NYC Launches $400M Affordable Housing Fund
New York City announced a groundbreaking $400M fund to create more affordable and workforce housing.
Jordan B. & Han-Gwon Lung
March 11, 2024
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Good morning. New York City has launched a $400M fund for affordable housing in a rare public-private partnership. Plus, a national report from Newmark argues landlords are holding off leasing space at lower rents out of fear of depressing building values.
Today’s issue is brought to you by FNRP—explore exclusive retail real estate deals.
Market Snapshot
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*Data as of 3/08/2024 market close.
HOUSING CRISIS
NYC Launches $400M Affordable Housing Fund
In a push toward affordable housing, New York City announced a groundbreaking $400M fund to create more affordable and workforce housing.
A collaborative effort: This initiative is a joint effort between New York City labor leaders, Cirrus Real Estate Partners, and Mayor Eric Adams. It represents a unique public-private partnership designed to address the critical need for affordable housing in New York City. The Building and Construction Trades Council of Greater New York (BCTC) has committed an initial $100 million from the pension funds of 11 unions. Cirrus Real Estate Partners plans to raise additional funds from private investors to reach the $400 million goal.
Addressing the problem: The fund aims to build new affordable housing units using unionized labor across various locations in the city, addressing the severe housing shortage that has burdened New Yorkers for years. With a housing vacancy rate of just 1.4%, the lowest since 1968, and a significant portion of households spending over half their income on rent, the need for affordable housing has never been more acute.
Development plans: While specific details regarding the number of units and development timelines are yet to be announced, the initiative aims to target households earning between 80 and 140 percent of the city’s median income. The projects will prioritize environmentally sustainable building practices, accessibility to transit, and utilization of city-owned properties for development.
➥ THE TAKEAWAY
What they are saying: The partnership has garnered praise from union leaders and industry organizations. It promises to provide much-needed housing and create good-paying union jobs, supporting New York City’s workforce. It also marks a historic collaboration that could serve as a model for tackling the national housing crisis, combining government action, labor union support, and private capital to make a tangible impact on New York City’s affordability.
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Retail real estate a bright spot amidst dark headlines for office and other property types
In the last several months, financial publications such as the Wall Street Journal and GlobeSt have been buzzing with the same sentiment: Retail is the investment to make. But what’s fueling this heightened interest?
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Limited New Construction: Over the past decade, there has been mounting scarcity in new retail construction.
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High Occupancy Rates: Occupancy rates are at a high that hasn’t been reached in the last eight years.
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Resilience: Retail has shown resilience against both recessions and the rise of e-commerce.
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✍️ Editor’s Picks
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Job surge: Nonfarm payroll employment increased by 275,000 in February, surpassing consensus estimates and the past year’s monthly average.
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Meadows at Hugo: Centra Capital Partners is offering an investment opportunity in this Midwest residential development with a projected 17.8% IRR and 8% preferred return. (sponsored)
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Midtown South rezoning: Proposed changes could transform 42 blocks from manufacturing to residential, paving the way for nearly 4,000 new homes, including affordable housing units.
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Greenlight: Related Group and BH Group secured approval for a 500-key hotel opposite the Diplomat Beach Resort in Hollywood after purchasing the site for $21.5 million.
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Tax proposal revived: The Illinois Appellate Court reinstated a referendum on Chicago Mayor Brandon Johnson’s property transfer tax plan, which affects transactions above and below $1M.
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Women in RE: In honor of Women’s History Month, female professionals share their experiences in commercial real estate.
🏘️ MULTIFAMILY
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Housing caution: Ten associations urged the White House to reconsider regulations that may worsen the affordable housing shortage.
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Legal saga: A jury awards an additional $3B in punitive damages, escalating a decades-long Los Angeles apartment dispute to a $5.5B total.
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NYC challenges: A survey highlights the struggle of NYC’s rent-stabilized apartment owners to maintain their properties after the 2019 rent control law, which contributes to rising vacancy rates.
🏭 Industrial
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New tenant: Baker Hughes secures space at Scout Cold Logistics Center, planning a substantial build-out for office, warehouse, and light manufacturing in Pasadena.
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Phoenix acquisition: MDC Realty Advisors buys a 114,907 sq. ft. industrial property in the Sky Harbor submarket for $24.3M, with a leaseback agreement from American Refrigerator Supplies Inc.
🏬 RETAIL
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Expansion: Amid slowing growth for its flagship stores, Nordstrom focuses on expanding its off-price Rack stores, adding 19 new locations in 2023.
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Big tech: Leading U.S. grocers have launched over 500 new stores since 2020, leveraging in-store technology across nearly 26.3 million sq. ft. of space.
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Delisted: The NYSE initiated Express’s delisting after its market capitalization remained below $15 million for 30 trading days, leading to a suspension of stock trading.
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Apple heads to Miami: Apple confirms its arrival at Miami Worldcenter with a leasehold for a new stand-alone retail building, marking an addition to the downtown megadevelopment.
🏢 OFFICE
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Filling the void: Landlords are mitigating the impact of WeWork’s Chapter 11 collapse, with new tenants backfilling up to one-third of the vacated office space.
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Banking resilience: Despite problematic exposure to office real estate, S&P Global Ratings reveals that the largest U.S. banks are capable of absorbing potential impacts.
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Trophy appeal: Post-pandemic corporate real estate decisions lean heavily towards “trophy” office spaces, influenced by more than just amenities.
A MESSAGE FROM FranBridge Consulting
Why Non-Food Franchise Opportunities are Thriving
Real estate investors and entrepreneurs are increasingly involved in a variety of opportunities in the world of ‘non-food franchising’.
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Rent Conundrum
Rising Asking Prices Amid Surging Office Vacancies
Despite a nearly 20% vacancy rate in office spaces across the board and a record 24% national availability rate, asking rents for offices rose in Q4 of 2023.
Steady rents: Historically, office rents have dipped during downturns to match decreased demand. However, post-pandemic, rents have not only stabilized but even increased by 1.1% year-over-year in Q4 2023. This defiance of economic principles is attributed to the market’s failure to adjust prices accordingly, with landlords opting for higher asking rents despite record vacancies.
Left with no choice: Landlords have resorted to increasing concessions, including doubling tenant improvement offerings, to attract lessees without directly slashing rental rates. This tactic, alongside the reluctance to lower asking rents, aims to prevent potential devaluation of property assets.
The impact of WFH: Data from Kastle Systems highlighted a peak in office attendance at 54.1% in November 2023, which dipped to 48.5% by January 2024. This fluctuation aligns with a stabilizing trend between remote work preferences and employer expectations, indicating a continued limited return to office spaces post-pandemic.
➥ THE TAKEAWAY
Zoom out: Despite an improvement in national office net absorption, the market has accumulated a negative total exceeding 257 million square feet since early 2020. This figure starkly contrasts with the absorption rates witnessed during the Great Recession and the early 2000s dot-com crash. Nonetheless, the trend shows signs of gradual recovery, suggesting a market correction in progress.
📈 CHART OF THE DAY
Cap rates for public Multifamily REITs are in the 6-7% range, while private market cap rates remain around or just under 5.0%.
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