The Bisnow Weekender: Known Knowns Meet The Unknown Unknowns
Thanks for reading the Bisnow Weekender, my personally curated roundup of the most impactful news, notable quotes and other colorful highlights from the Bisnow world of commercial real estate and beyond.
Commercial real estate is on the clock.
As the industry enters the third quarter, it is still grappling with an acute question: Can it actually turn the corner in 2024?
Back in January, Bisnow asked leading executives in the U.S. and Europe to explain how they would “survive till ‘25” — the industry’s war cry as it pondered what 2024 might bring. At that time, sentiments were mixed but overwhelmingly optimistic.
Multiple rate cuts were predicted. But so far, not even one has materialized — and it’s plausible that none will in 2024. In a Bisnow survey published last week, 49.4% of CRE executives still believe at least one rate cut will come by the end of the year, a far cry from the 37.8% who in January predicted two cuts.
Inflation data released this week moved markets and optimism forward once again — some are even making money moves in anticipation of a rate cut in September — but no one knows what will happen.
So, now what? The Bisnow newsroom spoke to dozens of real estate executives to find out how they are managing higher-for-longer rates, persistent inflation, geopolitical instability, a potential banking crisis, asset class segmentation and contraction, and even AI integration challenges.
— Mark F. Bonner, Bisnow Editor-in-Chief
The Best Of Bisnow News: July 8-12
The Bible For Appraisers Is A Cash Cow For Its Creator. But The Industry Is Losing Faith — New York Reporter Sasha Jones
All of the nearly 80,000 certified and licensed real estate appraisers in the United States must master the bible. The state and federal workers tasked with making sure those professionals are properly doing their jobs need to learn it inside and out, too.
But the bible keeps changing.
The holy text of the appraiser is the Uniform Standards of Professional Appraisal Practice. USPAP, as it is called, is handed down by The Appraisal Foundation, a nonprofit with a congressional mandate to write the rules for the appraisal industry.
The foundation releases a slightly different version every two years, setting off a wave of testing and recertification to ensure full knowledge and compliance. That process is an open sore for appraisers, many of whom have publicly critiqued the foundation's financial motivations and potential conflicts of interest.
The foundation, known as TAF, has also been the subject of increasing scrutiny from government regulators and industry watchdogs, who have raised concerns about its funding sources and lack of transparency.
“This private entity is benefiting from the public power of rule writing,” National Fair Housing Alliance General Counsel Morgan Williams said in an interview. “The publications are the largest source of revenue for The Appraisal Foundation, this private entity, so they are literally privately making money off of the paywall.”
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Engineering Is Booming. Private Equity Wants In — Houston Reporter Maddy McCarty
“We get approached two or three times a month,” Stephen DeSimone said about private equity interest in his firm, Manhattan-based DeSimone Consulting Engineering. “It used to be once a year, maybe twice a year. They used to be pretty discreet about it. Now they just leave voicemail messages.”
Private equity spent $4.5B on engineering and construction acquisitions last year. This year is tracking to be the fourth year in a row with more than 400 mergers and acquisitions in the architecture, engineering and environmental space, and 41% of all year-to-date deal activity was backed by private equity buyers, according to industry consulting firm Morrissey Goodale.
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Miami Has Become One Of Commercial Real Estate's Most Important Job Markets — National Reporter Patrick Sisson
The city captured 5.3% of all commercial real estate job listings in the country through the first half of the year, according to a Bisnow analysis of postings on the job board SelectLeaders. Prior to the pandemic, Miami typically had less than 1% of all listings.
Real estate has a long history of driving the economy of Miami — the sector accounted for 21.5% of the city’s GDP in 2022, according to the nonprofit business group Partnership for Miami — but it has grown into a city of focus on a national scale.
More Big News From The Week …
— Stephen Ross Steps Down From Related To Launch New Florida Firm
— How Howard Hughes’ $130M Houston Office Refi Defied The Narrative
— Rising Land Prices Spell Trouble For Some Data Center Developers
— Houston CRE Had Been Rebuilding. Then Tropical Storm Beryl Delivered Another Blow
My Slightly On/Off-Topic Media Diet
The Commercial Real Estate Credit Crunch: ‘There’s A Tsunami Coming’ (Bloomberg): “Almost $1 trillion of debt linked to commercial real estate will mature this year in the U.S., according to the Mortgage Bankers Association, and rising defaults as borrowers fail to repay will create more options for buyers of distressed assets. … John Brady, global head of real estate at Oaktree, is similarly blunt about what’s ahead: ‘We could be on the precipice of one of the most significant real estate distressed investment cycles of the last 40 years,’ he wrote in a recent note on the U.S. ‘Few asset classes are as unloved as commercial real estate and thus we believe there are few better places to find exceptional bargains.’”
