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Navigating redemptions has been an intricate — and painful — dance for funds over the last two years. The ball just ended for UBS, which said it is liquidating a $2B real estate fund since it cannot meet investors’ withdrawal requests. UBS took over the fund last year when it bought Credit Suisse, and the big problem is its focus on office — 83% of the portfolio. The largest share (22%) is in the U.S. The bank said honoring investors’ redemption requests would force it to sell its most liquid assets at an “inopportune time” at large losses, which would impact remaining investors too heavily. It had already been selling off properties for the last 18 months to meet a wave of redemption requests — 36% of the units in circulation at the end of 2022 were cashed in last year. Meanwhile, the fund’s value has been plummeting — it fell 31% in 2023 and another 12% so far this year. Blackstone and Starwood’s REITs have been the most visible examples of the struggle to pay out investors. The end of 2022 and the beginning of 2023 saw the worst of it, with both funds not meeting all of investors’ withdrawal requests. Things had eased, but in May, SREIT, struggling with a liquidity crisis, limited share redemptions to 0.33% of its net asset value to avoid forced sales. It fulfilled only 3% of requests that month. That spooked pretty much everyone, and 90% of the largest nontraded REITs saw requests spike the next month, more than doubling in some cases. That calmed a bit in June, but the winding down of UBS’ fund highlights that volatility is not behind us, and even the biggest legacy funds aren’t safe. — Kayla Carmicheal, Catie Dixon, Jay Rickey and Mark F. Bonner Not getting The First Draft in your inbox? Click here to sign up. Got any feedback or want to send us a mailbag letter? Email first...@bisnow.com. |
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On Our Radar
U.S. retail sales rose 1% in July, soaring past expectations. The data implies stout consumer spending despite the wider economic weariness. That said, shoppers have been pulling back in recent months as inflation woes linger and Wall Street has felt it: Consumer stocks in the S&P 500 are down 1.7% this year. However, retail REITs are raising their forecasts due to vigorous leasing demand and rent growth. Key players told Bisnow they are seeing record occupancy and rents. But, but, but ... U.S. store closures are outpacing openings. For the first time in two years, there were more U.S. store closings than new openings. The number of Americans applying for unemployment dropped. Initial unemployment claims decreased by 7,000 to 227,000 for the week ending Aug. 10, while the four-week moving average fell to 236,500. The insured unemployment rate remains steady at 1.2%, with 1.8 million people receiving benefits. We still wonder how CRE brokers are faring — StripMallGuy does, too. The Fed is open to rate cuts amid labor market cooling. Atlanta Fed President Raphael Bostic signaled a potential interest rate cut in September, emphasizing the need for action as inflation eases and the labor market softens. With inflation falling below 3% and unemployment rising, Bostic is “open” to moving now. Earnings Squawk Today: Walmart’s Q2 results show a 24% increase in e-commerce sales, driving an overall revenue increase of 5.7% to $161B. Today’s interest rate slash odds for Sept. 18: 25.5% chance of a 50-basis-point cut; 74.5% likelihood it’ll be 25 basis points; 0% chance of no cut, according to the CME FedWatch tool. In just 34 days there won’t be anything else to worry about, right? Today’s Deep Dive: Funds Are Sitting On Billions In Dry Powder. Will They Actually Spend It? |
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“Dry powder” has become one of those phrases that could be in a killer CRE drinking game. For the last few years, there has been a steady drumbeat of references to the billions of dollars sitting on the sidelines ready to leap on opportunities. So when we saw deals finally start happening over the last few months and investment pick up, it felt like the moment was finally here. Not so fast, investors and analysts told Bisnow this week. Sure, the powder keg has let off a few sparks. But the cannons have not been loosed, and unless distress hits the market in a much larger way, money is going to stay drummed up tight. “That dry powder is big capital — they're conservative and they're reasonable — and there's still a huge disconnect between their wants and desires and the market’s wants and desires,” said Jeff Klotz, CEO of the Klotz Group of Cos., which invests primarily in Southeast multifamily assets. And if the Fed indeed cuts rates in September as is largely predicted, the long-awaited tsunami of bargains may never come. Read the full story here. This Morning's News LEGAL — SEC Halts $300M Real Estate Ponzi Scheme (SEC): The SEC has uncovered a $300M real estate Ponzi scheme that defrauded more than 2,000 investors. Read more about the case.
