Net Lease News

B+E Weekly Newsletter

January 28 – February 3, 2025

MARKET

FED HOLDS BENCHMARK RATE STEADY, ENDING STREAK OF CUTS

• The Federal Reserve pressed pause on its monetary easing cycle Wednesday.
• Members of the Federal Open Market Committee voted unanimously to leave the Fed’s benchmark interest rate unchanged for the first time since the central bank began cutting rates in September.
• “Recent indicators suggest that economic activity has continued to expand at a solid pace for 2024 as a whole,” Fed Chair Jerome Powell said.
• The decision was widely expected after Powell signaled in December that the pace of rate cuts would slow in the face of economic data indicating the U.S. economy was remarkably resilient.
• Inflation remains somewhat elevated, the same language the central bank used in December. Powell said the changes weren’t meant to communicate any broad shift in the Fed’s perspective on the direction of inflation.
• The decision Wednesday came despite President Donald Trump’s continued calls for a rate cut. Powell said the Fed’s decisions were made without political considerations and that he had not had any conversations with Trump about Wednesday’s move.
• The Fed’s move Wednesday leaves the target range for the federal funds rate between 4.25% and 4.5%.
• Powell said the Fed was closely watching the corporate hiring rate as an early indicator for changes in the labor market. While the economy is largely resilient, low-income households have been the hardest hit by inflation and remain squeezed by elevated prices.
• The shift to loosening rates this cycle hasn’t yet translated into large savings for borrowers looking at medium- and long-term debt. The yield on U.S. Treasury bonds with a 10-year term have moved in the opposite direction of the federal funds rate, rising roughly 100 basis points since Powell announced the first rate cut last year.
• Still, brokerages expect transaction activity to improve significantly in 2025. Commercial real estate debt maturities are expected to top $1.5T by the end of this year, and a series of large transactions — including Blackstone’s $10B acquisition of Apartment Income REIT Corp. in April — has aided in price discovery and helped close the gap between buyers and sellers. 

OFFICE

OFFICE INVESTMENT INCREASES FOR FIRST TIME SINCE 2021

• Investors are keeping a close eye on the US office sector after half a decade of turmoil, looking for deals on premium properties they can lease up or obsolete buildings they can flip to apartments.
• Office building sales volume increased to $63.6 billion last year. That’s a 20% increase from 2023, and while it is still well below sales activity in the range of $143 billion before the pandemic, it marked the first increase since 2021.
• Brokers expect sales activity to continue to accelerate in 2025, as a mountain of cash sitting on the sidelines looks for opportunities. Data fund Preqin estimates opportunistic real-estate funds had $196.8 billion available at the end of last year, up from $179.9 billion at the end of 2020.
• Return-to-work mandates could be contributing to the office sector momentum. Meanwhile, some markets are experiencing office space shortages as new development has all but stopped in recent years.
• While the office market is starting 2025 on better footing than it has in a while, it still faces challenges from high vacancy rates to loan delinquencies. Although some capital is returning to the sector, many investors remain leery and still favor more stable multifamily and industrial opportunities.

AMAZON SIGNS RECORD-BREAKING LEASE IN MIAMI’S WYNWOOD PLAZA

• Miami’s Wynwood Plaza is getting a big name, as Amazon has struck a deal to form a 50,333-square-foot office space. That marks the largest office space ever signed in Wynwood.
• Wynwood Plaza, a mixed-use campus close to completion and set to take up a million square feet, includes 266,000 square feet of what L&L and Oak Row call Class AAA work space. The office portion includes private terraces, floor-to-ceiling windows, column-free spaces, a fitness club, conference centers, and a golf simulator. Also, the 12-story tower will feature touchless entry elevators, a 25-foot-tall lobby, a parking garage, and outdoor amenities.
• Also, Amazon will join other tenants. For example, Claure will host its headquarters on the whole sixth floor (taking up 25,400 square feet), and law firm Weitz & Luxenberg will occupy 18,000 square feet on the second floor.
• The move comes as Amazon in the fall of 2024 issued a full return to the office demand for this year, impacting more than 350,000 corporate employees. However, those plans have been halted because the company does not have enough workspace to house them all just yet.  So the Wynwood Plaza lease could be part of the move to satisfy Amazon’s RTO demands.
• In recent months, Amazon has been exploring office leases in New York. In fact, it struck a deal for 304,000 square feet of space in the Penn District in Manhattan. Plus, the New York Post reported that the Seattle-based firm was in talks to lease a property at 452 Fifth Ave in Manhattan. If completed, it would give the company another 350,000 square feet of space.

AT&T’S $850M SALE-LEASEBACK OFFERS BLUEPRINT FOR COMPANIES SEEKING LIQUIDITY

• AT&T’s $850 million plus sale-leaseback deal with Reign Capital of 13 million square feet across 74 US underutilized central office properties offers some creative real estate approaches other companies might decide to try.
• The portfolio represents only a small part of the company’s central office holdings. The deal will not negatively affect service or jobs and noted it is leasing back space that’s needed for the network. This will help AT&T cut operating expenses, trim power consumption, and turn away from copper networks — a long-term shift the company has taken to improve margins and exit the legacy networks and line of business by 2029. The deal allows the company to earn money from the properties sold in the future.
• The AT&T deal is unusual and specific. Central offices aren’t offices in the usual sense. They are telecommunications structures that act as connection and switching facilities that route calls and manage communications in a specific geographic area. However, there is broader potential for other industries.
• It also is a bit unclear in parts, like how AT&T would participate in future sales. Typically, in sale-leasebacks, the seller doesn’t have an interest in future sales. However, a company that would buy one of the properties would likely be taking over the copper phone service in an area, so equipment would need to be part of a transfer.