Net Lease News

Net Lease News

February 14 – February 20, 2023

MARKET

INVESTORS WORRY TOO-HOT ECONOMY WILL PUT FED ON MORE AGGRESSIVE RATE PATH

• The U.S. economy doesn’t look anywhere close to a recession. Investors are starting to worry that may ultimately be bad news for markets.
• Two separate inflation readings released last week showed both consumer prices and producer prices rose more than economists had expected in January. Retail sales posted their biggest monthly gain in nearly two years. And the labor market has remained robust. The unemployment rate fell to a 53-year low in January, while employers added more than half a million jobs to the economy.
• In ordinary circumstances, that run of strong economic data should be good news for markets. Yet investors have been viewing almost everything the past year through the lens of how it might affect the Fed’s interest-rate policy. Their growing fear is that if the U.S. economy remains too hot, it will force the Fed to raise interest rates higher and hold them there for longer than they anticipate. That would raise the chances of a sharp downturn, which in turn, would likely lead to more pain for markets.

MBA SEES CRE LOAN ORIGINATIONS DECLINING, MATURITIES INCREASING IN 2023

• Total commercial and multifamily mortgage borrowing and lending is expected to fall to $684 billion this year, a 15% decline from an expected 2022 total of $804 billion.
• The association also forecasts that $331.2 billion of the $2.8 trillion of outstanding commercial and multifamily mortgages held by non-bank lenders and investors will mature in 2023, up 33% from the $249 billion that matured in 2022. 
• We expect loan maturities and outstanding adjustable-rate loans to lead the testing of today’s market conditions. For long-term loans, the last decade has seen tremendous growth in property incomes and values – both of which will support properties’ abilities to support new loans. 

INDUSTRIAL

ONLINE GROCER RETHINKS ITS US SUPPLY CHAIN AND NEED FOR LARGE CENTRALIZED FACILITIES

• Misfits Market, an online-only grocery service known for giving ugly produce a chance at being eaten by consumers, has decided to close three of its U.S. distribution centers as a way to streamline its supply chain in a move laying off hundreds of employees.
• The Philadelphia-based company has sent Worker Adjustment and Retraining Notification letters to three states — Texas, New Jersey and Utah — alerting officials of the closures of three of its major distribution centers. 
• Since Misfits Market closed on its acquisition of Imperfect Foods in October, it has been planning for the future of the newly combined organization. The deal was expected to put the combined business on track to reach $1 billion in sales, as well as profitability, by early 2024.

TEXAS INSTRUMENTS TO INVEST $11 BILLION IN NEW UTAH CHIPMAKING PLANT

• In a deal billed as the largest economic investment in Utah history, global chipmaker Texas Instruments plans to invest $11 billion to expand its 300-millimeter semiconductor fabrication plant in Utah with a secondary fabrication facility as part of manufacturing plans including a $30 billion massive chipmaking campus in Texas.
• The Dallas-based company, banking on the future need for semiconductor chips, told investors it plans to double its annual spend to build U.S. chipmaking plants through 2025 to help supply its customers in the decades to come.
• The Salt Lake City suburb was chosen because of its access to skilled labor, existing infrastructure and a strong network of community partners, company officials said. The new plant will manufacture tens of millions of analog and embedded processing chips daily, which will supply electronics throughout the globe.

RETAIL

INSOMNIA COOKIES DREAMS OF 4,000 STORES WORLDWIDE

• Krispy Kreme, which bought the concept in 2018, said the brand has whitespace for more than 4,000 locations. Insomnia finished 2022 with 231 shops, an increase from 210 stores at the end of 2021 and 184 after 2020. When the doughnut chain acquired it, there were 135 units.
• The goal is to eventually ramp up to 100 new openings per year. In 2023, the chain will expand globally for the first time into the U.K. and Canada. 
• Insomnia’s revenue grew 24 percent in Q4, driven by double-digit same-store sales and “very high” productivity from 2022 openings. The chain’s AUV increased to $850,000, an 8 percent rise versus 2021.

TRIPLE-NET CAR WASH SALES REMAIN ROBUST AS INVENTORY GROWS

• The triple-net lease (NNN) car wash real estate market continued to mature and expand in 2022, with more than 245 leased properties changing hands for a gross market value of more than $1 billion, according to CoStar data and B+E research.
• “We saw some very impressive trade points in 2022,” said Jim Ceresnak, a director at B+E who specializes in car wash dispositions and acquisitions. “Interest in the net lease car wash market remains high, and the robust deal activity we saw last year reflects that.”
• However, transaction statistics don’t tell the full story of a market that faced headwinds as interest rates rose and inventory surged in 2022’s second half. With buyers often unable to secure financing at rates below 6.00%, many who would have otherwise purchased a NNN car wash to capture bonus depreciation sat it out. 

APPAREL BRANDS EXPAND PHYSICAL FOOTPRINTS AMID BIG-BOX STRUGGLES

• Despite hundreds of store closures in the wake of teetering finances at Bed Bath & Beyond and several other chains, in-store shopping has regained its footing as consumers’ most popular choice — and some apparel retailers are taking advantage by opening more physical locations.
• A new survey from PwC showed that in-store shopping held steady as the most popular channel for consumers, with 43% of respondents saying they had shopped in person in the past year. Shopping by smartphones or mobile devices was next at 34%, followed by PCs at 23%. 
• Canada Goose is looking to more than double its retail footprint in the next five years, while Ralph Lauren plans to open 250 stores over three years. The North Face wants to add up to 300 retail and partner locations over five years, including 70 stores planned for North America.

AMAZON CEO REAFFIRMS COMMITMENT TO GROCERY BUSINESS DESPITE CLOSURES

• Less than two weeks ago, Amazon told investors that it planned to press pause on Amazon Fresh grocery store expansions and shutter an undisclosed number of existing Fresh and Amazon Go stores while it rejiggered its grocery business. But Amazon CEO Andy Jassy says that anyone thinking the e-commerce company is getting out of the grocery business is wrong. 
• In an earnings call earlier this month, Amazon said it took a $720M impairment charge at the end of last year due to costs related to exiting leases and closing locations of its Fresh grocery stores and convenience store format Amazon Go. 
• Amazon entered the grocery business in a big way in 2017 when it bought Whole Foods for more than $13B. Since then, however, it has failed to replicate its e-commerce dominance in the grocery sector.