LA County Public Health Director Dr. Barbara Ferrer (Getty, iStock)
A judge has tentatively struck down Los Angeles County’s controversial ban on outdoor dining, calling it an abuse of emergency power and one that lacks “science, evidence or logic.”
In a Tuesday morning written ruling, L.A. County Superior Court Judge James Chalfant overturned the county’s ban on outdoor dining, which went into effect Nov. 25 following a sharp spike in coronavirus cases. The Real Deal obtained a copy of the “tentative” ruling. Chalfant has scheduled an afternoon hearing, which will confirm or change the 53-page ruling.
The outdoor dining ban has caused an uproar in the industry, and that spurred the lawsuit by the California Restaurant Association that led to the judge’s decision.
“The Restaurant Closure Order is an abuse of the department’s emergency powers, is not grounded in science, evidence, or logic, and should be adjudicated to be unenforceable as a matter of law,” Chalfant wrote.
“The department’s own data provide no support for the planned shutdown of outdoor restaurant operations,” Chalfant wrote. The judge noted that of the 204 locations identified by the county as having three or more confirmed Covid cases, fewer than ten percent are restaurants.
The L.A. County Board of Supervisors voted to close outdoor dining for at least three weeks at the behest of county Public Health Director Barbara Ferrer. The ruling went beyond state prohibitions, which have not specifically barred outdoor dining.
Ferrer has warned that because of the leap in Covid cases, all residents should stay indoors as much as possible.
But the judge said that Ferrer’s actions were “not based on concrete data.”
The county did not immediately return a call for comment.
The judge’s ruling would appear to be a major victory for landlords, restaurant operators, and commercial brokers who have had to overcome numerous obstacles over the last few months.
City of Pasadena decided to ignore the ban but on Sunday acceded to it and closed outdoor dining. Other municipalities including Beverly Hills have voiced their opposition to the order.
In its monthly survey, the National Multifamily Housing Council found that only 75 percent of renters in 11.5 million market-rate apartments paid some or all of their rent by Dec. 6. The figure represents a 5-percentage-point decrease from November, and is nearly 8 points lower than it was a year ago.
The president of the Washington, D.C.-based lobby group, Doug Bibby, said the results should come as no surprise.
“As the nation enters a winter with increasing Covid-19 case levels and even greater economic distress — as indicated by last week’s disquieting employment report — it is only a matter of time before both renters and housing providers reach the end of their resources,” said Bibby.
He also said that the group, which represents landlords, was encouraged by news of a potential relief bill from Congress. The specifics have not been announced, but Virginia Sen. Mark Warner told CNN that the four-month, $908 billion package will include rental assistance, and is expected this week.
In the meantime, as Covid-19 cases in the United States pass the 15 million mark, property owners are hoping renters will continue to pay — even as other expenses fall by the wayside. In his 2016 landmark study on eviction in low-income communities, Princeton researcher Matthew Desmond noted that “rent eats first,” meaning it is prioritized over other household expenses.
Indeed, the consistency of rent payments in the multifamily sector have made the asset class a relative safe haven for investors during the pandemic, especially in areas where regulations do not prevent rehabbing apartments and raising rents.
Although examples of apartment distress have so far been isolated, all might not be well in the multifamily sector.
The NMHC rental tracker does not distinguish between partial and full payments. And there is no accounting for instances where tenants and landlords may have negotiated a plan to use security deposits as payment — a practice which was adopted officially by some locales to keep rent payments flowing.
But the survey is conducted the same way each week, and the drop in collection last week was the largest since early in the pandemic.
A weekly survey conducted by the Census Bureau found that in November, nearly 9 million out of 53.3 million rental households were not caught up on rent. Households behind on rent were disproportionately lower-income, an indication that the recovery from this crisis will be more uneven than that of past crises.
President Donald Trump and 85-15 Wareham Place in Queens (Photos via Getty; Wikipedia Commons)
Donald Trump’s childhood home is on the market, but the seller has only one owner in mind: the president himself.
The owner is starting a crowdfunding campaign to raise $3 million. Once the goal is met, the seller plans to gift the five-bedroom Tudor in Jamaica Estates to the outgoing president, the New York Times reported.
The effort is the latest in a number of attempts to re-sell the modest house at a profit.
The house was put up for auction last fall, but failed to meet the reserve price, Misha Haghani, the principal of Paramount Realty USA, which has represented the property in three past auctions, told the Times.
More recently, the home, located at 85-15 Wareham Place, was flipped to cash in on Trump’s presidency.
Just before his 2017 inauguration it was sold for about $1.4 million — about 78 percent higher than the $782,500 it fetched in 2008. That buyer quickly unloaded it to the most recent owner for $2.14 million at auction.
The ultimate goal of the seller now is not necessarily to have Trump move back to the property, but to donate it to a charity of his choosing, or install a presidential library. The president’s own charity, the Trump Foundation, was dissolved last year after he admitted using its funds to promote his campaign and pay off business debts. Trump has changed his primary residence to Florida.