OFFICE — About Those RTO Mandates … (CBRE): About 80% of organizations have an RTO policy, but only 17% of those policies are actively enforced, according to CBRE's 2024 Americas Office Occupier Sentiment Survey. 60% of those surveyed want employees in the office three or more days a week, but only 51% of employees are in the office that frequently. Here's the full report and more key takeaways.
FINANCE — Dow Jumps 300 Points On Retail, Receding Recession Fears (CNBC): The Dow Jones Industrial Average rose by 300 points this morning on strong retail sales data. Catch more updates here.
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SFR — Man Group Nears Deal To Sell 1,700 Rental Homes (Bloomberg): The largest publicly traded hedge fund is close to a deal to sell 1,700 rental homes to AMH (formerly American Homes 4 Rent). AMH operates about 60,000 single-family rentals. Here's more details about the deal.
INDUSTRIAL — Prologis' Hamid Moghadam Makes The Big Bucks (S&P Global): Prologis CEO Hamid Moghadam was the highest-paid U.S. equity REIT CEO last year. Most of Moghadam's $50M-plus compensation for 2023 was through stock awards. Steven Roth, head of office REIT Vornado Realty Trust, ranked second with $26.8M in total compensation. Find out who else made the list.
MULTIFAMILY — Trump Pitches $3B In Condos At Miami-Area Golf Course (BNN Bloomberg): Donald Trump has unveiled a $3B plan to build four luxury towers at his Doral Hotel and Golf Resort. The 20-story towers and retail space would be at the site of a current parking lot south of Trump National Doral, a golf course, hotel, spa and country club on 2,400 acres that Trump purchased in 2012 for $150M. Trump also has a plan for more high-end condos in the U.S.
FINANCE — DWS Hires JPMorgan Exec To Expand CRE Lending (DWS): Asset manager DWS has hired Jay DeWaltoff, former chief of J.P. Morgan Asset Management’s commercial mortgage loan group, to spearhead the expansion of its U.S. commercial real estate lending division. Learn more about DeWaltoff's prior experience.
HOTELS — Hotel Stock Index Declines (CoStar): The hotel stock index fell for the third time in four months in July. The Baird Hotel Stock Index is still up 4.5% on the year. See how other hotel stocks stack up.
FINANCE — U.S. Foreclosure Activity Sees A Monthly Increase (ATTOM): There were a total of 31,929 U.S. properties with foreclosure filings in July, 15% more than a month ago. Stay up-to-date on the latest foreclosure data.
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HEALTHCARE — Medical Properties Trust Sells 11 Facilities For $86M (Medical Properties Trust): Medical Properties Trust has appointed a new senior legal counsel and announced the sale of 11 facilities in Colorado for $86M. Get details about the new hire and learn more about the properties.
AFFORDABLE HOUSING — New Players Streamed Into Affordable Housing In A Down Cycle. Many Will Stick Around When It's Over (Bisnow): New entrants to the affordable housing space are likely to continue investing in the space, which longtime players say is a benefit to the industry. Read more.
RETAIL — Bonchon Korean Fried Chicken Chain Surpasses 2023 Growth (Bonchon): Bonchon said it has signed deals for 44 new locations this year, already surpassing the restaurant’s growth from 2023. The company anticipates growing from 145 to 500 U.S. locations in the next five years. Here's where the chain is expanding.
RETAIL — Starbucks CEO Allowed To Work 1,000 Miles From HQ (Bloomberg): Seattle-based Starbucks has agreed to pay for a new remote office for its new CEO in Newport Beach, California, which is where Brian Niccol’s current employer, Chipotle, is based. Nicol says he will commute to Seattle as needed. Welcome to the OC, Starbucks.
OFFICE — Core Club Lawsuit Over Transamerica Pyramid Space Could Cost Shvo Nearly $180M In Rent (Bisnow): Shvo and his affiliates could lose $178M over 20 years if the New York Supreme Court allows the members-only Core Club to rescind its lease. A $1B renovation of the property is scheduled to open Sept. 12. Read more.
INVESTMENT — Investor Home Purchases See Biggest Increase In Two Years (Redfin): Investors purchased $43B in homes in Q2, a year-over-year increase of 13.7%. Investor home purchases more than doubled during the pandemic and then plunged 50% last year. It's the biggest gain in two years. *** 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 first...@bisnow.com. |
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