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The U.S.-listed shares of Manchester United PLC suffered a record beating Tuesday, after a report that the iconic English football club was set to be taken off the market.
Manchester United MANU UK:MNL fell 18.2% on the day to log its biggest one-day selloff since the company went public in August 2012. The previous record drop was 13.8% on March 12, 2020, at the outset of the coronavirus pandemic.
The…
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U.S. stocks closed lower Tuesday after the long Labor Day weekend, as bond yields and oil prices climbed. The Dow Jones Industrial Average DJIA shed about 195 points, or 0.6%, ending near 34,642, according to preliminary FactSet data. The S&P 500 index SPX dropped about 0.4% and the Nasdaq Composite Index COMP fell 0.1%. Investors returned from the long weekend in a less bullish mood on weaker economic data from China and Europe, but also with more clouds on the horizon in oil markets. Oil prices CL00 closed at the highest level since November on Tuesday, after Saudi Arabia and Russia opted to extend oil supply production…
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Orders for U.S. manufactured goods fell a sharp 2.1% in July, the Commerce Department said Tuesday. This is the first decline after four straight monthly gains.
Economists surveyed by the Wall Street Journal were expecting a 2.3% fall in July.
Excluding transportation, orders rose 0.8% in July after a 0.3% gain in the prior month.
Economists said that higher interest rates are putting pressure on business equipment spending.
Durable-goods orders fell 5.2 % in July, unrevised from the data that was released on Aug. 24. Non-durable goods orders rose 1.1%.
Orders for nondefense capital goods, excluding aircraft, rose 0.1% in July, also unrevised from prior estimate.
U.S. stocks
DJIA
SPX
were trading lower on Tuesday following the long holiday weekend.
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Shares of Robinhood Markets Inc.
HOOD,
galloped 2.6% higher Friday, after the trading app disclosed that it bought back 55.3 million of its shares from the U.S. Marshal Service. The company said it paid $605.7 million for the shares, which represents 6.1% of the company’s market capitalization of $9.93 billion at Thursday’s close. The shares were originally acquired through Emergent Fidelity Technologies Ltd. by Sam Bankman-Fried, founder of failed cryptocurrency exchange FTX that collapsed last year. The shares were seized and transferred to the custody of the U.S. Robinhood’s stock has rallied 20.7% over the past three months through Thursday, while the S&P 500
SPX,
has gained 6.8%.
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The U.S. Labor Day holiday will mark another milestone in the marathon to bring workers back to the office, but it won’t be a quick fix for landlords, according to Thomas LaSalvia, head of commercial real estate economics at Moody’s Analytics.
Employers from Facebook parent Meta
META,
to Goldman Sachs
GS,
recently laid out mandates for staff to return to the office more frequently, starting this fall, including the big one — the federal government.
“A lot of companies are saying that after Labor Day, ‘We expect more out of you,” LaSalvia said, referring to days in the office. Still, office attendance, he argues, likely only stages a fuller comeback if a job or promotion is on the line.
Amazon.com Inc.’s
AMZN,
Chief Executive Andy Jassy has been trying to drive home the point by warning staff to return at least three days a week, or face the consequences.
That could prove difficult, with Friday’s U.S. jobs report for August expected to show U.S. unemployment at a scant 3.5%, near the lowest levels since the late 1960s, even if hiring has been slowing. The labor market, so far, appears unfazed by the Federal Reserve’s benchmark rate reaching a 22-year high.
It has been a different story for landlords facing a roughly 19% vacancy rate nationally and piles of debt coming due, especially for owners of older Class B and C office buildings with a bleak outlook or properties in cities with wobbling business centers.
See: San Francisco’s office market erases all gains since 2017 as prices sag nationally
As with shopping malls, LaSalvia said it’s largely a problem of oversupply, with many office properties at risk of becoming obsolete as tenants flock to better buildings and locations staging a rebirth. The trend can be traced in leasing data since 2021, with Class A properties in central business districts (blue line) showing a big advantage over less desirable buildings in the heart of cities (orange line).
