The Orioles are here to stay.
During Thursday’s game at Camden Yards against the Boston Red Sox when Baltimore’s ballclub has the chance to clinch the American League East, the club made an announcement that means the venue could host celebrations for years to come.
After the third inning, the Orioles put on the video board at Oriole Park that the team and Maryland Stadium Authority have agreed to a new 30-year lease to keep the team in Baltimore. The deal was set to expire Dec. 31.
“Earlier today, the Orioles, Governor Wes Moore and the State of Maryland, and the Maryland Stadium Authority agreed to a deal that will keep the Orioles in Baltimore and at Camden Yards for at least the next 30 years!!” the announcement read, with the Democratic governor and Orioles Chairman and CEO John Angelos were shown together on the video board above.
An Orioles spokesperson confirmed the scoreboard announcement, saying more details would be released Friday.
Moore’s office scheduled a video meeting for Friday morning to brief reporters on the deal.
The Orioles played their inaugural season at Oriole Park in 1992, the first in a 30-year agreement that originally ran through 2021. The Orioles and the stadium authority agreed to a two-year extension in February of that year, hoping to use that added time to negotiate a long-term deal.
Angelos, the son of Orioles managing partner Peter Angelos, told Baltimore business leaders in September 2019 that the Orioles would play in Charm City “as long as Fort McHenry is standing watch over the Inner Harbor,” reiterating that point over the years to come.
Little more than a year after Angelos’ initial declaration — and days after The Baltimore Sun reported potential bidders were lining up to buy the team if the Angelos family chose to sell it — Orioles executive vice president and general manager Mike Elias penned a letter to fans reiterated the organization’s dedication to the community “for decades to come.”
“Please rest assured that there is nothing uncertain about the future of your Orioles in Baltimore,” Elias wrote.
The agreement requires the approval of the Maryland Stadium Authority board as well as the Board of Public Works. The General Assembly would need to approve any new expenditures.
The Maryland Stadium Authority board had not received details of the agreement as of Thursday night, according to two people familiar with the board’s operations who requested anonymity because the deal is pending.
The board’s next regularly scheduled meeting is Tuesday, though it’s not certain the lease would be on the agenda.
Under Moore, the governor’s office had played a significant role in the lease negotiations, more so than when then-Gov. Larry Hogan, a Republican, was in office. Angelos and the governor have had a close working relationship.
“The Baltimore Orioles are an institution and an irreplaceable member of the collective family that makes up Charm City,” Baltimore Mayor Brandon Scott said in a statement. “I am extremely pleased that under this agreement, they will continue to call Oriole Park at Camden Yards — the ballpark that forever changed baseball — home for another generation.”
“I congratulate the team, and the governor and the stadium authority and I look forward to learning more about the details,” said Tom Kelso, the former Maryland Stadium Authority chairman who had been negotiating with Angelos until he was not reappointed by the governor and left in March. Angelos revealed in a January letter to Moore that he stopped negotiating with the previous administration once Moore was elected in November.
Angelos said in a Sept. 1, 2022, memorandum to Orioles front-office staff that the lease would be part of a broader “memorandum of understanding” underscoring the team’s “special relationship with the State of Maryland and the Greater Baltimore area.”
“As a lifelong Baltimorean, I very much look forward to signing on behalf of the Club,” Angelos said in the memo.
With the long-term deal, the Orioles will gain access to $600 million in public funds to upgrade the 31-year-old venue.
The NFL’s Ravens reached a new 15-year lease agreement with the stadium authority in January, despite having five years remaining on their previous one. Afterward, the Ravens started to plan upgrades to M&T Bank Stadium. A clause in the lease requires they and the Orioles receive similar terms and are treated fairly by the state.
The Orioles and the stadium authority have said it would be premature to specify what renovations they’re considering at Camden Yards, which seats about 46,000. Many newer stadiums are smaller and include open concourses with field views and stadium clubs for VIPs that offer prime low-level views.
Potential changes could include more social spaces, fewer seats and a sports betting area.
The details of the agreement have not been announced, though both Angelos and Moore have expressed interest in the deal addressing more than keeping the Orioles at the ballpark.
Earlier this year, they visited The Battery outside of Truist Park, hoping to enliven the area around Camden Yards in a similar manner. During stages of negotiations, Angelos has requested development rights for the parking lots between Oriole Park and M&T Bank Stadium, the home of the NFL’s Ravens, sources familiar with negotiations told The Sun.
Angelos said in February he hoped a new lease would be an “All-Star break gift,” but the mid-July cutoff passed without an agreement. He and Moore issued a joint statement in which they said progress was being made on their “vision to expand and revitalize the Camden Yards campus.”
“We are determined to make it happen, and soon,” the statement read.
A long-awaited deal at last came together more than two months later. Moments after a replay review brought Thursday’s third inning to an end, the announcement appeared on the video board, eliciting cheers from the announced crowd of 27,543.
The lease has been a source of anxiety for many fans amid a sensational season for the team on the field. In February, the Orioles had the option to extend the lease by five years but declined, leaving it to expire at the end of the year.
“I probably would have moved out of Baltimore if they left the city,” Catie Kimball, a Canton resident, said at Thursday’s game.
Gathering with friends close to the statue of franchise icon Brooks Robinson, who died Tuesday, at Camden Yards, Orioles fan Glen Hessinger said he was “happy that we’ll be able to come here for the next 30 years,” but wondered what the terms of the lease were. “We don’t know the details. We don’t know what we’re giving up.”
Along with access to the parking lots, Angelos’ asks during negotiations, according to sources, included the Orioles not having to pay rent to the MSA while also receiving an additional $300 million on top of the promised $600 million.
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Baltimore Sun reporter Dan Belson contributed to this article.
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BELLE PLAINE, Minn. — A Belle Plaine institution has shut down.
For decades, Emma Krumbee’s Orchard had been a staple in Belle Plaine.
But now, a sign at the entrance reads “CLOSED. Thanks for 43 years!”
The former owner of Emma Krumbee’s Orchard, Phil Morris, said over the phone that he sold the property and is retired. He had been trying to sell the property for a while now, he said.
“We came out to look for apples and see how the trees are changing,” said Pam Pavlicek.
Pam Pavlicek came to the former Emma Krumbee’s Orchard Thursday with her mother, Barb Anderson. They had driven to Belle Plaine from the Twin Cities metro.
“It’s unfortunate, it’s been here for a long time. It’s too bad, I loved the place, it was great,” said Pavlicek.
“If I said, ‘Oh I’m from Belle Plaine,’ they’d be like, ‘Oh Emma Krumbee’s is there,’ or ‘We’re going to Emma Krumbee’s’ or, ‘We knew that was in Belle Plaine,'” said Dawn Meyer, Belle Plaine City Administrator.
