November 2024

North America

·Blackstone acquires grocery-anchored REIT (Retail Opportunity Investments Corp) for $4 billion, equating to c. 5.75% cap rate. Blackstone has agreed to take Retail Opportunity Investments Corp. private in a $4 billion deal, reflecting surging investor interest in grocery-anchored retail centers. The acquisition, made through Blackstone Real Estate Partners X, offers $17.50 per share in an all-cash transaction, a 34% premium over the company’s July closing price. Retail Opportunity Investments owns 93 West Coast properties, including a 10.5 million square foot portfolio across Los Angeles, Seattle, and San Francisco. CEO Stuart Tanz highlighted the deal’s value to stakeholders and Blackstone's ability to drive the portfolio's growth. Grocery-anchored centers have become highly desirable due to stable demand and limited new retail development since the Great Recession. The deal, approved by the REIT’s board, is set to close in early 2025, pending shareholder approval. (Source: CRE Analyst, Blackstone, CoStar, 2024)

153,000 sq ft Hawks Prairie retail center in Lacey (Washington) owned by ROIC

·SL Green Realty’s Times Square 1515 Broadway faces refinancing challenges. A $745 million CMBS loan tied to the iconic 1515 Broadway office tower in Times Square has entered special servicing, signalling financial distress ahead of its March 2025 maturity. SL Green Realty, Manhattan’s largest office landlord and co-owner of the 1.74m square-foot property with Pimco, is negotiating an extension while emphasizing the building’s strong cash flow and full occupancy. Paramount Global, the building's anchor tenant occupying 1.6 million square feet until 2031, contributes significantly to its performance, but their large presence poses refinancing risks. The loan, originated at a 3.93% fixed interest rate, faces challenges as current lending conditions may demand higher rates. SL Green is also seeking to redevelop part of the property into a boutique casino and hotel with Caesars Entertainment, which could add complexity to refinancing. Rising interest rates and pandemic-driven office market shifts have exacerbated refinancing pressures across the sector, impacting properties like 1515 Broadway.

·Alphabet shifts focus to AI, pays $607M to shed more offices. Google's parent, Alphabet Inc., has paid $607 million in office impairment charges to further reduce its real estate footprint, aligning with its focus on artificial intelligence investments. The company reported a quarterly profit of $26.3 billion, a 34% increase from the prior year, surpassing analyst expectations and fueled by AI-driven innovation. Alphabet's CFO, Anat Ashkenazi, emphasized the need to optimize costs, including office space and workforce size, to fund growth in priority areas. The firm has already vacated 2.7 million square feet of office space and spent $4 billion last year on restructuring, including job cuts and property reductions. Capital expenditures surged 62% to $13 billion in Q3 2024, highlighting a pivot toward data centers and AI projects. This follows Google’s actions to sublease c. 1.4m sq ft in San Francisco and reassess its global $50bn real estate footprint. (Source: Green Street, CoStar, Google, 2024)

·Multifamily vacancy rates stabilize amid regional disparities. The U.S. multifamily vacancy rate peaked at 7.9% in Q3 2024, marking the first stabilization in three years after climbing from a record low of 4.8% in 2021. This rate is now 170 basis points higher than the pre-pandemic average of 6.4%, with forecasts predicting stability over the next three quarters, followed by gradual declines. However, regional disparities are stark: Sun Belt markets like Austin lead with high vacancies (15.1%), while coastal and Midwest cities, such as New York City (2.8%) and Chicago, report significantly lower rates. The gap between the highest and lowest vacancy rates among the top 50 markets has widened to a historic 10.6 percentage points, reflecting uneven market recovery. The standard deviation in vacancies has doubled since 2015, emphasizing the importance of localized analysis in navigating these trends. Coastal markets' low vacancies and Sun Belt oversupply highlight the complex dynamics shaping the multifamily housing sector. (Source: CoStar, 2024)

US national vacancy rate stabilizing as of November, 2024

Sun Belt cities rank highest in vacancy amongst the top 50 markets

·Lower-tier hotels driving RevPAR growth in New York amid national trends where upper-tier hotels dominate. While upper-tier hotels have been performing nationally, New York City’s lower-tier hotels outperformed in 2024, posting nearly double-digit RevPAR growth fueled by hotel rate increases. Midscale hotels saw a standout 15% RevPAR boost year-to-date, diverging from national trends where economy and lower midscale hotels reported declines of 3.4% and 1.2%, respectively. This growth in New York stems from a significant supply contraction, as over 16,000 hotel rooms—primarily older, limited-service properties—were converted into shelters. Areas outside Manhattan were particularly impacted, with room supply dropping by 26% to 44% between 2021 and 2024. These supply reductions, paired with steady demand, led to rate-driven gains in the midscale and economy segments, unlike the national bifurcation favoring luxury hotels. However, with supply poised to grow and rate hikes expected to slow in 2025, New York’s current trends may moderate. (Source: CoStar, 2024)