Moody’s Analytics
“Little by little, we are finding the office isn’t dead,” LaSalvia said, but he also sees more promise in neighborhoods with a new purpose, those catering to hybrid work and communities that bring people together.
Another way to look at the trend is through rents. Manhattan’s Penn Station submarket, with its estimated $13 billion overhaul and neighboring Hudson Yards development, has seen asking rents jump 32% to $74.87 a square foot in the second quarter since the fourth quarter of 2019, according to Moody’s Analytics. That compares with a 2% bump in asking rents in downtown New York City to $61.39 a square foot for the same period.
The push for a return to the office also doesn’t mean a repeat of prepandemic ways. Goldman Sachs analysts estimate that part-time remote work in the U.S. has stabilized around 20%-25%, in a late August report, but that’s still up from 2.6% before the 2020 lockdowns.
Furthermore, the persistence of remote work will likely add another 171 million square feet of vacant U.S. office space through 2029, a period that also will see tenants’ long-term leases expire and many companies opting for less space. The additional vacancies would roughly translate to 57% of Los Angeles roughly 300 million square feet of office space sitting empty.
“The fundamental reason why we had offices in the first place have not completely disintegrated,” LaSalvia said. “But for some of those Class B and C offices, the writing was on the wall before the pandemic.”
U.S. stocks were mixed Thursday, but headed for losses in a tough August for stocks, with the S&P 500 index
SPX
off about 1.5% for the month, the Dow Jones Industrial Average
DJIA
2.1% lower and the Nasdaq Composite
COMP
down 2% in August, according to FactSet.
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Stocks closed mostly lower Friday, capping off a bruising week of losses as Treasury yields jumped and China’s mounting property woes gripped investors. The Dow Jones Industrial Average
DJIA,
rose about 27 points, or 0.1%, ending near 34,501, according to preliminary FactSet data. The S&P 500 index
SPX,
was nearly flat at 4,370 and the Nasdaq Composite Index
COMP,
shed 0.2%, despite briefly turning positive late in the session. It still was a tough week for equities, with the Dow booking a 2.2% loss, the S&P 500 index a 2.1% decline and the Nasdaq a 2.6%. The Nasdaq also posted its biggest 3-week decline since December 2022, according to Dow Jones Market Data. Yields on the 10-year Treasury rose for a 5th week in the row, with the benchmark
TMUBMUSD10Y,
rate briefly touching its highest level since November 2007, before settling back at 4.251% on Friday. China Evergrande’s
EGRNF,
Chapter 15 bankruptcy filing in New York late Thursday kept focus on the wobbling property market in the world’s second-largest economy. Earlier in the week, Country Garden Group missed a dollar-denominated debt payment. Next week investors will be focused on Federal Reserve Chairman Jerome Powell’s speech on Friday at the Jackson Hole economic summit for hints to whether the central bank is likely done hiking rates in this cycle. The Fed’s policy rate sits at its highest level in 22 years.
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U.S. stocks posted back-to-back losses Wednesday after Federal Reserve minutes of its July meetings showed concerns about inflation revving back up. The Dow Jones Industrial Average DJIA fell about 180 points, or 0.5%, ending near 34,765, according to preliminary FactSet data. The S&P 500 index SPX gave up 0.8% and the Nasdaq Composite Index COMP closed 1.2% lower. All three benchmarks booked back-to-back loses, while the S&P 500 ending at its lowest level in more than a month. Minutes of the Fed’s July 25-26 meeting said “most participants continue to see significant upside risks to inflation, which could require further…
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U.S. stocks closed sharply lower Tuesday as investors monitored signs of China’s darkening economic backdrop and gauged if a robust U.S. consumer could spell more Federal Reserve rate hikes. The Dow Jones Industrial Average DJIA fell about 360 points, or 1%, to about 34,946, according to preliminary FactSet data. The S&P 500 index SPX dropped 1.2% to about 4,437, its lowest close since mid-July, according to FactSet. The Nasdaq Composite Index COMP ended 1.1% lower. Chinese retail sales and industrial production in the world’s second biggest economy grew less than expected in July. Its growing property woes also contributed…
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US. stocks closed lower Friday, capping off a volatile week that finished with losses after Fitch took away its top AAA ratings for the U.S. and government bond yields embarked on a wild ride. The Dow Jones Industrial Average
DJIA,
fell about 150 points, or 0.4% on Friday, ending near 35,065, according to preliminary FactSet data. The S&P 500 index
SPX,
shed 0.5% and the Nasdaq Composite Index closed 0.4% lower. For the week, the Dow posted a 1.1% decline, the S&P 500 a 2.3% drop and the Nasdaq shed 2.9% since Monday, according to FactSet. Investors were focused on July jobs data released on Friday for clues to the health of the economy and potential next moves by the Federal Reserve on rates. The 10-year Treasury yield
TMUBMUSD10Y,
swung almost 13 basis points lower on Friday to 4.06%, after briefly climbing to about 4.2% earlier in the week, according to FactSet data.
