Good morning. Downtown Miami’s largest chunk of undeveloped waterfront just sold for $1.2 billion. Meanwhile, an office tower in San Francisco could potentially be sold for 80% less than its value in 2019.

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Genting's Miami Waterfront Lot Snapped Up by Terra-Led Group for $1.2B

A joint venture led by David Martin's Terra plans to purchase a 15.5-acre waterfront site near Downtown Miami for $1.23B, marking one of the country's priciest land deals ever.

Parcel potential: The 15.5-acre waterfront site between the MacArthur and Venetian causeways offers 800 linear feet of direct frontage on Biscayne Bay. The parcel's size and location could transform the Miami waterfront entirely, depending on what the acquiring JV does with it.

Seller profile: Genting Group, a Malaysian casino operator, purchased the land in 2011 for just $235M (meaning they’re about to pocket a 523% gain). The company demolished the Miami Herald newspaper's headquarters on the site to build a $3B casino complex, which never came to fruition. Five bids over $1B were placed on the land when it went up for sale last year.

Buying up Miami: Terra is keeping itself busy in South Beach. Aside from the headline-making land grab, they’re also negotiating to buy out a Miami Beach oceanfront condominium for $500M and are developing a condo in Edgewater with hospitality behemoth Major Food Group (MFG). Terra already has more than 5 MSF of residential and CRE valued at over $8B.

➥ THE TAKEAWAY

Still a hot market: Terra's JV acquisition of the Miami waterfront site could be one of the largest land acquisitions in history. And South Beach still shows no signs of cooling off. Despite Genting’s steep asking price of at least $1B, the coveted land listing triggered a bidding war that saw the seller secure a significantly higher sales price in just 5 months flat.

Office Tower Worth $300M in SF Financial District Could Sell for a Mere 20% of Its Value

Due to work-from-home era trends, the San Francisco office market has been severely impacted, with an office tower located on California Street, potentially selling for 80% less than its pre-pandemic valuation.

Setting the scene: San Francisco's California Street, which houses some of the world's most valuable commercial real estate, has been hit hard by the pandemic. Now, a 22-story glass and stone tower at 350 California Street, worth around $300 million in 2019, is up for sale with expected bids of only about $60 million, marking an 80% decline in value in just four years.

Massive overcapacity: About 30% of San Francisco's office space is vacant, up from less than 4% before the pandemic. This lack of workers has led to a ripple effect on businesses, with reduced foot traffic, particularly for smaller businesses. Many office owners also struggle to fill space as tenants opt for hybrid work.

Financial strains: About $80B worth of office loans come due this year, forcing many owners to refinance at lower occupancy rates but with higher interest rates, not to mention threatening losses for lenders. Wells Fargo noted that the amount of nonaccrual loans on their balance sheet has shot up to $725M in 1Q23, up from $186M in 4Q22.

Unique challenges: Unfilled office space is the biggest challenge in today's post-pandemic market, as the potential to raise rents is no longer there. The tower at 350 California Street is around 75% vacant due to the recent departure of major tenant Union Bank. But the tower's vacancy isn't its only challenge. Potential buyers should expect to shell out an additional $50M in renovations and updates to attract new tenants.

➥ THE TAKEAWAY

Uncertain future: The potential sale of the San Francisco office tower at such a deep discount may be a wake-up call to other office markets, particularly those centered around tech and finance. One thing is clear—even ‘trophy’ office owners could be in for a bumpy road ahead.

• Cost cutting: Meta (META) plans to spend $5B for restructuring, including real estate consolidation, as part of a "year of efficiency," per 1Q23 earnings call.

• REIT retreat: Top nontraded REITs added $49.4B in commercial property portfolios in 2022 H1, but no big purchases for 7+ months as redemptions mount.

• Nordic chill: Europe's heavily indebted property magnate, Ilija Batljan, highlights concerns that commercial real estate could be the next victim as the era of free money draws to a close.

• Fuel to the fire: Researchers predict that a generational housing bubble, fueled by millennials, will burst in the next decade as demand dwindles.

• More layoffs: Meridian Capital Group reportedly let go of around 5% of its workforce, including the senior managing director of public relations, due to the economic market despite efforts to avoid the cuts.

• Doubling down: Despite the belief that work from home would kill off amenity-rich office complexes, investors in New York City are increasing their offerings to attract tenants and revive the use of office spaces.

Brookfield Shares Are Slipping Amid Office Concerns