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>>> Prologis to buy industrial properties from Blackstone for $3.1 billion
by Reuters
June 26, 2023
https://www.msn.com/en-us/money/other/prologis-to-buy-industrial-properties-from-blackstone-for-3-1-billion/ar-AA1d3tsV?OCID=ansmsnnews11
(Reuters) - Prologis Inc said on Monday it has agreed to buy 14 million square feet of industrial properties from real estate funds affiliated with Blackstone for $3.1 billion in an all-cash deal.
The acquisition price represents about "4% cap rate in the first year and a 5.75% cap rate when adjusting to today's market rents", the warehouse-focused real estate investment trust (REIT) said in a statement.
This deal expands Prologis' presence to Atlanta, Washington DC, California, Dallas, Las Vegas, New York regions, Phoenix and South Florida, and its relationship with 50 existing customers and adds 77 new customers.
The company plans to hold all of the properties acquired. It currently owns 1.2 billion square feet of logistics real estate in 19 countries.
"This transaction demonstrates the exceptional demand for high-quality warehouses. With near record-low vacancy, logistics remains a high conviction theme for us," Nadeem Meghji, head of Blackstone Real Estate Americas, said.
Prologis and Blackstone have completed more than a dozen transactions together in the past 11 years, according to the statement.
Prologis has been expanding its presence in the U.S., with the company last year acquiring Duke Realty Corp for about $23 billion, including debt, in an all-stock deal.
The deal with Blackstone is expected to close by the end of the second quarter.
Eastdil Secured, Barclays, BofA Securities, Citigroup Global Markets, Deutsche Bank Securities, Goldman Sachs, J.P.Morgan Securities, Morgan Stanley, PJT Partners and Wells Fargo acted as financial advisers to Blackstone.
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>>> Landlords Face a $1.5 Trillion Bill for Interest Only Commercial Mortgages
Interest-only loans as a share of new commercial mortgage-backed securities issuance increased to 88% in 2021, up from 51% in 2013, according to Trepp.
Mish Talk
JUN 6, 2023
https://mishtalk.com/economics/landlords-face-a-1-5-trillion-bill-for-interest-only-commercial-mortgages
Share of Interest Only Commercial Mortgage Backed Securities
Commercial Real Estate Bust
A trend to walking away from commercial mortgages is just beginning. The Wall Street Journal reports Interest-Only Loans Helped Commercial Property Boom. Now They’re Coming Due.
Interest-only loans as a share of new commercial mortgage-backed securities issuance increased to 88% in 2021, up from 51% in 2013, according to Trepp. Nearly $1.5 trillion in commercial mortgages are coming due over the next three years.
Fitch Ratings recently estimated that 35% of pooled securitized commercial mortgages coming due between April and December 2023 won’t be able to refinance based on current interest rates and the properties’ incomes and values. While many malls and hotels face high default risks, the situation is particularly dire for office owners.
Mark Edelstein, chair of law firm Morrison Foerster’s global real-estate group, said he is seeing more lenders take over office buildings than at any point since the early 1990s.
Oblivious to Risks
Lenders and borrowers had widespread belief in two things, both now proven false.
Interest rates would stay low forever
Property values, already clearly in a bubble, would keep rising forever
Now a $1.5 trillion bill is coming due, with property values, especially office space and some big city hotels, plunging like a rock.
83 Percent on Securitized Office Loans in Trouble
Xiaojing Li, managing director at data company CoStar’s risk analytics team, estimates that as much as 83% of outstanding securitized office loans won’t be able to refinance if interest rates stay at current levels.
The 1,921 Room Hilton Union Square Hotel in San Francisco Was Just Abandoned
Yesterday, I noted The 1,921 Room Hilton Union Square Hotel in San Francisco Was Just Abandoned
Park Hotels & Resorts also walked away on the nearby 1,024-room Parc 55. Park Hotels & Resorts cited the continued debt burden of the two hotels and multiple factors that have made the San Francisco market less desirable.
Well, don't worry. Lenders who are handed back the keys can recoup their losses if they borrow money and plow it all into Nvdia and Apple with leverage. /sarcasm
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>>> Blackstone REIT Continues Trend Of Bad News For Real Estate Investors
Benzinga
by Eric McConnell
June 5, 2023
https://finance.yahoo.com/news/blackstone-reit-continues-trend-bad-193739975.html
Blackstone real estate investment trust (BREIT) is known as one of America’s largest and most dependable privately held REITs when it comes to delivering investor returns. However, 2023 has proven to be a difficult year for real estate investors, and Blackstone is not immune. As of May 1, 2023, Blackstone announced it is limiting investor withdrawals from its REIT, which is worth an estimated $70 billion.
This move is not a new trend, as Blackstone has been limiting monthly investor withdrawals since November. A clause in Blackstone’s standard shareholder agreement allows the company to limit withdrawals if the total amount of the withdrawal requests exceeds 5% of the fund’s net asset value. In what can be seen as a sign of the times for the troubled real estate market, Blackstone hasn’t released an estimate on when it may fulfill all investor redemption requests.
Blackstone investors requested a combined $4.5 billion in redemptions in April, but the fund only approved the release of $1.3 billion (29%) of the total requests. In March, investors also requested a total of $4.5 billion in redemptions, only for the fund to release $666 million in funds or 15% of the total amount.
So, it’s not necessarily that Blackstone isn’t paying out at all, it’s that investors heading for the exit doors may have to wait in line before they can cash out. It’s understandable that Blackstone exercises the limitations clause on investor redemptions, but the news comes as a severe blow to investors, many of whom have been dealing with the effects of a declining real estate market for the last several months.
It’s not hard to imagine that many of the investors making the recent redemption requests were looking at Blackstone as their safe harbor REIT — the one that they could rely on when other real estate and investment holdings began to underperform. The overall trend of the commercial real estate market is down for several reasons, not the least of which is a steady diet of rate increases from the Federal Reserve.
Why Is Blackstone Suffering Right Now?
Rate increases are hitting the commercial real estate market particularly hard because of the way commercial real estate is financed. Since 2008, REITs, developers and fund managers have taken advantage of historically low interest rates to borrow aggressively because it allowed them to drastically increase the size of their portfolios. However, much of the borrowing for commercial real estate depends on shorter-term financing such as adjustable-rate mortgages (ARMs) or 15-year mortgages that need to be refinanced at some point in the life of the asset.
The need to refinance wasn’t a problem as long as interest rates stayed low. The pro-forma budget on many commercial assets assumed low interest rates, which helped REITs pay out impressive dividends while also making it easy to refinance or sell the asset at a profit to another REIT that could borrow money at a low interest rate to buy it.
When interest rates began to spike as the Fed tried to ward off inflation, a period of easy financing terms and being able to quickly liquidate assets or turn them profitable after renovations turned into the good old days. The new reality caught Blackstone and many other REITs off guard. The question facing Blackstone and other investors now is, how long will the trouble last and how bad will it get?
Hundreds of billions of dollars in commercial real estate assets may be coming up for refinancing in the next several years, and it’s already an impossibility that they will be able to complete those re-fis at the investor-friendly rates the fund managers were planning on. Some of the most dire predictions are for a wholesale slaughter, with foreclosures and plummeting asset values reminiscent of 2008.
Other prognosticators are not so bearish. They believe that there will be a market correction but that the increased liquidity requirements that were imposed on banks after 2008 should be able to stave off massive bank failures if there is a wave of commercial foreclosures.
Some of the increased liquidity requirements were relaxed for regional banks (after an extensive lobbying effort), and this move likely played a role in the collapse of several regional banks collapsed, most notably First Republic Bank, which was taken over by regulators and ultimately sold to JP Morgan Chase last month.
What Does The Future Hold For Real Estate Investors And REITs?
So, what is the long-term future for Blackstone and REIT investors? It probably lies somewhere in between the direst predictions and the most rose-colored expectations of today’s market. At a minimum, it may be a bumpy ride for the next few years, but investors should keep one important thing in mind — real estate’s performance history has shown it to be a resilient asset and a reliable one in terms of delivering returns.
The people who run REITs like Blackstone are well-versed in their fields and have proven track records of performance. As they get used to the new normal, the next stage of deals and acquisitions they make will be more reflective of the new reality confronting investors in terms of acquisitions, opportunity cost and investor returns.
For their part, investors will need to remain patient and increase their due diligence. In the meantime, they may want to consider publicly traded REITs or other investments such as tokenized real estate investing that will allow them to have greater flexibility in terms of liquidating their investment capital when the need presents itself. However, it is unlikely that real estate will cease being a vital investment sector.
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>>> 'Commercial Real Estate Is Melting Down Fast': Elon Musk Warns Home Prices Will Be The Next To Crash — Yet One Property Type Could Prove Resilient
Benzinga
by Jing Pan
June 5, 2023
As a serial entrepreneur who co-founded Tesla Inc., revolutionized the electric car industry and is sending rockets into space, Elon Musk isn’t known for being a real estate guru. But lately, the billionaire has been sounding the alarm for the sector.
“Commercial real estate is melting down fast,” Musk said in a recent tweet. “Home values next.”
He elaborated on the dire forecast during an interview with former Fox News personality Tucker Carlson in April.
“We really haven’t seen the commercial real estate shoe drop. That’s more like an anvil, not a shoe,” Musk said. “So the stuff we’ve seen thus far actually hasn’t even — it’s only slightly real estate portfolio degradation. But that will become a very serious thing later this year, in my view.”
The Tesla CEO pointed out that the work-from-home trend has substantially reduced the use of office buildings around the world. And that does not bode well for commercial real estate.
“Almost all cities at this point have record vacancies of commercial real estate,” Musk said.
But not all commercial real estate is created equal. Here’s one type of property that could be more shockproof than others.
Medical Office Buildings
According to the latest Office National Report from commercial real estate brokerage Marcus & Millichap, medical offices face “fewer headwinds” because of the nature of their practice.
“While most medical office tenants have incorporated some degree of virtual work, hybrid interactions supplement in-person visits rather than replace,” the report said.
In other words, while the remote work trend has transformed the office property landscape, medical office buildings continue to serve a vital purpose because of the need for in-person visits.
Another compelling factor contributing to the resilience of medical offices is America’s aging population. Approximately 10,000 baby boomers reach age 65 in the U.S. every day, and the demand for medical services tends to increase as people grow older.
The report said that this demographic trend could be a backstop for long-term space demand.
To see how resilient medical office buildings are, look at Riverside-San Bernardino. The report highlighted that this region is expected to “maintain the lowest traditional office vacancy rate among major U.S. markets in 2023,” attributed in part to the presence of “strong medical office fundamentals.”
“Medical office vacancy here was at 6.8% in March,” the report said.
Getting A Piece Of The Action
Medical office buildings can be a significant investment, often requiring substantial capital to acquire. The good news? You don’t necessarily have to purchase an entire building. Nowadays, there are multiple avenues for investors to participate.
For instance, some publicly traded real estate investment trusts (REITs) own medical office properties. Investors can gain exposure to the segment by purchasing shares of these REITs.
Here’s a look at two that Wall Street finds particularly attractive.
Healthcare Realty Trust Inc. (NYSE: HR): Healthcare Realty Trust is a REIT that specializes in medical office buildings and outpatient facilities. The company’s portfolio consists of 715 properties in 35 states totaling approximately 41.8 million square feet.
Notably, 72% of the properties are on or adjacent to hospital campuses. The REIT pays quarterly dividends of 31 cents per share, translating to an annual yield of 6.7%. Barclays analyst Steve Valiquette has an Overweight rating on Healthcare Realty Trust and a price target of $25, implying a potential upside of 34%.
Ventas Inc. (NYSE: VTR): Ventas is a healthcare REIT with a broader focus. With more than 1,200 properties in the U.S., Canada and the U.K., the company’s portfolio spans senior living communities, medical offices and outpatient facilities and hospitals as well as life science, research and innovation properties. The stock offers an annual dividend yield of 4.1%. Mizuho analyst Vikram Malhotra has a Buy rating on Ventas and a price target of $53. Since shares trade at $43.70 today, the price target implies a potential upside of 21%.
Income investors are drawn to REITs because they are some of the higher-yielding names in the stock market. But remember, publicly traded REITs — including those that focus on medical properties — are still subject to the stock market’s ups and downs. If you don’t like the volatility associated with publicly traded REITs, note that there are also private market options that allow retail investors to add medical office buildings to their portfolios.
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>>> Commercial real estate poses risks to US banks - and lenders should brace for higher interest rates, JPMorgan CEO Jamie Dimon warns
Business Insider
by Zahra Tayeb
May 23, 2023
https://finance.yahoo.com/news/commercial-real-estate-poses-risks-185708735.html
JPMorgan CEO Jamie Dimon warned commercial-real estate loans could cause problems for US banks.
"There's always an off-sides," he said. "The off-sides in this case will probably be real estate."
The bank's chief also said US lenders should be prepared for benchmark interest rates to climb as high as 7%.
The US banking sector is still recovering from the worst turmoil since the 2008 financial crisis, but its troubles may be far from over.
JPMorgan & Chase CEO Jamie Dimon has warned that the next jolt to the American banking system could come from commercial real-estate (CRE) loans.
Stress has been mounting for months in the commercial property industry, which is being buffeted by headwinds including high interest rates, tighter credit conditions, and work-from-home trends causing office vacancies. That's fueling concerns about potential loan defaults by the more vulnerable borrowers in the sector.
"There's always an off-sides," Dimon said during the bank's investor conference on Monday, per CNBC. "The off-sides in this case will probably be real estate. It'll be certain locations, certain office properties, certain construction loans. It could be very isolated; it won't be every bank," he added.
Additionally, banks - especially smaller ones - should also brace for the risk of benchmark interest rates rising even higher, possibly up to 6% or 7%, according to Dimon. The Federal Reserve has boosted its policy rate to more than 5% currently, from near-zero levels in the first quarter of 2022.
"I think everyone should be prepared for rates going higher from here," Dimon said, according to CNBC.
Small and mid-sized US regional lenders are highly exposed to the CRE industry - financing around 70% of all debt in the sector - and that's made investors anxious about the overall health of the US financial system given the risk of CRE loan defaults.
Dimon said the banking industry is already building capital for potential losses by squeezing its lending activity.
"You're already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan," he said.
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>>> While Brookfield Properties defaulted on $1 billion of loans, they lost $850 million in their prior equity value in these properties.
333 S Hope Street $701 million
333 S Grand Ave $656 million
725 S Figueroa Street $497 million
These properties are essentially fully leased, although there is a substantial amount of space available for sublease. Brookfield must have been facing a lot of lease expirations they didn't think they could fill.
A US debt default would really knock the floor out from under commercial real estate values
Brookfield had previously filed an application to add a residential high-rise to Bank of America Plaza, a 55-story office tower located at 333 S. Hope Street.
The project, named the Residences at 333 South Hope Street, would replace a portion of the building's plaza and parking structure with a new 34-story edifice featuring 366 studio, one-, and two-bedroom dwellings with a 425-square-foot cafe located at street level.
At one time this added residential would have saved their bacon. -
https://downtownla.com/building/residences-at-333-south-hope-street
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Re-post from -
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=171954517
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>>> New York skyscrapers sit empty as Manhattan reels from rise of home working
The Telegraph
by Riya Makwana
May 20, 2023
https://finance.yahoo.com/news/york-skyscrapers-sit-empty-manhattan-110000787.html
Simon Mitchell’s office in Union Square, New York City has had an eerily empty feel since the Covid pandemic. With four in five desks unused in a space with capacity for 300, the marketing manager only goes in when he feels like he might have some company.
Union Square was once known for its bustling bars and restaurants, into which office workers would swarm as they enjoyed their fast-paced city lives. The change in the area today is stark.
Mr Mitchell, his partner and their one-year-old baby moved to Queens just after the pandemic. He has no intention of returning to the office full time.
“Rents are sky high and if you can avoid paying City prices on food and have a flexible lifestyle, why would you go into the office more?” he says.
Not even cheap subway commuting could entice him or his colleagues back to the office, Mr Mitchell adds. “I wouldn’t even consider taking a job that didn’t offer flexibility”, he says.
While New York is starting to show signs of life, only around half the number of workers that should be in the office have returned more than a year on from the pandemic. Vacancy rates for office buildings in central New York have hit 22.7pc, up 11.4pc on pre-pandemic levels.
Meanwhile, the level of workers returning to the office has plateaued at around 60pc, data from The Real Estate Board of New York shows. The consultancy group has warned of a coming wave of “zombie” buildings rendered barely functional due to low vacancy rates.
Some skyscrapers are already lifeless. The 47-story tower at 60 Wall Street has sat empty since 2021, when Deutsche Bank – its only tenant – relocated uptown, to the edge of Central Park. The building’s owners, Singapore’s sovereign wealth fund and Paramount Group, have undertaken an expensive renovation in order to tempt in new tenants.
Eric Adams, the City’s mayor, has urged workers to return to the office as the city struggles with a shifting landscape. He said last year: “You can’t run New York City from home”.
But employees’ desire for flexibility is higher “than ever”, says David Smith, head of Americas insights, global research at Cushman & Wakefield New York. “And this demand is greater here than in any other part of the world,” he adds.
White-collar workers are fleeing New York in huge numbers for a life free from commuting, says Mr Smith, as well as the option to spend more time on their families and other personal pursuits.
“It’s particularly people in their late twenties and thirties who are unwilling to return to the office full time,” he adds.
The lack of people returning to the office has hit the local economy, with remote work costing New York around $4,661 (£3,750) annually for each worker, according to Bloomberg, as employees spend less on food and entertainment at businesses around their offices.
There is currently around 22.7 million sq ft of sublet space in New York, with this figure rising as companies look to shrink their office footprints.
Agents note that the majority of companies releasing space are in the tech or media industries. Spotify recently put 200,000 sq ft on the market for sublease at 4 World Trade Center, vacating five of its floors. Facebook also announced it is subletting roughly 250,000 sq ft of their 1.9 million sq ft office space in Hudson Yards.
In response, companies have mandated a return to the office. Blackrock, the world’s largest asset manager, on Tuesday announced that staff must be on-site for at least four days a week.
In a memo, bosses wrote: “Career development happens in teaching moments between team members, and it is accelerated during market-moving moments, when we step up and get into the mix. All of this requires us to be together in the office.
“We will shift to at least four days per week in the office, with the flexibility to work from home one day per week. This new approach begins on 11 September.”
Other companies have put similar policies in place, JP Morgan recently told its senior bankers to return to the office for a full five days, adding that slackers would be punished for poor attendance.
At the time, the bank said: “As we’ve returned to more normal patterns in our lives and work, we can all appreciate the many benefits of in-person engagement.
“We believe this is especially true when it comes to the importance of being in the office – being together improves the speed of decision making, while also providing valuable opportunities for spontaneous learning and creativity, as well as allowing our professionals to learn through our apprenticeship model.”
Blackrock’s announcement came after it committed to downsizing its headquarters in New York. Fellow asset manager Macquarie and Twitter have also shrunk their footprint.
Surprisingly, the most famous buildings in New York are not the most attractive to big name companies – and have not been for a long time, says Andrew Lim, JLL New York City research director.
LinkedIn’s head office, located in the Empire State Building, is leased for five more years. Agents have speculated that the business will look to reduce the space it occupies once its tenancy is over, with a move to more modern offices in mind.
“These older buildings have characteristics that are not as popular today with occupiers who tend to prefer newer buildings that have amenities, modern finishes and more customizable layouts,” Mr Lim says.
According to JLL, around 25 million sq ft of office space in Manhattan alone has sat empty and on the market for more than 24 months. Agents and investors believe that the next logical step would be to repurpose these buildings, with around six million sq ft of office space being considered for conversion into residential or retail space, among other uses.
On the mainland, Washington DC is leading the way by committing to converting 40 offices into residential buildings, according to Cushman & Wakefield. That trend is already spreading to the east coast, with at least four office buildings due to be converted. If it continues, New York’s empty skyscrapers could become towers of housing.
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>>> Brookfield's Downtown L.A. Trophy Towers Falling Like Dominoes
Payments now have been missed on a $275 million loan for the 41-story EY Plaza.
Globest.com
By Jack Rogers
May 18, 2023
https://www.globest.com/2023/05/18/brookfields-downtown-l-a-trophy-towers-falling-like-dominoes/?slreturn=20230420035147
A year ago, Brookfield Property Partner’s downtown Los Angeles office portfolio encompassed 8 million square feet, including four of the city’s highest-profile trophy towers. It was not a stretch to say that the Canadian REIT dominated the downtown Los Angeles skyline.
What a difference a year makes: Brookfield has now defaulted or missed payments on collateralized mortgage backed security loans encompassing more than $1 Billion that are backed by three of its largest downtown Los Angeles office trophies...
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>>> San Francisco fire sale: downtown high rise selling at a 73% discount
Fox News
by Aislinn Murphy
May 17, 2023
https://finance.yahoo.com/news/san-francisco-fire-sale-downtown-120042720.html
A high-rise office building in San Francisco’s financial district is reportedly being sold for significantly lower than what it had been valued at a few years ago, potentially providing a signal for the city’s office market.