Gen AI: Too Much Spend, Too Little Benefit? (Goldman Sachs): “The promise of generative AI technology to transform companies, industries, and societies continues to be touted, leading tech giants, other companies, and utilities to spend an estimated ~$1T on capex in coming years, including significant investments in data centers, chips, other AI infrastructure, and the power grid. But this spending has little to show for it so far beyond reports of efficiency gains among developers. And even the stock of the company reaping the most benefits to date — Nvidia — has sharply corrected.” …
Jim Covello, Head of Global Equity Research at Goldman Sachs: “So, the crucial question is: What $1T problem will AI solve? Replacing low-wage jobs with tremendously costly technology is basically the polar opposite of the prior technology transitions I’ve witnessed in my thirty years of closely following the tech industry. Many people attempt to compare AI today to the early days of the Internet. But even in its infancy, the Internet was a low-cost technology solution that enabled e-commerce to replace costly incumbent solutions."
The American Elevator Explains Why Housing Costs Have Skyrocketed (NYT): “Through my research on elevators, I got a glimpse into why so little new housing is built in America and why what is built is often of such low quality and at high cost. The problem with elevators is a microcosm of the challenges of the broader construction industry — from labor to building codes to a sheer lack of political will.”
Milk, Eggs And Now Bullets For Sale In Handful Of U.S. Grocery Stores With Ammo Vending Machines (AP): “A company has installed computerized vending machines to sell ammunition in grocery stores in Alabama, Oklahoma and Texas, allowing patrons to pick up bullets along with a gallon of milk. … American Rounds said their machines use an identification scanner and facial recognition software to verify the purchaser’s age and are as ‘quick and easy’ to use as a computer tablet.”
America’s Biggest Nonalcoholic Beer Brand Doubles Its Valuation (WSJ): “Athletic Brewing continues to ride the wave of Americans drinking less alcohol … Nonalcoholic options have surged as Americans continue cutting back on alcohol, with younger Americans drinking the least. Nonalcoholic beer is now the fastest-growing segment of the [$135B] beer market.”
The Big Read: It Ain’t Easy In The Big Easy
Why New Orleans Fails To Stay Dry, Functional Despite Billions In Funding (The Times-Picayune): “Since Hurricane Katrina, only New York — with 20 times as many people — has collected more in major disaster relief from the federal government than New Orleans, with billions of dollars earmarked for fixing up the city’s streets, drainage system, government buildings and other public works here. Yet that infrastructure continues to deteriorate. The city does face distinct challenges related to the upkeep of its 19th-century infrastructure, in particular a swampy terrain that in many parts of the city has been steadily sinking for decades. But some problems have directly resulted from a string of disastrous policy decisions.”
How things are going in New Orleans:https://t.co/65P0AoMM1O pic.twitter.com/YK97PLU0S3
— Joseph Cranney (@joey_cranney) June 28, 2024
In a previous edition of this newsletter, I shared my thoughts on New Orleans, the legacy of Hurricane Katrina and what it should mean for the rest of the U.S. and CRE as it contends with “the consequences of overbuilding in low-lying, vulnerable areas of America’s coastline.”
Bisnow Weekend Interview Preview
Madrid-based Eurofund Group president Ian Sandford was one of the pioneers in creating retail-led destinations that moved the dial beyond simply shopping.
Speaking to Bisnow UK Reporter Mark Faithfull, Sandford discussed how the company has evolved into multiple asset classes, considered the future of retail investment and described how to get away from it all he unwinds with family, football, basketball and a cold Spanish beer.
Bisnow: There has been a disconnect between improving operational performance at malls and their investment appeal. Why, and is that changing?
Sandford: Unfortunately, it’s changing. Unfortunately, because it’s getting more difficult for us to acquire sensibly priced assets. We typically plan to buy a scheme to transform it, hold it for five years and sell it back into the market. That’s going to be increasingly difficult.
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.
Vice President, Multifamily — Provide oversight on value creation and strategy execution for a portfolio of multifamily and commercial assets.
Managing Director, Asset Management — Lead HASTA’s asset management portfolio and manage a dynamic team of directors, associates and analysts.
Senior Vice President, Multifamily Acquisitions — Lead acquisitions of apartment properties, focusing on value-add and opportunistic assets primarily in the Greater Los Angeles and San Francisco Bay areas.
Vice President of Asset Management — Oversee the performance, optimization and strategic direction of a 3,900-unit multifamily portfolio.
Upcoming Bisnow Events And Webinars
Tuesday, July 16 (San Francisco): Northern California Industrial and Logistics Summit
Wednesday, July 17 (Los Angeles): Los Angeles Office and Workplace Market Outlook
Thursday, July 18 (New York): Data Center Investment Conference and Expo: Northeast
Thursday, July 18 (Tampa): Tampa Construction and Development
Thursday, July 18 (Chevy Chase, Maryland): The Future of Friendship Heights and Chevy Chase
Thursday, July 18 (Garden City, New York): Long Island State of the Market
Thursday, July 18 (League City, Texas): Future of Galveston County
Thursday, July 18 (Digital): National Finance Webinar: Equity Markets and Joint Venture Partnerships
Thursday, July 18 (New York): National Data Center Investment Expo and Conference Capital Markets Summit
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How did I do? You can send all love letters and dissents directly to me at mark.bonner@bisnow.com.
