Rocket Mortgage Heads Back to Earth as Rates Rise, Refis Dry Up
The Fed’s nonstop rate hikes are making mortgage rates so unappealing that the biggest mortgage lender in the U.S. is down 52% this year. The second-largest cinema operator in the world catches a huge break after settling a billion-dollar debt with landlords and lenders. Meanwhile, NYC real estate investment sales dropped 30% in Q3, impacting every asset class—except for one, which saw 34% growth.
Good morning. In today’s email: The Fed’s nonstop rate hikes are making mortgage rates so unappealing that the biggest mortgage lender in the U.S. is down 52% this year. The second-largest cinema operator in the world catches a huge break after settling a billion-dollar debt with landlords and lenders. Meanwhile, NYC real estate investment sales dropped 30% in Q3, impacting every asset class—except for one, which saw 34% growth.
🎧 Podcast of the Day: In this episode, MWPVL founder and President Marc Wulfraat, a logistics consultant who tracks Amazon's industrial footprint, discusses the impact the company's moves have had on the broader industrial market and what the landscape looks like amid wider economic uncertainty. (Bisnow Reports)
HOUSTON, WE HAVE A PROBLEM
Mortgage Giant Rocket Plunges Back to Earth, Hit by Rising Rates and Less Demand for Refis
U.S. mortgage rates soared above 7% as the Federal Reserve continues fighting inflation. Meanwhile, Rocket Mortgage (RKT), America’s largest home lender, saw share prices crater 52% this year.
“Pushing rocks up a hill”: During the mortgage boom last year, Rocket Mortgage accounted for more than double the refinancing volume of its competitors. In fact, 82% of Rocket Mortgage’s total dollar volume came from mortgage refinances. Today, at 7%+ interest, only 133,000 American homeowners would be able to save by refinancing, compared to 19 million back in 2020.
Strained workforce: The biggest concern for Rocket Mortgage is cutting back on costs given its sizeable workforce. Companies like Guaranty Mortgage Corp. (GNTY) already cut 80% of their workforce and filed for bankruptcy in H1 2022. So far, Rocket hasn’t been forced to lay off employees, opting instead to shrink ranks through buyouts and attrition.
Cash-out refis, new products: To adjust to the challenging market, Rocket Mortgage is pivoting to focus on selling more mortgages on new purchases. The company is also pitching cash-out refinancing packages to customers to pull cash out of their homes. In 2021, only 54% of refis were used to pull cash out of homes, compared to this 96% in August 2022.
Cineworld Approved to Tap $1 Billion Fund After Settling With Landlords, Lenders
Cineworld Group (CINE.L), the parent company of Regal Cinemas, was granted $1B in funds by a U.S. bankruptcy judge after settling with landlords and lenders.
Very nice timing: One hour before a triggered interest accrual on the debt would have kicked in, U.S. Bankruptcy Judge Marvin Isgur signed an order that requires Cineworld to make a $1B debt repayment to landlords and creditors. Cineworld can also borrow an additional $150M and may owe us as much as $5B in total to all its creditors.
A “reasonable result”: Less than two months before the order was given, Cineworld had filed for bankruptcy protection due to the $1B debt, which was only approved up to $785M. The bankruptcy judge deferred judgment on the debt after creditors dropped their demands when Cineworld agreed to pay them $20M in back rent instead. The judge told Cineworld it needed to restructure its business, which operates 747 locations and 9,139 movie screens across 10 countries.
Buying more time to sell: Cineworld has agreed to allow creditors to oversee its proposed business plan moving forward as part of the agreement. The company is also exploring a potential sale of the entire business. “We are still moving expeditiously and could sell if a transaction exists,” said Christopher Marcus, partner at Kirkland & Ellis, the firm representing Cineworld.
NYC Investment Sales Plummeted in Q3
Soaring interest rates have finally taken hold in New York City as real estate investment sales fell 30% in the third quarter. But hey, it’s still better than last year’s numbers.
Down but not out: According to Ariel Property Advisors, 568 deals worth $7.86B in commercial properties were traded around the Big Apple in the third quarter, 30% less than in Q2. However, this year’s Q3 performance marked a YoY improvement. In Q3 2021, NYC saw just 557 transactions worth $6.26B.
No asset is safe: Late summer’s dropoff was felt in every asset class, from multifamily properties to industrial developments. As many as 366 multifamily trades added up to $3.63B in volume, also down 30% from $5.15B in Q2. Industrial properties suffered the steepest decline, plummeting 72% from $1.22B in Q2 to just $335.5M in Q3.
A tale of two office markets: The only asset class that saw dollar volume increase in Q3 were offices, which rose 34% from $1.59B in Q2 to $2.13B, up nearly 400% from Q3 2021. The marked increase is largely due to SL Green Realty’s (SLG) $1.8B acquisition of 245 Park Avenue in September. Investors continue to pay premiums for well-located, Class A Manhattan office buildings, while Class B and C buildings aren’t seeing the same degree of enthusiasm.
📰 Editors' Picks
Juul tower, anyone? Juul Labs has relisted its San Francisco office tower for the second time since 2020 for $174M, less than half of what the company paid for it in 2019.
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📈 CHART OF THE DAY
💼 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.