Meyer said Morris agreed to sell the property to the city to build a new Belle Plaine police headquarters.
City officials said it closes on the property in November. The plan will then go to the city council for approval.
“The city was in the process of facility studies and we know that we have some issues at our current police department and that this would most likely be able to meet the needs,” said Pavlicek.
City councilmember Ryan Ladd said, off-camera, the city estimates costs at just under $6 million for construction and renovation.
What’s not in the plans yet, is what’s going to be done with all these apples, the city said.
Meanwhile, Pavlicek is left to find another orchard, for her long-time fall tradition.
“My mom’s going to turn 90 yet next year, and she has been here since she was young,” said Pavlicek.
Andersen Elementary School in Bayport, part of Stillwater Area Public Schools, as seen on March 27, 2023. A proposed bond referendum would help add capacity in Bayport and Lake Elmo, which have the two oldest schools in the district. (Makenzi Johnson / Pioneer Press)
The members of People’s Congregational Church on Wednesday night approved the first step in a plan to sell a 10-acre property on the western edge of Bayport to the Stillwater Area Public School District, a move that could pave the way for a new Andersen Elementary School to be built on the site.
A majority of the 100-member congregation voted to authorize a non-binding letter of intent to negotiate the sale of the property, known as People’s Park, said Paul Spilseth, the church’s moderator. The letter is an agreement in good faith and allows either party to withdraw without liability or obligation, he said.
People’s Park is located in Baytown Township, just west of Barkers Alps Park in Bayport, which had previously been discussed as a potential site for a new Andersen Elementary. Some residents, concerned about the loss of parkland and ball fields, had criticized the plan.
In August, church members decided to start talking with school district officials about a possible sale of the land, which the church purchased in 1994 when it was thinking of building a new church. The church’s building plans didn’t materialize, but the congregation worships every other Sunday in the summer in a small outdoor chapel on the site.
Church leaders had several rounds of discussions about terms with district officials, and, by early September, “had secured a commitment that, if we sold the land, an accessible outdoor meeting and learning space would be built as part of the school project, and that the church would have the right to use this meeting space for summer services,” Spilseth said. “Given that commitment, the congregation gave informal approval to consider an offer.”
The outdoor learning space would be “for the benefit of the students and the broader community, as well as our right to use it for church activities,” he said.
Any possible sale of the land is contingent on the passage on Nov. 7 of the school district’s $175 million bond referendum, which would fund projects to address growth in parts of the district and improve safety at schools throughout the district. If the referendum passes and the land is sold, the land would then be annexed into the city of Bayport.
The welfare of the land is extremely important to the church, Spilseth said. When the church purchased the land in 1994, it “made a commitment to protect and preserve this important natural resource,” he said. “Many of our members have spent extensive time and committed considerable resources to create and maintain a stunning labyrinth and corresponding memorial garden. We have worked diligently to enhance the natural woodlands and open areas of the park to restore native-prairie species.”
Church officials will keep their “land-stewardship responsibilities” in mind, along with “community feedback about the school” and “the educational needs of our children” while approaching negotiations in good faith, he said. “It is our hope that by the end of this process, the educational goals of the district, the feedback of the community and the land concerns of our members will be reflected in a final agreement.”
School district officials said Thursday they are excited to move forward with a plan for a new school in Bayport.
“We appreciate the willingness of the People’s Church congregation to work with us to identify a home for our proposed new school in Bayport,” said Carissa Keister, the district’s chief of staff and executive director of strategic communications. “This is a beautiful property and, should the bond be successful, we are excited about partnering with the church and the city of Bayport to make it a wonderful learning environment for our students.”
School district officials also are working on an agreement with the city of Bayport to utilize Barkers Alps Park for student use during the school day, “similar to what we are doing currently,” Keister said.
Flight cancellations and travel disruptions have been in the news quite a bit recently, with causes ranging from natural disasters to labor shortages.
Many of the top credit cards offer certain travel protection benefits as cardholder perks. These can include, but are not limited to, trip cancellation insurance, trip delay reimbursement, lost baggage coverage, and rental car insurance.
But is this enough? There are several private insurance companies that offer stand-alone travel insurance policies, and some of them offer pretty impressive protection. Here’s a rundown of what some credit cards offer, and the difference between credit card travel insurance and what you might get when paying for a policy.
Credit card travel protection
As mentioned, some credit cards provide travel protections that can include, but are not necessarily limited to:
- Trip delay insurance: Reimbursement of certain expenses if a flight or other travel is delayed.
- Trip cancellation: Reimbursement of travel expenses when you are forced to cancel a trip for a qualified reason.
- Lost or damaged baggage protection: Reimbursement when an airline or other travel carrier losses or damages your belongings.
- Rental car insurance: Protection for damage and/or theft of rental cars, usually secondary to your own car insurance.
These travel protections are most common among travel credit cards, as well as higher-end credit card products.
For example, The Platinum Card® from American Express is my go-to credit card when I book or pay for travel-related expenses. It provides up to $500 per trip in travel delay reimbursement, as much as $10,000 per trip in trip cancellation insurance, as well as baggage insurance and rental car coverage. Terms apply. See rates and fees.
However, you don’t need to pay a $695 annual fee like The Platinum Card® from American Express charges to get valuable travel protection. The Bank of America® Premium Rewards® credit card has a $95 annual fee and comes with as much as $500 in trip delay protection, $2,500 in trip cancellation, and delayed baggage coverage.
What a travel insurance policy can offer
I’m currently in the market for a new travel insurance policy. My family and I love to travel, and plan to take our first international trip within the next year. Especially with two small children, we want to know we’re protected if something unfortunate happens.
There are some excellent insurers to choose from that provide travel insurance policies. Just to give you an idea of what this coverage could look like, a quick quote for my family of four from Allianz Travel shows that a mid-level plan would cost about $500 per year and would provide these benefits:
- Up to $2,000 in trip cancellation per year
- Up to $2,000 in trip interruption per year
- Up to $50,000 in emergency medical per person, per trip
- Up to $500,000 in emergency transportation per person, per trip
- $2,000 in lost baggage insurance per person, per trip
- $2,000 in baggage delay protection per person, per trip
- $1,500 in travel delay protection per person, per trip
- $45,000 in rental car damage and theft coverage per trip
- $50,000 in travel accident insurance per person, per trip
Of course, this is just one example, but it’s a good example of what you’re likely to find. Pay particular attention to the emergency medical and transportation benefits, as these aren’t offered by credit cards. Plus, it’s worth noting that the rental car insurance is a primary coverage, not secondary to your existing auto insurance like many credit cards offer.
Do you need a separate travel insurance policy?
The bottom line is that there are some protections that a travel insurance policy can provide that credit cards simply can’t match. But do you need one?
