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C+CT

Interest Rate Hike Won’t Cool Market for Retail Property Investments

May 13, 2022

The 10-year Treasury rate is climbing to 3% for the first time since 2018, but owners of all kinds of retail properties still are finding sources of capital to refinance existing loans, finance redevelopments and fund new properties.

“We’re transacting in a pretty wide quality spectrum, and we’re still seeing an opportunity to refinance and/or extend assets,” Macerich senior executive vice president and CFO Scott Kingsmore said on an earnings call. The REIT has closed on or is securing about $600 million of financing for various properties so far this year, he said. “It’s a pretty tumultuous environment, given the Fed’s actions to tamper inflation. Rates are gapping out, but we’re still seeing an opportunity to get things done. The market is pretty choppy today. It’s frankly not just for retail; it’s across the board.”

RELATED: Who’s Lending on What Kinds of Retail, and Is There Still a Worth-It Window for Refinancing?

Commercial property experts expect the sector to perform well despite any risk implied by the Fed’s recent decision to raise interest rates. CBRE continues to expect healthy real estate fundamentals and investment volume in 2022, though economic conditions likely will weigh on activity in the second half. The firm expects another 50-basis-point increase in the federal funds rate in June, followed by 25-basis-point increases later in the year. CBRE expects a federal funds rate range of 2% to 2.25% by the end of 2022.

And while the commercial market generally follows the overall economy, some things are different this time, National Association of Realtors chief economist Lawrence Yun said. “Outside of the office sector, which is lagging behind as employers allow increased remote work flexibility to keep and attract talent, commercial real estate continues to strengthen,” Yun said. “The industrial sector is booming, retail is turning positive, the hotel industry is recovering, apartments are doing very well and rents are rising in all commercial sectors.”

JLL Launches Sustainability Nonprofit

JLL has established JLL Foundation, a nonprofit that will work with green venture capital firm Good Machine to make recoverable grants to entrepreneurs that promote sustainability in the built environment. The foundation will reinvest any returns in further sustainable ventures. “The JLL Foundation’s aspiration to create a significant impact on climate-related issues over the next 10 to 20 years is well aligned with JLL’s purpose of shaping the future of real estate for a better world,” said JLL CEO Christian Ulbrich. “As companies everywhere focus more on achieving their own sustainability goals, providing assistance to start-ups that can offer solutions to environmental challenges can make a real and long-term difference.” JLL selects grantees based not only on their abilities to provide lasting, positive climate impact but also on the diversity of their teams or ownership structure and ability to scale to other countries around the world. Examples of organizations that have received funding from JLL Foundation include a company that creates green roofs and walls from locally recycled plastic; a company that collects, sanitizes and returns reusable food service containers to replace single-use products and drive carbon and water efficiency; and a mobile 3D printer that produces building masonry on-site using soil and sand.

Gaspee and J2 Merge

Rhode Island-based Gaspee Real Estate Partners merged with commercial real estate investment firm J2 Properties, also based in Rhode Island. The new firm, Gaspee Cos., will acquire, developer and reposition value-add properties throughout the U.S. It also will continue to specialize in single-tenant net lease development in the Northeast. Gaspee Real Estate Partners has developed 325,000 square feet of retail in the past three years alone, according to a spokesperson, and has 230,000 square feet of retail under development. J2 Properties has invested in 175,000 square feet of retail and owns a broader portfolio of 260,000 square feet. Gaspee Real Estate Partners co-founders Stephen Hardy and Christopher Needham and J2 Properties founder Jeff Cammans will be principals of the newly formed company, which now owns and manages 30 properties worth over $100 million and has $80 million worth in the pipeline for 2022. Recent projects include repositioning a vacant 42,000-square-foot Sports Authority and the ground-up development of a neighborhood shopping center in North Conway, New Hampshire.

By Brannon Boswell

Executive Editor, Commerce + Communities Today

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