JLL Debuts Industry’s First AI GPT Model for CRE

JLL is the first major commercial real estate brokerage to launch its large language model (LLM) artificial intelligence product called JLL GPT. 

JLL Debuts Industry's First AI GPT Model for CRE

JLL is the first major commercial real estate brokerage to launch its large language model (LLM) artificial intelligence product called JLL GPT. 

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Good morning. JLL is the first major brokerage to launch its own in-house large language model (LLM). In the wake of tax changes and rising costs, LA apartment sales plummeted 50% in Q2. Meanwhile, NY’s Cazenovia College is closing its doors after 200 years, signaling an opportunity for other private US colleges experiencing financial distress.

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ARTIFICIAL INTELLIGENCE

JLL Debuts Industry's First AI GPT Model Tailored Specifically for Commercial Real Estate

AI photo of CRE

JLL is the first major commercial real estate brokerage to launch its large language model (LLM) artificial intelligence product called JLL GPT.

Game-changing tech: JLL has debuted JLL GPT, a specialized AI model for the commercial real estate industry. This innovative tool will allow JLL's global workforce to provide clients with enriched insights by fusing internal data with external resources. According to Yao Morin, JLL's CTO, JLL GPT will usher in a new era in the commercial real estate sector, accelerating analysis, enabling the creation of portfolio dashboards, and facilitating the production of property flyers, among other features.

Farewell, spreadsheet slinger: To illustrate, instead of a broker seeking rental rate data from an analyst who then compiles a spreadsheet, the broker can directly pose the question to the JLL GPT chatbot via a secured interface and receive the required information significantly quicker. This technological solution was developed by JLL Technologies, the firm's tech division.

Industry adoption: Other companies are likely to follow JLL’s footsteps, as Spencer Burton, president of Stablewood Properties, views it as an impending 'arms race'. While some challenges are to be expected with the implementation of large language models, such as occasional inaccuracies in responses, these can be overcome with sufficient resources, Burton asserts.

➥ THE TAKEAWAY

Enhancement, not replacement: JLL emphasizes that their AI tool is not meant to replace human jobs but rather enhance and elevate the capabilities of researchers and brokers. JLL GPT aims to be an AI assistant that will save tremendous amounts of time for CRE pros by automating roles, and repetitive tasks, allowing companies to focus more on strategic decision-making.

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SALES NOSEDIVE

New Tax Regulations and Increased Costs Trigger a 50% Drop in LA Apartment Sales

LA Apartment Sales Plummet 50% as Investors Confront New Taxes, Higher Costs

CONSTRUCTION COMPLETIONS ROSE 65.2 PERCENT ANNUALLY YEAR TO DATE, PUTTING MORE UNITS ON THE MARKET. (FREDERIC J. BROWN/AFP VIA GETTY IMAGES

The LA housing market is experiencing a significant shift as recent changes and taxes redefine the rental landscape for its 3.3M residents, causing a 50% drop in apartment sales.

A new era: Sales of apartments in Los Angeles have plummeted nearly 49% year to date in the second quarter compared to the same period last year, according to a report by NAI Capital. This decline is a result of the market's adjustments to increased borrowing costs, higher transaction costs, and weakened demand.

ULA's effect: Measure ULA has significantly impacted apartment building sales, resulting in a 75% drop in property sales valued over $5M. In contrast, properties valued under the $5M threshold saw a notable 40% jump in sales during the quarter. The tax burden has led to a transactional standoff, affecting the market dynamics.

Rising vacancies: The national apartment vacancy rate rose by bps to 4.7% due to a surge in new deliveries and expiring eviction protections. Construction completions also rose 65% YTD, although the number of units under construction suffered an 8.3% drop. Additionally, lifting eviction protections led to a rise in vacancies and rents as landlords can now collect unpaid rent and evict tenants.

➥ THE TAKEAWAY

Rising rents: Despite the challenges in the market, average LA apartment rents reached a record high of $2,165 per unit, reflecting an 0.8% increase compared to 2Q22. The high demand for rentals and limited supply have contributed to the continuous rise in rental costs amidst market uncertainties. And who can blame landlords? Some estimates show they’re owed hundreds of millions and counting.

🌐 ARROUND THE WEB

📖 Read: A Canadian real estate agent was fined over $15K by British Columbia for drinking milk directly from a jug and putting it back in the fridge at a home he was showing to potential buyers.

🎧 Listen: Siberian-born Artem, who runs a $400m real estate firm, discusses life under Communism, U.S. immigration, Jiu Jitsu's role in career success, and a LA project walkthrough in this episode of The FORT.

FINAL CHAPTER

Cazenovia College Closure: Higher-Ed on Notice Amid Economic Crisis

A NY College Shutters After 200 Years, Exposing More Higher-Ed Distress

Cazenovia College, founded as a seminary in 1824, closed at the end of June after facing financial challenges. Source: Cazenovia College

Cazenovia College, a historic NY institution founded in 1824, recently announced its closure due to financial challenges, becoming the latest example of the mounting economic crisis many private higher education institutions face.

