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His new company, Los Angeles Apparel, was launched late last year as a wholesale business—just like American Apparel’s origins in 1989—selling blank basics such as T-shirts and sweatshirts.

(Bloomberg)—Dov Charney’s warehouse for his new company sits on a desolate street in South Central Los Angeles, about four miles south of American Apparel’s former downtown headquarters. He stands inside looking ragged under a few days of stubble, dressed in a white short-sleeve polo shirt, white pants, and white sneakers. It’s uncanny he’s here at all. Since his ouster from American Apparel in 2014 and subsequent failure to buy back the company he founded, Charney has repeatedly vowed with all of his old, oozing certitude that he would start all over again if he had to. It would be a company just like American Apparel—only better.

But American Apparel’s 2015 bankruptcy wiped out most of his net worth, so where would he get the money? Didn’t his tawdry past of sexual harassment allegations make him radioactive? And shouldn’t American Apparel’s collapse prove that making clothes in the U.S. is a fool’s errand?

Yet here he is, at 48, overseeing a startup with seamstresses and fabric cutters and boxes of T-shirts waiting to be shipped across the country. He’s on, he’s riffing, he’s explaining the benefits of immigration, he’s envisioning a company that will someday hit $1 billion in revenue. (American Apparel topped out at $634 million in 2013.) “We’re building, grooving, growing,” Charney says.

“South Central is a great brand”

His new company, Los Angeles Apparel, was launched late last year as a wholesale business—just like American Apparel’s origins in 1989—selling blank basics such as T-shirts and sweatshirts. As he walks through a production floor humming with dozens of sewing machines, taking phone calls and answering questions from underlings, Charney lays out his comeback plan.

“We had six sewing machines, then 12 machines. It was a nail-biter,” Charney says. “It still is a nail-biter. That’s part of the chills and thrills of starting up a business. You’re always on edge, but I love it. The workers are happy. It’s exciting. We want to prove something.”

This new venture can fill the hole left by American Apparel’s collapse, as Charney sees it, offering the same advantages of his old company. Los Angeles Apparel can fill bulk orders faster than overseas competitors while delivering American-made goods that have cachet with customers. Charney is toying with a tagline that echoes his original company—“Made in South Central” vs. American Apparel’s “Made in Downtown L.A.”—even though the city officially changed the area’s name to South Los Angeles in 2003 to reduce associations with crime and the 1992 Rodney King riots.

“South Central is a great brand, great neighborhood,” Charney says. “L.A. is amazing. You’re in the core of the city and real estate is cheap. The only thing we’re fighting is the marijuana industry is taking over, too. They’re legit, but they need space.”

Even his customers are the same. Bob Winget started buying from American Apparel more than 15 years ago after Charney pitched him on higher-quality, soft-cotton T-shirts as the wave of the future. Winget, the chief executive officer of Cincinnati-based TSC Apparel, eventually bought $50 million of clothing from American Apparel each year. TSC now has a multimillion-dollar business with Los Angeles Apparel, selling the startup’s clothes to concert producer Live Nation Entertainment and screen printers who previously purchased American Apparel.

“We had a lot of customers who loved the brand, so it’s been a pretty easy transition,” Winget says. As for Charney, whom Winget speaks to almost daily: “I told him a lot of people don’t get a second chance. He’s getting one, and he’s determined to make the most of it.”

During his years at American Apparel, Charney constantly courted controversy. The look of the brand in its marketing imagery was almost always provocative, featuring young girls in skimpy outfits or, in one episode that ended up in court, a photo of Woody Allen used without his permission. Charney embodied the sexually free edginess of the brand in his professional life. He conducted relationships with his employees that spilled into the press and culminated in a slew lawsuits and allegations of sexual misconduct, all of which were either dismissed or settled privately.

American Apparel’s board used that and claims he mismanaged the company to fire him three years ago. He tried to regain control by borrowing $20 million from a hedge fund to buy more stock. But that effort failed, and he was wiped out when the company filed for bankruptcy in October 2015.

It took him about a year from the bottom of bankruptcy to restart his renamed but otherwise familiar operation. Charney won’t say how much revenue Los Angeles Apparel is generating, only that he expects to surpass $20 million in annual sales in the next 12 months. He left no more than a vague impression of how much money he’s raised, referring to investors and an asset-backed loan. There are now 350 employees.

“This is moving at a much faster pace,” Charney says, and if compared with American Apparel, “this is year eight.” Adding a consumer brand—much like what American Apparel expanded into, eventually expanding to 280 retail stores—is also in the works.

Charney’s old company isn’t just a ghostly presence and a template as he builds his new one; it has incorporated into every inch of his startup. American Apparel’s liquidation in January, during its second bankruptcy, made starting Los Angeles Apparel much easier. Gildan Activewear bought the company’s intellectual property and kept the American Apparel brand alive by integrating it into its existing wholesale business. TSC Apparel has remained a customer after the brand changed hands, at a much lower level. But Gildan didn’t buy any of the operations out of bankruptcy, freeing Charney to hire laid-off workers and use much of the same supply chain. He also bought a bunch of American Apparel property, including rolls of fabric, piles of computers, and light bulbs. In once instance, Charney says, a worker was randomly given the same sewing machine he used at American Apparel (his carved initials were the giveaway).

Stepping off the production floor into sparse offices reveals another familiar touch. There’s a conference room equipped with a cot, messy sheets, and a pillow. “I live in here, by the way,” Charney says. “I will not leave. This is my bed. This is my room. This is where I sleep.” He once did something similar in his American Apparel years, taking up residence at a malfunctioning distribution center.

All this backs up accounts over the years from people who worked with Charney, that he’s obsessed with his company and sees his personal life and work life as the same. But that blending helped lead to his downfall. So is he going down the same path at Los Angeles Apparel and hooking up with employees?

“That question is private, and it should be private,” Charney says. But is he being more careful this time around? “You always have to be cautious in the lawsuit society that we’re in, you know,” Charney says. “I love the company, and I love the people I work with. We’re very close and we’re holding hands and walking through the fire. We intend to be successful.”