The short answer is if you travel frequently — especially internationally — a travel insurance policy can be a good move for you. Being medically evacuated from a Caribbean island while on a cruise, for example, can easily come with a five-figure price tag if you don’t have coverage. Many travel agents and cruise lines offer protection packages on a trip-by-trip basis, so this combined with your credit card’s protection can be sufficient if you travel every now and then. But frequent travelers are likely to get the best protection for the once-a-year premium of a travel insurance policy.
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A New York judge put a spotlight on former President Donald J. Trump’s business empire this week, determining in a ruling that he had inflated the value of his properties by considerable sums to gain favorable terms on loans and insurance.
If the ruling stands, Mr. Trump could lose control over some of his most well-known New York real estate — an outcome the state’s attorney general, Letitia James, sought when she filed a lawsuit last year that accused him of fraud and called for the cancellation of his business certificates for any entities in the state that benefited from deceitful practices.
The ruling by the judge, Arthur F. Engoron of the New York State Supreme Court, came before a trial, largely to decide possible penalties, that could begin as early as Monday. Mr. Trump’s lawyers are likely to appeal.
Mr. Trump’s lawyers and a leading real estate expert have argued that Ms. James’ lawsuit does not properly factor in the Trump brand’s value or take into account the subjective nature of real estate valuations, with borrowers and lenders routinely offering differing estimates.
Trump Tower and Mr. Trump’s triplex apartment, 725 Fifth Avenue in Manhattan
Ms. James’s lawsuit claims that the Trump Organization, which is a collection of approximately 500 separate entities that operate for the benefit and under the control of Mr. Trump, used deceptive practices to come up with the highest possible value for Trump Tower.
For example, in 2015, the Trump Organization based its valuation of the tower on the sale of a single nearby building, described in the press as setting a world record, allowing Mr. Trump and his associates to claim the value of the property had increased by $170 million from the previous year.
Mr. Trump’s triplex apartment in Trump Tower
The three-story Trump Tower penthouse was Mr. Trump’s home for over two decades. It was the place that he used to show off his wealth to heads of state and film crews.
But the lawsuit says it was worth a lot less than he claimed: The value reported in financial statements by the Trump Organization went up 400 percent, to $327 million in 2015 from $80 million in 2011. Ms. James believes Mr. Trump and his associates justified this jump by grossly overstating the unit’s square footage, inflating it to 30,000 square feet from 10,996.
4-6 East 57th Street
In 2019, Mr. Trump and his companies that lease the buildings where Niketown, a tenant, was previously located valued the buildings’ interest at $445 million. The lawsuit said that amount was inflated by mismatching income and expense periods.
The Trump Organization is accused of using forward-looking income figures, which were higher, combined with backward-looking expense figures, which were lower, resulting in an inflation of at least $37 million, according to the lawsuit.
Trump Park Avenue, 502 Park Avenue
This property includes 12 rent-stabilized apartments, which were valued by the Trump Organization as if they were being rented at market rate. The valuation offered by the company for the rent-stabilized units was nearly $50 million, while the appraised value was $750,000, according to the lawsuit.
1290 Avenue of the Americas
Mr. Trump has a minority stake in this 43-story skyscraper in Midtown Manhattan, adjacent to Radio City Music Hall. According to the lawsuit, Mr. Trump has a 30 percent share of the entity that owns the building, and is hemmed in by the rules of the partnership, which limit Mr. Trump’s ability to sell his share.
Yet in valuing their stake in the building, Mr. Trump and his companies are accused of simply calculating 30 percent of the value of the skyscraper, minus its debt, and treating it as if it were an asset that could be sold from one day to the next. In fact, the partnership sharply restricts Mr. Trump’s ability to exit the agreement before 2044.
He is also accused of inflating the building’s worth by using an inaccurate “capitalization rate,” a real estate valuation measure that is used to compare different investments.
40 Wall Street
In 2015, the Trump Organization’s valuation for this property it leased in Lower Manhattan was $735 million. The lender-ordered appraisal came in at $540 million, the lawsuit claims. Mr. Trump’s valuation included a $1.4 million lease with Dean & Deluca, even though it was not yet signed.
His financial statements also understated expenses for the building. For example, the organization reported management fees and expenses of $100,000 annually for 2012, 2013 and 2014, when the fees were closer to $1 million each year.
Trump National Golf Club Hudson Valley, Hopewell Junction, N.Y.
The lawsuit claims the Trump Organization inflated the price of membership at this golf course to jack up the property’s worth. For example, the club’s listed initiation fee in 2011 and 2012 was $10,000. Yet in 2011, the Trump Organization valued 93 percent of the 161 unsold memberships at $15,000 and higher. In 2012, the company valued 78 percent of the 254 unsold memberships between $15,000 and $30,000 each.
Trump National Golf Club Westchester, Briarcliff Manor, N.Y.
The lawsuit claims the Trump Organization boosted the value of the 7,300-yard, par-72 golf course by including income they hoped to earn from new members. The valuation in 2011 relied on the assumption that 67 new members would pay approximately $200,000 each in entry fees, when many paid nothing.
Seven Springs, Westchester County, N.Y.
In 1995, a subsidiary owned by the Trump Organization bought a 212-acre property stretching across three towns in Westchester County. More than a decade later, Eric Trump, the former president’s son, made plans to build 24 luxury lots there. The appraiser hired by the Trump Organization in 2014 estimated the value of the lots at around $30 million. But the same year, the company reported a value of $23 million for each lot just in one of the towns, Bedford, according to the lawsuit.
Additionally, the financial statements reported these values as if the houses had already been built, though the Trump Organization faced a legal challenge from the Nature Conservancy, which sought restrictions on what the organization could build.
WASHINGTON (AP) — A judge’s ruling that Donald Trump committed fraud as he built his real-estate empire tarnishes the former president’s image as a business titan and could strip him of his authority to make major decisions about the future of his marquee properties in his home state.
The Tuesday order rescinds business licenses as punishment, which could make it difficult or impossible for some of Trump’s companies to operate in New York if not successfully appealed.
Trump’s attorney vowed to appeal, calling the decision “un-American” and part of a campaign to thwart his second bid for the presidency.
Here are some of the key points of the case, and what happens next:
WHAT DID THE JUDGE SAY?
Trump and his company massively overvalued his assets, creating “a fantasy world” on the financial statements he gave to banks and others, Judge Arthur Engoron found in a lawsuit brought by the New York attorney general.
Trump’s Florida Mar-a-Lago club, for example, was overvalued on one financial statement by as much as 2,300%, the judge found.
The former president also lied about the size of his Trump Tower penthouse apartment, claiming it was nearly three times its actual size and worth $327 million, according to the ruling.
