Net Lease News

Net Lease News

March 7 – March 13, 2023

MARKET

Fast-Moving $209 Billion Bank Collapse Rattles Tech, Finance Communities

• On Sunday, federal regulators said even deposits exceeding the insurance cap would be protected and the Federal Reserve would take emergency action to provide funds to other institutions that needed cash in exchange for collateral.
• SVB and its subsidiaries alone leased nearly 1 million square feet of space in more than 50 offices across the countries, most of it in the U.S., according to CoStar data. SVB Financial, parent of Silicon Valley Bank, operated securities and capital venture arms that supported capital raisings for tech and biotech startups throughout the U.S., Canada and the United Kingdom.
• Outside of what banking regulators are doing to restore confidence, private investment firms have already begun stepping in, according to a news report from Bloomberg.

Feds say all deposits at Silicon Valley Bank will be protected

• Customers with deposits at Silicon Valley Bank will be able to access their entire deposits on Monday morning, U.S. officials announced Sunday night in Washington, though the government is still seeking a buyer for the bank’s assets.
• U.S. regulators invoked a provision of banking law that allows the government to insure all deposits — not just the initial $250,000 typically insured by the Federal Deposit Insurance Crop. — citing a systemic risk to the banking system if they do not. The Washington Post reported earlier Sunday the plan was under consideration.
• Federal officials opened an auction for the Silicon Valley Bank’s assets Saturday and accepted bids until 11 a.m. Pacific time. But the government’s announcement, released at about 4 p.m. Pacific time, made no mention about those discussions or any potential deal with another financial institution to take over SVB.

INDUSTRIAL

Moody’s, Others Say Industrial Sector Starting to Soften

• Despite elevated manufacturing and consumer goods production through 2022, the industrial sector is reflecting the start of a softening period, according to Ermengarde Jabir, senior economist at Moody’s Analytics, in a report published on the Scotsman.
• She anticipates that property subtypes across the industrial sector are likely to benefit due to the increased domestic need for space to house research, production, assembly, storage, and distribution facilities.
• Rent growth has been slowest in the Midwest. St. Louis (with a 2.1% increase in rents over the last 12 months), the Twin Cities (3.3%), and Chicago (3.5%) saw some of the lowest gains for in-place rents. Even in-demand markets with low vacancy rates such as Indianapolis (3.4% rent growth) and Columbus (3.5%) have not seen much rent movement over the last 12 months. New supply is easier to build in these locales than in the port markets, giving tenants more of an upper hand in rent negotiations than they would have in Southern California or along the East Coast.

Why This California Inland Empire City Is Considered the ‘Next Frontier’ for Industrial

• At least three projects totaling roughly 2.8 million square feet have been proposed in Victorville, California, since December, expanding the city’s existing industrial real estate footprint by 26%, according to public documents and CoStar data.
• The industrial market is one of the nation’s largest and benefits from its proximity to the ports of Los Angeles and Long Beach, some of the busiest ports in the U.S. Big-name tenants have set up shop in the Inland Empire including Amazon, Walmart and Target in a sign of robust demand for industrial space there.
• The Mojave River Valley industrial market, which includes Victorville, has an average market rent of $14.50 per square foot, above the Inland Empire average of $13.91 per square foot. The market’s vacancy is 2.8% near the Inland Empire average of 2.7%.

RETAIL

Retailers Are Following Workers Out of City Centers

• JPMorgan Chase issued a report this month on what it is calling a “Downtown Downturn”—the lingering pandemic shock to bricks-and-mortar retail in urban centers also suffering from office vacancies.
• Several major urban markets, including San Francisco, Los Angeles, New York, Seattle and Miami, had fewer retail establishments in the last quarter of 2021 than before the pandemic, JPMorgan reported.
• Apparel chains grew their bricks-and-mortar footprints in 2022 by moving outward with smaller footprints in residential neighborhoods. The apparel sector closed 750 stores in total in 2022, but it also saw the second-highest total of store openings—nearly 1,400—with many of these new stores in suburban locations, according to Coresight Research data.

Retail Investment Activity Slows as Higher Borrowing Costs Put Squeeze on Potential Buyers

• The retail vacancy rate in Houston stands at a six-year low and asking rent growth is near all-time highs. Still, despite this strong retail demand, sales of retail centers in the region have begun to slow.
• Less than 1% of the $12 billion of outstanding CMBS loans secured by retail properties was delinquent as of the end of February 2023, which is far below the national index of 5.3%.
• In addition, only a limited number of loans are maturing over the near term. The number of maturing loans coming due in 2023 amounts to less than 3% of the total balance, which will limit refinancing risk.

Tijuana Flats Tex-Mex Restaurant Plans Southeast Expansion

• Tijuana Flats wants to open 50 fast-casual restaurants in the southeastern U.S. by 2025, the Maitland, Florida-based company said. It plans to offer financial incentives to lure new franchisees to accelerate the proposed openings.
• Mexican cuisine is one of the fastest-growing and most popular segments of the U.S. restaurant industry. The category is forecast to generate $80.3 billion in sales this year and has grown at an average 2.4% yearly rate over the past five years, according to IBISWorld.
• Tijuana Flats is targeting Florida, Georgia, Alabama, Mississippi, North Carolina, South Carolina and Tennessee for its new restaurants.

OTHER

ChatGPT Could Find a Place in Commercial Real Estate. In Some Ways, It Already Has.

• Right now, AI’s biggest benefit is efficiency, according to commercial real estate professionals who joined in on a Twitter conversation about ChatGPT. Users said they asked it to do once-overs for grammar and tone in marketing materials, property descriptions, letters of intent and right of first refusal contracts, to name a few examples.
• The technology can also help with lease reviews, comparing information against an agreed-upon letter of intent and avoiding bias in favor of the landlord or tenant, users said. Beyond that, it has basic coding capabilities and can perform data analysis to identify market patterns and risks.
• Real estate startups that are more up on technology trends and less risk averse may jump ahead of big-name companies when it comes to adopting AI, Lunawat said. Facing an economic downturn and a general slowdown in commercial transactions, many of the larger players may have too many other concerns to invest heavily in the ambitious bet of AI.