NYC Office Buildings Face a $50B Wipeout

As the economic rollercoaster continues, NY office properties could be facing a steep $50B wipeout in value. Richmond and Minneapolis are now prime locations for medical office buildings. An old Koreatown retail center in LA just sold for a record-breaking figure. Meanwhile, Prologis has completed its all-stock acquisition of Duke Realty Corporation worth $23B. Let’s dive in!

NYC Office Buildings Face a $50B Wipeout

As the economic rollercoaster continues, NY office properties could be facing a steep $50B wipeout in value. Richmond and Minneapolis are now prime locations for medical office buildings. An old Koreatown retail center in LA just sold for a record-breaking figure. Meanwhile, Prologis has completed its all-stock acquisition of Duke Realty Corporation worth $23B. Let's dive in!

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In today’s email: As the economic rollercoaster continues, NY office properties could be facing a steep $50B wipeout in value. Richmond and Minneapolis are now prime locations for medical office buildings.. An old Koreatown retail center in LA just sold for a record-breaking figure. Meanwhile, Prologis has completed its all-stock acquisition of Duke Realty Corporation worth $23B. Let's dive in! 

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OFFICE ICE AGE

New York Office Buildings Are Facing a Potential $50B Wipeout of Value Thanks to Remote Work

A revised estimate of the declining value of commercial office space in New York suggests that the city could see $50 billion in value destruction because of the post pandemic work-from-home trend, and as much as $453 billion in such losses nationally.

Sharp losses: In a working paper from the National Bureau of Economic Research titled “Work From Home and the Office Real Estate Apocalypse,” researchers predict that over the next 10 years office buildings in the city will see a 39.18 percent drop in value compared to where they were in 2019 before the pandemic.

Worse than expected: The projected decline is even steeper than the 28% drop in value researchers had predicted when they first posted their paper on the Social Science Research Network at the end of May.

THE TAKEAWAY

Zoom out: A 40% decline in the value of office buildings in the city would cause a corresponding decline in the city’s tax revenue. Because New York City is required to balance its budget, the city would need to either reduce spending or raise taxes to make up the difference.

TWIN PEAKS

Richmond, Minneapolis Area Medical Offices Are Golden

According to JLL, outpatient volumes in Richmond and Minneapolis, MN, are expected to grow by 28% and 33% over the next decade, making the “Twin Cities” a goldmine for medical offices.

We’re all getting older: These outpatient volume growth rates greatly exceed the national average of 21% and could be due to aging populations. According to a new report from 42Floors.com, “Lower-tier markets with aging populations saw some of the most growth in the past 10 years.”

Move over, LA: The Minneapolis-St. Paul medical office market grew 24% since 2012 and added 3 million SF, about as much as LA did during the same timeframe. Other secondary and tertiary markets, like Boulder, CO, and Phoenix, AZ,

THE TAKEAWAY

Why it matters: As much as we love telehealth, we still need to see our doctor in person for many checkups and treatments. And with the growing demand for orthopedic, gastroenterology, and ambulatory outpatient surgery centers and specialty care facilities, medical offices should remain a stable, slowly appreciating asset class (sort of like gold for CRE investors).

RETAIL

SoCal Koreatown Building Sells For Record $91M

LA-based INI Investment Corp. just shelled out a cool $91M for a Koreatown retail center built and owned by Korean Shopping Center Inc. since 1988.

Gangnam Style: The 140K SF Koreatown Plaza at Ninth Street and Western Avenue sold for $453 per SF, according to CoStar. Not only is that above the $436 per SF average in the area, but it’s also a record-breaking price for Koreatown retail centers sold in the last decade.

By the numbers: LA Koreatown’s 11M SF of retail space has a vacancy rate of 3.8%, well below the greater LA metro average of 5%, according to CoStar. The reason why might surprise you.

THE TAKEAWAY

According to CBRE, “This center has benefitted from its strong upscale tenant base that is relatively e-commerce resistant…” In other words, CRE investors have noticed that ethnic group-specific shopping centers have fared better against e-commerce competition than regular centers, and expect that they will continue to outperform.

Editors' Picks

  • Stingy strip club: A South Florida strip club’s operators are being sued by 11 dancers who allege they were paid less than minimum wage for years due to independent contractor classification and also had to pay illegal “house fees.”

  • Not all bad news: Despite NY’s office values lagging behind pre-pandemic levels, Manhattan office leasing has hit a pandemic high after posting its best quarter yet.

  • Take that, Ian: In what must be a miracle, Babcock Ranch, a 100% solar planned community just 12 miles from Fort Myers, never lost power despite being directly in the path of the category-5 storm. 

  • Crypto bros: After Gary Harmon stole 713 BTC from his arrested brother’s hard wallet as authorities watched helplessly, the govt. went on a blockchain odyssey to put him in jail, too. 

  • Got homes? Homebuilders eager to sell empty homes and build new ones are courting investors looking for bulk discounts. With mortgage rates at 15-year highs, what else can they do? 

  • End of an era: Billionaire Ray Dalio announced he will give up control of Bridgewater Associates, which he founded in 1975, to the next generation of leaders at the firm.

  • Hybrid work: Meta Platforms Inc. plans to shrink some of its offices as many of its employees continue to do their jobs from home.

Deals & Dealmakers

  • Deal of the day: Prologis (PLD) just acquired Duke Realty Corp. in an all-stock acquisition deal valued at $23B. It’s one of the largest real estate M&A deals in recent memory. 

  • Excellent ROI: Colonial Commons, a 410K SF shopping center in Harrisburg, PA, just traded hands for $66.5M. It was last sold in 2011 for $46.1M.

  • Florida on my mind: Real Floors, an FL-based flooring contractor, just signed a 5-year lease for 55K SF at an industrial building in Tampa, FL.

  • Oh, the irony: Chevron (CVX) just sold its 92-acre, 1.3M SF HQ in San Ramon for $175M to Sunset Development, the original owner of the property that sold it to Chevron back in the 1980s.

📈 Chart of the Day

😎 Meme Drop

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