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Vornado weighs options for 2 key assets; Blackstone eyes $1.4B Hudson portfolio

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

Real estate investors command plenty of dry powder but are sitting on the sidelines, awaiting clarity on how the coronavirus pandemic will evolve in the coming months.

Real Capital Analytics data released this week showed "dismal" commercial real estate transaction volume in May, totaling just $9.8 billion across all property types. Distress in the market remains relatively low, but retail properties, along with hotels, account for the bulk of it, the firm said.

Analysts sought this week to separate the wheat from the chaff in retail real estate, as many real estate investment trust stocks continue to trade at significant discounts. While malls may continue to suffer into the back half of the year, the top-rated properties those with average sales of $700 or more per square foot "remain one of the most efficient forms of distribution for retailers, despite the higher occupancy cost," Compass Point analyst Floris van Dijkum said in a note.

"While ecommerce helps to boost the top line, its shipping, acquisition, and return costs mean that bricks & mortar with high sales productivity remains significantly more profitable," van Dijkum said. "Why else would Amazon consider opening up more stores?"

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

BTIG analysts Michael Gorman and James Sullivan noted that strip-center REITs have also borne a disproportionate share of the real estate market sell-off. The pair retain a positive view of strip-center landlords with "stable, grocer-anchored portfolios with positively trending rent collection statistics," while advocating for caution with the rest of the group, as some retail concepts such as fitness, entertainment and dining are surrounded by uncertainty.

"Tenants that are reopening often do so at lower capacity, and it is unclear what the default rate on deferral agreements with landlords ultimately will be. ... Additionally ... e-commerce adoption has increased dramatically during the lockdowns, which could represent a longer-term demand shift," the pair said.

Still hopeful

* Taubman Centers Inc. received shareholder approval for its proposed merger with rival regional mall landlord Simon Property Group Inc., which earlier moved to terminate the $3.6 billion deal on various grounds and filed a lawsuit in Michigan state court.

The deal is scheduled to close June 30, although it may not close by that date due to the ongoing legal battle between the landlords.

* Separately, Simon Property sued troubled apparel retailer Brooks Brothers in Marion County Superior Court, seeking more than $8.7 million in unpaid rent amid the pandemic, the Indianapolis Business Journal reported.

Big property play

* Vornado Realty Trust is looking at options to recapitalize two properties it owns in partnership with The Trump Organization LLC, including the 1290 Avenue of the Americas office building in Manhattan, N.Y., and the 555 California St. office campus in San Francisco. The office REIT owns 70% controlling stakes. Evercore ISI values the San Francisco property at $2.0 billion.

* Private equity and real estate giant The Blackstone Group Inc. is working to recapitalize and repurpose an approximately $1.4 billion Hudson Pacific Properties Inc. portfolio that includes major film studios in Hollywood, Calif., Commercial Observer reported, citing unnamed sources. The REIT and Blackstone could spin off the assets into a stand-alone entity that will focus mainly on modern film studios, according to the report.

* Healthcare REIT Medical Properties Trust Inc. completed its £1.5 billion master lease agreement with U.K.-based hospital operator Circle Health Ltd. and started to recognize the related additional straight-line rent June 16.

* Preferred Apartment Communities Inc. tapped CBRE to look for preferably a single buyer for its eight-asset student housing portfolio that comprises 6,095 beds in 2,011 units, Real Estate Alert reported. The portfolio, spread across various states, is valued at approximately $480 million.

The coronavirus effect tracker

* The pandemic continued to affect U.S. hotel performance for the week ended June 20 despite slight gains over recent weeks, according to weekly data from STR, which tracks the hospitality sector. Year over year, revenue per available room declined 60.3% to $40.48, and average daily rate slid 31.7% to finish the week at $92.20. Occupancy for the week fell 41.8%, to 43.9%.

IPO

* Chinese online property brokerage Beike Zhaofang (Beijing) Technology Co. Ltd. is planning an up to US$2 billion IPO on the NYSE, The Nikkei Asian Review reported, citing two people familiar with the transaction. Beike Zhaofang is a Tencent Holdings Ltd. and SoftBank Group Corp.-backed US$14 billion company that is believed to have tapped Goldman Sachs Group Inc. and Morgan Stanley to assist with the float.

Around the world

* Australia's Cromwell Property Group said its board plans to recommend its security holders to reject a proportional takeover bid from Singapore's ARA Asset Management Ltd.

* Embattled U.K.-based shopping center landlord Intu Properties PLC appointed KPMG as administrator in case it does not reach a deal for a debt standstill with its creditors.

* Blackstone is planning to raise up to $257 million through a secondary placement of units of India's Embassy Office Parks REIT, the Business Standard reported, citing sources with knowledge of the matter. The firm, which owns a 55% stake in the REIT, will offer the units in a price range of 340 Indian rupees to 350 rupees per unit.

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