The San Francisco Business Times first reported last week that unnamed sources said the 350 California Street high-rise is being purchased for a per-square-foot price that equates to a value in the $60 million to $67.5 million range. The outlet identified SKS Real Estate Partners as the buyer of the Mitsubishi UFJ Financial Group-owned property.
According to the San Francisco Business Times, the $67.5 million figure marks a 73% decrease from 2020, when the high-rise belonged to Union Bank who listed it for approximately $250 million. An investor from South Korea is reportedly also involved on the buyer’s side.
CBRE reported San Francisco’s office market having a vacancy rate of 29.4% for the first quarter. In the prior quarter, it was 27.6%, according to the real estate company.
COMMERCIAL REAL ESTATE INDUSTRY ON EDGE AS DOWNTOWN EMPTY OFFICE SPACE GOES UNUSED
FOX Business sent an inquiry to SKS Real Estate Partners about the reported purchase. Mitsubishi UFJ Financial Group Americas declined to comment.
With the reported transaction of 350 California Street, participants in San Francisco’s office space market could potentially have a new gauge in terms of pricing. On the seller’s side in the deal, CBRE’s Kyle Kovac and Mike Taquino provided representation.
Derek Daniels, research director for San Francisco at Colliers International, told FOX Business on Tuesday that the 350 California Street sale will be a "great data point for our market right now."
"It will give other market participants a great data point to look to for other potential sales that might be happening," he continued. "It’s a jolt of positivity for the San Francisco market that an institutional, local owner is willing to make a significant investment."
SAN FRANCISCO'S ‘DOOM LOOP’ THREATENS TO GUT DOWNTOWN ECONOMY AS EMPLOYEES WORK FROM HOME
Daniels said the buyer was "going to have to put a lot of capital into the property to get it to the point where it can be leased again, but it is in the north financial district and California Street’s a great address, great street to be on." The Real Deal, which also covered the sale, reported 350 California Street’s vacancy rate was around 75%.
The reported fire sale of the high-rise comes as San Francisco’s office market has continued to deal with high vacancy rates stemming from factors including the COVID-19 pandemic and tech companies located in the city letting their employees work remotely.
San Francisco is the third-best city for jobs in 2022, according to WalletHub.
Daniels described the market as "very challenged right now." He noted San Francisco saw a "massive spike in subleases" early in the pandemic, adding that tech "was easily able to go remote and a lot of firms kind of went that route right away."
Colliers International, where he works, said in its latest office market report for the city that the overall vacancy rate came in at 23% for the first quarter. That proportion was notably higher than the 5.3% in the same three-month period in 2020. Availability has also hit a record high.
Meanwhile, CBRE reported San Francisco’s office market having a vacancy rate of 29.4% for the quarter. In the prior quarter, it was 27.6%, according to the real estate company.
Daniels expressed optimism about return-to-office recovery in the long-term.
"The sentiment in the industry is that with announced layoffs, I think the pendulum is going to swing back in management’s favor to get folks back in the office," he said.
He also pointed to recent growth in the artificial intelligence sector.
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>>> Commercial Real Estate Prices in the US Fall for First Time Since 2011
Bloomberg
by Rich Miller
May 17, 2023
https://finance.yahoo.com/news/commercial-real-estate-prices-us-210410652.html
(Bloomberg) -- US commercial real estate prices fell in the first quarter for the first time in more than a decade, according to Moody’s Analytics, heightening the risk of more financial stress in the banking industry.
The less than 1% decline was led by drops in multifamily residences and office buildings, data culled by Moody’s from courthouse records of transactions showed.
“Lots more price declines are coming,” Mark Zandi, Moody’s Analytics chief economist, said.
The danger is that will compound the difficulties confronting many banks at a time when they are fighting to retain deposits in the face of a steep rise in interest rates over the past year.
Excluding farms and residential properties, banks accounted for more than 60% of the $3.6 trillion in commercial real estate loans outstanding in the fourth quarter of 2022, with smaller institutions particularly exposed, according to the Federal Reserve’s semi-annual Financial Stability Report published last week.
“The magnitude of a correction in property values could be sizable and therefore could lead to credit losses” at banks, the report said.
Fed Vice Chair for Supervision Michael Barr told lawmakers on Tuesday that supervisors have increased their oversight of financial institutions with significant exposure to the sector. “We’re looking quite carefully at commercial real estate risks,” he said.
The price declines seen so far have been more marked for higher-priced properties, according to commercial property company CoStar Group. Its value-weighted price index has fallen for eight straight months and in March stood 5.2% lower than a year ago.
Transactions though have been limited in a market still coping with the aftershocks of the pandemic.
The rise in employees working from home has driven some downtown retailers and restaurants out of business and forced owners of office buildings to reduce rents to retain tenants or to sell all together.
What Bloomberg Economics Says
“Regional and community banks currently account for a disproportionately large share of office real estate lending. Further consolidation of the banking industry may prove to be the solution that allows the banking industry at-large to work out problem loans.”
- Stuart Paul (economist)
Post Brothers recently bought a Washington office building that went for $92.5 million in the fall of 2019 for $67 million, while Clarion Partners is offering a San Francisco office tower for roughly half of what it paid around a decade ago.
Banks held more than $700 billion in loans on office buildings and downtown retailers in the fourth quarter of last year, according to the Fed. More than $500 billion of that was extended by smaller lenders.
Lending officers at banks told the Fed that they further tightened credit standards on commercial real estate loans in the first quarter.
Paul Ashworth, chief North America economist for Capital Economics, sees the risk of a “doom loop” developing, with a pull-back in lending by banks leading to a steeper drop in commercial real estate prices, in turn prompting even further cuts in credit.
One potential bright spot: The big run-up in prices in past years has left many borrowers with substantial equity cushions in the properties they own. That reduces the dangers of defaults and limits the potential losses for lenders.
The loan-to-value ratio of mortgages backed by office buildings and downtown retail properties was in the range of 50% to 60% on average at the end of last year for credit extended by bigger banks, based on data collected by the Fed.
“Delinquencies and defaults will rise, but I don’t think we’ll see a lot of forced sales,” Zandi said.
He forecasts prices dropping about 10%, assuming the US skirts a recession. If it doesn’t, the declines could get a lot worse.
“We’re on a razor’s edge here,” he said.
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>>> American Tower Corporation: Reiterating BUY as AFFO tops consensus
Summary
https://finance.yahoo.com/research/reports/ARGUS_3627_AnalystReport_1683112910000?yptr=yahoo&ncid=yahooproperties_plusresear_nm5q6ze1cei
American Tower operates wireless and broadcast communications real estate, including wireless towers, distributed antenna systems, and managed rooftop systems. The company leases multitenant space to wireless service providers and radio and television broadcasters. AMT has over 226,000 towers and small cell systems networks, with 43,000 properties in the U.S. and Canada and about 182,000 international properties. International sites represent about 45% of revenues. Top U.S. tenants include T-Mobile, AT&T, and Verizon, with T-Mobile accounting for about 16% of revenue. At the end of 2021, AMT expanded into data centers with the acquisition of CoreSite, a hybrid IT provider with 25 interconnected data centers in the U.S. The company has ongoing plans to leverage its U.S. data centers. The current market cap is $95 billion. The shares are a component of the S&P 500.
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>>> Home prices are back on the rise as the spring market proves more competitive than expected
CNBC
MAY 2 2023
by Diana Olick
https://www.cnbc.com/2023/05/02/home-prices-rise-in-march-amid-competitive-spring-market.html
KEY POINTS
Home prices in March rose for the third consecutive month, on a seasonally adjusted basis. New listings are 30% lower than pre-pandemic norms for this time of year.
Nearly half of homes on the market are selling within two weeks.
After cooling for the better part of last year, home prices are on the rise again.
A sharp drop in new listings, adding to an already meager supply of homes for sale, is leading to renewed bidding wars and more homes selling for above asking price.
Home prices rose a seasonally adjusted 0.45% in March from February, according an early look at the Black Knight Home Price Index provided exclusively to CNBC. After revisions to January and February reads, this is now the third consecutive month of price increases.
Roughly 30% fewer new listings came on the market in March compared with pre-pandemic norms. The deficit continues to grow, as fewer potential sellers want to list their homes in today’s higher-mortgage-rate environment. This comes in the heart of the spring housing market, when demand is historically highest.
“A modest bump in homebuyer demand ran headlong into falling for-sale supply,” said Andy Walden, Black Knight’s vice president of enterprise research. “Just five months ago, prices were declining on a seasonally adjusted month-over-month basis in 92% of all major U.S. markets. Fast forward to March, and the situation has done a literal 180, with prices now rising in 92% of markets from February.”
Competition among buyers is not only pushing prices higher but also accelerating the market again. Nearly half of homes on the market are selling within two weeks, the highest share in nearly a year, according to Redfin, a real estate brokerage.
The national gains, however, do not show sharp differentials in price strength and weakness regionally. Prices in the West, where metropolitan markets had been most expensive, are well off their recent peaks, while 40% of other major markets have seen prices return to peak levels.
Of the nation’s 50 largest housing markets by population, just Austin, Salt Lake City and San Antonio are seeing prices fall month to month. Prices in Phoenix and Dallas are flat.
The initial softening in home prices came early last summer, when mortgage rates had basically doubled in the span of a few months. Rates are now off their recent peak, but not by much. The average rate on the popular 30-year fixed mortgage has been bouncing between 6% and 7%; in the first few years of the pandemic it hit more than a dozen record lows, generally hovering around 3%.
Buyers are clearly getting used to the higher-rate environment, as sales have strengthened for the past few months. Homebuilders have recently reported strong quarterly earnings, as they use incentives like mortgage rate buydowns to pull in sales. Builders also have far more supply and are clearly benefitting from the lack of existing homes for sale.
A separate report released Tuesday from CoreLogic focuses on home price comparisons from a year ago, but also shows prices gaining month to month. Prices in March were just over 3% higher than last year nationally, but markets in the sunbelt are far outpacing cities in the West and Northeast. Prices in Miami were up nearly 15% from a year ago.
Meanwhile, home prices in 10 states are lower than they were last March, according to CoreLogic: Washington (-7.4%), Idaho (-3.6%), Nevada (-3.5%), Utah (-3.4%), California (-3%), Montana (-2.3%), Oregon (-2%), Colorado (-1%), Arizona (-0.9%) and New York (-0.6%).
“The monthly rebound in home prices underscores the lack of inventory in this housing cycle,” wrote Selma Hepp, CoreLogic’s chief economist in a release. “In addition, while the lack of affordability generally weighs on home price growth, mobility resulting from remote working conditions appears to be a current driver of home prices in some areas of the country.”
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>>> Half a million landlords to leave buy-to-let sector as baby boomers retire
Yahoo Finance
by Eir Nolsoe
Mon, April 17, 2023
Nearly half a million landlords are expected to sell up in the next five years, as the baby boomer generation retires and cashes in their nest eggs.
Around 140,000 landlords sold up and left the market last year after reaching retirement age, according to research from estate agent Hamptons. Almost 100,000 a year are expected to follow them for the next half decade.
The wave of landlord retirement is set to put more upward pressure on rents as the number of lettable homes available drops.
High prices, rising interest rates and growing red tape means new buy-to-let landlords are not replacing those quitting the market in the same numbers.
Aneisha Beveridge, head of research at Hamptons, said: “Over the next couple of years, we're expecting rental growth to be quite strong and probably outpace house price growth.”
She added: “One of the big reasons for that is that we think landlords will continue leaving the sector and we can't see that huge numbers will enter.”
“Age and retirement planning is a big factor” for investors deciding to call it quits, Ms Beveridge said.
The first buy-to-let mortgage was launched in 1996 and many landlords moved into the market as an investment for their retirement.
Over half of mortgaged rental properties were bought within 11 years of such loans being introduced and many of these early adopters are now cashing out.
The average age of buy-to-let landlords now stands at 60 and roughly 96,000 property investors will reach retirement every year over the next half-decade.
Many are expected to sell rather than continue managing their properties in retirement. Changes to taxation and regulation also meant “some landlords have decided that they just don't want the hassle”, Ms Beveridge said.
Retiring landlords accounted for nearly three quarters of buy-to-let property sales last year, Hamptons found.
Almost half of buy-to-let properties sold last year were bought at least 15 years prior, up from a third in 2018.
The expected wave of retirees cashing out is expected to push sales of buy-to-let properties to a new peak in the coming years, Hamptons said.
However, many are likely to be bought as homes, rather than rental properties.
Soaring house prices and rising interest rates have put the buy-to-let market out of reach for many later generations, Ms Beveridge said.
"We have lived through a decade or longer with people struggling to afford to buy their own home, never mind have the cash to buy additional buy-to-lets.
“I think it's that sort of demographic change that we're going to start seeing play out.”
Separate research from Hamptons found that high interest rates have destroyed hopes of building buy-to-let portfolios in four in five local authorities.
Historically, buy-to-let investors have purchased new properties by taking equity out of their existing properties to get new mortgages.
Last year, portfolio landlords in every single local authority in England and Wales could have boosted their income by using £100,000 to put a 25pc deposit on a new property that would generate rent.
However, most would now lose money on the same transaction at today's rates.
A lack of supply of homes available to rent has sent prices soaring. Rents have risen by 11pc on average in the 12 months to March, according to Hamptons data, marking the second fastest annual increase in at least a decade. In Inner London, prices have risen by nearly a fifth.
In 263 of the 330 local authorities in England and Wales, buy-to-let landlords would be better off using their savings to pay down their existing debt to boost the profit margins on the properties that they already own.
Hamptons’ calculations were based on a landlord with a property portfolio in a company structure worth £1 million, with mortgages at an average of 60pc.
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>>> Blackstone Raises More Than $30 Billion for Giant Real Estate Fund
Bloomberg
by Natalie Wong
Apr 11, 2023
https://finance.yahoo.com/news/blackstone-raises-more-30-billion-113156238.html
(Bloomberg) -- Blackstone Inc. has closed on its largest global property drawdown fund, targeting opportunistic deals across sectors such as rental housing, hospitality and data centers.
The company secured $30.4 billion of total capital commitments for the fund, called Blackstone Real Estate Partners X, according to a statement Tuesday. Blackstone’s latest fund is the largest of that type, according to PitchBook data going back to 2002.
The real estate market has come under pressure over the past year due to a pullback across commercial-property lending, as borrowing costs skyrocketed. At the same time, the stocks of public real estate investment trusts have also suffered amid the uncertainty in the market and increasing concerns about certain property types such as offices.
“Pullback with all forms of capital will create opportunities,” said Kathleen McCarthy, global co-head of Blackstone Real Estate. “We can use our capital and expertise to capitalize on the moment for our investors.”
Blackstone’s latest fundraising helps cement the private equity firm’s status as a powerhouse in the real estate market. Blackstone’s real estate business, which started in 1991, now has $326 billion of investor capital under management.
One of Blackstone’s real estate vehicles has faced a rougher past few months. Blackstone Real Estate Income Trust, which caters to wealthy individuals, has been facing heightened withdrawal requests recently.
The firm started to raise money for the large property drawdown fund last year. Three of its strategies — global, Asia and Europe — now have a total of $50 billion in capital commitments, the firm said.
Blackstone Real Estate’s portfolio is about 80% concentrated in properties such as logistics, rental housing, hospitality, lab offices and data centers.
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>>> Iron Mountain Incorporated (IRM), founded in 1951, is the global leader for storage and information management services. Trusted by more than 225,000 organizations around the world, and with a real estate network of more than 90 million square feet across approximately 1,450 facilities in approximately 50 countries, Iron Mountain stores and protects billions of valued assets, including critical business information, highly sensitive data, and cultural and historical artifacts. Providing solutions that include secure records storage, information management, digital transformation, secure destruction, as well as data centers, cloud services and art storage and logistics, Iron Mountain helps customers lower cost and risk, comply with regulations, recover from disaster, and enable a more digital way of working
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>>> Extra Space (EXR) to Acquire Life Storage in an All-Stock Deal
Zacks Equity Research
April 4, 2023
https://finance.yahoo.com/news/extra-space-exr-acquire-life-150503229.html
Extra Space Storage Inc. EXR has struck a deal to acquire Life Storage, Inc. LSI in an all-stock transaction. The move will result in the combined company becoming the largest storage operator in the country with more than 3,500 locations, more than 264 million square feet and serving more than two million customers. Life Storage earlier rejected a bid from the industry behemoth Public Storage PSA.
The move seems a strategic fit as within the first year of closing, the transaction is expected to be accretive to core funds from operations (FFO) per share and is also expected to be leverage neutral. The transaction is currently expected to close in the second half of 2023 and is subject to Extra Space and Life Storage shareholders’ nod and the satisfaction of other customary closing norms.
Shares of Life Storage were up 3.54% during Monday’s regular trading session, while shares of Extra Space were down 5.17%.
Per the agreement terms, shareholders of Life Storage will get 0.8950 of an Extra Space share for each share they own. Based on Extra Space's share price close on Mar 31, 2023, this represents a total consideration of roughly $145.82 per share. Public Storage earlier offered $129 per share for Life Storage, which was rejected by the latter, noting that the offer “significantly” undervalued the business.
The combined company is expected to have a pro forma equity market capitalization of around $36 billion and a total enterprise value of roughly $47 billion. When the transaction closes, shareholders of EXR are expected to own around 65% of the combined company, while shareholders of LSI are to own the rest 35%. Also, there will be an expansion of Extra Space’s board from 10 to 12 directors, comprising nine directors from Extra Space's board and three directors from Life Storage.
The transaction will increase the size of Extra Space's portfolio by more than 50% by store count. Particularly, it will add Life Storage's 1,198 properties — including 758 wholly owned, 141 joint ventures and 299 third-party managed stores — thereby adding more than 88 million square feet to the portfolio.
In addition to offering a “transformative scale” and enhanced diversification, the transaction is expected to generate at least $100 million in annual run-rate operating synergies from general and administrative and property operating expense savings, together with improved property operating revenues and tenant insurance income.
Based in Salt Lake City, Utah, Extra Space is a notable name in the self-storage industry and offers a vast array of well-located storage units to its customers, including boat storage, recreational vehicle storage and business storage. EXR is currently the second-largest owner and/or operator of self-storage properties and is the largest self-storage management company in the United States.
Here’s how the shares of Public Storage, Extra Space and Life Storage have performed over the past three months against the industry’s decline of 1.4%.
Currently, PSA, EXR and LSI have a Zacks Rank #3 (Hold).
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CoStar Group (CSGP) - >>> Washington, D.C.-based CoStar Group (NASDAQ:CSGP) is a diversified real estate services company.
https://finance.yahoo.com/news/7-great-growth-stocks-buy-110030242.html
Best known for its public-facing platforms such as ApartmentFinder.com, LoopNet and BizBuySell, the company also provides information and analysis services to the commercial real estate industry.
Sure, given the current situation with commercial real estate, I admit it may seem odd to consider CSGP stock one of the best growth stocks to buy. After all, isn’t commercial real estate facing numerous headwinds right now? Yes, but given its subscription-based revenue model, and the strong need for its services, CoStar could stay resilient, despite the near-term weakness in the industry.
Long-term, with its deep economic moat and other advantages, the company has a strong chance of continuing to grow at an above-average pace. This will enable B-rated CSGP to sustain its high valuation (51.6 times earnings) and climb up to higher prices.
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Realty Income - >>> Realty Income (NYSE:O) has been a dependable income stock over the years. The real estate investment trust (REIT) delivered its 100th consecutive quarter of dividend increases in late 2022 and has boosted its payout 117 times since its initial public offering (IPO) in 1994. It has delivered more than 25 years of dividend growth, putting it in the elite category of a Dividend Aristocrat.
The REIT focuses on buying essential retail properties (think home improvement, grocery, and convenience stores) and industrial real estate. It triple net leases (NNN) the freestanding properties to high-quality tenants, making them responsible for building insurance, maintenance, and real estate taxes. That provides Realty Income with very stable income to continue increasing its dividend.
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https://www.fool.com/investing/stock-market/types-of-stocks/income-stocks/
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>>> US real estate market in ‘big trouble,' expert warns
Fox News
by Kristen Altus
January 13, 2023
https://finance.yahoo.com/news/us-real-estate-market-big-110000451.html
As the Federal Reserve continues its hawkish market reset – which has contributed to a rise in interest and mortgage rates – real estate experts are sounding the alarm that "big trouble" lies ahead for the U.S. market.
"When you have a rise and increase in interest rates like we've had, that is a big problem for housing. Interest rates are like the mother's milk of housing," Pulte Capital CEO Bill Pulte told FOX Business’ Maria Bartiromo Thursday. "And if you cut it off, you're in big trouble. And when you've had these massive increases in interest rates, it just puts a lot of things to a stop."
"It's a tale of two cities. I hate to relate it to politics, but the more red states, places like Florida, Texas, the office buildings are pretty busy. Business is booming. There's more demand and supply," Thor Equities CEO Joe Sitt said later on "Varney & Co." "It's more, I hate to say it, markets like ours here in New York, Chicago, San Francisco is a ghost town. San Francisco's been destroyed."
One of the nation’s largest homebuilders, KB Home, released its Q4 report Wednesday which indicated more signs of housing weakness. According to the report, KB Home saw a 68% cancelation rate on new construction projects.
