Real Estate (Commercial)

Latest story

125 Shares129 Views

As Hurricanes Persist, Soaring Insurance Costs Hit Commercial Real Estate

by

Struggling landlords and developers are seeking leeway on coverage from their lenders — mostly in vain.Postpandemic vacancies and surging debt payments have eaten away at commercial real estate for more than two years. Even as those threats start to fade, owners of strip malls, apartment buildings and office towers face a problem that could last much longer: soaring insurance costs.The problem is familiar to homeowners across the country. The rise in climate-related natural disasters has insurance companies pushing rates substantially higher, or pulling out of markets. The rate increases have been fastest in coastal cities and towns vulnerable to damage from big storms or coastal floods, but insurers and banks are coming to terms with the notion that no area is truly safe from increasingly extreme and unpredictable weather events.Hurricane Helene, which hit Florida’s gulf coast before leaving a trail of deadly floods and landslides through Georgia and the western parts of the Carolinas, most likely caused at least $35 billion in economic losses along the way, according to an estimate by the reinsurance broker Gallagher Re.Building owners are also trapped between their insurers and lenders, who are afraid of being on the hook for catastrophic damage and won’t allow the smallest changes to policies — even those that might give a struggling borrower some breathing room.It isn’t possible to know comprehensively how many properties have gone into foreclosure solely because of insurance costs, but people in the industry say they know of deals that have fallen apart over the matter. Developers and investors say that in an industry grappling with higher interest rates and materials and labor expenses, insurance costs can tip the scales.“This current interest-rate environment has exposed the people that know what they’re doing and those that don’t,” said Mario Kilifarski, the head of asset management at Fundamental Advisors, a New York-based investor with $3.5 billion in assets.The insurance brokerage Marsh McLennan estimated that premiums on commercial properties rose an average of 11 percent across the country last year but as much as 50 percent in storm-vulnerable places like the Gulf Coast and California. This year, premiums may have doubled in some of those places, the brokerage said.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

More stories

  • 138 Shares139 Views

    in Economy

    How the Fed Cutting Interest Rates Affects Banks, Stocks and More

    by

    For corporate America, this week’s expected interest rate cut carries risks along with rewards.It’s easy to assume that lower interest rates are a panacea. Almost everyone, after all, is affected to some degree by the cost of borrowing. When the Federal Reserve cuts its benchmark rates — as it is expected to do this week for the first time since the pandemic — that makes credit less expensive for consumers and corporations alike.The cheaper debt means companies can spend more to expand, just as consumers might be able to afford bigger homes with lower mortgage rates.But there is a complicated and somewhat unpredictable interplay between interest rates and the business world. Lower rates bolster the economy, but for companies and their investors, lower rates do not always carry unalloyed positive effects.Here’s what to expect for corporate America when the Fed lowers rates:For markets, it’s all about ‘why.’All else equal, lower rates are good for the stock market. When investors gauge the value of a stock, they tend to come up with a higher figure when interest rates fall because of a common valuation principle known as discounting, in which a company’s future cash flows and costs become more attractive under low-rate conditions.Fed officials are expected to cut rates by a quarter or a half a percentage point at this week’s meeting. In practice, according to analysts, the reason rates are being lowered matters more than the precise timing or magnitude.If the economy is faltering, forcing the Fed to lower rates quickly, that can be a headwind to the stock market. A gentle return to a more normal level of rates — at least in the context of the past few decades — is less likely to crimp corporate profits in the way that an economic downturn could.“It’s less about when they cut and how quickly, and more about why they cut,” said Greg Boutle, head of U.S. equity and derivatives strategy at BNP Paribas.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • 125 Shares99 Views

