Kroenke Expands LA Empire with $325M Mall Purchase

GM. This is CRE Daily. The newsletter that takes commercial real estate news and turns it into a fun, easy-to-read email for you each day. 

In today’s email: Stan Kroenke, owner of the NFL Rams, has acquired The Village for $325 million, his second major development complex in Los Angeles. Texas is experiencing strong economic growth and job creation due to immigration and the oil industry.

Meanwhile, in Florida, a new law is requiring condo owners to pay for structural repairs that may be financially burdensome for some.

Here are the results from yesterday’s poll: 

Which sector do you think will perform the strongest in 2023?

🟨🟨🟨🟨⬜️⬜️ Industrial (95)

🟩🟩🟩🟩🟩🟩 Multifamily (121)

⬜️⬜️⬜️⬜️⬜️⬜️ Office (6)

🟨🟨⬜️⬜️⬜️⬜️ Retail (43)

🟨⬜️⬜️⬜️⬜️⬜️ Hotels (24)

289 Votes

Here’s what some of your fellow subscribers had to say: 

• Eric selected Multifamily and wrote, “Multifamily will lead, but not if the banks don’t ease up, and if caps keep rising. And it will only see increases in Texas, Florida, Georgia, and North Carolina. Retail is performing well, and could be the leader, particularly basic retail like Grocery, Frugal Fashion, Fun, and Fitness.”

• Jim selected Multifamily and wrote, “While rents may flatten this year, occupancy should remain in the low 90’s percent range for most product types. There should be little distressed debt except for bridge loans originated in 2021 whose rate caps will be expiring this year.”

• Mitch selected Multifamily and wrote, “What people never report is how many units of multi-family are being torn down. If people knew “net” multi-family annually they would see that multi-family has a lot of upside. I also think that the government will subsidize more affordable housing which will add to my sentiment.”

• Mike selected Industrial and wrote, “Apartments overbuilt, office still coming back, retail on life support but doing better than expected, hotels on wait and see how many people hit the road in a declining economy.”

• Charlie selected Industrial and wrote, “I own three industrial parks in Texas. Demand is still strong for 2023.”

DEAL OF THE DAY

Rams Owner Buys Village Mall for $325M for Second Major Complex in LA

Billionaire and Los Angeles Rams owner Stan Kroenke has added to his second major development complex in LA with his $325M purchase of The Village, an outdoor shopping mall in the Warner Center area, from Unibail-Rodamco-Westfield (URW).

Nuts and bolts: The Village spans 600 KSF and borders the Promenade development site, which Kroenke bought for $150M earlier this year to build a new practice facility for the Rams. The Village is also next to a 13-story tower Kroenke bought months later for $175M. Altogether, the group of properties can support a mixed-use development with retail, housing, restaurants and more to surround the new practice facility and headquarters.

Not his first rodeo: Kroenke has already done something like this before with his nearly-finished Hollywood Park in Inglewood. Hollywood Park is a 300-acre mixed-use complex surrounding SoFi Stadium that, once finished, will boast 5 MSF of office space, 890 KSF of retail space, a 300-room hotel and as many as 2,500 new residential units.

➥ THE TAKEAWAY 

Have it URWay: Kroenke got this complex for a bargain at a 10.6% discount on the last unaffected appraisal. He managed that because the seller, URW, has been quickly shedding its U.S. assets to reduce its U.S. exposure and pivot harder to Europe. This deal marks one of the largest property sales in Los Angeles in the past year, following URW’s $537.5 million sale of a mall in Arcadia, California, which was one of the largest commercial deals in the US in 2022. URW has already reduced its US exposure by $1.1 billion, but plans to continue divesting from the market.

LONE STAR STREAK

Texas Sees Stellar GDP and Population Growth in Q3

It’s been a good year for the Lone Star state. Texas’s GDP grew 8.2% in Q3– netting it the second-highest state growth rate in the country after Alaska– and made huge gains in it’s population thanks to migration and booming business in oil and gas.

It’s a party: Texas has also seen excellent job growth– roughly twice that of the national average– and the best population growth in the country. According to the Census, the state added 470,708 residents in the year that ended on July 1, 2022. This is thanks to natural population increase and migration, both domestic and international.

Black gold: Most of this growth occurred in the Texas oil patch, which added 42k jobs as the war in Ukraine drove up energy prices. The mining sector was the leading contributor to GDP growth in the top six fastest-growing states in the country, and in Texas’s case accounted for 44% of state GDP growth. Since work in oil fields is capital intensive and well-compensated, the effects of this stimulus ripple out to the rest of the state economy.

