets. Let me repeat: no one knows except maybe Powell. 

This ongoing uncertainty is deeply troubling for CRE, which is loath to commit to new projects, acquisitions or anything else without clearer signals from the Fed.

But maybe it’s time for CRE to break the chains of interest rates.

Bisnow reported last month that “It seems that the modern real estate industry doesn't know how to transact unless interest rates are falling or historically low.”

This dependency heightens the risk of any potential monetary tightening in the future. Rates will likely go down this year, but they will rise again at some point, and CRE could find itself here all over again, with a drastic slowdown in transactions and plummeting property values. 

So, while the immediate effects of rate cuts would be beneficial, the longer-term implications for CRE depend significantly on its ability to get comfortable with an uncomfortable reality: We’re almost certainly never going back to the way it was before the pandemic when interest rates were at historic lows.

Twenty-five basis points? 50 basis points? 100 basis points? It doesn’t matter because the era of easy money is over.

— Mark F. Bonner, Bisnow Editor-in-Chief

Voices From The CRE Battlefield

The Best Of Bisnow News: June 3-7

Starwood May Be Just The Start: Experts See Problems Under The Hood For Huge CRE Funds — Boston Reporter Taylor Driscoll

Some of the largest real estate funds managed by prominent investors are experiencing severe liquidity pressures.

These issues, which have been growing over the past year, have become particularly acute in the last two weeks. Starwood Real Estate Income Trust is a prime example.

SREIT reduced monthly investor withdrawal limits from 2% to 0.33% of net asset value to preserve liquidity. But this trend is not isolated — other nontraded REITs are likely to follow suit, creating further fundraising challenges as investors pull out cash at a far faster clip than the REITs can get new cash infusions.

“I suspect this is not a problem isolated to SREIT alone,” said investor Leyla Kunimoto, an accredited real estate investor who has closely followed nontraded REITs but chosen not to invest in them.

“This is probably going on under the hood in some other nontraded REITs.”

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AI Can Turn Hours Of Architecture Work Into Seconds. But At What Cost? — Washington, D.C., Reporter Emily Wishingrad

It was on a plane from St. Louis to Atlanta that Eli Hoisington, co-CEO of HOK, found himself sketching on his iPad. A visual artist, Hoisington said he still enjoys the process of putting pen to paper — or in this case, stylus to screen. 

Just a year ago, he would have taken those drawings and started a long process of iterating — likely bringing in a rookie architect to do some of the early visioning. But today, Hoisington is able to accomplish that next step within an hour. When he gets back to his desk, he uploads the sketches, overlays and cleans them up and presses a button.

The artificial intelligence-driven software then spits out several variations in seconds.

AI tools are just now getting to a point where they are advanced enough to be useful to architects, half a dozen individuals in the profession told Bisnow. Their firms have increasingly been experimenting with software and determining how best to use the technology in their practices. 

But as firms dip their toes in and wade around, questions about security, privacy and the future of the workforce are bubbling to the surface. 

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Co-Living Firm Common To Shutter After Aggressive Expansion Ends In Bankruptcy — South Florida Reporter Matt Wasielewski

Common Living, one of the largest co-living firms in the country, is shutting down. 

The firm, which had been growing during the pandemic through acquisitions of failed co-living companies, filed for Chapter 7 bankruptcy late Friday, indicating its plans to liquidate assets and cease operations. 

The filing in the U.S. Bankruptcy Court for the District of Delaware says Common has an estimated $1M to $10M in assets and $10M to $50M in liabilities. The company indicated it had at least 200 creditors but fewer than 1,000 entities that could have a claim against it.  

Common, founded in New York by Brad Hargreaves in 2015, aggressively expanded its portfolio from 2,000 to 7,000 units between 2020 and 2022. Common's U.S. portfolio consists of 5,200 units in 12 cities, according to its website. 

