For Amazon, the limit doesn’t exist. At least not yet.
The e-commerce giant — which has been adding warehouses at a dizzying clip across the nation — is on track to expand its fulfillment and transportation capacity by 50 percent, it said. The company has already spent $4.7 billion on property and equipment.
The Jeff Bezos-led behemoth reported another massive quarter on Thursday. Third quarter net income grew to $6.3 billion, tripling the $2.1 billion year-over-year. That bested the $5.2 billion second quarter net income, which itself broke a record.
Net sales similarly increased 37 percent to $96.1 billion in the third quarter, compared with $70 billion in Q3 2019 and $88.9 billion in the second quarter.
The company’s growth in fulfillment centers and delivery was originally planned for 2021, but was moved forward to satisfy demand prompted by Covid-19, the company said. Beyond the pandemic, the warehouse, logistics and last-mile center space is necessary to meet goals of one-day shipping. In the third quarter, the company opened 100 new “operations buildings” across North America, hired 100,000 permanent employees and another 100,000 seasonal employees.
“The logistics team is really good on, in one way, locking up long-term commitments on space and buildings,” CFO Brian Olsavsky said during Thursday’s earnings call. He added the team was also adept at being able to adjust the timeline in or out to match capacity and demand. We are erring on the side of having too much capacity.”
Amazon has signed a flurry of leases in the past month in New York alone. It inked three leases for delivery stations in Westchester County, along with the Bronx and Brooklyn. Earlier this month, it signed a giant lease for a 975,000-square-foot warehouse in Staten Island this week.
In India, Amazon is expanding its operations with 10 new fulfillment centers, five new sortation centers, and nearly 200 delivery stations.
In addition to acquiring more fulfillment centers, Amazon is building new wind and solar farms to produce a clean energy equivalent of the electricity used by all of its Echo devices. Its first wind farm is in Bäckhammar, Sweden.
After a lost summer, Coney Island businesses are struggling to imagine how to survive the winter. (Getty)
Coney Island was eerily quiet this summer. The Cyclone did not clickety-clack, no screams pierced the salty air and tourists who normally roam the boardwalk were nowhere to be found.
The seasonal destination missed its season. Now businesses, like squirrels who failed to stash acorns for winter, are wondering how they will survive it.
“I didn’t do this year what I would do in a summer week,” said Jimmy Kokotas, the owner of Tom’s Restaurant. He is now over $300,000 in debt, largely because of rent.
Tom’s Restaurant (Getty)
The city and state did not let rides open this spring, fearing spread of the coronavirus. Yet amusement parks have had to continue paying rent and for maintenance of the park.
Coney Island restaurants, attractions and retailers depend on revenue from their busiest months to pay rent year-round. For amusements, the season begins in April and ends around Halloween.
That wasn’t supposed to be the case. In the 2000s, Mayor Mike Bloomberg planned to revitalize Coney Island and make it a year-round destination. So did Joe Sitt, a Coney Island landowner who had grown up nearby and made a fortune in real estate.
“Times will get good again, and times will get bad again, but I think it’s important to get Coney Island built to accommodate people who can’t afford the long vacation. And to get ready for the next cycle,” Sitt told The Real Dealin 2009.
But the two men had starkly different visions for the peninsula. While Bloomberg aimed to restore the kitschy, often edgy amusement area to its former glory, Sitt proposed Vegas-style hotels, apartments and shops. But he needed the mayor’s cooperation to make that happen.
In the end, Bloomberg won, and the city’s Economic Development Corporation bought 6.9 acres from Sitt’s firm, Thor Equities, for $95.6 million. The city rezoned the area in 2009 and some $400 million in public and private investment poured in.
That filled in many of Coney Island’s cavities. “We had blocks and blocks of empty lots,” said Alexandra Silversmith, the executive director of the Alliance for Coney Island. “It truly was a great place for rats to live.”
Some 35 new businesses have opened and the amusement district has been expanded and preserved. Apartment projects sprung up, including Ocean Dreams, John Catsimatidis’ pair of 21-story towers at 3514 Surf Avenue; Rubin Schron’s 40-story building at 532 Neptune Avenue; and 1709 Surf Avenue, a three-block development by Don Capoccia’s BFC Partners, Ron Moelis’ L+M Development Partners and Taconic Investment Partners.
There’s still work to be done, but talk of activating the area in the cold-weather months has receded.
“Coney Island hasn’t been for 120 years, and likely will not be for another 120 years, a 12-month destination,” said Michael Sorrell, co-owner of Ruby’s Bar & Grill, a restaurant that has been on the boardwalk since 1934.
The seaside neighborhood took a hit when Superstorm Sandy triggered heavy flooding in October 2009, but recovered. The pandemic has delivered an even more severe blow.
“Coney Island is still synonymous with summer,” Silversmith said. “What we were calling the Renaissance was really starting to finally take hold. And that has really just thrown everyone off.”
Landlords have raised rents — some observers say in anticipation of new residents who have yet to move in. But it remains a low-income community with a heavy concentration of public housing. Median gross rent in Coney Island increased from $880 in 2006 to $1,140 in 2018, according to the Furman Center. In 2018, nearly 31 percent of renter households in Coney Island were severely rent-burdened, meaning they spent more than 50 percent of household income on rent.
Silversmith also said that the neighborhood is missing healthful food options and other non-tourist amenities.
“The new influx of new residents isn’t happening on a very large scale, which I agree is not making it more of a year-round destination,” said Melissa Leifer, a real estate agent with Keller Williams.
At Luna Park, a local amusement park, a $20 million expansion was in the works when the pandemic hit, literally stopping the effort in its tracks. The expansion included plans for winter attractions. Now, the park is negotiating with the city for a lease extension through 2040, which it believes would help it endure, if not become a year-round attraction.
“There’s been investing and then, in this moment when we really need a lifeline, that’s [why] the public institutions are there,” said Alessandro Zamperla, president of Central Amusement International, which operates Luna Park. “[We can’t] go backwards because, if we go backwards, we will fall so fast and collapse.”
While his company leases three parcels of land from the city, it also acts as the landlord for many local businesses, including Tom’s and Ruby’s.
But many businesses fear they are already losing ground, which threatens the authenticity of Coney Island.
Kokotas fears that without relief, his debt will result in his business being replaced by one that hasn’t faced the same struggles, nor has stood with the area since 2012, when Tom’s opened.
“You lose people that have been involved in the community and care, and you don’t know if you’re just going to get pushed out for a franchise or what’s gonna happen. And it’s a shame,” Kokotas said.
Things might not be as bad as they seem. The vacancies could spark a much-needed drop in rents and attract new businesses and residents. The result might not be what Bloomberg or Sitt expected, but it could be a mix of both, according to Leifer.
“It’ll change and adapt just as the entire city has since its inception,” Leifer said. “Is that a good thing or is that a bad thing? I don’t really think that it’s my right to judge that.”
Cohen Brothers’ Charles Cohen and Stephen Fredericks (Getty; iStock; LinkedIn)
In March, Charles Cohen, the billionaire head of Cohen Brothers Realty, complained that it was “ridiculous how the news was portraying the pandemic.” Instead of allowing employees to work from home, he allegedly told one of his executive assistants “we have to be a soldier and soldier on.”
Two days later, he and his family took a private plane to Palm Beach, and later boarded a private yacht in the Caribbean, according to a lawsuit filed by three of Cohen’s furloughed employees. The wide-ranging suit alleges that the firm’s cavalier response to the pandemic culminated from a toxic work environment where employees were berated, belittled and in some instances, sexually harassed by other executives.