➥ THE TAKEAWAY 

Nothing gold can stay: The energy sector in Texas has been the only industry that has been able to resist the general economic slowdown caused by rate increases across the country. However, there have been signs of slowing in Texas’s housing starts, sales, job growth, and manufacturing activity, with the construction industry being particularly affected. If the conflict in Russia and Ukraine comes to an end soon, it is possible that the energy sector in Texas may also be challenged

THE COST OF CONDOS

New Florida Law Will Impose Debilitating Fees on Condo Owners

Florida just passed a law requiring structural inspections of old buildings and stricter rules for reserve funds, which will squeeze condo owners even more than sky-high insurance already has. The law comes in response to the collapse of the Champlain Towers in Surfside that killed 98 people last year. 

Safe and broke: The new law mandates structural inspections of most condo buildings over 30 years old, or over 25 years old if they’re within 3 miles of the coast. Major structural issues found in the inspection will have to be fixed by condo associations, with residents stuck footing the bill. 

That’s a lot of buildings: Roughly two thirds of buildings in Miami are more than 30 years old, and thousands of buildings probably don’t meet reserve requirements, even if they don’t need major repairs. Many associations just waive their reserve requirement every year to avoid the headache of getting owners to pay them, but now that’s coming back to bite them, because the new law requires condo associations to make up for reserves waived in past years.

➥ THE TAKEAWAY 

The bottom line: The high cost of reserves is making it difficult for many condo owners, particularly retirees on fixed incomes, to afford the necessary upkeep. In order to provide some assistance, Miami-Dade County is offering zero-interest loans to owners who make less than 140% of the area’s median income. However, this program is limited in scope and it is likely that many owners will still need to sell their condos. As a result, there may be a decrease in interest in Florida condos following this trend of sales.

📰 Editors’ Picks

• Be positive: As central bankers continue their war on inflation, the world’s last negative-yielding bonds are evaporating off the face of the earth.

• Dollars for data: Virginia rolls out record data center tax incentives, nixing sales and use taxes on qualifying computer equipment to seriously lower the cost of hardware and software.

• Winter came: It’s getting colder and colder in the housing market, with annual growth on the decline and prices down for the fourth straight month in October.

• American Sadboi: Investment banks are hurting, and bonuses for workers are slated to fall 30% for some of the nation’s cushiest gigs.

• Flashing Lights: Times Square is about to get a whole lot brighter with an 18 KSF billboard going up in the “Crossroads of the World.” 

• Shots fired: Multifamily titan Fairstead alleges that their ex-partner, Will Blodgett of Tredway, engaged in fraudulent behavior and lifted contracts from them.

• Developer doldrums: New lenders and investors for construction financing are harder than ever to come by, thanks to extreme levels of economic uncertainty.

• Time for a makeover: Measuring rent growth is a muddy business that can overstate inflation, but a new index could clear up all the trouble.

• Greedy Grant: A lawsuit alleging that real estate mogul Grant Cardone and his company, Cardone Capital, misled investors through social media posts promoting crowd-funded investments has been permitted to proceed by a federal appeals judge.

🤝 Deals & Dealmakers

• Golden goose: Candymaker Mars sold its old industrial facility on Goose Island for $28M as it moves its innovation team to a new, larger facility.

• Jeff gets Jane: Jeff Klein’s JK Hotel Group purchased the Jane Hotel for $62M in order to turn it into a private club.

• Guilders’ gains: The investment firm 60 Guilders acquired three apartment buildings in Williamsburg, Brooklyn from the Rabsky Group for $143.3M.

• Power-up: Community-accessible clean energy developer NineDot energy secured an $85M loan to build 11 battery storage facilities in NYC.

• Ice off ice: Beargrass Development has plans to redevelop the long-vacant Merchant’s Ice Tower into a mixed-use office and retail building for $70M.

• The unbinding of Isaac: $45M of refinanced loans for buildings owned by multifamily landlord Isaac Kassirer were sold to an unknown buyer.

• Shop shopping: First National Realty expanded its grocery-anchored portfolio with the purchase of a 289 KSF shopping center, Loyal Plaza, in Williamsport, PA.

• Office conversion: GFP Real Estate has closed on 25 Water Street for $250.8M, with the intention of transforming the 22-story office building into residential apartments.

 📈 Chart of the Day

Las Vegas Apartment Rent Growth Turns Negative for First Time Since 2011

Las Vegas has experienced a significant drop in rent growth in the multifamily sector. As of mid-December, rents in Las Vegas have decreased by about 1.5%. This is a significant contrast to December 2021, when rents were growing at an annual rate of more than 20%. This sudden decrease in rent growth is one of the most abrupt among major U.S. markets.

The decrease in rents is due to four consecutive quarters of negative net absorption from late 2021 through the third quarter of 2022, and this trend is expected to continue with more than 1,000 units of negative absorption in the fourth quarter of this year. The increase in supply has also pushed the vacancy rate in Las Vegas to its highest level since 2013, at 8.6%.

😎 Offering-MEME-Orandum

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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.