RELATED: Thousands Of Common's Co-Living Units To Be Taken Over By New Operator

More Big News From The Week … 

— LuxUrban Faces $83M Lawsuit From REIT As More Landlords Try To Evict 'WeWork For Hotels'

— Nonprofits Are Seizing Their Moment To Buy Commercial Properties At A Discount

— Prologis Takes Small But Mighty Steps Into Data Centres, Solar Generation And Life Sciences

— Hochul Slams Brake On Congestion Pricing, Rejecting Real Estate-Backed Policy

— AI Is Pushing Big Tech And Bitcoin Data Centers Closer Together

My Slightly On/Off-Topic Media Diet 

Hooray? The U.S. Economy May Finally Be Slowing (The Daily Upside): “As Sophocles said, nothing truly succeeds without pain. We suspect he wouldn’t have put much faith in soft landings, either. Nobody likes a tough job market or the high prices that consumers have seen for more than three years now, but it might be the lumps Americans have to take if inflation and high interest rates are ever going to ease.”

Real Estate Investors Are Wiped Out In Bets Fueled By Wall Street Loans (Bloomberg): “Much of the worry over US commercial property has legitimately centered on the office market, where more than $38 billion in buildings were in distress as of March, compared with about $10 billion for apartments, according to MSCI. But multifamily buildings make up the biggest share of properties with potential distress — exceeding even offices — with more than $56 billion worth of real estate at risk of financial trouble, the firm’s data show. And unlike office buildings, largely backed by major financial institutions, much of the unraveling is centered on personal investors.”

Developers Sit On Empty Lots After Historic Apartment Boom (WSJ): “During the biggest apartment construction boom in decades, a growing number of developers can’t make the numbers work to get started on their project, or can’t get the money to complete them. Higher interest rates, tighter lending conditions and flattening rents in parts of the country have left property companies from California to Florida waiting for financing that might not come soon. The amount of time the average apartment project spends between construction authorization and when construction begins has risen to nearly 500 days, a 45% increase from 2019, according to property data firm Yardi Matrix.”

Office Building Losses Start To Pile Up, And More Pain Is Expected (NYT): “A sustained drop in the value of commercial real estate could sap property tax revenue that cities like New York and San Francisco rely on to pay salaries and provide public services. Empty and nearly empty office buildings also hurt restaurants and other businesses that served the companies and workers who occupied those spaces. ‘There is a lot more trouble coming,’ said Mark Silverman, a partner and leader of the CMBS Special Servicer group at the law firm Locke Lord, who represents lenders in disputes with commercial mortgage borrowers. ‘If we think it’s bad now, it’s going to get a lot worse.’” 

The Billionaires Rallying Behind Trump After His Conviction (BBC): “Blackstone Group CEO Steve Schwarzman — one of the most prominent billionaires on Wall Street — has already announced he will support Trump in the election. Like [Bill] Ackman, Mr Schwarzman had previously distanced himself from the ex-president. But in late May, Mr Schwarzman said that he shared ‘the concern of most Americans that our economic, immigration and foreign policies are taking the country in the wrong direction.’ He also said the ‘dramatic rise of antisemitism has led me to focus on the consequences of the upcoming election with greater urgency.’”

UN Chief Says World Is On ‘Highway To Climate Hell’ As Planet Endures 12 Straight Months Of Unprecedented Heat (CNN): “Dozens have died in India over the past few weeks as temperatures pushed toward 50 degrees Celsius (122 Fahrenheit); brutal temperatures in Southeast Asia have caused deaths, school closures and shriveled crops; and as heat surged in Mexico, howler monkeys dropped dead from trees.”

What Do Horse Race Journalists Think Of ‘Horse Race Journalism’? (Poynter): “My colleagues who I admire in politics should remember that the rule of thumb in horse racing is ‘nobody knows nothing,’” said Joe Drape, horse racing reporter for The New York Times. “You got opinions, you got information in front of you, you got speculation, but until the race is run, nobody knows who’s gonna win.”