An attorney representing Cohen Brothers, Ivan Smith, declined to discuss specific allegations but called the lawsuit’s claims “totally baseless.”
One plaintiff, Evelyn Julia, a senior showroom leasing administrator, alleges that she was repeatedly subjected to unwelcome comments about her appearance from her direct supervisor, Stephen Fredericks, head of national leasing at Cohen Brothers. Fredericks would allegedly recount his sexual encounters to Julia and ask about her love life. According to the lawsuit, Julia would respond that such discussions were inappropriate.
She also alleges that he would touch her in “inappropriate and unwelcome ways,” including quickly kissing her on the cheek before he went on trips, leaving her no time to react.
The lawsuit notes that another former employee either filed a sexual harassment complaint against Fredericks or threatened to do so. The claims were settled, after which Cohen Brothers told employees that they needed to complete sexual harassment training — which Fredericks never did, according to the lawsuit.
Fredericks did not return an email or call seeking comment.
The lawsuit alleges that CEO Charles Cohen — whose firm’s portfolio spans 12 million square feet across New York, South Florida and Southern California — had a “a longstanding reputation for verbally abusing, screaming at, berating, belittling, and humiliating employees.”
Roseann Hylemon, who served as an executive assistant to Cohen and then to COO Steven Cherniak, claims that Cohen repeatedly said “I’m going to kill you” when she did something that displeased him. The reasons for his yelling varied, according to the lawsuit, but included when she ordered a hamburger for him that included cheese.
Another of Cohen’s executive assistants, Corinne Arazi, alleges that she was also berated and told that she was not permitted to leave her desk without permission — even to use the bathroom. Cohen did not respond to email requests for comment.
When the pandemic hit New York City in March, executives mocked and retaliated against the employees for expressing concern for their safety, according to the complaint.
No shutdown was in effect at the time, but the following week the company allegedly ignored Gov. Andrew Cuomo’s March 19 order to reduce in-office non-essential employees by 50 percent. The office remained open when the governor ordered all non-essential employees to stay home starting March 22, according to the lawsuit.
The firm’s human resources office emailed employees that day, saying that the governor’s order was ambiguous as to what qualified as essential, the complaint recounts. The email said the office would stay open, but employees could decide for themselves “whether or not to come to work being guided by the time off policies.”
There was considerable confusion over whether the real estate industry was “essential” under the state’s orders. Initial guidance and comments from the governor seemed to indicate that while some construction was essential, real estate was not. On April 9, however, the state clarified that real estate services were essential but that in-person activity was allowed only if “legally necessary.”
After an employee tested positive for Covid-19, the company allegedly failed to notify Julia, Arazi or Hylemon, who worked in close proximity to the employee. They only learned of his status from a text message he sent Arazi two weeks later, the complaint claims.
According to the lawsuit, the three women emailed company executives in April to say that after exhausting their paid time off, they planned to abide by the state’s stay-at-home mandate. They have been on unpaid furlough since and have not been told if they can return to work, according to their attorney.
In addition to damages to be determined by the court, the women are seeking compensation for unpaid overtime, according to the complaint.
An attorney for the women, Michael Grenert, said the claims share a common thread.
“You have a very wealthy company, and my clients were relatively low-level employees,” he said. “You have a kind of culture that looks at the lower level of the company, women in particular, as expendable.”
Maggie Hardy-Knox and 444 East Coconut Palm Road in Boca Raton (Photos via 84 Lumber and Royal Palm Properties)
Billionaire building supplies businesswoman Maggie Hardy-Knox bought a newly-built Royal Palm Yacht & Country Club mansion for $15.85 million.
Records show Hardy-Knox bought the house at 444 East Coconut Palm Road in Boca Raton from Bernard and Maggie Palmer.
The Palmers bought the property in 2018 for $4.6 million. That same year, they tore down the existing home and began building a new one, completing it this year, according to records. SRD Building Corp., a construction company that has built over 130 homes in the Royal Palm Yacht & Country Club, built the house.
The house was listed in January at $16.5 million. David W. Roberts of Royal Palm Properties represented both sides of the deal.
The 9,735-square-foot waterfront mansion has six bedrooms, seven full bathrooms and two half-bathrooms, two separate garages, a pool and a dock.
Hardy-Knox is currently the owner of Eighty Four, Pennsylvania-based 84 Lumber and Nemacolin Woodlands Resort, in Farmington, Pennsylvania. Her father, Joseph A. Hardy III, founded both, in 1956 and 1970, respectively. Forbes pegs her net worth at $1.4 billion.
Among other recent Boca Raton sales, the owner of a European hotel chain bought a waterfront Boca Raton home for $5.5 million, the COO of a South Florida-based real estate investment firm sold his home for $5 million and a mansion in the Royal Yacht & Country Club sold for $9.4 million.
Hudson Pacific Properties CEO Victor Coleman and Sunset Las Palmas Studios (Google Maps, iStock)
Hudson Pacific Properties achieved a major milestone this summer when it sold Blackstone Group 49 percent of its $1.65 billion Hollywood real estate portfolio, which includes 1.2 million square feet in soundstage space — a fifth of L.A. County’s supply.
The deal represented a bet on the long-term growth of content creation for streaming services. But for now, HPP’s studio properties are suffering through the pandemic. Same-store net operating income in the company’s studio portfolio was down 40 percent year-over-year in the third quarter, and down 9 percent at its office holdings.
But HPP is hopeful that the tide is turning.
“Ongoing shutdowns have to date slowed a West Coast recovery, but we’re starting to see some positive momentum with the easing of restrictions for non-essential businesses in San Francisco and schools in Los Angeles,” CEO Victor Coleman said in a statement ahead of Friday’s investor call.
On the rent collection front, HPP’s figures held strong with about 97 percent of combined contractual rents collected in the third quarter, including 98 percent of office rents, 100 percent of studio rents and 52 percent of storefront retail rents, roughly on par with the prior quarter.
According to a TRD analysis, the real estate investment trust’s studio properties generate a significant amount of income from sources other than base rent, such as the rental of lighting and grip equipment and control rooms. In the third quarter, revenue at HPP’s studios dropped 30 percent year-over-year — and operating expenses 21 percent — because of the slowdown in production activity.
A dip in office revenues, meanwhile, was driven not only by missed rent payments but also factors like the conversion of WeWork’s lease at Maxwell in the Arts District to a percentage-rent structure.
The REIT signed leases totaling 185,000 square feet in the quarter, up from 110,000 in the prior quarter. Of that total, 36,800 square feet came from short-term extensions related to the pandemic.
The company inked one major new lease with Google for 42,000 square feet at San Francisco’s Rincon Center, with 35,000 square feet commencing in October and the rest in late 2023. The tech giant has said it will allow all employees to work remotely until at least July.
HPP also announced a major development milestone in the quarter, as the Harlow — a 106,000-square-foot office development at Sunset Las Palmas Studios — received its final certificate of occupancy. However, the company’s financial disclosures show that the estimated stabilization date for the project has been pushed back by more than a year, from the third quarter of 2021 to the fourth quarter of next year.
“With a fortified balance sheet, over $1.3 billion of liquidity and well-aligned, well-capitalized joint venture partners, we’re still optimally positioned to operate and grow our platform strategically and effectively through the pandemic and beyond,” Coleman said.