That discrepancy from a real estate developer describing his own longtime home “can only be considered fraud,” the judge wrote.
The exaggerated picture of Trump’s wealth could have gotten him more favorable loan terms or lowered insurance costs, the attorney general has argued.
The judge rejected Trump’s contention that a disclaimer on the financial statements absolved him of any responsibility to verify they were truthful.
HOW DOES THIS AFFECT TRUMP’S BUSINESSES?
Under the ruling, limited-liability companies that control some of his key properties, such as 40 Wall Street, will be “dissolved” and authority over how to run them handed over to receivers.
The judge’s order, if not successfully appealed, could mean Trump would no longer have any say in who to hire or fire, who to rent office space to, whether to pay back loans or take on new ones, essentially make any decision.
Lisa Renee Pomerantz, a lawyer in Bohemia, New York, who has helped businesses establish LLCs in the state, said canceling certificates is a significant order because you can’t operate without them.
“Their right to conduct business has been revoked,” Pomerantz said. “He’s just lost control of these entities.”
Importantly, the ruling also removes one of the bedrock protections of business suggested by the words “limited liability” themselves: Forcing lenders and other creditors, like victors in a legal judgment, to only go after assets and cash held by the business, not the owner’s stock and cash and other holdings.
WILL TRUMP’S PROPERTIES BE SOLD OFF?
Engoron tabled a discussion of whether just a step was required by his order when asked by Trump’s lawyers Wednesday, responding: “I’m not prepared to issue a ruling right now.”
What is clear, though, is that it is unusual for such valuable LLCs containing office buildings and other properties to lose business licenses, so trustees might not be inclined to make such a drastic move.
And they’re unlikely to feel pressure to sell from lenders if they are still getting paid. Sorting out who gets what from the proceeds of a sale would be a “logistical nightmare” if other claimants to Trump properties come forth, Thomas said. That group could include the attorney general herself if she wins on her other counts and Trump has to pay a fine.
If the trustees do decide to sell, Trump will get the cash from whatever is left after paying creditors.
The Trump Organization owes $100 million on Trump Tower. Lenders to 40 Wall Street, Trump’s most valuable skyscraper, were owed more than $125 million earlier this year.
WHAT HAPPENS NEXT?
The judge will also weigh a possible $250 million in penalties and some remaining claims in a non-jury trial slated to start Oct. 2
Still, the ruling on one count during what’s known as the summary judgment phase could prove the most significant outcome of the case, said Will Thomas, an assistant professor of business law at the University of Michigan.
“This first count, even though it is easier in some respects from the other counts, it lets one of the biggest remedies kick in: ‘We’re going to stop you from doing business,’” Thomas said. “This is one of the worst outcomes you can get.”
Barring a successful appeal, Thomas said he doesn’t see how the Trump Organization can avoid losing control of his LLCs containing entities such as 40 Wall Street, Trump Tower and an estate outside New York City called Seven Springs. One strategy, establishing new LLCs in another state, is nearly impossible with legal claims such as a lien by a creditor or, in this case, a judge’s ruling.
“If someone is coming after your house, you can’t sell it to me for $1 and have me sell it back to you after your creditor goes away,” Thomas said. “You’re going to run into what’s called fraudulent transfer.”
In fact, Trump was accused by the attorney general of already trying to do that when he set up a Delaware company last year. A Trump lawyer denied any improper intention with the move, but Engoron was worried enough to appoint an independent monitor, Barbara Jones, to watch over Trump’s company, a role she retains under Tuesday’s ruling.
HOW DID THIS START?
New York Attorney General Letitia James, a Democrat, filed the civil lawsuit against Trump and the Trump Organization a year ago. It accused them of padding his bottom line by billions of dollars by routinely inflating the value of assets including skyscrapers, golf courses and the Mar-a-Lago estate. It came after Manhattan prosecutors declined to bring criminal charges over the same conduct.
Trump’s lawyers had asked the judge to throw out the case, arguing that there wasn’t any evidence the public was harmed and many of the allegations in the lawsuit were barred by the statute of limitations.
WHAT IS TRUMP SAYING?
In a series of statements on his Truth Social site, Trump insisted his company had “done a magnificent job” and the decision “horrible and un-American.”
His son Eric Trump said his father’s claims about Mar-a-Lago were correct, and the property is “speculated to be worth well over a billion dollars,” according to a post on X, formerly known as Twitter.
Trump’s lawyer called the decision an attempt to “seize control of private property.”
This case is one of several faced by Trump, who has been criminally indicted four times in the last six months. He’s accused in Georgia and Washington, D.C. of plotting to overturn his 2020 election loss, of hoarding classified documents at Mar-a-Lago in Florida, and in Manhattan of falsifying business records related to hush money paid on his behalf.
The Trump Organization, meanwhile, was fined $1.6 million in an unrelated case after being convicted of tax fraud. James’s office has also previously sued Trump for misusing charitable funds, resulting in an order to give $2 million to charity as his own foundation was shut down.
Artem Tepler is a partner with Schon Tepler Partners, Inc., which he founded with Paul Schon in 2009. His company has built dozens of apartment buildings across the City of Los Angeles, and has recently looked to expand into Sunbelt markets. More recently, you may have become acquainted with him through his presence on Twitter. Artem recently took some time to chat with Jake Goldstein about his approach to real estate development.
Jake Goldstein: Tell us about how you started in real estate.
Artem Tepler: I approached Bob Hunter of the Miami-Dade Real Estate Investor Association. He was a hard money lender, investor and ran an investor network. He put up the money from his hard money company and we split profits 50-50. And that’s basically the formula- find deals; have other people put up the capital; and execute.
JG: How did you get financing?
AT: I think financing was way easier then. If you had a pulse, they would give you a loan. So I had the classic Ninja loan–no income, no job, and no assets. They would give me loans to buy houses to fix up.
JG: Looking back, what advice would you have given to yourself if you had to start over again today?
AT: I would probably start a call center somewhere in South America. I would focus on deals for developers that are knocking down properties and building custom homes. I would take a listing on the back end or partner up with a real estate agent and have them take the listing.
JG: So you use that same model today?
AT: Exactly. I think everything is about finding deals. If you can find deals, you become successful. If you don’t find deals, you’re in operations.
JG: Your real estate career expanded before the 2007-2009 crash. Can you tell us a little bit about the differences before and after 2008 and how you kind of clawed yourself out of a pretty difficult situation?
AT: When the market crashed, just the financing changed. But other than that, I think it’s still the same business. Buy, Fix, Sell. Or now Build, Sell or Build and Rent.
I clawed my way out by returning to flipping homes. I found a partner. We did about 50 homes together. And the way I got out of my debts was building and then selling a 21 unit building in West Los Angeles. I used the profits to pay off all my non-income producing debt.