It will be a familiar walk, whatever happens, even down to the building itself. The 60,000-square-foot warehouse space where Charney lives and builds Los Angeles Apparel was previously used by American Apparel.

To contact the author of this story: Matthew Townsend in New York at mtownsend9@bloomberg.net To contact the editor responsible for this story: Aaron Rutkoff at arutkoff@bloomberg.net

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What keeps top student housing pros up at night? These five threats to their businesses.

There are challenges and risks to any business, but student housing comes with a few unique worries. Risks run the gamut from project delays to foreign policy changes and nearly everything in between. Here’s how top firms are managing some of the biggest strains.

The Ticking Clock

The academic calendar will always be the biggest risk for student housing firms to manage. The first day of classes marks a hard and unforgiving deadline for every student housing property. Any bad news or unforeseen snag that hurts the lease-up process could result in empty units that are nearly impossible to fill after the start of the academic year.

“Students all move in at the same time and they all move out at the same time,” says Dave Borsos, vice president for the National Multifamily Housing Council. “You have a narrow window in which to fully lease your property for the year.”

Because empty units equal dollars lost, student housing managers have to make sure that all units are in perfect shape in time for the students to move in. And this is no small feat. Typically, prior year’s leases end on July 31 and new leases for the upcoming academic year start in mid-August. This means that student housing firms often have just two weeks to repair and turn more than half of the beds at their properties.

“The process needs to be carefully planned and managed and is typically outsourced,” says Fred Pierce, president and CEO of Pierce Education Properties.

Missing the mark means not only creating unhappy customers but also risking having even the smallest mistakes broadcast over social media. “A bad turn can not only cost money, but can also impact renewal and leasing the next year,” says Pierce.

The academic calendar also poses a special challenge for new properties that are just finishing construction. “If your new property is not finished when students arrive for the first day of classes… now you have to put those students up in a hotel,” says Bill Feinberg, partner with Feinberg & Associates, a student housing architecture firm. This can be a major inconvenience for residents and end up costing a pretty penny.

The current labor market is making it particularly difficult for developers to manage the calendar. All kinds of skilled workers are hard to find, but framers and drywall workers have been especially scarce. Work crews are smaller than usual, which means the work takes longer to complete. This scarcity often leads to new student housing developments opening weeks, even months later than originally planned.

“What the developer can do is to start construction plenty early, delay a project for an entire year if you can’t start on time and select a general contractor who self-performs sub-trades that are on the critical path schedule like concrete and framing,” says Pierce.

Rising Costs

Going hand in hand with labor shortages and development delays is just a general escalation in the cost of student housing development. Labor and materials costs have risen, but the escalation in land prices has been particularly noteworthy.

“Getting sites is harder and harder to do in some of the major metro areas,” says Russell Berusch, president of Berusch Development Partners. “The cost of acquiring those sites is not feasible unless charge a certain amount and get to a certain scale.”

Further adding to the costs are higher-end finishes and amenities. To stay competitive in a crowded market, developers often pile on extra amenities into their new construction projects to attract residents. “You have your own bedroom and laundry in the suite, a kitchen with granite countertops and a yoga studio within walking distance,” says Berusch. “All these things add to the cost structure.”

Parking is another moving target. Too few spaces can lead to unhappy residents, but too many spells planning and programming inefficiencies. Moreover, a community with too many parking spaces may be left with a massive, concrete structure that can’t be used for much of anything else as students continue to transition to alternative transportation like bicycles and ride sharing services. Some companies are mitigating this risk by contracting with nearby parking garages rather than investing in on-site parking.

Demand Shocks

In addition to the usual worries about small markets and overbuilding, managers also worry about demand shocks that might affect enrollment numbers. The rising cost of higher education, the growth in online learning and shrinking school endowments and budgets are all areas of concern.

However, more recently, student housing executives have also begun to see vulnerabilities exposed by possible foreign policy and immigration changes. In recent years, many schools have benefited from foreign students strong interest in an American education. In fact, foreign student enrollments hit a high-water mark in 2015.

Changes to key policies could affect how many foreign students decide to attend U.S. universities, putting a crimp on a big source of demand for privately held student housing properties. Some sources indicate that this change is already beginning to occur, with fewer foreign students apply to U.S. colleges

“As the U.S.-China policy might change and relationships in the Middle East might change, that could affect the enrollment of students who come from other countries,” says Berusch.

Safety Concerns

Student housing providers take responsibility for the physical safety of their residents. New student housing communities feature smart security technologies like controlled-access elevators that only operate for residents. “You can’t make the elevator move if you don’t have that key fob,” says Feinberg.

Managers also educate their residents to be careful with the smart phones, tablets and laptop computers that many students carry around with them. “If residents leave valuable electronic devices in their cars and in easily visible locations, they dramatically increase the likelihood of theft,” says Pierce.

Other safety considerations are being worked into student housing plans from the get-go. The increasing popularity of mixed-use and town center development means a lot of blurring between public and private space. As a result, student housing planners and designers are think about new safety considerations. For example, outdoor dining areas are now bound by concrete bollards that could stop a swerving car.

Feinberg said he also designed a clock tower at one student housing property that is secured to prevent trespassers. “We used a security hatch that we would use in a prison,” says Feinberg. “The last thing we need is for someone to climb up there.”

Cyber Threats

Student housing companies have a lot of valuable data stored on their computer systems—and that information is vulnerable to hackers. A company’s proprietary corporate information is just the beginning. Company systems are also packed with employee information, vendor accounts, sensitive financial records and confidential resident information.

Student housing companies like Asset Campus Housing (ACH) are getting super serious about protecting their data, creating their own encryption systems to secure their data and constantly updating the systems to keep up with hackers’ ever growing ability to break in.

ACH also pays careful attention to the humans who operate the systems, to make sure they don’t take shortcuts around cyber security procedures. “We also know how important it is to properly train staff on safe cyber-security practices,” says Julie Bonnin, chief operating officer for ACH. “For example, we limit the installation of new software on company computers and regularly back up data.”

Here are some takeaways from the event, which focused on the multifamily and housing sectors.