Flex office provider Knotel is tightening its belt even more as Manhattan workers balk at the idea of returning to the workplaces.
On a conference call Thursday afternoon, the company announced it has laid off about 20 people, bringing its total headcount to 250, Business Insider reported. Amol Sarva, Knotel’s CEO, said he hoped the company would achieve profitability by the end of the first quarter of 2021.
During the call, Sarva said that Knotel would continue to trim its footprint, and that vacancies have plagued the company. Sarva said he had hoped for more of an economic upturn by now, but it hasn’t materialized.
“We have no crystal balls, but the scenarios that we considered didn’t pan out. I own that,” Sarva wrote in an email reviewed by Business Insider.
Knotel’s troubles — including late payments to contractors, vacancies and an uncertain path to profitability — predated the pandemic. But the shift to remote work and employees’ reluctance to return to the office has made the company’s trajectory even more uncertain.
After Knotel allegedly skipped paying rent at numerous locations, some of its landlords have filed lawsuits. In one case, GFP Real Estate alleged the company owed more than $740,000 in rent at 40 Exchange Place in Lower Manhattan, and as of July, had not paid rent since April.
Knotel reportedly wants to raise $100 million in new funding at a price that would slash its most recent August 2019 valuation of $1.6 billion in half. The company has also put about 375,000 square feet of space across 10 Manhattan locations up for sublease.
Bent Philipson and 1235 Northeast 135th Street (Linkedin, Google Maps)
A healthcare magnate continued his South Florida nursing home buying spree, paying $23.95 million for a 245-bed unit in North Miami. It marks his sixth nursing home purchase in two years, totaling more than $100 million in deals.
Companies tied to Bent Philipson bought the one-story North Dade Nursing and Rehabilitation Center at 1207 and 1235 Northeast 135th Street, according to records.
A company tied to Abraham Shaulson of Millennium Management is the seller. Millennium bought the buildings in August 2014 for $14.75 million, records show.
In February, Shaulson sold Philipson two 180-bed facilities, each for $19.8 million. The facilities were the South Dade Nursing and Rehabilitation Center at 17475 South Dixie Highway and the Golden Glades Nursing and Rehabilitation Center at 220 Sierra Drive in Miami.
Last year, Philipson bought two facilities connected to the Esformes family. In August 2019, he bought the 203-bed Harmony Health Center at 9820 North Kendall Drive for $19.6 million, according to records. In December, he bought the 60-bed Fairhavens Center at 201 Curtiss Parkway, Miami Springs, for $29 million. The historic site was built in 1926 as a luxury hotel.
Last year, healthcare executive Philip Esformes was convicted of Medicare fraud and sentenced to 20 years in prison. His father, Morris Esformes, signed the deeds to Philipson.
Philipson, of Spring Valley, New York, has a 50 percent ownership stake in the North Dade SNF Operating Co., which holds the license for North Dade Nursing, according to data from the Florida Agency for Health Care Administration. A Delaware company called Ventura Opco Holdco LLC holds the other 50 percent. North Dade SNF Operating Company is managed by Andrew Bronfeld, according to state records.
Philipson is the founder of Philosophy Care Centers, a Long Island-based network of skilled nursing facilities throughout New York and New Jersey, according to the company’s website.
He is also a co-founder and partner in SentosaCare, a Webster, New York-based owner and operator of nursing homes that has a history of fines, violations and complaints for deficient care. In 2017, it was sued in federal court for allegedly treating hundreds of Filipino workers as indentured servants.
Philipson’s interests in South Florida real estate go beyond healthcare. In August, he bought a waterfront 5,800-square-foot home in Bal Harbour for $9.3 million.
Mayi de la Vega and Dora Puig with Palazzo Della Luna (Getty, Twitter)
UPDATED, Oct. 30, 3:35 p.m.: A plumbing supply mogul’s $10.4 million purchase of a condo on Fisher Island is at the center of a legal fracas involving three prominent Miami luxury brokers.
In a recently filed lawsuit in Miami-Dade Circuit Court, Rose Bauer and her company Rivero Real Estate accuses brokers Dora Puig and Mayi de la Vega of going behind her back to deprive her of a 5 percent commission, or about $520,000, resulting from the sale of a four-bedroom, 4,904-square-foot unit at the boutique tower Palazzo Della Luna.
Bauer and Rivero are also suing the buyers and her former clients, Lehman Plumbing Supply founder and president Dennis Lehman, his wife Kelley Kosow, Puig’s company Fisher Island Real Estate and de la Vega’s brokerage One Sotheby’s International Realty.
David Haft, one of the attorneys representing Bauer and Rivero, said the defendants went through great lengths to deprive his clients of the commission. “It’s pretty incredible,” Haft said. “[Bauer and Rivero] were the ones left standing out of the circle. We believe they are entitled to that money. It is pretty cut and dry from where we are standing.”
De la Vega’s lawyer, Ed Guedes, said his client vehemently denies the allegations in Bauer’s complaint. “We are looking forward to the opportunity to establish quickly and very clearly the way they have represented the facts are not correct,” Guedes said.
Puig, Lehman and their attorneys did not respond to requests for comment.
However, in January, Puig and Fisher Island Real Estate sued Lehman and de la Vega to indemnify her and her company from any legal actions taken by Bauer and Rivero. A month later, Lehman sued Bauer and Rivero for fraudulent misrepresentation. Bauer and Rivero also filed an arbitration complaint with the Miami Association of Realtors shortly after Lehman and Kosow closed on their condo on Aug. 1, 2019.
While developer Fisher Island Holdings LLC is not a party to the lawsuits, the company’s principal Heinrich von Hanau said Bauer’s complaint has absolutely no merit. “All commissions due and owed to the procuring cause broker in connection with the sale of Unit 6863 within Palazzo della Luna on Fisher Island were timely and rightfully closed,” von Hanau said in a statement. “Fisher Island Real Estate and the developer of Fisher Island pride themselves on timely payment of all owed commissions (with significant portions of such commissions being paid in advance of closings) and having strong relationships with many brokers and sales associates who have contributed to the overall success of Fisher Island.”
According to Bauer’s complaint, she, along with Lehman and Kosow, signed a registration agreement with Fisher Island Real Estate on June 2, 2018, when the couple enlisted her to help them find their new marital home. The agreement, which is attached to the lawsuit, states Bauer and Rivero are the exclusive agents for Lehman and Kosow for the purchase of a unit at either tower.
At the time, Palazzo Della Luna was under construction. But its sister tower, Palazzo Del Sol, had been completed. Bauer’s complaint alleges that a Fisher Island Real Estate sales associate took them on a tour of Palazzo Del Sol while explaining that the floor plans and layouts of that tower’s units were identical to the ones for Palazzo Della Luna, the building where Lehman and Kosow wanted to buy a condo.
A month later, Bauer alleges, Lehman and Kosow sought to replace her with de la Vega without her knowledge or consent. Puig and Fisher Island Real Estate assisted Lehman and Kosow by drafting a second registration agreement with de la Vega and One Sotheby’s, making her and her brokerage the exclusive agent for a purchase at Palazzo Della Luna.
“At no time… did Puig ever communicate (or attempt to communicate) with Bauer regarding [Fisher Island Real Estate]’ s intent to disregard its own registration agreement or to replace plaintiffs with de La Vega and One Sotheby’s as the Lehman exclusive agent and broker in connection with their purchase of a unit,” the lawsuit states.