With a variety of shutdowns taking place, malls are in a precarious position that may only get worse. (Getty; iStock)
With more pandemic shutdowns taking place, malls remain in a precarious position that may only get worse, according to a new report from S&P Global Market Intelligence.
S&P’s Quantamental Research group on Tuesday highlighted seven names: CBL, PREIT, Simon Property Group, Taubman Centers, Brookfield Property REIT, Macerich and Washington Prime Group, according to CNBC.
In determining vulnerability, S&P weighed tenant bankruptcy, foot traffic and cash flow.
More than 11,000 retail locations have announced closures so far this year, totaling nearly 150 million square feet of retail space, according to CoStar.
Shares of Simon, which has a market cap of $34 billion, have dropped 39 percent since January. Still, S&P Global Ratings has maintained an A corporate credit rating on Simon as it is seen to have the strongest balance sheet among its peers.
Brookfield Property, which has a market cap of $15.65 billion, has lost 15 percent from its share price over the same period. Macerich shares are down 55 percent year-over-year, lowering its market cap to $1.9 billion. Washington Prime’s stock price is down 68 percent since January, bringing its market cap to $216 million.
Taubman remains an outlier. The company’s shares are up about 38 percent this year, rising on news that the mall owner is to be acquired by Simon. Taubman has a market cap of $2.65 billion.
Ascena brands CEO Gary Muto and Sycamore Partners CEO Rob Sweeney (Photos via Getty; LinkedIn)
Private-equity firm Sycamore Partners got the green light to grab several Ascena Retail Group brands — Ann Taylor, Lane Bryant, Loft and Lou & Grey — out of bankruptcy.
Judge Kevin Huennekens of the U.S. Bankruptcy Court in Richmond, Virginia, approved the sale of the majority of Ascena’s remaining assets to Sycamore Partners, the Wall Street Journal reported.
The firm agreed last month to a purchase price of $540 million. The deal overall is valued at $1 billion.
“This is a pretty marvelous transaction and I just wanted to applaud all of you for putting this together and getting this done,” Judge Huennekens said during a hearing Tuesday.
Under the deal, set to close next week, at least 900 stores are expected to be saved. Ascena operated 1,500 U.S. locations as of August, down from 2,800 in better times for brick-and-mortar retail.
Ascena filed for bankruptcy in July, announcing plans to close 1,600 stores in an attempt to shed $1 billion of its $1.1 billion in debt.
Homebuyer demand cooled last week after three weeks of increases.
An index tracking the volume of applications for home loans dropped 5 percent, seasonally adjusted, last week, according to the Mortgage Bankers Association.
The MBA metric, known as the purchase index, had reported increases for the previous three weeks. The average size of purchase loan applications also fell to $366,100 from a record high of $375,200 the prior week.
Joel Kan, MBA’s head of industry forecasting, said the decline was due to the increase in government loans, which tend to have lower balances, dragging down the average.
Kan maintained that despite last week’s decrease in applications, the purchase market is “poised to finish 2020 on a strong note.”
MBA’s index tracking refinance applications saw a 2 percent increase, unadjusted, last week and was up 89 percent year over year. Kan attributed that to mortgage rates once again hitting a record low in the 30-year history of MBA’s weekly survey of the mortgage market.
Rates for a 30-year, fixed-rate mortgage dropped two basis points to 2.90 percent from 2.92 percent. Jumbo rates increased to 3.20 percent from 3.19 percent.
Refinance applications accounted for 72 percent of the home loans MBA surveyed, up from 69.5 percent the week before.
The overall number of applications for home loans fell 1.2 percent, seasonally adjusted, according to MBA’s combined index. MBA’s survey covers 75 percent of the total residential mortgage market.
David Swerdloff and his father (left) with 124 7th Avenue (Photos via David Swerdloff; Google Maps)
David Swerdloff is a far cry from what many picture a Manhattan commercial landlord to be.
The 75-year-old owns a single building, on Seventh Avenue in Chelsea. Soaring condos and offices dwarf the one-story structure, whose air rights he sold in 1997.
Swerdloff, who lives in the suburbs of Westchester County, didn’t set out to be a landlord. He inherited his building in the early 1980s, when it housed his family’s kitchen and bathroom showroom. After his father died, Swerdloff ran the 2,800-square-foot showroom for 25 more years.
David Swerdloff’s father in 1969
“I remember growing up in his store,” his daughter, Lindsey Rosenthal, wrote in an emailed letter to The Real Deal. “The owners and workers in the neighboring stores would talk outside, feed the parking meters every hour and knew everything about each other’s family.”
Swerdloff retired in 2006, and Le Pain Quotidien signed a 15-year lease for the space, 124 7th Avenue. But when the Chelsea eatery started losing money last year, Le Pain stopped paying the rent — nearly $47,000 a month — and the $226,000 in annual real estate taxes, according to a default notice sent to the international bakery chain.
Swerdloff said he tried negotiating to lower the rent, hoping to get some, really any, amount of money. No dice. The company, which filed for bankruptcy in May, never resumed paying and eventually abandoned the location.
“There are a bunch of other [small landlords] suffering from this, and it’s tough.”