    in Economy

    Small Banks Say Their Commercial Real Estate Loans Are Fine

    by

    Community banks are big commercial real-estate lenders. But they say their loans are to sturdy local businesses, not those facing vacant office space.Small banks are feeling misunderstood.They see themselves as integral to neighborhoods across the country: backers of local dry cleaners, dentists and sandwich shops. Investors worry that those banks could be a crisis waiting to happen.The pride and the anxiety both reflect the fact that community banks are big lenders in the commercial real-estate market, which has been rocked by falling property values as large office buildings sit empty.But executives at these firms — which number about 4,100 in total — say there is an important distinction, and some industry analysts concur. They caution that small banks are being lumped in with lenders to the owners of half-empty towers in Manhattan, San Francisco and Chicago, which are in the most trouble.Instead, a majority of commercial building loans by community banks are for smaller buildings — like those housing doctors and local businesses — that tend to be fully leased. And while there are concerns about financial pressure on apartment building landlords if interest rates remain high, missed payments on those types of mortgages have not risen substantially.“The focus has been on office as that is the weak category,” said John Buran, the chief executive officer of Flushing Financial, based in Uniondale, N.Y., which operates branches as Flushing Bank in Queens, Manhattan and Brooklyn and on Long Island. “Most community banks don’t have the type of exposure.”All of Flushing Financial’s loans are performing well, said John Buran, the firm’s chief executive.Graham Dickie/The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • 125 Shares99 Views

    in Economy

    Apartments Could Be the Next Real Estate Business to Struggle

    by

    Owners of some rental buildings are starting to struggle because of rising interest rates and waning demand in some once booming Sun Belt cities.It might seem like a great time to own apartment buildings.For many landlords, it is. Rents have soared in recent years because of housing shortages across much of the country and a bout of severe inflation.But a growing number of rental properties, especially in the South and the Southwest, are in financial distress. Only some have stopped making payments on their mortgages, but analysts worry that as many as 20 percent of all loans on apartment properties could be at risk of default.Although rents surged during the pandemic, the rise has stalled in recent months. In many parts of the country, rents are starting to fall. Interest rates, ratcheted higher by the Federal Reserve to combat inflation, have made mortgages much more expensive for building owners. And while homes remain scarce in many places, developers may have built too many higher-end apartments in cities that are no longer attracting as many renters as they were in 2021 and 2022, like Houston and Tampa, Fla.These problems haven’t yet turned into a crisis, because most owners of apartment buildings, known in the real estate industry as multifamily properties, haven’t fallen behind on loan payments.Only 1.7 percent of multifamily loans are at least 30 days delinquent, compared with roughly 7 percent of office loans and around 6 percent of hotel and retail loans, according to the Commercial Real Estate Finance Council, an industry association whose members include lenders and investors.But many industry groups, rating agencies and research firms are worried that many more apartment loans could become distressed. Multifamily loans make up a majority of loans newly added to watch lists compiled by industry experts.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • 138 Shares139 Views

    in Economy

    Rivian Will Delay Construction of a $5 Billion Factory in Georgia

    by

    The money-losing electric vehicle company, which makes vans, trucks and S.U.V.s, is trying to preserve cash as it works to produce and sell more affordable vehicles.Rivian, a young electric vehicle company, said on Thursday that it was halting construction of a new factory in Georgia. The company also announced two new models, one of which will now be produced at its plant in Illinois.The company had nearly completed preparing the roughly 2,000-acre site in Georgia that is about 50 miles east of Atlanta, and it was expecting to break ground on the $5 billion plant this year.But the growth of electric vehicle sales has slowed in the past six months, forcing many automakers to reassess their plans for new factories and models.Rivian said delaying the Georgia plant would save it about $2.25 billion, a large sum from a business that has been losing billions of dollars for several years. The company said it was committed to building the plant but did not say when it hoped to restart construction.“Our Georgia site remains really important to us,” Rivian’s chief executive, R.J. Scaringe, said at an event on Thursday where he unveiled two new sport-utility vehicles. “It’s core to scaling across all these vehicles.”One of the S.U.V.s, called the R2, is a five-passenger vehicle that is expected to be available in the first half of 2026. Originally, the R2 was supposed to be the first vehicle produced in Georgia. Shifting production to Normal, Ill., where the company has an operating factory, will allow Rivian to begin delivering the vehicle to customers sooner, Mr. Scaringe said.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • 88 Shares159 Views

