Good morning. In today’s email: One of the biggest retail chains in the nation just got bigger as it makes its move to become the next Walmart. A lending giant just entered a billion-dollar, build-to-rent joint venture to develop single-family rental communities. Meanwhile, even South Florida’s blazing rental market is finally starting to cool as borrowing costs and rising interest rates douse buyer excitement.

RETAIL EXPANSION

In a new strategy that goes against recent downsizing trends, Target (TGT) is rolling out larger stores up to 150 KSF to enhance online fulfillment services and grocery expansion. 

The bigger the better: Target owns 2,000 brick-and-mortar locations that range in size from 20–200 KSF. Over the next few years, the retailer will focus on adding updated store formats within the 150 KSF range. Target’s initiative to expand retail space goes against the latest trends, which saw many retail chains like Macy’s (M) close their stores during the pandemic. But if you build it, they will probably come. 

A fulfilling design: Starting in 2024, Target will have completed 200 full-store remodels and developed 30 new larger-format stores. The new layout will encompass a larger fulfillment space to help support digital growth, which accounts for more than 10% of Target’s sales. The idea is that each 150 KSF location will function as both a retail space for in-store purchases and as a regional fulfillment center for online orders. 

THE TAKEAWAY

A new warehouse in town: Target’s bold move is basically a bid to scale up and compete with the big warehouse clubs like Walmart (WMT) and Costco (COST). Target’s larger stores will be able to offer more merchandise, including food and beverages, daily brand deals, and national household brands. Experts believe it’s a gamble. But if Target’s prices can stay competitive, the risk could well be worth the reward.

BUILT TO RENT

JPMorgan Forms JV for $1bn in Rental Houses

The asset-management division of JPMorgan Chase & Co. (JPM) has entered a partnership with Haven Realty Capital to develop $1B in single-family rental (SFR) communities in a build-to-rent strategy. 

Not JP’s first rodeo: JPMorgan’s build-to-rent venture with Haven Realty Capital is set to begin in three Atlanta communities with $415M in capital, enough to acquire 2,500 houses. This isn’t JPMorgan’s first build-to-rent venture, either. In 2020, JPMorgan partnered with American Homes 4 Rent (AMH) to develop a portfolio of 3,500 build-to-rent homes.

The pandemic effect: Build-to-rent strategies, which typically involve developing entire SFR communities, surged in popularity after pandemic bidding wars priced many would-be homeowners out of the market. With no choice but to turn to SFRs instead, build-to-rent projects took off. But as inflation and borrowing costs skyrocketed this year, the market cooled and investors became more cautious. 

THE TAKEAWAY

Discounts ahead: “I don’t think anything has changed fundamentally in terms of long-term demand for this product,” said Sudha Reddy, founder of Haven Realty Capital, regarding SFR assets. Reddy predicts that there will be more buying opportunities ahead as builders cut prices to offload inventory, with discounts rising to 8–20%. 

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MIAMI ICE

South Florida’s Red Hot Rental Market is Finally Cooling Off

Surging interest rates have finally put out the flames in South Florida’s white-hot rental markets, including Miami-Dade, Broward, and Palm Beach. Higher borrowing costs have complicated new construction and forced investors to restrain themselves.

Didn’t get the memo yet: Nationally, transactions are fewer and farther between as debt becomes harder to secure. Seller valuations are also overpriced at a time when buyers facing unattractive borrowing costs are offering less. Yet in the 12 months leading up to June, $16.7B in multifamily sales were inked in South Florida, up 176% from last year.

Still a migrant magnet: One factor that propelled the multifamily boom in South Florida was the area’s rapid population growth since 2020. South Florida’s population grew by 47,200 people in the first six months of 2022 alone. As a result, low vacancy rates, lofty rents, booming construction, and overpriced mortgages lit the housing market on fire. 

THE TAKEAWAY

Florida, we have a problem: But now, banks are finally pulling back as the Fed’s hawkish rate hiking war becomes too much even for South Florida. Some developers believe that steep labor and material expenses are an even bigger challenge than high borrowing costs. “It has absolutely created not only a slowdown but also a real problem between expectations of the seller and…of the buyer,” said Julie Abolafia, MD at Coral Springs-based brokerage Meridian Commercial.

📰 Editors’ Picks

• Backyard tiny home: Joe Gebbia, co-founder of Airbnb (ABNB), is launching a new startup called Samara that aims to build small homes in people’s backyards, starting in California.

• Trump’s latest scandal: According to the House Oversight Committee, documents detail that six foreign nations spent lavishly at Trump Hotel to influence the Trump administration. 

• Mortgage rate “rewind”: Extell Development is offering a “rate rewind” program at one of its Manhattan condo towers to alleviate prospective buyer borrowing costs. 

• Eight years in the making: Washington DC has finally completed a new rail extension that connects its downtown area to Dulles International Airport. About time. 

• Biggest layoffs on record: Following a rough month of layoffs in November, Amazon (AMZN) is planning to lay off 10,000 of its employees, among the largest job cuts in the company’s history. 

• Fed report: Households increased debt during the third quarter at the fastest pace in 15 years due to hefty increases in credit card usage and mortgage balances.

• New subway in the Bay: San Francisco’s new $1.95B Muni Central Subway project is set to open soon. But was it even worth the investment?

🤝 Deals & Dealmakers

• Biggest lease of the year: Logistics firm Ryder has signed an  industrial office lease to operate in an under-construction 1 MSF building in City of Industry, California. 

• Riverwalk 9: Hudson JV and Related Cos. closed $185M in construction financing to develop the ninth Riverwalk on Roosevelt Island, which we had no idea was that popular.

• WeWork for warehouses: Taking advantage of the current warehousing shortage, a startup called ReadySpaces is providing co-warehousing space to small businesses in the Austin metro area.

• Second time’s the charm: Global workspace provider WeWork (WE) is opening a 39 KSF coworking space in an Atlanta building owned by SJC Ventures. 

• No money, just mouth: A planned sale of the Broadway Trade Center to Quentin Primo for $325M fell through after several deadlines were missed to provide a $9.2M deposit. 

• Deal of the Day: Artis, one of the largest REITs in Canada, is selling its industrial portfolio to Capital Partners and Investcorp for $249M.

📈 CHART OF THE DAY

Eight billion humans are living on planet Earth — a huge milestone officially projected for and being recognized Tuesday by the U.N.

💼 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)

• Principal Real Property Agent (Asset Manager) (County of Riverside)

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.