The struggling landlord took Le Pain to landlord-tenant court in August 2019. Or tried to, at least. After Swerdloff waited six months for a hearing, the judge threw out the case on a technicality — one of the five addresses where the subpoena was served was incorrect. His options all but exhausted, Swerdloff turned to civil court.
Then the pandemic hit. The courts closed and a wave of tenant protections swept over the legal landscape.
Under a series of laws and executive orders signed by Gov. Andrew Cuomo and Mayor Bill de Blasio this spring, commercial landlords cannot evict tenants. Nor, in most cases, can they go after the personal assets of non-paying tenants even if a clause in the lease allows it.
“With the signing of my bill, any small business owner with a personal liability clause in their lease will see that provision temporarily suspended,” declared Council member Carlina Rivera in a statement at the time. “They will no longer have to fear their landlord going after their personal life savings and assets because of a disaster no one saw coming.”
It was a cruel irony for mom-and-pop landlords like Swerdloff — one that could become more prevalent in major markets like New York in the age of Covid.
Lawmakers went to great lengths to protect small business owners from big landlords, but made no effort to protect small landlords from big tenants. Untold numbers of property owners whose corporate tenants stopped paying have been scrambling to pay their mortgages and taxes, putting them at risk of losing their properties.
“Nobody said to the landlords, they don’t have to pay real estate taxes, they don’t have to pay mortgages, they don’t have to pay lenders,” said attorney Luise Barrack, a managing partner at Rosenberg & Estis and head of the firm’s litigation department. “It could be a corporation or an LLC, or it could be somebody who’s sunk their life savings — or their entire family’s life savings — into a building.”
The impact on smaller landlords could be long-term.
“You count on streams of cash being there, because of your streams of expenses,” said commercial real estate lawyer Joshua Stein. “If you start to screw around with that ecosystem, inevitably bad things are going to happen.”
The U.S. has 10 million to 11 million small-time landlords, managing an average of two units each, according to an analysis of IRS data by the Department of Housing and Urban Development’s Office of Policy Development and Research. Institutional landlords, meanwhile, number fewer than 1 million.
With stores shuttering and a recession taking hold, pandemic-wracked retail tenants checked with their attorneys and found no compelling rationale to keep paying their landlords.
“If you’re a retailer that doesn’t have an underlying ‘good guy’ guarantee, or a meaningful corporate guarantee, then you have every reason not to pay rent,” said Peter Braus, a managing partner and co-founder of the commercial brokerage Lee & Associates. “The recourse that a landlord has is quite minimal in this environment.”
The city did face some legal backlash from mom-and-pop landlords. Two, both first-generation immigrants, sued in July, arguing that Covid-19 protections for non-paying businesses deny landlords’ right to free speech and due process, and violate the Constitution’s contract clause.
“I think a lot of people in New York City, a lot of renters, paint a picture that landlords are evil,” plaintiff Marcia Melendez, who owns two properties in Brooklyn, said in an interview.
“There are a lot of small landlords that actually need the income from their properties to survive and to pay the bills for the property. You can’t lump everybody together.”
Her tenants include residents, one of whom she says is not paying rent, and a small local coffee shop, for which she has provided rent relief. But the case also cites the defaults of Gap, Old Navy and Victoria’s Secret.
“We’ve seen major corporations take advantage of this,” said Stephen Younger, of Patterson Belknap Webb & Tyler, the lead attorney for the plaintiffs. “There’s no income test that would take into account whether you’re truly suffering or not.”
But the case against the city was recently dismissed. The plaintiffs are deciding whether to appeal.
“These provisions are put in place to protect those in need,” said attorney Laura Brandt, who brands herself as “the Retail Lawyer.” She noted that some stores have lost millions, if not billions, of dollars in the pandemic.
“But now that this has dragged on, it’s not just the retailers — the landlords are starting to go into bankruptcy,” Brandt said. “So now they’re both underdogs.”
David Swerdloff, 2006
When Le Pain filed for Chapter 11, Swerdloff lost all hope.
“There are a bunch of other [small landlords] suffering from this, and it’s tough,” he said.
Hospitality investment firm Aurify bought Le Pain out of bankruptcy last month with plans to reopen some locations across the U.S. A spokesperson for Le Pain declined to comment.
Smaller landlords with just one property and very little capital often lack the resources to replace a tenant, Braus noted. “They can’t compete with the deep-pocketed landlords, who are able to go out and get really good tenants by spending the money that’s necessary,” he said.
Swerdloff paid $240,000, with interest, in 2019 property taxes and expects to owe $220,000 for this year. Eighteen months without a paying tenant makes the upcoming tax payment daunting, if not impossible. Swerdloff said he and his wife have already gone through their life savings.
Desperate, he and his wife sent a letter to the City Council in October, pleading for some kind of relief. “We cannot live another day like this,” they wrote. They never heard back.
Swerdloff sold his home of 44 years in an attempt to stay afloat, according to the letter. He is still looking for a tenant, or perhaps a buyer, for his 7th Avenue building.
“The city is not doing anything,” he argued. “They’re oblivious to the plight.”
