Boulder Office Eviction Looms for Twitter

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Good morning. Twitter, amidst growing lawsuits, is losing its Boulder, CO office. Fed Chair Jerome Powell isn’t worried about declining CRE property values, suggesting the worst may be over. Meanwhile, in FL, property owners brace for a significant surge in statewide commercial insurance rates this year. Rates may skyrocket by 45-50% statewide, with some potentially doubling.

Today’s issue is brought to you by RM Communities, a sister company to RealtyMogul. Build a diversified real estate portfolio without the hassles of being a landlord.

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Twitter Evicted From Boulder Office In Latest Dispute Over Unpaid Rent

Amid a wave of lawsuits for unpaid office rent in the U.S. and UK, Twitter is now facing eviction from a Boulder, Colorado office.

What happened: Twitter has occupied the Railyards at S’Park in Boulder since March 2020. Landlord John Buck Co., who owns the building, claims Twitter has not paid rent since February. In April, John Buck Co. served Twitter a “demand for compliance or possession,” ordering the company to either vacate the property or replenish their $1M line of credit. Twitter ignored both requests, which forced the landlord to proceed with an eviction.

#legaltroubles: Since Elon Musk’s acquisition of Twitter in Oct 2022, his stern cost-cutting measures, extensive layoffs, and refusal to pay rent have entangled the company in increasing legal woes. In March, a KKR affiliate sued Twitter for over $1.3M in back rent for their downtown Oakland, CA lease. Twitter’s San Francisco HQ landlord and Columbia Property Trust (CXP) have also sued for millions and $136,260 respectively for unpaid rent. Further, in the following month, the Crown Estate filed a lawsuit in the High Court in London against Twitter for unpaid rent at a London property.

➥ THE TAKEAWAY

So what? Sue me: Since Elon Musk’s takeover in October, Twitter has been in financial turmoil, defaulting on rent payments in Colorado, San Francisco, and London — and facing a lawsuit for unpaid cleaning fees totaling $200K at Colorado and NYC offices. The company also grapples with billions in interest expenses on a $13B loan, including approximately $600M on capex. Despite these legal battles, Musk remains unphased, telling employees, “let them sue,” if vendors want their payment. Thus, it could be some time before Twitter is compelled to settle its debts.

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✅ Strong Demographics: Within a two-mile radius of the property, the average household income is just under $100,000, providing an extremely affordable housing option in the market. Post-renovation target rents of $1,426 offer a 17.1% rent-to-income ratio. This is also an affordable price point in relation to the rest of the Raleigh MSA, as the average market rent in Raleigh is $1,561.

✅ Value-Add: Brookside is uniquely positioned for immediate upside through the implementation of interior upgrades and refreshing the exterior envelope. With the objective of mitigating market uncertainty and eliminating exposure to interest rate volatility and protect cash flow, RM Communities is utilizing longer term fixed rate acquisition debt and has already locked in the interest rate.

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To learn more about RM Communities’ observations from the first quarter, the outlook for the remainder of 2023, and perspective on multifamily risks and opportunities, please review the recent webinar.

Fed Chairman, NYC Comptroller Unconcerned About CRE Crisis

The maestro of the Fed, Jay Powell, and NYC’s fiscal soothsayer, Comptroller Brad Lander, are of the sentiment that tumbling property prices won’t act as an economic wrecking ball for CRE. But are their crystal balls giving a clear forecast?

What does the Powell say? Despite billions of dollars tied to plummeting CRE valuations, Powell isn’t concerned about CRE butterfly effects. The Fed chairman believes some banks will be hurt more than others and may experience significant losses if they have high exposure to CRE. But the banking sector should be able to absorb the losses without a major economic collapse. Call us pessimists, but he doesn’t exactly have the best track record with his predictions.

Lander’s musings: NYC Comptroller Brad Lander isn’t concerned about the effect of falling valuations on property tax revenue, either. Property taxes aren’t based on valuations but on operating income. And since CRE operates on long leases, operating income tends to change slowly, resulting in slow changes to tax revenues. Lander’s baseline forecast shows NY property tax revenues increasing over the next 3 years, from $35B in 2024 to $37B in 2027. Even in his “Doomsday” forecast, where values fall 40% over 6 years, property taxes still rise to $36B by 2027.

➥ THE TAKEAWAY

Stay calm, carry on: Investors with significant exposure to NY or San Fran commercial real estate may still have plenty of cause for concern, especially within the office sector. Yet, many landlords who have deep enough pockets to weather the storm are among the country’s richest, likely to withstand even a steeper descent in equity. If these magnates can hold their nerve and ride out the tempest for a little longer, the lasting economic damage may be less than what we’re bracing for. At least, that’s what Powell is saying…

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Around the Web

📖 Read about the CRE Finance Council’s mid-year conference happening this week—and how cautious lenders and investors are impacting loan originations and transaction volumes.