A distressing trend: The shutdown of Cazenovia College is indicative of a growing, concerning trend impacting private colleges across the United States. Falling student numbers and difficulties in fulfilling financial commitments are causing a strain on these institutions, thus questioning their long-term viability in an increasingly competitive higher education market. The college, burdened by a decrease in enrollment and a $25M debt that it can't pay off, exemplifies the obstacles many other struggling colleges might face during the ongoing shakeup in the higher education sector.

Asset liquidation: The chances of bondholders recouping their investments after a college closure are contingent on the successful sale of the college's assets. Frequently, real estate is the most precious asset of colleges and plays a key role in the process. In the case of Cazenovia, its 240-acre horse-riding facility might be put up for sale separately, while the main campus may be redesigned for various purposes, like an arts program or a senior housing facility.

Restructuring challenges: Restructuring a floundering college is a challenging task. College closures pose unique issues, and bankruptcy provides limited help for financial revival. The administration at Cazenovia will concentrate on the welfare of its students, faculty, and staff during the shift, establishing partnerships with other institutions and ensuring the responsible distribution of any remaining funds.

➥ THE TAKEAWAY

The bigger picture: Cazenovia College's closure illustrates the growing economic pressures on private colleges. As it moves to liquidate assets, the focus is on real estate sales, presenting opportunities for commercial real estate professionals. However, the valuation might be lower than anticipated. The campus, previously valued at $26 million, may transform into an arts center, training facility, or senior living space, signifying potential real estate ventures within the education sector.

✍️ DAILY PICKS

  • LA expansion: KKR opened a new office in LA to capitalize on opportunities in the state's real estate market, citing CA's thriving economy as a key factor for expansion.

  • Downgraded: On Wednesday, the stock markets experienced a significant decline following Fitch's decision to downgrade the US’s long-term foreign currency issuer default rating from AAA to AA+.

  • Global hot spots: Read about the top 10 global real estate projects for potential investors, including Hudson Yards in NYC and AMAALA in Saudi Arabia.

  • MOB mentality: Medical office buildings (MOBs) enjoy consistent demand for healthcare services and steady construction starts, with prices beating national averages by nearly $100 per SF.

  • Not too hot, not too cold: The success of Taylor Swift's Eras tour and movies like Barbie may be driving a Goldilocks economy, as consumers prioritize experiences and entertainment.

  • Finding a balance: The life sciences sector faces an oversupply of new space but not enough midsized spaces for startups to grow into, leading to falling rents and a need for more flex spaces.

  • Scaling back: Apollo Commercial Real Estate Finance has lowered its expectations for sales of luxury units at NYC's 111 W. 57th St. due to slower-than-expected foot traffic.

  • Default of the day: Terra Property Trust defaulted on a loan tied to leasehold interest in a 100 KSF office building in Santa Monica amid a dispute with Goldman Sachs (GS) over lease terms.

  • Trouble on Broadway: The $3B TSX Broadway development in Times Square faces debt trouble as L&L Holding and Fortress Investment Group fail to repay their $543M mezzanine loan.

  • Reshaping urban spaces: Adaptive reuse projects involving office conversions are revitalizing downtown districts, with over 120K apartment conversions in the pipeline.

  • Constructive feedback: Vornado (VNO) CEO Steven Roth criticized investors for having a "short-sighted and emotional" view of the office market amid challenging economic conditions.

  • Mountain of debt: Paul Massey, CEO of B6 Real Estate Advisors, owes roughly $2M in taxes, struggles with credit card debt, and is trying to prevent foreclosure on his Westchester home.

  • Gaining popularity: C-PACE financing is rapidly gaining popularity as a financing tool for commercial property improvements amid tightening traditional capital markets.

  • High net worth focus: High net worth investors (HNWI) continue to favor multifamily and industrial, with some interest shown in newer property segments like data centers and SFRs.

  • Elevating fast food: Chick-fil-A is testing a new format called the "Elevated Drive-Thru," featuring a 2nd-floor kitchen that delivers food through chutes to customers in ground-floor drive-thrus.

  • Teamwork makes the dream work: Medical office building landlords and tenants are working together to optimize lease terms and implement cost-saving initiatives.

  • Partners in crime: The father of a Dallas CRE investor convicted of fraud denies involvement but is being sued for allegedly orchestrating a shell game so his son could defraud a lender.

  • Mall meltdown: Regional mall values are dropping over 70% as $14B in mall-backed CMBS loans come due, with many malls now worth less than the loans they back.

📈 CHART OF THE DAY

Efficient Frontier - Portfolio of US, European, APAC CRE

Despite headlines suggesting divestment from US CRE, Nobel Prize-winning economist Harry Markowitz's Modern Portfolio Theory (MPT) argues that a diversified global real estate portfolio should still have over 50% exposure to US real estate due to its risk-adjusted returns and low correlation with other regions.

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