Facebook plans to invest $150 million to build 2,000 homes for low-income residents in the San Francisco Bay Area.
The Silicon Valley-based social media giant said Wednesday the money would support the development of affordable homes for families making less than 30 percent of the region’s median income.
The funds will be available to local governments and nonprofit groups in the form of low-interest loans. Projects in San Francisco, Santa Clara, San Mateo, Alameda, and Contra Costa counties are eligible. The company wants to distribute all of the money by 2026.
Facebook’s program is part of a $1 billion housing investment plan the company announced last year. Google and Apple are undertaking similar initiatives.
Tech companies have come under scrutiny for their role in driving up rents and home prices in the Bay Area, contributing to the affordability crisis and pushing people into homelessness.
The rise of remote working amid the pandemic has driven down rents in San Francisco, although pricing remains high.
California Gov. Gavin Newsom, who praised Facebook’s announcement, early last year called on tech companies to loan money in a fund to build housing across the states, which led to companies formulating their own programs last year.
Affordable housing rents are calculated based on area median income, a federally designated measure of affordability based on what all people in that area earn. The Department of Housing and Urban Development considers Marin, San Francisco, and San Mateo counties as one area with a median income of $143,100.
HUD takes into account family size — a family of four with a household income of $52,200 is eligible for housing reserved for families making less than 30 percent AMI. A single person with an income of $36,550 also qualifies.
Santa Clara County — where Facebook has committed one-third of its funding — has a slightly lower AMI that allows families making $47,350 eligible for such housing.
A judge’s decision to overturn Los Angeles County’s outdoor dining ban has no practical effect because of the state’s current stay-at-home order.
Tuesday’s ruling by L.A. County Superior Court Judge James Chalfant was a strong rebuke. As part of a 53-page written decision, he said the county’s “own data provide no support for the planned shutdown of outdoor restaurant operations.”
Despite the scathing words, the ruling will not change the suspension on dining in the county, according to the Los Angeles Times. That’s because California’s Covid order — which limits restaurants to takeout only — supersedes the county measure.
The state-level order took effect in L.A. County and surrounding counties over the weekend. It kicks in when any region of the state records intensive care unit bed availability below 15 percent.
Barely 10 percent of ICU beds in the state-designated Southern California region, which stretches as far north as Mono County, are available.
Chalfant said if the county wants to extend its ban on outdoor dining beyond the state order, it will have to conduct a risk-benefit analysis.
“The issue here is, is shutting down outdoor dining going to help in any significant way, or is it just something to do?” Chalfant said at a court hearing Tuesday.
He also said the order “is an abuse of the [county health department’s] emergency power.”
The county’s outdooring dining ban was harshly criticized by businesses and restaurant representatives, along with some local elected officials. The city of Pasadena broke with the county and allowed outdoor dining, but ultimately shut it down because of the state order.
Several other types of businesses and activities are barred under the state order, including hair salons and breweries. Residents are asked to keep both public and private gatherings to a minimum. [LAT] — Dennis Lynch
Daniel Taban and a rendering of the project (City of Pasadena)
Jade Enterprises plans to develop a 263-unit apartment complex in Pasadena, in what would be its third and largest project of the year in the Los Angeles area.
The project would replace a series of small commercial buildings at 740-790 East Green Street, according to Urbanize, which first reported on the plan. The development site totals 2.33 acres. MVE + Partners is designing the project.
The units are planned as a mix of studio, one-, and two-bedroom apartments with 41 units set aside as affordable. There would also be 16,000 square feet of ground-floor retail and underground parking, Urbanize reported.
The two buildings would range between three and five stories. Each would have roof decks. The buildings are separated by a long courtyard running through the center of the site. Jade has also agreed to build a 10,500 square foot public park on the site, although designs for that have not been finalized.
If approved, groundbreaking is expected for mid-2023, with a completion date by the end of 2025.
The proposal stands as one of the larger ground-up residential projects that has been pursued in Pasadena in recent years.
In May, Jade filed plans to build a 50-unit complex in Hollywood. It is also partnering with Golden West Properties in Marina del Rey on a 172-unit building. [Urbanize] — Dennis Lynch
From left: Sen. Ron Wyden, Rep. Joaquin Castro, 666 Fifth Avenue and Jared Kushner (Getty; Google Maps)
Democrats in Congress have launched an investigation into whether the bailout financing for Kushner Companies’ 666 Fifth Avenue impacted United States foreign policy.
The probe seeks to determine whether a payment in excess of $1 billion for the Kushner family’s skyscraper was connected to the lifting of a Saudi blockade of Qatar. Sen. Ron Wyden of Oregon and Rep. Joaquin Castro of Texas requested a bevy of documents from Brookfield Asset Management, which bailed out the troubled office building in 2018, as well as pertinent ethics records from a senior White House lawyer.
“This sequence of events, especially the stunning reversal in U.S. policy towards Qatar, raises serious questions about what role Jared Kushner — and the financial interests of his family — may have played in influencing U.S. foreign policy regarding the blockade,” the lawmakers wrote.
The investigation lays out a timeline, previously chronicled in news reports, which the lawmakers say raises questions about the role the business transaction played in altering foreign policy.
