CRE loses luster as inflation hedge; CPPIB, Lennar unit form US$979M JV

S&P Global Market Intelligence offers our top picks of real estate news stories published throughout the week.

Some investors are moving money away from commercial real estate amid concerns that rising prices could push up long-term interest rates, which in turn could erode property values and raise owners' borrowing costs, according to a report from The Wall Street Journal.

U.S. commercial property sales volume reached a record $809 billion in 2021, driven in part by investors' view of these assets as a hedge against inflation, the publication reported, citing analysts.

Banks and bond investors may also raise rates depending on their economic outlook.

Nareit Senior Economist Calvin Schnure expects interest rate increases of about 1.5 percentage points by year-end to be a "very favorable" environment for commercial real estate, according to the "Nareit REIT Report" podcast. Nareit is the U.S.-based trade association for REITs and publicly traded real estate companies.

Schnure anticipates inflation will slow down in the second half of 2022. Real estate investment trusts perform better than most other sectors in moderate to high inflation scenarios because these property owners are able to adjust leases to changing market conditions, he said.

Residential property focus

* Canada Pension Plan Investment Board and LMC Living LLC, a subsidiary of Lennar Corp., launched a $979 million joint venture that seeks to build class A multifamily properties in different metropolitan areas across the U.S. The joint venture is 96% owned by the investment board and 4% owned by the subsidiary.

* A PGIM Real Estate affiliate acquired a luxury apartment tower in Seattle for $293 million, the Puget Sound Business Journal reported, citing a King County sales affidavit. The 39-story West Edge apartment tower near the entrance to Pike Place Market comprises 340 units and ground-floor commercial spaces.

Property moves

* Vulcan Real Estate sold two office blocks in Seattle's South Lake Union neighborhood to Deka Immobilien GmbH for $802 million. The Lakefront Blocks asset spans 635,000 square feet across two six-story office buildings and is anchored by Google LLC.

* Ventas Inc. acquired 18 medical office buildings from Ardent Health Services for $204 million. The portfolio totals 732,000 square feet and is fully leased to Ardent Health.

* Summit Industrial Income REIT is set to buy a property in Pointe Claire, Canada, for C$95.6 million in a long-term sale-leaseback transaction. The property in Quebec comprises a 226,000-square-foot industrial facility and a 150,000-square-foot industrial expansion project, which is expected to be certified as a net-zero carbon building.

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