More than 10,000 building industry professionals attended the 2017 annual Pacific Coast Builders Conference (PCBC) in San Diego on June 27-29. The three conference tracks included the Land & Capital Forum; Multifamily Trends and Re-Think, which featured some unconventional speakers, such as futurists and human rights activists, to inspire attendees with “blue sky’ thinking.

Here are some takeaways from the event:

• When it comes to investment in the multifamily sector, equity capital is more plentiful than ever before, according to Shlomi Ronen, managing principal and founder of Dekel Capital, a Los Angeles-based real estate merchant bank. The fundamental challenge in today’s market has to do with declining yields and risk concerns due to flattening rents and rising construction costs.
• As rates rise, lenders are requiring more equity, Ronen noted. For developers, interest rates are currently secondary to equity requirements when shopping for the right lender. Ronen also noted that more and more developers like secondary markets, because of the high volume of supply under construction or planned in core urban markets.
• Selection of attractive suburban markets for new projects is all about mass transit access, as well as finding opportunities that pencil out, according to Mark J. Forbes, executive vice president of real estate banking with City National Bank. Despite the slight slowdown in the multifamily market, underwriting criteria or how lenders mitigate risk has not changed at all, he said. Lenders need to be comfortable with a market.
• When contemplating new projects, multifamily developers need to consider what the market will look like when the project is completed 24 months down the road, with an eye on rent growth and new deliveries, as well as the availability of sufficient labor to bring the project in on time, noted William Chiles, executive vice president with real estate services firm CBRE.
• This is still a very good time for the multifamily sector in general, as there is a lot of growth ahead, according to Kim Edwards, senior vice president with J.P. Morgan Real Estate Banking. While finding the right opportunities for new development will be a challenge, long-term growth in occupancy rates is projected.
• When it comes to investing in affordable housing and housing for middle-income renters, the cost of land is the biggest challenge, since land prices in areas zoned for multifamily development often necessitate the creation of luxury properties, said R. Scot Sellers, former CEO of Archstone-Smith Trust, one of the largest developers and operators of apartment communities in the United States. The time it takes to rezone areas with more affordable land for multifamily use is another obstacle.
• Recent demand for apartments no longer comes predominantly from 20- to 34-year-olds, according to Ron Witten, founder of Witten Advisors LLC, a multifamily market advisory firm. A long-term increase in the propensity to rent instead of buy now includes all age groups under 65.
• Leasing the retail component of mixed-use projects first helps in leasing up the multifamily units, as it creates a “destination” feeling for prospective residents, noted Kimberly Byrum, principal, advisory, with Meyers Research. However, it is best to separate stores that require loading docks, such grocers, from other types of retailers.
• Multifamily units in mixed-use projects don’t necessarily outperform the market in rent growth, according to Byrum, but research suggests that they stimulate rent growth for the overall neighborhood.A walkable environment tips the rent scales by $100 to $125 per month. It also produces higher yields.
• Byrum cited a survey of desirable qualities in mixed-use developments that found respondents’ priorities ranked in the following order: retail, entertainment, pedestrian and bike trails, grocer or organic grocer and programmed park. The survey also revealed the best retail tenants for mixed-use projects from a lifestyle point of view are: (1) grocer (2) restaurants (3) neighborhood services (4) theater and (5) soft goods. All survey participants wanted separate elevators for multifamily and office uses and separate parking for the retail component.
• Today, more and more non-traditional uses are going into mixed-use projects, including museums and conference centers, according to Jonathan Cox, senior vice president at AvalonBay Communities, a publicly-traded multifamily REIT.
• If there is too much retail on the ground floor of a mixed-use project, it may sit empty for years, so the location of the project matters when deciding whether to include retail, Cox noted. It must be in an urban, pedestrian-oriented location. Projects suffer when the retail component is a dead space, Cox said.

Janet Yellen promises a few gradual interest rate increases, according to Fortune. The Wall Street Journal looks at the slowdown in the self-storage sector. These are among today’s must reads from around the commercial real estate industry.

1.  Fed Chair Janet Yellen: Expect Gradual Rate Increases “The United States is healthy enough to absorb further gradual rate increases and the slow wind down of the massive bond portfolio accumulated by the Federal Reserve during the financial crisis, Fed Chair Janet Yellen said in prepared testimony to be delivered to Congress Wednesday morning. The Fed ‘continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time,’ Yellen said, while reductions in the Fed’s more than $4 trillion in securities are likely to begin ‘this year.’” (Fortune)
2. Office Sharing Start-Up WeWork Gets $760 Million in New Cash “Start-up WeWork has raised about $760 million of new funding, according to filings with the Delaware Department of State. The company’s valuation now stands at $20 billion, unnamed sources told Forbes, which previously reported the funding round. That would be higher than the $16.9 billion valuation last estimated by CB Insights. WeWork declined to comment on the filing.” (CNBC)
3. City Fines Landlords Who Report Airbnb Violations “In its running battle to stem the tide of illegal Airbnb listings, City Hall has been alienating a powerful ally: landlords. Building owners often have detailed knowledge of what is happening at their properties, information they might be happy to share with the de Blasio administration as it seeks to oust problematic tenants who operate de facto hotels out of their apartments. But several landlords who have reported illegal home sharing to the Mayor’s Office of Special Enforcement have themselves been slapped with violations.” (Crain’s New York Business)
4. Building Boom in Boston Casts Shadows on History and Public Space “Boston is riding the crest of what city officials say is the biggest building boom in its history, with cranes lifting glassy towers into place and raising the city’s unassuming profile. The surge of construction is also plunging some of its most cherished sites into deepening shadow, testing state laws that have long balanced economic development with protection of sunlight and open space.” (The New York Times)
5. The 10 Best Cities for Millennials in 2017 “If you’re a millennial thinking about moving to a new city, you’re likely mulling over its job market, cost of living and tendency for sunny days. But perhaps you’re also considering whether a city has a vibrant, diverse community. Niche, a website that ranks schools and neighborhoods, released its annual list of the best cities for millennials. The list puts an emphasis on how many bars, coffee shops and restaurants are accessible to a city’s residents — these factors make up nearly 40% of the ranking.” (Forbes)
6. Self-Storage Boom Shows Signs of a Slowdown “After decades of growth, the self-storage industry is poised for a slowdown, according to real-estate research firm Green Street Advisors. The category has enjoyed massive expansion as more Americans seek out places to keep their stuff. In all, 8% of the U.S. population now uses a facility, up from 3% in the 1980s.” (Wall Street Journal, subscription required)
7. Real Estate Venture Firm Fifth Wall Launches an Early Stage Accelerator “For the firm’s co-founder and co-managing partner Brendan Wallace, the accelerator is an opportunity to reach out to companies when the firm’s input can make more of a difference. Because the company’s backers include some of the nation’s largest real-estate and construction firms, Fifth Wall has deep insights into which types of technologies will be most interesting to the industry and can play the role of kingmaker, according to Wallace.” (TechCrunch)
8. Gymboree’s Bankruptcy Means Closing 350 Stores “The San Francisco-based company said Tuesday that it’s mostly closing Gymboree and Crazy 8 stores. It also operates Janie and Jack stores. The company will have more than 900 locations after the stores are shut down. Gymboree filed for bankruptcy protection in June. Traditional retailers have been struggling to deal with strong competition from online companies and slowing mall traffic.” (CBS News)
9. U.S. Office Vacancy Rates Remain Unchanged in Mid-2017 “According to CBRE, vacant office space in the U.S. remained unchanged during the second quarter of 2017 at 13 percent. The steady performance was attributable to a balance of supply and demand. The vacancy rate in suburban markets increased by 10 bps, to 14.3 percent, while downtown vacancy remained steady at 10.7 percent. Vacancy continued to fall in an about half of the U.S. office markets, and the national office vacancy rate remains near its post-recession low.” (World Property Journal)
10. Kushner (the Musical) on Ice “It’s not just intelligence investigators who want to know more about Kushner’s involvement in his family’s company and its latest dealings. Last month, members of the House and Senate Judiciary Committees penned a nine-page letter to Kushner Companies President Laurent Morali, asking for detailed information on how the company raises money for projects through the controversial EB-5 visa program and how it touts its connections to the White House to potential investors.” (The Real Deal)

