Kushner Calls Fortress to Help Fund Hostile Takeover for Rival Veris

Investment giant Fortress is ‘prepared to finance the debt and equity’ in unsolicited $4.3bn bid to buy rival apartment building owner Veris Residential.

Kushner Calls Fortress to Help Fund Hostile Takeover for Rival Veris

Investment giant Fortress is ‘prepared to finance the debt and equity’ in unsolicited $4.3bn bid to buy rival apartment building owner Veris Residential.

Good morning. In today’s email: Faced with worsening shortages and “too damn high” rents, multifamily sales volume fell to $74.1B by the end of Q3. Restrictive zoning rules and high taxes have discouraged landowners from developing. Online sports betting has taken the nation by storm, brick-and-mortar bookies could be next. Meanwhile, Fortress is backing Kushner to buy Veris. 

Editor's note: The CRE Daily team will be off Friday, spending time with friends and family. Have a great holiday and be safe—we'll see you again Tuesday! 

🎧 Podcast of the Day: Madison Realty Capital’s co-founder Josh Zegen shares his lending strategy on a brand new episode of TRD’s weekly podcast, “Deconstruct.” Learn why he’s scooping up debt when others are shying away from it.

NET NEGATIVE

Q3 Brings Net Negative Absorption for Multifamily

Since 2021, rising mortgage rates and a nationwide housing shortage have shot rental demand straight to the moon. But in a surprising twist, recent data suggests that multifamily demand is flagging

What goes up must come down: There was a 400,000-unit housing shortfall last year that hiked rents by 13.5%, or 1,070 basis points above the long-term average. That pent-up demand remained strong throughout Q3, which saw historically high apartment leasing levels. Yet quarterly absorption revealed a net negative demand of 82,035 units.  

This is why you pace yourself: According to a Newmark report, rental demand is lagging. Quarter-over-quarter vacancies are up by 90 basis points, multifamily loan applications have fallen significantly since May, and multifamily sales volume slid 17.2% to just $74.1B by the end of the quarter.

THE TAKEAWAY

Numbers don’t lie, right? Some observers speculate that renters are tired of eye-popping renewal rates and constant relocations. Many would-be renters are choosing to live with friends and family instead. Or perhaps what’s happening now is just a statistical anomaly. Newmark noted that compared to the first three quarters of 2021, the third quarter of 2022 actually enjoyed 25% higher sales volume.

THIS LAND IS MY LAND

High Property Taxes Discourage Development And Worsen Housing Shortage

Restrictive zoning rules and high taxes have discouraged landowners from developing, worsening the housing shortage in America’s biggest cities

Vacant land for all! Cities across the country are littered with vacant lots waiting to be developed. Take New York for an example. The city has 77K vacant lots or buildings that are less than half the size of what zoning allows for residential use. According to Altus Group, if the lot owners decided to develop housing on these sites, they could add around 858 MSF of new housing, roughly the size of 306 Empire State Buildings. 

Time for an update: Economists and housing advocates agree that the problem lies with an outdated property tax system, which has led to lower taxes on land and higher taxes on buildings. The initial logic behind these laws was that profitable building owners would be better able to pay higher taxes. But the net result is that landowners are not incentivized to build buildings during economic downturns.

THE TAKEAWAY

Proposals for tax reform: Lawmakers in Detroit and Philadelphia are proposing much-needed changes to the way property taxes are calculated. Under Detroit’s split-rate tax proposal, each property’s appraised value would be divided between land and building. “There can be no doubt that if you shift the tax off of buildings and onto land, you will encourage buildings and discourage land speculation,” said Nicolaus Tideman, a professor of economics at Virginia Tech.

MONEYLINE

Washington DC Paves The Way For Stadium Sports Bookies Near You

A sportsbook could be coming to a stadium near you as cities around the country begin to follow in DC’s footsteps to open up brick-and-mortar sportsbooks right inside local arenas. 

Gaming made simple: As of November, 34 states have already legalized sports betting. Naturally, collaborations between teams and gambling organizations present new opportunities for retail space inside arenas. DC also opened the nation’s first in-stadium sportsbook in the Capital One Arena back in May 2021, partnering with Caesar’s (CZR) subsidiary William Hill. 

By the books: According to Legal Sports Report, sportsbooks have generated $6B and more than $700M in tax revenue since the Supreme Court struck down the federal ban on sports betting in 2018. Newly constructed stadiums, like the one in development for the Chicago Bears, are taking advantage of every betting opportunity. Chicago has plans for a new $5B home field and a zoning change that will include sports betting. 

