Real Estate Riches: Hiding in Plain Sight in the Niches 06/19/2024

We’re at an interesting inflection point in the real estate cycle.  While some asset classes are performing well, others are struggling.

Data centers are performing well, in some instances exceedingly well.  The warehouse sector has come down off of its pandemic high, but seems primed for a prolonged run of stable growth.  Climate controlled warehouse space should continue to outperform, and the adoption of AI, mechanical arms and autonomous vehicles should help drive productivity in warehouse space forward, and make fiber-supported Class “A” warehouse space more sticky than ever.  The retail sector is also healthy, with high occupancy rates and steady rent growth.

In contrast, the multifamily and office sectors are struggling, with the value of many office properties having declined sharply, leaving many buildings under water.

Long-Term Opportunities for Value Creation – Even in Sectors that are Struggling

However, there are long-term opportunities for value creation, even in the real estate sectors that are beset by headwinds.  For the office sector this includes niche areas such as the Fulton Market in Chicago, where Green Street has been recognized as one of the 50 most expensive streets in the city.  This is in sharp contrast with much of the rest of Chicago’s office market, struggling mightily, and where 75% of CMBS debt is in distress – meaning that these loans are either in default or at risk of default.

Believe it or Not – Luxury Waterfront Development in is Transforming Mott Haven, Bronx, New York (in the Lower Concourse and Along the Harlem River)

Multifamily developers like Brookfield are instrumental in transforming the waterfront in Mott Haven, located in the South Bronx.  Development along the Harlem River is being driven by a confluence of factors – with the combined momentum sufficient to overcome significant obstacles.  These factors include rezoning such as a 2009 rezoning under the Bloomberg Administration, New York State’s Voluntary Cleanup Program, the acute shortage of and robust demand for waterfront development sites, a strategic location near highways and bridges providing quick and easy access into Manhattan, and the spike in market rents in Manhattan, Brooklyn and Queens.  These and other factors have provided the impetus necessary in order to redevelop and revitalize an industrial area beset by a variety of problems, including contamination.

Brookfield & RxR are Two of a Growing Number of Developers Investing in Mott Haven

The waterfront developments in Mott Haven are luxury buildings, and provide residents with an excellent view of the Manhattan skyline.

Brookfield is developing the Bankside project, a transformative $950 million keystone, featuring 7 towers, 5 retail stores, a public park running along the Harlem River, and 1,379 residential units – 30% of which are income restricted.

RxR’s commitment to Mott Haven comes in the form of a 27-story residential tower with 200 units, 60 of which are rent stabilized for middle class families.

Takeaway/Important Opportunities are Plentiful, Even in Sectors Subject to Strong Headwinds

So, while some real estate sectors are struggling to overcome strong headwinds, embedded in these very sectors there are opportunities remaining to be uncovered.  Some will come in the form of the adaptive reuse of polluted industrial sites, others in the prudent acquisition of non-commodity office buildings at prices low enough to facilitate the reset of their bloated basis.
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2024 Copyright Exceedant and Randy Airst Esq., LLM, CEO and Contributor supported by our Research Team.