The Bisnow Weekender: It’s The Policy, Stupid
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.
The Iowa caucuses were this week, but don’t worry, I am not going to get into the race for the Republican nomination. Likewise, I am not going to get into what the Democratic nomination looks like either.
The Bisnow newsroom doesn't engage in “horse race-style reporting,” which is, in my opinion, a lowbrow, cynical measure of the political process — the winners, the losers, the polls, the drama, the scandals.
So when readers tell us to stay in our lane and to stay out of politics, it is a forgivable misunderstanding of what politics is supposed to be: a forum to air different points of view, to debate policy and then compromise on a framework for communities, economies and industries to move forward on across a multitude of fronts.
I understand that in some quarters, that sentiment is laughable these days, but when it comes to politics and the Bisnow newsroom, we only care about policy that is born out of the political process.
After all, policy is what brought commercial real estate the $48B opportunity zone program — and everything good and bad with it. It created the $783B Inflation Reduction Act, which earmarked billions for property owners to upgrade their buildings. It brought the Infrastructure Investment and Jobs Act that authorized $1T for transportation and infrastructure spending across the U.S.
In New York, the largest real estate market in the world, city business leaders are balking at Local Law 97, an ordinance that goes into effect on Saturday that would force real estate owners to make their buildings carbon-neutral by 2050. Additionally, real estate leaders are pressuring New York lawmakers to revive the 421-a program, a policy that has been used in almost every major rental project in the city for the past half-century.
In Florida, home to what The Financial Times called the “most important city in America,” developers and local politicians alike are grappling with new laws aimed squarely at the real estate industry, like the Live Local Act's impact on the state's housing crisis and the ban on Chinese nationals purchasing certain pieces of land.
Last year, when the U.S. Supreme Court declined to upend rent control, we covered it. When the nation’s highest court ruled to clear the way for more real estate development in the wetlands, we covered that too. And when the same court struck down affirmative action, we jumped in to contextualize its meaning for CRE, where many leaders have been on a years-long quest to diversify its ranks.
This is politics, and how we cover it and discuss it on our stages pivots on one goal: explaining what it means for the commercial real estate industry. As James Carville, the “Ragin' Cajun” who ran Bill Clinton’s 1992 presidential campaign, famously said, “It’s the economy, stupid.”
Well, in a seismic presidential election year for real estate and the country, it’s the policy, stupid.
— Mark F. Bonner, Bisnow Editor-in-Chief
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The Best Of Bisnow News: Jan. 15-19
Not 'Even Worth Giving Them Our Name': Why Most Foreclosure Auctions Don't Actually Result In Sales — Bisnow Los Angeles Reporter Bianca Barragán
No property type is immune to the kind of financial distress that can lead to a foreclosure auction, but with an estimated 44% of office properties nationwide underwater on their loans, they are the most likely to end up on the block right now. However, going to auction rarely means that a building will actually end up with a new owner.
In 15 years of running auctions for her company, Beacon Default Management, CEO Selina Perelskin said she has only once seen someone show up with a full-bid check and buy a property at auction, and it sold for $6M. Beacon specializes in auctions for CMBS-financed properties, collateralized loan obligations and big-ticket properties, decreasing the likelihood that a slew of bidders will show up.
“No one’s going to come with a $200M check,” Perelskin said.
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Trophy Office Space Is Hot. What Will It Take To Build More? — Bisnow Boston Reporter Taylor Driscoll
New year-end data has shown high demand for top-quality space and shrinking vacancy in the trophy and Class-A segments across major U.S. markets. But experts told Bisnow they anticipate the headwinds facing the overall office sector will continue to restrict new supply and make the market for trophy tenants even tighter.
Lenders seeking to reduce their overall exposure to office are either unwilling to finance new projects or are requiring a higher level of pre-leasing commitments, developers and brokers said. In some markets, potential tenants aren't able to plan ahead enough to sign the deals necessary to move projects forward.
“I've got some groups I think that would be interested in leasing, but I can't get it financed unless they commit, and they're not going to commit three to four years out,” said Cushman & Wakefield Vice Chairman Brian Gale, based in Miami. “It's that Catch-22 between the pre-leasing and what the lender will lend on.”
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‘Creative, Not Stupid’: Alternative Lending Companies Staff Up For Breakout Year — Bisnow National Reporter Patrick Sisson
The financing crunch that has impacted commercial real estate, where traditional financing sources went from being flush with capital to frozen in the past few years, has produced many losers. But a clear winner has been the alternative financing sector, which is seeing increased demand amid the regional banking crisis, rising interest rates and market uncertainty.
An estimated $1T in commercial real estate loans are coming due in the next 18 to 24 months, 10% to 20% of which will struggle to refinance, according to Michael Boxer, managing director of private real estate debt at CenterSquare. Special servicers and private lenders are staffing up in response to that coming demand, he said.
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Fannie Mae To Vacate Its 700K SF D.C. Headquarters Early — Bisnow Deputy East Coast Editor Jon Banister
Fannie Mae's headquarters was the largest private sector office lease in D.C. history when it was signed nearly a decade ago, and it kick-started a massive downtown development. But now the space is going back on the market.
Carr Properties last week listed 720K SF at Midtown Center as available for lease, and a Fannie Mae spokesperson confirmed it is vacating the space in May 2029.
“Like many other companies, we are continuing to embrace our flexible work environment by exploring office space options that support our workforce while being fiscally responsible,” the spokesperson said in a statement emailed to Bisnow. “Per our Charter, we will continue to maintain a presence in the Washington, D.C., metropolitan area.”
