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Together with
Good morning. More workers are returning to Manhattan offices than previously reported. Insurers are shifting focus to private debt and credit while reducing their exposure to private equity and real estate. Meanwhile, Black Salmon and Allen Morris Company unveiled plans for a $1B mixed-use development in the Miami Health District.
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Today’s issue is brought to you by Greysteel. Smart investments begin with sustainable relationships.
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Market Snapshot
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*Data as of 9/27/2023 market close.
WORKPLACE REVIVAL
Nearly 60% of Manhattan Office Workers Are Back at Their Workplace, Study Finds
Almost 60% of office workers in Manhattan are back at their workplace, according to a study. (Andria Cheng/CoStar)
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A recent study by The Partnership for NYC reveals that the number of employees returning to Big Apple offices post-Labor Day is much higher than you might think. But don’t expect this number to increase any time soon.
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By the numbers: According to the survey, 58% of workers are at their desks on an average weekday, compared to 52% in January 2023 and 49% in September 2022. These figures surpass the 50.1% reported by the Kastle Systems Back-to-Work Barometer for “metro” New York. The study highlights a return-to-office rate of 72% vs. the pre-pandemic average of 80% office attendance on weekdays.
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What does this mean? The actual decline in office attendance since 2019 is smaller than previously assumed, challenging the perception of a significant drop in office usage during the pandemic. Kastle Systems primarily covers Class A- and B properties. However, it lacks data from some of the city’s largest commercial landlords, like SL Green (SLG), Vornado (VNO), and Related Companies, which have a significant presence of real estate.
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Leading the way: As of September, the real estate sector leads in average daily attendance at 75%, with financial services and law trailing closely at 65%. Below-average attendance is noted in the tech (53%), media (52%), and accounting (42%) sectors. Projections don’t foresee notable increases in any industry, with anticipated “new normal” rates as follows: real estate at 76%, law at 66%, financial services at 65%, tech at 54%, media at 53%, and accounting at 50%.
➥ THE TAKEAWAY
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Road to recovery: Manhattan serves as a bellwether for the nation, and the slow return to office contributed to a record-high office vacancy rate of 13.4% in NY. Contrary to the belief that most workers are working remotely, the survey indicates only 6% are doing fully remote work, down from 10% in January. While the return of Manhattan office workers is on the rise, the expectation is that this will only grow to 59% on a long-term basis.
TOGETHER WITH GREYSTEEL
Don Peebles: Visionary Leader
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In the latest episode of GreyCast, Greysteel had the privilege of hosting Don Peebles, a renowned entrepreneur, author, and advocate, accompanied by Ari Firoozabadi, CEO of Greysteel, and Nigel Craton, Director at Greysteel.
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The episode delves into Don’s influential journey in real estate, shedding light on his trailblazing projects and unwavering commitment to diversity and inclusion. Ari and Nigel also shared insights from their experiences at Greysteel.
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Don’s narrative, combined with Ari and Nigel’s perspectives, paints a vivid picture of resilience, ambition, and the drive for positive change.
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Tune in to discover their collective vision for a more equitable future in commercial real estate.
INVESTMENT STRATEGY
Credit Draws Increased Interest from Insurers as Private Equity Takes a Backseat, Reports BlackRock
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BlackRock (BLK) says that insurance executives overseeing $29T are shifting their investment focus, with nearly 90% planning to up investments in private debt and credit strategies while reducing exposure to private equity and real estate.
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Investment insights: According to a survey of 378 senior insurance executives, 89% plan to boost investments in private markets over the next two years. Their most favored private vehicle is direct lending, with 60% of respondents planning to up allocations to this sector. However, 34% of executives intend to reduce investments in private equity, and a similar percentage planned to lower their bets on real estate equity and debt.
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Balancing act: Despite the overall interest in increasing allocations to private markets, concerns about market volatility and disruptions in private equity and real estate are leading to a more selective approach. Institutional investors face challenges due to rising rates, leading to stocks and bonds declining. This has made respondents prioritize flexibility in asset allocation, especially since they can’t easily rotate assets as they did when bonds were in unrealized gain positions.
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Chasing yield: Despite the attractive yields of 5%+ on government and corporate bonds, interest in private investments, particularly high-quality investment-grade private debt and asset-backed strategies, remains strong among investors. Insurers are keen to increase allocations to top-tier investment-grade private debt, asset-backed strategies, and direct lending to SMBs.
➥ THE TAKEAWAY
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Investment evolution: BlackRock’s findings unveil a noteworthy shift in the investment strategies of insurers. It seems there’s a growing trend for bumping up allocations in private debt and direct lending, especially with the current market roller coasters. Despite the tempting yields on bonds, the interest in top-notch private investments isn’t losing its charm—it’s all about striking the right balance in these shaky market times.