    in Economy

    ‘Zombie Offices’ Spell Trouble for Some Banks

    by

    Bank tremors serve as a reminder: Just because a crisis hasn’t hit immediately doesn’t mean commercial real estate pain isn’t coming.Graceful Art Deco buildings towering above Chicago’s key business district report occupancy rates as low as 17 percent.A set of gleaming office towers in Denver that were full of tenants and worth $176 million in 2013 now sit largely empty and were last appraised at just $82 million, according to data provided by Trepp, a research firm that tracks real estate loans. Even famous Los Angeles buildings are fetching roughly half their prepandemic prices.From San Francisco to Washington, D.C., the story is the same. Office buildings remain stuck in a slow-burning crisis. Employees sent to work from home at the start of the pandemic have not fully returned, a situation that, combined with high interest rates, is wiping out value in a major class of commercial real estate. Prices on even higher-quality office properties have tumbled 35 percent from their early-2022 peak, based on data from Green Street, a real estate analytics firm.Those forces have put the banks that hold a big chunk of America’s commercial real estate debt in the hot seat — and analysts and even regulators have said the reckoning has yet to fully take hold. The question is not whether big losses are coming. It is whether they will prove to be a slow bleed or a panic-inducing wave.The past week brought a taste of the brewing problems when New York Community Bank’s stock plunged after the lender disclosed unexpected losses on real estate loans tied to both office and apartment buildings.So far “the headlines have moved faster than the actual stress,” said Lonnie Hendry, chief product officer at Trepp. “Banks are sitting on a bunch of unrealized losses. If that slow leak gets exposed, it could get released very quickly.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • 125 Shares99 Views

    in Economy

    How Nevada Is Pushing to Generate Jobs Beyond the Casinos

    by

    Before the pandemic brought everyday life to a halt, Joe Kiele supported himself through the industry that dominates Nevada’s economy. He waited tables at a steakhouse inside a casino in Reno.Four years later, Mr. Kiele, 49, remains in Reno, yet he now spends his workday inside a factory. In place of worrying about the doneness of a customer’s rib-eye, he trains people on the proper handling of industrial chemicals.His employer, Redwood Materials, is constructing an enormous complex across a lonely stretch of desert. There, the company has begun recycling batteries harvested from discarded smartphones and other electronics. It extracts critical minerals like nickel, lithium, copper and cobalt, and uses them to manufacture components for electric vehicle batteries.Not coincidentally, the plant sits only eight miles from a major customer — a Tesla auto factory.Mr. Kiele’s shift from restaurant server to chemical operator parallels a transformation long championed by Nevada’s leaders seeking to make their economy more diverse, reducing its reliance on the hospitality industry for jobs. In recent years, they have tried to secure investment from companies engaged in the transition toward green energy.The Redwood Materials plant, which occupies roughly 300 acres and is expected to require some $2 billion in investment over the next decade, looms like a monument to Nevada’s aspirations. For the employees, the factory is evidence that there are ways to pay bills besides dealing cards and delivering food.“We’re not based on consumerism,” Mr. Kiele said. “We’re dealing with industry.”This is not the first time that Nevada has sought to broaden its economy. The state has a history of betting its fate on the bounty flowing from a single industry.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • 125 Shares99 Views

    in Economy

    Walmart to Add 150 U.S. Stores in Five-Year Expansion Drive

    by

    The retail giant, which last opened a domestic location in 2021, said most of the stores would be newly built.Walmart will add 150 stores in the United States over the next five years, a major expansion drive for the retail giant.The company said the move, which it announced in a statement on Wednesday, would involve millions of dollars in investment. Walmart employs roughly 1.6 million people in the United States, and said it hires hundreds of people each time it opens a new store.Walmart had just over 4,600 stores nationwide at the end of October, down from more than 4,700 a year earlier. The company has not opened a new U.S. store since late 2021.Most of the stores that Walmart plans to open will be newly built, while others will be conversions of existing locations to new formats. The first two new stores will open in the spring, in Florida and Georgia, and the company is completing construction plans for 12 other stores this year. It also said it would remodel 650 locations.Walmart announced this week that it was raising salaries and benefits for store managers and offering them stock grants.The company reported sharply higher profit in the first three quarters of 2023, and its share price is hovering near a record high. It has yet to report earnings for its most recent quarter, which included the holiday season.Consumer spending, which powers the U.S. economy, has been resilient even though shoppers have been squeezed by high inflation and rising interest rates. Credit card data from the holiday season showed retail sales increased from a year earlier.“This is a huge vote of confidence in the American consumer,” Craig Johnson, the founder of the retail consultancy Customer Growth Partners, said of Walmart’s announcement.Mr. Johnson said investors might be concerned over how this could affect Walmart’s Sam’s Club stores, which have increasingly moved from a destination for business owners to stock up on supplies to a place where individuals shop for groceries.Walmart’s choice to open new stores and remodel some existing ones reflects the company’s focus on enhancing its in-store and pickup experiences even as e-commerce has gained popularity, said Edward Yruma, an analyst at the investment bank Piper Sandler.“As we settle into the new normal, what we’ve come to is that the consumer likes great, physical retail locations,” he said.Jordyn Holman More

