Retail Rent Collections Surge To Near Pre-Pandemic Levels

 Retail rent collections reached 89.42% in April, a spike compared with 59.73% in April 2020 and a full percentage point increase from March, according to real estate data specialist Datex Property Solutions, Wealth Management reports.

That volume of retail rent collections is close to pre-pandemic levels. During January and February 2020, and even last March, collections hovered a bit above 90%. National chains paid 93.44% of their rent due in April 2021, while local and regional chains paid 85.07%, according to Datex.

"Nationals, by and large, are doing well," Datex Property Solutions CEO Mark Sigal told The Real Deal. "They obviously did better throughout the pandemic, for the most part, because they have more locations and certain markets were more open than others."

The surge in rent payments is especially pronounced among beauty and hair salons and fitness studios as these kinds of businesses enjoy post-vaccination booms. Home goods stores and drug stores are also doing well in terms of rent payments. Movie theaters and gyms, by contrast, still aren't paying a large proportion of their rents.

Movie theater chain Cinépolis paid 11.7% of its rent in April, down from 14.08% in March but up from zero in February, according to Datex. Regal Cinemas paid 16.96% of its rent in April, up from 13.14% in March.

Gym chain 24 Hour Fitness paid 64.99% of its rent in April, down slightly from 64.86% in March but up from 50.19% in February. Orangetheory Fitness paid 71.52% of its April rent, up from 63.25% in March.

Prospects for future rent payments depend on post-pandemic retail sales growth. Retail sales this summer are expected to be greater than in 2020, but by exactly how much isn't clear yet. The U.S. Census Bureau reports that in April, consumer spending, not including car sales, was down 0.8% compared with March, though up 40.6% compared with the pandemic-beset March 2020.

https://www.bisnow.com/national/news/retail/retail-rent-collections-surge-to-near-pre-pandemic-levels-109001

TF Cornerstone In Deal With New Health Startup for Carnegie Hall Tower

 Like many commercial real estate owners, TF Cornerstone decided to entice its office tenants back to work at Carnegie Hall Tower by bringing in a clinic that can do COVID-19 testing and vaccination—with a twist. The landlord inked a short-term lease with a new startup called Reside Health, which will offer primary care medical services and wellness consulting to building tenants in its first location.

The clinic will occupy 2,500 square feet on the sixth floor of the 60-story Carnegie Hall Tower, according to Jake Elghanayan, a principal at TFC. The Spector Group-designed space will include standard clinic rooms, but it will be designed with wood-paneled walls, rounded corners, an upholstered bench seat set into the wall, and a few midcentury modern furnishings and fixtures.

The look is doctor’s-office-meets-spa. It’s expected to open in September.

Besides typical primary and urgent care services, Reside will offer behavioral therapy, nutritional counseling and acupuncture. The firm will even advise companies in the building on how to make their spaces more COVID-resistant.

Elghanayan explained that employers can get access to Reside’s “premium” services—like acupuncture, therapy and wellness consulting—for a fixed monthly fee. Otherwise, the company will provide those primary care services. Reside accepts most major insurance, and also has a truck that pulls up outside the building to provide coronavirus testing.

The real estate exec didn’t want to elaborate on the exact details of TFC’s deal with Reside. However, Elghanayan did say that the firm “pays a percentage rent up to a cap, and it caps below market. It gives them flexibility to know they only owe occupancy costs [that are] variable with their business. They aren’t paying regular occupancy costs like a typical office tenant.”

Typical office asking rents in the Plaza District tower at 152 West 57th Street range from $65 to $120 a square foot.

Although TFC could have gone with a more established walk-in clinic operator or concierge medical service, Elghanayan felt that taking a chance on Reside was worth it. “There doesn’t seem to be anyone offering this combination of services, where you get easy access to a primary care doctor and wellness amenities in such an efficient box,” he explained.

He added that Reside was backed by AlleyCorp, a major venture capital firm in New York City with a track record of funding successful startups.

TFC has also undertaken other upgrades in the 550,000-square-foot building during the pandemic, including a new location for flex-space provider Industrious on the 41st floor with an outdoor deck and a conference center as well as a golf simulator on the sixth floor. The landlord also improved the property’s lobby and elevators. 

https://commercialobserver.com/2021/05/tf-cornerstone-inks-deal-with-new-health-startup-for-carnegie-hall-tower/

Half of Renters Say They Are Moving This Year

 Half of American renters are planning post-pandemic moves, building on a trend that began last year as COVID-19 and shifts to remote and flex work disrupted migration patterns. 