In Lehman’s lawsuit against Bauer and Rivero, he alleges that he spoke with Bauer’s business partner Larry Rivero, that she had never shown the couple units at Palazzo Della Luna, and that he wanted de la Vega to represent them prior to making the switch. Lehman’s lawsuit claims Larry Rivero contacted Fisher Island Real Estate to resolve any potential conflicts, which he did by agreeing that Bauer would only represent Lehman and Kosow on the sale of a unit at Palazzo Del Sol, and that de la Vega would represent the buyers on the sale of a unit at Palazzo Della Luna.
Gov. Gavin Newsom, Shenzhen New World Group chairman Huang Wei and former L.A. City Council member Jose Huizar (Getty, the L.A. Grand Hotel Downtown)
Less than a year ago, black SUVs and international tourists crowded the L.A. Grand Hotel Downtown, a prime property near Walt Disney Concert Hall and the Broad Museum.
Today, Salvation Army tents surround the hotel on South Figueroa Street, and a flow of homeless men and women stream in and out. Chad is one of them. He said he’s been staying at the L.A. Grand since March, after spending nights next to the Harbor Freeway. Rhonda is another. She said the hotel took her in because she has Hepatitis C.
For over seven months, the 469-key glass complex has been one of several Los Angeles hotels paid to house the homeless through Project Roomkey. Gov. Gavin Newsom introduced the program to shelter and isolate those most vulnerable to contracting and spreading the coronavirus.
L.A. Grand’s inclusion in Project Roomkey raises questions given that its owner, Shenzhen New World Group, has been implicated in an elaborate pay-to-play scandal involving former L.A. City Council member Jose Huizar.
L.A. County officials would not discuss their choice to partner with China-based Shenzhen New World; the county attorney cited public health and safety concerns as the reasons for not disclosing details.
Shenzhen New World is facing allegations it funneled hundreds of thousands of dollars to Huizar in exchange for help getting its massive mixed-use project approved. The firm’s involvement in Project Roomkey also highlights the opaque nature of the emergency assistance program. While Project Roomkey has sheltered thousands of vulnerable residents, it has also been a source of frustration for hotel operators and homeless advocates.
“Project Roomkey was a program that moved fast and furious,” said Pilar Buelna, director of development at the Salvation Army’s California South Division. “But now we are phasing it out.” The program will end in December.
Complex rollout
As the pandemic was taking hold in mid-March, Newsom unveiled the state’s plan to house homeless in hotels. “Homeless Californians are incredibly vulnerable to Covid-19 and often have no option to self-isolate or social distance,” he said at the time.
By early April, Project Roomkey was born. The federally-funded program would address the Covid outbreak and in the process, pump $150 million into California’s hobbled hotel industry.
“We saw Project Roomkey as a viable option to help with the hospitality industry’s economic recovery,” said Pete Hillan of the California Hotel and Lodging Association.
The rollout, however, grew complex.
Dealing with myriad other pandemic-related problems, Newsom let counties figure out how to implement Project Roomkey — and banked on the Trump administration to backstop the cost.
The Federal Emergency Management Agency responded with a March 27 letter saying the government would reimburse California for hotel housing costs “for individuals who test positive for coronavirus but do not require hospitalization, but need isolation or quarantine; asymptomatic individuals at high risk, people over 65 who have certain underlying health conditions including respiratory, compromised immunities, and chronic disease.”
The three-page letter does not mention the word “homeless.”
After the FEMA letter, it became the job of local government agencies like the Los Angeles Homeless Services Authority to specifically find homeless people who also qualified under the reimbursement rules.
Rhonda — who is 62 and like Chad would not give her last name for fear of reprisal — said she struggled to find a room. Eventually, she was let into the hotel when a caseworker noted her Hepatitis C.
Given its prescribed limitations, L.A. County “mobilized pretty quickly” to find qualified program participants, said Gary Painter, a professor at the USC Sol Price School of Public Policy.
But demand for beds far outweighed those available. “They couldn’t find enough hotels to participate,” Painter said.
Project Roomkey has housed 22,000 people statewide at various points during the pandemic, according to the governor’s office. A 2019 U.S. Department of Housing and Urban Development study put the number of California homeless at 152,000. L.A. County has about 67,000 homeless, according to its latest count released in June.
Alan Reay, president of hotel brokerage Atlas Hospitality Group, said some hotels didn’t participate in the program because “owners were concerned that it would hurt their future business. They were worried about the possible stigma and how they would be perceived,” he said.
Reay added that many other hotel owners who may have taken part were not contacted about Project Roomkey, and had no knowledge of the selection process.
Taking in millions
Last year, the FBI identified Shenzhen New World as a player in the widening city hall bribery probe centered around Huizar. In May, the developer’s alleged role grew clearer when a former Huizar staffer, George Esparza, reached a plea deal with federal prosecutors.
According to the plea, Shenzhen New World chairman Huang Wei provided Huizar with a $600,000 payment toward settling a sexual harassment lawsuit. In return, Huizar, then chair of the Council’s powerful Planning and Land Use Management Committee, would support the developer’s plan to transform the L.A. Grand into a 77-story tower with a mix of rentals, condos and hotel rooms.
The slew of Huizar-related federal indictments and plea agreements never explicitly mentions Shenzhen New World, and the company has not been charged with a crime. Messages with Shenzhen New World and the L.A. Grand were not returned.
Still, the company was pushed to the center of the scandal while collecting taxpayer-funded fees through Project Roomkey.
“Even with Huizar facing criminal trial, Shenzhen New World Group continues to be very well connected,” said Casey Maddren, president of United Neighborhoods for Los Angeles, a community advocacy group.
The L.A. Grand has played a role in Project Roomkey from the start.
The Salvation Army partnered with the city’s Homeless Services Authority in March, and soon set up outside the Downtown hotel, which expanded its capacity to 500 beds, Buelna said. The hotel was one of several Project Roomkey locations the Salvation Army helped run.
The county is expected to spend $92 million on Project Roomkey and has paid hotels anywhere from $59 to $120 per room per night. Because the L.A. Grand has been participating in the program from the beginning, it’s likely Shenzhen New World has received millions of dollars; the county refuses to say whether it has contracted with the company — or any company — for Project Roomkey.
Identifying participating hotels “would, by definition, result in the disclosure that the residents at these sites are suffering from serious medical conditions, constituting an unwarranted invasion of their personal privacy,” wrote outgoing L.A. County Counsel Mary Wickham.
She also noted that disclosing the hotels could lead to people showing up without having been screened, which could “jeopardize the health of the residents, staff, and the community at large.”
But Lisa Jacobs, an attorney at the county counsel office, offered an explanation similar to Alan Reay’s: Naming the hotels, she said, could “chill their participation.”
Enter Project Homekey
With future funding for Project Roomkey uncertain, the program is winding down.
The governor’s office and L.A. County have pivoted to Project Homekey. For that version, the state acquires hotels and converts them into homeless residences. Already, nearly a dozen Los Angeles properties, most of them motels, have been selected.
On Oct. 23, Newsom announced that an additional $200 million will go to the new program. Unlike Project Roomkey, the Project Homekey hotels have been identified by name.
But the state has drawn criticism for the new program.
“They are paying $360,000 per key for rooms that are probably not worth half that much,” Reay said.
While hotels like Shenzhen New World’s L.A. Grand are now exiting Project Homekey, homeless advocacy groups like the Salvation Army intend to shift to the new version.
