Net Lease News

B+E Weekly Newsletter

March 26 – April 1, 2024

MARKET

WHO’S LENDING FOR WHAT

• Overall, the breakdown by lender type in 2023 was close to that of 2022 except for a significant increase in government agency funding from 19% to 26%. But that shift was closer to the 2015 to 2019 average of 23%. Also, regional and local banks went from 29% to 26%. But that was still far higher than the pre-pandemic average of 17%.
• Even with much tighter underwriting standards, when it came to office, regional and local banks were responsible for 37% of the lending. They did 33% of the lending for industrial, 35% for retail, 36% for hotels, and 37% for senior housing. The only area where they were involved much less was multifamily, offering 13% of the financing.
• National banks had a presence in all categories but weren’t the largest in any single property type. They were 12% each in office, industrial, and retail; 8% in hotel; and somewhat less in senior housing.
• CMBS showed up as 12% of offices, 11% of industrial, 25% in retail, 21% in hotel, and some unlisted percentage in multifamily. They didn’t appear in senior housing.

THE STATUS OF MATURING LOANS IN 2024

• The view from the ground on debt coming due in 2024 is something over $820 billion, counting $214 billion from 2023 that weren’t refinanced or sold.
• Given that property owners are not inclined to take a loss on the sale of an asset, nor refinance in a high-interest rate environment, these loans have likely been granted some short-term extension to their maturity date.
• Drivers of the loans coming due were investor-driven vehicles like CMBS and CLO. CMBS lenders have the single largest exposure to loans maturing in the year, accounting for nearly 30% of the outstanding balance.

INDUSTRIAL

HOME DEPOT TO ADD ALMOST 800 LOCATIONS WITH $18.25 BILLION PURCHASE OF BUILDING SUPPLIER

• Home Depot on Thursday said it had an agreement to purchase SRS Distribution, a seller of goods related to roofing, landscaping, and pools to home renovators and remodelers, builders, property investors, electricians, painters, and roofers. 
• Home Depot is buying SRS for a total enterprise value, including net debt, of about $18.25 billion, a record amount for the retailer.
• Home Depot said it was opening four new distribution centers in the Detroit, Los Angeles, San Antonio, and Toronto markets this year to supply goods for its professional customers.
• With its latest acquisition, Home Deport will be adding SRS’s 760+ industrial locations such as warehouses, running under a variety of local brands across 47 states to its operations. SRS occupies 11 million square feet of real estate, according to CoStar data.

UPS TO CLOSE 200 SITES, EXPAND DISTRIBUTION CENTERS IN COST-CUTTING MOVES

• UPS will close about 200 distribution centers over three years and expand sites in Massachusetts, New York, and Texas as part of a wide-ranging program to cut costs as delivery volumes have not recovered since a pandemic-era decline.
• UPS did not identify the roughly 200 locations marked for closure or provide a detailed timeline for the shutdowns.
• The US Postal Service, a UPS rival, is pursuing a similar strategy of closing distribution centers as it automates sorting and other operations. The Postal Service is spending about $40 billion on the program, which includes acquiring and leasing new properties and closing sites.

RETAIL

ACADEMY SPORTS & OUTDOORS TO OPEN 160 TO 180 STORES OVER THE NEXT FIVE YEARS

• The sporting goods and outdoor recreation retailer plans to open 160 to 180 new stores during the next five years.
• The retailer will kick off its expansion by opening 15 to 17 new stores in its current fiscal year. The expansion includes its recently opened location in Knightdale, NC, and an upcoming store in Greenwood, IN.
• Originally founded in 1938 as a family business in Texas, Academy has grown to 283 stores across 18 states. 

THESE CONSUMER TRENDS ARE DRIVING RETAIL

• Retailers that cater to the cost-conscious consumer are some of the brands growing the fastest. Dollar General plans an additional 800 stores this fiscal year to the 20,000 it already had. ALDI is adding 800 locations this year through the acquisition of Southeastern Grocers.
• Retailers that promise a speedy and efficient experience are gaining market share as brand loyalty rises. Sheetz & Wawa are planning a thousand additional locations in the long term. Take 5 Oil Change says to stay in your car while the work is done. They now have more than 1,000 locations and plan on 150 new ones per year.
• Fitness centers, grocery stores, and restaurants that offer healthy food alternatives, exercise outlets, and more gain tailwinds. Planet Fitness plans to add 600 global locations in the next three years to hit 5,000 total. Academy Sports + Outdoors looks for significant expansion to better compete. Sprouts Farmers Market looks to add 35 stores this year.