When CrediFi mapped the locations of Amazon and Whole Foods properties, along with Amazon Prime Now locations, we found a lot of overlap.

On the heels of Amazon’s recently announced acquisition of Whole Foods for $13.7 billion, owners and lenders of Whole Foods-anchored properties are waiting along with the rest of the world to see just what Amazon will do with the latest purchase the e-commerce giant has placed in its shopping cart.

The addition of hundreds of new properties, largely in upmarket urban areas, looks like a win for Amazon. The deal could potentially help Amazon store food and other goods, deliver those goods along the last mile to the customer’s doorstep and provide brick-and-mortar sites for customers to perform that last-mile delivery themselves by picking up the products they’ve either bought in the store or ordered online.

The impact on Whole Foods seems a little less clear, however. Will its identity disappear? Will the value of Whole Foods retail properties go up or down?

On the plus side, the Whole Foods stock price jumped from $33.06 per share to $41.99 per share on news of the acquisition, ending June at $42.11 per share. But when CrediFi mapped the locations of Amazon and Whole Foods properties, along with Amazon Prime Now locations, we found a lot of overlap, especially on the East and West coasts, in Texas and parts of the Midwest and South from Chicago eastward. It’s possible Amazon may decide it doesn’t need quite so many brick-and-mortar sites and could ultimately shut down some stores.

This means Whole Foods lenders and owners may stand to benefit from the acquisition—or they may be susceptible to store closures.

Whether the asparagus water turns out bitter or sweet, Whole Foods lenders and owners (and in some cases, CMBS investors) could be exposed to some degree of risk. CrediFi takes a look at select Whole Foods and Amazon properties in four cities to see who might face exposure.

Cupertino, Calif.

Not only the site of Apple headquarters and a part of Silicon Valley, Cupertino is now also the site of the circular Apple Park, the 2.8 million-sq.-ft. “spaceship” mega-campus that reportedly cost $5 billion to build and will serve as an office with a curved glass surface (and two-story yoga room covered in stone from a quarry in Kansas) for 13,000 employees by the end of the year.

Cupertino’s relatively new downtown also houses a Whole Foods store at 20955 Stevens Creek Blvd., near the Vallco Shopping Center and several other restaurants and stores.

The Whole Foods was financed by a $19.25 million loan issued by French corporate and investment bank Natixis in 2014 and assigned to a commercial mortgage-backed security, Wells Fargo Commercial Mortgage Trust 2015-NXS1.

With a growing population that seems to match that of the target Whole Foods consumer, Cupertino seems a likely location for existing Whole Foods stores to thrive. That could include the one on Stevens Creek Boulevard, as well as five other stores less than 10 miles away.

And Amazon could use the Whole Foods location to supplement the delivery or pick-up service facilitated by its 234,000-sq.-ft. fulfillment center about 30 minutes away, at 38811 Cherry St. in Newark, Calif.

Chicago

Just a few blocks from Wrigley Field, a Whole Foods store anchors the Center on Halsted, an LGBTQ community center at 3640 N Halsted St. in Chicago’s Lakeview neighborhood.

The property is financed by an $18.8 million loan originated by Royal Bank of Scotland in 2012 and securitized in WFRBS Commercial Mortgage Trust 2012-C6. It was reportedly purchased by Chicago-based real estate firm Syndicated Equities in 2008 for about $28.1 million, and has electric car charging stations at the parking level.

This Whole Foods location could help Amazon connect its products with its customers in the Chicago area, which is also served by a fulfillment center at 1125 Remington Blvd., about 50 minutes away in Romeoville, Ill.

Charlottesville, Va.

The Whole Foods at 1797 Hydraulic Rd. sits at the intersection of routes 29 and 250 in Charlottesville, Va., near several supermarkets, restaurants and hotels and about 90 minutes from an Amazon fulfillment center at 1901 Meadowville Technology Parkway in Chester, Va.

Citigroup Global Markets issued a $9.35 billion acquisition loan for the Hydraulic Road property in 2011. It was later securitized in GS Mortgage Securities Trust 2011 GC-5.

