Trump Looking for Clarity Over NY Real Estate

Good morning,

Trump looking for clarity over NY real estate; all things Chicago; new bill seeks tax relief for distressed CRE debt workouts; and San Francisco office vacancies hit new high. Let’s delve into today’s topics.

📈 Market Update

🏢 Trump Looking for Clarity Over NY Real Estate

A New York judge's ruling canceling the Trump Organization's business certificates bars the former president from operating properties in the state and puts control of some assets in the hands of a court-appointed receiver. While the full implications are unclear, the drastic remedy effectively prevents Trump from transacting business in New York, his longtime real estate base. However, Trump's focus has shifted away from New York in recent decades toward deals in other states and countries, so the financial impact may not be as severe as earlier in his career when he built an empire of iconic properties in the city.

🏙️ All Things Chicago

Brookfield Cashes Out $220M Refinancing Top Chicago-Area Mall:
Brookfield Properties is extracting $220M in equity through the $700M refinancing of Oakbrook Center, one of the largest malls in metro Chicago. The deal highlights the recovery and strength of the mall, which has successfully weathered tenant losses and the pandemic. Extensive reinvestment and re-leasing vacant department stores have positioned the 2.6M SF super-regional mall for growth, with sales now exceeding pre-pandemic levels.

Magnificent Mile Retail Vacancies Improve:
Retail vacancies along Chicago's Magnificent Mile shopping district have declined over the past year but remain significantly higher than pre-pandemic levels. The vacancy rate was 14.1% in Q2 2022, down from 16.3% a year earlier, according to Cushman & Wakefield data. Rents average over $100 per square foot, limiting the tenant pool. While the high-end corridor is recovering slower than the broader market, major deals since quarter-end signal renewed investor interest in the famed strip.

Rare $233M Chicago Office Project Starts, Anchored by Top Tenant:
Fulton St. Cos. has secured $233M in financing to start construction on a 400,000 SF office building in Chicago's hot Fulton Market district, a rare feat nationally. The project is notable as the first ground-up downtown office development in over a year, proving investor confidence in the location. Anchor tenant Harrison Street will relocate its headquarters to the new building upon completion in 2025. Landing top tenants and choice site mitigated lending risks, though the lengthy process exemplifies financing challenges for offices.

💪 New Bill Seeks Tax Relief for Distressed CRE Debt Workouts

A bipartisan bill introduced in Congress aims to provide tax relief for distressed commercial real estate by excluding discharged debt from taxable income in certain workout situations. The proposed Saving Our Mainstreet American Locations for Leisure and Shopping Act would apply to qualified retail and commercial assets where debt was assumed before March 2022 and discharged by 2027. While the bill could aid owners struggling with pandemic impacts, passage faces obstacles given wider partisan disputes and the narrow geographic support.

🫢 San Francisco Office Vacancies Hit New High

San Francisco's office vacancy rate reached a record 33.9% in Q3 2022, as negative absorption persists despite emerging demand from AI firms. AI startups account for half of the 5.2M SF of prospective tenant requirements, driving major leases like Anthropic's pending 230,000 SF sublease at 500 Howard. However, the mayor's designation of San Francisco as "the AI capital" has yet to reverse the remote work exodus, with vacancies projected to climb further before recovery materializes.

✍️ Further Reading

• Trump Ruling Casts Confusion Over Fate of Properties (RD)

• Fed's Decision to Hold Rates Might Be a Turning Point (GS)

• Analysis There's a Sizeable Gap Between Hotel Buyers and Sellers (GS)

• China Puts Evergrande’s Billionaire Founder Under Police Control (BBG)

📊 Chart of The Day