What Hochul’s Victory Means for NY Real Estate

Kathy Hochul beats Zeldin to become New York’s first elected female governor, but time will tell whether she can make good on her promises to the real estate industry. There’s so little interest in commercial office space that developers are putting halfway-done projects on ice. Meanwhile, a multifamily complex in LA just sold for the highest price any Golden State apartment has fetched in 10 years. Let’s dive in!

What Hochul’s Victory Means for NY Real Estate

Kathy Hochul beats Zeldin to become New York's first elected female governor, but time will tell whether she can make good on her promises to the real estate industry. There’s so little interest in commercial office space that developers are putting halfway-done projects on ice. Meanwhile, a multifamily complex in LA just sold for the highest price any Golden State apartment has fetched in 10 years. Let's dive in!

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🎧 Podcast of the Day: On this episode of Odd Lots, Josh Younger, JPMorgan's global head of asset and liability management research and strategy, tells the origin story of the decisions made in 1953 that helped create the vast repurchase or repo market. At a time when there are plenty of concerns over the stability of the market for US bonds, we go back in time to explore the reasons why repo exists at all.


Kathy Hochul Won NY. Now Comes a Set of Real Estate-Related Challenges.

Some of the city’s most prominent developers bet on Gov. Kathy Hochul to win the election after pledging to go to bat for the real estate industry — now she’ll have a chance to prove it.

What happened: Hochul won with a promise to please both tenants and landowners (yeah, good luck) with a property tax break just like the recently expired 421a. The initiative would give landowners a property tax exemption for 35 years so long as they set aside a percentage of their property as affordable rentals.

Don’t get too comfy: But the race was surprisingly close. In addition to his opposition to eviction protections, Rep. Zeldin’s tough-on-crime stance resonated with landowners, since even the perception of crime lowers property values. Crime in NY is at a historic low, but major felonies have been rising over the past two years, especially on public transit (in case you needed another reason to avoid the MTA).


Careful what you wish for: Progressives supported Hochul because she promised to protect tenants and pursue affordable housing. Top developers and construction unions backed her because they believed that incentives like 421a might stimulate construction. The question going forward is whether Hochul can make good on her promise—and whether progressives will stick with a governor who makes landowners happy.


Top Office Developers Hit the Pause Button on New Projects Discouraged by High Vacancy Rates

The rise of remote work alongside soaring interest rates has caused demand for office space to crumble. Vacancy rates are so high some developers are already cutting losses and pausing half-completed projects.

Tumbleweed, USA: According to CoStar data, the national office vacancy rate has risen to 12.5%—the highest reading since 2011. Worse, 37% of office space under construction is still available (more than double 2019’s availability), nearly hitting record highs.

Big hitters walk: Heavyweight developer Kilroy Realty Corp. (KRC) announced it would indefinitely pause construction on a 500K SF project in Austin after delaying a 600K SF development in San Diego earlier this year. And Steven Roth, CEO of Vornado Realty Trust (VRO), didn’t sound too optimistic when he said “caution is the word of the day,” leading some to wonder whether Vornado would delay their planned office tower on the site of Manhattan’s Hotel Pennsylvania.


Risky business: Some developers are still forging ahead with new projects on prime real estate, betting the best spots will still attract businesses in the 3–5 years it takes to finish construction, by which time the economy may be back to normal. But with building costs and interest rates steadily rising, it’s hard to see how developers could lease units at profitable rates that are still low enough to attract tenants.


Downtown LA Luxury Apartment Tower Sells in Record-Breaking Deal

China-based developer Greenland USA sold Thea at Metropolis, a 685-unit multifamily complex, to MA-based investment firm Northland Investment Corp. for $504M. The deal represents one of the priciest multifamily transactions in greater L.A. history.

Deal details: Northland has entered the California market with the acquisition of THEA at Metropolis, a 59-story luxury apartment tower in downtown Los Angeles. The U.S. subsidiary of China’s Greenland Holding Group sold the asset for $504 million, according to The Wall Street Journal.

Living in luxury: Rents at Thea start at $3,000/mo. for studios and run up to $10,500/mo. for 3-bedroom apartments. The apartment complex is also chock-full of modern amenities, including a yoga studio, heated pool, sky lounge, and a yard with walking trails.

North goes west: Although Northland owns 87 properties nationwide, this is its first acquisition in the Golden State. With a total of 26,000 apartments and 2.1 MSF of commercial space, Northland already owns roughly $8B in real estate—and they want more.


The bottom line: Northland says the purchase price represents a 40-45% discount on today’s replacement costs. The journal reports that the original asking price 18 months ago was $695M, which was still less than the actual development costs. High interest rates and falling rents have affected the apartment market nationally. Additionally, The Wall Street Journal cites California rent regulations and the ability of renters to move away from downtown Los Angeles due to remote work for contributing to suppressed property values.

📰 Editors' Picks

  • Sears in tears: After declaring bankruptcy four years ago, the former retail titan has watched its 687-store empire dwindle to just 15 outlets. And it’s about to liquidate those assets.

  • Home-from-work: Remote work trends and low demand for office space have led developers to convert offices into apartments faster than ever before.

  • Scammer’s stash seized: The federal government took James Zhong’s real estate holdings off his hands after seizing his illegal $3.36B stash of Bitcoin (BTC) last November.

  • The dream lives on: JPMorgan (JPM) just gave the American Dream megamall four more years to pay off its $1.7B in construction debt. This story just never ends.

  • Don’t mess with Texas: Many are up in arms after the Texas state legislature decided not to renew Chapter 313, a tax incentive designed to attract renewable energy projects.

  • SF’s office slump: San Francisco has been hit hard by the slowdown in office demand, with homelessness and crime making potential tenants especially nervous about downtown rentals.

  • Slumping market: Redfin laid off 13% of its staff on Wednesday and closed its home-flipping unit, saying the operation was both too expensive and too risky to continue.

🤝 Deals & Dealmakers

  • Home shopping (minus the home): Home shopping network QVC sold five properties to private equity firm Oak Street, in hopes of eventually leasing them back.

  • Inter-borough competition: A&E acquired a portfolio of 14 multifamily units in Brooklyn, purchasing them from the LeFrak Organization, which also owns properties in Queens, for $250M.

  • Back from the SPAC: After failing to go public via SPAC with backing from the Chera family, proptech firm Brivo is back in business with a $75M loan.

  • Hoffman gets hundreds: Developer Hoffman & Associates has raised nearly $200M to finance the construction of Seaboard Station, its $500M mixed-use project in Raleigh, NC.

  • Together we stand (to profit): Tishman Speyer and Mitsui Fudosan America have formed a joint venture to acquire and develop U.S. properties with $500M in seed funding.

  • Reap what you sow: Walton Street and a regional partner just acquired Harvest Junction, a 364K SF retail center in Boulder, CO, for $73.8 million.


How public and private real estate has performed before, during and after previous recessions.


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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.

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