Good morning, in today’s email: The Kushner Companies family office just offered an NJ residential REIT $4.3B in an unsolicited takeover bid. Although Blackstone’s Q3 profits are down, the world’s largest asset manager still has $182B in dry powder to spend. Office vacancies rise in central business districts around the country due to remote work trends. Meanwhile, a former AT&T office tower in St. Louis just sold at a 100% loss to its CMBS loan bondholders, breaking a national record.

🎧 Podcast of the Day: On this episode, Chris Powers, founder of Fort Capital and podcast host does a full deep dive into the world of GP fees and the pathway to building a world-class REPE operating platform. (The FORT with Chris Powers)

BUYOUT OFFER

Jared Kushner’s dad just offered REIT Veris Residential (VRE) a $4.3B buyout offer, including debt. The unsolicited takeover bid values the company significantly higher than its current share price, too.

Offer they can’t refuse? Veris Residential owns a vast New Jersey rental apartment portfolio, which makes it a very appealing target for NY-based Kushner Companies. Kushner offered Veris $16 per share, driving the company’s share price up to $12.42 by end-of-day Thursday.

Behind the bid: Apparently, Kushner’s family real estate company has been eyeing Veris Residential for some time. “Our attempts at fruitful engagement with the board and management over the last several months have effectively been ignored,” said Charles Kushner himself.

THE TAKEAWAY

A strategic shift: Kushner Cos. spent much of its history buying up NYC real estate right up to the 2008 crisis, often making the news for dodgy reasons. It seems Charles and co. have since shifted their focus to acquiring a diversified, national real estate rental portfolio. If Veris accepts their offer, Kushner would add 7,700 units to its 21,000-unit portfolio across 14 states.

WAR CHEST

Blackstone Takes a Hit But Still Has $182B in Dry Powder

Blackstone Group (BX), the world’s largest alternative asset manager and CRE juggernaut, reported lower Q3 profit and income. But with a $182B war chest it has yet to open, the firm isn’t too worried.

Dialing down expectations: Blackstone’s Q3 net income fell over 99% from $1.4B over a year ago to just $2.3M this past quarter. The value of both its opportunistic real estate fund and private equity businesses, which include popular apps like Bumble and Ancestry DNA, fell slightly after 12 months of double-digit gains.

It’s not all bad news, though: Fortunately, Blackstone’s overall fee earnings rose 51% to $1.2B, while total AUM jumped 30% to $951B. When you’re managing nearly $1T, you always have options. With $182B in “total dry powder,” the global asset manager still has “the ability to take advantage of dislocations,” said Jonathan Gray, President and COO.

THE TAKEAWAY

Deploying smart money: When Blackstone makes big moves, CRE pays attention. Potential investments may arise from various dislocations in Europe, which faces “an inflation challenge driven by their energy challenge.” European travel, tech, logistics, and infrastructure are all attractive, and the manager is considering taking some undervalued public logistics REITs private again.

STRUCTURAL CHANGES

Office Vacancies Rise in Central Business Districts Nationwide

More and more office floorplans in central business districts (CBDs) are back on the market again as companies terminate their office leases due to remote and hybrid work.

By the numbers: “While briefly positive in the second half of 2021, omicron-induced delays to workplace return plans set net absorption back on a negative path this year,” said Marcus & Millichap analysts. Since Q4 2019, office vacancies in primary metros climbed 5.8% to 18.6% this past quarter, while office vacancies in secondary metros have fallen by 0.30% and rents are up nearly 3%.

Looking ahead: Marcus & Millichap note that occupied office space is 126MSF lower this year compared with pre-pandemic levels. While demand from new companies will reduce vacancies slightly, analysts expect the national average vacancy rate to hit 16% by the end of 2022, due in large part to more companies embracing remote work trends.

THE TAKEAWAY

A new normal? According to John Chang, a research manager at Marcus & Millichap, the demand for office space is facing a structural change due to the persistence of COVID-19 and the ensuing popularity of remote and hybrid work models. “The labor shortage is key and it will likely be a driving factor for commercial real estate…that investors need to watch.”

TAKING THE L

After Loan Loss, St. Louis AT&T Tower Sells For Just $4.5M

In a headline that’s hard to look at, the former One AT&T Center in St. Louis, which sold for $205M in 2006, changed hands recently for just $4.5M when all was said and done.

Sordid deal details: The 44-story office tower at 909 Chestnut St., which has sat vacant since 2017, was bought for pennies on the dollar by NY-based SomeraRoad Holdings. By the time the ink dried, bondholders were left holding the bag on a $123M CMBS loan made back in January 2007. The 100% CMBS loan loss is the second largest in U.S. history.

Series of unfortunate events: Even before the pandemic, St. Louis’s third-tallest tower was in trouble. The CMBS loan originated right before the Great Recession hit, after the previous buyer, Inland American Real Estate Trust, bought the tower from AT&T back in 2006. AT&T leased it for 11 more years. But when they left, the building never recovered—and all that happened before the pandemic hit.

THE TAKEAWAY

When life gives you lemons…While the CMBS bondholders are furious, buyer SomeraRoad Holdings has a great problem on their hands. Sure, the decades-old office tower needs to be modernized. But at the price they bought it for, they have a whole lot of wiggle room. SomeraRoad currently plans to invest $200M into the tower to turn it into a mixed-use development that will include residential apartments.

📰 Editors’ Picks

• Lighten the load: Co-general partner (CGP) investment structures, which share costs and risks, are growing more popular among investors navigating uncertainty in “choppy” market conditions.

• Fighting words: Barry Sternlicht, billionaire CEO of Starwood Capital Group (STWD), thinks the Fed’s “merry band of lunatics” is destroying faith in capitalism, which may cause “social unrest.”

• As old as civilization: With talks of turning part of Times Square into a casino, it’s not too surprising that Columbus Park in NYC’s Chinatown has turned into a high-stakes card gambling den.

• Easier said than done: While it’s politically correct for U.S. businesses to claim they want to bring manufacturing back stateside, the true costs of reshoring aren’t so easy to swallow.

• Slow and steady: Net lease cap rates, which sit at 5.44%, are finally rebounding from recent historic lows. Experts believe they will continue to rise in Q4, but they aren’t sure by how much.

🤝 Deals & Dealmakers

• A billionaire’s dream: Student housing developer David Adelman, in charge of developing the Philadelphia 76ers’ new NBA stadium, just bought a minority stake in two sports teams.

• Patience is a virtue: When Cerberus Capital Mgmt. paid $350M back in 2006 for some struggling Albertsons stores, it probably didn’t expect to get $5.2B just 16 years later from Kroger (KR).

• JV of the day: Graycliff Capital Partners and Buligo Capital Partners landed a $52.7M loan for a Class A multifamily community JV in Johnstown, CO.

• Data dominion: Powerhouse Data Centers, the digital infrastructure arm of American Real Estate Partners (AREP), plans to spend $1B on six new data centers in Loudon County.

• Old wineskins: The Meridian Group and Martin-Diamond Properties joined forces to buy five former JCPenneys in Fair Oaks and Springfield, VA, for $53M.

📈 CHART OF THE DAY

Funded Real Estate Startups That Went Public In The Past Two Years

VC backed U.S. real estate-focused companies that went public in the past two years are down an average of 85% from their offering price, according to a Crunchbase analysis.

💼 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.

• Director of Office Leasing (Pettinaro Management, LLC)

• Investment Associate (Greysteel)

• Commercial Mortgage Banking Producer (Medalist Capital, Inc.)

• TPG Real Estate Finance, Analyst (TPG Real Estate)

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.