  • 138 Shares99 Views

    in Economy

    WeWork Bankruptcy Would Deal Another Blow to Ailing N.Y. Office Market

    by

    The fallout would be particularly hard for landlords already struggling with piling debt and companies scaling back their office footprint.For years, landlords around the world clamored to get WeWork into their office buildings, a love affair that made the co-working company the largest corporate tenant in New York and London.Now, WeWork is perhaps days away from a bankruptcy filing — and its demise could not come at a worse time for office landlords.With fewer employees going into the office since the pandemic, companies have slashed the amount of space they lease, causing one of the worst crunches in decades in commercial real estate.Many landlords have accepted lower rents from WeWork in recent years to keep it afloat, but its bankruptcy would be an enormous blow. The pain would be centered on landlords that have leased a large proportion of their space to the company, particularly in New York, and are struggling to make payments on the debt tied to their buildings. Some landlords might quickly accept lower rents from WeWork as part of a bankruptcy reorganization and keep doing business with any new entity that emerges, but others might have to fight in court to get anything.“If you look at a lot of the vacancy in New York City, you will find that a fair amount of that was space that was leased to WeWork — and there will be even more abandoned after a bankruptcy,” said Anthony E. Malkin, the chief executive of the company that owns the Empire State Building and an early skeptic of WeWork.WeWork, despite its efforts to cut costs, still had an empire of 777 locations in 39 countries at the end of June, compared with 764 locations in 38 countries nearly two years earlier. On Friday, its website listed 47 locations in New York, where at the end of March it leased 6.9 million square feet of office space, equivalent to more than 60 percent of all co-working space, according to Savills, a real estate services firm. In London, WeWork listed 38 locations.Speculation of a possible bankruptcy filing intensified in August when WeWork warned that it might not be in business much longer. Its shares have fallen 90 percent since then.Last month, WeWork said it would miss interest payments totaling $95 million. After a 30-day grace period, the company reached a deal with creditors for a seven-day forbearance, which expires Tuesday.A WeWork office space in London. The city has 38 WeWork locations.Tolga Akmen/Agence France-Presse — Getty ImagesIn New York, where a fifth of office space is unleased or being offered for the sublet, the highest amount in decades, the fallout from a WeWork bankruptcy would be felt most in older office buildings in Midtown and downtown Manhattan. Nearly two-thirds of WeWork’s leases in Manhattan were in these so-called Class B and Class C buildings, according to the real estate advisory firm Avison Young.“We believe the value of Class B and Class C buildings will probably be 55 percent less than they were prior to the pandemic,” said Stijn Van Nieuwerburgh, a real estate professor at Columbia Business School who has been tracking the decline in office building valuations. “These are the buildings that are struggling the most and will have a tough time with a WeWork bankruptcy.”Owners of these older buildings were thrilled a few years ago to lease entire floors — or even entire buildings — to WeWork, but they now find themselves under siege. In cases where WeWork has stopped paying rent on the leases, landlords have been unable to make debt payments on buildings that are being valued sharply lower than they were a few years ago.That’s the quandary facing Walter & Samuels, a real estate firm that has WeWork as a tenant in five of its office buildings in New York. At one, 315 West 36th Street, a small edifice built in 1926 in Manhattan’s garment district, WeWork leased about 90 percent of the space and stopped paying rent earlier this year, according to Morningstar Credit. Walter & Samuels stopped making payments on a $77 million loan on the building, Morningstar said.The loan’s special servicer said the appraised value of the building had fallen to $42 million, down from $127 million when the loan was made five years ago, and the servicer is moving to foreclose, according to Morningstar.Executives at Walter & Samuels did not respond to emails seeking comment.WeWork occupies nearly all of the office space at 980 Avenue of the Americas, a mixed-use development owned by the Vanbarton Group. Joey Chilelli, a managing director at the company, said the firm could consider a range of options for the space if WeWork vacated, including turning it into residences.