Net Lease News

Net Lease News

March 21 – March 27, 2023

MARKET

Fed Raises Rates Despite Banking Sector Turmoil

• Despite the recent collapse of three U.S. regional banks, sending financial markets into a tailspin, the Federal Reserve’s policy-making committee voted unanimously to boost its target rate another 25 basis points higher on Wednesday.
• In its post-meeting statement, the committee recognized the risks associated with raising the rate while recent developments had already worked to tighten financial conditions, noting that “the extent of these effects is uncertain.”
• Asked about financial stability risks originating from the commercial real estate market, where smaller regional banks hold a disproportionate share of loans that will begin to roll over this year and next, Powell waved off any similarity with the conditions that prompted the failure of Silicon Valley Bank, Signature Bank and Silvergate Bank, stating “the banking system is strong, it is sound, it is resilient, and well-capitalized.”

It’s Sale-Leaseback’s Time to Shine

• The current capital environment has tested the adaptability of many companies, as increasing interest rates have made the cost of capital rise uncomfortably. And while it’s unknown if recent events will calm the Federal Reserve’s zeal for future hikes, some companies are already availing themselves of an alternative capital source: the sale-leaseback.
• In fact, the transaction type matched its 2019 peak in Q4 of 2021, and there are signs it may not be slowing. Zachary Pasanen, managing director, investments at W. P. Carey, sees two big factors playing into the current interest in sale-leaseback: cheaper cost of capital and extra liquidity during tough times.
• Sale-leasebacks appeal here as well, allowing companies to put money back into their core competencies or pay down shorter-term debt that’s gotten more expensive, or perhaps even expand given that acquisition targets may have become cheaper.

INDUSTRIAL

Industrial Construction Grows Outside Major Southern US Cities

• Industrial developers have been busy in the Southeast United States. And after two years of soaring demand pushed vacancies to all-time lows, supply has begun to catch up. Despite tightening financial conditions that have slowed construction starts since late 2022, a near-record level of new construction remains underway. That’s especially true in the Southeast, where some of the largest industrial expansions are coming in outlying areas near ports or major population centers.
• Among the top 10 areas with more than 25 million square feet of industrial inventory in Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee, four are near Charlotte and three are near Atlanta, with one each in Charleston, South Carolina; Jacksonville, Florida; and Orlando.

Finnish Tire Maker Nokian Starts $174 Million Tennessee Plant Expansion

• Finnish tire maker Nokian began construction this week on a $174 million expansion of its factory in Dayton, Tennessee, as it plans to double production ahead of the coming wave of new electric vehicles.
• Nokian’s expansion comes as automotive manufacturers located in Tennessee, such as General Motors in Spring Hill and Volkswagen in Chattanooga, add capacity to make electric vehicles while retaining at least some existing gas vehicle production. Ford is building a $5.6 billion plant to make electric vehicles in Stanton, Tennessee.

Cirba Plans $323 Million Lithium Battery Plant in South Carolina

• Cirba Solutions is the latest maker of lithium-ion batteries to announce plans for a new factory to supply the emerging electric vehicle industry. The company said it will develop a $323 million flagship plant in Columbia, South Carolina, where it will make recycled batteries. The facility will be located on a 200-acre site at Pineview Industrial Park on Longwood Road. Cirba expects to open the plant in late 2024 and hire 300 workers.
• Automakers and battery developers are racing to develop manufacturing capacity for the projected shift to electric vehicles. In South Carolina, Redwood Materials has announced a $3.5 billion EV battery plant near Charleston, and Volkswagen plans to develop a $2 billion factory in Columbia to make Scout-brand electric SUVs.
• Cirba already operates seven other facilities in North America, including locations in Lancaster and Baltimore, Ohio; Wixom, Michigan; and Mesa, Arizona. The company said it will invest a total of $1 billion over the next five years to expand production at all facilities.

RETAIL

Raising Cane’s Plots Los Angeles, New Jersey Growth as It Expands Nationally

• Raising Cane’s, founded in 1996, plans to open 100 new restaurants this year including in Times Square, Nashville, Chicago and Miami Beach. Raising Cane’s also expects to expand to Washington, D.C., Baltimore, Tampa and Orlando, Florida, and Richmond, Virginia in 2023.
• Raising Cane’s has dozens of locations in Southern California, but hasn’t officially opened its planned eateries in the city of Los Angeles, according to the company’s website. Raising Cane’s plans to open nine locations in Los Angeles, a company spokesperson said in an email.

Olive Garden’s Parent Planning To Serve Up 100 New Restaurants as It Sees Double-Digit Sales Growth

• Darden Restaurants, the parent of Olive Garden and LongHorn Steakhouse, plans to open roughly 100 new eateries this year and in fiscal 2024 combined, building on double-digit sales growth from patrons who still consider eating out an affordable luxury.
• The Orlando, Florida-based company reported its fiscal 2023 third-quarter results Thursday and increased its guidance for store openings in 2023. Darden also said its net sales for the three months ending Feb. 26 increased about 14%, to $2.79 billion. Same-restaurant sales across all its chains rose an average 11.7%, with Olive Garden seeing the biggest jump, up 12.3%.

Shake Shack Heads North, Teams With Company Controlled by Canada’s Wealthiest Person

• New York-based Shake Shack Inc. plans to enter Canada in 2024, teaming up with a holding company controlled by the wealthiest man in the country. The publicly traded company, which bills itself as a modern-day “roadside” burger stand, has a stock market value of 2.33 billion U.S. dollars with 440 locations systemwide, including over 290 restaurants in 32 American states and the District of Columbia.
• The NYSE-listed Shake Shack is partnering with Osmington Inc. and Harlo Entertainment Inc. The financial relationship was not disclosed. Founded in 1995, Osmington is a private commercial real estate and investment company controlled by David Thomson, the chairman of Thomson Reuters.