The big news of the morning is Starwood REIT reducing its redemptions cap as it watches its cash reserves dwindle. 

SREIT will now buy back at most 1% of the fund’s net asset value each quarter, a sharp drop from its previous 5% cap. Its monthly max is dropping from 2% of NAV to 0.33%. The firm, which has about $10B under management, said it expects the reduction to last six months to a year. 

The company said the move is designed to free up liquidity without selling properties — something few businesses want to do today as sale after sale comes in far below the previous purchase price, and often less than the loan amount.

“We cannot recommend being an aggressive seller of real estate assets today given what we believe to be a near-bottom market with limited transaction volumes, and our belief that the real estate markets will improve,” Starwood said in a letter to shareholders Thursday. 

But this goes beyond just getting a little more dough on hand. SREIT is trying to staunch some serious bleeding. It had $752M in available cash at the end of April and less than $225M left on its credit line, and it is in danger of running out of cash this year. 

The new caps are expected to free up $33M a month.

Blackstone REIT has faced similar withdrawal challenges in the past, but those appear to be behind it, and the investor sent around a sharp elbow of a shareholder memo yesterday highlighting BREIT’s liquidity and saying it has no need to adjust its redemption caps. 

— Catie Dixon, Jay Rickey, Mark F. Bonner and Kayla Carmicheal

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On Our Radar

• Consumer sentiment is down nearly 10% as Americans are weary of continued high inflation, according to the University of Michigan’s monthly report issued this morning. People were most pessimistic about what business conditions will be a year from now.

• Most banks are now forecasting two interest rate cuts this year — one in September and one in December. JPMorgan, Citigroup and MUFG are more bullish than most, predicting that cuts will begin in July.

• Looking for entertainment for your long weekend? Furiosa: A Mad Max Saga comes out today. And for you European football fans, the FA Cup Final is tomorrow at 10 a.m. ET. Man U is taking on Man City.

• Happy Memorial Day weekend in the U.S. and spring bank holiday in the UK! We hope everyone has a relaxing and meaningful holiday, and we’ll see you Tuesday. 

Today’s Deep Dive: A Nuisance That Can Be 'The Stuff Of Nightmares': CRE Braces For The Swarming Of Cicadas

They’re emerging from the ground and they’re coming for your property.

Cicadas can cause substantial damage by blocking pipes and clogging up compressors, property managers said. The 2007 cicada emergence knocked out the entire HVAC system for a large residential tower in Illinois — and that was nowhere near the level of bugs in this year’s double-whammy.

“Everything I've got is water-cooled, so, I'm very dependent on the water flow for this system, and the little critters just completely stopped the water flow,” said Bob Casey, chief engineer at Chicago-based property management firm Hiffman National. “Yeah, it was the stuff of nightmares.”

Even worse, insurance doesn’t cover it.

Property managers told Bisnow Philadelphia Reporter Sonya Swink how to prevent bug-driven big-ticket repairs.

Read the full story here.

This Morning’s News

Medical Properties Trust Secures $800M (Medical Properties Trust and Seeking Alpha): Medical Properties Trust has closed on an $800M, 10-year refinancing loan secured by its hospital portfolio as the REIT looks to stabilize its finances. Read about the refi and get more details.

Major Banks Enforce Office Attendance (Bloomberg and Reuters): Citi, HSBC and Barclays are increasing their demands for staff to work from the office, with some requiring five days of in-office attendance. The move is a response to regulatory changes intended to tighten up cybersecurity for Wall Street businesses. HSBC’s office attendance is up to 80% at its NYC HQ. Learn about the RTO push and see what impact it has had on attendance.

Nvidia’s Record Earnings = AI Data Center Boom (Bisnow): Nvidia announces record earnings driven by robust growth in the data center segment, with sales in that segment more than tripling. The surge in demand for data processing power, fueled by emerging technologies like artificial intelligence and cloud computing, is propelling construction of data center facilities.  Dive into the details of Nvidia's earnings report and the impact on data centers.

Goldman Revises Fed Rate Cut Expectations (Bloomberg): Goldman Sachs has adjusted its forecast for the Federal Reserve's first rate cut, pushing it from July to September, aligning with a broader consensus among bank forecasters who anticipate less easing in the coming months. See the new predictions.