About 56% of renters say they’ll relocate in 2021, and 22% of those surveyed by multifamily property management software provider Entrata say they moved to a bigger apartment with more space last year. 

The top reasons for moving? Cost of rent, needing more space, desiring a change of pace, and of course, COVID. One-third of those who moved say the change is temporary, while 61% say it will last more than a year. 

Another 14% of Gen Z renters reported moving back in with their parents in 2020. But interestingly enough, 20% of Gen Z respondents moved from a rural or suburban area into a larger city like Houston or New York, which saw respective rent decreases of 9.3% and 6.6% from 2019 to 2020.

Those planning to move to urban areas cited lifestyle conveniences, better job opportunities, and walkability as the top factors influencing their decision, while those planning a suburban or rural move say they want more space for less money.

“2020 was a life changing year for people, industries and businesses across the globe,” said Chase Harrington, Entrata’s president and chief operating officer. “Our survey of US renters shows that many moved to larger spaces to accommodate work from home needs, moved back to hometowns and some even moved to the city to take advantage of lower rental rates. We’re seeing a shift in the industry as renters look for more flexible leasing options and think differently about apartment amenities.” 

The economic uncertainty wrought by the pandemic also led nearly half of renters to switch to month to month payments. Of those, 34% say the pandemic increased their rent.

COVID also impacted amenities: according to renters Entrata surveyed, 61% of on-site amenities have closed or are now strictly regulated—but only 14% of renters say their rent has decreased because of those restrictions. The vast majority think that their rent should have dropped as a result. 

The findings underscore the rapidly growing gap between the cost of renting and owning a home. The cost of homeownership has increased dramatically in both gateway cities and secondary markets, and 39% of those surveyed by Entrata say they can’t afford a down payment. The firm notes that the desire of many workers to continue working from home could further add to the housing crunch: “as many as 66% of renters say that renting fits their current lifestyle more than owning a home, while 33% say that the COVID-19 pandemic has made them motivated to buy a home and stop renting,” the report notes.  

This trend has fueled the rapid growth of the SFR market in particular, as renters looking for more space turn to build-to-rent communities.

https://www.globest.com/2021/05/24/half-of-renters-say-they-are-moving-this-year/

Homebuilder Comments in Mid-May: ;Reducing Sales, Limiting Sales'

 Some twitter comments from Rick Palacios Jr., Director of Research at John Burns Real Estate Consulting

Here's May mid-month home builder channel check I hinted at earlier. Builders are pushing prices w/little pushback, though some starting. Some builders are using price escalators & highest/best offer. Many limiting pre-sales, shifting to spec, & pricing home later in build cycle.

#Dallas builder: “Not selling build jobs in May, starting specs only, and not selling until drywall. Costs are too out of control for us to take the inflation risk on build jobs. So sales are way down.”

#SanAntonio builder: “Only selling specs at Sheetrock stage. Last month, it was frame stage.”

#Austin builder: “Stopped sales until we pour a foundation. Lumber too erratic to sell prior. I know others have gone to a bid process. I have heard all parties, including that people who win the bid, feel like they have lost.”

#LasVegas builder: “Reducing sales releases in attempt to moderate the impact of labor & material shortages. Homes are priced once a Truss delivery date is confirmed which triggers the lumber lock pricing. We are also considering online auctions, but appraisals are a concern.”

#Denver builder: “Limiting sales at all communities and gapping out on lots. Material availability is becoming more concerning.”

#Phoenix builder: “Metering sales. Could be higher if we released more, but construction can’t keep up & trades are raising costs post start of home, so we are delaying sales releases even further. Delaying release of to-be-built homes & selling only specs deeper in the cycle.”

#SaltLakeCity builder: “Very, very careful with home releases, generally 2 – 4 permits pulled for each subdivision each month. Those homes are not released for sale until the homes are 60-80 days into the construction schedule.”

#Charlotte builder: “No pre-sales as of now. Starting specs and will price at drywall. Sales are still strong but we are starting to see a little bit of a slowdown as we have pushed pricing considerably.”

#Nashville builder: “Prices are starting to flatten out. Sales are down by design as we are not offering presale contracts, & are not writing contracts on inventory homes until they have completed rough ins, with all remaining items confirmed as to availability."

