Investment sales might be ready for their comeback.

Sales across property types picked up quarter-over-quarter and year-over-year in Q2 for the first time in two years, according to a new Colliers report. Blackstone’s taking AIR Communities private at $10B skewed the numbers, but multifamily, industrial and hospitality all saw sales volumes rise last quarter. 

“Major investors are back in the market, bidding on properties and acquiring portfolios,” Colliers wrote. “Statements from investors support the idea that now is an ideal moment to acquire commercial real estate.”

PGIM Head of U.S Equity Soultana Reigle said the summer turned things around for investors, who have seriously picked up their pace on due diligence as they sniff around for deals.

“People are anxious about missing a window,” she told MarketWatch.

Anyone looking for a deal is indeed going to need to move fast.

GreenStreet reported CRE prices rose 1.6% in August, bringing them up 3.3% this year, and Colliers said cap rates appear to have peaked. 

And it may turn out that the bargains buyers have been waiting years for will never materialize, and billions of dollars of opportunistic and distress funds are going to have some tough decisions to make about returning money to investors or tweaking their investment guidelines.

“A lot of the dry powder is either, one, waiting for interest rates to come down or, two, waiting for massive distress, and that's not really seeming to develop,” Holly MacDonald-Korth, CEO of bridge lender and investment firm KDM Financial, told Bisnow last month. 

“I’m not sure if another shoe is going to drop in that department.”

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

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On Our Radar

• Related Cos. CEO Jeff Blau on CNBC this morning: “The office is really a tale of two cities. New buildings are doing great. So over at Hudson Yards, we're 100% leased. Any space that comes up gets gobbled up in a very short period of time at the highest rents we've ever achieved. … These older buildings are very, very difficult to lease. You know, we could be leasing space at $200 a foot in our building. You can go across the street and attempt to lease for $50, but there's no people. There's no tenants that want them. … I think there will be a lot of teardowns of B buildings, and there'll be a lot of equity lost in CMBS that gets in trouble because those buildings were overlevered, and there's just no demand at all.”

• Sen. Bernie Sanders wants Kamala Harris to go beyond 28% capital gains tax. President Joe Biden has previously proposed 39.6%, and in 2016, Sanders proposed 54.2%. At 28%, Sanders believes Harris is being too pragmatic to win the election. Wherever it lands, long-term capital gains affect real estate investors, as property held over a year could potentially face a higher tax. That could deter property sales or push investors to seek alternative tax-saving strategies.

• Could proposed EU reforms boost Europe’s real estate sector? Led by former Italian Prime Minister Mario Draghi, a new report calls for the bloc to cut the red tape so at least €800B in additional investment each year can flow into the continent. It’s about macroeconomic relevance, social parity and decarbonization. However, large-scale EU reforms that lead to infrastructure investments have the potential to drive demand for land, spur urban development and boost property values, particularly in underdeveloped territories. That would be a CRE win beyond all else.

• 9 days until interest rate D-Day. CME’s FedWatch tool today shows a 73% chance of a 25-basis-point drop and a 27% chance of a 50-bps drop based on interest rate trader activity. That’s a huge swing from the last few weeks — the market had been increasing its odds on a larger cut, and last week traders had it at basically a coin toss between the two. 

This Morning's News

MULTIFAMILY — Special Servicing Rates Surge (Trepp): Trepp reports a continued spike in special servicing rates in August, with multifamily delinquencies reaching record levels. Analyze the trends with Trepp's report.

LEGAL — Big Lots Files For Chapter 11 (CoStar): Big Lots has filed for Chapter 11 bankruptcy and agreed to a $620M sale to Nexus Capital. Here's what's at stake for the retailer.

Today’s Deep Dive: Facing Billions In Budget Shortfalls, Cities Scramble For Solutions

Cities and CRE are playing a game of chicken, seeing which is going to break first in the battle of the budgets. 

And both sides losing is a very real possibility.

Cities rely heavily on property taxes to fund their basic workings, with most major metros getting more than 10% of their revenue from commercial property tax, and Boston tops the charts with 33% of its budget coming from CRE. 

And now both CRE and cities are in big trouble as falling valuations and rental income at properties ripple beyond landlords’ balance sheets into municipalities’. Cities are trying to close their gaps by pushing harder for more tax revenue. But CRE isn’t exactly in a position to give it.

“The biggest change I've seen is the amount of people who have properties that will sink or swim depending on if I can get the property tax cuts,” said Benjamin Williams, an attorney at Rosenberg & Estis who is suing cities over appraised values.

Read the full story here.

