Hedge fund manager bets against data center REITs; GLPI in $1B deal with Bally's

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Hedge fund manager Jim Chanos is raising a new fund that will take short positions in U.S. data center real estate investment trusts, London's Financial Times reported.

REITs such as Digital Realty Trust Inc. and Equinix Inc. have seen a period of unprecedented demand for their properties due to the cloud computing boom. Chanos believes these landlords are headed for a period of declining revenue and earnings growth due to the fact that their largest tenants, which are the biggest data cloud providers like Amazon Web Services, Google Cloud and Microsoft Azure, prefer to build facilities suited to their own designs. When these tenants do lease, they typically offer low returns to the developers, Chanos told the publication.

The outlook for the sector remains upbeat with strong leasing volume expected to continue into the second half of 2022 and 2023, Jefferies analysts Jonathan Petersen, Linda Tsai and Peter Abramowitz said in a June 30 research note. Data center REITs have longer lease durations than other REIT subsectors, and many contracts are tied to inflation-based escalators, the analysts noted.

CHART OF THE WEEK: Inflation dents US commercial real estate transactions in May

⮞ U.S. commercial property transaction volumes rose 3% year over year in May, dropping significantly from the pace of growth during the first quarter, MSCI Inc. data showed.

⮞ The May transaction figure points to the growing impact of inflationary pressures and rising interest rates.

⮞ The slow pace of commercial real estate transactions could continue for the rest of the year as the economic slowdown could weaken demand for certain asset types.

Portfolio acquisitions

* A partnership between Black Spruce Management LLC and Orbach Affordable Housing Solutions LLC agreed to purchase six rental apartment buildings in Manhattan, N.Y., for $1.75 billion, Dow Jones Newswires reported, citing people familiar with the matter.

* Casino operator Bally's Corp. agreed to divest the real property assets of its two casino properties in Rhode Island to Gaming & Leisure Properties Inc., through GLP Capital LP, for $1 billion. In connection with the deal, Bally's will lease back Bally’s Twin River Lincoln Casino Resort and Bally’s Tiverton Casino & Hotel and manage the gaming operations of both properties on an uninterrupted basis.

* Harrison Street Real Estate Capital LLC paid $725 million to acquire a student housing portfolio in the U.S. from KKR & Co. Inc., Bloomberg News reported, citing people with knowledge of the deal. The portfolio comprises 4,500 beds across seven properties.

Office tower trade

* Rockpoint Group LLC affiliate 1221 Brickell Owner LLC divested 1221 Brickell Ave., a 656,821-square-foot office tower in Miami, to 1221 Brickell LLC for $286.5 million, the South Florida Business Journal reported.

* Crestlight Capital LLC bought the SouthPark Towers office asset in Charlotte, N.C., according to the Charlotte Business Journal, which cited deeds filed with Mecklenburg County. California State Teachers' Retirement System sold the tower at 6000 Fairview Road for $106.5 million and the tower at 6100 Fairview Road for $86 million.

US rental rates continue to soar on rising costs, interest rates

US housing market: House price growth decelerates in April