At Jared Kushner’s behest, the firm purchased 666 Fifth Avenue in 2007 for a record-breaking $1.8 billion. It initially sought to reposition the asset, but plans to replace it with a new skyscraper that would have condos, a hotel and retail never materialized.
A decade later, the building was still 30 percent vacant, and a $1.4 billion payment on the debt was due. Qatar’s sovereign wealth fund initially rebuffed Charlie Kushner’s request to invest about a billion dollars in the property, which the lawmakers say coincided with a dramatic shift in foreign policy toward Qatar.
During a 2017 trip to the Middle East, Jared Kushner met with representatives of the United Arab Emirates and Saudi Arabia to discuss a blockade of Qatar. Despite questions and concerns raised by the State Department — including from Rex Tillerson, then the Secretary of State — the controversial move was backed two weeks later by President Donald Trump, the investigation states.
More than a year later, Kushner received a $1.28 billion bailout from Brookfield, which purchased the ground lease beneath the tower and paid nearly a century of rent up front, just months before the original note came due.
Subsequently, the restrictions on Qatar were eased. A Financial Times investigation found that Qatar’s sovereign wealth fund was the second-largest stakeholder in Brookfield Property Partners, the entity that provided Kushner with the financing.
Brookfield has said that Qatari representatives had no involvement in the Fifth Avenue transaction. In 2020, the firm’s chairman Ric Clark said at a public event that there was no “quid pro quo” involved in the deal, and affirmed its plan to renovate the building.
Brookfield and Kushner did not respond to requests to comment.
Nile Niami and his West Hollywood property (Getty, iStock)
Nile Niami has placed a West Hollywood spec mansion into bankruptcy, eight months after a creditor filed a notice of default on the property.
The bankruptcy filing, submitted by an entity Niami controls, values the property at $30 million and its liabilities around $59 million, according to the Wall Street Journal.
The property hit the market in early 2019 for $55 million then cut to $40 million. It’s not currently listed publicly.
A spokesperson for the embattled luxury developer said a creditor “misrepresented facts, and that put Nile in an untenable situation trying to force a foreclosure sale.”
The representative continued, “Nile is seeking all legal remedies to rectify the situation and protect his asset,” the Journal reported.
Canadian investor Lucien Remillard filed a notice of default on the property in April.
Joseph Englanoff is also a lender on the property. Englanoff took control of one of Niami’s unsold spec homes in February — a 20,000-square-foot Beverly Hills mansion — and recently sold it for an undisclosed sum.
The West Hollywood home spans 14,000 square feet with six bed rooms and 10 bathrooms.
Niami is currently facing a lawsuit from Compass Concierge for allegedly failing to repay a $200,000 loan on a Bel Air spec home. Compass Concierge fronts money to homeowners who list their properties with the brokerage.
Meanwhile, work is nearly done on Niami’s 100,000-square-foot mansion in Bel Air, dubbed, “The One.” He claimed as recently as 2018 that the home could sell for half a billion dollars.
Karlie Kloss and Joshua Kushner with 2318 North Bay Road (Getty)
Model Karlie Kloss and her husband, Joshua Kushner, are reportedly the buyers of a waterfront Miami Beach mansion that sold over the summer for $23.5 million.
Kloss recently posted a photo on Instagram in the pool of the mansion at 2318 North Bay Road, and Page Six first reported that the couple purchased the home. Hospitality mogul Keith Menin sold the eight-bedroom, nearly 15,000-square-foot mansion in August to Malibu Summer 2020 LLC, a Delaware company, as trustee of the Malibu Summer Land Trust.
The deed lists the buyer’s address as that of San Francisco investment firm Iconiq Capital.
Kushner won’t be too far away from his brother’s recent purchase. Ivanka Trump and Jared Kushner, planning for their post-White House lives, are reportedly spending $30 million to buy a waterfront lot on Indian Creek Island.
Brett Harris of Douglas Elliman represented the seller in the Kloss and Kushner deal, and Gene Martinez of Compass represented the buyer. Harris and Menin declined to comment, and Martinez could not immediately be reached for comment.
At the time of the sale, the brokerages involved said the property sold to a family from New York.
Menin, a principal at Menin Hospitality, paid just over $12 million for the property in August 2019, meaning he flipped it for a 48 percent increase in a year.
Menin is also tied to the buyer of Cher’s former Miami Beach mansion, which sold this week for $17 million.
Online lender Social Finance, or SoFi, is the latest SoftBank-backed startup to eye a public offering through a blank-check company.
The San Francisco-based company has held talks with several special purpose acquisition companies about an IPO, reported CNBC. SoFi did not comment.
CEO Anthony Noto, a former Goldman Sachs banker, has previously said that going public is a goal. SoftBank’s Masayoshi Son has publicly said he expects several of the Vision Fund’s investments to go public in the next year.
SoFi appears to be capitalizing on a hot IPO market, fueled in part by special purpose acquisition companies. United Wholesale Mortgage and Finance of America are two lenders going public through SPACs. Some 208 blank-check companies have raised $70 billion so far this year, according to SPAC Research.