Cambridge, Mass.

In Cambridge, Massachusetts, Whole Foods occupies a 14,000-sq.-ft. property at 340 River St., near the Charles River.

Built in 2000, the property was acquired by New York-based REIT Acadia Realty Trust for $6.67 million in 2012, when it received $4.25 million in financing from Bank of America. It could potentially supplement the Amazon sort center at 1000 Technology Center Dr. in Stoughton, Mass., about 20 minutes away.

Cupertino, Chicago, Charlottesville and Cambridge are only a few of the cities around the country to have an overlap of Amazon and Whole Foods properties. Like the rest of us, the lenders and owners behind them will have to wait and see whether or not those properties will become thriving members of the Amazon empire or face shutdown because of overlap.

Ely Razin is CEO of CrediFi, a big data platform serving the commercial real estate finance market. He can be reached at ceo@credifi.com.

For now, a near-term revival of Albertsons’ scuttled listing attempt is off the table.

(Bloomberg)—Add Albertsons Cos. to the growing list of companies haunted by the specter of Amazon.com Inc.’s takeover of Whole Foods Market Inc.

Almost two years after the grocer postponed its initial public offering, Albertsons’ management and its private equity backers have put renewed plans for a listing on hold again, according to people familiar with the matter. Its own failed courtship with Whole Foods and Blue Apron Inc.’s weak IPO performance have further complicated options for a company already struggling with negative same-store sales amid a cutthroat grocery price war.

In the months before Amazon’s game-changing $13.7 billion takeover of Whole Foods was announced on June 16, Albertsons had been considering reviving its IPO plans and going public by the end of the year, the people said, asking not to be identified because the details are private. If the company had pursued that route, it was planning to relaunch with a narrower price range and go straight to investors that showed interest in the deal in 2015, the people said.

Albertsons has also continued to update its quarterly financial results in amended filings with the U.S. Securities and Exchange Commission, a sign industry watchers say indicates the company’s IPO plans may not be iced forever. The last filing was made on May 11.

For now, a near-term revival of Albertsons’ scuttled listing attempt is off the table, said the people. Slipping financials as well as the poor stock performance of its closest peer, Kroger Co., has left stakeholders convinced that the company won’t get close to the valuation of as much as $12.4 billion that it targeted in 2015, based on the number of shares outstanding after the offering, they said.

Albertsons is backed by private equity firm  Cerberus Capital Management, which first invested in the grocer in 2006 and has grown it through acquisitions, including a $9.2 billion deal for Safeway Inc. that was announced in 2014. Buyout firms pool money from investors with a mandate to buy companies within five to six years, then sell them and return the money with a profit. The firms typically seek to more than double their money per investment, holding each company for three to five years.

Cerberus is constantly evaluating monetization options as well as market conditions and dynamics to determine the best outcome for its investors, the firm said in an emailed statement.

Representatives for Albertsons declined to comment.

Whole Foods, Sprouts

A viable merger opportunity may yet materialize, though options in the grocery industry are narrowing. Albertsons was spurned in its attempt to negotiate a deal for Whole Foods through April and May, while the organic grocer was also in talks with its eventual buyer Amazon. As recently as March the Boise, Idaho-based company discussed a merger with Sprouts Farmers Market Inc. that would involve taking the organic grocer private, people familiar with the matter said at the time.

Buying Sprouts would give Albertsons expertise on perishables and natural foods that could be applied across its chains, according to Bloomberg Intelligence analyst Jennifer Bartashus.

During its ownership, New York-based Cerberus has already proved it’s willing to pursue big deals: Albertsons took on debt of more than $6 billion to acquire Safeway, giving it 2,000 stores and creating the second-biggest supermarket chain in the U.S. behind Kroger.

Albertsons has already been facing sustained pressure from existing competitors. Wal-Mart Stores Inc. and discount chains like Lidl Ltd. have been luring customers with ultra-low prices, while grocery chains like Publix Super Markets Inc. are focusing on quality of their food offerings to compete.

Albertsons’ overall same-store sales turned negative in fiscal 2016, with the Safeway-branded stores declining 3.7 percent in the last quarter of the year, according to a company filing.

To convince potential investors of its growth prospects in its 2015 IPO roadshow, Albertsons pitched plans to expand its natural and organic foods offerings. Now, the looming Amazon-Whole Foods tie-up squelches confidence in those hopes.

“Nobody really knows exactly what Amazon is going to do, but you’re already dealing with a hyper-competitive space where margins are pretty thin,” said John McClain, a high-yield bond manager at Diamond Hill Capital Management.

Indefinitely Postponed

It’s not the first time an unexpected shock in the grocery industry has scuttled Albertsons’ listing plans. The day the grocer was first supposed to price shares in November 2015, Wal-Mart released a profit forecast that sent the company’s stock into the biggest decline in more than 27 years. Albertsons at first delayed its IPO to give it time to reassure potential investors, but ended up postponing the listing indefinitely.

While the company wasn’t as far down the road to an IPO this time, the effects of the Whole Foods deal were still immediately felt. Albertsons’ debt plunged after the acquisition was announced, with an 8.5-year junk bond sold last year dropping as low as 91.75 cents on the dollar, from about par. The debt has since recouped some of its losses, but is still trading well below its pre-deal levels. The company’s loans have also declined.

Last week, Albertsons canceled a plan to repurchase $500 million of bonds, saying it hadn’t been able to satisfy financing requirements. The company announced the buyback before the Whole Foods deal was announced and said it would need to issue new debt to fund it.

Investors are hardly smiling on grocery stocks. Kroger, Supervalu Inc. and Weis Markets Inc. lost huge chunks of their market value the day Amazon’s blockbuster move was announced, while Blue Apron — the only food-related company to attempt an IPO in the U.S. in the intervening weeks — priced well below its targeted valuation. The meal-kit delivery company is now trading down from its reduced IPO price of $10 at as low as $7.45.

Blue Apron tried to counter the looming Amazon-Whole Foods deal on its IPO roadshow by playing up the uniqueness of its product offering and its growth potential, people familiar with the matter said last month. Investors didn’t buy it. Albertsons, meanwhile, is struggling to stand out in a crowded industry that is bracing for a major push by Amazon.

