Real Estate Newsletter 3.18.24
Weekly News Roundup
- Four 2024 Real Estate Trends
- Shopping Mall of the Future
- Two Townhouses Become a $75m Mansion
Four 2024 Real Estate Trends
Across the commercial real estate industry, investors are looking for clues as to whether the Federal Reserve will continue to raise interest rates through the rest of 2024 or reverse course. Regardless of where interest rates land this year, it’s clear that many of the national and regional banks have pulled back on extending credit to commercial real estate investors. This has had a significant impact on local commercial real estate operators that tend to focus on relationships with local banks for financing acquisitions.
Reduced capital availability has also limited the ability of developers to bring new multifamily units online. Construction starts remain muted, and there are concerns that the volume of new multifamily units delivered to the market in 2024 could lag behind demand. If this trend continues, it has the potential to keep occupancy high, and as the supply of new units remains constrained, rent growth could pick up in 2024.
Necessity-based real estate, including multifamily, light industrial and grocery-anchored, continues to perform well and looks poised to ride macroeconomic trends to another strong year in 2024. Light industrial real estate investments, comprised largely of distribution centers, warehouses and other logistics centers, performed very well during the pandemic as online shopping became a way of life and e-commerce activity took a significant leap forward and continues to grow steadily and remains a bright spot in the economy. The trend of consolidation in the grocery space is also continuing. Source: Forbes
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Shopping Mall of the Future
Mall giant Simon Property Group is spearheading a $400 million spending spree to make Southdale Center in suburban Minneapolis much more than just shopping. Over the past dozen years, Simon has built a growing list of amenities in remote corners of its parking lot: luxury apartments, an extended-stay hotel and a Shake Shack. It knocked down a JCPenney and replaced it with a high-end fitness center and co-working space.
Another defunct department store made way for an upscale grocer and a high-tech minigolf operator. A cluster of luxury shops is under construction for retailers including Gucci, Burberry and Moncler. Boosted by new amenities and strong performance by luxury retailers, top-tier malls have surpassed 2019 tenant-sales levels despite lagging foot traffic. Shoppers are spending less time in malls, but they’re more likely to pull out their credit cards for big-ticket items than they were in the past.
Top-tier malls reported record-high leasing volume and strong rent growth last year. That helped make malls the best-performing sector among publicly traded real-estate investment trusts over the past three years, according to Floris van Dijkum, managing director at the investment firm Compass Point Research & Trading, which advises institutional clients on investing in malls.
Mall fortunes have sharply diverged in recent years, with the top 25% of U.S. properties raking in sales of $750 to $1,200 a square foot, according to real-estate analytics firm Green Street, compared with an average of $150 to $475 at lower-quality malls. While the rise of online shopping has challenged many retailers, luxury brands have seen less erosion than others from ecommerce. Browsing, customer service and touching a product before buying it is more important when it comes to a $10,000 handbag than it is for a $3 tube of toothpaste. And one shopper spending that much on a single item brings in as much revenue as scores of shoppers buying lower-priced everyday items. Source: Wall Street Journal
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Two Townhouses Become a $75m Mansion
Real-estate developer Robert Kaliner, of RoundSquare Builders, plans to build a new, 42-foot-wide townhouse in New York’s Greenwich Village. RoundSquare paid just over $18 million combined for neighboring walk-ups in 2021 and 2022 with plans to demolish the century-old buildings and create a singular luxury residence in their place.
Building in New York City isn’t a simple feat. Before pouring the foundation, Kaliner’s team had to make its way through a roughly yearlong design, approval and permitting process.
RoundSquare bought 105 and 107 Bank Street in separate off-market deals and then engaged Robert A.M. Stern Architects to bring its vision to life. Plans call for a roughly 13,000-square-foot residence that is 42 feet wide and 100 feet deep with a roughly 3,500-square-foot basement that will house a gym, theater and wine cellar.
To maximize the livable space below grade, workers installed underpins beneath the neighbors’ foundation. The process involves digging under the adjacent building, removing soil below the foundation and filling in the gap with concrete.
Workers methodically excavated 3 feet at a time and installed a total of 21 underpins. In the rear yard, they also drove 21 concrete-and-steel piles about 30 feet into the ground for additional support. With the underpins and piles done, RoundSquare started the structural demolition in December 2023.
“The big reveal,” as Robert Kaliner called it, came late that month, when workers took down the wall between the two buildings and removed the exterior back wall. “The only thing that stays is the facade,” Justin Kaliner said recently. He anticipated pouring foundation in the coming weeks, followed by the installation of steel columns, metal floor joists and windows, over the next few months. “Then we’ll have an enclosed building and an interior project at that point,” he said. “We’ll go from the bottom and work our way up.” Source: Wall Street Journal
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