In today’s email: NYC’s 4th-largest office tower opened its doors this Wednesday despite fears of a looming recession. Investors are selling Fannie and Freddie CRTs like hotcakes. Blackstone (BX) and Prologis (PLD) are vying for control over warehouses. More than 60,000 rent-stabilized apartments are now vacant — and tenant advocates say landlords are holding them for ‘ransom’.

🎧 Podcast of the Day: Southern Florida is awash with empty luxury properties. For one Miami couple and their accomplices, that looked like prime hunting ground for nearly $10 million in mortgage fraud. Their targets? Venezuela’s sanctioned elite. As WSJ’s Konrad Putzier reports, it was fun while it lasted. (The Journal.)

GRAND OPENING

50 Hudson Yards, New York City’s largest office building to debut during the pandemic, opened its doors this Wednesday despite fears of a looming recession that could hurt occupancy.

Location, location, location: The building is part of develor Related Cos.’ Hudson Yards megacomplex, the largest private development in the country. Located at West 34th Street and 10th Avenue, the office tower is already more than 84% leased, with tenants like BlackRock (BLK) and Meta (META). Leased office space in Manhattan rose 9.23M SF in the third quarter, 28% higher than last year.

Building dimensions: 50 Hudson Yards stands at a whopping 1,011 feet with 2.9M SF. According to CoStar, there are only three buildings in the Big Apple that are bigger: 55 Water Street in lower Manhattan, the MetLife Building by Grand Central Terminal, and One World Trade Center, the tallest skyscraper in the Western Hemisphere.

THE TAKEAWAY

Attracting tenants at any cost: Less than half of Manhattan’s workforce has returned to offices since the start of the pandemic, a slower recovery than many expected for what was once considered the mecca of American business. 50 Hudson Yards hopes to attract tenants with amenities like high-end restaurants, access to easy airport transfers, and even golf memberships.

RECESSION FEARS

Record-High Interest Rates And Looming Defaults Are Spooking Investors

Investors are selling off Freddie Mac (FMCC) and Fannie Mae (FNMA)-backed securities, fearing that rising interest rates could spark widespread mortgage defaults.

CRT market mayhem: Asset managers, pension funds, and many more are unloading credit-risk transfers (CRTs), which make up a $60B market. While traditional Fannie May and Freddie Mac securities guarantee payment to investors if underlying mortgages default, CRTs do not. However, some investors are willing to take on the higher risk in order to earn higher returns.

Recession on the horizon? Mortgage rates soared to a two-decade high of 6.92% last week. Ben Hunsaker, a portfolio manager at Beach Point Capital Management, believes the drop in CRT prices could indicate a housing crisis “as bad as the 2008 recession.” Still, some experts believe today’s mortgage market is far more resilient than the high-flying housing circus of the mid-2000s.

THE TAKEAWAY

Still an optimistic outlook: “The quality of the credit is exceptional, and the underwriting is quite solid,” said Tracy Chen, a portfolio manager at Brandywine Global. Even Hunsaker is optimistic that defaults won’t reach the same levels they did 15 years ago. Fannie and Freddie plan to buy back billions in CRTs, which could boost prices and reduce debt. They’ll also pay CRT investors a variable interest rate that cushions them against further rate increases.

WAREHOUSE WARS

Global Investment Giants Battle For Control Over Industrial Spaces

Investment firms Blackstone (BX) and Prologis (PLD) are vying for control over warehouses, once safe and boring assets which have become very valuable since the Great Recession.

Sizing them up: Prologis, a public real estate investment trust, owns 460M SF of warehouse space in the U.S., and 1B SF globally. It’s chief competitor, Blackstone, the mega alternative investment firm, has also jumped into the warehouse business, growing their initial 70M SF to 370M SF in the U.S. alone, as well as 1B SF globally.

The warehouse boom: The 2008 crash created new investment opportunities in the warehouse sector. In 2011, Prologis became the world’s biggest industrial real estate company after an $8.7B merger with AMB Property Corp. Blackstone later developed its “Warehouse 2.0,” investment strategy, capitalizing on consumer demand for faster shipping.