“They don’t have a shot,” said Roger Davidson, a former grocery executive and president of industry consultancy Oakton Advisory Group. “Traditional grocery is fading fast.”

–With assistance from Claire Boston and Melissa Mittelman.To contact the reporters on this story: Alex Barinka in New York at abarinka2@bloomberg.net; Craig Giammona in New York at cgiammona@bloomberg.net To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net ;Nick Turner at nturner7@bloomberg.net Michael Hytha

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© 2017 Bloomberg L.P

The expansion comes amid growing demand for Knotel’s niche in the shared-office market: companies that have 50 to 200 employees.

(Bloomberg)—Startup  Knotel Inc. is planning to more than triple its office space in New York by the end of the year in an effort to approach the omnipresence of WeWork Cos., the city’s dominant name in shared workplaces.

The expansion comes amid growing demand for Knotel’s niche in the shared-office market: companies that have 50 to 200 employees — too big for the typical co-working environment — that want their own turnkey offices and aren’t ready to commit to the kind of fixed-term leases landlords typically demand.

“We serve bigger companies than co-working does,” said Amol Sarva, Knotel’s co-founder and chief executive officer. “Companies prefer to use a service like ours than to sign leases, and, on the other side, ownership is finding it uneconomical to serve short-term company leases. Owners are facing customers these days who don’t want to sign five- or even three-year leases.”

By the end of this year, Knotel expects to have about 50 locations in New York, at least 45 of them in Manhattan, Sarva said. It has 14 now, and will have 20 by the end of this month, with about 400,000 square feet (37,000 square meters) of space. Knotel, founded almost two years ago, expects to have about 1 million square feet under lease at the end of 2017, which would make it the third-largest provider of temporary offices in the city, behind WeWork and Regus Plc, the world’s biggest flexible-office company.

WeWork, founded in 2010, has become the world’s largest co-working startup, with a global presence. The company, valued at more than $17 billion, has 3.1 million square feet in the New York area, and will have 3.8 million square feet by the end of the year, according to CoStar Group Inc., a Washington-based real estate research firm. Regus, which has 1.49 million square feet in the area, will grow to 1.52 million square feet by year’s end.

‘Really Small’

New York is underserved when it comes to office space without long-term leases, with room for many players, Sarva said. WeWork is “really small compared to the office market. New York is 450 million square feet of offices, and those guys are 1 percent or less. London is really the headquarters for it.”

In central London, co-working and flexible-office providers just surpassed banks and technology companies as the biggest source of office demand. Such companies leased a record 884,000 square feet in the first half of the year, or 18.3 percent of the the market, according to brokerage Cushman & Wakefield Inc.

WeWork has been expanding the universe of people it serves, offering its design services to established traditional companies that want to rebuild their offices in the company’s open, collaborative style. In April, it made a deal to manage an entire 10-story, 87,000-square-foot Greenwich Village building for  International Business Machines Corp., and it has offered memberships to companies of all sizes to have their employees use the space.

Dominic McMullan, a WeWork spokesman, said he had no comment on Knotel’s expansion plans.

Knotel isn’t alone among WeWork competitors expanding in New York. On Monday, Chinese company UrWork announced a partnership with co-working startup Serenity Labs Inc. that will open a 34,000-square-foot location at 28 Liberty St. in lower Manhattan, the former Chase Manhattan Building.

Flatiron, Brooklyn

Among recent additions to Knotel’s offices are three locations in the Flatiron District, one in Hudson Square and one in the Gowanus section of Brooklyn. Sarva said the company expects to announce more locations in Flatiron, Chelsea, the Village, Soho, the Financial District and the neighborhood north of Madison Square known as NoMad. The company typically rents 25,000 to 50,000 square feet per location.

William Rudin, chief executive officer of New York landlord Rudin Management Co., said his company has showed space to Knotel.

“It is a different model than WeWork,” he said. “It’s very smart of them. This just adds to the offerings that tenants are looking for today, in terms of more flexibility. I’m not saying WeWork doesn’t do that, but this is the only thing they do.”

One place Knotel will probably not go to, at least for now, is Dock 72, the ground-up office development at the Brooklyn Navy Yard that Rudin is building along with Boston Properties Inc. — and where WeWork is the anchor tenant. Sarva said the company is more interested right now in building up its critical mass in Manhattan. The company will have 10 locations just between 14th and 31st streets in Manhattan, he said.

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net Christine Maurus

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© 2017 Bloomberg L.P

Forbes looks at the relationship between REITs and interest rates. Leasing out federal land could be a lucrative move for the U.S. government, according to Business Insider. These are among today’s must reads from around the commercial real estate industry.

