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Weekly Market Report - March 3, 2022

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NYC commercial properties kept 92% of value despite pandemic: city


Commercial real estate in New York City kept 92% of its value despite economic turbulence caused by the COVID-19 pandemic, according to the mayor’s office. Mayor Eric Adams presented a preliminary budget for fiscal year 2022-2023 which estimated that the value of commercial properties in the city is around $301 billion. Before the COVID-19 pandemic hit in March 2020, the city assessed the estimated value of commercial properties at around $326 billion, according to Crain’s New York Business. That means the latest assessment represents 92.3% of the estimate from January 2020 — weeks before the onset of the pandemic. This year’s estimate is 11.7% higher compared to fiscal year 2021-2022, when the total assessed value of commercial properties in the five boroughs stood at $269 billion. The mayor is projecting $726 million in tax revenue growth to the increase in property taxes, which he calls “our single largest revenue source.” The city’s latest estimate shows that office properties, which remain largely vacant as employees continue to tele-work, lost 7% of their pre-pandemic value — dropping from $172 billion to around $160 billion.


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CoStar shares tank on weak 2022 outlook, increased resi investment


CoStar, which was reported on Tuesday to be dealing with a mass staff exodus amid allegations of employee surveillance and an exacting work environment, said it would invest $300 million to $320 million in “residential products, content, sales and marketing” this year — a $200 million increase it said could potentially add billions in revenue over the medium-to-long term. For years a dominant player in commercial real estate data, CoStar’s stepped-up investment in the residential sector will focus primarily on “breaking down the walls” that exist between homebuyers and agents, and fostering transparency and collaboration by bringing to market tools that allow them to share listings and feedback, CEO Andy Florance said on an earnings call Tuesday. In prepared remarks, Florence downplayed criticisms from current and former employees who accused the company of engaging in authoritarian-style surveillance while they worked remotely and publicly humiliated them for poor performance. Insider reported this week that 37 percent of the firm’s 4,200 workers left the company last year — a figure Florance confirmed Tuesday.


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Inflation’s at a 40-year high. Commercial real estate didn’t get the memo


As inflation surges at its fastest rate in nearly 40 years, hotels and other sectors of commercial real estate are seeing such outsize performance — whether up or down — that it’s challenging conventional wisdom that property is always an effective protection from rising prices.The pandemic has created clear winners and losers in real estate. Hedging against inflation is all about raising rents, but sectors like office and retail have borne the brunt of lockdowns and other Covid-related restrictions. Some sectors are driving returns far beyond what could be explained by a 6 or 7 percent rise in the Consumer Price Index. Warehouses, apartments and self-storage facilities are enjoying surging demand. Last year, a fund returned just shy of 18 percent after expenses. The fourth quarter saw the fund’s highest returns in more than 40 years. Traditionally, the fund’s different sectors have largely performed in step with one other. But there’s now a glaring disparity. Industrial led the pack, with whopping returns of 45 percent. Office and retail, however, lagged far behind, with returns ranging from zero to 6 percent.


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Health care REITs eyeing combination into $10B company


Healthcare Trust of America is in advanced talks to merge with Healthcare Realty Trust, the Wall Street Journal reported. People familiar with the matter told the Journal the cash-and-stock deal could be finalized in the next few days, but the talks could still fall apart. Healthcare Trust of America had about a $6.6 billion market value as of Feb. 24, while Healthcare Realty Trust had a $4.6 billion value. The Journal reported a combined company could be valued at more than $10 billion. Both trusts own and operate medical offices across the nation. Healthcare Trust of America has more than 25 million square feet in its portfolio; Healthcare Realty Trust has about 18 million square feet. Healthcare Trust of America, based in Scottsdale, Arizona, has been exploring a sale for months amid shareholder-activist pressure, the Journal reported.