JG: When did you decide you had enough experience to transition from single family to more commercial projects such as apartments?
AT: I went to school for real estate development. My goal was always to do ground-up real estate development.
My masters is in real estate development, but it does not teach you the middle steps between big projects and little projects.
I think the first big step is doing anything ground up. We bought, renovated and added square footage to single family houses. Once you start creating square footage from scratch, you learn the development process, and become confident. Then we built some duplexes ground-up. Then we built three buildings without partners to learn the process. And then we started syndicating deals, bringing in other investors, and doing more projects. We’ve done close to 30 apartment buildings in LA.
JG: Are you still in LA? Do you see yourself not building here at some point?
AT: I would like to keep our business going here, maybe slightly bigger buildings. I believe in the LA market but I’m a little scared of all the legislative and rent control measures, and it’s difficult to scale a big business here. I plan on continuing to live in LA, but we’re going to focus on doing larger projects in the sunbelt states, starting with Texas.
JG: How do you choose your submarket in and what feedback have you gotten from institutional real estate people about the sub markets you’re building in?
AT: For our LA deals, we basically tell brokers “West of downtown, north of the 10, south of the 101, all the way to the ocean.” But we won’t do cities like Beverly Hills, West Hollywood or Santa Monica. That’s been our market in LA. Our investors didn’t want to touch downtown. As far as a new market in a different state: we’re not going to be pioneers in a new market. Whenever you go to a new investor, they’re going to want to see new construction rents that justify what you’re trying to do. So we’re looking to be around where there’s new construction apartments that have proven rents.
JG: So it looks like it doesn’t matter what part of the business it is. Everyone’s always cold calling. It’s just the nature of it. You can’t get around it.
AT: It’s all sales. Whether we’re pitching our investment memos to potential investors to invest in our deals, calling owners or calling brokers. So it’s still a high, high level sales job. Selling ourselves and our investment opportunities.
JG: Can you talk a little bit about your real estate Twitter presence?
AT: I started putting out content; I wish I would have known 20 years ago, since it seemed to kind of resonate with people. I think the reason why is because I come from a brokerage development and construction background, but also know house flipping and custom homes. Being able to go across those different disciplines, I’m able to touch different subjects.
We haven’t raised any capital from Twitter. Our deals need an $8 million or $30 million equity check, and I haven’t had enough people reach out with smaller size checks where I could do an online raise and have it move the needle. But I’ve met a lot of really great investors/developers, local and all over the country, that I get to chat to and learn from.
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Rex Heuermann appears with his lawyer Michael Brown, left, at Suffolk County Court in Riverhead, New York, on Wednesday.
Gilgo Beach killings suspect Rex Heuermann has petitioned the court to reclaim more than 280 guns that were seized from his home in July so he can sell them and financially help his family while in jail.
The guns, which defense attorney Sabato Caponi said have significant financial value, could be sold to “provide a temporary but urgently needed respite from the financial hardships afflicting the Heuermann family,” the motion filed last Thursday states.
The firearms were seized in July when Suffolk County police searched their home in a “wantonly destructive and reckless manner,” the motion adds.
“In as much as Rex Heuermann remains incarcerated and his pistol license has been temporarily suspended, this Court should order the return of the seized property to a person designated by Rex Heuermann, individual or licensed gun dealer, who may legally possess the items,” Caponi wrote.
Heuermann, a 59-year-old architectural consultant who lived with his family in Massapequa Park in Nassau County, has been behind bars since his arrest in July on three charges of murder. He has pleaded not guilty to the killings of Melissa Barthelemy in 2009 and Megan Waterman and Amber Costello in 2010.
The case stems from the discovery of nearly a dozen sets of human remains along Long Island’s South Shore between 2010 and 2011. Four of the victims were found buried near each other off Ocean Parkway in Gilgo Beach, and they were dubbed the “Gilgo Four.” Barthelemy, Waterman and Costello make up three of the Giglo Four, and Heuermann is the prime suspect in the death of the fourth, Maureen Brainard-Barnes, authorities have said.
The causes of death for the women were determined to be “homicidal violence,” which ruled out the use of a firearm, Suffolk County District Attorney Ray Tierney has said.
The defense’s motion was filed in response to a prosecution motion asking the court to allow the transfer of Heuermann’s guns and other firearm items to the Nassau County Police Department.
The prosecution’s motion, filed in early September, requested the transfer because their analysis of the “firearms, magazines, cases, attachments, ammunition, bullet fragments and shell casings” they seized “has concluded.”
They added that they want to transfer the guns and other firearm items because some of them “appears to have been in violation” of New York State gun laws.
The motion lists out the full collection of the weapons cache over about 35 pages. The collection includes a number of assault rifles, pistols and shotguns, as well as several antique firearms, according to the document.
The defense argued that the court lacks the authority to relinquish them to Nassau police, because there has not been a request for the property from the other court, which is required. They also stated there is no matter currently pending before any court in Nassau County related to the seized guns and ammunition, another requirement, according to the defense motion.
In addition, the defense cited precedent in their motion, stating, “When property is no longer needed as evidence, the government must establish, in an appropriate proceeding, an independent interest to justify any further retention” and reminded the court that prosecutors said that they no longer needed the property as evidence.
Separately, Heuermann appeared in court Wednesday for a short status hearing on his upcoming trial. He told the judge he has been able to review case evidence in his cell and he had been averaging “two to three” hours of reviewing.
In court, prosecutors said they gave Heuermann’s legal team over 10 terabytes of information to review in August, including subpoenas and court records totaling roughly 8,000 pages. Prosecutors gave additional evidence Wednesday, including about 5,000 pages of evidence related to two victims, the grand jury testimony, police memo books from the search of his home and video surveillance.
The next hearing is set for November 15.
Outside court, Heuermann’s attorney Michael Brown said his client has been an “active participant” in the case and “is doing the best he can.”
“He’s not guilty of this. Now, he has to sit in custody, be away from his family, be away from his wife and kids, not work, not produce for his family and support them and sit in a jail cell until this case comes to fruition,” he said.
Seven Florida cities were among the top 10 most overvalued housing markets in the country, as interest rates squeeze many buyers from the market, according to researchers.
Seven Florida cities were among the top 10 most overvalued housing markets in the country, rising up the list as interest rates are squeezing many buyers out of the market, according to researchers at Florida Atlantic University and Florida International University.
Cape Coral emerged as the most overvalued housing market in the country, with buyers paying a 47.99 percent premium on the typical home, according to August data from the Top 100 U.S. Housing Markets.
Other measured metropolitan areas in Florida that also made the top 10: No.3 Tampa, where buyers paid a 42.81 percent premium for a home; No.4 Palm Bay (42.60 percent); No. 6 Lakeland (41.96 percent); No. 7 North Port (41.74 percent); No.8 Deltona (39.96 percent); and No. 9 Orlando (39.83 percent).