Rocket Companies, the parent company of Rocket Mortgage and Quicken Loans, also went public in August. On Wednesday, the stock closed just over $21 pr share, up from its IPO price of $18.
This year, SoftBank-backed insurance startup Lemonade went public, as did Beike Zhaofang, a Chinese real estate platform. iBuyer Opendoor and View, a smart-glass maker, are planning SPAC IPOs. Compass recently hired bankers ahead of a potential IPO next year.
Founded in 2011, SoFi found a niche after the 2008 financial crisis when many banks pulled back on consumer lending. It has raised $3 billion from investors including SoftBank, which provided $1 billion in 2015.
The company was most recently valued at $4.3 billion, after raising $500 million from the private equity firm Silver Lake in 2017. Last year, it raised $500 million at the same valuation from the Qatar Investment Authority.
Change is coming to one of commercial real estate giant JLL’s subsidiaries.
LaSalle Investment Management announced this week that CEO Jeff Jacobson will step down effective Jan. 1.
Jacobson, who has been in the CEO role for the past 14 years, will remain with the company as chairman through June. He’ll be replaced by Mark Gabbay, who currently serves as CEO and chief investment officer for LaSalle Asia Pacific.
As global CEO, Gabbay will be in charge of LaSalle’s strategic direction and growth. He will report to Christian Ulbrich, president and CEO of JLL.
Gabbay joined LaSalle in 2010 as chief investment officer for Asia Pacific, and became CEO of that division in 2015. His previous experience includes heading up the asset finance division at Nomura, and working on the leadership team of the Asia Pacific global real estate group at Lehman Brothers.
Keith Fujii, LaSalle’s Japan CEO, will succeed Gabbay as Asia Pacific CEO.
LaSalle is the asset management arm of JLL, and manages approximately $65 billion in both private and public real estate assets, according to the company.
Tom Brady and Gisele Bündchen with 70 Vestry Street (Photos via Getty; 70 Vestry)
It may be a buyers’ market in Manhattan, but no one told Tom Brady and Gisele Bündchen.
The celebrity couple has reportedly reached a deal to sell their Tribeca home for almost $40 million — a huge jump from what they paid for it two years ago.
“They are in contract to sell and the deal is expected to close soon,” a person familiar with the matter told the New York Post.
The couple purchased the 4,600 square-foot, 12th-floor unit at Related Companies’ 70 Vestry Street condominium for $25.46 million in 2018. It features five bedrooms, five and a half bathrooms and 1,900 square feet of terrace space. The star quarterback and supermodel also own a unit on the floor below, which they reportedly plan to keep.
Brady left the New England Patriots after last season and now plays for the Tampa Bay Buccaneers.
“Tom and Gisele still love New York but they are downsizing because they are spending so much time in Tampa,” a source with knowledge of the recent sale told the Post.
The buyer is reported to be a financier based in both New York and Connecticut.
Software giant Salesforce recently made headlines with a $27.7 billion deal to buy workplace messaging app Slack. But the company won’t be expanding its commercial real estate footprint — quite the opposite.
Chief financial officer Mark Hawkins said on a call with analysts last week that Salesforce planned to consolidate and sublease certain sites as more people worked from home.
“The pandemic has also empowered us to reimagine how we operate in this work-from-anywhere, digital world,” Hawkins said on the call, which was reported by Business Insider. “In Q3, we continue to reimagine our operations after analyzing our global lease commitments.”
The move will result in a writedown of between $80 million and $100 million, the publication reported.
Manhattan has seen a spike in subleasing in the past six months, with sublease space reaching 25 percent of total office availability in September. The push started with companies that were under pressure before the pandemic, including media and retail, but extended to others in technology and other relatively stable sectors.
A recent change to accounting rules means the subleasing trend could cost businesses dearly.
“Under prior accounting rules you were able to amortize the loss from a sublease annually over the life of the lease,” R. Byron Carlock of PwC told BI. “Now tenants have to take the full writedown of the loss they expect to incur from the subleased space up front.”
It’s unclear which Salesforce office locations will be consolidated. Hawkins said the company’s headquarters in San Francisco will not be affected.
HW Media founder and CEO Clayton Collins and Real Trends President Steve Murray (Photos via HW Media and Real Trends)
HW Media, the publisher of real estate news website HousingWire, has acquired rankings firm Real Trends.
The acquisition, which was announced Thursday, means HousingWire will be responsible for putting out Real Trends’ popular brokerage reports, including Real Trends 500 and The Thousand. The company said in a statement that its methodology would not change.
“Real Trends is an incredibly strategic acquisition for our organization that not only accelerates our presence with real estate agents and brokers across the U.S., but also brings new capabilities to HW,” said HW Media CEO Clayton Collins.
Steve Murray, the president of Real Trends, is going to stay on in a “senior advisory” role, according to Inman.
Talks between the pair started a year ago but stalled when the pandemic hit, the publication reported. Collings and Murray picked things up again in August.
“Their publication philosophy was very similar to ours,” Murray said of HousingWire. “Which is: Report the facts and the stories as accurately as you can and let the chips fall where they may.”
