Good morning. In today’s email: Tech firms try to dump even more office space into a glutted market after trimming their workforces. JLL has joined the commercial real estate brokerage layoff club in an effort to cut costs. Meanwhile, Tilman Fertitta continues a buying spree with the second-largest hotel purchase in California’s history. Let’s dive in!

🎧 Podcast of the day: Compass lost $157 million from July through September — more than it lost in the second quarter. Deconstruct looks at the state of the brokerage, why it’s struggling and where it goes from here.

OFFICE RETREAT

After slashing their workforces in the face of a correction, major tech firms are trying to downsize by selling or subleasing excess office space to a market that’s already flush with vacant property.

Seconds, anyone? The tech sector wants to sublet around 30 MSF in the fourth quarter of 2022, more than 3x the 9.5 MSF they tried to sublet in Q4 2019. That’s a tall order, because the national office vacancy rate has hit 12.5%—the highest it’s been since 2011—with 212 MSF of sublease space on the market right now. Best of luck.

Demand wanted: Tech firms have been the largest leasers of premium office space in recent years. In 2021, they were responsible for 20% of U.S. office leasing activity because Big Tech’s hiring spree meant they filled space as quickly as they could rent or buy it. But with things the way they are, demand for office space might be in for a steep decline.

THE TAKEAWAY

High-stakes Jenga: Office buildings account for $1.2T of the $5.4T in total commercial real estate debt. So if landlords start defaulting on their mortgages, the result could be a market crash. What’s more, major cities that rely on workforce foot traffic to stimulate local economies could suffer quite a bit from the lower demand.

GLOBAL TRASNFORMATION

JLL Joins CBRE in Announcing It’s Looking at Job Cuts Amid Economic Downturn

Commercial broker giant JLL (JLL) is joining larger rival CBRE saying it’s looking to lay off an undisclosed number of workers in an effort to cut costs amid steep declines in investment sales, lending and other transaction revenue.

In the red: JLL, the world’s second-largest CRE brokerage by revenue, reported spending $9.3M in severance costs in Q3—800% more than last year. The firm also expects to miss projected earnings for 2022, with Q3 net income down 41% from last year.

Uncertain times: A JLL spokesperson said the firm “is continuing with measures which were already underway to align our operational structure with our global transformation and reinforce our focus on managing costs. These actions may include the difficult but necessary decision to make specific roles within our operation redundant.”

Not alone: JLL’s major rival, CBRE Group, Inc. (CBRE), announced last month that it intended to cut costs by $400M this year, with $300M of those reductions coming in the form of layoffs. CBRE said it expected layoffs to be finished by the end of Q1 2023.

THE TAKEAWAY

Winter is coming: While brokerages like Newmark (NMRK), Colliers (CIGI) and Cushman & Wakefield (CWK) haven’t explicitly mentioned layoffs, they’ve all announced their intention to cut costs. Meanwhile, other brokerages and proptech firms, like Compass (COMP), Zillow (Z), and Redfin (RDFN), have laid off thousands. Since Big Tech is also in the middle of layoffs right now, it’s easy to connect the dots.

A MESSAGE FROM CRE DAILY

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MIAMI ICE

Billionaire Fertitta’s California Resort Purchase Follows Big Las Vegas Investments

Billionaire and Houston Rockets owner Tilman Fertitta has continued his real estate investment streak with a ~$650M purchase of the Laguna Beach Hotel in Orange County, CA.

Deal details: This is the second-largest hotel deal in the state’s history, and the highest price paid for a single California hotel in eight years. It’s easy to see why: built on a coastal bluff, the 260-room, 30-acre property is one of just six U.S. properties to net Forbes’s Triple Five-Star rating. The seller, Dajia Insurance Group, listed the hotel for $700M but settled for a $650 million price tag. The deal calculates to ~$2.5 million per room.

Shopping spree: Fertitta’s feeling himself. Earlier this year he purchased a 6-acre site on the Las Vegas Strip for $270M and recently received approvals to build a hotel-casino there. Just last month, he also acquired a 6.1% stake in Wynn Resorts Ltd., and now he’s bought Laguna Beach. Times ain’t tough for everyone.

THE TAKEAWAY

Deals or no deals?: It’s possible that Fertitta’s big purchase will spur other buyers to follow suit, but that’s by no means guaranteed thanks to the iffy economic environment. Atlas President Alan Reay pointed out that buyers of trophy hotels “are all cash or carrying very little leverage, so increased interest rates have less of an impact,” but also mentioned that higher costs of borrowing can dampen enthusiasm for sales.

📰 Editors’ Picks

• Subsidy subsidies: NYC is upping the ante and wants to pay landlords in wealthy areas to accept rent vouchers from low-income residents.

• Big box supremacy: Walmart (WMT) reported higher than expected sales last quarter as a nationwide hunt for deals sent shoppers to the discount retailer.

• Mortgage no more: Rising interest rates have driven mortgage rates higher and higher—even though barely anyone wants to buy them.

• What would DeSantis do? Florida CRE lenders were thrilled when Governor DeSantis won his re-election campaign last week, but they want him to focus more on affordable housing.

• Fancy seeing you here: While Trump plans on potentially running for office again, he has no qualms about licensing his name to a Saudi real estate firm for a planned Oman golf course.

• Hustling in Hudson: Despite cooling rents, Related Cos., Brookfield, and more are planning new projects in Manhattan’s Hudson Yards district, including a 1.3 MSF office tower.

• Bouncing back: Shares of home builders are rebounding, outperforming the broader stock market after mortgage rates eased off their recent highs.

🤝 Deals & Dealmakers

• Tar Heel tour: Brazos Residential, a Dallas-based multifamily investor, has spent $170M in North Carolina this year, and just bought two more properties in the state.

• Sun Belt: CenterPoint Properties bought 900 KSF, Class A Bison Grove Business Park in DFW. This is its third logistics park acquisition in TX over the past two years.

• Another one bites the dust: A $400M CMBS loan on 350 Park Avenue in NYC, owned by Vornado Realty Trust (VNO), has just been transferred to special servicing.

• No can do, Sir: In a move that isn’t too surprising, Miami-Dade County officials overrode Mayor Cava’s veto of a controversial, 5.9 MSF industrial project in a no-build zone.

• Isn’t it called football? NYC just agreed to a $780M, 25K-seater soccer stadium for the NYC Football Club, as well as an affordable housing complex, in Willets Point, Queens.

• Nashville hot: Joint venture to develop Ovation, a 145-acre mixed-use project located in Franklin, roughly 20 miles south of Nashville.

• Boston ave: Tufts University has announced plans for a residence hall development on its campus in Medford, which will target junior and senior undergraduate students.

• Industrial complex: CIP Real Estate has acquired Kennesaw Mountain Business Park, an industrial property in the north Atlanta metro area, for $22.6 million.

📈 CHART OF THE DAY

Despite an Expected Slowdown, Luxury Resorts Retain Their Place in the Sun

💼 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.

• Asset Manager (Red Ace Capital Management)

• Real Estate and Development Director (Slingshot Partners)

• Daily Writer (CRE Daily)

• Investment Associate (Greysteel)

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.