No. 2 Atlanta (45.74 percent), No. 5 Detroit (42.51 percent) and No. 10 Knoxville, Tennessee (39.38 percent) rounded out the list.
“Most cities around the country have seen prices come back in line with their local long-term pricing trends or have witnessed a slight cooling in prices over the last few months,” said Ken H. Johnson, Ph.D., real estate economist at FAU’s College of Business. “That hasn’t been the case in Florida as prices in the state have remained robust, causing premiums to rise throughout the state.”
The full rankings can be found here.
The Top 100 U.S. Housing Markets, produced monthly by Johnson and fellow researcher Eli Beracha, Ph.D., director of FIU’s Hollo School of Real Estate, looks at the difference in the actual average home price in a city and compares it to the long-term pricing trend for the city to calculate how overvalued housing markets are in the 100 largest metropolitan areas in the country using publicly available data from Zillow. It is part of FAU’s Real Estate Initiative, a series of three monthly indices designed to help the average consumer make informed choices about the housing market in the United States.
Though interest rates have put a damper on the housing market, demand and low supply remain the driving factors behind price growth in Florida, researchers said.
“Without these higher interest rates, we would see Florida’s prices reaccelerate because there is so much demand relative to the supply of units,” Beracha said. “As well, the influx of high-income movers to Florida is putting upward pressure on prices. We are witnessing a transition in Florida’s economy and our housing markets around the state are experiencing growing pains from this transition.”
Some pockets of the country, such as cities in Texas and the Carolinas, might be a little bit more favorable for potential buyers based on calculations from the BH&J National Price-to-Rent Ratios. Cities in these states have lower price-to-rent ratios, on average, suggesting that since rents are supporting housing prices, these areas should see more stable price performance in the future.
Still, for buyers looking to purchase in most parts of country, there is no need to try and wait out the housing market as it is doubtful that prices will change significantly in the near future.
“The risk comes with how long you hold the property,” Johnson said. “The likelihood of a significant fall in prices or a dramatic increase is very small. There should be little risk if you purchase a property now and are planning to hold it for five to eight years. The strategy of trying to buy now and sell in 12 to 24 months to make a quick profit isn’t likely to work, however.”
REIT Rankings: Net Lease
Within the Hoya Capital Net Lease Index, we track the eighteen net lease REITs and one ground lease REIT, which account for roughly $100 billion in market value. These net lease REITs generally own single-tenant properties leased to high credit-quality tenants under long-term leases, focused primarily on retail, restaurant, and industrial properties. Historically one of the more interest-rate-sensitive property sectors, the net lease had surprisingly been among the best-performing property sectors in early 2023 amid signs of receding inflationary pressures and expectations of a pending pivot but have slumped in recent months amid a resurgence in benchmark yields through fresh multi-decade highs, raising fresh questions about how the industry will adapt to a potential “higher for longer” interest rate regime.
“Net lease” refers to the triple-net lease structure, whereby tenants pay all expenses related to property management: property taxes, insurance, and maintenance – a structure similar to a ground lease. As a result, net lease REITs tend to operate more like a financing company than a property manager, effectively capturing the spread between the acquisition capitalization rate (“cap rate”) and their cost of capital. Net lease REIT investment characteristics are similar to corporate bonds due to the long-term nature of leases and the underlying “credit” exposure through their tenants’ ability to pay rent. Unlike corporate bonds, however, net lease REITs have the ability to grow distributions through a combination of organic (rent escalations) and accretive external growth (acquisitions). Lease terms average 10-15 years and typically include fixed-rate contractual rent escalations at 1-2% per year.
Triple net leases are used to varying degrees across the REIT universe – including the Casino and Healthcare REIT sectors – and proved to be particularly durable throughout the pandemic-related turmoil regardless of the headwinds endured by their tenants. While nearly every property sector uses the triple-net lease structure to some degree, we focus this report primarily on the “free-standing” net lease REITs and diversified REITs which make heavy use of the net lease structure that don’t otherwise fall neatly into one of the other property sectors. Some net lease REITs focus their strategy on investment-grade tenants with near-zero credit risk, while others focus on “middle-market” or smaller tenants with higher potential credit risk levels. Currently, the most significant sources of credit risk are movie theaters (roughly 3% of rent), offices (5% of rent), and specialty retail (5% of rent).
With this bond-like lease structure, naturally, comes bond-like risks – notably a high sensitivity to inflation and interest rates. Inflation-sensitivity and rate sensitivity are driven by several interacting factors, including lease structure and term, external growth potential, tenant credit quality, and the cyclicality of the underlying property type. Investment Grade (“IG”) tenants – often retail tenants like Walgreens (WBA), CVS (CVS), Home Depot (HD), and FedEx (FDX) typically have minimal credit risk, but lease terms generally grant less potential upside or inflation protection to the property owner with fixed-rate or zero rent escalations. Only a handful of net lease REITs include explicit CPI linkages in their rent escalators – namely W. P. Carey, which has a sector-high 55% of its leases calculated using a CPI-based formula. Among the top ten largest net lease REITs, Broadstone and Spirit Realty are the only other net lease REITs to report average escalations of at least 2% thus far in 2023.
Balance sheet quality also plays a critical role in the degree of risk – and the “cost of capital” more broadly – and the net lease REITs that have lower leverage and more long-term fixed-rate debt should be able to maintain accretive investment spreads in a variety of macroeconomic environments – assuming that acquisition cap rates eventually “catch up” to the rise in cost of capital. Strong balance sheets and lack of variable rate debt exposure have positioned these REITs to be aggressors as over-levered private players seek an exit, but these REITs can afford to wait until the price is right. While many REITs have exhibited prudence by scaling back the pace of acquisitions in response to these dislocations, others have been perhaps overly aggressive in their recent acquisitions – often paying “top dollar” with razor-thin investment margins – while a handful of others have initiated seemingly impulsive pivots, potentially discarding decades of hard-fought progress. We continue to see the best value in net lease REITs that focus on “middle-market” tenants and the middle-tier of cap rates where inflation-hedging lease structures and initial yields grant more breathing room for higher financing costs.
For Net Lease REITs, It’s Business As Usual
Acquisition-fueled external growth has historically been the “bread and butter” of the net lease sector’s strategy, explaining the vast majority of the sector’s FFO (“Funds From Operations”) growth over the last two decades. Despite narrower investment spreads resulting from the significant increase in benchmark interest rates over the past year, net lease REITs completed $4B in property purchases in the second quarter, raising their twelve-month haul to over $14B. Notably, while net lease REITs account for just 7% of the Equity REIT Index – they accounted for nearly 50% of total REIT acquisitions so far in 2023. Surprisingly, three of the four largest net lease REITs – Realty Income (O), Agree Realty (ADC), and NNN REIT (NNN) actually raised their full-year acquisition targets in the most recent quarter, taking a surprising “business as usual” approach that could prove costly if rates remain elevated.
