GM. It looks like the Manhattan apartment market is still feeling the effects of the pandemic. According to a report from Douglas Elliman and Miller Samuel, sales in Q4 2022 saw a whopping 31% drop. This marks the largest decline since the dark days of Q3 2020.

In today's email: NYC will start accepting $500M bids for its first three casinos and, of course, everyone wants in. Chicago has unveiled a three-year plan to boost its economy and lure businesses back to the Windy City, but is it enough? Meanwhile, smaller banks are getting more business from real estate developers as they keep filling the gaping hole left by larger banks—but for how long?

🎧 Podcast of the Day: On Leading Voices in Real Estate, Michael Van Konynenburg and Chris Hartung discuss the effects of the economic downturn on public/private commercial real estate and REIT portfolios. They also offer strategies for moving forward.

NYC Begins Casino Bidding Madness—Starting at $500M

On Tuesday, the New York Gaming Facility Board (NYGFB) shook up the world by announcing that it will now receive applications for the first-ever NYC casinos. The minimum bid requires a $500M capital investment and a $500M licensing fee.

License to deal: The $500M application fee might seem steep, but it shows that New York is making an effort to stimulate its economy after enduring 2+ years of pandemic difficulties. The NYGFB will award licenses that last between 10–30 years, depending on the quality of the bid. The due date for the first round of hopefuls is Feb. 3, but no official deadline has been set for the entire application process.

The race begins: Even if you don’t care about gambling, you know this is a huge deal. Everyone in the gaming industry with a pulse will be competing to own one of the Big Apple’s first three casinos. Thor Equities, for example, plans to propose a Coney Island-based casino. Meanwhile, Related, partnering with Wynn Resorts (WYNN), plans to pitch a casino near its Hudson Yards megaproject. And SL Green (SLG), partnering with Caesars Entertainment (CZR) and Jay-Z, will bid for a Times Square casino.

➥ THE TAKEAWAY

Rules of the game: NY has outlined the criteria for evaluating bids for casino licenses. Up to 70% of their decision will be based on an applicant's economic and business metrics, such as projected revenue for the state and city, capital investment, and job growth. Up to 10% will be based on "local impact sitting," and the applicant's workforce development plans will determine another 10%. The final 10% will be based on current and proposed diversity initiatives. The length of the initial casino licenses will range from 10 to 30 years, depending on the investment of the winning bidder.

ALL ARE WELCOME

Chicago Wants to Bring New Employers to The Windy City

Mayor Lori Lightfoot and Cook County Board President Toni Preckwinkle announced a three-year plan that will commit $1M in 2023 to boost Chicago’s economic competitiveness and drive businesses back to the city. Yes, we agree that’s not nearly enough—but it’s a start.

Last year’s exodus: Chicago’s three-year plan comes as a response to the recent departure of major corporations including Citadel, Boeing (BA), and Caterpillar (CAT). The exodus of these large corporations took a toll on Chicago’s economy. Like other major cities in the US, Chicago is also grappling with rising crime rates, which makes it far more difficult to lure business to the city.

Fishing for companies: Despite Chicago’s shortcomings, 159 companies still relocated or moved to the Windy City last year. Mayor Lightfoot’s plan will target 150 company expansions or relocations over the next three years. The plan will also expand World Business Chicago’s innovation and venture programming by hosting 20% of the area’s events outside the city, helping to put an end to competition in the region.

Planning for success: Chicago wants to attract “good paying” jobs in manufacturing, life sciences, and food & agriculture. Mayor Lightfoot touted the success of 4Front Ventures when they announced the construction of a 550 KSF cannabis cultivation center in Cook County, which will create over 500 new jobs. However, Chicago faces stiff competition from Southern cities like Miami, Dallas, and Austin, and even neighboring states like Wisconsin and Indiana.

➥ THE TAKEAWAY

Mind the gap: By Q3 2022, publicly traded REITs had lost 28.2% of their value while private ones posted overall returns of 13.1% (that’s a 41.3% gap). The fact that private REITs have unique purchase and redemption policies that limit withdrawals helped prop up their values during this period while investors in public REITs sold lots of shares.

DEBT GRAB

Smaller Banks Want More CRE Loans on Their Balance Sheets

As banking giants like JPMorgan Chase (JPM), Bank of America (BAC), and Wells Fargo (WFC) retreat from the CRE lending market, smaller banks are grabbing a bigger piece of the pie…at least for now.

The little guys stepped up: Historic interest rate hikes crushed the CRE debt market last year, causing large banks to step away from the market. Fortunately, brave (and desperate) regional and community banks with assets between $10–$100B are stepping in to fill the void. But if the Fed keeps raising rates, smaller banks could start getting squeamish, too.

The big boys backed off: Nationally, banks made up 46.4% of all nonagency commercial and multifamily lending in the US last year, and most of them were community and regional banks. The volatile interest rate environment essentially “shut down” lending activity among major money centers. Overall CRE loan originations dropped 11% from Q2 to Q3 2022 and 4.7% on a YoY basis.

➥ THE TAKEAWAY

Eager beavers: Part of the reason why smaller banks are so eager for loans bigger banks don’t want right now is because regional and community banks receive less scrutiny from regulators. Of course, there are still limits to the size of loans smaller banks can take on, usually within the $40–$60M range. But unless the Fed stops its interest rate hikes, smaller banks will have no choice but to pull out, too.

• Maverick’s bag of tricks: Take a look inside New York’s scrappiest distressed real estate firm’s endless bag of tricks—one that just keeps getting more surprising.

• Super in the red: After two years of unprecedented highs, money supply growth in the US has turned negative for the first time in 28 years. Yeah…not great.

• Someone’s gotta go: Compass Inc. (COMP) has implemented “further workforce reduction” in its third round of job cuts to survive the sluggish market and high borrowing costs.

• The Bond King: Bill Gross, world-renowned investor and former head of the world’s largest bond fund, first learned his skills while counting cards in Vegas.

• HQ for sale: Gap Inc. (GPS) plans to sell its Athleta HQ office space in San Fransisco to kick off 2023. With all those car jackings, who can blame them?

• Buyer’s market: Since the market’s sudden downturn, home sellers provided concessions to buyers in nearly 42% of Q4’s home purchases.

• Student housing boom: Despite market uncertainty and ongoing volatility, students are renting at a much faster pace and paying higher rent than they ever have.

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• The Berkley project: Spur Capital Partners is seeking to build an eight-building, 900 KSF life sciences development in Berkley, California.

• Data center employees need housing, too: Timber Ridge, a 147-unit townhouse complex in Nothern Virginia, sold at an above-average price for $34.25M.

• The new Havana? Orion Real Estate Group and Limestone Asset Management jointly purchased Colonial Palms Plaza, a 188 KSF retail center in Miami for $70.5M.

• Biggest lease of the year: Fox Corporation (FOX) and sister company News Corp (NWS) extended their leases for a combined 1.1 MSF until 2042.

• That won’t stop us: Related Group secured a $164M construction loan for a rental development in Miami’s Brickell neighborhood despite discovering prehistoric artifacts and human remains on the adjacent site.

• Recession-proof properties: Remedy Medical Properties and Kayne Anderson Real Estate purchased a multi-state 13-property medical office portfolio for $131M.

There are a growing number of negative bets being placed on certain publicly traded real estate firms.

😎 Offering-MEME-Orandum

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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.