Bisnow Weekend Interview Preview

Diana Perez’s commercial real estate journey has been a “constant learning experience” that began when she arrived from Ecuador as a 17-year-old exchange student knowing no English and took off when she made an unexpected but fortuitous leap from office cleaner to research analyst.

Today, Perez is the director of industrial research for Colliers’ Chicago office — the first woman to hold that title. But getting there wasn’t easy and the learning curve was steep. 

Perez sat down with Bisnow Chicago Reporter Ryan Wangman to discuss her CRE pathway, conquering a new language and setting an example for her two young daughters. 

Bisnow: The path that you took to enter commercial real estate is quite different from many people. What has kept you in commercial real estate for all these years? What has motivated you to stay in the industry?

Perez: It's been a constant learning experience for me from the beginning. I didn't know any vocabulary about real estate. I didn't know what stocks were. I didn't know what deal sheets were. I didn't even know what a broker was. Everything has been a learning experience since I started. Now I have more exposure. Now I’m doing presentations to clients, learning more about them. In research, we’re the first ones to know about the state of the market. We know what's going to happen. We're the ones that keep the brokers informed about what’s coming. I like that I’m the one that has all the information [and] I know that I’m essential in industrial real estate.

The Weekend Interview goes live every Friday evening — head to www.bisnow.com over the weekend to check it out!

Jobs! Jobs! Jobs!

Here are this week’s top jobs over at Bisnow's careers platform, SelectLeaders. Reach out to SelectLeaders Managing Director Ryan Neale to learn more. You can email him at ryan.neale@bisnow.com. 

SVP, Multifamily Acquisitions — Lead acquisitions of multifamily apartment properties, focusing on value-add and opportunistic assets primarily in the Greater Los Angeles and San Francisco Bay areas.

Vice President of Finance — Lead the financial management of a $7B loan portfolio in the Western United States, U.K and Ireland. 

Chief Financial Officer — Oversee all aspects of financial operations, with a focus on supporting commercial real estate acquisitions and investment. 

Executive Director — Provide strategic and thought leadership for ULI LA, guiding its program of work for the future.

Hey, Ethan, What Are You Going To Binge This Weekend? 

It's the moment NBA junkies like me have waited all year for: the NBA Finals are finally here. This is the time when I love to go full obsession mode, reading every article, listening to every podcast, watching every highlight, DVRing the games so I can rewind to watch key plays and moments at will. I couldn't be more excited for the matchup, since neither of these teams has won a championship in more than a decade. As someone whose first 15 years on this planet saw just five different teams win, I love to see fresh blood on top. And, as a native New Yorker and lover of great passing, I'm pulling for Luka Doncic and the Dallas Mavericks to beat the Boston Celtics. 

 — Ethan Rothstein, Deputy Managing Editor

Upcoming Bisnow Events And Webinars

Tuesday, June 11 (Brooklyn, NY): Brooklyn State of the Market

Tuesday, June 11 - Wednesday, June 12 (London): Build To Rent Annual Conference (BTRAC) 2024

Wednesday, June 12 (Philadelphia): Bisnow Multifamily Annual Conference (BMAC) Greater Philadelphia

Wednesday, June 12 (Washington, D.C.): Washington D.C. State Of The Market

Wednesday, June 12 (Kenilworth, New Jersey): New Jersey Life Sciences and Healthcare

Wednesday, June 12 (Phoenix): Phoenix Office Update

Wednesday, June 12 (Oakland, California): East Bay Multifamily Summit

Thursday, June 13 (Digital): Putting Tenants First: Future Proofing Sustainable Spaces for Life Sciences

Thursday, June 13 (Baltimore): Baltimore State of the Market

Thursday, June 13 (Chicago): Bisnow Multifamily Annual Conference Midwest

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How did I do? You can send all love letters and dissents directly to me at mark.bonner@bisnow.com. 

Contact Mark F. Bonner at mark.bonner@bisnow.com
Related Topics: Interest Rates, Bisnow Weekender