#RaleighDurham builder: “Starting to see some reluctance/concern around home prices balance, to some extent, the buying frenzy that we have seen over the last few months. Continue to raise prices – we get material/labor cost increase notices EVERY SINGLE DAY!”

#Wilmington builder: “Presales are limited & have escalation clause. Not pricing specs until Sheetrock - then they are gone & we wait for next houses to get to drywall. Raising prices across all segments to keep up with cost until the market or appraisal stops us.”

#Atlanta builder: “Locking in costs with purchase orders at time of foundation. Cannot sell a home until foundations go in. Costs are crazy. We are hitting the top of the market in some places and can't push prices. We are seeing margin compression.”

#Birmingham builder: “We have presales turned off in about half our communities to burn through current backlog. We’re holding off sales and using escalation clauses.”

#Charleston builder: “Holding off on selling a home until framing, as that has been our most volatile cost from month to month. We aren't selling to-be-built homes in order to control costs and not commit to a sales price before some of our largest expenses are actualized.”

#Chicago builder: “Many builders are putting everything on hold or putting foundations in the ground and not going any further until they see where costs are headed. Trim, windows and doors supplier says they are starting to feel a slowdown and are preparing for a bigger one.”

#Indianapolis builder: “Not selling/pricing spec inventory until late in the construction process, to account for rising costs. We continue to raise prices on contract builds but have not added escalation clauses.”

#DC builder: “Capping sales by community with few exceptions. We cannot continue to sell further out to future. Limited sales at most communities and raised prices dramatically to keep pace with rising costs.”

#Philadelphia builder: “Holding off opening up some of the new sections until we can catch up to the sales backlog a bit.”

#Tampa builder: “We’re closed for the first half of May. Working on catching up to what we already have. We will significantly limit sales for the next several months.”

#Orlando builder: “Restricting releases to limit quantity of sales while production catches up. Increasing pricing every few sales.”

#Sarasota builder: “Everyone is starting construction on homes after permits are obtained and then quickly hitting unpredictable material shortages, masonry block as one primary example.”

#Jacksonville builder: “Revised all sales contracts, allowing us to adjust base price of home due to cost increases up until time slab is poured. Converting to spec sale program on single-family detached homes as new phases come online this summer.” 

#LosAngeles builder: “Waiting to offer homes for sale until we have building permits in hand and can lock lumber pricing.”

#Riverside builder: “We sell out within a week of release. If sales volume drops it’s a result of no inventory. Banging prices each week. Scary high. Costs are stupid high. I’m not saying we’re out of buyers but sales team is telling me that their buyer list is getting smaller."

#SanJose builder: “Doing highest bidder approach at two communities. Seeing $100K over asking at one of them. Buying lumber sooner now, but may push out starting more units with the anticipation of lumber prices coming back down. Costs are eating up all price increases.”

#EastBayCA builder: “Holding back on releasing for sales until we have the phase contracted, so we know what our costs are going to be.”

#Reno builder: “We have gone to ‘Offer & Acceptance’ approach on sales releases where we are able to improve price and terms. This approach has been effective in maintaining our margins and keeping pace with all the increases we are getting."

https://www.calculatedriskblog.com/2021/05/homebuilder-comments-in-mid-may.html

Housing prices are sky-high and keep climbing

 Home prices, already through the roof, are expected to keep climbing. 

A national housing shortage is showing no signs of easing and the cycle is not expected to break anytime soon.

"We expect a persistent imbalance between supply and demand in the housing market to generate double-digit home price appreciation this year and next," wrote Ronnie Walker, economist at Goldman Sachs.

The median existing-home price in April was up 19% from last year to $341,600, according to the National Association of Realtors. The price surge came as city dwellers fled to regional hubs and the more socially-distant suburbs after being given the opportunity to work from home indefinitely amid the COVID-19 pandemic.

The flight to the suburbs pushed total housing inventory down 21% from a year ago to 1.16 million units, according to NAR. Unsold inventory was 2.4 months, holding near a record low.

Existing-home sales account for more than 90% of total home sales.

"Existing homeowners continue to stay in their homes because they have to find something to buy as well, which is very difficult with such a limited supply market," said Odeta Kushi, deputy chief economist at First American Financial Corp. 

Americans looking to build a new home are also confronted with difficulties. 