Eli Lilly Announces Major Expansion (Eli Lilly and BNN Bloomberg): Eli Lilly is investing $5.3B to expand one of its sites in Indiana, the largest manufacturing investment in the company's history. This expansion aims to boost production capacity for its weight-loss drug tirzepatide and other pipeline medicines. Read more here and here.

Retail Apocalypse Averted (Bisnow): Dire predictions of retail’s demise, particularly after the pandemic, have failed to materialize. Many malls around the U.S. are performing well as e-commerce remains 17% of retail sales and foot traffic to malls has nearly returned to pre-pandemic levels. See how malls are faring.

Opportunity Zones Maintain Pace with National Real Estate Trends (ATTOM): Median single-family home and condo prices increased from Q4 to Q1 in 49% of opportunity zones around the U.S. but were up annually in almost two-thirds of the opportunity zones with enough data to measure. Dig into the performance data.

AI Investment Landscape Widens (Bloomberg): Following Nvidia’s impressive Q1 performance, investors are expanding their search for potential winners in the AI sector, including REITs that focus on data centers. See how Nvidia’s success could have ripple effects.

Unpaid Rent Imperils NYC’s Affordable Housing (Bisnow): Mounting unpaid rent bills threaten the stability of affordable housing in New York City, exacerbating financial strains for both tenants and landlords. With arrears exceeding $100M across the city, concerns arise about the long-term viability of affordable housing initiatives and the potential for widespread displacement. Explore the implications of continued rent debt.

Americans Feel A Bit Better — But Still Not Great — About Their Finances (Bank of America): The percentage of American workers who feel “financially well” rose to 47%, up from 42% at this time last year, according to Bank of America's 14th annual Workplace Benefits Report. There’s a major gender gap though, with significantly more men (53%) than women (36%) saying they are in good financial shape, and across genders, concerns about inflation outpacing salary has jumped up to 76%. Dig through the full report.

Reuben Brothers' Puerto Rico Venture (BNN Bloomberg): The Reuben Brothers are investing $2B in a coastal development project in Puerto Rico. The 2,000-acre project on the island's west coast, called Esencia, will feature luxury hotels, branded residences, golf courses and a private airport. Learn more.

JLL Board Appointment (JLL): JLL has added Susan Gore to its board of directors. Gore served as the managing partner of PwC's Global Technology and Information Security organization from 2016 until her retirement in 2022. Get to know Susan Gore.

US Business Equipment Orders Rise (BNN Bloomberg): Despite borrowing costs, businesses remain committed to long-term investments, according to a Commerce Department report Friday, which showed U.S. orders for business equipment rebounding. Delve into the report.

Prologis Portfolio Sale (Minneapolis/St. Paul Business Journal): Prologis has sold 23 warehouses to EQT Exeter in a deal valued at more than $257M. Read about the transaction.

REIT Earnings Season Losers (Seeking Alpha): After reviewing Q1 REIT earnings season winners, Hoya Capital looks at the companies that underperformed. Hotels and industrial companies generally didn’t fare as well as other sectors. See who struggled.

Global EV Charging Expansion For Warehouses And Shipping (CoStar): Major global warehouse and shipping companies are increasingly integrating electric vehicle charging solutions, anticipating the long-term transition to electric transportation in logistics. Understand how EV growth is affecting CRE.

Unionization Efforts At Chip Factories (BNN Bloomberg): Unions are setting their sights on chip factories as a new frontier for organizing, a test for the Biden administration’s promise of boosting organized labor with the country’s manufacturing boom. Learn about the movement.

PAG Considers Acquisition Of Wanda’s Mall Portfolio (MINGTIANDI): PAG is reportedly eyeing Wanda’s massive $14B mall portfolio. PAG may raise a fund or bring in other investors for the portfolio, which includes nearly 500 malls. Read more here.

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The First Draft is produced by Director of Newsletters Jay Rickey, Managing Editor Catie Dixon, Editor-in-Chief Mark F. Bonner and Deputy Newsletter Editor Kayla Carmicheal, with an assist from ChatGPT. We’d love your feedback! Email us at firstdraft@bisnow.com. 

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