- Best Ever CRE
- Posts
- 🧟 America's 'zombie malls' are getting makeovers.
🧟 America's 'zombie malls' are getting makeovers.
Plus: Tides Equities makes waves, and we dive into the growth vs. stable market debate.
Best Ever CRE Team
September 21, 2023
Together with
Hello, Best Ever Community!
In this week’s newsletter, America’s malls get a makeover, Tides Equities makes waves, and we dive into the growth vs. stable market debate.
Today’s newsletter is brought to you by Jake & Gino's Multifamily Mastery 6 — the financial vacation for smart people — happening this October 14 & 15 in Orlando, Florida. Learn more about Multifamily Mastery 6 here.
First time here? Make sure to subscribe to stay up to date on all the latest CRE news!
Read on!
🎙 ICYMI
ON THE BEST EVER SHOW
💸 Josh Cantwell — Funding Equals Freedom: Strategies for Raising Capital in 2023 and Investing in Stable Markets: Josh discusses his journey in the industry, his strategies for success, and the secrets to raising capital effectively. Listen here.
🏥 Bronson Hill — From Medical Sales to 2,000 Multifamily Units: Bronson emphasizes the importance of cash flow, risk mitigation, and seeking value-add opportunities, providing insights into various investment strategies that can generate passive wealth. Listen here.
💥 Drew Breneman — How to Succeed with Core-Plus Investments in a Volatile Real Estate Landscape: Drew specializes in transforming multifamily properties. Today, he’s leaning into core-plus investments, and he's here to share game-changing insights for today's savvy investors. Listen here.
🗞 NO-FLUFF NEWS
SHOPPING MALLS & THE NEW ‘MICRO-CITY’
Whether you believe traditional shopping malls are dying or that reports of their demise have been greatly exaggerated, one thing is clear: The future for malls is uncertain, at best. According to a June report, top-tier malls — described as malls featuring luxury retailers and newer direct-to-consumer brands and often located in more affluent areas — have rebounded in 2023, while lower tiers struggle with high vacancy rates and negative absorption. These lower tiers make up the declining and “zombie malls” of America.
🌊 A new wave of investors has emerged to target these properties, injecting huge sums of capital to turn the average mall into “micro-city” hubs for living, working, entertaining, and of course, shopping. Real estate firm Centennial and the Los Angeles, CA, developer Pacific Retail Capital Partners (PRCP) are leading this charge, focusing on mixed-use development to turn traditional malls into micro-cities within suburbs, including demolishing unusable sections, introducing residential areas, and reconfiguring parking.
A rendering of Hawthorn Mall (Centennial, via themessenger.com)
👷 One such project at Hawthorn Mall in Vernon Hills, IL — a Centennial property — includes constructing 808 multifamily homes, a 162-unit senior living community, reducing the retail space by about 45%, and adding a grocery store and open-air retail, all for $250 million. PRCP is working on a similar project, having recently received approval for zoning changes for a $200 million residential project at a suburban Chicago mall that will replace an old department store, which has sat vacant since 2018.
🚧 Zoning laws are among the biggest challenges that could trip up a mall-to-micro-city conversion, as zoning adjustments require buy-in from local municipalities. Additionally, securing funding can be a challenge. With a delinquency rate of 7.54% for regional malls in June, traditional lenders are wary. This is due to declining mall visits, rising vacancies, and department store bankruptcies. Consequently, Centennial is exploring alternative financing options, such as family offices and distressed debt funds, while PRCP emphasizes diversification to a multi-capital asset property.
🔥 Opportunity Knocks: Centennial and PRCP don't compete with firms purchasing foreclosed properties. Instead, they acquire neglected suburban malls overlooked by major mall owners consolidating their core assets. “There are more private owners [of malls] than there have ever been and we think that trend is probably going to continue,” PRCP CFO Oscar Parra told The Messenger. “These major REITs continue to prune their portfolio. That's probably going to continue for another five years plus, which means even more malls in private hands.”
📰 Other CRE News
Low Tides: Troubled multifamily syndication firm Tides Equities reports extensions and rate relief on dozens of deals.
Script Flipped: Wages are outpacing rents again, and by a widening margin, with all signs suggesting more of the same for the near future.
