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Good morning. Public Storage has announced a hostile $11B bid for Life Storage after previous takeover attempts failed. Meanwhile, the 5-year forecast for the SFR market continues to look bright despite growing financial pressures. 

Shoutout to today's sponsor, Xeal Energy. Upgrade your property with their cutting-edge EV charging stations and give your tenants the ultimate charging experience.

📖 Read about how rising interest rates and decreased credit access have spiked bid-ask spreads across property types.

🖥️ Watch builder-developer Eric Brody discuss the ‘critical path’ for faster construction with The Real Deal on the latest episode of The Blueprint.

🎧 Listen to the FORT with Chris Powers as his next guest discusses navigating the '08 crisis and building a ground-up development company. 

HOSTILE TAKEOVER

Public Storage pressures rival Life Storage with $11B bid

Public Storage (PSA) has decided to approach shareholders directly after multiple unsuccessful attempts to secure a deal behind closed doors. They have made an $11B unsolicited offer to purchase Life Storage (LSI), as reported by the Wall Street Journal.

An offer they can’t refuse? Public Storage has a market value of $54.2 billion, while Life Storage is worth $9.4 billion. Public Storage's latest takeover bid values Life Storage at approximately $129 per share, which is a 20% increase from its stock price last Friday.

• If the deal is approved, Life Storage shareholders will receive 0.4192 shares of Public Storage for each share of Life Storage they own.

• The total value of the deal, including debt, is estimated to be $15 billion, making it one of the biggest corporate acquisitions of 2023.

Making the case for a monopoly: Public Storage claims that the takeover would help consolidate a highly fragmented sector. By the end of 2022, Public Storage owned nearly 10% of the US self-storage market’s square footage, making it the largest operator in the country. The top five businesses in the space own nearly 20% of all available space, while the other 80% is split between regional and local operators.

➥ THE TAKEAWAY 

The bottom line: Public Storage has made a public bid to acquire Life Storage, which is known as a "bear hug" strategy, hoping to pressure Life Storage shareholders to accept the offer. This tactic, although less common lately due to market uncertainty, is a conventional method in M&A. Life Storage previously rejected the offer, but will review the new proposal, which they believe is similar to the prior one.

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RESEARCH

Single-Family Rentals Show Resilience Amid Economic Challenges

The single-family rental sector is expected to perform well this year despite economic challenges, with favorable demographics and limited construction contributing to its success. However, rising operating costs may pose a concern for owners and developers.

Actually, the grass is greener on this side: According to Green Street analysts, strong demographics, affordable price points, and limited single-family supply all add up to an excellent 5-year forecast for SFR compared to other CRE asset classes.

Strong demographic trends: The 35 to 44-year-old population is expected to grow at a rate twice that of the overall US average, with above-average growth expected in the Sun Belt, which already has a large number of SFR communities and many more under development or in the planning stage.

Leading the way: SFR developments are most common in the South Atlantic region, led by Florida, Texas, and North Carolina, with nearly 45% of all properties securitized in CMBS located in the Southeast. Additionally, SFRs are considered to be resilient from a pricing perspective, with several factors supporting firm rents and values.

➥ THE TAKEAWAY 

Some road bumps, but not too many: This isn’t to say that SFR has it 100% made in the shade. Higher operating costs and capital expenditures are concerns for the sector. Cap-ex may increase due to aging homes and turnover. Political risks also pose a threat as regulation limits institutional home buying. Rent growth has slowed due to rising inventory, with Orlando and Miami leading in rental growth at 7.5% YoY. 

• WFH anxiety: When NYC office magnate Scott Rechler said he was going to give back the keys to some of his buildings, he set off a firestorm of speculation.

• “New” New York: Governor Hochul and Mayor Adam’s ‘Making New York Work For Everyone’ proposal has a ton of implications for CRE investors.

• City of Brotherly Defaults: Three of Philly’s most prominent office buildings, which add up to over 3 MSF, may be underwater on their loans.

• Got Debt? CRE investors are turning toward real estate debt as 2023’s top alternative investment class, according to a recent CBRE survey.

• REIT rap sheet: The Hoya Capital Office REIT Index tracks 23 of the nation’s biggest REITs, and several of them are in trouble, including two of the biggest REITs in NYC.

• Royally screwed: Coworking company Regus officially owes Vornado Realty Trust $90M over a 15-year lease for 78 KSF of San Francisco office space that it never occupied.

• Who doesn’t like bread? Everyone’s favorite bread bowl destination, Panera Bread, is testing the waters for an IPO as post-pandemic dining demand keeps recovering.

• Build me an HQ worthy of Prime: Amazon’s (AMZN) futuristic-looking ‘Helix’ HQ2 in Virginia is set to open this year, despite Big Tech laying off swathes of employees.

• Hotel-eat-hotel world: As new hotel construction slows, big hotel companies are doubling down on their efforts to ‘recruit’ properties from competing brands.

💼 Talent Collective

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🤝 Deals & Dealmakers

• Well played: Back in September, GIC and Oak Street planned to acquire the STORE Capital REIT for $14B. The deal just closed last Friday for $15B instead.

• Deal of the day: The Diplomat Beach Resort in Hollywood, FL, was bought by a JV between Credit Suisse and Trinity Fund Advisors for $835M.

• Loan of the day: After waiting out a rezoning debacle, Joy Construction and Maddd Equities land $414M in construction financing for their 611-unit apartment development in Inwood.

• In the name of science: Private CRE investors are gravitating to life science projects this year, with San Francisco, San Diego, and Boston making up 66% of all disclosed funding.

• Better than broke: A shuttered East Side Marriott in NYC just sold for $153.4M, slightly more than half the $270M the seller paid for it back in 2015.

• Not half bad: IRA Capital offloaded 157 KSF Poinsettia Plaza in Ventura, CA, for $66M after buying it for $50M in 2016. The deal was brokered by Newmark.

• Long live Playstation: Not to be outdone by Microsoft, Sony just inked a lease for 225 KSF on LA’s Miracle Mile with Onni Group.

• Another conversion: In yet another sign of the times, Extell Development plans to convert a 415 KSF East Harlem office building into 543 apartments instead.

📈 Chart of the Day

After the biggest rent spike in 10 years from December 2021 to January 2022, rents remained flat this time around.

😎 Offering-MEME-Orandum

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