THE TAKEAWAY

New competition: While e-commerce giant Amazon (AMZN) is slowing down or canceling plans for warehouse expansion, Prologis and Blackstone are continuing to purchase warehouse assets. But they’re not the only ones. Competitors like Rexford Industrial Realty (REXR) and Clarion Partners (CPREX) are also aggressively buying up warehouses to enter the race for industrial space.

RANSOM RENTALS

NYC Landlords Hold 60K Rent-Stabilized Rentals as “Ransom”

In the midst of the housing crisis, landlords in New York City are keeping more than 60,000 vacant rent-stabilized rental units off the market in a citywide scheme to raise rents, sparking outrage among tenant advocates.

It’s getting worse: According to figures from the city’s Department of Housing Preservation and Development, the number of vacant rent-stabilized apartments nearly doubled to 61,000 in 2021 from 34,000 the previous year. Almost half of the rental housing in the city is comprised of rent-stabilized apartments, which provide much-needed affordable housing in a city that keeps getting pricier by the day. Without rent-stabilized apartments, longtime New Yorkers may have no choice but to leave.

Fake scarcity: Tenants and community organizations are claiming that landlords are trying to fabricate housing scarcity by purposefully holding vacated rent-stabilized apartments off the market to get Albany to raise rental prices. Landlords are also arguing that the current price restrictions in rent-stabilized apartments is insufficient to meet current repair costs.

THE TAKEAWAY

Pushing back: In an effort to improve the situation, New York City Councilmember Carlina Rivera proposed a bill that would require “registration and inspection of vacant dwelling units.” In Albany, Assemblymember Linda Rosenthal also proposed an act that would fine landlords for holding vacant apartments for more than three months.

📰 Editors’ Picks

• Lacking hospitality: U.S. hotel revenues are projected to reach $97.8B this year, surpassing pre-pandemic revenues in 2019. But New York City’s hotel industry is still struggling to recover.

• Bumper-to-bumper: Across the country, traffic in major U.S. cities is coming back but remains below pre-pandemic levels. And cities like NYC are rethinking ways to reduce congestion.

• Off the chain: Remember the supply chain crisis that caused worldwide shipping delays? It’s not exactly over yet, and the remaining structural problems could impact holiday shipments.

• Back to work: Kastle Systems’ Back to Work Barometer, the nation’s official office occupancy indicator, hit a new high last week, but doesn’t include some of NYC’s biggest buildings.

🤝 Deals & Dealmakers

• Viva Las Vegas: Howard Hughes Corp. (HHC) is breaking ground on a two-building office campus in Las Vegas set to open in Q3 2023.

• New campus: Dermody Properties closed a $500M land deal to redevelop a 232-acre office complex in suburban Chicago into a 10-building, 3.2M SF development called The Logistics Campus.

• Bet on Broadway: SL Green Realty (SLG) and Ceasars Entertainment (CZR) have announced a partnership to redevelop 1515 Broadway into a casino in Times Square, which is wild.

• Thor sells: Joe Sitt’s Thor Equities sold its 6,600 SF Soho retail property at 470 Broadway in NYC for $25M instead of facing a foreclosure.

📈 CHART OF THE DAY

Figures Show How Mortgage Payments Will Soar As Economists Warn Rates Could Hit 8.5%

As the average interest rate for a mortgage increases to 7.1%, an analysis by DailyMail.com shows how far your money goes in cities across the US if rates hit 8.5%.

💼 JOB BOARD

The CRE Daily Hiring Block

Looking for a new role? Or need to find top talent? The CRE Daily Hiring Block is a unique alliance of real estate professionals that connects talent and employers.

• Deal Manager (Greysteel)

• Investment Associate (Greysteel)

• Commercial Mortgage Banking Producer (Medalist Capital, Inc.)

• TPG Real Estate Finance, Analyst (TPG Real Estate)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.