“We have tried to do everything we could earlier this year when they went to every landlord and asked for rent reductions and concessions,” Mr. Chilelli said. “If they are able to reduce their footprint, it will hurt the office market again.”A WeWork bankruptcy would be felt most in older office buildings in Midtown and downtown Manhattan.Hilary Swift for The New York TimesMichael Emory, the founder of Allied, a real estate investment trust that operates office buildings in Canada’s largest cities, said his company walked away from a potential deal with WeWork in Toronto in 2015 because there were drawbacks for Allied. But he said he had watched other developers, particularly in New York, lease space to the company, believing that co-working providers would occupy a large percentage of office space for years.Also, Mr. Emory said, WeWork focused on landlords that were eager to fill up their office buildings and then sell them based on the new occupancy and rental income.A bankruptcy filing “will be very consequential for the New York market,” he said.WeWork declined to comment for this article.At its peak, when investors were feverishly bullish about the company and the vision of Adam Neumann, its eccentric co-founder, WeWork was valued at $47 billion. Its model was to rent office space, spruce it up and charge its customers — established companies, start-ups and individuals — to use the space for as long as they needed it.The flexibility of using a WeWork space — and its community vibe: “Our mission is to elevate the world’s consciousness,” the company declared — was supposed to attract businesses away from stodgy offices that tied tenants down with yearslong leases.But the economics of WeWork’s business were always upside down: What the company took in from customers was not enough to cover the cost of renting and operating its locations. It kept growing anyway, and from the end of 2017, it lost a staggering $15 billion. After WeWork withdrew an initial public offering in 2019, its largest outside investor — the Japanese conglomerate SoftBank — provided a lifeline with a multibillion-dollar takeover.Before that debacle, WeWork had ardent fans in the commercial real estate world who believed the company was pioneering an exciting new service.“We know these folks, we know them well,” Steven Roth, the chief executive of Vornado Realty Trust, one of the largest office landlords in New York, said in 2017. “We think what they’re doing is unbelievably impressive.”Mr. Roth declined to comment for this article. Vornado leased space to WeWork in a building in Manhattan and another in Washington, and they teamed up outside Washington to introduce WeLive residences, one of WeWork’s much-hyped but failed subsidiaries, including the for-profit private school WeGrow.Vornado no longer has WeWork as a tenant. In 2019, after questions about WeWork’s financial health mounted in the industry, Vornado’s chief financial officer said the company had limited its exposure to WeWork.The president of BXP, a part owner of an office development in the Brooklyn Navy Yard, said WeWork had stopped paying rent there.Karsten Moran for The New York TimesJLL, a real estate services firm, once predicted that co-working firms would be leasing 30 percent of all office space in the United States by the end of this decade. Such predictions did not seem outlandish just before the pandemic, when WeWork and other co-working providers accounted for 15 percent of both new and renewed leases signed in New York, according to JLL, up from 2 percent in 2010. Co-working providers accounted for less than 1 percent of all leases signed in New York last year, JLL said.And some landlords believed they would be somewhat insulated from problems at WeWork.“WeWork is out there taking on these start-ups en masse, realizing that some will stay, some will go,” Raymond A. Ritchey, an executive at BXP, formerly known as Boston Properties, said in 2014. “But they tend to be taking that risk as opposed to the landlord on a direct basis.”BXP is a part owner of a shiplike office development in the Brooklyn Navy Yard, Dock 72, where WeWork has been a major tenant since it opened in 2019 but was struggling to fill its space. At the end of last year, BXP was leasing nearly 500,000 square feet of space to WeWork across its portfolio.Douglas T. Linde, the president of BXP, said Thursday on an investor call that WeWork had stopped paying rent at two of its locations, including Dock 72. “We don’t expect WeWork to exit all the assets,” he said, “nor do we expect them to remain in place in the current footprint.”Some landlords might be able to get other co-working companies to take over WeWork’s spaces, or operate their own version, avoiding a situation in which their buildings appear desolate. But they are unlikely to take in the revenue they were initially getting from WeWork, which did end up going public, in 2021, by merging with a special-purpose acquisition company.Mr. Malkin, the Empire State Building landlord, said he had always doubted WeWork’s business model. Also, he never wanted WeWork in his company’s buildings because, he said, it packed too many people into its spaces, causing overuse of elevators and toilets.“Why would you want to do business with these people?” Mr. Malkin said. More