Mortgage rates also increased last week, with the 30-year rate rising to 6.48% and the 15-year mortgage coming in at 5.73%, up from 5.68% the week prior. Higher mortgage rates continue to test homebuyer affordability, according to the Mortgage Bankers Association (MBA).
The U.S. housing market has "big trouble" ahead, Pulte Capital CEO Bill Pulte said on "Mornings with Maria" Thursday, January 12, 2023.
Fed Chair Jerome Powell warned on Tuesday that raising interest rates to slow the economy "are not popular" in the short term, and could even create political opposition.
"Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time," Powell said Tuesday in remarks prepared for delivery at a conference held by Sweden's central bank. "But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy."
"It’s going to be tough," Pulte spoke of the real estate market. "The [KB Home] cancelation rate... was through the roof, something like 68%, which is just enormous. Usually, that number is around 10, at most 20%. So I think we've got a tough road ahead this year, and I think you'll start to see that in earnings toward the back half of this year and frankly, into next year. I think the earnings are going to continue to deteriorate."
Property investor Sitt claimed it’s "going to take some time" for metropolitan areas to see a rebound in their commercial and personal housing markets.
"I think the cities are going to wake up and try to react," Sitt said. "I would say San Francisco rents are probably down somewhere in the neighborhood of about 35%. No exaggeration. It's dramatic what's going on in that marketplace."
Real estate investments are going where the money "feels comfortable," according to Sitt, who predicted that Sunbelt states might experience less volatility this year due to a manufacturing job boom.
"I hate, again, relating to politics, but from a global place, the autocratic countries are doing the best. Singapore, Dubai, Monaco. Some people joke Florida and Texas is part of that," the Thor Equities CEO said. "The world order is changing, particularly because of some of the conflict with China. So you've got this tremendous onshoring wave, and so all of the Southeast now is going to get their next economic benefit. I call it the battery belt, that battery belt market of all those jobs that are going to create for manufacturing, is going to have ripple effects there."
Pulte contested that his firm has yet to find promising opportunities in the real estate sector so far this year under rising rate pressure.
"Not yet. It's going to be pretty interesting," Pulte said. "The M&A [mergers and acquisitions] environment in housing and building products is something to keep an eye on over the next six, 12, 18 months. It's not time yet."
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>>> US Census Bureau redefines meaning of 'urban' America
by By MIKE SCHNEIDER
Associated Press
https://www.msn.com/en-us/news/us/us-census-bureau-redefines-meaning-of-urban-america/ar-AA15Me3b?OCID=ansmsnnews11
More than 1,100 cities, towns and villages in the U.S. lost their status as urban areas on Thursday as the U.S. Census Bureau released a new list of places considered urban based on revised criteria.
Around 4.2 million residents living in 1,140 small cities, hamlets, towns and villages that lost their urban designation were bumped into the rural category. The new criteria raised the population threshold from 2,500 to 5,000 people and housing units were added to the definition.
The change matters because rural and urban areas often qualify for different types of federal funding for transportation, housing, health care, education and agriculture. The federal government doesn't have a standard definition of urban or rural, but the Census Bureau’s definition often provides a baseline.
“The whole thing about urban and rural is all about money,” said Mary Craigle, bureau chief for Montana’s Research and Information Services. “Places that qualify as urban are eligible for transportation dollars that rural areas aren’t, and then rural areas are eligible for dollars that urban areas are not.”
The Census Bureau this year made the biggest modification in decades to the definition of an urban area. The bureau adjusts the definition every decade after a census to address any changes or needs of policymakers and researchers. The bureau says it is done for statistical purposes and it has no control over how government agencies use the definitions to distribute funding.
There were 2,646 urban areas in the mainland U.S., Puerto Rico and U.S. islands on the new list released Thursday. Among them were three dozen new urban areas that were rural a decade ago.
“This change in definition is a big deal and a substantial change from the Census Bureau’s long-standing procedures," said Kenneth Johnson, a senior demographer at the University of New Hampshire. “It has significant implications both for policy and for researchers.”
Under the old criteria, an urbanized area needed to have at least 50,000 residents. An urban cluster was defined as having at least 2,500 people, a threshold that had been around since 1910. Under this definition, almost 81% of the U.S. was urban and 19% was rural over the past decade.
Under the new definition, hammered out after the 2020 census, the minimum population required for an area to be considered urban doubled to 5,000 people. Originally, the Census Bureau proposed raising the threshold to 10,000 people but pulled back amid opposition. The new criteria for urban areas shift the urban-rural ratio slightly, to 79.6% and 20.4%, respectively.
In 1910, a town with 2,500 residents had a lot more goods and services than a town that size does today, “and these new definitions acknowledge that,” said Michael Cline, North Carolina’s state demographer.
With the new criteria, the distinction between an urbanized area and an urban cluster has been eliminated since the Census Bureau determined there was little difference in economic activities between communities larger and smaller than 50,000 residents.
Of the 50 states, California was the most urban, with 94.2% of its population living in an urban area. Vermont was the most rural, with almost 65% of its population residing in rural areas.
For the first time, the Census Bureau is adding housing units to the definition of an urban area. A place can be considered urban if it has at least 2,000 housing units, based on the calculation that the average household has 2.5 people.
Among the beneficiaries of using housing instead of people are resort towns in ski or beach destinations, or other places with lots of vacation homes, since they can qualify as urban based on the number of homes instead of full-time residents.
“There are many seasonal communities in North Carolina and this change in definition to housing units may be helpful in acknowledging that these areas are built up with roads, housing, and for at least one part of the year, host many thousands of people," Cline said.
Housing, instead of population, is also going to be used for density measures at the level of census blocks, which typically have several hundred people and are the building blocks of urban areas. The Census Bureau said using housing units instead of population will allow it to make updates in fast-growing areas in between the once-a-decade censuses.
But there's another reason for switching to housing units instead of population: the Census Bureau's controversial new tool for protecting the privacy of participants in its head counts and surveys. The method adds intentional errors to data to obscure the identity of any given participant, and it is most noticeable in the smallest geographies, such as census blocks.
“The block level data aren't really reliable and this provides them an opportunity for the density threshold they picked to be on par with the population," said Eric Guthrie, a senior demographer in the Minnesota State Demographic Center.
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>>> Welltower: Exposing The Shell Game
Hindenburg Research
Published on December 7, 2022
https://hindenburgresearch.com/welltower/
Welltower Inc. (NYSE:WELL) is a healthcare REIT with a $32.1 billion market cap that is the largest owner of senior housing facilities in the U.S., with investments in 1,568 properties.
Until last month, Welltower’s largest tenant was a non-profit health system in the Midwest called ProMedica, which accounted for 12% of the company’s annual Net Operating Income (NOI). ProMedica faced severe distress and began breaching bond covenants in early 2022, threatening Welltower’s investment.
Given its size as Welltower’s largest operator, Welltower has stressed the importance of ProMedica’s financial health as a key risk factor.
On November 7th, 2022, Welltower announced a solution: it would transfer the operation of 147 skilled nursing facilities out of ProMedica and into a new joint venture with a health care manager called Integra Health. The deal helped fuel a 9% spike in Welltower’s stock.
Welltower’s CEO said that Integra provided a “well-capitalized strategic partner” resulting in Welltower being paid 4% more in cash rent under the new JV, coming out ahead despite the distressed situation.
Despite the high praise from Welltower’s management and claims of being well-experienced in skilled nursing, Integra seems to barely exist. The entity was registered 6 months ago, according to Delaware corporate records. Its website was registered on the same day.
Integra’s CEO, 29-year-old David Gefner, appears to have no background in the skilled nursing space at all. Integra has no employees on LinkedIn except for Gefner, who claims to have worked at the 6-month-old entity for 11 months.
A senior ProMedica employee told us Integra had no operating experience and came in after the company couldn’t find genuine operators. A former Welltower executive told us he had never heard of Gefner, saying that Integra would need “a lot of people” to manage the deal with Welltower.
Red flags indicate that another of Welltower’s distressed deals, a 2021 restructuring with its troubled 4th largest operator, Genesis Healthcare, mirrored the latest ‘miracle’ deal.
In late 2021, evidence suggests that Welltower quietly disposed of 21 of its distressed Genesis assets to a Gefner-affiliated firm, once again handing skilled nursing facilities over to an inexperienced manager and clearing its books of the mess.
We found signs of overt conflicts of interest with the deal. Gefner previously worked at the investment firm that owned Genesis, according to contact database records. Gefner’s own private equity firm at one point shared an office suite with an affiliate of the firm that ran Genesis. None of these relationships have been disclosed by Welltower or Gefner.
In addition to his CEO role at Integra, Gefner is CEO of private equity firm “Perigrove”, which at one point claimed to have raised $3 billion. We found no regulatory Form ADVs or Form Ds for Gefner or Perigrove. We also found no association with a broker/dealer, indicating that Perigrove may have either lied about the size of its capital raises or raised the capital illegally.
Perigrove claimed on its website to have run 12 prior real estate projects. We found no evidence to support this. Real estate records show all were led by other developers.
Perigrove had a documented role in only 1 of the claimed projects on its website that we could find; an attempted launch of a $30 million crypto token to raise funds for a property once dubbed by Crain’s Business as the “city’s worst illegal hotel”. The token offering looks to have failed.
Perigrove’s website claims it operates out of a prestigious office building in Manhattan. We visited and found the company has no presence at its claimed address.
Instead, we found Perigrove’s office on the outskirts of New York City, in a strip mall sharing an address with an auto parts store. On the front door of the building, Perigrove’s name was spelled wrong, as “Perigove”, with stickers.
Welltower trades at a premium to competitors, with its price/estimated NTM AFFO at 22.7x, 22% higher than the average multiple of comparably-rated peers. It has the lowest dividend yield of its peers, indicating that the market views it as a safe asset.
Welltower’s valuation comes despite an industry in turmoil: a 2022 BDO report reported that 50% of long term / post-acute home health facilities had defaulted in the last 12 months. The report surveyed 100 Healthcare CFOs and found that one in four who had not defaulted in 2021 were concerned they would default on bond or loan covenants in 2022.
Welltower also faces significantly larger maturities moving past 2023, with 2024 and 2025 debt totaling over $3.7 billion in a rising interest rate environment.
Meanwhile, the company has been diluting its equity via at-the-market (ATM) offerings, having raised ~$4.5 billion in total net proceeds in the past 2 years. It has raised over $400 million in 5 months through its latest ATM, with $2.57 billion in remaining capacity as of September 30, 2022.
Overall, we think Welltower is an overpriced-to-perfection REIT obfuscating its distressed assets, raising questions about both its portfolio and the credibility of management as it attempts to raise capital from investors.
Initial Disclosure: After extensive research, we have taken a short position in shares of Welltower, Inc. (NYSE:WELL). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom of the report.
Introduction
Welltower Inc. (WELL) is a healthcare REIT with a $32.1 billion market cap that is the largest owner of senior housing facilities in the U.S., with investments in 1,568 properties. [Pg. 2] Its portfolio also includes an additional 272 properties in Canada and the UK. [Pg. 2] The company reports 3 segments: senior housing operations (54% of assets), triple net leases (28% of assets) and outpatient medical (18% of assets). [Pgs. 2, 78, and 102]
Bull Case: Welltower Is A Late-Stage Pandemic Reopening Play That’ll Be The Long-Term Beneficiary Of The Aging Baby Boomer Generation
Welltower’s portfolio was significantly negatively impacted by COVID, experiencing a decrease in senior housing operating occupancy, from 86.9% prior to the pandemic (Q1 2020) to 79.2% currently (Q3 2022). [Pg. 1 and Pg. 1] The trend has reversed off lows of 72.7% in Q1 2021, providing bulls hope the company’s operating occupancy can recover to pre-pandemic levels. [Pg. 1, Pg. 3]
On a long-term basis, bulls also hope that Welltower will be the beneficiary of an aging baby boomer generation’s need for nursing home care, propelling them back toward “peak occupancy” of 91.2% that the company reached in Q4 2015. [Pg. 16]
Despite stress across the industry, the company is considered by its investors to be an effective allocator of capital, having raised $4.5 billion in total net proceeds via at-the-market (ATM) stock issuances in 2021 and 2022. [Pg. 21, Pg. 97] Welltower has said it is using the proceeds of the ongoing offerings to mainly invest in new projects. [Pg. 36, Pg. 8 and Pg. 8]
Before diving into major risks the market seems unaware of, we first want to cover several general risks to the primary bull thesis.
General Risk #1: A Premium Valuation Compared To Peers With Similar Risk Profiles. Welltower’s Price/2023E Adjusted Funds From Operation (AFFO) Is 22% Higher Than Its Peer Average
Welltower has convinced the market that its senior living operations are set to rebound. The company trades at a 3.4% forward dividend yield, pricing in far less risk than peers like Ventas (3.89%), Sabra Healthcare (9.1%) Omega Healthcare (8.9%) and Healthpeak Properties (4.6%).
(Source: Factset)
The company also trades at a sizeable premium to peers in key metrics with similar Baa1 credit ratings. Its price/estimated NTM AFFO is 22.69x, 22% higher than the average multiple of comparably-rated Ventas and Healthpeak. Its NTM EV/EBITDA is 21% higher than the Ventas and Healthpeak average of 17.65x.
Both metrics indicate that the market sees the company’s senior housing portfolio as a low-risk, high growth investment that should be afforded a premium to competitors.
With an average building age of 19 years, we expect Welltower’s recurring and renovation capex, which was $282.6 million for FY 2021, will continue to rise. [Pg. 51, Pg.1]
Despite this, the sell side projects an aggressive 28% increase in FFO by 2024, pricing Welltower at a 19.2x forward 2024 multiple.
General Risk #2: An Industry Facing A Massive Wave Of Defaults And Skyrocketing Operating Costs
The fundamentals of Welltower’s industry have deteriorated post-COVID. While senior housing occupancy has increased 1% over the last quarter, many operators are still in significant distress.
A 2022 BDO report stated that 50% of long term / post-acute home health facilities had defaulted in the last 12 months. [Pg. 10] The report surveyed 100 Healthcare CFOs and found that one in four who had not defaulted in 2021 were concerned they would default on bond or loan covenants in 2022.
(Source: BDO Presentation)
Adding to this burden, the largest operating cost for senior living is staffing, a cost that is rapidly increasing due to labor shortages and inflation. McKinsey estimates that clinical wage growth will outpace inflation over the next two years.
We spoke with a senior executive of a large industry operator and Welltower partner who told us that government reimbursements have not caught up with rising labor costs, putting additional stress on the industry even despite some occupancy increases:
“Nursing homes are really struggling… there’s wage inflation, even outside of agency you’re seeing 6 to 8% wage inflation, and there’s a lag before government reimbursement catches up with that and the increases that CMS through Medicaid and Medicare that have been supporting are not covering those kinds of wage increases yet.”
Residual effects of the COVID pandemic also continue to ripple through nursing homes, according to CMS data. This has resulted in continued reluctance by the industry’s once-addressable market to move into an assisted living or nursing facility.
The industry has also faced other recent issues, such as an over-build of nursing supply and regulations meant to curb profits. [1,2]
The struggles of senior care providers directly affect Welltower, which derives 44.9% of its Net Operating Income (NOI) from its senior housing operations segment. [Pg. 1] In bankruptcy, leases can be canceled or renegotiated, which affects Welltower’s direct investment in properties that it leases to operators.
“Skilled nursing is just a very challenging business,” one industry executive told us.
General Risk #3: A Large, Expensive Debt Load And Continued Dilutive Capital Raises
A general risk affecting REITS is debt burden. Welltower has a $15 billion debt load, with the company reporting net debt to adjusted EBITDA of 6.93x. [Slide 23] The company faces higher interest expense pressures going forward due to several factors:
Rising interest rates;
The company’s debt rating, currently at BBB+ (3 notches above junk); and
Roughly $2.3 billion needed from refinancings in 2023-2024.
The company also faces significantly larger maturities moving past 2023, with 2024 and 2025 debt totaling over $3.7 billion. [Pg. 25]
(Welltower November 2022 Presentation [Pg. 25])
(Source: Welltower Investor Presentation)
Meanwhile, the company has been diluting its equity via a $3 billion at-the-market (ATM) offering since April 2022. [Pg. 21] In just 5 months it has raised over $400 million through the offering, with $2.57 billion in remaining capacity as of September 30, 2022.
The company has indicated that the capital raises are mainly focused on taking advantage of investment opportunities and growing Welltower’s portfolio. [Pg. 4]
Beyond general risks, we have identified several key risks that we think raise serious questions about Welltower’s portfolio, along with management’s credibility.
Key Risk #1: Welltower’s Largest Set of Properties Is Being Propped Up By A Shell Game While the Company Dumps Shares On Equity Holders
Last month, on November 7th 2022, Welltower announced that it had found a new partner for a portfolio of 147 skilled nursing facilities whose operator, ProMedica, was distressed. The company described its new partner as a well-capitalized JV partner that was willing to pay 4% more in cash rent.
Critically, we believe the new JV partner is little more than a sham designed to obfuscate weakness in the portfolio.
2021-Present: Welltower’s Largest Tenant, ProMedica, Represented 12% of 2021 NOI
ProMedica Faced Severe Distress And Began Breaching Bond Covenants In 2022, Threatening Welltower’s Investment
Until recently, Welltower’s largest tenant was a non-profit health system in the Midwest called ProMedica, according to company SEC filings. [Pg. 92] Welltower acquired the properties in 2018 after the prior tenant declared bankruptcy and ProMedica took over operations. As of year-end 2021, Welltower was invested in 205 properties run by Promedica, which accounted for 12% of its net operating income for the year. [Pg. 92]
(Welltower 2021 Annual Report [Pg. 92])
Given its size as Welltower’s largest operator, Welltower stressed the importance of ProMedica’s financial health in the risk factors of its most recent annual report:
“We depend on ProMedica Health System (“ProMedica”) for a significant portion of our revenues and any failure, inability or unwillingness by them to satisfy obligations under their agreements with us could adversely affect us” [Pg. 32]
Following the prior tenant’s bankruptcy, ProMedica has continued to experience significant distress. It began taking on substantial losses in 2021. By August 2022, S&P downgraded ProMedica’s credit to junk, representing a breach of its loan covenants, according to news reports. [Pg. 13]
(Source: The Bond Buyer)
Moody’s also later downgraded the company’s debt to junk in September 2022, citing material cashflow losses exceeding expectations and narrowing headroom on bank covenants. In November, Moody’s revised ProMedica’s Ba2 rating outlook to negative.
November 7-8th 2022: Welltower Announced A Solution to Its Looming ProMedica Problem—Moving 147 Distressed Skilled Nursing Facilities Into A New Joint Venture Formed With A Company Called Integra Health
The News Helped Fuel A 9% Surge In Welltower’s Shares
On November 7th, 2022, after market close, Welltower announced it would transfer the operation of 147 skilled nursing facilities out of ProMedica and into a new joint venture with a health care manager called Integra Health.
The deal seemed like a major win, bailing Welltower out of a distressed situation while securing 4% more cash rent in the process.
(Source: Welltower)
Shares rose 9% the next trading day, then added another 4% over the next week, fueled by both the ProMedica solution and the company’s earnings release.
Welltower’s CEO, Shankh Mitra, offered more color on the third quarter investor call, stating that Integra provided the dual benefit of a ”well-capitalized strategic partner to focus on the skilled nursing properties” and also leaving ProMedica in “substantially better financial state”.
Mitra continued, saying Welltower had transacted with Integra and its unnamed parent entity on 21 assets previously, adding:
“I fundamentally believe in the expertise, and we have worked with Integra and its parent company on many of these transactions before. There’s no question that they are significantly better in the skilled nursing business than we are and will ever be.”
“Integra or its parent entity which we have done multiple transactions with previously, has successfully executed many turnarounds, including those involving HCR assets that we sold it (sic) to them in the last couple of years and is well positioned to return these assets to its previous glory”.
An analyst from Credit Suisse applauded the deal, noting its irregular favorable economics, saying:
“Again, congrats on the quarter and the transition. I have been covering this from 15 years. I don’t think I’ve ever seen a rent restructuring where the rents went up. So that’s pretty cool to see.”
Welltower’s third quarter report said that ProMedica will surrender its 15% interest and “provide significant working capital support for the new operators to ensure a smooth transition.” In exchange, ProMedica will be released from its skilled nursing lease obligation. [Pg. 29]
Integra Is Set To Take Over A Master Lease For 147 Skilled Nursing Facilities, A Major Responsibility
Integra’s Entity And Website Were Set Up 6 Months Ago And It Has 0 Employees On LinkedIn. Industry Veterans, Including One Former Welltower Exec, Told Us They Had Never Heard Of It
Integra now has responsibility for 147 skilled nursing facilities.
Despite the high praise from Welltower’s management and claims of being well-experienced in skilled nursing, Integra seems to barely exist.
Far from having a long operating history, Integra’s entity was registered 6 months ago, according to Delaware corporate records.[1]
(Source: Delaware entity search)
Integra’s corporate website was registered on the same day.