🖥️ Watch three of The Massimo Group’s top-producing CRE brokers explain how they achieved elite status, maintained their level of performance, and continue to grow every year.

🎧 Listen to this episode of The Real Deal’s Deconstruct podcast that breaks down the South Florida luxury market, propelled by “inter-island moves,” and find out why Palm Beach continues to break records.

Florida’s Biltmore Hotel Cuts Windstorm Insurance In Half

The historic Biltmore Hotel was forced to reduce its windstorm insurance coverage by half (and just in time for hurricane season), another sure sign of a growing insurance crisis in the Sunshine State.

Pay up or risk everything? The Biltmore Hotel received approval to carry $50M of windstorm coverage, half of the city’s $100M requirement. The hotel’s owner, Tom Prescott, is actively seeking replacement coverage but rising costs complicate things. The building’s insurance policy is nearly 3.5x pricier than in 2020 and almost 2x last year’s premium—for less coverage. But Prescott believes that the $50M reduced coverage is still enough to protect the property in case of a “once every 500 years” storm.

Hurricane forces: Most hazard, fire, and theft policies do not include windstorm coverage, a major destroyer during hurricane season, which runs from June 1st to Nov 30th. And the historic Biltmore Hotel, developed in 1926, needs it. Sitting on 150 acres owned by the city of Coral Gables, the nearly century-old property will require a lot of maintenance over the next 10–20 years. Prescott has already invested over $50M in improvements since 2017, including storm impact windows and roof repairs.

➥ THE TAKEAWAY

No end in sight: Owners in Florida have seen insurance costs skyrocket over the past few years, with seemingly no end in sight. Recent hurricanes have heightened the issue for owners, and many insurers have stopped offering coverage to some areas altogether. Hurricane Ian, Florida’s costliest storm in history (causing $109B in damages), was a contributing factor to the insurance hikes, despite not damaging South Florida. Statewide commercial insurance rates are expected to go up 45–50% this year, with some expected to double.

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Opportunistic Multifamily Value-add Opportunity

If you are looking to build a diversified real estate portfolio without the hassles of being a landlord, then take a look at Brookside Apartments from RM Communities.

To get access to this investment and to the RealtyMogul Platform, create an account.

• Out of the ashes: Bankruptcy expert Greg Corbin has launched a new, opportunitist firm in response to the growing distress in the CRE market.

• Data dump: Smaller data centers are experiencing a surge in popularity due to increasing demand for edge computing, cost-efficiency, and the need for localized data processing.

• Slipping sales: CRE sales volumes in St. Louis have dropped to their lowest level in 3 years, after reaching their highest level in 2H22.

• Hot Houston: Cushman & Wakefield (CWK) named Houston the top industrial market across 5 key tenant types for 2023 and the new most happening place for CRE in Texas.

• Increasing inventory: Suburban Sun Belt submarkets may be slowing down compared to their peaks, but they’re still experiencing apartment inventory growth above 10%.

• FBI raids: Developer Nate Paul transferred $11.5M during the month his home and office were raided by the FBI, raising more questions than answers among investigators.

• Red Hawk rising: Google’s (GOOGL) $1B data center project in Phoenix is finally taking flight as the city approved a development and tax-incentive agreement.

• Strength in sentiment: The CRE Finance Council’s 2Q survey revealed a modest increase in sentiment within the CRE industry, but persistent concerns about the economy still exist.

• Warning from the wells: Wells Fargo (WFC) CFO Michael P. Santomassimo cautions that CRE is weakening, and the bank is considering increasing its reserves to stay ahead of losses.

• In the land of Mordor: New Zealand’s 1Q GDP contracted by 0.1%, pushing the country into a mild recession. No hobbits were willing to comment.

• Clean energy: The Biden Administration proposed new rules for tax credits to incentivize fresh sources of capital for clean energy projects.

• Struggling subleases: Many Texas Triangle companies are looking to sublease offices they have subleased, a sign that even strong-performing office markets are struggling.

The rise of pickleball can be summed up in one word: addictive. But with its popularity comes longer wait times at courts across the country.

To accommodate surging demand, public pickleball courts have sprung up like daises in the 100 largest U.S. cities. Yet despite the expansion, demand still far outweighs the available supply. Only 15 cities have more than 10 pickleball courts per 100,000 people, with Seattle, the sport’s founding city, boasting the highest number.

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