“Project Homekey was just temporary,” development director Buelna said. “Our main function is to position the homeless into permanent housing.”
CEO of Atlantic Pacific CEO Howard Cohen and Homestead Avenue and Southwest 184th Street, Miami-Dade (Google Maps)
Atlantic Pacific Communities’ plans for a mixed-use development near Cutler Bay, with at least 500 residential units including affordable housing, are moving forward.
Miami-Dade County last week approved a 90-year master ground lease for a subsidiary of Miami-based Atlantic Pacific, led by CEO Howard Cohen.
The development, called Quail Roost Transit Village, will be built on almost 9 acres along the South Dade TransitWay, at Homestead Avenue and Southwest 184th Street, according to a press release. The project will include 140 affordable units.
The land is owned by the Miami-Dade Transit Authority and the county’s public housing authority.
The development will consist of five phases. The first phase, valued at more than $50 million, will include 200 units and a structured parking garage. The second phase will have about 30,000 square feet of retail and restaurant space. Construction should begin in the first quarter of 2022, according to the release.
Greenberg Traurig’s Nancy Lash, Ryan Bailine and Stephanie Jimenez assisted Atlantic Pacific with the lease approval. Ethan Wasserman and Nicole Wolfe are working on the project’s land use entitlements for phase one, according to the release.
Under the terms of the lease, Miami-Dade County will receive more than $2.5 million, with the exact amount depending on the total number of units ultimately constructed, plus a percentage of rent from the commercial components of the development.
The county also approved $6 million from the county’s Documentary Stamp Surtax Program to support the development, according to the lease.
In November, Atlantic Pacific Communities closed on a $26.64 million loan from Bank of America for an affordable housing development in Fort Lauderdale. That same month, the company and Rockpoint Group sold an apartment complex in Lauderdale Lakes for $102.9 million to a Canadian investment group.
Other affordable, multifamily projects planned for Miami-Dade County include a 112-unit rental project by Pinnacle that secured $30.8 million of financing earlier this month, and a 66-unit housing project near North Miami to be developed by Global One Investment Group.
Upper Buena Vista in Miami and the Macerich-owned Green Acres Mall in New York (Upper Buena Vista, Macerich)
Since reopening in May, Miami’s Upper Buena Vista has seen its foot traffic surpass normal pre-Covid levels, according to the shopping center. And the mixed-use “pocket-village” with 21 stores, 12 of which have opened during the pandemic and five more that are slated to open soon, is now back to almost full occupancy.
The increase in business for the 60,000-square-foot open air mall, which was built around two large centenary trees, is impressive during a regular year, let alone one plagued by retail bankruptcies and store closures.
“We’ve really just adapted the space to whatever is needed by the community,” said Katherin Schultz, Upper Buena Vista’s marketing director.
Outdoor shopping centers, or strip malls, and outlets made up of individual manufacturer stores have been outpacing enclosed malls in their recovery.
Both are in a better position when it comes to the kinds of tenants and customers they attract as people flock to open air spaces while they shop for essential goods like home and office supplies. At the same time, in-store apparel shoppers (a shrinking demographic among consumers) are largely gravitating to bargain deals found in outlets, leaving luxury stores in enclosed malls with even fewer customers.
As a result, shopping center and outlet mall owners like RPT Realty and Tanger Factory Outlet Centers — two of the biggest players with combined market caps of nearly $1 billion — have been reaping much of what’s left of investor interest in retail, according to industry sources.
“In March and April, there was a major sell off across the board,” said Kevin Brown, an equity analyst at Morningstar who covers real estate investment trusts. “Malls took a bigger hit [to their share price], a decline of 60 to 70 percent, whereas shopping centers took a 40 to 50 percent hit.”
The two sectors have seen their overall stock values improve relatively consistently since then, with shopping centers remaining in the lead, according to Brown.
And the shift towards outdoor spaces may be consequential in the coming fourth quarter and beyond — as property owners lay the foundations for upgrades, future acquisitions and ground-up developments.
“Safety is now first and foremost in almost every shopper’s mind,” said Greg Maloney, who oversees JLL’s retail brokerage business in the Americas. “There’s no way I can convince people that you’re going to be safer in an enclosed mall than you are walking down the street.”
“That perception is too strong right now,” he noted.
Winners and losers
RPT Realty, which owns and operates nearly 50 open air shopping centers across the country, had collected 86 percent of its rent from tenants, as of September, while deferrals made up just 7 percent of the total, according to its latest earnings report.
Even in the second quarter, the New York-based company reported that it collected 70 percent of rent — averaging far above mall REITs. Macerich, by comparison, saw its rent collections drop to as low as 26 percent in April, while Simon Property Group was at 51 percent in April and May and 69 percent in June. Neither Macerich or Simon Property have reported third quarter earnings yet.
Before Covid-19, “the whole world was believing in experiential,” RPT Realty’s president and CEO Brian Harper told The Real Deal. “Now it’s shifted to essential. Real estate is a supply and demand sector.”
While malls have suffocated under the weight of apparel stores — which have lost countless shoppers to the internet since March — strip malls benefit from a more essential tenant mix.
By mid-September, apparel stores had paid just 65 percent of rent for the month, while supermarkets, which anchor the majority of open air centers, paid 93 percent of rent, according to a report by Datex Property Solutions. Other retail tenants that have seen an overall boost during the pandemic also did well, including drug stores, at 98 percent, office supplies stories, at 97 percent, and home improvement retailers, at 93 percent.
“Safety is now first and foremost in almost every shopper’s mind.” — Greg Maloney, JLL
Department stores, meanwhile, have faced more than two dozen bankruptcies this year and even more voluntary closures, despite making 88 percent of their rent payments overall, per Datex.
Macy’s has moved away from mall locations to open smaller stores in open air shopping centers. Gap, similarly, is exiting all of its mall spaces, a move that will result in the closure of 350 stores across its brands.
For open air shopping centers, “occupancy rates have generally held up,” said Michael Gorman, a REIT analyst and managing director of research at financial services firm BTIG.
Power outlets
Outlets have found their own success during the pandemic.
Simon Property Group, which operates nearly 70 outlets in addition to its 106 malls, reported that its outlet stores were operating at 90 percent compared to prior-year levels.
Tanger Outlets, one of the largest outlet operators in the country, similarly outpaced its own estimates. In a second quarter earnings call, the company said it expected to collect just 43 percent of rents billed and defer 26 percent at its 39 shopping centers.
By July 31, however, the North Carolina-based REIT had collected 72 percent of rents billed for the month, totalling $62 million for the quarter, while deferring $31 million. Tanger Outlets has 30 new stores and 35 pop ups opening across its portfolio this year, according to its earnings call.
“We’ve got a lot of new progress going, and a lot of leasing happening, not only for this year but also for next year,” Stephen Yalof, the company’s president and COO, said during the call.
Of course, some outlet retailers like Ascena — which owns Ann Taylor and Lane Bryant — have suffered bankruptcies. But David Hinkle, a principal of the Outlet Resource Group, an operator and consultancy firm, said that bankruptcies have been a far greater problem for indoor malls, which are anchored by many of the bankrupt retailers.
Store closures often involve smaller spaces in outlets, which allows flexibility for new leasing, Hinkle maintained. The six outlets that his company operates across the country, for example, have seen new leasing largely with local businesses.
“From an ownership standpoint, I’d much rather have that to deal with than to have an enclosed mall with a J.C. Penney, a Sears and two other department stores, all of which are at risk right now,” Hinkle said.