LEGAL — Wynn Settles Cases With DOJ (The Nevada Independent): Wynn Resorts will forfeit $130M in a settlement with the Department of Justice over foreign customer transactions. Wynn also said it settled a class action lawsuit related to its response to allegations former Chairman and CEO Steve Wynn sexually harassed several female employees. Learn details about the case and what led to the agreement.

INDUSTRIAL — California Warehouse Bill Heads To Governor's Desk As CRE Opposition Builds (Bisnow): A bill that passed the California Assembly and Senate last week would limit where new warehouses can be built, setting minimum distances from homes, schools and main roads. Get the details about the bill.

CONSTRUCTION — Walmart Tests 3-D Printing (WSJ): Walmart added 8K SF to one of its supercenters in one of the largest 3-D printed CRE projects to date. The plan? To see if a printer could do things quicker and cheaper. Despite the kinks with roll-out, the retailer already has 200 more similar plans in the pipeline. Learn how construction went for the retailer. 

MULTIFAMILY — Permitting Drops In Urban Centers (Multifamily Dive): Multifamily permitting is on the decline in urban areas, as suburban developments are now outpacing city-based projects. Find out which metro areas are facing the biggest drop-offs.

DATA CENTERS — Major Data Center Firms Call Denver Home, But Most Won't Build In Their Own Backyard (Bisnow): ​​Denver is only second to Dallas when it comes to data center juggernauts headquartered there. While the city is a hotspot for industry decision-making, significant hurdles remain for turning Colorado into a hub for construction. What's stopping Denver from becoming a hotspot for data center construction?

INFRASTRUCTURE — EV Stations Boost Hotel Performance (CBRE): A CBRE report finds that hotel parking department profits during 2023 were 32.3% greater than 2019 profit levels. Parking revenues have more than doubled since 2019, according to the report.

RETAIL — Kushner Snags $415M In Loans To Redevelop NJ Mall (Bisnow): The aging mall is set to be redeveloped in part into a mixed-use building under Kushner's apartment brand that combines "live" and "nirvana", Livana. Here's what the Livana project's preleasing situation looks like.

FINANCE — Bridge Unveils Ground-Up Construction Lending Program (Hotel Business): Bridge Investment Group has launched a new lending program to support construction and rehab projects for franchised hotels. Get the details about the new program.

INVESTMENT — Real Estate Stocks Rally (Seeking Alpha): September has a reputation for stock market losses, but real estate stocks performed well in the opening week Dive into Seeking Alpha's report.

M&A — Couche-Tard Still Pursuing 7-Eleven Parent (Bloomberg): Couche-Tard continues its pursuit of Seven & I Holdings despite a previous rejection of its takeover offer. A deal would create a global convenience store giant with more than 100,000 stores. Here's where the journey stands.

ENERGY — Small Modular Reactors Hold Promise (CNBC): Small nuclear reactors could revolutionize U.S. energy, but the challenge lies in building the first one. An effort by NuScale for an SMR in Idaho was canceled last year after costs ballooned from $5B to $9B. Most executives believe SMRs won’t reach a commercial stage until the 2030s. Learn why.

HEALTHCARE — Steward Health's Financial Troubles Hurt Patients (The Boston Globe): Regulators identified over 300 deficiencies at Steward hospitals in five years, and the Boston Globe's Spotlight Team found at least 15 instances where patients died after the hospital system failed to provide professionally accepted standards of care. How Steward's shortcomings didn't stop at finances.

RETAIL — Inside Red Lobster’s Downfall (NYT): A $1.5B real estate deal and yes, unlimited shrimp, are both part of the story that sank the country’s largest seafood chain. It always comes down to the unlimited shrimp.

DEVELOPMENT — Ambitious Skyscraper Renovation Set (Bloomberg): Plans are underway for one of the most ambitious skyscraper renovations globally, which includes cutting chunks out of floors to add terraces and converting the London office tower into a mixed-use space with retail, restaurants, workspaces and cultural attractions. Here are the renderings for the 45-story project.

LIFE SCIENCES — A Hospital-Turned-Lab Conversion Shows Appeal Of Low-Cost Space (Bisnow): The repurposing of Philadelphia’s Hahnemann University Hospital campus into affordable lab space for biotech startups is a case study in adaptive reuse for the life sciences. Discover the ins and outs of the project.

HOUSING — Florida’s Condo Market Faces Uncertainty (Yahoo! Finance): Amid high HOA fees and insurance costs, median sales prices for condos in Florida fell 1.3% in July, the first year-over-year decline since 2020 and far from the double-digit price gains seen until Q4 2022. Learn where prices stack up now.

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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.