Good morning. Anyone catch the Vikings-Bills game this weekend? 🤯

In today’s email: WeWork tries to turn things around by catering to corporate clients who want luxury offices with flexible lease terms. Miami Beach residents vote to strike down three major development projects that would transform the skyline. Meanwhile, lenders try to sell office loans before rising rates tank property values even more than they already have. Let’s dive in!

🎧 Podcast of the Day: On this episode of The FORT, Chris Powers sits down with Zamir Kazi (ZMR Capital) to discuss how his firm went from $0 to 1.7B of multifamily assets in 9 years.

WORK YOUR WAY

The coworking titan WeWork (WE) announced WeWork Office Suites, a premium option aimed at clients who want the feel of a corporate office with a coworking space’s flexible lease terms and lack of up-front investment.

Leasing in luxury: WeWork Office Suites is meant to feel like an exclusive corporate space, with private executive offices, upscale furniture, and lots of amenities. Clients will even have access to branding opportunities that will make spaces feel more like offices and less like rooms full of freelancers.

Committing to noncommitment: WeWork saw both occupancy rates and revenue decline in Q3. While the coworking firm is keeping its standard coworking models open for freelancers, Office Suites marks a significant pivot. WeWork hopes to take advantage of the rise of remote work by turning itself into the large-scale solution that big corporations are looking for in this uncertain time.

THE TAKEAWAY

The bottom line: The terms of attractive corporate leases are loosening up, and WeWork’s not the only one that knows it (Codi is trying out office timesharing). Generally, the lengths of new office leases are shrinking significantly shorter than 10 years, too. Whether companies will opt for shorter leases or still prefer flex options like WeWork’s is anyone’s guess.

BLOCKING THE BILLIONAIRES

Voters Strike Down Three Developments Planned For Miami Beach

In a series of referendums last week, Miami Beach voters killed three major real estate projects proposed by industry heavyweights Stephen Ross, Barry Sternlicht, and Don Peebles. Ross seemed particularly sour about the loss as the proposal was an apparent passion project of the Related Companies chairman (and Miami Dolphins owner).

What would’ve been: Two of the developments were to be office towers built by Starwood Capital Management (STWD) and Don Peebles, Jr., respectively. A third, planned by developer and Miami Dolphins owner Stephen Ross, was meant to replace the recently demolished Hotel Deauville with a 125-unit condo and an Equinox Hotel.

Dead on the water: As the two office projects would’ve been built on land owned by the city and leased to private developers, neither can move forward without voter approval. Ross—who owns the lot where the Deauville once stood—could resubmit a new plan, but it would require so many changes that he’d practically have to start over from scratch again.

THE TAKEAWAY

Keeping a low profile: Ross’s proposed high-rise towers would have been 375 feet tall, nearly double the 200-foot limit imposed by city zoning laws. According to the Miami Design Preservation League, voters weren’t “ready to approve projects that could significantly change the character of Miami Beach…famous for its art deco architecture and lower-rise buildings.” The Ross site sits on a designated community development area, which gives more taxes back to Miami Beach, so it’s still in the city’s interest to have something built there soon.

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OFFLOADING LOANS

As Rates Rise and Values Fall, Lenders Try to Sell Office Loans

Many of the country’s largest lenders to offices are rushing to sell their loans as rates rise, property values decline, and regulators crack down on risky and irresponsible lending practices.

Aaand it’s gone: After a record $316B wave of new CRE loans in the first half of 2022, the market has cooled real fast. By the end of Q3, nearly 20% of office space sat empty nationwide. And with rising interest rates, the trend’s likely to continue. Some analysts predict US offices may lose up to 39% of their value, or $453 billion in the long term.

Very hot potatoes: All of this has CRE lenders sweating bullets. They have no choice but to be stingier with new loans. At the same time, they’re also trying to reduce exposure to risky office loans they’ve already initiated by selling the debt, sometimes resorting to discounts of up to 25% to offload unwanted loans. Does it smell like an impending debt crisis in here, or is it just me?

THE TAKEAWAY

Beware the bubble: With many office loans set to mature over the next few years, borrowers may start to feel the screws tighten, especially with lenders unwilling to refinance debt. The question is whether the FDIC—which has classed offices as among the riskiest property asset types—will allow loan holders to kick the default can further down the road by selling at terms more favorable to borrowers.

📰 Editors’ Picks

• Legoland liquidity crunch: South Korean firms are struggling to pay debts after a Legoland developer missed a bond payment and triggered a nationwide credit squeeze. Of all things, right?

• Keep ‘em coming: Despite high interest rates, insurance giant Metlife Investment Management (MIM) continues to invest in the US commercial mortgage market.

• Farmland outpricing farmers: As the value of farmland surges, farmers struggle to compete with private equity and real estate developers for rights to their ancestral land.

• Passport privileges: Bloomberg discusses the most (and least) powerful passports you can have in the wake of the pandemic.

• Healthy headwinds: As inflation continues to raise costs, healthcare providers seek to scale down their property holdings and slow construction on new projects.

• Follow the lawyers: Chinese developer Shen Zen New World 1 was found guilty of bribing a former LA City Councilman to approve plans for a downtown LA skyscraper.

• Office conversion: According to real estate analysis group Yardi Matrix, four of the top 10 cities with the most rental units in former office buildings are in the DC area.

🤝 Deals & Dealmakers

• Shopping splurge: Kimco Realty, Inc. (KIM) recently acquired a portfolio of eight shopping centers in Long Island for $375.8M.

• Deal of the day: Data Center campus developer EdgeCore Digital Infrastructure has been acquired by Swiss private equity fund Partners Group in a billion-dollar deal.

• Sale-leaseback: Struggling Irish hard-drive producer Seagate Technology Holdings (STX) hopes to sell its Silicon Valley research campus for $300M in a 7-year leaseback deal.

• West Coast onshoring: LBA Logistics (LBA) just purchased a coastal distribution center in San Diego for $46.3 million.

• Desert logistics: A subsidiary of Brookfield Property Partners (BPYPP) has announced plans to build an 858 KSF logistics center in Mesa, Arizona.

• Data down south: The Latin American data infrastructure company, Ascenty, announced plans to build five new data centers on the continent worth $290M.

• Twin Cities treasure: Capital Partners has joined with Investcorp to purchase 16 properties in the Twin Cities for $249M.

📈 CHART OF THE DAY

💼 JOB BOARD

The CRE Daily Hiring Block

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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.