1. Federal Persecutors Step Up Probe of Land Deal Pushed by Wife of Bernie Sanders “A half-dozen people said in interviews in recent days that they had been contacted by the FBI or federal prosecutors, and former college trustees told The Washington Post that lawyers representing Jane Sanders had interviewed them to learn what potential witnesses might tell the government. The investigation centers on the 2010 land purchase that relocated Burlington College to a new campus on more than 32 acres along Lake Champlain.” (Washington Post)
2. REITs Have Complicated Relationships Status with Interest Rates “Many investors associate REITs with interest-rate risk.  As an income-oriented sector, REITs can be negatively affected by interest-rate increases in a similar vein to fixed income.  As interest rates rise, all else being equal, the income produced by REITs at the current stock price is worth less, and so prices generally fall in order to increase the yield of those stocks relative to other income producing instruments. Note the qualifier ‘all else being equal.’” (Forbes)
3. Startups Help Landlords Turn Apartments into Hotel Rooms “A handful of startups are betting they can help apartment-building owners convert empty units into hotel rooms, a controversial practice that could help landlords generate more revenue. The rise of home-sharing services such as Airbnb Inc. has been a boon for owners of single-family homes looking to make extra money.” (Wall Street Journal, subscription required)
4. Jared Kushner Tried and Failed to Get a Half-Billion-Dollar Bailout from Qatar “NOT LONG BEFORE a major crisis ripped through the Middle East, pitting the United States and a bloc of Gulf countries against Qatar, Jared Kushner’s real estate company had unsuccessfully sought a critical half-billion-dollar investment from one of the richest and most influential men in the tiny nation, according to three well-placed sources with knowledge of the near transaction. Qatar is facing an ongoing blockade led by Saudi Arabia and the United Arab Emirates and joined by Egypt and Bahrain, which President Trump has taken credit for sparking. Kushner, meanwhile, has reportedly played a key behind-the-scenes role in hardening the U.S. posture toward the embattled nation.” (The Intercept)
5. Leasing Out Federal Land Could Provide Free Money for All Americans “The US government owns over $150 trillion of federal land and resources. Most of it is unused and sitting idle. If you divide $150 trillion by America’s 325 million citizens, you get nearly a half-million dollars per person. If the US could just figure out how to monetize that federal land and distribute its equity equally, Americans could forever overcome poverty, healthcare issues, and the impending “robocalypse” — where increasing automation replaces tens of millions of human jobs.” (Business Insider)
6. Columbia Teams with Allianz Real Estate in New JV to Acquire Class-A Office Property“Seeking to acquire more office properties in its core markets without resorting to issuing stock or raising leverage, Columbia Property Trust (NYSE:CXP) has formed a joint venture with Allianz Real Estate to pursue Class-A office acquisitions in certain U.S. markets. The two investors have initially contributed three of their respective properties to the joint venture with a combined gross asset value of $1.26 billion.” (CoStar News)
7. Retailers Tap Consultants to Wiggle Out of Mall Leases “Consultants who help store owners wring concessions from landlords are seeing brisk business these days, another ripple of the shifting retail landscape across the U.S. economy. The rise of online shopping and changing consumer preferences are forcing retailers to rethink virtually all aspects of their operations.” (Wall Street Journal, subscription required)
8. Alexander & Baldwin to Convert to a REIT, Hires New CEO “Alexander & Baldwin, one of Hawaii’s largest owners of commercial real estate, said Monday that it is converting to a real estate investment trust and has hired an experienced REIT executive to serve as the Honolulu-based company’s chief financial officer. Alexander & Baldwin had been evaluating the conversion since last fall and reported spending a total of $14.3 million on the process, as of the end of the first quarter. The board of directors voted unanimously on Monday to approved the conversion, the company said.” (Pacific Business News)
9. One Way to Hedge Against Retail REITs “In my recent newsletter I explained that one way to hedge against retail REIT exposure is by investing in shares of industrial REITs. As I mentioned, there is a risk-reward tradeoff associated with hedging—it reduces risk but there is a cost for the so-called ‘insurance.’ It’s kind of like buying flood insurance for your house. The monthly payments add up over time, yet it certainly beats the headache if there is a total wipeout scenario.” (Forbes)
10. Here’s Where Amazon Is Planning to Open its Next NYC Bookstore “Jeff Bezos: Alexa, find me a space in Soho to open another Amazon bookstore in New York City. Alexa: Finding 72 Spring Street. Sources tell The Real Deal that the e-commerce colossus will be taking the 7,354-square-foot space between Crosby and Lafayette Streets, currently home to a pop-up store for bra maker Aerie. The retail spot at 72 Spring includes 5,200 square feet on the ground floor and 2,154 square feet in the basement. It wasn’t immediately clear whether a lease has been finalized yet.” (The Real Deal)

We need to actively place property management at the forefront of rewarding career options and dispel the preconceived notion that it is somehow a less-than-sexy arm of the real estate industry.

Let’s face it, this industry is aging. While the average age of an American worker today in any industry is 43 years old, the average age of a property manager is 50.1 and the average age of a CPM is 52.3 years old.

As if that weren’t enough, Baby Boomers are retiring at the rate of 8,000 to 10,000 a day. The result is a dwindling, aging crop of management professionals.

This brings up two serious concerns about what the multifamily and commercial management industries will look like in the next three to 10 years. The first is that we as an industry might increasingly be servicing a clientele that is younger than we are. The second is that, to respond to this ever-younger clientele and self-sustain the industry, the management profession needs a strong source of young professionals to continually add to our population.

On the first issue of an ever-younger clientele, there is an implied but growing disconnect. Apartment renters are more than ever made up of multigenerational families and Millennials working but not yet ready to buy their first home (or who simply prefer the renter’s lifestyle), in addition to Boomers who have had enough of homeownership and the responsibilities it carries.

On the corporate side, young professionals are bringing down the average worker age, although this certainly varies by industry and sector. On both sides—multifamily and commercial—as the age trends downward, it becomes key for managers who interface with them to understand how they think, what they want and need and, probably most importantly, how strong a bond they have with their property manager.

The second issue, attracting new young talent, speaks to relevance and branding. I got into the business by chance rather than by choice, and I think that is very true today. When I talk with young professionals around the country, a lot of them still get into the business because they were referred by someone, so it is still very much a chance process.

But we as a profession, as an industry association, cannot leave our future to chance. We need to actively place property management at the forefront of rewarding career options and dispel the preconceived notion that it is somehow a less-than-sexy arm of the real estate industry. We need to compete against the allure of brokerage, for instance, which comes with images of headline-commanding deals with giant paydays.

Few realize that the first two or three years of a broker’s life are fallow as they strive to create a book of business, and it can take six months to more than a year before even a smaller deal is nailed down. As we have discussed at various leadership meetings over the past year or so, even the very name “property manager” belies the fact that we work hand-in-hand with major private and institutional industry strategists to create a plan that yields major financial success on an ongoing basis. It belies the fact that we get to solve a problem and move on to the next, in a fast-paced and intensive career choice.

For this, we gain the security of a paycheck every other Friday, plus incentive bonuses along the way. Meanwhile, most brokers eat what they kill without guarantee that they will make money, even if the dreamed-of payday is higher.

There’s one other aspect of property management that should be key to a young professional’s career decision. Regardless of what is going on in the economy, someone has to manage the asset. You don’t earn gray hairs without having survived a couple of recessions. I’ve been through a few and can remember downtimes when brokers would plead with me for jobs because they were struggling significantly during a recession, but wanted to stay in the industry.