THE TAKEAWAY

Stiff competition online: While the potential profits are nothing short of eye-popping, brick-and-mortar sportsbooks may still have their hands full. Government “geofencing” regulations prohibit sports betting from taking place a certain distance away from sportsbooks. This means online sportsbooks, like DraftKings (DKNG) and FanDuel—which make up more than 80% of all betting—will still have a huge advantage.

HOSTILE TAKEOVER

Fortress to Help Fund Kushner Takeover Bid of Rival Property Owner Veris

Fortress Investment Group has agreed to back Kushner Cos.' unsolicited $4.3bn bid to buy rival apartment building owner Veris Residential (VRE) according to a letter obtained by the WSJ.

What happened: Last month, Jared Kushner‘s family real-estate company made an unsolicited offer to pay $16 a share for Veris. Kushner said if a deal could not be reached it would agree to manage the company’s real-estate portfolio, in place of a takeover. Either transaction would add about 7,700 units to Kushner’s portfolio of approx. 21,000 apartments in 14 states.

From the horse's mouth: “We are fully aligned with Kushner on this transaction,” according to the letter, which was signed by Constantine Dakolias, the chief investment officer of Fortress Credit Funds.

THE TAKEAWAY

No more excuses: Earlier this month, Veris’s board rejected both proposals from Kushner saying the takeover bid “grossly” undervalued the company and would need to include “explicitly committed equity and debt financing.” With Fortress now prepared to finance the deal, it could remove one of Veris’s main objections. But financing wasn't the only hurdle. The Veris board rejected Kushner’s management proposal partly because Kushner owns property that competes with Veris “creating inherent conflicts of interest,” the letter said. 

📰 Editors' Picks

  • The energy crisis: The soaring cost of energy worldwide, due in part by Russia’s invasion of Ukraine, has greatly impacted real estate values and occupancy rates.

  • Identify yourself: FinCEN will now require title insurance companies to identify individuals who make all-cash real estate purchases above $300K. 

  • Synagogue sues: NYC’s Garment Center Congregation has filed a lawsuit against Sharif El-Gamal over lost sacred space at Times Square Margaritaville.

  • The holiday shopping spirit: While shoppers look for ways to make the holidays festive, inflation is weighing on the season's spirit, but that won't stop them from spending.

  • Downsizing; KKR once eyed 300K SF of office space at Tishman Speyer’s tower. Now they are bailing as the sector continues to be shaped by remote work.

  • Silicon Valley exodus: According to San Francisco’s Chief Economist, the city could stand to lose up to $200M in property tax revenue by 2028 from high office vacancy rates.

🤝 Deals & Dealmakers

  • New REIT on the block: The J.P. Morgan Real Estate Income Trust, the country’s newest nontraded REIT, has acquired two multifamily properties in Houston.

  • Casino bid: Thor Equities became the fourth New York developer to throw his hat in the gambling ring by declaring Tuesday he wants to bring a casino to Coney Island.

  • Bezos gives back to the kids: The founder of (AMZN) just closed a deal to develop a mixed-use affordable housing project that will include one of Bezos’s preschools.

  • Yet another Miami tower: Bank OZK is set to lend $81M to a joint venture with plans to develop a luxury condo high-rise in downtown Miami. 

  • Bye bye, Denver: Online financial services and brokerage company Robinhood (HOOD) tabled its plans for a Denver office and decided to put it up for sublease instead. 

  • Nuclear family fund: FD Stonewater, a real estate firm based out of Arlington, Virginia, has launched a $1.3B fund that will target single-tenant real estate.

  • Loan of the day: After supplying the floating-rate loan, Invesco Real Estate has secured a $67.5M debt package to refinance an apartment community in Houston.

  • Healthy healthcare play: Gantry has arranged $180M to develop a 250 KSF Veterans Affairs medical office building in Garner, North Carolina. 

📚 Learning corner: More investors are recognizing the attractive risk-adjusted returns that preferred equity offers in the current market. Today we explore the risks and rewards. (Read more)

🤝 Advertise with CRE Daily: ~70,000 real estate professionals wake up to CRE Daily every morning. We will officially begin rolling out branded partnerships next month. If this aligns with your marketing goals, let's have a conversation. (Partner With Us)

📈 CHART OF THE DAY

Slowdown Comes Amid Rising Interest Rates as Market Struggles to Recover

💼 JOB BOARD

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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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