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In today’s email: A small Texas town is disappointed after Micron decides to build a new chip factory in New York instead. Brick-and-mortar retail recorded its best year since 1995 as many growth metrics exceed pre-pandemic levels. Meanwhile, with nearly all sectors in the red, asset managers can’t seem to agree on how much they should invest in public vs. private markets. . Let’s dive in!

MANUFACTURING

Micron Taps New York, Not Texas, For $100B Factory

After months of speculation, Micron Technology (MU) plans to invest $100B in a massive new semiconductor production facility in central New York and not Lockhart, south of Austin, as expected. The announcement came as a big surprise—and disappointment—for the Texans who would have benefited.

Big promises: The Idaho-based chip manufacturing giant announced that it will build “the largest semiconductor fabrication facility in the history of the United States.” The factory could create up to 50,000 jobs in Clay, NY.

Big expectations: Set to receive $5.5–$6B in New York state incentives over two decades, Micron plans to start construction at the Clay site in 2024. Insiders think the full buildout could reach 2.4M SF and take as long as 20 years to complete.

THE TAKEAWAY

Unexpected upset: The 15,000 residents of Lockhart were understandably disappointed by the news. The Micron project would have created thousands of new jobs and transformed their hometown. After all, Central Texas has attracted big-name chip companies like Samsung Electronics, which is currently building a $17B plant in Taylor, TX. Nevertheless, it is the latest example of companies taking advantage of new federal subsidies to stimulate U.S. chip production. The deal also marks the largest private investment in New York history.

INVESTMENT STRATEGY

Asset Managers Disagree on How to Invest in Private Markets

This year’s downturn has hammered most sectors of the market, including traditional “safe haven” assets, in ways that few anticipated. At asset manager Nuveen, teams are scrambling to find winning strategies with private assets, but find themselves split into two camps.

Point of contention: The crux of the debate is how much investors should allocate to private market assets, like real estate, compared with public market staples, like stocks and bonds. Finding the right answer will be critical as the typical 60–40 equity–fixed income portfolio keeps nosediving.

For and against: Those in favor of private assets believe they can hedge against public market uncertainty, while those opposed to overweight private asset allocations believe too much illiquidity could hinder investors from switching back into public markets when the opportunity arises.

THE TAKEAWAY

More real estate, please: Nuveen’s main takeaway for real estate investors is that “top-tier private equity buyers are focusing on defensible assets right now.” Their analysts noted that investment-grade fixed income assets, like farmland and private real estate, should benefit from the inflationary environment.

RETAIL REVIVAL

Brick-And-Mortar Retail Rises From The Ashes of COVID-19

U.S. retail real-estate investors finally have cause to celebrate. This year, brick-and-mortar retail stores are posting some of their best numbers in decades, signaling a promising reversal in the making for the retail sector, which suffered more than most during the pandemic.

Record-breaking numbers: U.S. retail vacancy rates fell to just 6.1% in Q2, their lowest level in over 15 years. Rents for U.S. shopping centers are also 16% higher than they were 5 years ago. Most surprising, more retail stores opened than closed in 2021 for the first time since 1995. According to Brookfield Asset Management, “these net 2,600 new stores will require an estimated 23 million square feet of space.”

Turns out people like going outside: With more vaccinated and boosted Americans itching to get out of the house, foot traffic in many places is higher than it was before the pandemic despite the growing popularity of e-commerce alternatives. According to Brookfield, spending at 132 of its U.S. malls is 31% above pre-pandemic levels, and they expect the trend will continue.

THE TAKEAWAY

Not out of the woods yet: The current retail revival is more than welcome after a year of mostly empty streets and zero foot traffic. But retail’s problems started long before the pandemic. From the 1970s right up to the 2008 financial crisis, retail construction was 4–6x higher than the rate of U.S. population growth. Even after the post-recession slowdown, the U.S. still has 22–23 SF of retail space per person, more than any other country.

• Bringing it home: More Apple (AAPL) suppliers are building factories closer to Cupertino, CA. In 2021, 48 of Apple’s 180 suppliers had manufacturing sites in the U.S., up from 25 in 2020.

• To Airbnb or not to? Apparently, smaller rental units are more profitable with long-term renters, while larger units with 4 or more bedrooms fare better as vacation rentals in 90% of U.S. cities.

• Making biotech cool: In Houston, TX, an upcoming $1.8B, 37-acre expansion at Helix Park aims to make visitors feel like they’re at a park, not “Beaker Village or Pipette Land.”

• Taking a breather: Total CRE and multifamily mortgage borrowing and lending are expected to fall to $766B this year, 14% lower than the $891B recorded in 2021.

• “Genie, you’re free!” At long last, LA is expected to end its pandemic eviction ban on Feb. 1, 2023. Desperate landlords will finally be able to evict renters who miss rent payments.

Deals & Dealmakers

• Live and worship: Rocklyn Asset Corp. plans to build a 14-story, 353-unit apartment building at 2797 Atlantic Avenue on church-owned property.

• Moving to Florida: After expanding into North Florida last year, Baltimore-based Merritt Properties just signed a 29K SF office deal with the first tenant at its new Florida business park.

• Too good to be true: Korean investors just pulled out of a €1.3B deal to buy Credit Suisse’s Zurich HQ, citing uncertainty over how rising interest rates could impact asset values.

• Selling Harlem: Brookfield Asset Management (BAM) is ready to sell the last piece of its Putnam rental portfolio in Harlem, 3333 Broadway, for $400M.

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