(Source: Icann)
The Integra website provides a generic business description and offers no names of people associated with the firm. Instead, the website claims it has an extensive staff, including an “in-house team of attorneys, underwriters, and market analysts”.
Despite these claims, Integra has no employees on LinkedIn except for its CEO David Gefner, who claims to have worked at the 6-month-old entity for 11 months.
(Source: LinkedIn)
(Source: Integra CEO David Gefner’s LinkedIn profile as of November 29th 2022, showing that he has served as CEO of the 6-month-old entity for 11 months)
Gefner is 29 years old, according to UK entity filings. Far from being an experienced operator, we found no evidence that he has managed skilled nursing facilities or healthcare facilities.
One former Welltower executive we spoke with, who left the company in mid-2021, had a problem recalling any past deals the company had done with Integra, despite management’s claims to have done numerous deals with it and its unnamed parent. “There was maybe a minor portfolio with Integra before,” they told us, unable to furnish further details.
The same executive didn’t seem to know Integra’s 29-year-old CEO, either:
“David Gefner. Don’t know David…when you Google him you get this company called ‘Perigrove’. Yeah, no, I never…this kid’s a young guy too. He’s a young frickin’ guy…I never met this dude…”
“As Far As We Know, There Is None”: Senior ProMedica Employee Told Us Integra Had No Operating Experience And Came In After The Company Couldn’t Find Genuine Operators
In light of our findings into irregularities with Welltower’s claims, we spoke with a high-ranking ProMedica employee to learn more about the deal with such an unknown, questionable counterparty.
They told us Integra came in after ProMedica/Welltower couldn’t find new operators, despite searching extensively:
“It’s a very complicated mess, I know this [ProMedica/Integra deal] follows discussions going back to the beginning of the year, on divesting and exiting out of certain markets, and certain buildings, I think that ProMedica was actively attempting to negotiate, along with Welltower, with new providers but they just couldn’t get the deals done, and so I think the board’s position was, we’re not going to allow this to continue on to the new year, because we could be sitting here six months from now no better off than we are right now.”
Further contradicting Welltower’s claims, the employee speculated that Integra wouldn’t be able to get state licenses because of its lack of operating history.
“Integra is going to have to operate these buildings under ProMedica’s licenses because Integra is never going to get approved as an operator because of their lack of a portfolio and track record and a team to operate these buildings, which are questions that all the regulatory entities will ask, when they’re seeking approval is how do plan operate, what’s your team, what’s your management structure?”
We asked about Integra’s management team and structure:
“As far as we know there is none.”
They also told us that Welltower’s rent payments could be in jeopardy.
“I think that’s one of the things that is holding…any potential transaction is holding up… Welltower is seeking…knows that these problems can continue with the operators sustaining losses and that rent payments could be jeopardy, and I think that Welltower is seeking security.”
Despite Welltower advertising a 4% increase in rent from a well-capitalized partner, the employee then speculated that Welltower was going to cover any losses for Integra’s portfolio.
“My guess is, I don’t know exactly how that was arranged. It has been speculated that this is sort of an arrangement that was made between Integra and Welltower where Welltower is going to indemnify Integra from their losses”
When asked about the value attributed to the portfolio, they said there was some, but it was questionable in today’s operating environment:
“There’s definitely value in the portfolio, you know. How much is questionable.”
Integra’s CEO Claims To Also Be CEO And Founder Of Perigrove, A “Prolific” Private Equity Firm That Claimed To Have Raised $3 Billion
Reality: We Found No Regulatory Filings Such As ADVs or Form Ds Relating To David Gefner or Perigrove’s Capital Raises, Indicating That They Likely Either Lied About The Amount of Capital Raised Or Raised Capital Illegally
The CEO of Integra is David Gefner, per Welltower’s press release announcing the deal. He describes himself as the Founder and Principal of Perigrove, a “prolific” private equity firm formed in 2012, when he was around 19 years old.
(Source: LinkedIn)
While unclear, Perigrove may be the parent that Welltower’s CEO referred to in on its earnings call because it is the only entity with obvious public ties to Gefner.
Perigrove’s website describes itself as a multi-billion-dollar private equity investment firm focused on healthcare:
“Perigrove is a prolific private equity firm strategically diversified across every segment of the global healthcare sector. Headquartered in New York City Perigrove has conducted billions in transactions over the past decade. On behalf of our stakeholders and the tens of thousands of lives we impact, we continue to create outsize opportunities in all we engage.”
Perigrove’s claimed focus on healthcare appears to be relatively new. Earlier archived versions of its homepage from 2019 made no reference to healthcare, instead professing a focus on real estate.
The same archived website captures show that Perigrove stated that it raised more than $3 billion in total equity.
(Source: Wayback Machine Perigrove – 2019)
Despite its claims to be a large asset manager, Perigrove is not registered with the SEC as an advisor. All U.S.-based investment advisors with $100 million or more in assets under management are required to register with the SEC as investment advisors.
When raising private capital, investment firms are also required to file “Form Ds” reporting details of the capital raises. We found No Form D’s referencing Perigrove or Gefner, despite claimed numerous large capital raises. Similarly, a search on FINRA BrokerCheck to see if Perigrove or Gefner were affiliated with any broker/dealer turned up no results.
(Source: IAPD)
The lack of required regulatory filings suggest that Perigrove either exaggerated its capital raising activities or raised the capital illegally.
We reached Gefner by cell phone to ask him about Integra and Perigrove. He declined to provide any information but said he would take our name and number and call back, saying he was in the middle of something. He did not call back and did not answer when we phoned 3 subsequent times. He eventually responded to our WhatsApp message saying “I’m on a plane traveling overseas.” He had not mentioned any impending trip when we briefly spoke with him earlier. We have heard nothing further as of this writing.
An Earlier Version Of Perigrove’s Website Claimed Involvement In 12 New York Properties
We Found That None Were Run By Perigrove
Our review of Perigrove indicates the company hasn’t raised anything close to $3 billion. Perigrove’s current website lists no specific projects the firm has completed. An archived 2019 version of Perigrove’s website features 12 New York City area building development projects that the company completed.
We reviewed each project and found that none were actually run by Perigrove.
(Source: Wayback Machine)
As a starting point, a search of New York City’s property ownership database, ACRIS, returns no results for David Gefner or Perigrove, suggesting Gefner and Perigrove don’t hold controlling interests in any of the claimed real estate developments.
A check of each address showed that 10 of the projects listed by Perigrove were actually developments led by a different group, Hello Living, a New York real estate company founded in 2005.[2]
We spoke with Eli Karp, head of Hello Living who told us Gefner helped raise some funds for him on projects around 2012, aiding in 2 projects. He estimated the total capital Gefner raised for him was about $10 million.
The two other projects listed on Perigrove’s website were:
200-206 Kent Avenue which is being developed in Williamsburg by Cornell Realty.
19 West 55th Street, Manhattan. According to ACRIS records, 19 West 55th is controlled by Abraham Leifer of Aview. This was the only project we saw a documented role for Perigrove, as detailed below.
Perigrove Had a Documented Role In Only 1 Of The Claimed Projects On Its Website; A Manhattan Hotel Once Dubbed The “City’s Worst Illegal Hotel” By Crain’s Business
Perigrove’s Role In the Deal Seems to Be That It Attempted To Launch A $30 Million Crypto Token To Raise Funds For The Property. The (Likely Illegal) ICO Offering Looks to Have Failed
When examining the 19 West 55th Street property from Perigrove’s earlier website, we found that Perigrove did have a role, though not as its primary developer.
In 2019, Perigrove launched a $30 million crypto token offering to sell an interest in the property. Unlike traditional investments, the token claimed it would “democratize” investor access to real estate by removing the broker fee and reducing the minimum investment to $10,000. [Pg. 5]
(Source: iTokenize Pitch Deck)
We found multiple red flags in the token offering documents, including an unrealistic 31.5% projected IRR for token investors over the next 30 years. [Pg. 12]
(Source: iTokenize Pitch Deck)
The proceeds were intended to “democratize” access to the redevelopment of 19 West 55th Street, which was previously dubbed “the city’s worst illegal* hotel” by Crain’s Business.
A promotional video told investors that blockchain technology helped “guarantee security for the investments”:
“To build on our successes we have decided to use the blockchain technology to increase the profitability of our real estate projects and guarantee security for the investments.” [00:25]
The token offering seems to have failed. The iTokenize website did not appear to be updated after the offering. We decided to visit the address to confirm if any renovations had taken place.
Renderings for Perigrove’s offering projected completing renovations of the building in 2021. The redevelopment involved overhauling the aging brick exterior to white and adding large pillars to the roof.
(Source: ICO Pitch deck Pg. 7)
When we visited, we found the building looking exactly like it had in 2019, indicating that the money had not been raised for the project, or it had been allocated elsewhere.
(Source: Hindenburg Investigator)
Perigrove’s Website Lists Its Corporate Address At A Prestigious Office Address In Manhattan. We Visited The Address And Found Perigrove Was No Longer There
On its website, Perigrove reports its current address as being on the 46th floor of 7 World Trade, a large, well-known, high-end office building.
(Source: Perigrove website)
We visited the location to learn more about Perigrove’s claimed bustling operation. At the address, we found a coworking firm called Inspire.
We spoke with the receptionist, who had never heard of Perigrove, telling us the company didn’t have a physical suite in the workspace. They checked their electronic records and found that Perigrove had been in the system, indicating that perhaps they were part of the virtual office offering at some point.
An earlier version of the company’s website listed a specific suite on the same floor, 4632. The suite number has been removed from the most recent website, with only the floor and address remaining.
We checked suite 4632 anyway and found it occupied by a completely unrelated company called Global Gateway Advisors, with no relationship we could find to Perigrove.
(Global Gateway Advisors, a completely different firm, was at the suite address for Perigrove.
Source: Hindenburg Investigator)
We phoned Global Gateway to ask whether it shared an office with Perigrove. The representative we spoke with had never heard of Perigrove and confirmed Global Gateway was the only firm at the suite, saying it had been there for about 2 years.
Next, We Visited Perigrove’s Registered Address From Its Corporate Entity Filings
We Found Its Office In A Dilapidated Building Shared With An Auto Parts Store On The Outskirts Of New York City
The Claimed $3 Billion Private Equity Firm Misspelled Its Name On Its Front Door As “Perigove”
We continued our search for Perigrove on the outskirts of New York City at an address that multiple Perigrove entities are registered to, 351 Spook Rock Rd. Suffern, New York.
(Source: NY Entity Registry)
We found Perigrove next to an auto parts store in a worn-down building in a strip mall.
(Source: Hindenburg Investigator)
The 351 Spook Rock Road address shared signage for Perigrove and an auto parts company called AutoPlus. Perigrove’s name on the sign was put up with stickers and was misspelled as “Perigove”.
(Source: Hindenburg Investigator)
The building’s lobby had visible wear and tear and was piled high with auto part boxes. In between a high pile of cardboard boxes and a tire, a large mailbox had Perigrove LLC marked on it.
(Source: Hindenburg Investigator)
We spoke with a representative at the auto parts store who told us that Perigrove worked upstairs. We asked which days David Gefner or Jay Leitner came to work at the office. He told us:
“I have no idea. That´s their own business. I don´t know when they´re there. I just hear them up there. I know somebody is up there.”
Former Welltower Senior Employee On Integra Running ProMedica: “They’re Going To Need A Lot Of People To Manage This Deal With The Different Operators…It’s Not Something You Run Out Of Your House”
We spoke with a former high level Welltower employee to get additional color on Gefner and the portfolio. He told us he thought that Integra would try to get out of the deal quickly, adding:
“I would hope that patient care doesn’t get impacted.”
The former employee went on to tell us that David was young and hasn’t belonged to the industry, instead he was doing a “hedge fund opportunistic play”:
“They’ve never been…David’s a young guy that’s never been someone who’s belonged to the industry, so he’s truly just doing a hedge fund opportunistic-type play.”
He also told us that the managing the portfolio is something that a partner would need an experienced team for:
“They’re going to need a lot of people to manage this deal with the different operators and that type of stuff. It’s not something you run out of your house and I would assume Welltower would have vetted a company and would not want someone that would be fly-by-night…”
Key Risk #2: We Suspect This Isn’t The First Time—Red Flags Indicate That Part of Welltower’s 2021 Distressed Genesis Healthcare Restructuring Deal Mirrored The Latest ‘Miracle’ Deal With Integra
Evidence Suggests 21 Of The Worst Distressed Assets Were Quietly Disposed To Gefner’s Affiliated Private Equity Firm
Prior to Covid, another significant operator of Welltower assets was Genesis Healthcare. At the end of 2019, Genesis was Welltower’s 4th largest operator, managing 76 properties, accounting for 4% of NOI. [Pg. 2]
In 2021, Genesis, like much of the industry, experienced severe distress due to Covid and other operational challenges. [Pg. 3]
(Source: Skilled Nursing News)
On March 2021, Welltower announced what would be another ‘miracle’ deal. Through a complicated multi-way agreement, it had achieved a “substantial exit” of its Genesis Healthcare operating relationship, consisting of 51 assets.
Welltower was exiting its distressed Genesis relationship largely unscathed, with some assets sold off to ProMedica (which would itself later become distressed), among other parties.[3]
The deal valued Welltower’s real estate at an astronomical $144,000 per bed according to the press release, more than double the industry average. During the first quarter of 2021, CBRE put the average nursing home bed at around $70,000. [Pg. 12]
Welltower Appears to Have Quietly Disposed of 21 Of The Most Deeply Distressed Genesis Assets To A Gefner-Affiliated Firm, Once Again Handing Skilled Nursing Assets Over to An Inexperienced Manager and Clearing Its Books of The Mess
Later, in November 2021, Welltower mentioned in an earnings release that it had sold another 21 assets of Genesis, presumably the deeply distressed assets it was unsuccessful at disposing in the earlier deal.
The “21” number of assets is the same number of assets Welltower management later claimed to have transacted with affiliates of Integra on its most recent conference call.
A former senior Welltower employee confirmed that Gefner’s affiliated firm had previously bought assets related to Genesis:
“This construct [dealings with Gefner/Integra] had already been done on some other skilled nursing assets…They bought some Genesis facilities, which is another skilled nursing operator that Welltower had and they had closed on some of those assets.”
We asked about the timing of the Gefner-associated purchases to see if it was part of the main Genesis deal, or later in the year:
“Yeah they did sell the last of the remaining Genesis assets and I believe it was to Integra…they were other Genesis assets not tied to a larger transaction.”
Once again, we find it unusual that Gefner, with little to no experience operating or managing skilled nursing assets, came in and bought the last assets in a distressed deal, helping Welltower clean the mess off its books.
Furthering our concerns, we identified several signs of an undisclosed affiliation between Gefner and Genesis, raising questions of overt conflicts of interest.
Integra CEO Gefner Previously Worked At The Investment Firm That Owned Genesis, According to Contact Database Records
Gefner’s Private Equity Firm Perigrove Also At One Point Shared An Office Suite With The Firm Run By The Owner Of Genesis
The Undisclosed Relationship Raises Questions of Conflicts Of Interest In The Gefner/Welltower/Genesis Dealings
As part of the Genesis deal involving Welltower, Genesis received a $50 million injection from an affiliate of private equity group Pinta Partners.
David Gefner worked for Pinta Partners, and had an email address at the firm, according to contact database ZoomInfo records. Gefner has not otherwise made this relationship clear in his LinkedIn profile or in other biographies.
Further, as we wrote earlier, Perigrove at one point claimed to operate at 7 World Trade, Suite 4632 before removing the suite address from its website. That claimed suite matches the older office address of Allure Group, another firm controlled by the owner of Pinta Partners.
(Source: Perigrove Website Wayback Machine 2019)
(Source: New York Corporate Registry)
In short, Gefner appears to have a close, undisclosed connection to the firm at the center of the Genesis Healthcare restructuring deal with Welltower.
The lengths taken to obfuscate these relationships and deal details suggest to us that Welltower is simply using Gefner-affiliated entities to park its bad assets.
Beyond Its Sketchy Deals With Integra and Gefner, Welltower Management Has Obfuscated The Rest Of Its Portfolio
Welltower Stopped Detailing Its Individual Property Operators Around Q2 2020, Right When Covid Began To Devastate The Industry
Beyond the obfuscation of issues with Welltower’s key tenants, we are concerned by management’s obfuscation of the rest of the Welltower portfolio.
For years, Welltower provided the regular list of its specific properties and associated operators on its website. By Q2, 2020 COVID shrunk the nursing home population by 10%. Around this time, Welltower stopped updating its list of properties and hasn’t provided the full list since. [1,2] [4] An address list, without associated operators, is now the only portfolio information disclosed. [Pg. 119]
Given the new opacity, and issues with key tenants, we suspect Welltower’s management has obfuscated other lurking issues with its portfolio.
Conclusion: The Gefner/Integra Deals Appears To Be A Shell Game Designed To Hide Financial Weakness As The Company Dumps Shares On Unsuspecting Investors
Integra offers a significant glimpse into Welltower’s highly opaque and complex portfolio of investments that we believe is under substantial stress.
Instead of being transparent about its situation, Welltower’s management has obfuscated the issues through a shell game, while claiming that the deals will magically result in more cash rent or asset recovery than before.
As to Integra, we suspect Integra’s CEO has misled the public on his fundraising activities or has raised capital illegally. This is significant to Welltower, whose CEO has endorsed Integra and its CEO, along with claiming to have already done multiple deals with an entity associated with Integra.
Now, Welltower plans to expand the relationship to make Integra one of Welltower’s largest partners. We think this bodes poorly for whichever assets Welltower hopes to offload onto Integra next.
We think the company should answer several questions:
Why did Welltower place control of 147 nursing homes into a JV with a 29-year-old with no apparent track record in the skilled nursing industry?
Did Welltower also sell 21 assets originally operated by Genesis to Gefner or an affiliate of Gefner? If so, why haven’t the details of this transaction been disclosed to investors?
Why has Welltower not disclosed the material agreements associated with its deal(s) with Integra and/or Gefner?
Has Welltower indemnified Integra or its affiliates for losses or provided other inducements that help it meet the claimed 4% increase in cash rent?
Who is Integra’s parent entity and why has this information been withheld from investors to date?
Is Welltower aware of any relationship between Gefner and Pinta Partners, The Allure Group, or Joel Landau?
Was Welltower aware that Perigrove, the private equity firm affiliated with Integra and Gefner, claimed to have raised $3 billion, yet has not filed any requisite form Ds or a form ADV or have any clear association with a broker/dealer? Does Welltower have any comment on the legality of these claimed offerings?
What was Welltower’s due diligence process on Integra before agreeing to the deal(s)?
How does Welltower expect Gefner to manage 147 nursing homes when he can’t even manage to spell the name of his own firm on the door of the office correctly?
Does Welltower recognize the risks to thousands of patient lives by placing the care of these facilities into the hands of someone with no experience managing them?
Disclosure: We Are Short Shares of Welltower Inc. (NYSE: WELL)
<<<
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>>> Are we on the cusp of a 3D-printed housing revolution?
Yahoo Finance
Jesse Chase-Lubitz
December 12, 2022
https://www.yahoo.com/news/are-we-on-the-cusp-of-a-3-d-printed-housing-revolution-100003031.html
Need a home? Just press print.
3D printers are increasingly providing a cheaper, greener and faster alternative to home building. The individualized designs and walls, which are made of stacked thin layers of concrete, are popping up everywhere, from a 100-house community in Georgetown, Texas to a single-family home in Borneo, Malaysia. In a time of skyrocketing housing prices, and growing concern for sustainability, 3D-printed houses are changing from niche gimmick to a potential mainstream housing solution.
“It has been an exponential take off,” said Marchant van den Heever, technical director of Harcourt Technologies, which distributes 3D printers and related equipment to companies in the U.K.
3D printing offers potential solutions to major challenges for the U.S. housing market: reducing the greenhouse gas emissions causing climate change and rising housing prices contributing to surging homelessness. Some experts expect the American industry to boom in the next two to three years.
Despite rumors that these houses can be built for just $10,000 and in as little as 24 hours, the reality is not quite that revolutionary. “There’s a lot of misinformation out there,” said Justin Kinsella, CEO of Harcourt Technologies. “We saw some crazy stuff, where there are guys saying you can do a house for $10,000 and you can do it in two days. There is no such thing as that.”
But 3D-printed houses are already 5%-10% cheaper than a regular build in the United States, according to Zach Mannheimer, CEO of Alquist 3D, which aims to build affordable 3D-printed homes to serve lower-income communities, and experts predict costs will go down as the industry expands. A 2018 study in the academic research publication IOP Science: Materials Science and Engineerings, based in the U.K., argues that 3D printing can cut costs by at least 35%.
While a home with all its windows, doors, and utilities cannot be built in 24-48 hours, it is possible to print the walls in that time. Industry specialists say that the final product can be ready in as little as a month and a half, as opposed to the six to eight months it takes to build a typical house.
Though they were first invented in the 1980s, 3D printers became popular in the 2000s. They have little in common with the home or office printers that write in ink on paper. Imagine a robotic pipe with a nozzle at the end, sort of like a squeeze bag used for spreading icing on a cake. Instead of being moved by a human arm, the pipe is attached to scaffolding and programmed to move in a specified shape. These printers are commonly used to make components for larger machines, limbs or organs for use in education, and more recently, masks, respirators, valves and more for the COVID-19 pandemic.
