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📧 In today’s email: A $24.6 billion mega-merger between Albertsons and Kroger aims to reshape the U.S. supermarket industry. Miami Dolphins owner Stephen Ross’s Related Companies targets the Lone Star State for expansion. Interest rate caps soar as much as 2.4—10x in just a few months as demand grows and buyers have no choice but to pay up. Meanwhile, Bridge Investment raises $1.34B to build, preserve, and rehabilitate affordable workforce housing.

RETAIL REVOLUTION

Two of the largest U.S. supermarket chains hope to join forces as inflation pushes food prices higher and as Amazon and Walmart become more powerful.

Deal details: Kroger announced plans on Friday to acquire Albertsons in a deal that would combine two of the nation's largest grocery chains. The deal carries an enterprise value of $24.6 billion, including the assumption of $4.7 billion in Albertsons debt.

FTC hurdle: Senators Bernie Sanders (D-VT) and Mike Lee (R-UT) have spoken out against the merger, suggesting it will concentrate too much market power in the hands of big grocery brands, harming competition and further driving prices up for already hard-pressed consumers.

Retail footprint: Kroger, based in Cincinnati, and Albertsons, headquartered in Boise, Idaho, would have an enormous combined real estate portfolio that includes 4,996 stores, 3,972 pharmacies, 2,015 fuel centers, 66 distribution centers and 52 manufacturing plants.

THE TAKEAWAY

Zoom out: If Congress approves the $25B merger, the deal could reshape the supermarket landscape in the US creating a retail juggernaut that can better compete with rivals such as Walmart, Amazon and Costco. Experts also predict the mega-merger could save the companies a combined $1 billion in annual operating costs, which they’ve promised to pass along to consumers amid higher grocery prices due to ongoing inflation.

TEXAS EXPANSION

Related’s Austin Real Estate Footprint is Growing

Related Companies is continuing to grow its real estate footprint in Austin, Texas, a city that has exploded in growth over the past decade.

Follow the money: Just weeks after announcing plans for two office projects on or around Austin’s South Congress Avenue, Stephen Ross’ Related Companies shelled out $65 million for a six-acre site south of Lady Bird Lake. While Ross’s plans for 500 South Congress aren’t clear yet, his other two Austin sites—a 490K and 107K SF development nearby—are set to be completed by 2025.

Finding value: Austin’s office market is still performing quite well and has one of the highest occupancy rates in the country, despite recent layoffs that have shaken up the city’s tech sector. Related’s Austin expansion is not entirely surprising, given how popular the city has been in recent years with major real estate owners and developers. 

THE TAKEAWAY

The bottom line: With a portfolio worth $60 billion, Related Cos. is a relative newcomer to the Lone Star State. Related owns properties across the country in gateway cities like New York, Florida, and California. Related’s latest projects in Austin indicate that the firm is betting big on the city, which has been a magnet for major industry players.

CAPITAL MARKETS

Interest Rate Caps Soar as Demand Grows

Interest rate caps have skyrocketed alongside interest rates as part of the Federal Reserve’s desperate attempts to curb runaway inflation. Desperate investors have no choice but to keep buying.

Higher and higher: By May 2022, interest rate caps had increased 2.4–4x, leaving borrowers sucking wind. According to Thompson Coburn partner Josh Mogin, one client “had to take $1.2 million to buy a cap they were planning to spend $300,000 to $500,000 [on].” Just a few months later, the problem has gotten even worse, with some prices 10x higher than earlier this year. 

Beggars can’t be choosers: Many borrowers don’t want to risk the success of their investments, forcing those who can afford it to purchase caps regardless of their exorbitant prices. The more prices rise, however, the fewer options borrowers are left with, tightening the loan market even further. “The over $100 million loan market is extremely tight,” said Stephen Bittel, founder and chairman of Terranova Corp.

THE TAKEAWAY

Tough pill to swallow: It’s a tough world out there right now for borrowers, as banks and insurance companies hesitate to take on new debt with anyone but the most experienced borrowers, investors, and operators. And despite the Fed’s efforts, the rate cap situation looks like it might keep getting worse in the near-term.

DRY POWDER

Bridge Investment Raises $1.74B For Workforce Housing

Bridge Investment Group Holdings closed its second workforce housing fund campaign to the tune of $1.74 billion, with a focus on building, preserving, and rehabilitating affordable housing for Salt Lake City area residents. 

Growing affordability problem: According to Bridge Investment, more than 10 million American households spend over 50% of their annual incomes on housing. In Bridge’s case specifically, 82% of its workforce and residents earn less than 80% of the area’s median income, further demonstrating the nation’s growing affordable housing crisis. 

Spending money wisely: The Salt Lake City-based company recently paid $77.4 million in July for Overlook Point, a 304-unit multifamily complex spread across 38 buildings in Salt Lake City. They have also completed two dozen property purchases, worth a total of about $1.5 billion, since the company’s inception two years ago.

THE TAKEAWAY

Two birds with one stone: As lawmakers struggle to lay the groundwork for affordable housing solutions and rent and housing prices continue to soar, companies like Bridge Investment Group have taken it upon themselves to help ease the housing burden millions of Americans face—while also making some money along the way.

📰 Editors' Picks

• The next Amazon: Entertainment giant TikTok is currently planning several product fulfillment centers in the U.S. as it seeks to expand its reach into ecommerce and boost profits. 

• Big Apple drama: Long Island City Councilwoman Julie Won has asked colleagues to help her to halt Silverstein Properties’ $2B development, which she fears will displace more lower-income Queens residents from LIC and Astoria.

• From hot to cold: America’s once red-hot warehouse market, driven by the pandemic, is showing signs of slowing down as unsold inventories pile up, leasing activity falls, and vacancies start to rise.  

• Hitting a wall: August was the slowest month for commercial real estate deals since September 2020, data shows, with deal volumes down by 41% year-over-year.

🤝 Deals & Dealmakers

• New look, same feel: Cravath, Swain, and Moore, one of the country’s oldest law firms, has finalized a deal for its first U.S. office outside of New York City in Washington, D.C. 

• Sunnier skies: American Airlines (AAL) parent organization, Oneworld Alliance, is bidding farewell to its New York home and laying down roots at a new headquarters in Fort Worth, Texas. 

• More space: Texas Capital Bank has inked a deal that adds 200K SF to its existing Dallas headquarters, given the rapid pace of growth in the DFW metro area.

• Multifamily moves: Mesirow Financial has finalized the purchase of a $132 million multifamily complex in Coconut Creek, Florida.

📈 CHART OF THE DAY

REITs Own 535,000 Properties in the U.S.—up 6% from the previous year

Nareit’s annual update of REIT property counts and estimated gross asset values by state and property sector has just been released. At the end of 2021, U.S. public REITs owned an estimated 535,000 properties—up 6% from the previous year—and 15 million acres of timberland across the U.S.

💼 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.

• Portfolio Property Manager (Commercial)

• Investor Relations RFP Analyst

• Finance and Business Development Director

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.