Midscale hotels in New York outperform other classes of hotels

Europe

·Ares expands London portfolio with £110m in new deals, which tallies to more than four Central London office properties acquired this year. Ares Management is set to acquire two prominent London properties for £110m, adding to its recent surge of investments in the capital. The acquisitions include a £70m mixed-use portfolio on St John’s Wood High Street and Oxbourne House on Oxford Street for just under £40m. These purchases follow Ares' £135m acquisition of 45 Pall Mall, bringing its total London spending spree to nearly £245m this year. The St John’s Wood portfolio features retail and residential assets, including popular tenants like Cinder and Joseph, while Oxbourne House includes redeveloped retail and residential spaces. Ares is capitalising on pricing dislocation in London’s real estate market, showing commitment despite challenges such as an expired exclusivity period on the St John’s Wood deal. These transactions align with Ares’ broader strategy of targeting high-value, mixed-use and office assets, complementing earlier deals like the £65m Shaftesbury Capital portfolio and other high-profile bids. (Source: Green Street, Ares, 2024)

St John’s Wood High Street

·Unibail-Rodamco-Westfield in advanced discussions to sell partial stake in €450M+ La Défense office to Norges Bank Investment Management. Norges Bank Investment Management (NBIM) is in advanced talks with Unibail-Rodamco-Westfield (URW) to purchase an 80% stake in the Tour Trinity office tower in Paris La Défense, valuing the property at over €450m with a 6% yield. The 49,000 sq m (527,400 sq ft) tower is fully leased to 14 tenants, including Sopra Steria and TechnipFMC, generating annual rents of €27.6m. The property has seen lease rates rise from an average of €564/sq m in December 2023 to €600/sq m on recent contracts. Negotiations may result in a co-ownership deal, with NBIM acquiring the majority stake while URW retains 20%. This transaction aligns with URW’s strategy to reduce debt, having already completed €800m in asset sales this year, including properties in Paris and Munich, with an additional €600m in divestments underway. Despite earlier plans to occupy the tower, URW abandoned this idea in 2021, marking a strategic shift to focus on financial streamlining. URW had initially invested €340m investment in the development build stage, with Tour Trinity having completed in 2020. (Source: Green Street, 2024)

·Europe's living sector attracts massive investment focus with €64 billion allocated to the sector over the next five years. Europe’s purpose-built student accommodation (PBSA) market is poised for significant growth, with investors planning to increase their allocations across living sectors to €64 billion over the next five years. PBSA is the most appealing sub-sector for investors, favoured for its strong demand fundamentals and resilience during economic fluctuations​​. Savills and The Class Foundation report that PBSA providers aim to expand their portfolios by 70%, adding 92,500 beds with a €22 billion investment, despite persistent supply gaps. Knight Frank's survey echoes this optimism, highlighting the living sector's appeal, particularly for multifamily housing and single-family growth​. Environmental, social, and governance (ESG) principles strongly influence investment decisions, reflecting a broader focus on sustainability and tenant well-being. However, challenges like affordability, regulatory hurdles, and rising interest rates threaten the sector's expansion​. As the European Central Bank considers rate cuts, market activity is expected to intensify, with cities like London, Madrid, and Berlin standing out as top investment destinations. Despite obstacles, the sector's strong fundamentals and potential to reinvigorate European economies sustain its appeal​. (Source: Savills, The Class Foundation, Green Street, Knight Frank, 2024)

·KKR and Baupost secure £900M UK hotel portfolio with £600m financing. KKR and Baupost Group have partnered to acquire a £900 million portfolio of 33 Marriott hotels across the UK from the Abu Dhabi Investment Authority (ADIA), with the deal set to close by year-end. Flagship properties include the London Marriott Hotel County Hall and London Marriott Hotel Regents Park. The acquisition is backed by a £600 million loan arranged with BAML, Societe Generale, and Deutsche Bank. This marks a significant milestone for KKR’s Amante Capital, its hotel-focused platform, and aligns with Baupost’s strategy of targeting European real estate opportunities. ADIA is exiting the portfolio, initially acquired for £640 million in 2013, following a strategic review. The portfolio includes properties rebranded under Marriott’s Delta brand and is one of the largest real estate deals in the UK this year. Buyers active early in the cycle are acquiring core-plus assets with more opportunistic capital such as KKR’s Real Estate Partners Europe III, value-add and opportunistic fund dedicated to Western Europe. (Source: Green Street, 2024)

Marriott County Hall

·Dublin's major shopping centre has sold for c. €560 million, a significant drop from the €930 million Blackstone paid in 2016, after returning keys to mezzanine lender, Goldman Sachs​. Strategic Value Partners (SVP) is acquiring Dublin's Blanchardstown Centre for around €560 million, a 40% drop from Blackstone's €930 million purchase price in 2016. The property was originally financed at acquisition with a €767 million loan from Morgan Stanley, divided into senior debt—mostly sold to AIG and Allied Irish Bank—and a €150 million mezzanine loan held by Goldman Sachs. When rental income plummeted during the COVID-19 pandemic, Blackstone handed over the keys to the lenders, with Goldman Sachs ultimately taking control and initiating the sale​. SVP has a history of turning around distressed retail assets, including its leadership in the restructuring of the UK-based Intu SGS portfolio. This portfolio includes four major shopping centres, where SVP became the largest investor in 2023, stabilising the assets during a turbulent market cycle. These strategic moves reflect SVP's focus on revamping underperforming retail assets in Europe​. The Blanchardstown Centre, one of Ireland’s largest retail complexes, is set to benefit from SVP’s plans to upgrade food and beverage options and strengthen its position as a premier shopping destination. (Source: CoStar, Strategic Value Partners, Cushman & Wakefield, The Irish Times, 2024)