Integrating 3D printing into mainstream housing construction means radically overhauling the way homes are built. A typical house is made by pouring concrete into a foundation and building a rough framing of the walls and floors out of wooden planks. Builders then install basic plumbing and electricity before adding insulation and the final surfaces to the walls and floors.
For a 3D-printed house, they still need the concrete foundation for stability, but then the walls go up immediately using slightly thicker forms of concrete that will hold up as the printer goes around. The printer is programmed to leave perfect cutouts for windows and doors. Though a multi-story house is slightly more complicated, there are successful examples, including a 3D-printed apartment building in Germany. No wood panels or bricks are involved.
In some cases, the printers are brought to the site, while in others, the houses — or components of the houses — are built off-site and transported to the location. There is still some discussion in the industry about which system is preferable.
The U.S. is in the midst of a housing crisis, with housing prices rising by double-digit percentages per year. Although the shortage has more to do with regulations that restrict new housing production rather than the cost of building new homes, the need for cheaper housing and the rising production capability of 3D printing could help the industry get off the ground.
Some experts caution that 3D printing will not be growing quickly in the housing sector in the immediate future. “This is not going to change the industry next year,” said Robert Dietz, chief economist at the National Association of Home Builders. “We are still talking about very small demonstration projects. ... My expectation is that this kind of construction is likely to scale up slowly.”
Dietz said that any innovation that improves productivity is valuable to the building industry, and that the technology could help address the current U.S. labor shortage.
However, the NAHB predicts 3D-printed houses will constitute a small portion of the market because the majority of houses in the U.S. are made with wooden frames. “We tend to think of 3D-printed homes as a subset of concrete-framed homes, which are just 10% of single-family homes,” Dietz said. “So it’s a small share of an already small share.”
If scaled up, 3D-printed buildings are significantly better for the environment than those that are built from scratch on-site. The building process cuts waste by 60% because it only manufactures the materials required. There’s no need to trim or subtract excess materials so they aren’t sending unused wood, concrete or glass for window panes to the landfill, according to academic research. And 3D printers work better with nontraditional cement alternatives such as “hempcrete” — a mixture of hemp, sand and other materials — than they do with regular concrete. That could encourage the concrete industry to pursue more sustainable alternatives to concrete, which creates significant greenhouse gas emissions in its production.
Despite those advantages, of the 912,000 single-family houses built in the United States in 2021, almost none were 3D-printed. Mannheimer estimates that just 10 3D-printed houses were built last year. The first ever commercial permit to build a 3D-printed house was given in February 2020 and the largest community 3D printed homes in the world — 100 of them, designed by the renowned Danish architecture firm BIG — is in the early stages of construction in Texas.
Although the technology hasn’t yet become mainstream anywhere in the world, the globe is dotted with 3D-printed buildings. The earliest ones were produced in the late 2010s. The first was a 3D-printed residential building in Yaroslavl, Russia, in 2017. An office building in Dubai was built the same year, and a house in Copenhagen was completed in 2018. As the technology has developed, more countries have developed both models and usable homes. Japan built a model pod-shaped house for just $25,500 in 2021. Canada is home to Airbnb’s first 3D-printed home, the world’s first 3D-printed school is in Malawi, and Kenya is planning to build 52 affordable houses. There’s a printed house resembling a submarine in the Czech Republic, houses and an apartment building in Germany, and a series of five homes in the Netherlands.
“The technology is not yet mature or commonplace enough,” Mallikarjuna Nadagouda, a researcher with the Environmental Protection Agency, wrote in an email to Yahoo News. “There are no codes or standards relating to manufacturers or specifications, and very few design professionals know how to design, specify and procure these for commercial clients.”
The primary barrier is access to, and mass production of, the right types of materials. But the industry also wants more investment in research and an increase in education programs to build a workforce.
The first hurdle — access to more suitable materials — is also what makes this industry potentially more sustainable. Traditional cement, which is also known as Portland cement, is the source of 8% of the world’s CO2 emissions because of the extremely high heat required to mix cement into concrete. It is also not the ideal consistency for 3D printing. This incompatibility has pushed the industry to seek out alternatives, which also happen to produce little or net-zero emissions.
“In terms of sustainability, finding the appropriate environmentally friendly material for this technology remains the biggest challenge associated with 3D-printed construction,” said Nadagouda.
The material used in the printer has to strike a delicate balance: liquid enough to join with the previous layer but hard enough to hold its form once it’s printed. It also needs to stay wet enough for the next layer to join with it in the time it takes for the printer to come back around.
Portland cement cannot immediately hold a strong structure. “[Portland cement] sits inside a wooden box until it hardens,” said Charles Overy, director and owner of LGM, a company that provides 3D printing software, modeling and design assistance. “But when you print concrete it has to hold itself up right after it comes out of the printer.”
It’s still possible to use it, but it’s not ideal. In response, the industry has started developing alternatives such as “lava-crete,” which is a combination of pulverized red lava rock, cement, and water. Geopolymers, which are a grouping of minerals, are also a popular alternative among 3D printing companies. All of these alternatives emit significantly less greenhouse gases than Portland cement. One study shows that hempcrete, which emits no carbon in the creation process, can store carbon as well.
“The sustainability right now, in my opinion, is partly a byproduct of not using Portland cement,” said Overy. A rise of 3D printing in the housing market might provide an incentive for concrete companies to start producing greener alternatives that are more suitable for 3D printers in order to serve that market as well as traditional construction.
Companies are also trying to source their materials locally, which could reduce the emissions caused by transporting materials. COBOD, the world’s largest supplier of 3D printers around the world, has the capability to mix any combination of materials needed to make a reliable cement alternative. In the U.K., Harcourt Technologies is already using this technology to source locally and mix on site. “In a way, it’s open source,” said CEO Kinsella. “You can use [COBOD’s] machines in the center of London or in Timbuktu and you can use whatever aggregates are locally available, obviously within normal concrete criteria.”
Developers say they are increasingly in need of a workforce to bolster production. The 3D printing industry requires someone to operate the printer, designers who understand the mechanics of printing, and people with a chemical background who can develop alternative materials for printing. Some companies are working on instituting six-to-eight-week courses in local colleges. Alquist 3D is partnering with Virginia Tech to create a 3D construction curriculum. In the U.K., Building for Humanity is starting a similar training course at Rossendale College.
Some consumers might worry about whether a house made from 3D-printed hempcrete can withstand intense pressures such hurricanes. Developers say that government grants for studies showing that they can would be helpful. In September, the New York Times reported that a series of 3D-printed homes in Nacajuca, Mexico, have tolerated extreme conditions, including a 7.4-magnitude earthquake. But more research is needed.
“Some 3D-printed homes can withstand hurricanes, floods or fires under lab testing conditions claimed by many companies. However, these claims need to be verified in real-time situations, which will take many years,” said Nadagouda.
If 3D-printed houses demonstrate that they can handle harsh environments, the speed of construction could make 3D-printed housing helpful in responding to humanitarian crises. “3D [printed] housing may certainly be beneficial during emergency situations such as natural disasters,” said Nadagouda.
“Every 3D printing company has talked to someone in Ukraine,” said Mannheimer, adding that his company was in conversations with people in Puerto Rico and Florida following hurricanes there.
Dietz, along with several experts in the industry, warned that local building codes will also slow down the proliferation of 3D-printed housing, as each local government has a different set of rulings governing safe construction. “We see modular construction at much higher rates in European countries because they have national codes and national rules,” said Dietz, referring to a more general category of houses which are pre-fabricated and usually built in a factory. “Whereas here, it’s each individual jurisdiction. That presents a challenge in terms of scaling up.”
In May, President Biden launched a program to promote 3D-printing technology as a housing solution in the U.S. The initiative, called Additive Manufacturing Forward (AM Forward), called on large manufacturers in the U.S. to pledge to buy 3D-printed parts from U.S.-based suppliers and reduce their dependence on overseas factories. While this may be a good start to government support, it does not address the need for research or better access to materials. None of the people interviewed for this article had heard of AM Forward and it is unclear what impact it has had since. The White House did not respond to a request for comment.
HUD seems optimistic about 3D-printed houses as a climate change solution. “3D printing is one of the promising advances in construction which the HUD team sees as having the potential to lower housing costs and increase energy efficiency and resilience,” a HUD spokesperson told Yahoo News in an email.
“There are sustainable materials and techniques being developed, but it is still experimental,” said Nadagouda. “The technology is still in its infancy. It has not been tried and tested, making consumers reluctant to choose 3D housing. ... Over time, the techniques and technology will be refined, and may become commonplace, but for now, it is just too early in the development cycle.”
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>>> Blackstone’s $69 Billion Real Estate Fund Hits Redemption Limit
Investment firm will restrict repurchase requests in December
Real estate fund has breached quarterly repurchase limits
Bloomberg
By Sridhar Natarajan and Dawn Lim
December 1, 2022
https://www.bloomberg.com/news/articles/2022-12-01/blackstone-real-estate-fund-tops-limit-for-redemption-requests
Blackstone Inc.’s $69 billion real estate fund for wealthy individuals said it will limit redemption requests, one of the most dramatic signs of a pullback at a top profit driver for the firm and a chilling indicator for the property industry.
Blackstone's $69 Billion Property Fund Signals Pain Ahead
Blackstone Real Estate Income Trust Inc. has been facing withdrawal requests exceeding its quarterly limit, a major test for the one of the private equity firm’s most ambitious efforts to reach individual investors. The news, in a letter Thursday, sent Blackstone stock falling as much as 10%, the biggest drop since March.
“Our business is built on performance, not fund flows, and performance is rock solid,” a Blackstone spokesperson said, adding that BREIT’s concentration in rental housing and logistics in the Sun Belt leaves it well positioned going forward. This year, the fund has piled into more than $20 billion worth of swaps contracts through November to counteract rising rates.
The fund became a behemoth in the real estate industry since its start in 2017, snapping up apartments, suburban homes and dorms and growing rapidly in an era of ultra-low interest rates as investors chased yield. Now, soaring borrowing costs and a cooling economy are rapidly changing the landscape for the fund, causing BREIT to caution that it could limit or suspend repurchase requests going forward.
Blackstone’s creation of BREIT cast a spotlight on the space for nontraded real estate investment trusts. Unlike many real estate investment trusts, BREIT’s shares don’t trade on exchanges. It has thresholds on how much money investors can take out to avoid forced selling. This means if too many people head for the exits, its fund board can opt to restrict withdrawals or raise its limits. BREIT said requests have exceeded the 2% of the net asset value monthly limit and 5% of the quarterly threshold.
“If BREIT receives elevated repurchase requests in the first quarter of 2023, BREIT intends to fulfill repurchases at the 2% of NAV monthly limit, subject to the 5% of NAV quarterly limit,” BREIT said in a letter Thursday.
Blackstone’s top executives have bet big on the fund. Bloomberg reported last month that President Jon Gray had put $100 million more of his own money in BREIT since July, as had Chief Executive Officer Steve Schwarzman, a person familiar with the matter said at the time.
In the past year, rich individuals, family offices and financial advisers have become more cautious about tying up money in assets that are hard to trade and value. At UBS Group AG, some advisers have been reducing exposure to BREIT. A major chunk of redemptions for the fund has come out of Asia this year, said a person familiar with the matter who asked not to be identified citing private information.
“The BREIT outflow bear case is playing out, impacting shares this morning, and we expect it to remain an overhang on shares in the coming quarters,” Michael Brown, an analyst at Keefe Bruyette & Woods, said in a note Thursday titled “The Gates are Going Up.”
“Growth of the retail channel has been a key driver of BX’s success in recent years and the growth challenges facing the company on the retail side could continue to weigh on BX’s valuation,” Brown said.
Real Estate Chill
The Blackstone move is the latest sign of a slowdown for the real estate industry. Soaring borrowing costs have caused many landlords to struggle with refinancing and even led banks to explore potential sales of US office loans. On the residential side, the housing market has slowed extensively.
Higher costs of debt have forced Blackstone to readjust valuations on some BREIT holdings and are thinning returns for the fund. For this year through October, a major share class of the fund delivered 9.3% net returns. That compares to 13.3% one-year returns.
Still, BREIT’s returns are outperforming those of the S&P 500 Index. The fund is heavily concentrated in urban warehouses and rental housing, areas Blackstone dealmakers believes will provide strong cash flows in a downturn. Separately on Thursday, the firm announced it is offloading its stake in two Las Vegas hotels in a deal that frees up cash for BREIT.
The Las Vegas deal values the properties at $5.5 billion and is expected to generate roughly $730 million in profit to BREIT shareholders, according to a person familiar with the matter who asked not to be identified citing private information.
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>>> Farmland Partners Announces Senior Executive Succession Plan
BusinessWire
November 8, 2022
https://finance.yahoo.com/news/farmland-partners-announces-senior-executive-121000150.html
President Luca Fabbri to Succeed Paul Pittman as CEO; Pittman to Remain Executive Chairman and Full-Time Employee of Company
DENVER, November 08, 2022--(BUSINESS WIRE)--Farmland Partners Inc. (NYSE: FPI) (the "Company" or "FPI") today announced that its Board of Directors has approved a senior executive succession plan pursuant to which the Company’s President Luca Fabbri will become Chief Executive Officer, effective following the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which is expected to occur in late February 2023. At the same time, Fabbri will join the Company’s Board of Directors. FPI’s current Chairman and Chief Executive Officer, Paul Pittman, will remain as Executive Chairman of the Company’s Board of Directors and as a full-time employee. Pittman and Fabbri will continue to work side-by-side to formulate corporate strategy, execute the Company’s growth plan and drive shareholder value.
Fabbri co-founded FPI as a public company with Pittman in 2014 and served as the Company’s Chief Financial Officer and Treasurer from the Company’s inception, before assuming the position of President in October 2021.
"Luca played a key role in the initial formation, capitalization and formulation of the strategic direction of FPI, has the undivided confidence of our entire team and has over time taken on an increasing number of top executive duties. Moreover, Luca has been a close colleague and friend for many years, and I am confident will work extremely well with me as Executive Chairman," said Pittman. "This appointment is a natural progression in a process started with Luca’s appointment as President in 2021. There is no one I trust more than Luca to help chart a course for FPI’s future, and I look forward to continuing our close collaboration for years to come."
Prior to co-founding FPI, Fabbri was an entrepreneur and executive in finance, technology, and agriculture. He has a B.S. with Honors in Economics from the University of Naples (Italy) and an M.B.A. in Finance from the Massachusetts Institute of Technology.
"I appreciate the confidence that Paul and the Board of Directors have placed in me, and I’m eager to lead FPI’s talented team and continue delivering for our stockholders," said Fabbri. "Farmland is an attractive asset class, and FPI is uniquely positioned to continue providing strong risk-adjusted shareholder returns in all economic environments. I can’t think of a more exciting business to be in right now."
About Farmland Partners Inc.
Farmland Partners Inc. is an internally managed real estate company that owns and seeks to acquire high-quality North American farmland and makes loans to farmers secured by farm real estate. As of the date of this release, the Company owns and/or manages more than 190,000 acres in 18 states, including Alabama, Arkansas, California, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Carolina, South Carolina, and Virginia. We have approximately 26 crop types and more than 100 tenants. The Company elected to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes, commencing with the taxable year ended December 31, 2014. Additional information: www.farmlandpartners.com or (720) 452-3100.
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>>> Brookfield Asset Management (BAM) is an alternative asset manager and REIT/Real Estate Investment Manager firm focuses on real estate, renewable power, infrastructure and venture capital and private equity assets. It manages a range of public and private investment products and services for institutional and retail clients. It typically makes investments in sizeable, premier assets across geographies and asset classes. It invests both its own capital as well as capital from other investors. Within private equity and venture capital, it focuses on acquisition, early ventures, control buyouts and financially distressed, buyouts and corporate carve-outs, recapitalizations, convertible, senior and mezzanine financings, operational and capital structure restructuring, strategic re-direction, turnaround, and under-performing midmarket companies. It invests in both public debt and equity markets. It invests in private equity sectors with focus on Business Services include infrastructure, healthcare, road fuel distribution and marketing, construction and real estate; Industrials include manufacturers of automotive batteries, graphite electrodes, returnable plastic packaging, and sanitation management and development; and Residential/ infrastructure services. It targets companies which likely possess underlying real assets, primarily in sectors such as industrial products, building materials, metals, mining, homebuilding, oil and gas, paper and packaging, manufacturing and forest product sectors. It invests globally with focus on North America including Brazil, the United States, Canada; Europe; and Australia; and Asia-Pacific. The firm considers equity investments in the range of $2 million to $500 million. It has a four-year investment period and a 10-year term with two one-year extensions. The firm prefers to take minority stake and majority stake. Brookfield Asset Management Inc. was founded in 1997 and based in Toronto, Canada with additional offices across Northern America; South America; Europe; Middle East and Asia.
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>>> The housing market is in free fall with 'no floor in sight,' and prices could crash 20% in the next year, analyst says
Market Insider
by Brian Evans
October 20, 2022
https://finance.yahoo.com/news/housing-market-free-fall-no-175430725.html
US home prices have soared over the last decade, but could soon be on their way down.
The housing market will continue to plummet as there's "no floor in sight," according to Pantheon Macroeconomics.
Chief economist Ian Shepherdson wrote in a note Thursday that home prices could fall as much as 20%.
His warning came after existing home sales dropped for an eighth consecutive month, the longest slump since 2007.
The housing market crash has yet to find a bottom, setting up home prices for a steep dive in the year ahead, according to Pantheon Macroeconomics.
"Eight straight declines in sales and no floor in sight," Pantheon chief economist Ian Shepherdson wrote in a note on Thursday.
He added that the cumulative fall in sales from the peak in January is now 27%, "but this is not the floor." Shepherdson also noted that because mortgage rates have climbed to nearly 7%, which has dampened borrowing demand, the result will be a continued decline in home sales until early 2023.
"By that point, sales will have fallen to the incompressible minimum level, where the only people moving home are those with no choice due to job or family circumstances," he predicted. "Discretionary buyers are disappearing rapidly in the face of the near-400bp increase in rates over the past year."
Meanwhile, prices for existing homes have fallen on a sequential basis for three straight months, sending the median price to $384,800 — the lowest since March.
But with mortgage rates rising, even prospective buyers who are looking to downgrade to a cheaper home would face bigger monthly payments, Shepherdson said, providing more incentive to stay put and constraining supply further.
"But prices have to fall substantially in order to restore equilibrium; the supply curve for housing is not flat, so the plunge in demand will drive prices down," he said. "We expect a drop of 15-to-20% over the next year, in order to restore the pre-Covid price-to-income ratio."
The grim outlook follows similarly stark comments from Wharton professor Jeremy Siegel, who said last week that he expected home prices to see the second-worst decline since World War II amid aggressive Fed rate hikes.
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>>> Institutional investors ‘buying in bulk’ as homebuying cools
Yahoo Finance
by Dani Romero
October 12, 2022
https://finance.yahoo.com/news/investors-buying-homebuying-cools-131902326.html
Rising mortgage rates have sidelined many would-be homebuyers, but for institutional investors, it has become an opportunity as home builders try to unload properties.
“What we're seeing is builders have to make their quota. They have to make the end-of-the-year numbers," Kinloch Partners Cofounder and CEO and President Bruce McNeilage told Yahoo Finance Live (video above). "So they're reaching out to folks like us, the institutional owners of houses, and we're buying in bulk using those as rental homes.”
September marked the ninth consecutive month that confidence in the housing market fell among builders as persistent supply chain disruptions and high home prices continue to wedge into their sales and profits, the National Association of Home Builders/Wells Fargo Housing Market Index showed.
As a result, homebuilders are slashing prices. About 24% of builders reported reducing home prices, which is up from the 19% last month, said NAHB Chairman Jerry Konter, a homebuilder and developer from Savannah, Georgia.
The weakening market could be a factor that “people are just not walking in and the traffic has stopped in looking at models and looking at houses in suburbs and the subdivisions,” McNeilage added.
Another problem: Climbing mortgage rates have reached nearly 7%, continuing to take a toll on affordability.
Thanks to elevated construction costs and an aggressive monetary policy, home builders are trying to offload their supply quickly. The trend has prompted builders to think about incentives to boost sales.
“I'm getting five to 10 emails or calls a day. It really has picked up,”McNeilage said. “We're so far into the year, people are trying to make their numbers. And we're looking at a 10% to 20% discount off of retail pricing that's being offered to us if we're buying in bulk.”
These sales conditions are across the country as companies build these homes for specific purposes to sell to investors, according to McNeilage. However, there's still too much supply on the market.
“Right now, there's just too much product. Too many houses have been specced that are just sitting on the ground. And these builders really need to move these houses," McNeilage said. "And folks like us in the institutional rental business are helping these builders by buying up the supply that they have right now."
