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In Today's Email

• NYC Redevelopment Proposal

• New Tax Incentives for CRE Debt

• US Manufacturing’s Real Estate Issues

• Rising Multifamily Insurance Rates

New York City’s RFP for Bronx Redevelopment

The New York City Economic Development Corporation (EDC) has issued a request for proposals (RFP) for the redevelopment of the Kingsbridge Armory in the Bronx. The 570,000-square-foot vacant landmark building, known for its medieval-style architecture and 103-foot-tall open drill hall, has seen multiple failed redevelopment attempts since its decommissioning in 1996. The city and state have committed $200 million in capital funding, with an additional $50 million potentially available from other public sources for the project. The future construction manager will be required to enter into agreements with labor unions. This redevelopment effort follows extensive community engagement and research, with Mayor Eric Adams aiming to create up to 1,800 jobs through the project. Proposals from developers are due by January 18, 2024, marking a renewed effort to transform the historic structure into an economic asset for the Bronx.

Despite previous failed redevelopment plans, including a shopping mall proposal in 2008 and an ice rink project in 2012, the city and EDC remain committed to revitalizing the Kingsbridge Armory, hoping to achieve success with this latest endeavor.

House Bill’s Potential CRE Tax Incentives

A bipartisan bill, HR 5508, introduced in the U.S. House of Representatives by Rep. Claudia Tenney and Rep. Brian Higgins from New York seeks to amend the tax code to make it easier for commercial real estate borrowers to defer taxes during loan modifications or debt workouts. This move aims to alleviate some of the distress associated with the impending wave of commercial real estate loan maturities. The bill would amend Section 108(a)(1) of the tax code, which currently allows noncorporate taxpayers to defer taxes when their property depreciates due to loan modifications or workouts. The legislation focuses on the existing cancellation of debt (COD) income policy, treating debt forgiveness as taxable for corporate borrowers. HR 5508 expands these COD policies to include commercial real estate loans taken out before March 1, 2022, and canceled between 2023 and 2027. The motivation behind this bill is the anticipated $1.5 trillion in commercial real estate debt maturing between 2023 and 2025, with peak maturities of $550 billion expected in 2027. The legislation aims to provide a tax incentive to encourage loan modifications and debt workouts, potentially mitigating widespread distress in the sector, which could result from property value declines and defaults.

Real Estate Roundtable President and CEO Jeffrey DeBoer, a supporter of the legislation, emphasized the importance of workouts to help struggling businesses and taxpayers recover. The bill must pass in the U.S. Senate and be signed by President Joe Biden to become law.

US Manufacturing Rebound Faces RE Obstacles

A report from Cushman & Wakefield highlights challenges in reshoring and nearshoring manufacturing in the U.S. While these trends are growing, there's a significant obstacle on the real estate front. Currently, only 80 million square feet of manufacturing space is under construction in the country, with much of it being owner-occupied or build-to-suit, potentially leading to tight leasing market conditions for occupiers. Additionally, many greenfield land sites lack sufficient electrical power for manufacturing, complicating site selection. Despite these challenges, manufacturing job announcements in 2022 related to reshoring and foreign direct investment increased by 53%, totaling 360,000, and investments in manufacturing and clean energy have contributed to manufacturing employment reaching its highest level since 2008, with 13 million jobs.

Regionally, manufacturing job demand is strongest in California and Texas, with the Midwest seeing significant growth, attributed to the expansion of auto-related manufacturing. As reshoring and nearshoring trends continue, strategic planning for location, labor needs, and operational costs will become increasingly crucial for success in the manufacturing sector.

The Impact of Rising Multifamily Insurance Rates

Commercial real estate insurance, including the multifamily sector, is becoming increasingly challenging and expensive due to the rising frequency of climate change-related disasters. Insurers are hiking property insurance rates to mitigate losses, particularly in coastal states like Florida and California. Some insurers have stopped offering property insurance coverage in certain markets, exacerbating the problem. Multifamily owners, especially in disaster-prone areas, are struggling to find or renew insurance policies at reasonable rates. The average premium for multifamily insurance in the U.S. surged by a remarkable 33% year-over-year in the second quarter of 2023.

Despite soaring insurance costs, there is no direct correlation between rising insurance rates and increasing rents. In areas with substantial insurance rate hikes, such as Orange County, rental rates have seen relatively small increases or even declines. While multifamily property owners haven't yet passed on the high insurance costs to tenants, new developments, particularly luxury apartments, may be better positioned to do so, potentially driving rental rate growth even higher. This situation poses challenges for both property owners and renters in the multifamily sector as they navigate the impact of escalating insurance costs.

That's All For Today

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This is not professional and / or financial advice, the information in this newsletter is provided for educational and informational purposes only.