Most of net lease REITs’ retail properties like pharmacies, groceries and restaurants were deemed “essential” (Google Maps, iStock)
What do a Target in Phoenix, a Wegmans in Chapel Hill, North Carolina, and a Marshalls-Homegoods store in California’s Napa Valley have in common?
They’re among the 26 tenants occupying 91 properties across the U.S. that net lease REIT Agree Realty Corp. acquired in the third quarter. The $458 million worth of purchases set a quarterly record for the half-century-old real estate investment trust.
At a time when the pandemic continues to throttle many real estate markets and the retail sector, Agree Realty surpassed 2019’s full-year acquisition volume by 37 percent in the first nine months. But the Michigan-based firm has not been alone in its recent buying spree.
Among publicly-traded real estate companies, net lease REITs have been some of the most active buyers of property in recent months. The strategy is focused on single-tenant asset purchases, and in addition to some big box retailers, much of the space involves smaller properties. Those are leased to dollar stores, car washes, fast-food restaurants and groceries, mainly in suburban markets.
While shopping mall REITs have been hit hard by the pandemic, net lease REITs have benefited from the fact that most of their retail properties were deemed “essential” and located outside of the early outbreak hotspots.
Getting busy
After a slight pause in the market during the initial coronavirus surge, “product velocity took off,” said Realty Income president and CEO Sumit Roy, during the Nov. 3 earnings call. The giant of the net lease REIT sector with a market capitalization of more than $21 billion, Realty Income soon “started getting really busy, getting inbound [inquiries] and seeing transactions that we wanted to pursue,” Roy said.
Realty Income president and CEO Sumit Roy
The net lease sector has rebounded more quickly “and more vibrantly than just about any other asset class,” said Haendel St. Juste, a REIT analyst at Mizuho Securities USA. Noting that several net lease REITs have raised their acquisition guidance for 2020, he added, “there’s a ‘back on offense’ feeling we’re getting from a lot of these REITs.”
In Q3, $11.7 billion of net-lease investment accounted for 18.4 percent of all commercial real estate investment activity in the U.S. That was well above the five-year average of 11.8 percent, according to CBRE. REITs in particular saw their activity skyrocket, increasing 176 percent quarter-over-quarter to $1.9 billion. The third-quarter figure still represents a drop of more than 50 percent year-over-year, but is outperforming the overall market, which fell by 60 percent, and the hotel sector which fell by 84 percent, according to CBRE.
Triple-net effect
The basic characteristic that sets net lease REITs apart is their lease structure. Most commonly, this takes the form of a triple-net lease in which the tenant assumes responsibility for real estate taxes, maintenance and insurance.
“In a typical landlord-tenant relationship, the landlord takes on all those costs and they charge a higher rent for it,” St. Juste said. With the net-lease model, “you get a lower average base rent and less rent bumps, but you get longer leases and generally greater stability over a longer-term lease.”
The stable, long-term nature of net leases means that REITs in the sector rely on acquisitions to fuel growth. And the highly liquid nature of the market — relatively small properties across the U.S. — combined with favorable costs of capital, means that these companies have had plenty of room to grow before the pandemic and in recent months.
The potential market for net lease REITs is massive, at least in theory.
The net lease sector has rebounded more quickly “and more vibrantly than just about any other asset class.” — Haendel St. Juste, Mizuho Securities USA analyst
Another major player, Phoenix-based Vereit, estimates the single-tenant net lease universe to be worth about $1.5 trillion.
In a retail landscape that has been in flux for years, net lease REITs have pursued different strategies in their efforts to build resilient portfolios. Some, like Agree Realty, focus heavily on investment-grade tenants that present a lower risk of default. The company — which buys properties like an O’Reilly Auto Parts for about $1 million up to a Wegmans food market for about $35 million — also makes a point of avoiding tenants backed by private equity, which it views as particularly vulnerable.
Store Capital, a REIT that focuses more on creating custom net lease contracts and less on investment-grade tenants, values the real estate in its target market at more than $3 trillion in total.
Store Capital president and CEO Christopher Volk
Short for “Single Tenant Operational Real Estate,” Store Capital argues the market for properties with investment-grade tenants is inefficient, overpriced and full of less sophisticated private players.
“There is a veritable conga line of family offices and high-net-worth individuals willing to invest in real estate occupied by such companies,” Store Capital president and CEO Christopher Volk wrote in Seeking Alpha in August.
Instead, Store Capital’s model is to use custom lease terms to “create net lease contracts better than the underlying credit of the tenants themselves,” he wrote.
In the broader net lease space, a preference for investment-grade tenants has become even more pronounced since the start of the pandemic, increasing competition and driving up pricing in a narrower segment of the market.
“As Covid-19 continues to impact the real estate market, net lease investors are limiting the type of properties they are willing to acquire,” Boulder Group senior vice president John Feeney wrote in a recent research report. “Consequently, sellers of high-quality net lease properties priced assets to a level not previously seen as they look to take advantage of investors’ more conservative acquisition criteria.”