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Boxabi - >>> The Company That Built Elon Musk's Tiny Home Has Now Raised Over $74 Million From Retail Investors
Benzinga
by Kevin Vandenboss
August 15, 2022
https://finance.yahoo.com/news/company-built-elon-musks-tiny-133852199.html
Tesla Inc. (NASDAQ: TSLA) CEO Elon Musk generated headlines last year when he announced in a tweet that he would sell almost all his physical possessions and will not own a house. Musk reportedly followed through with that plan and moved into a tiny house in Texas after disposing of all of his mansions.
Recent rumors suggested that Musk’s primary residence was a prefab house manufactured by Boxabl. It turns out, however, that the $50,000 foldable house is actually being used as a guest house.
What is Boxabl?
Boxabl is a rapidly growing startup that has gained popularity partially thanks to Elon Musk, but also because of the growing demand for tiny homes and a housing affordability crisis with no end in sight.
The company’s flagship product is the Boxabl Casita, a 20-foot by 20-foot accessory dwelling unit that can be delivered directly to a customer’s backyard and ready to occupy in an hour. The unit is fitted out as a studio apartment with a full-size kitchen, bathroom and living room and is expected to sell for $50,000.
The company recently completed a $9.2 million order for the U.S. government and has a waitlist of over 120,000 units. To fulfill the current demand, Boxabl is raising capital from institutional and retail investors to build the world's largest and most advanced housing factory.
Boxabl received a strategic investment from D.R. Horton Inc. (NYSE: DHI), who agreed to share resources to help the company scale and placed an order for 100 units. The company is also raising capital on StartEngine through a Regulation A+ offering, which allows non-accredited investors to buy preferred shares with a $1,000 minimum investment.
The current crowdfunding campaign for Boxable on StartEngine has already exceeded $19 million in addition to over $55 million that was previously raised.
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PLD, MAA, ADC - >>> 3 Dividend Stocks That Prove That Slow But Steady Wins the Race
Motley Fool
By Marc Rapport
Jul 22, 2022
https://www.fool.com/investing/2022/07/22/3-reits-that-prove-that-slow-but-steady-wins-the-r/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
KEY POINTS
Mid-America Apartment Communities and Prologis are the biggest property owners of their kinds.
Agree Realty is not as big but has a retail portfolio that is profitable and growing.
Agree Realty, Mid-America Apartment Communities, and Prologis have the past, present, and future to merit investor interest.
It's times like these that try investors' souls, or at least their portfolios. Brutal market conditions brought on by inflation and fears of recession have battered the best-laid plans of even conservative income investors like me.
But that doesn't mean I'm selling off those buy-and-holds that I believe will continue to provide reliable income and return to steady growth in share price, too, as the economy and the market eventually recovers.
My focus also will largely remain on real estate investment trusts (REITs), those pools of income-producing assets that tax law requires to pass at least 90% of their taxable income to shareholders.
Many of these dividend machines have proven the adage that slow but steady wins the race if the finish line means a nice flow of cash that supplements the other eggs in your retirement nest.
Here are three to consider. They're in different industries, and each has been in business since before the turn of the century (remember Y2K? That turn of the century).
They are retail REIT Agree Realty (ADC 0.17%), industrial REIT Prologis (PLD -0.29%), and residential REIT Mid-America Apartment Communities (MAA 0.12%).
The chart below shows that over the past 20 years, not only have these three stocks easily outperformed their peers, as reflected in the CRSP US REIT Index, but to a lesser degree even the broader market represented by the S&P 500.
No flash, but plenty of cash
They're hardly flashy outfits, these three. But two of them are the largest of their kind. Prologis has a portfolio of about a billion square feet of logistics warehouse space around the globe and is adding more with its announced acquisition of Duke Realty in a $26 billion megadeal.
In their recent quarterly earnings conference call, Prologis made it clear it sees continued strong demand for logistics warehouse space despite economic tailwinds turning to headwinds for this sector that grew red-hot during the pandemic.
Then there's Mid-America Apartments, with a portfolio of more than 280 apartment communities and 102,000 units that make it America's largest landlord. MAA's properties are nearly all in the Sunbelt and South, where demand and rents are rising, and this kind of business is particularly good.
Last but not least is Agree Realty. While much smaller than the other two, this owner of more than 1,500 shopping centers in 47 states has held steady through ups and downs, including the pandemic's wrath on retail real estate. While its 31 million square feet is minuscule compared with Prologis, Agree is also on the grow, reporting record quarterly investment in new properties last year and then again in the first quarter of this year.
Agreeable performances all around, with more to come
The market has indeed found Agree agreeable. The company's stock is up about 6% so far this year, while MAA and Prologis are both down a more-typical 27% or so. As for yield, Prologis is at about 2.7%, MAA is at about 3%, and Agree is at about 3.8%.
But long-term performance tells us a different story. Over the past 20 years, MAA would have grown a $10,000 stake to about $172,000, a compound annual growth rate (CAGR) in total return of 15%. For Agree, make that about $141,000 and 14%, and for Prologis, a still very respectable $93,000 or so and nearly 12%.
Each of these REITs provides a nice return and has the portfolio and seasoned management in place to continue proving that slow but steady can indeed be a very rewarding pace in this kind of buy-and-hold race.
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>>> The Jeff Bezos-Backed Real Estate Company Is On A Buying Spree For Single-Family Homes
Benzinga
by Kevin Vandenboss
July 26, 2022
https://finance.yahoo.com/news/jeff-bezos-backed-real-estate-151105046.html
The real estate investment platform backed by Amazon.com Inc (NASDAQ: AMZN) founder Jeff Bezos has continued ramping up its acquisitions of single-family rental homes in several U.S. markets.
Arrived Homes acquires single-family homes to use as rental properties, then sells shares of these properties to investors through its online platform. The demand for rental property shares has grown exponentially so far in 2022, with more homes funded in July than the entire first quarter.
The company has investment properties in 19 of the top 100 cities for population growth in the U.S. and estimates that it will expand to 40 of the top 100 cities by the end of the year. Most recently, Arrived Homes expanded into Nashville, Cincinnati and Indianapolis.
The investment platform is now able to take advantage of the cooling-down period in the housing market to ramp up its purchases at a time when a growing number of investors are looking for alternative investment options outside of the stock market.
About Arrived Homes
Arrived is the first SEC-qualified real estate investing platform that allows virtually anyone to buy shares in single-family rental properties with investment amounts ranging from $100 to $10,000 per property.
The company acquires rental homes and allows individual investors to become owners of the properties by purchasing shares through the platform. Arrived Homes manages the assets, while investors collect passive income through quarterly dividends in addition to earning a return through appreciation.
The company quickly gained the attention of several high-profile investors during its seed round in 2021, getting investments from Jeff Bezos, through Bezos Expeditions, Salesforce.com Inc (NYSE: CRM) founder Marc Benioff through Time Ventures, former Zillow Group Inc (NASDAQ: Z) CEO Spencer Rascoff and Uber Technologies Inc (NYSE: UBER) CEO Dara Khosrowshahi.
Bezos later followed up on that investment during Arrived Homes’ $25 million series A round earlier this year, making a second investment in the real estate investing platform.
Single-Family Rental Market
Investors have a growing appetite for single-family homes, which is no surprise considering that the average rent in the U.S. has increased by an average of 16.4% in the past 12 months and as high as 32% in markets like Miami over the same period.
While the housing market is beginning to cool down in certain areas, homeownership is becoming even less affordable as higher interest rates are adding to the overall cost of buying a home. This is likely to continue adding strain to the supply of rental units, resulting in further rental rate increases.
Find real estate investment offerings from companies like Arrived Homes with Benzinga’s Offering Screener and filter investment opportunities based on your criteria.
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>>> Gladstone Land Provides Business Update
Yahoo Finance
June 13, 2022·
https://finance.yahoo.com/news/gladstone-land-provides-business-123000292.html
MCLEAN, VA / ACCESSWIRE / June 13, 2022 / Gladstone Land Corporation (NASDAQ:LAND) ("Gladstone Land" or the "Company") announced that, in light of the recent price volatility of its common stock (largely following the overall market), it is providing the following business updates to its shareholders:
Inflation Hedge: With inflation continuing at the highest rates seen in over four decades, farmland, as an overall asset class, continues to act as a strong hedge against inflation. According to the U.S. Bureau of Labor Statistics, CPI grew at an annual rate of 8.6% through May 2022. However, food prices have continued to outpace the rate of inflation, with the overall food segment increasing by 10.1% over that same period, and the food at home segment (which encompasses the majority of the crops grown on Gladstone Land's farms) growing by 11.9%. In addition, according to the NCREIF Farmland Index, which, as of March 31, 2022, consisted of 1,284 farms worth approximately $14.4 billion across the U.S., the total return on U.S. farmland (including appreciation and income) was 9.7% for the 12 months ended March 31, 2022 (results released quarterly). Farmland has historically performed well in both inflationary times (as well as in recessionary times), and the Company's management expects these trends to continue in light of the current inflationary environment.
Western Drought: California (and the Western U.S. in general) continues to struggle with a multi-year drought, as snowpack levels, year-to-date precipitation, and reservoir levels are all below historical averages at most locations throughout the state. These drought conditions are driving farms with poor overall water availability, particularly those with only one source of water, to decrease in value, while farms with more secure water resources continue to increase in value. During the quarter ended March 31, 2022, 23 of the Company's farms in California were revalued via third-party appraisals. Overall, these farms increased in value by approximately $13.0 million, or 5.4%, over their prior valuations from about a year ago. Management attributes this to the diligence process followed by our deal team in identifying prime farmland with strong (and in most cases, multiple) sources of water.
Increased Input Costs: Certain input costs, particularly fertilizer and transportation costs, have surged over the past year. However, market situations like the current one, with food prices also rising faster than inflation, help to mitigate the impact of these rising costs. Further, many larger farmers, especially the types of tenants we generally lease to, had already locked in fertilizer and diesel prices at the start of the year. As of today, management is not aware of any significant impact to the Company's tenants, and none of them have reported reducing acreage as a result of rising input costs.
Almond Exports: According to the Almond Board of California, California produces approximately 80% of the world's conventional almonds (including 100% of the U.S. commercial supply), with approximately 65% of the crop exported to more than 90 countries worldwide. Recently, shipping issues at various ports on the west coast had led to a large portion of the 2021 crop remaining in storage until they could be shipped overseas. However, thanks in large part to persistent advocacy campaigns by the Almond Alliance of California, relief to the volume build-up is now underway, as containers and equipment to ship almonds overseas have again been made available. While this relief comes just in time for the upcoming crop to be harvested, a significant volume build-up of the 2021 crop remains. As such, pricing of almonds is expected to remain soft through at least the beginning of summer.
ESG Initiatives: Gladstone Land announced the following regarding certain sustainability initiatives it has recently taken or is currently undertaking:
The Company currently has solar arrays on 12 of its farms in California, which generate electricity to power the operations on the farms, and windmills on 6 of its farms in Colorado, which power certain wells.
The Company is close to finalizing an agreement to add up to 60 wind turbines, 1,600 acres of solar panels, and additional infrastructure as part of a renewable energy agreement on 16,500 acres. The Company is in negotiations to potentially install additional wind turbines and solar panels on certain other farms, as well.
The Company owns a 3,586-acre "water farm" in Florida that is part of a state-funded project to divert nutrient-rich tributary water that can cause damaging algae blooms in coastal ecosystems.
Many of the Company's farms (including a majority of its farms in California) are enrolled in various conservation programs.
Management intends to release a report noting further ESG initiatives in the near future.
Lease Renewals and Upcoming Expirations: Since May 10, 2022, the Company has renewed the lease on one of its farms in Colorado, which is expected to result in an increase in annual net operating income (inclusive of participation rents received under the prior lease) of approximately $149,000, or 48.3%. The Company only has one lease expiring over the next six months, which makes up less than 0.5% of its total annual lease revenues. Management currently expects the renewal of this lease to be flat-to-slightly-higher relative to the current lease.
Current Debt and Increases in Interest Rates: The Company currently has approximately $665.7 million of total debt outstanding (excluding mandatorily redeemable term preferred stock). Over 99.8% of these borrowings are at fixed rates, and on a weighted-average basis, the interest rate on these borrowings is fixed at just 3.25% for the next 5.3 years. As such, management believes its current debt situation is well-protected against continued interest rate increases, as is currently expected.
Participation Rents: The Company recorded approximately $5.2 million of additional revenue from participation rents during fiscal year 2021, as compared to approximately $2.4 million in each of 2020 and 2019. Management is currently expecting another strong year of participation rents, as the Company has several additional farms with participation rent components becoming active for the first time during 2022. However, the Company is still awaiting final numbers for crop pricing and yields on most of these farms and looks forward to releasing these results during the second half of the year.
Acquisition Outlook: The Company currently has three prospective farmland acquisitions under signed purchase and sale agreements for a total of approximately $85 million that it hopes to complete over the next few months. From 2019 through 2021, the Company acquired over $806 million of new farms, with approximately 79% of these being completed during the last seven months of each fiscal year. Following a similar fashion, management expects acquisition activity to pick up during the second half of the year.
Comments from David Gladstone: "Despite the decrease in the price of our common stock from all-time highs a couple of months ago, we believe our operations remain sound. We delivered very strong operating results for the first quarter of the year, as our AFFO per common share of 18.5 cents provided ample coverage of our dividend of 13.6 cents and was actually the third highest AFFO-per-share figure achieved during any quarter since our inception. We will continue to monitor the drought situation in the west, but at this time, we believe all of our farms have sufficient water to complete the current and next year's crop cycle."
About Gladstone Land Corporation:
Founded in 1997, Gladstone Land is a publicly traded real estate investment trust that acquires and owns farmland and farm-related properties located in major agricultural markets in the U.S. and leases its properties to unrelated third-party farmers. The company, which reports the aggregate fair value of its farmland holdings on a quarterly basis, currently owns 164 farms, comprised of approximately 113,000 acres in 15 different states and 45,000 acre-feet of banked water in California, valued at a total of approximately $1.5 billion. Gladstone Land's farms are predominantly located in regions where its tenants are able to grow fresh produce annual row crops, such as berries and vegetables, which are generally planted and harvested annually. The company also owns farms growing permanent crops, such as almonds, apples, cherries, figs, lemons, olives, pistachios, and other orchards, as well as blueberry groves and vineyards, which are generally planted every 10 to 20-plus years and harvested annually. Approximately 40% of the company's fresh produce acreage is either organic or in transition to become organic, and over 10% of its permanent crop acreage falls into this category. The company may also acquire property related to farming, such as cooling facilities, processing buildings, packaging facilities, and distribution centers. Gladstone Land pays monthly distributions to its stockholders and has paid 112 consecutive monthly cash distributions on its common stock since its initial public offering in January 2013. The company has increased its common distributions 26 times over the prior 29 quarters, and the current per-share distribution on its common stock is $0.0454 per month, or $0.5448 per year. Additional information, including detailed information about each of the company's farms, can be found at www.GladstoneLand.com.
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>>> What Is a Ground Lease?
Investopedia
By Matthew Frankel, CFP
Jun 10, 2022
https://www.fool.com/investing/stock-market/market-sectors/real-estate-investing/commercial-real-estate/ground-lease/
There are several types of commercial leases. A gross lease, for example, requires the tenant to make regular rent payments, but that's their only financial obligation to the landlord. This is similar to the lease you'd sign if you rented an apartment. On the other hand, single-, double-, and triple-net leases shift certain expenses, such as property taxes and insurance, to the tenants.
In most cases, however, these leases consist of a landlord who owns a commercial building and a tenant who pays monthly rent and has no ownership rights.
There's another type of commercial lease, known as a ground lease, that is somewhat different. Under a ground lease, tenants own their building, but not the land it's built on. Since this is a lesser-known type of leasing structure, here's a primer on ground leases for real estate investors.
What is a ground lease?
As the name implies, a ground lease only involves leasing the ground -- not any buildings. A ground lease involves undeveloped commercial land that is leased to tenants, who then have the rights to develop and use the property for the duration of the lease.
During the term of a ground lease, the tenant owns any improvements made to the property, including any buildings it constructs. For example, many Macy's (NYSE:M) department stores are ground-leased. This means that Macy's owns the building itself and any other improvements made to the land -- say, parking structures -- but the company still pays rent on the land beneath the store.
Just like most other real estate leases, ground leases require tenants to make regular (usually monthly) rent payments. And ground leases are generally net leases, which means that tenants are responsible for paying property taxes, insurance, and maintenance expenses for the duration of the lease.
Ground leases tend to have very long terms -- 20 to 40 years is common for an initial term, but ground leases up to 99 years aren't uncommon. Improvements made to land that is ground-leased become the property of the landlord after the lease expires, or the tenant might be required to demolish them. So why would anyone want to construct a building unless they could use it for a long time?
To recap, in a ground lease:
The tenant pays rent on the land but owns the buildings and other structures/improvements
The tenant is responsible for paying property taxes, insurance, and maintenance expenses
The lease is typically for several decades at a minimum
After the lease expires, any buildings or other property improvements belong to the landlord
A real-world example of a ground lease situation
In the world of real estate investment trusts, or REITs, American Tower (NYSE:AMT) is a good example of a company that typically uses ground leases. The company owns and operates communications towers (like those that power your mobile phone's network), but in most cases, it doesn't own the land the towers are built on.
Specifically, American Tower has ground leases on roughly two-thirds of its U.S. towers, and it has over 35,000 separate landlords. It has an average of 28 years remaining on its ground leases, but instead of letting any of its leases expire, the company's general practice is to either extend the lease or buy the land to terminate the ground lease.
This is a beneficial business model for the company (and its landlords) for a few reasons. First of all, it allows American Tower to expand without the massive capital outlay that would come with acquiring the land to build thousands of towers. It also has tax benefits, as the eventual lease buyouts gradually turn operating expenses to capital expenditures, which are generally better for ongoing tax purposes. From the landlord's perspective, they get to collect decades of worry-free income and eventually (in many cases) get a lump-sum payment for the property.
Subordinated vs. unsubordinated ground leases
There are two main types of ground leases: subordinated and unsubordinated. And the difference is what happens if a tenant runs into financial trouble during the lease term.
Subordinated ground lease: In a subordinated ground lease, the tenant agrees to be a lower priority when it comes to any other financing the tenant obtains on the property. For example, let's say that you sign a ground lease on a parcel of land, and then borrow $500,000 to build a restaurant on it. If you default on the loan while under a subordinated ground lease, your lender can go after the property (including the land) as collateral.
Unsubordinated ground lease: On the other hand, in an unsubordinated ground lease, the tenant has higher priority than any other lenders when it comes to claims on the property. In other words, the tenant's lenders may not foreclose on the land if they default. In the event of default, a lender on a property in an unsubordinated ground lease may be able to go after the assets of the business but cannot take full control of the property as they may be able to in a subordinated ground lease.
Obviously, with all things being equal, landlords would want to sign unsubordinated ground leases. After all, why would a landlord want to risk their property?
In practice, landlords generally have to charge lower rent on unsubordinated ground leases in order to entice tenants to accept such an arrangement. Many lenders won't originate loans to build commercial buildings on ground leases unless they have the recourse to take control of the property in the event of the tenant's default.
Unsubordinated ground leases are the more common arrangement. Even though they generate less rental income, landlords typically don't want to put their property at risk, essentially taking an active stake in the tenant's business.
What are the advantages of ground leases?
From a landlord's point of view, there are several common reasons why a ground lease might be desirable, as opposed to developing the property themselves or selling the land parcel outright. For one thing, developing commercial buildings can be a capital-intensive process. Ground leases allow owners of commercial land to monetize their real estate without significant capital requirements.
Furthermore, ground leases allow the owner to remain the owner of the property. This can be essential in situations where land is owned by a government entity but can be advantageous in many situations. For example, if you want to construct a tourist attraction on federal land, a ground lease can be the only way to do it.
Finally, as I mentioned earlier, any improvements become the property of the landlord upon the expiration of a ground lease, so the value of the property could be significantly higher than it was at the inception of the agreement.
Tenants might prefer a ground lease because constructing a building is significantly less costly than buying land and then constructing a building. Many retailers use ground leases for this reason -- they simply cannot justify or afford the cost of a building and the land. Many fast-food restaurants lease their land but construct their buildings themselves, to name one common example.
Plus, a tenant can often save money on their ongoing rent payments by signing a ground lease as opposed to leasing an entire improved property.
Pros and Cons of Ground Leases: A Tenant's Perspective
PROS
Avoids the large upfront capital expenditure of buying land.
Decades-long leases and the ability to renew the lease or buy the property at lease expiration.
Reduced lease payments, as opposed to leasing both land and a building.
CONS
Must pay for any land improvements themselves.
Lose improvements to land after lease expires if they don't renew or buy.
Responsible for paying property taxes, insurance, and maintenance expenses for the duration of the lease.May need landlord approval before construction can begin.
The bottom line
Ground leases aren't perfect arrangements in all cases. For example, since they are building on land they don't own, tenants may need to get the approval of the landlord before construction can begin. And tenants can lose control of their building after the term of the lease expires.
However, a ground lease can be a mutually beneficial arrangement for many landowners and commercial tenants, which is why they are quite common in practice. They allow landlords to retain ownership and receive steady income, and they allow commercial tenants to build places to conduct their business without the added upfront cost of buying land.