“At the end of the day, a retailer wants to go where the traffic is,” he added, noting that stores like Nike have been doing well amid the pandemic, in part thanks to their outlets.
Mall over?
But while indoor mall recovery has been slow, some say it’s still too early to bet against the entire sector.
Malls typically bring in more residents from further away than other retail locations. Nearly 20 percent of shoppers come to spend a full day at the mall, according to May 2018 research by eMarketer.
“It’s not just looking at foot traffic … you also have to think about the duration of the visits,” said Scott Hessell, director of the Terry J. Lundgren Center for Retailing at the University of Arizona. “Indoor malls tend to [attract] longer visits, because there’s usually more things to do.”
The fall and winter are also peak seasons for malls and some hope that the holidays, along with the cold weather in many states, will spark a return among shoppers. Although many are shifting to e-commerce and local retailers, about 45 percent of shoppers still plan to visit malls to do some or all of their holiday buying, according to a recent report by the International Council of Shopping Centers.
“The bottom line is when people want to go shopping, and they want to be out and they want to have an experience,” JLL’s Maloney said. “They’re still going to go to their brick and mortar location.”
But with traditions like Black Friday being cancelled by some retailers and mall operators, as Covid resurges in many states and brick-and-mortar retailers continue to grapple with the pandemic, that could change.
“Black Friday is going to be completely different,” said Shelley Kohan, an adjunct professor of retail at the Martin J. Whitman School of Management at Syracuse University. “I’m calling it Gray Friday.”
Retailers are also facing inventory issues — from an oversupply of summer merchandise to shortages in winter stock due to delayed shipping times and supply chain disruptions. That could also give outlets the upper hand as inventory is moved to be sold at a discount.
All things considered, though, many investors moved their money away from retail altogether in the first few months of the pandemic. That will remain a challenge for owners and operators moving forward, no matter the sector, according to analysts.
“There’s still just a lot of uncertainty around all aspects of retail at the moment,” BTIG’s Gorman said. “It’s just very hard for investors to get their arms around what cash flow is going to look like in 2021.”
Kenneth Brodlieb and 3050 South Ocean Boulevard, Manalapan (Realtor, Hofstra)
The chairman of a New York-based auto group bought an oceanfront Manalapan lot for $7.9 million.
Records show Kenneth Bodlieb and his wife, Andrea Caputo Brodlieb, bought the property at 3050 South Ocean Boulevard from Susan Wadleigh, Ann K. Bartasius, Christine Kabler, Gail Kabler and John L. Kabler.
The property, previously owned by John N. Jr. and Joan W. Kabler, has been in the Kabler family since at least 1986, records show. Joan named Gail Wright — also known as Gail Kabler — and Ann K. Bartasius as co-trustees of the Residual Trust of John N. Kabler Jr. in 2002. In 2019, Gail and Ann named Susan, Christine, and John to the deed as well.
Christopher Leavitt with Douglas Elliman represented the sellers, while the Brodlieb family used Re/Max 1st Choice to broker the deal. Leavitt claims that the deal was done in 24 hours. He declined to give any information on his clients.
According to Realtor.com, the property went on the market in June of 2018 for $6.5 million and had many price changes, asking as much as $9.5 million in December. The most recent listing in September was $8.9 million.
The lot is in between the Atlantic Ocean and the Lake Worth Lagoon and has direct access to both. Two buildings are currently on the property, but new building ordinances allow for a new home to be built on the 1.26-acre land, according to the listing.
Ken Brodlieb is the chairman of Douglaston, New York-based East Hills Auto Group. The franchise has five dealerships, including a Chrysler, Jeep, Dodge, and Ram dealership, a Subaru dealership, and three Chevrolet showrooms on Long Island.
This purchase will not be the couple’s first South Florida home. Records show they sold their unit in The Bristol in West Palm Beach earlier this month, after buying it just over a year ago.
Other recent sales in Manalapan include an oceanfront mansion selling for $36 million, another car dealer buying a waterfront mansion for $10.3 million, and real estate investor Joseph Imbesi and his wife Orla selling their waterfront Manalapan house for $6.5 million.
JLL CEO Christian Ulbrich and CBRE CEO Bob Sulentic (Getty; CBRE; Pixabay)
The commercial real estate industry’s biggest service firms continue to slash expenses as the economic slowdown squeezes their business.
JLL and CBRE recently made layoffs and budget cuts to trim costs as revenues from business lines such as office leasing and property sales continue to dwindle, according to sources and company disclosures.
Chicago-based JLL, the second-largest commercial real estate services firm with a market cap of $5.8 billion, made a round of national layoffs in mid-October, sources told The Real Deal. The exact number of affected positions was not clear, but one source said it was about 10 percent of the workforce. Worldwide, JLL employed around 93,000 people in 2019.
A spokesperson for JLL declined to comment, citing the quiet period before the firm’s third-quarter earnings call scheduled for Monday. But in a company email reviewed by The Real Deal, JLL discussed its plans for what it called “winning the downturn.”
“We now have greater clarity about the economic downturn and the resulting changes in client needs, and we continue to take action to best position our people, clients and business overall,” read the email, which pointed to a “limited number of structural changes and personnel decisions.”
“Structural changes and staff reductions of any kind are difficult and painstakingly considered,” it continued. “Ultimately, we have a responsibility to remain competitive as markets shift, to preserve the strength and resilience of our business and to support our people through this period of uncertainty.”
One source said the majority of the cuts affected employees in the legal, sourcing, finance and operations departments, though they did hit brokers as well.
In New York City JLL laid off at least three brokers in its capital markets group, as TRDpreviously reported. In May the company laid off about three dozen people in that department.
JLL’s biggest competitor also recently made a round of reductions.
CBRE, whose market cap of $16.6 billion makes it the world’s largest CRE services firm, announced a round of late-September cutbacks on its third-quarter earnings call Thursday afternoon. The company incurred costs for lease terminations and employee severances.
Earlier in the year, CBRE scaled back its workforce in response to Covid-19, and on Thursday’s call company CFO Leah Stearns said the firm is preparing for the recovery taking longer than expected.
“We do expect it to be a more moderate recovery, therefore we are being very cautious around the expense structure for our advisory business,” she said.
CBRE has said that a number of cost-saving measures had been planned before the pandemic.
Redfin CEO Glenn Kelman (Photos via Redfin; Getty)
The National Fair Housing Alliance has accused Redfin of discriminatory policies and redlining, months after the national brokerage’s CEO pledged to address systemic racial discrimination.
In a lawsuit filed Wednesday in the United States District Court in Seattle, the alliance argued that Redfin’s minimum home price policy violates fair housing laws.
“Redfin redlines communities of color in this digital age by setting minimum home listing prices in each housing market on its website under which it will not offer any real estate brokerage services to buyers or sellers,” the complaint said.
“While the actual minimum price varies from one metropolitan area to another, between counties, and between cities within counties, its impact is always the same — buyers and sellers of homes in non-white areas are far less likely to be offered Redfin’s services and discounts than buyers and sellers of homes in white areas.”
According to GeekWire, which first reported the suit, Redfin CEO Glenn Kelman responded to the allegations Thursday in an email to staff.
“Our long-term commitment is to serve every person seeking a home, in every community, profitably,” he wrote. “The challenge is that we don’t know how to sell the lowest-priced homes while paying our agents and other staff a living wage, with health insurance and other benefits.”