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Stocks fell on Wednesday, a day after Fitch Ratings lowered its U.S. debt ratings to AA+ from the top AAA category, pointing to its growing debt burden and “erosion of governance” over the past two decades. The S&P 500
SPX,
fell about 63 points, or 1.4%, ending near 4,513, booking its biggest daily percentage decline since April 25, according to preliminary Dow Jones Market Data. The Dow Jones Industrial Average
DJIA,
shed about 1%, while the Nasdaq Composite Index
COMP,
closed 2.2% lower. Stocks already had been taking a breather from their march toward record levels when Fitch on Tuesday evening made good on a threat to downgrade its U.S. debt rating a notch to AA+. Longer-dated Treasury yields rose Wednesday, with the 10-year Treasury rate
TMUBMUSD10Y,
touching 4.07%, according to FactSet. Treasurys and other haven assets are viewed as likely to benefit from a flight to safety in a scenario where investors get more jittery about the U.S. economic outlook.
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The numbers: Commercial and industrial loans — a key economic driver — held roughly steady in the week ending July 5, the Federal Reserve said Friday. Loans rose $200 million to $2.754 trillion, the central bank said.
Bank lending has been slowly decelerating, falling for three straight months. C&I loans hit a peak of $2.82 trillion in mid-March, right before the collapse of Silicon Valley Bank.
Key details: Total bank deposits rose by $24.9 million to $17.367 trillion in the same week. Deposits have been shrinking slowly. They peaked at $18. 21 billion in mid-April.
Big picture: In the wake of the collapse of Silicon Valley Bank in March, economists have been watching the data carefully for signs of a credit crunch, as banks have weak balance sheets as a result of the Fed’s swift increases in interest rates since March 2022.
San Francisco Fed President Mary Daly said Monday she hadn’t seen credit tightening that is in excess of normal.
“I do think, from research literature, that this takes a while to show itself, and so I think we are still looking into the fall before we would have a declarative statement to make about the extent of credit tightening and the impact on the economy,” Daly said.
Market reaction: Stocks
DJIA,
SPX,
finished the week higher on Friday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
rose to 3.83%.
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Shares of UnitedHealth Group Inc.
UNH,
jumped 2.7% in premarket trading Friday, to bounce off a 19-month low, after the health care services and insurance company beat second-quarter earnings expectations and lifted its full-year outlook, citing “strong and well-balanced” growth. Net income rose to $5.47 billion, or $5.82 a share, from $5.07 billion, or $5.34 a share, in the year-ago period. Excluding nonrecurring items, adjusted earnings per share of $6.14 beat the FactSet consensus of $5.99. Total revenue grew 15.6% to $92.90 billion, above the FactSet consensus of $90.75 billion, as UnitedHealthcare revenue rose 13.0% to $70.2 billion and Optum revenue increased 24.8% to $56.3 billion. Medical care ratio of 83.2% compared with 81.5% a year ago, and was just above the FactSet consensus of 83.1%. For 2023, the company lifted its adjusted EPS guidance range to $24.70 to $25.00 from $24.50 to $25.00. The stock, which closed Thursday at the lowest price since December 2021, has dropped 12.5% over the past three months through Thursday, while the Dow Jones Industrial Average
DJIA,
has tacked on 1.5%.