DEAL OF THE DAY
Black Salmon, Allen Morris Co. Plan $1B Highland Park Miami Mixed-Use Project
Camilo Lopez, Spencer Morris and Bernardo Fort-Brescia with a rendering of the project in the Miami Health District
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Developer Camilo Lopez’s Black Salmon is partnering with Allen Morris Company on a $1B mixed-use development called Highland Park Miami in the Health District to be built over the next decade.
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Strategic location: This ambitious project, named Highland Park Miami, will span over 7 acres and is projected to comprise 500,000 square feet of medical office space, 1,000 apartments, a 150-room hotel, retail spots, and lush green spaces. Scheduled to be executed in several phases spanning the next ten years, the buildings could reach heights of up to 22 stories.
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Playing the long game: Lopez meticulously acquired nearly 50 properties over a decade, investing approximately $60 million, especially targeting areas close to the Metrorail. This strategic land assembly focuses on transit-oriented development, promoting higher density in line with mass transit routes. The resultant project is hoped to increase the health district’s area by 10%.
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Architectural vision: Internationally acclaimed firm Arquitectonica has been entrusted with the project’s design, with visions of enhancing the district’s aesthetic appeal. Bernardo Fort-Brescia of Arquitectonica emphasizes the importance of integrating office spaces with recreational areas, aiming for a harmonious blend where one can work, live, and relax. The design further boasts an activated green rooftop, complete with walking tracks and fitness zones.
➥ THE TAKEAWAY
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Big picture: Highland Park Miami isn’t just another development; it promises to be a masterful amalgamation of utility and aesthetic splendor, bringing together medical facilities, residences, and recreational spaces under a single, architecturally delightful umbrella. This project aims to redefine the way people perceive mixed-use developments.
✍️ DAILY PICKS
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Bargain buy: Due to a surge in office vacancies and lower demand, San Francisco’s downtown CRE prices dropped significantly, attracting investors looking for bargain rates.
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Voucher expansion: NYC expands housing vouchers beyond five boroughs to allow low-income residents to rent apartments in more affordable areas across the state.
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A city of yesterday: With $800M in backing, Silicon Valley magnates are plotting to construct a city with a vintage flair on 52,000 acres of acquired farmland.
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Ponzi for pizza: The host of the podcast The Cash Flow King, Matthew Motil, is accused of running an $11M Ponzi scheme, using investor funds for personal expenses, including a lakeside mansion, NBA tickets, and pizza.
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Retail crime: Target (TGT) is shutting down nine stores across New York, Seattle, San Francisco, and Portland, citing higher theft and violence, as nationwide retail crime losses reached an estimated $112.1B last year.
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LA legend: Wayne Ratkovich, the developer behind numerous historic landmark revitalizations in LA, passed away at 82, leaving a legacy of preserving and transforming the city’s architectural treasures.
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Lobbying leverage: Industry lobbyists are focusing on legislative proposals like the Choice in Affordable Housing Act, the YIMBY Act, and the repeal of the CARES Act’s 30-day notice to vacate to influence policies affecting the multifamily sector.
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Hidden threat: Researchers have discovered that underground heat is causing a phenomenon known as “underground climate change,” potentially leading to ground deformations and infrastructure damage in major cities.
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Troubles escalate: CA Ventures, a Chicago-based multifamily giant, is grappling with eviction, lender lawsuits, and mounting legal challenges, including judgments totaling $10M.
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Sudden setback: VanEck’s newly launched office REIT ETF has encountered an immediate setback as W.P. Carey (WPC) announced its withdrawal from the office sector.
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Chapter 11: National real estate brokerage MV Realty Holdings has filed for bankruptcy in Florida to restructure nearly $60M in debt due to lawsuits over its marketing practices.
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Setting records: Despite a surge in office leases by AI companies in San Francisco, office vacancies have reached a record high of 33.9%, with net absorption at a negative 2MSF.
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Windy City win: Chicago’s emergence as a thriving logistics hub can be attributed to its strategic location, robust infrastructure supporting rail networks and highways, and the adoption of innovative technologies in distribution centers.
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Foreclosure auction: A six-story building near Penn Station, built in 2019, was sold at a foreclosure auction for only $16.5M, 75% off compared to its cost of construction.
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Small town surge: Vernon, a tiny CA city dominated by industrial, with a population of 222, plans to encourage residential development and growth through zoning changes.
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Luxury living: Related Group and Merrimac Ventures plan to launch a Waldorf Astoria condo development in Pompano Beach, expanding luxury-branded residences in South FL.
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Tiny house trouble: Boxabl, a modular construction company linked to Elon Musk, is under investigation by the SEC over its business practices and unconventional marketing of securities offerings.
📈 CHART OF THE DAY
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According to Savills, the total value of global real estate, including residential, commercial, and agricultural land, stood at a staggering $379.7T, reaffirming real estate’s status as the world’s most significant store of wealth.
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