The response, which was also posted to the company’s website, disputed the allegation that the brokerage had violated the Fair Housing Act, arguing the law “clearly supports a business’s decisions to set the customers and areas it serves.”
This is the latest example of brokerages coming under fire amid accusations of discrimination. In 2019, a Newsday investigation revealed that agents from several brokerages in Long Island were routinely discriminating against minority buyers.
Earlier in the year, after George Floyd was killed by police in Minneapolis, Redfin’s Kelman wrote a blog post pledging to help fight racial discrimination.
But some former agents and staff hit back at the comments, brandishing them as disingenuous.
“They kept on saying how much they value diversity,” one former broker who worked at Redfin’s Boston office told The Real Deal. But, the agent commented, in reference to that office: “Why are there no minorities in a management position whatsoever?” [GeekWire] — Sylvia Varnham O’Regan
Rob Thomson (Rob Thomson, Palm Beach County Sheriff’s Office, iStock)
Prominent Jupiter agent Rob Thomson agreed to five years of probation stemming from domestic battery charges filed in early 2019 by his ex-fiancée.
Thomson, who with his mother Joan runs Waterfront Properties and Club Communities, pleaded “guilty in his best interest,” known as an Alford plea, to one count of a third-degree felony battery charge in Palm Beach County Criminal Court on Friday morning.
Thomson has been a licensed real estate agent in Florida since 1986, records show. Waterfront Properties is active in Palm Beach County, including Jupiter, Loxahatchee, Admirals Cove, Palm Beach Gardens and Hobe Sound.
As part of the plea deal, Thomson will be subject to drug and alcohol testing and will not be able to leave the state without permission from his probation officer. He will also have to enroll and complete the batterer’s intervention program, and won’t be allowed to have firearms in his possession. He also can’t contact his ex-fiancée.
If he were to violate the terms of his probation, Thomson could face up to five years in prison. He can apply for early termination of probation after 3.5 years of no violations, the plea deal states. Thomson did not respond to a request for comment.
The police were called to Thomson’s home on Quayside Drive in Jupiter on Valentine’s Day in 2019 after the then-couple celebrated their two-year anniversary of their engagement at Mar-a-Lago in Palm Beach. According to the police report and Thomson’s ex-fiancée’s statement to the court on Friday, she said that he assaulted her in their bedroom and she blacked out. She said she suffered a concussion, two black eyes, and other injuries that she’s still dealing with.
In the courtroom on Friday, Thomson’s ex-fiancée, also a real estate agent, outlined his alleged abuses over the course of their relationship, and said that Thomson tried to bribe her through other people to drop the case.
“Several very wealthy, powerful people, and several of my former Waterfront Properties work colleagues called me and warned me that Rob is a formidable opponent, that [he] would destroy my reputation and [he would] make sure that I would never work in real estate again if I didn’t drop the case,” she said, adding that she wasn’t able to care for herself or earn an income.
Judge Daliah Weiss said she was “quite disturbed” by the victim’s testimony.
“The parties have expressed that they feel this is the best resolution to this matter,” Weiss said. “What she described is harrowing, sir. … This is an extremely serious matter with a lot hanging over your head,” she told Thomson.
Thomson’s attorney Dean Wilbur Jr. said Thomson is “happy it’s over with” and called the move to plead guilty in his best interest a “business decision.”
“After 18 months of it, he decided to resolve it,” Wilbur said.
The ex-fiancée’s attorney, Elizabeth Parker, said it was important for her client that Thomson plead guilty during National Domestic Violence Awareness Month. “Overcoming abuse does not happen overnight,” she said.
Thomson has been arrested before, dating back to 1995, according to Palm Beach County records. In 2015, he faced charges of domestic violence against his ex-wife Lorea Thomson.
Thomson recently represented the seller of a waterfront mansion in Jupiter, which sold to the founder and CEO of MyEyeDr for $11.2 million. He also brokered the nearly $6 million sale of another waterfront mansion in Jupiter that amateur golfer Ina Kim-Schaad bought in September.
Real estate services stocks largely ended a dismal week unscathed, as the broader markets fell for a second straight week amid mixed earnings reports, stalled stimulus talk and another Covid surge. Office and mall REITs didn’t fare so well.
The S&P 500 fell 5.59 percent to end the week, with the tech and real estate-heavy Nasdaq Composite also down, 5.39 percent. The Dow Jones Industrial Average had its worst month since March, ending Friday at 26,501.60. A strong third-quarter gross domestic product report couldn’t reverse Wednesday’s massive selloff in which the Dow dropped 943 points.
CBRE, the world’s biggest real estate services firm, ended Friday with its share price more than 8 percent higher despite reporting a near 10 percent decline in third quarter income. The company’s decision to shift its global headquarters from Los Angeles to Dallas gave the stock a short boost. CBRE said personnel would not change.
Colliers International, which this week reported an 11.5 percent jump in net income during the third quarter, closed the week 7.58 percent higher.
“Real estate is either feast or famine right now,” said Alexi Panagiotakopoulos, co-founder of Fundamental Income, sponsor of NETLease Corporate Real Estate ETF. “Office REITs face a lot of headwinds,” he added. “It’s famine for mall REITs.”
One of those is the nation’s largest mall owner, Simon Property Group, which saw its stock price fall 6.16 percent this week, to $62.81 a share. The company said it had finalized its deal with Brookfield Asset Management to buy bankrupt retailer J.C.Penney. Brookfield’s stock also fell, 12.47 percent, to end the week at $29.78.
Office REIT Boston Properties saw income decline about 17 percent in the third quarter. Executives said they don’t expect tenants to return to their offices in large numbers until late next year.
With investments mainly in New York and San Francisco office markets, Paramount Group recorded $7 million in losses for the third quarter, a slight increase from $6.3 million in the second quarter.
Homebuilder Lennar, which saw its stock price rise above pre-pandemic levels since July thanks to booming housing prices, fell 6.24 percent for the week, and 11.13 percent so far this month.
The saving grace of the economy has been the federal stimulus — though lawmakers can’t seem to agree on another round — and low interest rates, Panagiotakopoulos said. That has kept leveraged companies from falling into distress. But the threat of another large-scale surge in coronavirus cases still threatens to dampen demand. Office tenants have been slower than expected to return, with landlords shifting their expectations to 2021. In Illinois, Gov. J.B. Pritzker closed Chicago restaurants and bars to indoor dining, starting Oct. 30, because of a recent uptick in Covid cases.
“There will be more clarity in the economy after the election,” Panagiotakopoulos added.
CBRE CEO Bob Sulentic; the firm has shifted its global HQ from LA to Dallas. (CBRE, Getty)
CBRE’s decision to shift its global HQ from Los Angeles to Dallas wasn’t mentioned on the company’s third-quarter earnings call Thursday. But the move, which the Dallas Morning News first reported earlier that morning, didn’t go unnoticed.
“It’s yet another sad day in the city of Los Angeles,” said Ryan Leaderman, a real estate attorney at Holland & Knight’s L.A. office.
CBRE, the world’s largest real estate services firm, later confirmed the change.
“It was always cool to think of them as an L.A. company since most of the biggest real estate companies were based in New York,” said Jay Luchs, an L.A. commercial broker with Newmark, who spent 12 years at CBRE. But Luchs said he didn’t think headquarter locations are significant for large companies. “As long as you have top agents who understand the market it doesn’t really matter,” he said.