More Big News From The Week …
— 'We’re Not Even Close': Data Center Power Crunch Gets Worse, With No End In Sight
— Blackstone Prepares To Sell $1.8B Of Signature Bank Loans
— BlackRock Buying Data Center, Infrastructure Investor GIP For $12.5B
— Record Amount Of Life Sciences Space To Be Delivered This Year Amid Industry Slowdown
— BREIT Records Worst Annual Return In Its History
My Slightly On/Off-Topic Media Diet
Fed’s Raphael Bostic Expects Rate Cuts To Happen In The Third Quarter (CNBC): “Bostic, a voting member this year on the rate-setting Federal Open Market Committee, asserted that the goal ahead is to calibrate policy to be not so restrictive as to choke off growth while still acting as a bulwark against persistently elevated prices. However, he said a “golden path” scenario of tamping down inflation while promoting solid growth and healthy employment is getting closer than many Fed officials had expected.”
ECB Maintains Cloud Of Uncertainty Over Rate Cuts (Reuters): “European Central Bank interest rates are likely to come down from record highs this year but policymakers maintained on Tuesday a cloud of uncertainty over the timing of the moves, even as investors bet on early and aggressive policy reversal. The ECB ended its quickest interest rate hike cycle in September and with inflation now slowing sharply, the debate is increasingly focusing on the timing of the first cut in the ECB's record high, 4% deposit rate.”
Dollar Stages Biggest Rally Since March As Global Risks Pile Up (Bloomberg): “The dollar’s rise is defying widespread expectations that it would continue to drift lower this year on speculation that the Fed will start easing monetary policy as soon as March, reducing the interest-rate gap that once sent investors flocking to the US. But the outlook is being clouded by concern that traders have overestimated how much policymakers will ease.”
The Hidden Potential Of Zombie Office Towers (Columbia Magazine): “Columbia economist Stijn Van Nieuwerburgh … ultimately [concluded] that policymakers ought to consider encouraging such [office-to-residential conversion] projects on a large scale in at least six metropolitan areas: New York City; San Francisco; Washington, DC; Denver; Boston; and San Jose. In these areas alone, the researchers found, there are more than 1,200 office buildings that are good candidates for conversion, based on their vacancy rates, architectural designs, and other factors. Together the properties could produce some 120,000 new apartments.”
Depopulation And Associated Challenges For U.S. Cities By 2100 (Nature Cities): “Using population projections, we found that, by 2100, close to half of the nearly 30,000 cities in the United States will face some sort of population decline, representing 12–23% of the population of these 30,000 cities and 27–44% of the populated area. The implications of this massive decline in population will bring unprecedented challenges, possibly leading to disruptions in basic services like transit, clean water, electricity and internet access.”
In Every Power Couple There’s A Taylor Swift And A Travis Kelce (WSJ): “To put things in power-couple terms that just about everyone else in America can understand: [Lawrence] Katz is the Travis Kelce of the couple, the All-Pro football player regarded as one of the best in his sport. [Claudia] Goldin is the Taylor Swift, the all-world pop star whose fame is on another level. … To be fair, ‘better’ is subjective. Many who excel in their careers might never match their significant others’ stature, simply because certain jobs are more public. ‘I don’t feel any sense that I lost some competitive race,’ Katz says of his wife’s Nobel recognition.”
Bisnow Weekend Interview Preview
In this week’s Weekend Interview, Bisnow Boston Reporter Taylor Driscoll spoke with Cappy Daume, the chief portfolio management officer for The Davis Cos., one of the largest Boston-based development and investment firms. Daume joined the firm during a downturn in 2009, and it has since grown its portfolio to more than 230 commercial and multifamily properties across the country. She said the firm has stayed active on acquisitions since the start of the pandemic and is now focusing on distressed investing.
Bisnow: What is the company’s strategy in the new year as we’ve seen a slowdown in almost every market, at least here in Boston? What opportunities are you seeing?
Daume: What we’re seeing a lot now is actually the distress that you’ve been reading about and anticipating is starting to show itself into opportunities. And that is either through lenders reaching out, refinancings, ownerships that need rescue capital or restructuring, people who are capitulating on purchase prices that they thought they had, they didn’t have, and their ability to hold out for that is being impaired. We’re back to distressed investing first and foremost, and that’s what we excel at. That’s what we started as in 2009. We are extremely optimistic about the current environment for acquisitions.
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.
VP of Acquisitions and Development — Lead the evaluation and assessment of real estate acquisitions, divestitures and development for a prominent West Coast affordable housing firm.
CFO — Lead financial operations for a 100-year-old Long Island real estate company.
Head of Property Management — Lead property management for a $7B portfolio.
VP of Acquisitions and Asset Management — Lead acquisitions and asset management for a premier Southeast owner-operator.
Hey, Matt, What Are You Going To Binge This Weekend?
My media diet is a little all over the place. I finally got around to listening to Danny Brown's recent album release Quaranta, and that'll be blasting through my headphones on repeat when I take my dog for our weekend hike. My TV habits are a little more dignified, and I just paid for Acorn TV so I could watch two more seasons of Midsomer Murders, a British crime drama that's equal parts cheesy and compelling. I've also been playing through all the FromSoftware games and am slowly making my way through the Demon's Souls remake. I say slowly not because I haven't been playing the game but more because I keep dying.
— Matt Wasielewski, Bisnow South Florida Reporter
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How did I do? You can send all love letters and dissents directly to me at mark.bonner@bisnow.com.