On the sidelines
While many of the leading net lease REITs are all-in on acquisitions in the current environment, some are still taking a wait-and-see approach.
“There wasn’t anything that was being marketed recently that we felt like was something that we really wanted to pursue,” said National Retail Properties president and CEO Julian Whitehurst during the REIT’s November third-quarter call.
“We don’t think we’re going to look back three years from now and say that we should have really bought much, much more in the second half of 2020,” he added. “So we just think it’s a little more prudent to go a little slower at the moment.”
National Retail Properties president and CEO Julian Whitehurst
REITs are hardly the only players in the space; investment clubs and institutional funds also regularly make use of the net lease structure. That includes RFR Realty, whose $350 million sale-leaseback with Morgan Stanley for the office tower at 522 Fifth Avenue in Manhattan was one of the largest net lease deals in the past quarter, according to CBRE. REITs in niche sectors like gaming also typically rely on net leases.
“It’s a pretty wide swathe of properties, and not everybody’s competing for the same things,” St. Juste said. “A local investor might end up buying a couple of Wawas, a couple of Chick-fil-As,” he said. By contrast, a REIT like Realty Income might opt for a portfolio of corporate sale-leasebacks with 7-11, “a bigger deal that the smaller groups just don’t have the capital for.”
Rent collections, asset classes
Following a drop in the second quarter, net lease REITs have generally been able to bring their rent collections back above 90 percent, after providing rent deferrals to tenants in need.
The most obvious exception is movie theaters, which represents 3.9 percent of Store Capital’s rent exposure and 5.4 percent for another net lease REIT, Spirit Realty Capital.
The continued shutdown of theaters in key markets like New York City and Los Angeles has prompted studios to hold back content, with most major releases now pushed to the spring.
In some cases, theaters owners are already considering alternate uses for their properties, such as conversion into mixed-used multifamily or distribution centers.
“Whereas nearly every sector saw a drop in volume between the first and second quarter, certain sectors that have experienced minimal disruption in their day-to-day business are now seeing significant rebounds in investment volume,” Avison Young researchers wrote in their Q3 report on the net lease market. Those include the kinds of properties net lease REITs have targeted: pharmacies, dollar stores and fast-food chains.
With the months-long pickup in activity, St. Juste noted there was still enough room in the net lease REIT space for new entrants like Netstreit and Broadstone, which both closed their initial public offerings in September.
At the same time, operating in a world of big and small properties scattered across America’s suburbs comes with its own challenges — and net lease REITs believe they have an advantage here.
“It’s a very, very fragmented business, very much a relationship business,” Netstreit CEO Mark Manheimer said on an Oct. 30 earnings call, after going public. He pointed to a complex deal it recently put together for a Wal-Mart Supercenter and Sam’s Club in Tupelo, Mississippi.
That would have been a difficult deal for a private buyer “if they’re not in the business, you know, each and every day like we are,” he said. Because the market is so fragmented, he continued, the company will “be able to execute our business plan in the future.”
The Real Deal’s December 2019 and September 2019 issues
The Real Deal snagged 14 awards from the National Association of Real Estate Editors for its industry coverage in 2019, a record number of wins for the publication.
“With clever headlines like ‘Fredrik Goes to Hollywood’ (as in top New York residential seller Fredrik Eklund), The Real Deal signals its tone,” the judges wrote, referring to TRD’s gold for best residential trade magazine. “It delivers real-estate scoops and news without sounding stodgy.”
The publication’s December 2019 issue, which featured a cover story interview with HUD Sec. Ben Carson, won a gold for best commercial trade magazine.
TRD also won a silver award for best website. “It’s not surprising that nearly 3 million readers visit the site each month,” the judges wrote.
Adam Hochfelder at the Playboy Club’s opening party with singer Robin Thicke (Alamy Images)
Associate web editor Rich Bockmann won a gold for best resi, mortgage or financial real estate magazine story for “Real estate’s surveillance state,” which examined privacy fears as real estate incorporates tracking, facial recognition and other tech tools.
Senior reporter Kathryn Brenzel and former reporter David Jeans won a gold award for best investigative report for “Elevated risk,” their deep dive on elevator safety in New York City.
And Brenzel’s Daily Dirt, a subscriber-only daily e-newsletter, won a silver award.
Senior reporter E.B. Solomont received a gold award for best online residential, mortgage or financial story for “A free PH for Steve Ross now asking $57M.” She and South Florida associate web editor Katherine Kallergis received an honorable mention for residential trade magazine story for “Cracking the bro code,” a profile on the Alexander brothers, who have been behind some of the biggest residential deals in recent years.
Tal (left) and Oren Alexander (Illustration by Filip Peraic)
Solomont and data journalist Kevin Sun won a silver for Residential Trade Magazine Story for their analysis on New York City’s “Ghost towers.”
Former reporter Natalie Hoberman’s “Drama at the Agency” received a gold award for best residential trade magazine story.
Freelancer Aimee Rawlins received an honorable mention for best interior design story for “The art in the deal,” which detailed art curators’ increasing role in staging homes.
Associate web editor Rich Bockmann won a gold for best resi, mortgage or financial real estate magazine story for “