The move comes as the pandemic continues to upend the office market, taking its toll on brokerages that have endured months of losses, with many forced to trim staff and cut budgets and salaries.
While CBRE said it did not foresee any layoffs, relocations or changes at its Downtown 400 South Hope Street office — or any of its other California locations — the move comes at a difficult time for the struggling L.A. market.
Office leases plunged 61 percent in third quarter compared to the same period in 2019. Meanwhile, a CBRE report earlier this month showed L.A. office vacancy had climbed to 15 percent in Q3, from 13.7 percent in the second quarter and 12.6 year-over-year. Across the city, office leasing hasn’t been this bad since the Great Recession, according to CBRE. Overall office occupancy fell by 2.7 million square feet, adding to a plunge of 1.9 million square feet in the second quarter.
CBRE was the second largest publicly-traded real estate company headquartered in L.A. County. The top company remains Pasadena-based Alexandria Real Estate Equities, according to Los Angeles Business Journal’s ranking.
A CBRE spokesperson said the switch “simply formalizes the way we have operated for many years.” CEO Robert Sulentic told the Dallas Morning News, “we are happy to be moving here, and we are going to give Dallas a lot of growth.” The company will maintain its 25 offices across California, in addition to the space it maintains on South Hope Street, which it leases. CBRE sold that 26-story, 700,000-square-foot building in 2016 for $330 million.
Sulentic was formerly the head of Dallas-based Trammell Crow, which CBRE acquired in 2006. He has an office in the Texas city and splits his time between there and L.A. The company occupies 90,000 square feet at its Dallas office at 2100 McKinney Ave., Real Estate Daily News reported.
CBRE posted $245 million in net income for the third quarter, a near 10-percent drop year-over-year. The firm, which has about 100,000 people in more than 530 offices worldwide, recently made layoffs and budget cuts to trim costs, The Real Deal reported earlier today.
Industry pros said the symbolism of a top brokerage shifting its corporate headquarters out of L.A. was more significant than the move itself.
Luchs said real estate companies will remain in New York because it is still “the center of the financial world.” Increasingly, he said, firms will fan out to less expensive cities in the Midwest or the South.
Carl Muhlstein, a commercial broker at JLL, called CBRE’s decision “logical.” He said L.A.’s “taxes and housing prices are just really high.” Among them is a $1.27 tax on each $1,000 earned by locally-based businesses.
California’s taxes on businesses and business executives far surpass what Texas imposes. The Golden State has a flat 8.85 percent corporate income tax rate, while the Lone Star State is one of six states with no corporate income tax.
Texas is also one of six states with no personal income tax. California, meanwhile, has a graduated personal income tax with the highest earners paying 12.3 percent of their earnings to the state, on top of federal income taxes.
Besides the taxes, there’s California housing. “There’s a much higher cost of housing for employees here,” said Eric Sussman, an adjunct professor of accounting at UCLA. “You can retain talent at lower wages in Dallas.”
California could reach a point, Sussman said, where further corporate taxes could mean a “net loss of state revenue” due to the exodus.
In the last decade, large firms like Toyota, Occidental Petroleum and Jacobs Engineering have all moved corporate headquarters from the L.A. area to Texas. Northrop Grumman and Nestle USA also shifted HQs from L.A. to Washington, D.C., and Virginia, respectively.
“L.A. is devoid of headquarters,” Leaderman said. “Our taxes are high, and our services are not great. It’s becoming an issue.”
Michael S. Liebowitz and Russell Galbut (Linkedin)
Developer Russell Galbut and investor Michael S. Liebowitz formed a blank check company aimed at raising $100 million to invest in travel, hospitality, fintech, insurance tech, proptech and other industries impacted by the pandemic.
The company, called New Beginnings Acquisition Corp. plans to sell 10 million shares priced at $10 each, according to a release. It joins a number of new special-purpose acquisition companies formed in recent months, as blank check firms make a comeback in the real estate industry. The entities have no underlying assets and are formed with the goal of merging with a target company and taking the company public.
Galbut, co-founder and managing principal of Miami-based Crescent Heights, is chairman of New Beginnings. Liebowitz, managing director and executive vice president of Alliant Insurance Services, is director and CEO, according to the release. The two have worked together in the past: in late 2019, Crescent Heights sold 50 percent of its Mondrian South Beach condo-hotel to Liebowitz.
The SPAC plans to target businesses valued between $400 million and $600 million.
Mergers and acquisitions adviser Benjamin Garrett, Norwegian Cruise Line president and CEO Frank Del Rio, and hospitality executive Kate Walsh will serve on the company’s board of directors, according to documents filed with the Securities and Exchange Commission.
An Arizona real estate agent lost his job after hurling racial epithets at two Black men outside his Scottsdale condominium building.
Paul Ng approached the men, who were filming a video outside the building, and asked them what they were filming. When one of the men, Dre Abram, asked him why it was his business, Ng described “problems” in the neighborhood, according to the New York Post.
Ng shortly thereafter tells the two men that he is a racist.
“OK, that’s fine, so what’s your point,” Abram said. “Why are you here?”
Ng responded with a racial slur.
Abram remained collected throughout the encounter. He later posted the video to social media, and it quickly went viral.
Russ Lyon Sotheby’s Real Estate Agency subsequently fired Ng and called the video “extremely hateful and racist.” The firm also recommended to the Arizona Department of Real Estate that authorities revoke Ng’s license.
The firm said that Ng had not sold a home with the company in two years, but that “commissions we find going back further than that will be donated to local charities.”
Police also later arrested Ng and he was charged with disorderly conduct. Ng told police he didn’t intend to be inflammatory.
Speaking on the incident later, Abram said that it was “hard to kind of go back and replay,” and described “a numbing feeling.”
“Someone is seriously doing this to me right now?” he said. “And at that point, it’s ‘Be smart, be smart.” [NYP] — Dennis Lynch
Ray Kroc and his Santa Ynez Valley ranch (Wikimedia, Google Maps)
A sprawling California estate once owned by a fast-food titan is hitting the market — and it’s asking quite a bit more than dollar-menu prices.
The 554-acre ranch once owned by former McDonald’s CEO Ray Kroc, located in the Santa Ynez Valley in Santa Barbara, is hitting the market for $29 million, the Wall Street Journal reported.
Kroc, along with his then-wife, Jane, bought the property around 1965 for just $600,000. That was shortly after Kroc took McDonald’s public and became a multimillionaire practically overnight. He purchased the McDonald’s company in 1961 from its founders, Richard and Maurice McDonald.
The Santa Ynez estate wasn’t just a home for the Krocs, however; in addition to a modernist main “round house” (so named because it’s circular, leading some locals to liken it to a hamburger), the property also has 17,000-square-foot lodge with a conference center and tennis courts, as well as single-family townhouses and a home that was built for Ray’s brother, Bob. All told, the property can accommodate about 100 people.
All of these components got plenty of use; Kroc sometimes used the property for corporate retreats and as a test kitchen. It also served as the headquarters for his charitable foundation, which his brother oversaw.
Over the years, the Krocs acquired neighboring properties to expand the ranch. Joan Kroc, Ray’s third wife, tried to turn the property into a camp for children with cancer after he died in 1984, but was unable to sway local authorities to approve it. She sold the property in 1990 to Gerald Kessler, who died in 2015.
The property is coming to market following a court battle between his widow, children, and grandchildren over control of his estate. [WSJ] — Dennis Lynch