Curiously, private market real estate valuations of net lease properties have been far “stickier” than other comparable public market assets, underscoring our sense that net lease REIT investors, executives, and asset owners have seemingly never bought into the idea of a “new normal” of sustained higher interest rates. As noted in our Earnings Recap, net lease REIT acquisition cap rates increased 60 basis points from last year to roughly 7.4% in Q2, during which time benchmark financing rates (as implied by the BBB Corporate Bond Yield a useful proxy to approximate a Net Lease REITs’ long-term cost of capital) increased by over 100 bps. The compression in investment spreads is more significant when compared to the prior year: since Q2 2021, net lease REIT acquisition cap rates have increased by 60 basis points, during which time the BBB Corporate Bond Yield has increased by 325 basis points.
One such acquisition that may look particularly dubious if we’ve indeed entered a “higher for longer” period of sustained mid-single-digit benchmark rates is Realty Income’s deal to acquire a 22% stake in The Bellagio casino from Blackstone Real Estate in a $950M deal which values the property at $5.1B with an implied capitalization rate of 5.2%. Notably, VICI Properties (VICI) indicated in its earnings call that it had discussed a deal for The Bellagio but determined that the asking price represented a “dilutive yield.” The triple net lease structure with MGM includes 2.0% annual rent escalators for the next six years, with capped CPI-based increases from 2030 through 2050 – a rent escalation that is actually far better than Realty Income’s existing portfolio, which has average rent escalators around 1%. Other net lease REITs have appeared more price-conscious in their recent acquisition strategy. Spirit Realty, for instance, noted that its average acquisition cap rate climbed to 8.0% in Q2 – up 160 basis points from last year. Broadstone, meanwhile, reported that its acquisition cap rate climbed to 7.3% in Q2, up 90 basis points from last year and 160 basis points from the lows in Q1 2022.
The overall “business as usual” approach had been working just fine for the past several quarters, but the resurgence in interest rates has raised fresh questions about the ability to finance some of these recent acquisitions at accretive spreads. Six of the ten net lease REITs that provide guidance raised their full-year FFO outlook in the second quarter, as strong underlying retail performance has helped to offset this more challenging acquisition and financing environment. Upside standouts on the earnings front included NETSTREIT (NTST), which raised its full-year FFO outlook to 4.7% (up 130 basis points from last quarter), and Essential Properties (EPRT), which raised its full-year FFO growth outlook by 100 basis points to 6.9%. Four other net lease REITs raised their full-year outlook – NNN REIT, Spirit Realty (SRC), Realty Income, and Getty Realty (GTY) – which lifted the sector’s average full-year FFO growth target to 0.1% – which would be a decent showing if achieved after two years of double-digit FFO growth.
Diving deeper into recent earnings results, Spirit Realty was notably able to raise its FFO target despite bucking the trend from its larger peers by trimming its full-year net acquisitions target to 400M from $450M. The only other net lease REIT to scale back its acquisition target in 2023 was Alpine Income (PINE). Among the nine REITs that provide full-year acquisition guidance, these REITs still expect to acquire over $13B in assets this year, led by the aforementioned Realty Income at $7B, followed by W. P. Carey at 1.65B, Agree Realty at $1.3B, and National Retail and NETSTREIT at roughly $500M each. One notable comment in recent earnings commentary came from ADC, which stated that it observed a “lack of competition amongst both public and private buyers” at the prices it was willing to pay, consistent with our concern that some net lease REITs are exhibiting a “winners curse” – potentially overpaying for recent property acquisitions.
W. P. Carey (WPC) has been a notable laggard over the past quarter – and has been hit especially hard over the past week following its poorly-received announcement that it will sell the majority of its office assets (16% of its portfolio) aimed at driving a “re-rating” of WPC’s stock price, which has traded at discounted valuations to similar-sized peers net lease and industrial peers. Post-transaction, roughly two-thirds of WPC’s portfolio will be industrial net lease assets, with the bulk of the remainder in net lease retail and self-storage. WPC now trades at a roughly 10x P/FFO – a steep discount to the roughly 15x average P/FFO ascribed to comparable net lease industrial REITs. While we continue to see value in WPC’s underlying portfolio and its best-in-class inflation-hedged lease structure, management has some explaining to do after this botched unveiling in which it appeared surprisingly unprepared, failing to effectively convey the strategic rationale for several abrupt and costly strategy shifts, including an indicated dividend reduction, putting at risk its hard-earned “dividend aristocrat” status.
Described by the company as a “rip off the band-aid” approach, the strategy entails a spin-off of 59 office properties into a new REIT – Net Lease Office Properties – that will be completed by the end of next month – and a sale of 87 remaining European office properties, which it expects to complete by early 2024. Upon completion of the spin-off, WPC stockholders will own shares of NLOP via a pro rata special distribution, which is expected to be taxable for U.S. federal income tax purposes. Met by confusion from analysts given WPC’s relatively solid operating performance in recent quarters – including sector-leading same-store NOI growth – WPC indicated that NLOP would effectively function as a liquidation company with a strategy “focused on realizing value through the strategic asset management and disposition of its assets.” WPC lowered its full-year AFFO guidance to $5.24/share at the midpoint – down from its prior outlook of $5.35 – and introduced plans to “reset” its dividend policy, “targeting an AFFO payout ratio of 70%-75%.” This policy would imply an 11% dividend cut to $3.80/share based on current AFFO guidance, but WPC did not provide forward guidance for post-transaction AFFO levels and provided few specifics on its anticipated use of the proceeds.
Net Lease REIT Stock Performance
Net lease REITs were slammed early in the pandemic – plunging more than 50% at their lows in March 2020 – but began to rebound in mid-2020 and had delivered notable outperformance over the REIT Index through mid-2023 before the renewed pressure from “higher for longer” concerns. The Hoya Capital Net Lease Index – a market-cap weighted index of these 18 REITs – is now lower by nearly 20% this year, significantly lagging the broad-based Vanguard Real Estate ETF (VNQ) – which has dipped 7.5%, and the S&P 500 ETF (SPY) which has posed gains of nearly 12%. The weak performance this year, however, follows a relatively strong year in 2022 in which net lease REITs were the top-performing property sector.