This is a compelling story for young professionals to hear, especially those who were coming of age 10 years ago, but have not experienced for themselves, first hand, the worst an economic downturn can bring.

We need to spread the gospel of property management to both the population of people beginning to blaze their career paths and those just getting active in the profession. IREM is not alone in its efforts to provide course materials to colleges and universities around the country. Other industry associations facing the same age issue do likewise. These materials are both specific to management and generalized content on the real estate industry.

Simultaneously, we have for years visited colleges to spread the word of rewarding, recession-proof careers in property management. However, this is no longer enough. Now we are drafting plans to begin attending high school-level career days in order to plant the seeds earlier, even before future paths are formulated.

We are also working with our sister associations, CCIM, SIOR and NAR, to develop a scholarship program that would introduce people coming out of school to all of the associations, with the theory that all boats would rise equally through that exposure. Simultaneously, as we enter our 85th year, we are analyzing our branding to enhance our message of ongoing relevance to tomorrow’s leaders.

This dovetails nicely with our efforts to promote our young professionals through such content as “30 Under 30,” a feature in IREM’s Journal of Property Management (due out in the July/August issue), wherein we celebrate the best and brightest up-and-comers.

But this effort should not take place only at the association level. Individual members too have a stake in this issue, for after all, they are the ones on the front line of hiring. They too have to network more than they ever have with colleges and universities and other associations and even other industries.

We can all contribute to solving the puzzle of an aging industry.

Michael T. Lanning is 2017 president of the Institute of Real Estate Management. In addition, he is senior vice president and city leader for the Cushman & Wakefield, AMO office in Kansas City, Mo.

The strongest four markets in the country—New York, San Francisco, Los Angeles and Boston—seem almost impervious to shifts in new supply.

Vacancy rates for rental apartments remain low in the top six U.S. markets, despite an influx of new development.

“All of these markets continue to register very favorable supply/demand dynamics,” says Greg Willett, chief economist with RealPage, parent company to MPF Research.

The strongest four markets in the country—New York, San Francisco, Los Angeles and Boston—seem almost impervious to shifts in new supply. Vacancy rates are still very low overall, though certain neighborhoods arguably have too many new super-luxury apartments all leasing at the same time. Seattle and Washington, D.C. also have strong demand for apartments that has kept up with a flood of new units so far.

In fact, new construction can make these core markets seem even more attractive, according to at least one source. “More residents in urban areas [do] create a virtuous cycle: amenities improve to serve the affluent newcomers, which in turn attracts more affluent newcomers,” says John Affleck, a research strategist with the CoStar Group.

Few vacancies

Developers have opened about twice as many new apartments as usual in the top six coastal markets over the past four to five years, according to RealPage. In San Francisco and Seattle, developers have opened a little more than twice the historical average number of apartments. In Boston and Washington, D.C., they have opened close to the historical average. In Los Angeles and New York, they have opened slightly less than the historical average, says Willett.

Despite this, the percentage of vacant apartments remains stubbornly low: in five of the six markets, the vacancy rate ranges from 2.0 percent to 3.0 percent. In Washington, D.C., the vacancy rate has risen to 4.0 percent, according to RealPage.

“These areas have chronic housing shortages, so there’s certainly no overbuilding in the sense that vacancies have emerged in previously stabilized product,” says Willett.

Rents fall in New York and San Francisco

Despite low vacancy rates, property managers have cut down rents in San Francisco and New York in 2016, although rents began to grow again in San Francisco in 2017. Many apartment managers now regularly offer concessions of one or more months of free rent to attract renters to new luxury towers in New York—a once unheard-of practice in the city.

“It’s probably impossible to overbuild New York or San Francisco at large,” says Affleck. “But it is quite possible to overbuild the high-end of the market, and weak rents and rising concessions suggest that developers may have succeeded.”

This slight decline in average rents is unlikely to last, however. “The biggest factor in the price cuts seen in San Francisco and New York actually was overreaction,” says Willett. Property managers seem to have responded to the fear of overbuilding, rather than actual competition that would cause vacancy rates to rise for older, stabilized apartment properties. “Brand new properties should have virtually no impact on pricing power for bread-and-butter product,” says Willett. “The huge rent difference between those product types means they aren’t competing in the same pool of renter prospects at all.”

Rents keep growing in Los Angeles and Boson

Los Angeles and Boson, meanwhile, seem even less vulnerable to competition from new construction. Rents are still growing quickly, matching or even exceeding historical performance. “Pricing continues to move full steam ahead,” says Willett.

In Boston and Los Angeles, individual neighborhoods can be momentarily overwhelmed with an influx of new rentals, but not for long and not for the market overall. “The overall housing shortages are too severe for brief mismatches in supply and demand to do any real overall market damage,” says Willett.

Some risk for Seattle and Washington, D.C.

Seattle and Washington, D.C. have a somewhat riskier profile for apartment investors. In Seattle, developers have built thousands of new apartments at the same time as the local economy created a large number of new jobs and new households. “If Seattle’s economic performance were to just return to normal, the apartment construction pace suddenly would be very aggressive,” says Willett. “The market definitely would feel a correction in that scenario.”

Washington, D.C. has more serious problems—rents are still growing in the nation’s capital, but not as quickly as is historically normal. That is in keeping with the higher vacancy rate for D.C. apartments.

“Washington, D.C. is a place where building volumes just aren’t going to go back to the lower levels seen historically,” says Willett. “It’s probably no longer realistic to expect a rent growth premium relative to the U.S. average.”

The phantom menace of homeownership

The biggest risk all these markets face is the possible return of for-sale housing on a larger scale. “A lot of residents who would have bought a home or a condo in prior cycles are renting today,” says CoStar’s Affleck.

If developers started to build entry-level condos in the $400,000 to $600,000 range, demand for high-end apartment product would fall sharply. However, even competition from for-sale housing would still leave strong demand for less-expensive, class-B apartments, and that would keep vacancy rates relatively low overall in the strongest markets.

“Demand for workforce housing is much more resilient, as even entry-level homeownership is out of the reach of middle- and lower-income households today,” says Affleck.