A > B, C: Apartment rent growth has cooled to an annual rate of just 0.8% in July, but according to RealPage, growth has slowed more significantly in Class B and C properties.
Loan Extensions: According to Trepp, $5.65 billion in commercial real estate loans have been modified this year, with many extended by 1–12 months, influenced by higher interest rates and economic concerns.
Trouble, Trouble: Newmark data shows that $436 billion of multifamily debt is potentially troubled, while total CRE debt in the same condition amounts to $1.2 trillion.
CBRE v. SEC: CBRE Group agreed to pay a $375,000 fine to the SEC to settle allegations that the firm’s separation agreements prevented potential whistleblowers from reporting to the regulator.
🌎 JAKE & GINO
MULTIFAMILY MASTERY 6
👋 Want to see some amazing speakers and top experts in multifamily? Then you won't want to miss Jake & Gino's Multifamily Mastery 6 conference! Special guests include:
David Greene
Chris Voss
Brad Lea
Luke Wren
Philip McKernan
& MORE!
Jake & Gino have been gracious enough to provide us with a discount of $197/ticket! Just click THIS LINK to register!
WHEN: October 14 & 15, 2023
WHERE: Gaylord Palms Resort, Orlando, FL
✍️ BEST EVER BLOG
FROM VIJAY PRABHAKARAN
🎯 Selecting the right market is a pivotal decision for real estate investors, and it’s not always an easy one. In our latest Best Ever blog post, Vijay Prabhakaran delves into the crucial considerations surrounding growth and stable markets.
By comprehending the advantages and pitfalls associated with each, you can navigate the path to successful investment with a clear understanding of your objectives. Below are just a few of the benefits and risks to consider:
✅ Benefits of Investing in Growth Markets:
Potential for Appreciation: Property values tend to rise faster in growing markets due to factors such as population growth, job opportunities, and increased demand for real estate.
Rental Income: Growing markets often experience increased demand for both residential and commercial spaces, leading to higher rental rates and net operating income (NOI), which can result in higher property values.
⚠️ Risks of Investing in Growth Markets:
Overvaluation: Rapid growth can lead to overinflated property prices, making it challenging to achieve reasonable returns on investment, especially if interest rates are higher than cap rates.
Increased Competition: The attractiveness of growing markets can lead to bidding wars and higher property prices, potentially making it harder to find good investment deals.
✅ Benefits of Investing in Stable Markets:
Cash Flow/Predictable Returns: Stable markets offer gradual and predictable growth in property values and rental income, providing investors with a reliable source of income and potential appreciation over time. Lower entry prices (higher cap rates) can result in better cash-flowing properties.
Less Competition: Stable markets may have less investor competition, allowing for more negotiation flexibility and the possibility of seller financing options.
⚠️ Risk of Investing in Stable Markets:
Potential for Stagnation: Over time, stable markets can become stagnant or even decline if they don't experience significant growth or face demographic changes, leading to slow appreciation, depreciation, and increased vacancy.
💬 “If you need to invest outside your geographic market, focus on one or two target markets as a starting point. In-depth knowledge of a market takes time and research. It is best to focus and develop your expertise.” —Vijay Prabhakaran
🎓 EXPERT RESOURCES
FREE DOCUMENT DOWNLOAD
💵 How to Compensate the Loan Guarantor
When obtaining a loan for your multifamily deal, the lender will require a guarantee from the individual or entity that is borrowing the funds. This individual or entity is referred to as the loan guarantor, who personally guarantees the loan if it is recourse. If it is nonrecourse, they still require someone to meet the liquidity, net worth, and experience requirements.
📚 BEST EVER BOOK CLUB
WHAT WE’RE READING
Join Joe Fairless on Wednesday, September 27 at 12 p.m. EST for the Best Ever Book Club. This month, we're reading The Catalyst: How to Change Anyone’s Mind by Jonah Berger.
What did you think of this week's newsletter? |
If you like the Best Ever Newsletter, check out briefcase!
|
🙏 Thanks for reading!
Let’s keep in touch! If you received this newsletter from another source, feel free to subscribe here. We’re also available on LinkedIn, Instagram, and YouTube.
Have a Best Ever day!
—Joe Fairless