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Agree Realty - >>> 2 REITs That Are Up Despite the Market Being Down
Motley Fool
By Liz Brumer-Smith
Jul 7, 2022
https://www.fool.com/investing/2022/07/07/2-reits-that-are-up-despite-the-market-being-down/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
KEY POINTS
High-quality dividend stocks can help offset some losses with reliable income.
Agree Realty is up over 1% this year and 10% over the last three years.
Farmland Partners is up close to 13% this year and over 94% in the last three years.
These 2 REITs may help offset some portfolio losses during the current bear market.
With the S&P 500, Dow Jones Industrial Average, and tech-heavy Nasdaq Composite down 21%, 15%, and 30%, respectively, investors are on the lookout for stocks that can offer some reprieve in the down market.
Dividend stocks like real estate investment trusts (REITs) are an appealing buy in volatile markets because of the consistent income they can provide. Concern over rising interest rates has hit most REITs hard. But Agree Realty (ADC -0.58%) and Farmland Partners (FPI -2.01%) are among the few REITs that are up this year.
Here's a closer look at these two winning REITs and if they are a good investment in the current bear market.
Agree Realty
Often overshadowed by some of the bigger retail giants in the REIT industry, Agree Realty remains somewhat of an under-the-radar retail REIT. But that seems to be changing thanks to its impressive performance lately.
Year to date, Agree Realty is up 1%. At a time when tech stocks and other more popular REITs are down anywhere from 30% to 80%, a 1% gain is a huge achievement. Not to mention that Agree Realty has not only managed to outperform the S&P 500 over the last 10 years, but it's also outperformed its more popular peers Realty Income and Federal Realty Trust.
Agree Realty, which went public in 1994, owns and leases around 1,500 retail properties to long-term tenants across 47 states. Its diverse mix of tenants is in nearly every industry possible, with around 68% of its rents coming from institutional-quality tenants like Walmart, Dollar General, and Tractor Supply, its three biggest tenants. Aside from its core net-lease retail business, it also specializes in ground leases, which currently make up around 13.5% of its annualized base rents.
The company has stated it's planning to spend around $1.6 billion on acquisitions this year. This expansion shouldn't be an issue given Agree Realty has ample liquidity and a low net debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) of 4.3 times, putting it in a strong financial position for growth.
Plus, thanks to its switch from quarterly dividends in 2021, investors can now receive consistent dividend income every month with its dividend return paying just over 3.7% right now.
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Farmland REITS - >>> What's Next in Real Estate? 3 Investors Weigh In
Motley Fool
By Liz Brumer-Smith, Mike Price, and Kristi Waterworth
Jul 10, 2022
https://www.fool.com/investing/2022/07/10/whats-next-in-real-estate-3-investors-weigh-in/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
Mike Price: The long-term case for investing in farmland is clear: The amount of arable land worldwide is falling and the number of humans needing to eat is rising. This creates a reduction in supply and an increase in demand. The short-term case is fuzzier.
Most likely, farmland will continue to do well over the next six months as long as inflation stays high. When food prices go up, owners of farmland make more money and require more to sell the land. According to the Bureau of Labor Statistics, the May food at home price index rose 11.9% over the preceding 12 months; that's the most it has risen over any 12-month period since 1979.
The Fed is working on it -- there have been several rate hikes already this year -- but so far, there's no end in sight for inflation. According to the NCREIF, total farmland returns were around 7.8% in 2021, with half coming from price appreciation and half coming from income. Debt isn't flowing as easily to buyers now as it was in 2021, but you can expect at least that level of return from farmland for the full year of 2022, because income will increase along with the food price inflation.
Gladstone Land Corporation
What does it mean for individual investors? The most common way for individuals to invest in farmland is with the two big farmland REITs: Gladstone Land (LAND 0.68%) and Farmland Partners (FPI -2.01%). Both had spectacular returns in 2021, as rumors of the coming inflation started to materialize into facts. But both have fallen like most REITs so far in 2022. Gladstone is down around 35% year to date, and Farmland Partners is down 20 %.
The two REITs have different strategies. Gladstone focuses on healthy crops with grains as a secondary focus. Farmland Partners is more vertically integrated. In addition to owning and leasing farmland, it brokers farmland sales, runs auctions, and farms some of its own land and land that it leases from others.
Both REITs should have good FFO growth in 2022, with Farmland Partners moving from losing money to making it, and both REITs recently announced increased dividends. I lean toward thinking that the market soured on the two REITs so far this year because it was down on REITs in general. If they have good Q2s, they'll likely do well over the rest of the year.
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>>> UPDATE 1 - Prologis to buy Duke Realty in $26 bln deal
Reuters
June 13, 2022
https://finance.yahoo.com/news/1-prologis-buy-duke-realty-121523824.html
June 13 (Reuters) - Warehouse provider Prologis Inc said on Monday it would acquire smaller peer Duke Realty Corp in an all-stock deal valued at about $26 billion, including debt.
Last month, Duke Realty had rejected a $23.7 billion all-stock offer from Prologis, calling the offer "insufficient".
Both companies' boards have approved the deal, Prologis said on Monday.
Storage space requirement, especially from e-commerce firms including Amazon, has seen a jump after the pandemic prompted consumers to switch to online shopping.
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Realty Income - >>> 2 Stocks That Cut You a Check Each Month
Motley Fool
By Eric Volkman
Jun 9, 2022
https://www.fool.com/investing/2022/06/09/2-stocks-that-cut-you-a-check-each-month/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
This pair of REITs will line your pockets every few weeks.
For the most part, dividend investing rewards the patient. That's because the standard dividend payment cycle is once per quarter, meaning a mere four times per year.
It is, of course, very nice to be paid more frequently. While there aren't a great many companies that distribute a payout each and every month, they do exist; you just have to know where to look. Here are two real estate investment trusts (REITs) that space out their dividend in terms of only weeks, not quarters: Realty Income (O -1.24%) and Apple Hospitality REIT (APLE -2.69%).
1. Realty Income
Most people, we can safely assume, don't spend much time thinking about companies that pay monthly dividends. But when those thoughts do arise, we can also safely bet that the first name that often comes to mind is Realty Income. The company, which concentrates on retail properties, has been doling out monthly dividends for decades now.
Retail is a good sector to be deeply involved in these days. The pandemic seems to finally, finally be abating (although we should remain cautious about this). As a result, people are conducting normal activities like shopping, going to the movies, and eating in restaurants.
This very much plays to the strength of Realty Income, whose foundational business strategy is to lease to tenants resistant to the retail apocalypse. That means places that offer retail experiences that can't be easily duplicated -- going to the cinema to see a first-run film, for example, or spending a leisurely night with your sweetheart at a cozy restaurant.
Realty Income tends to lease on long-term contracts, and its tenants are typically top operators in their industries. As a result, occupancy is consistently high.
As of the end of March, for example, its occupancy rate was 98.6%. Even in the thick of the pandemic, that figure didn't dip much below 98%, which says something about the durability of that portfolio. It's also telling that the REIT can maintain those numbers with nearly 11,300 properties on its asset list.
That latter number is sure to grow, as Realty Income is an opportunistic and ever-hungry acquirer of new properties. That, combined with the rent raises it usually mandates in its contracts, should keep the growth train running. It should also maintain the buoyancy of that monthly dividend, which at a shade under $0.25 per share currently yields a sprightly 4.4%.
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>>> NVR, Inc. (NVR) operates as a homebuilder in the United States. The company operates in two segments, Homebuilding and Mortgage Banking. It engages in the construction and sale of single-family detached homes, townhomes, and condominium buildings under the Ryan Homes, NVHomes, and Heartland Homes names. The company markets its Ryan Homes products to first-time and first-time move-up buyers; and NVHomes and Heartland Homes products to move-up and luxury buyers. It also provides various mortgage related services to its homebuilding customers, as well as brokers title insurance; performs title searches in connection with mortgage loan closings; and sells mortgage loans to investors in the secondary markets on a servicing released basis. The company primarily serves in Maryland, Virginia, West Virginia, Delaware, New Jersey, Eastern Pennsylvania, New York, Ohio, Western Pennsylvania, Indiana, Illinois, North Carolina, South Carolina, Florida, Tennessee, and Washington, D.C. NVR, Inc. was founded in 1980 and is headquartered in Reston, Virginia.
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Prologis - >>> Amazon Aims to Sublet, End Warehouse Leases as Online Sales Cool
Company wants to shed at least 10 million square feet of space
Amazon spooked investors last month after saying it overbuilt
Bloomberg
By Spencer Soper
May 21, 2022
https://www.bloomberg.com/news/articles/2022-05-21/amazon-aims-to-sublet-end-warehouse-leases-as-online-sales-cool?srnd=premium
Amazon.com Inc., stuck with too much warehouse capacity now that the surge in pandemic-era shopping has faded, is looking to sublet at least 10 million square feet of space and could vacate even more by ending leases with landlords, according to people familiar with the situation.
The excess capacity includes warehouses in New York, New Jersey, Southern California and Atlanta, said the people, who requested anonymity because they’re not authorized to speak about the deals. The surfeit of space could far exceed 10 million square feet, two of the people said, with one saying it could be triple that. Another person close to the deliberations said a final estimate on the square footage to be vacated hasn’t been reached and that the figure remains in flux.
Amazon could try to negotiate lease terminations with existing landlords, including Prologis Inc., an industrial real estate developer that counts the e-commerce giant as its biggest tenant, two of the people said.
In a sign that Amazon is being careful not to cut too deeply should demand quickly rebound, the 10 million square feet the company is looking to sublet is roughly equivalent to about 12 of its largest fulfillment centers or about 5% of the square footage added during the pandemic. In another signal that Amazon is hedging its bets, some of the sublet terms would last just one or two years.
The company declined to say which space it plans to sublet or confirm the amount.
“Subleasing is a very common real estate practice,” spokeswoman Alisa Carroll said. “It allows us to relieve the financial obligations associated with an existing building that no longer meets our needs. Subleasing is something many established corporations do to help manage their real estate portfolio.”
Prologis declined to comment.
Amazon spooked investors last month after reporting slowing growth and a weak profit outlook that it attributed to overbuilding during the pandemic when homebound shoppers stormed online. At the end of 2021, Amazon leased 370 million square feet of industrial space in its home market, twice as much as it had two years earlier.
In the April earnings report, the company said it expected the excess space to contribute to $10 billion in extra costs in the first half of 2022. The company didn’t divulge how much over-capacity it had, where it was located or what it planned to do with it. Subleasing surplus space is one way for Amazon to trim costs on space it no longer needs.
Amazon tasked the real estate firm KBC Advisors to evaluate the warehouse network and determine where to sublet and where to terminate leases, two of the people said. Both options carry costs. Subletting warehouse space requires Amazon to remove all of its equipment so the new occupant can tailor it to their own needs. Lease terminations typically require the tenant to pay a percentage of the rent that would be due over the full term of the agreement.
It shouldn’t be hard to find tenants. The vacancy rate for industrial space is below 4%, an all-time-low, and rents were up 17.6% at the end of 2021, according to a February report from Prologis.
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>>> Alexandria Real Estate Equities, Inc. to Ring the NYSE Opening Bell to Celebrate Its 25th Anniversary as a New York Stock Exchange Listed REIT
May 16, 2022
https://finance.yahoo.com/news/alexandria-real-estate-equities-inc-123000649.html
At the vanguard and heart of the life science ecosystem™
With its nearly three-decades-long stellar track record as the visionary pioneer and creator of the life science real estate niche, Alexandria has strategically amassed industry-leading scale with an asset base of over 74 million square feet in its key cluster markets in North America and cultivated a high-quality and diverse roster of over 1,000 tenants
NEW YORK, May 16, 2022 /PRNewswire/ -- Alexandria Real Estate Equities, Inc. (NYSE: ARE), an urban office REIT and the first, longest-tenured and pioneering owner, operator and developer uniquely focused on collaborative life science, agtech and technology campuses in AAA innovation cluster locations, today announced that it will ring The Opening Bell® at the New York Stock Exchange (NYSE) this morning in celebration of the company's 25th anniversary on the NYSE. Alexandria executive chairman and founder, Joel S. Marcus, will ring the bell, alongside members of the company's board of directors and long-tenured executive management team. From its initial public offering (IPO) in May 1997 through December 31, 2021, Alexandria has generated a total stockholder return (TSR) of 2,532%, substantially outperforming the MSCI U.S. REIT Index TSR of 939% and the FTSE Nareit Equity Office Index TSR of 552% (assuming reinvestment of dividends)...
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>>> Alexandria Real Estate Equities, Inc. (NYSE:ARE), an S&P 500<sup>®</sup> urban office real estate investment trust ("REIT"), is the first, longest-tenured, and pioneering owner, operator, and developer uniquely focused on collaborative life science, technology, and agtech campuses in AAA innovation cluster locations, with a total market capitalization of $31.9 billion as of December 31, 2020, and an asset base in North America of 49.7 million square feet ("SF"). The asset base in North America includes 31.9 million RSF of operating properties and 3.3 million RSF of Class A properties undergoing construction, 7.1 million RSF of near-term and intermediate-term development and redevelopment projects, and 7.4 million SF of future development projects.
Founded in 1994, Alexandria pioneered this niche and has since established a significant market presence in key locations, including Greater Boston, San Francisco, New York City, San Diego, Seattle, Maryland, and Research Triangle. Alexandria has a longstanding and proven track record of developing Class A properties clustered in urban life science, technology, and agtech campuses that provide our innovative tenants with highly dynamic and collaborative environments that enhance their ability to successfully recruit and retain world-class talent and inspire productivity, efficiency, creativity, and success. Alexandria also provides strategic capital to transformative life science, technology, and agtech companies through our venture capital platform.
We believe our unique business model and diligent underwriting ensure a high-quality and diverse tenant base that results in higher occupancy levels, longer lease terms, higher rental income, higher returns, and greater long-term asset value.
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>>> These Real Estate Trends Aren't Going Away: How You Can Profit
Motley Fool
By Marc Rapport
May 11, 2022
https://www.fool.com/investing/2022/05/11/these-real-estate-trends-arent-going-away-how-you/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
A REIT apiece to consider in logistics, mobile infrastructure, life sciences, and multifamily.
Real estate investments have a long history in this country of moving independently of the stock market, which sounds like a pretty good thing right about now.
But investing directly in real estate can be expensive, time-consuming, and complicated, especially compared to the low cost of entry, transparency, and liquidity of simply buying stocks.
Here's a good compromise: Consider buying some of the 225 or so publicly traded real estate investment trusts (REITs). These pools of income-producing properties are required by law to pay out most of their taxable income to shareholders in the form of dividends, providing even more buffer against the vicissitudes of a reeling market.
REITs also come in a variety of flavors, offering the opportunity to pick and choose among sectors that you deem to be the most promising now and going forward. Here are four that, for now, appear positioned to take advantage of some real estate trends that likely aren't going away, at least anytime soon.
1. Logistics and Prologis: A future full of warehouses
Prologis (PLD 0.43%) is one of the world's largest owners of warehouses, with about a billion square feet under its roof across the planet. That makes it a member of the industrial REIT group, and it continues to take advantage of the demand for e-commerce logistics space that should have plenty of room to run for years. Plus, Prologis has raised its dividend for nine straight years and is currently yielding about 2.39%
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2. American Tower just keeps rising
American Tower (AMT 1.12%) is considered an infrastructure REIT and, like Prologis, is the largest of its kind. AMT has a global portfolio of about 220,000 telecommunications sites. This REIT has produced five times the total return of the S&P 500 in the past 20 years. Continued growth in mobile communications, along with the company's expansion into data centers, should help it continue a streak of 13 straight years of dividend increases that has it now yielding about 2.42%.
3. Alexandria keeps providing a lift from life sciences
Alexandria Real Estate Equities (ARE 0.05%) has a dozen consecutive years of dividend hikes under its belt -- good for a current yield of about 2.60% -- and there's likely more to come for this pioneer of life sciences lab space, which occupies a prime spot in the otherwise shaky realm of office REITs. The company's client list includes all the major vaccine makers and myriad other technology and biopharma companies occupying prime space in collaborative campuses in several major markets from Boston to San Francisco.
4. Equity Residential keeps moving on up
Equity Residential (EQR 2.03%) is one of the nation's largest multifamily owner-operators, with a portfolio of 311 properties and 80,581 units in Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California, Denver, Atlanta, Dallas/Fort Worth, and Austin. This residential REIT is currently pumping out a yield of about 3.36%, while the demand for apartments and the ability to raise rent quickly through short-term leases promises to keep this profit machine humming through inflationary times.
Solid companies plus essential markets equals promising investments
Real estate lends itself to long-term investing, and real estate stocks like these REITs are no exception. As the chart above shows, each of these REITs has bested the S&P 500 in total return over the past 20 years. They also are each dominant players in their respective niches, and those niches themselves are the beneficiaries of macro trends that may well last for years to come.
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>>> Duke Realty rejects 'insufficient' Prologis' $23.7 bln buyout offer
Reuters
May 11, 2022
https://finance.yahoo.com/news/duke-realty-rejects-insufficient-prologis-134848338.html
May 11 (Reuters) - Duke Realty Corp on Wednesday rejected a $23.7 billion all-stock deal from warehouse real estate company Prologis Inc, and said the offer was "insufficient".
"We believe the latest offer, virtually unchanged from its prior proposals, is insufficient in that regard," the company said in a statement.
Prologis on Tuesday had offered Duke $61.68 per share, an over 29% premium to the stock's closing price on Monday, as the company looked to benefit from booming demand for industrial space.
San Francisco-based Prologis, which leases logistics facilities to about 5,800 customers including Amazon.com Inc , BMW AG and FedEx Corp, said it had previously offered to buy Duke privately.
Storage space requirement, especially from e-commerce firms including Amazon, has seen a jump as the pandemic has prompted consumers to switch to online shopping.
Shares of Duke rose about 6% to $52.42 in early trade.
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LAND, FPI - >>> One Sector Where Real Estate Billionaires Have Made a Ton of Money
Motley Fool
By Mike Price
Apr 29, 2022
https://www.fool.com/investing/2022/04/29/one-sector-where-real-estate-billionaires-have-mad/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
KEY POINTS
Billionaires like Bill Gates and Jeff Bezos are buying farmland.
Farmland not only acts as an inflation hedge but also a portoflio diversifier.
Gladstone Land and Farmland Partners are REITs that allow individual investors to invest in farmland.
Here's how you can buy farmland along with them.
Billionaires have the kinds of investment choices that individual investors can't even dream of -- custom derivatives, private placements, even entire social media networks. So, what real estate sector are they flocking to now as inflation ramps up? Farmland.
Farmland may seem boring, but it is one of the best historical investments for inflation protection. Let's discuss which billionaires are investing in farmland, the case for it as an investment, and how you can get it in on it, too, with real estate investment trusts (REITs) Gladstone Land (LAND -2.48%) and Farmland Partners (FPI 0.03%).
The billionaires
Shahid Kahn started automotive parts company Flex 'N Gate in Urbana, Illinois but is probably more famous for being the owner of the NFL's Jacksonville Jaguars. Recently, a spokesperson confirmed that one of his entities had purchased 24,000 acres of farmland.
Urbana is smack dab in the middle of Central Illinois farm country, so Kahn should be very familiar with the investment. As of April 2021, Kahn had purchased $84 million of farmland across 10 Central Illinois counties. The purchases began in 2015, and he has likely purchased more since April 2021.
Our next billionaire is Bill Gates, who, with Melinda Gates, was the country's largest farmland owner prior to their divorce. Gates' investment management company has reportedly purchased over 269,000 acres of farmland over the past 10 years.
Finally, Jeff Bezos has recently gotten in on the farmland buying spree as well. Bezos blew past Gates' levels of ownership earlier this year and now owns 420,000 acres of farmland.
The case for investing in farmland
The best case right now is that farmland is inflation protection. Farmland is leased to a farmer with contingencies for rising prices. If food prices skyrocket, as they are right now, the lessor gets to share in the windfall profits.
Of course, all businesses with primarily fixed costs hope to see windfall profits as prices go up. What sets farmland apart is the elasticity of the demand curve. When food prices go up, people can't stop eating. In many industries with elastic demand, when prices go up, demand drops. When the food prices go up, people will start to conserve more, but demand shouldn't drop nearly as much.
Inflation protection isn't the only reason to invest in farmland. The asset also allows investors to diversify their portfolios. The less correlated your various investments are, the more consistent your returns will be over time. According to a white paper by fund manager Nuveen, farmland has had consistently positive returns and higher yields than the most popular government bonds during the past four US recessions. It also has lower average volatility than both US stocks and 10-year treasury bonds since 2007. If the stock market crashes, farmland may also take a temporary hit, but it likely won't end up in the same bear market.
How you can get in on farmland
Unlike custom derivatives and entire social media networks, there are ways for individuals to invest in farmland. The most popular is Gladstone Land. Gladstone owns over 110,000 acres of farmland across 164 farms. Its stock is up almost 70% over the last six months as investors have piled in for inflation protection.
That doesn't mean it's a bad value today. The dividend yield is still 1.4%, and it trades for just over two times book value. Remember that its book value is based on the price it paid for farmland. According to a recent management presentation, the value of some of that land could be up 162% since 2000.