Seventeen of the eighteen net lease REITs are lower on the year. Newly-listed Modiv (MDV) – which went public last year – has been the upside standout, as its transition to focus exclusively on industrial real estate has been far better-received than the similar announcement from W. P. Carey. Movie theater owner EPR Properties (EPR) is the only other net lease REIT in positive-territory this year amid a recovery in movie theater attendance and after reporting progress in lease renegotiations among several struggling theater operators. Laggards this year include Safehold (SAFE) – the lone REIT focused specifically on ground leases – which dipped more than 60% in 2022 – and has declined another 35% this year on concerns over the outlook for its ultra-low yielding ground lease portfolio in a higher rate environment. Other laggards this year include Gladstone Commercial – which became the first net lease REIT over the past two years to reduce its dividend, and W. P. Carey – which signaled that it’ll become the second.
We’ve also seen some M&A activity in the net lease space this year. Global Net Lease (GNL) and Necessity Retail – a pair of externally managed REITs advised by AR Global – completed a merger that included the internalization of both GNL’s and RTL’s management. Shares of RTL have ceased trading on the Nasdaq. As part of the merger, GNL noted that it plans to reduce its quarterly dividend by 12% to $0.354 per share. Management cited the benefits of improved scale, reduced leverage, and operating efficiencies, noting that the combined company would own roughly 1,350 properties with an aggregate enterprise value of $9.5B – making it one of the eight largest net lease REITs by asset value. The deal follows a heated proxy battle led by activist firm Blackwells Capital, and proxy advisory firms ISS and Glass Lewis each recommended that shareholders withhold support for several of AR Global’s directors and raised questions over the firms’ corporate governance practices.
Speaking of REITs with a history of questionable corporate governance practices, Peakstone Realty Trust (PKST) – formerly known as Griffin Realty Trust – began trading on NYSE earlier this year through a direct listing, and the early-goings have not been pretty. PKST currently trades at more than 50% below its self-reported Net Asset Value before the listing. Peakstone is a net lease office and industrial REIT that owns 78 properties across 24 states. Roughly 70% of PKST’s Net Operating Income (“NOI”) is derived from its portfolio of 55 office properties, while 30% of NOI comes from its portfolio of 23 industrial properties. Griffin Real Estate advises a collection of non-traded REITs and closed-end funds and has faced several lawsuits over its suspension of share redemptions and NAV valuations.
Net Lease REIT Dividend Yields
Relatively high dividend yields are one of the key investment features of the net lease REIT sector, and the resilience in maintaining or increasing dividends has helped to push dividend yields toward the top of the REIT sector. Net lease REITs now pay an average dividend yield of 6.6%, a premium of 240 basis points over the broader market-cap-weighted REIT average of 4.2%. Net lease REITs pay out roughly 75% of their free cash flow, also towards the top end of the REIT sector average, but typically make heavy use of secondary equity offerings to raise capital to fund accretive external growth.
Seven net lease REITs have raised their dividend this year, led by Realty Income – the largest net lease REIT – which has hiked its monthly dividend by four times this year, representing a 3.2% year-over-year increase. Of note, a half-dozen of these REITs have delivered consistent dividend growth over the past half-decade, led by Getty Realty, Four Corners, STORE Capital, Agree Realty, and Realty Income. Ten net lease REITs are currently paying a dividend yield above 7%, led on the upside by externally managed Global Net Lease and small-cap Generation Income (GIPR), which each command a dividend yield above 12%.
Net Lease REIT Credit Risk
At the outset of the pandemic, investors were painfully reminded of the potential credit risk faced by net lease REITs amid a wave of economic lockdowns and uncollected rents – a focus that has been renewed given the lingering recession concerns. While the triple-net lease structure has provided a strong degree of protection for most segments, some tenants in several heavily disrupted categories including movie theaters, offices, and some specialty retail segments still face an uncertain future, underscored by the recent bankruptcies of Bed Bath Beyond and Party City.
At a high-level, U.S. retail fundamentals are as solid as they’ve been in a half-decade. Coresight Research reported that the number of store openings had outpaced closings by nearly 2x since early 2021 with particular strength in larger-format ‘big box’ strip centers along with free-standing retail. After surging to around 10,000 in both 2019 and 2020, just 5,000 retail stores shut down in 2021 while only 2,600 closed in 2022 – the lowest level of store closings on record. In our Earnings Recap, we noted that occupancy rates at Strip Centers are now at record-highs while Mall occupancy rates have recovered the majority of their pandemic-era declines.
The recovery is significantly less certain for movie theaters, which represent roughly 5% of overall net lease NOI – but are the primary property type for EPR Properties. Box Office Mojo data shows that box office revenue plunged 80% in 2020 and has remained about 15% below 2019 levels thus far in 2023. A handful of other net lease REITs have between 1.5-5% of their rents coming from movie theater tenants, but these REITs have not seen a material uptick in missed rents from these theater tenants despite the apparent distress. Of note, EPR announced earlier this year that it reached a comprehensive lease restructuring deal with struggling movie theater operator Regal Cinemas which includes a new master lease for 41 of the 57 properties and the termination of operations at 16 properties. EPR expects the deal to achieve 96% of total pre-bankruptcy rent in 2024 if certain performance-based thresholds are fully met. The restructured deal will be anchored by a new master lease for 41 properties, a triple-net lease with $65 million in total annual fixed rent, which will escalate by 10% every five years.
Takeaway: Don’t Fight the Fed
Net Lease REITs – one of the most “bond-like” and interest-rate-sensitive property sectors – have lagged in recent months as investors come to grips with a potential “higher-for-longer” interest rate environment. Thriving in the “lower forever” environment, the industry had been reluctant to acknowledge the higher-rate regime, keeping private-market values and cap rates surprisingly “sticky” and resulting in compressed investment spreads. Despite the tighter spreads, acquisition activity has slowed only modestly for some REITs, a strategy that could prove costly if rates remain elevated. Strong balance sheets and limited variable rate debt exposure had afforded these REITs the ability to be patient until the price is right, and while some REITs have exhibited prudence, others have been overly aggressive, seemingly putting at risk decades of hard-fought progress. Don’t Fight the Fed: We see the best value in net lease REITs that focus on “middle-market” tenants and the middle-tier of cap rates where inflation-hedging lease structures and initial yields grant more breathing room for higher financing costs.
For an in-depth analysis of all real estate sectors, check out all of our quarterly reports: Apartments, Homebuilders, Manufactured Housing, Student Housing, Single-Family Rentals, Cell Towers, Casinos, Industrial, Data Center, Malls, Healthcare, Net Lease, Shopping Centers, Hotels, Billboards, Office, Farmland, Storage, Timber, Mortgage, and Cannabis.
Disclosure: Hoya Capital Real Estate advises two Exchange-Traded Funds listed on the NYSE. In addition to any long positions listed below, Hoya Capital is long all components in the Hoya Capital Housing 100 Index and in the Hoya Capital High Dividend Yield Index. Index definitions and a complete list of holdings are available on our website.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.