"Build times have elongated a bit with supply chain disruptions and some of the labor availability," said Bill Wheat, chief financial officer at D.R. Horton Inc. 

Lumber prices have soared by as much as 316% since the start of 2020 as the pandemic resulted in supply chain bottlenecks and strong demand for building projects, both new construction and home improvements. 

The surge in lumber prices added $36,000 to the cost of building an average-sized home. And that’s if you can find someone to build it. The industry is also dealing with a shortage of workers and, in some areas, a lack of adequate land to build on. 

America has been "underbuilding for a decade, and so that points to a continuation of the supply-demand imbalance, which points to further house price appreciation," Kushi said. 

https://www.foxbusiness.com/economy/housing-prices-sky-high-climbing

U.S. moves to double tariffs on Canadian softwood lumber imports

A move by the U.S. Commerce Department to increase preliminary tariffs on softwood lumber imports from Canada, if finalized, will raise producer costs and cut into their profits but is unlikely to affect prices to consumers of wood products, analysts say.

The department’s recommendation to more than double the “all others” preliminary countervailing and anti-dumping rate to 18.32 per cent from 8.99 per cent on Friday drew criticism from the Canadian government and industry and applause from the lumber industry south of the border.

The increase is unlikely to result in higher lumber prices because they’ve more than doubled in the past year to all-time record highs, said Kevin Mason, managing director of ERA Forest Products Research.

“Prices are supply-and-demand driven,” he said. “(Tariffs) drive the cost up for producers but it’s not going to affect prices.”

Because it’s a preliminary tariff rate, current cash deposit rates will continue to apply until the finalized rates are published, likely in November.

“U.S. duties on Canadian softwood lumber products are a tax on the American people,“ said Mary Ng, minister of Small Business, Export Promotion and International Trade, in a statement.

“We will keep challenging these unwarranted and damaging duties through all available avenues. We remain confident that a negotiated solution to this long-standing trade issue is not only possible, but in the best interest of both our countries.”

In a note to investors, RBC analyst Paul Quinn said finalized rates from the previous administrative review process wound up being largely in line with the preliminary rates.

https://www.thestar.com/business/2021/05/21/us-commerce-department-doubles-tariffs-on-canadian-softwood-lumber-imports.html

Where the Priciest US Warehouse Markets Are

 The San Francisco Peninsula is the most expensive market in the US for warehouse rents and the third most expensive region globally, followed by the nearby North Bay and Washington’s Puget Sound.

Average rents for warehouse space in the San Francisco Peninsula clock in at $18.25 per square foot, followed by rates of $14.62 per square foot in the North Bay and $14.31 in the Puget Sound – Eastside submarket, according to a new global logistics report from Cushman & Wakefield.

On the flip side, Memphis ranks as the cheapest US market and seventh least expensive market in the world, with rates at $3.61 per square foot. Columbus follows behind as the second cheapest US market and the tenth least expensive region globally with average rents of $3.95 per square foot.

Cushman experts note in the report that despite tight market conditions and pummeling demand for logistics space, industrial rents are usually slow to rise. Last year, less than half of the 250 markets the firm tracks globally reported positive rental growth.  And while some of that data can be explained by landlords opting to hold off on rental increases, the numbers are similar even when looking back five years.

But in key markets where land is scarce and supply is challenging, that could change.

“Growing investor interest in industrial assets has compressed average yields in recent years, while office yields have held comparatively steady,” the report notes. The upshot of this is that for many markets in the US, prime industrial yields are now tighter than for equivalent office towers.”

Philadelphia and New York City illustrate this trend; spreads are -175 bps and -100 bps respectively, according to Cushman.

“The narrowing spread between industrial and office assets confirms what landlords are experiencing in many key markets across the globe—increasing costs across many metrics associated with higher land prices,” the report notes. “Scarcity of land is so severe in some markets that pent-up demand has been cited as a consequence. Higher land values become even more pressing when additional factors such as land tax, water rates and other infrastructure charges are also increasing.”

When land values reach a breaking point in those markets, it’s more likely that cost increases will be passed on to tenants through higher rents, Cushman experts say.

Analysis earlier this year from Moody’s Analytics predicts that as vacancy declines, effective rents will rise by 1.4% in 2022.

https://www.globest.com/2021/05/20/where-the-priciest-us-warehouse-markets-are/