Walgreens Snatches CityMD (And The East Coast) For $8.9B
Commercial property prices are taking double-digit hits as the Fed continues to battle 40-year high inflation. Insurers are locked in negotiations with reinsurers who want to raise their rates ahead of climate change concerns and increasing natural disasters across the globe. Meanwhile, the second-largest pharmacy store chain in the country makes a major commercial real estate play with an $8.9B acquisition.
Walgreens Snatches CityMD (And The East Coast) For $8.9B
Correction: The subject line in today's email was incorrect. Walgreens Boots Alliance is leading the acquisition, not Walmart.
Good morning. in today's email: Commercial property prices are taking double-digit hits as the Fed continues to battle 40-year high inflation. Insurers are locked in negotiations with reinsurers who want to raise their rates ahead of climate change concerns and increasing natural disasters across the globe. Meanwhile, the second-largest pharmacy store chain in the country makes a major commercial real estate play with an $8.9B acquisition.
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DOWN GOES CRE
CRE Prices Plummet 13%, Dragged Down by Soaring Interest Rates
According to the Green Street Commercial Property Price Index, commercial property prices tanked 13% from their peak in May, taking a 7.3% hit in October.
Taking hits on the chin: Multiple CRE sectors are suffering double-digit losses, including apartments, offices, healthcare facilities, and strip malls. Industrial properties fell by 17%, second only to shopping malls, which are down 24%.
Still dodging and weaving: A few sectors have proven more resilient than others amid the price declines. Hospitality is staying strong, only experiencing a 6% price drop since the sector’s peak in May 2022. Self-storage is in the same boat, with prices down 6% as well.
The ongoing war against inflation: Last week, the Fed hiked the key federal funds rate by 75 basis points to battle 40-year high inflation. It was the sixth rate increase this year, and it raised short-term borrowing rates to their highest levels since the Great Recession. “As large as the decline in pricing has been, I don’t think we’re out of the woods,” said Peter Rothemund, co-head of strategic research at Green Street.
Insurers Could Face Steep Reinsurance Rate Hikes up to 30%
Another storm may be on the horizon before the end of the hurricane season as insurers enter negotiations with reinsurers, who are trying to raise their rates by 10% to 30%.
Why raise the rates? Almost two-thirds of US property-catastrophe coverage renews on January 1st of next year, sparking a new round of negotiations between insurers and reinsurers. Reinsurers want to raise their rates to make up for growing losses from natural disasters like Hurricane Ian, which is estimated to cost insurers upwards of $70B.
Reinsurers to the rescue: Large national insurance carriers, including Florida-specific ones, rely on global reinsurers like Munich Re, Swiss Re (SREN), and Berkshire Hathaway Inc. (BRK.B) to shoulder some of the risks in the policies they sell. For example, home insurer Allstate Corp. (ALL) suffered $671M in gross losses from Hurricane Ian, but reinsurance decreased the loss to $305M.
The perfect storm: Allstate CEO Thomas Wilson said that the rate increases being sought by reinsurers stem from recent catastrophe losses, concerns about climate change, and the dollar’s recent strength against foreign currencies. Rising interest rates are also hurting reinsurers, which operate on a global scale. From Hurricane Ian to severe heat waves in Europe, reinsurers have had a tough 2022.
Walgreens’ $8.9B VillageMD Deal for CityMD to Further Shift America’s Healthcare Real Estate
As more pharmacies seek to expand into commercial real estate, Walgreens’ (WBA) VillageMD acquired Summit Health, the parent company of the urgent-care chain CityMD, for $8.9B.
Coast-to-coast: Together, VillageMD and Summit Health would own and operate 680 locations in 26 different regional markets, from Oregon to the Northeast. CityMD currently has 370 urgent care sites in New York, New Jersey, Connecticut, Pennsylvania, and Oregon. Walgreens will have a controlling stake in VillageMD, alongside a subsidiary of the health insurer Cigna (CI).
An old playbook: Walgreens isn’t the only healthcare company interested in expanding its portfolio of services and real estate through M&A. In September, CVS Health (CVS) announced its deal to acquire Signify Healthcare (SGFY) for $8B. And Amazon (AMZN) reported that it was purchasing 1Lifecare Health (ONEM) for $4B earlier this summer.
Win-win scenario: Walgreens will remain the largest shareholder of VillageMD with 53% ownership. Neil Saunders, managing director at GlobalData, believes that the deal makes sense for both the buyer and seller. Walgreens helps Summit Health reduce its costs, while Summit Health helps VillageMD expand into the East Coast.
📰 Editors' Picks
Fortune eviscerated: Just weeks ago, FTX co-founder Sam Bankman-Fried was considered crypto’s version of John Pierpont Morgan. Now, the future of his wealth is in jeopardy.
🤝 Deals & Dealmakers
📈 CHART OF THE DAY
We’re likely to see more headlines about increasing eviction filings (which are a lose/lose), but be careful how we interpret this.
A few thoughts:
1) Most filings likely reflect long-standing cases from the backlog after (in some cases) 2+ years of eviction bans.
— Jay Parsons (@jayparsons)
Nov 8, 2022
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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.