As food prices continue to increase, Gladstone's profits will follow, and more investors will likely buy farmland, pushing the prices of its assets up as well. Profits and assets both give the company more capacity to build its portfolio and continue to grow.
Farmland Partners is another way to get exposure to farmland. It is a more vertically integrated option. In addition to owning 160,000 acres of farmland, it also recently got into the farmland management business (it currently manages another 26,000 acres) and will manage farmland auctions and brokering as well.
Farmland Partners has the same exposure to increased food prices in its leases as Gladstone, but it also has more direct exposure to both rising food prices (with the land it manages) and rising farmland prices (with its auction and brokerage businesses)
It's worth noting that neither of these REITs has been a perfect vehicle for farmland investing so far. Farmland Partners spent years in a legal feud with a short seller that published incorrect information. Gladstone Land has remarkable returns over the past year or so, since inflation fears started to ramp up, but it lagged the market in the seven years before that.
It's possible that the two REITs will be duds unless there are substantial macroeconomic headwinds (like rising food prices) to attract investors. It's also possible that recent events have given the companies the catalyst they needed to move into a new growth phase.
Diversify, diversify, diversify
If the No. 1 rule of real estate investing is "location, location, location," the No. 1 rule of investing, in general, should be "diversify, diversify, diversify." Farmland offers investors the opportunity to not only protect their portfolios from inflation but also potentially shield returns during other market crashes as well. Billionaires are investing in the sector, and if you can handle market lagging returns during bull markets, Gladstone and Farmland Partners could offer bear market protection in your portfolio as well.
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Duke Realty - >>> Warehouse Owner Prologis Offers to Buy Duke Realty for $24 Billion
Bloomberg
by Patrick Clark
May 10, 2022
https://finance.yahoo.com/news/warehouse-owner-prologis-offers-buy-134257618.html
Prologis Proposes To Acquire Duke Realty In All-Stock Transaction Valued At $61.68 Per Share
(Bloomberg) -- Prologis Inc., the giant global warehouse owner, unveiled a roughly $24 billion all-stock offer to acquire Duke Realty Corp., taking its bid public after months of private pushback from the Indianapolis-based real estate investment trust.
The proposal values Duke at $61.68 a share, a 29% premium to its closing price on May 9, according to a letter from Prologis Chief Executive Officer Hamid Moghadam to Duke made public on Tuesday. Duke investors would own 19% of the combined company.
Duke shares were up 10% to $52.46 at 10:52 a.m. in New York. Prologis stock was down 2.9%. A representative for Duke declined comment.
The bid for Duke, which owns about 165 million square feet (15.3 million square meters) of industrial real estate in the US, comes amid a boom in warehouse demand driven by the ongoing shift to e-commerce. The US vacancy rate fell to 3.4% in the first three months of this year even as developers rushed to build new logistics properties, according to Jones Lang LaSalle Inc.
Read more: KKR to Build Warehouses as Demand for Space Outstrips Supply
While Amazon.com Inc. said last month that it had overbuilt its logistics network, landlords see persistent demand for new properties. The tight market for space, meanwhile, is pushing up rents, increasing the logic for mergers.
“The offer reflects that warehouse rent growth has continued to exceed expectations,” Bloomberg Intelligence analyst Lindsay Dutch said in an interview. “M&A gives you quick expansion and exposure to rising rents, compared to the time it takes to build new warehouses.”
If accepted, the Duke proposal would mark a return to dealmaking for Prologis, which acquired DCT Industrial Trust in 2018 and Liberty Property Trust in 2020. Moghadam’s firm has relied on new development to expand its holdings over the past two years, boosting its US portfolio to more than 600 million square feet -- roughly 200 million square feet more than its closest competitor, Blackstone Inc., had at the end of June.
San Francisco-based Prologis cited those deals in its letter and called its track record as an acquirer “incredibly strong,” with recent purchases materially benefiting investors.
Prologis first approached Duke about a potential combination in November, according to the letter. After Duke spurned a series of offers, Moghadam concluded “that a public approach may be more constructive.”
Duke’s industrial holdings are “highly strategic” and “complimentary” to Prologis’s own portfolio of logistics assets, according to the letter. Moghadam said the deal would add to Prologis’s earnings and benefit shareholders of both companies.
What Bloomberg Intelligence Says
“Prologis’ proposal to buy smaller, U.S.-exclusive Duke Realty reignites an acquisition streak that’s been dormant since early 2020 and offers rapid expansion amid strong warehouse rent growth.”
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>>> Public Storage Provides Update in Relation to Agreed Acquisition of PS Business Parks by Affiliates of Blackstone Real Estate
Business Wire
April 25, 2022
https://finance.yahoo.com/news/public-storage-provides-relation-agreed-130500530.html
GLENDALE, Calif., April 25, 2022--(BUSINESS WIRE)--Public Storage (NYSE:PSA) ("Public Storage" or the "Company") today provided certain updates as to the impact on Public Storage of the agreed acquisition by affiliates of Blackstone Real Estate ("Blackstone") of PS Business Parks, Inc. (NYSE:PSB) ("PS Business Parks"), which was announced today. Upon consummation of the transaction, Public Storage, like all holders of PS Business Parks’ common shares and units, would receive $187.50 in cash per PS Business Parks common share or unit. Public Storage holds an approximate 41% common equity interest in PS Business Parks through approximately 7.2 million common shares and 7.3 million limited partnership units.
Public Storage expects to receive approximately $2.7 billion of cash proceeds and recognize a $2.3 billion tax gain on sale upon consummation of the transaction. Public Storage expects to distribute the $2.3 billion gain to its shareholders.
Public Storage estimates annual Core Funds from Operations would be lower following the consummation of the transaction to a degree approximating its $101 million pro rata share of PS Business Park’s Core FFO in 2021, which comprised approximately 4% of Public Storage’s total Core FFO during the year.
Additional Transaction Details
The transaction is expected to close in the third quarter of 2022, subject to approval by PS Business Parks’ stockholders and other customary closing conditions. Public Storage has agreed to vote its shares of PS Business Parks common stock, which represent 25.9% of the outstanding shares, in favor of the transaction, subject to the terms of a support agreement between Public Storage, PS Business Parks and an affiliate of Blackstone.
The merger agreement also includes a "go-shop" period that will expire 30 days from today on May 25, 2022, which permits PS Business Parks and its representatives to actively solicit and consider alternative acquisition proposals to acquire PS Business Parks. PS Business Parks has the right to terminate the definitive merger agreement with Blackstone to enter into a superior proposal, subject to the payment of a termination fee and certain other terms and conditions of the definitive merger agreement, and Public Storage’s support agreement will terminate automatically upon the termination of the merger agreement.
From the date of the merger agreement through the closing of the transaction, PS Business Parks is permitted to declare and pay regular, quarterly cash distributions to holders of its common stock and to holders of its operating partnership’s units, in each case, including Public Storage, in an amount of up to $1.05 per share or unit, including a pro rata distribution in respect of any stub period.
Additional information regarding the transaction may be found in documents that PS Business Parks files with the SEC, available on the SEC’s website at sec.gov.
Company Information
Public Storage, a member of the S&P 500 and FT Global 500, is a REIT that primarily acquires, develops, owns, and operates self-storage facilities. At December 31, 2021, we had: (i) interests in 2,787 self-storage facilities located in 39 states with approximately 198 million net rentable square feet in the United States, (ii) an approximate 35% common equity interest in Shurgard Self-Storage SA (Euronext Brussels:SHUR) which owned 253 self-storage facilities located in seven Western European nations with approximately 14 million net rentable square feet operated under the "Shurgard" brand, and (iii) an approximate 41% common equity interest in PS Business Parks, Inc. (NYSE:PSB) which owned and operated approximately 28 million rentable square feet of commercial space at December 31, 2021. Our headquarters are located in Glendale, California.
Additional information about Public Storage is available on the Company’s website at PublicStorage.com.
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>>> National warehouse pipeline keeps expanding, but 30% of construction is in 4 markets
The U.S. industrial market is off to a busy start in 2022 as demand remains high for logistics, e-commerce and manufacturing space everywhere.
By Ashley Fahey
The National Observer: Real Estate Edition
Apr 25, 2022
https://www.bizjournals.com/bizjournals/news/2022/04/25/warehouse-pipeline-expanding-challenges-remain.html?ana=yahoo
The U.S. industrial market is off to a busy start in 2022 as demand remains high for logistics, e-commerce and manufacturing space everywhere.
Demand outpaced supply for the sixth consecutive quarter in the first quarter, with the U.S. market absorbing more than 108.7 million square feet of space in the first three months of the year, according to Cushman & Wakefield PLC (NYSE: CWK). That's an increase of 7.8% from Q1 2021.
Meanwhile, construction is trying to keep up with record-level demand, with 546.1 million square feet underway at the end of Q1, Newmark Group Inc. (NYSE: NMRK) recently found. In Q1, 81.1 million square feet delivered nationally.
And while seemingly every major U.S. metro area, and the tertiary areas around it, is seeing a big run-up in industrial construction, there are a few key markets where new warehouse space is dominating. Newmark found nearly one-third of all new industrial supply underway now is in Dallas, Phoenix, California's Inland Empire and Chicago.
Lisa DeNight, national industrial research director at Newmark, said markets like Dallas and Phoenix have the sites to expand their construction pipeline to meet demand, as opposed to a market like southern California, where the Inland Empire sits. Although a prime warehouse market because of its location near the ports of Los Angeles and Long Beach, the Inland Empire continues to be an extremely constrained market for space, DeNight said.
That's created new nodes of industrial growth, including places like Phoenix and Las Vegas, in addition to areas proximate to East Coast ports, such as Savannah, Georgia, and Charleston, South Carolina. In fact, Charleston is one of the top markets seeing the highest amount of industrial development as a share of existing inventory, according to Newmark.
Demand has pushed the U.S. vacancy rate to 3.3% at the end of Q1, according to Cushman. Among the markets tracked by Newmark, vacancy stood at 4% at the end of Q1. That's compared to 5.3% vacancy nationally a year ago.
DeNight said despite the continued demand and amount of new space under construction, and continuing to break ground, the sector remains challenged with the supply chain, costs and labor availability.
Newmark found while the industrial pipeline has grown 46% annually, space that delivered in the first three months of 2022 was only slightly above the rolling four-quarter average, which suggests challenges around timely delivery, DeNight said.
She said she was talking to a developer in the Mountain West region who said entitlements are now taking six months longer than they used to — and that's just one stage of the project.
"The supply-chain disruption isn't dissipating anytime soon," she added.
So what does it mean for new industrial development and the ability for groups to start and complete projects? DeNight said larger groups are most likely to be able to head off the broader economic challenges and have the least trouble delivering the space needed to meet demand.
San Francisco-based Prologis Inc. (NYSE: PLD), for example, one of the nation's largest industrial developers, completed more than $1 billion in new development in Q1 across 32 projects and 16 markets, Tim Arndt, chief financial officer at the real estate investment trust, said during the company's April 19 Q1 earnings call.
The build-out potential of Prologis' land bank is at $28 billion, or about 200 million square feet, he added, with nearly $7 billion of liquidity and more than $18 billion of investment capacity across Prologis and its open-ended funds.
Still, supply-chain issues are hitting major players, too. Ardnt said Prologis reduced its deliveries forecast for the year to 375 million square feet, citing developers' struggle to deliver on time because of a lack of materials and labor, a condition he said the REIT expects to continue throughout the year.
But, DeNight said, there are especially very real pressures for smaller, regional developers.
"This is a very geographically specific question as well," she added. "Some markets have such impediments to delivering new space — land constraints, very long entitlement periods, labor issues. In some geographies, it’s always a good idea to build more space, if you can. But I think some other geographies’ development landscape will need to be more considered in the next 12 to 18 months."
Although e-commerce and third-party logistics make up a significant share of the industrial market, advanced manufacturing is becoming more prolific, especially given the war in Ukraine and issues obtaining supply from China through the pandemic, which continues today.
Projects like Taiwan-based Sunlit Chemical Co. Ltd.'s $100 million facility in Phoenix, New York-based United Safety Technology Inc.'s $350 million medical-manufacturing facility in Baltimore and Indianapolis-based Eli Lilly & Co.'s (NYSE: LLY) $1 billion manufacturing plant in Concord, North Carolina, began in Q1 and are indicative of that kind of growing demand, DeNight said.
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Prologis - >>> Is Now the Time to Invest in Industrial Real Estate?
Motley Fool
By Maurie Backman
Apr 26, 2022
https://www.fool.com/investing/2022/04/26/is-now-the-time-to-invest-in-industrial-real-estat/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
KEY POINTS
The pandemic has caused a major shift over to digital sales.
With warehousing space being high in demand, it pays to look at adding industrial REITs to your portfolio.
There's one specific player within that space that could be a solid buy.
Industrial real estate is booming -- and it probably won't slow down.
Investing in real estate is a great way to diversify your portfolio and set it up for long-term growth. But there are different approaches you can take in that regard, and different real estate sectors to look at.
If you don't have the stomach for investing in actual properties, it pays to look at REITs, or real estate investment trusts, instead. REITs are companies that operate different properties, and they can be a major source of portfolio growth in two ways.
First, there's share price appreciation. Over time, the value of the REIT shares you own could rise. Then there are dividends. REITs are required to pay at least 90% of their net income to investors. As such, they frequently pay higher dividends than your average stock.
Within the world of REITs, there are different sectors worth dabbling in. But here's what now's a great time to focus on industrial real estate.
Take advantage of that boom
The pandemic changed the way a lot of people shopped. During the crisis, many consumers shifted over to e-commerce to avoid having to set foot in an actual store. During the second quarter of 2020, e-commerce sales rose 16.2% from the previous quarter, as per CBRE. And as of late 2021, digital sales remained well above pre-pandemic levels.
That shift has resulted in increased demand for industrial space. With more consumers purchasing goods online, retailers need more options for storing and distributing goods. That's where warehouses and fulfillment centers come into play -- and the companies that operate those facilities are now poised to make a lot of money.
In fact, JLL reports that since the fourth quarter of 2020, industrial rents have grown by 11.3%. Meanwhile, last year, vacancy rates at industrial properties dropped below the 4% threshold for the first time, coming in at just 3.8%.
All of this paints a strong picture for industrial real estate as consumers show no signs of abandoning e-commerce. In fact, in the coming years, the need for industrial space is apt to increase even more, putting warehouse operators in a strong position to command more in rent and setting the stage for expansion.
Rising gas costs could be a boon to e-commerce
While COVID-related fears may not keep consumers out of stores in the near term, soaring gas prices might. Drivers have been getting squeezed at the pump since the start of the Ukraine conflict. And in the coming months, we could see exceptionally strong e-commerce growth as consumers clamor to take advantage of free or low-cost shipping. That, too, is apt to work to the benefit of industrial REITs.
But to be clear, industrial REITs aren't just a short-term money-maker. The shift we've seen to e-commerce is likely to be a permanent one due to the convenience factor alone. And that makes industrial REITs an investment worth scooping up due to long-term growth potential.
While there are different options you can look at in that regard, one company worth digging into is Prologis (PLD -2.83%). As the largest player within the industrial space, Prologis operates an impressive portfolio of properties and has done a great job of increasing its revenue in recent years.
Now one drawback to buying Prologis is that the company's dividend yield isn't much to write home about compared to other REITs. But dividends are only one way to make money within the context of industrial real estate. And if you're looking for a way to capitalize on the industrial boom, it pays to consider adding Prologis to your portfolio.
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Stag Industrial - >>> These 3 Stocks Are Exceptional Value Buys Right Now
Motley Fool
By Matthew DiLallo
Apr 17, 2022
https://www.fool.com/investing/2022/04/17/these-3-stocks-are-exceptional-value-buys-right-no/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
KEY POINTS
The market seems to have undervalued Plymouth Industrial REIT's growth prospects.
Stag Industrial trades at a much cheaper prices than its industrial REIT peers.
Investors seem to have overlooked the industrial focus of W.P. Carey's diversified portfolio.
These stocks are trading at enticing values compared to their peers.
Industrial real estate is in high demand these days.
Catalysts such as the accelerated adoption of e-commerce, supply chain issues, reshoring, and changing inventory management practices have businesses scrambling to lock up warehouses and other industrial spaces. That's driving up occupancy levels and rental rates for industrial properties.
These strong market conditions are benefiting real estate investment trusts (REITs) focused on owning industrial real estate. According to the National Association of REITs, the average industrial REIT will grow its funds from operations (FFO) per share by more than 10% over the next year. Because of these strong market conditions, investors are willing to pay a premium for industrial REITs. The average one trades at more than 26 times its 2022 FFO estimate. Some industrial REITs fetch even higher values.
However, several REITs trade at relatively cheaper prices. Here's a look at three value-priced REITs focused on owning industrial real estate.
Too cheap given its growth prospects
Plymouth Industrial REIT ( PLYM 1.86% ) focuses on owning single- and multi-tenant industrial properties, including distribution centers, warehouses, light industrial, and small bay industrial properties. Demand for this real estate is strong. Last year, the company signed more than 5 million square feet of leases at an average rate of 11.1% above prior leases. That should help drive nearly 7% core FFO per share growth at the midpoint of its guidance range. That forecast also assumes the company will close the $197 million of acquisitions it has already identified.
Despite that healthy growth rate, Plymouth Industrial trades at about 14 times its 2022 core FFO estimate. That's cheap compared to its peers, especially considering its 2022 forecast seems light given its current acquisition pace. The company purchased $194.5 million of properties in the fourth quarter alone and had another $197 million in deals in the pipeline that should close by the second quarter. This purchase rate suggests it could deliver core FFO per share growth above its current forecast.
One positive of Plymouth's cheap price is that the REIT offers an attractive dividend yield. It's currently at 3.4% after increasing its dividend by 4.8% earlier this year.
A cheap price makes Stag a great passive income stock
Stag Industrial ( STAG 3.31% ) owns a diversified portfolio of industrial properties. That includes warehouses to support e-commerce and light manufacturing facilities. Demand for both types of properties has been strong in the past year. Stag reported that leases commencing in the fourth quarter were up double digits from prior rates.
Meanwhile, Stag is finding plenty of acquisition opportunities to drive further growth. The industrial REIT expects to buy between $1 billion and $1.2 billion of properties this year. That's an acceleration from its average acquisition volume of less than $800 million over the last seven years.
Stag's accelerating acquisition volume and strong rent growth should drive more than 6% FFO per share growth this year. Despite that healthy growth rate, Stag trades at an attractive valuation of less than 17 times its 2022 FFO estimate. Because of that cheaper price, the company's monthly dividend yields 3.6%.
An emerging player in the industrial sector
W.P. Carey ( WPC 1.89% ) technically falls into the diversified REIT category. It owns operationally critical real estate in the industrial, warehouse, office, retail, and self-storage sectors.
However, half of W.P. Carey's portfolio is industrial real estate, split relatively evenly between warehouses and industrial facilities. The company has significantly expanded its industrial real estate portfolio in recent years. In 2021, W.P. Carey invested a record $1.73 billion, 70% of which was industrial real estate.
This year, W.P. Carey expects to acquire between $1.5 billion and $2 billion of properties and will likely continue emphasizing industrial properties. When combined with rising rental rates, the REIT sees its adjusted FFO growing at a mid-single-digit rate in 2022. That has the REIT trading at about 15.5 times its 2022 FFO estimate, which is cheap for a diversified REIT (the sector's average is 17.5), especially given its industrial focus. W.P. Carey therefore offers a higher dividend yield, currently around 5.2%.
Great REITs for value seekers
Demand for industrial real estate is stronger than ever these days, which means occupancy and rental rates are rising. That's benefiting REITs focused on the sector. While these strong market conditions have investors bidding up industrial REITs, several still trade at attractive valuations, led by Plymouth, Stag, and W.P. Carey. That makes them great buys for investors seeking a good value in this red-hot sector.
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>>> VICI Properties (VICI) is an experiential real estate investment trust that owns one of the largest portfolios of market-leading gaming, hospitality and entertainment destinations, including the world-renowned Caesars Palace. VICI Properties' national, geographically diverse portfolio consists of 29 gaming facilities comprising over 48 million square feet and features approximately 19,200 hotel rooms and more than 200 restaurants, bars and nightclubs. Its properties are leased to industry leading gaming and hospitality operators, including Caesars Entertainment, Inc., Century Casinos Inc., Hard Rock International, JACK Entertainment and Penn National Gaming, Inc. VICI Properties also owns four championship golf courses and 34 acres of undeveloped land adjacent to the Las Vegas Strip. VICI Properties' strategy is to create the nation's highest quality and most productive experiential real estate portfolio.
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>>> American Homes 4 Rent (NYSE: AMH) is a leader in the single-family home rental industry and "American Homes 4 Rent" is fast becoming a nationally recognized brand for rental homes, known for high-quality, good value and tenant satisfaction. We are an internally managed Maryland real estate investment trust, or REIT, focused on acquiring, developing, renovating, leasing, and operating attractive, single-family homes as rental properties. As of September 30, 2020, we owned 53,229 single-family properties in selected submarkets in 22 states.
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