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Stocks rose for a fourth day in a row on Thursday, a day ahead of second-quarter earnings from America’s biggest lenders. The Dow Jones Industrial Average
DJIA,
rose about 46 points, or 0.1%, ending near 34,394, according to preliminary data from FactSet. But the S&P 500 index
SPX,
gained 0.9% to end at 4,509, clearing the 4,500 mark for the first time since April 5, 2022 when it ended at 4,545.86, according to Dow Jones Market Data. The Nasdaq Composite Index
COMP,
scored another blockbuster day, up 1.6%. Investors have been optimistic as inflation pressures ease and as perhaps the best-telegraphed U.S. economic recession in recent history has yet to materialize. The S&P 500 and Nasdaq have been charging higher on buzz about AI technology, with much of this year’s stock-market gains fueled by a small group of stocks. The risk-on tone ahead of earnings from JPMorgan Chase and Co.,
JPM,
Wells Fargo
WFC,
and Citigroup
C,
had the U.S. dollar
DXY,
earlier on pace to end at its lowest level since early April 2022. Treasury yields also continued to fall, with the 10-year
TMUBMUSD10Y,
rate back down to 3.759%, after topping 4% in recent weeks. The six biggest banks are expected to issue a deluge of fresh debt after earnings, despite the Federal Reserve having sharply increased rates and borrowing costs for businesses and households to tame inflation.
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Shares of Delta Air Lines Inc. surged toward a more-than two-year high Thursday, after the air carrier reported second-quarter profit and revenue that rose above forecast, and boosted its full-year outlook citing continued “robust” travel demand.
Delta
DAL,
said net income more than doubled to $1.83 billion, or $2.84 a share, from $735 million, or $1.15 a share, in the year-ago period.
Excluding nonrecurring items, adjusted earnings per share of $2.68 beat the FactSet consensus of $2.40.
Revenue grew 12.7% to $15.78 billion, well above the FactSet consensus of $14.44 billion,
For 2023, the company raised its EPS guidance range to $6 to $7 from $5 to $6, and increased its outlook for free cash flow to $3 billion from $2 billion.
The stock jumped 3.5% in premarket trading, putting it on track to open at the highest price seen during regular-sessions hours since April 2021.
“Consumer demand for air travel remains robust,” said Chief Executive Ed Bastian.
Traffic increased 18.0% to 60.80 billion revenue passenger miles while capacity grew 17.1% to 68.99 billion available seat miles. Load factor improved one percentage point to 88%, to beat the FactSet consensus of 87.2%.
The stock has run up 42.1% over the past three months through Wednesday, while the U.S. Global Jets exchange-traded fund
JETS,
has climbed 22.1% and the S&P 500 index
SPX,
has gained 9.3%.
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Stocks scored back-to-back gains on Tuesday as investors waited on an inflation update due Wednesday from the June consumer-price index. The Dow Jones Industrial Average posted a near 317-point gain, advancing 0.9%, to end near 34,260, according to preliminary FactSet data. That marks its biggest daily percentage gain since June 15, according to FactSet. The S&P 500 index closed up 0.7%, while the Nasdaq Composite Index gained 0.6%. Stocks have been on the upswing ahead of a key inflation reading for June, with consumer price index expect to show further progress in retreat from its peak above 9% last summer. The Federal Reserve has indicated it likely has a few more rate hikes on tap this year to help bring inflation down toward its 2% annual target. Investors also will be tuning into second-quarter earnings, which kick off in earnest later in the week with results from some of the nation’s biggest banks.
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Shares of Mullen Automotive Inc. rocketed on massive volume for a second-straight day, after the electric vehicle maker announced plans to buy back a chunk of its shares.
The company
MULN,
said it believes its stock is “significantly undervalued,” given its current cash position of about $235 million. Therefore, the board of directors have authorized the repurchase of up to $25 million worth of its outstanding shares through the end of this year.
The buyback amount represents 17.1% of Mullen’s current market capitalization of about $145.8 million.
“We are initiating this buyback program as an attractive opportunity to deploy capital and return value to our shareholders,” said Chief Executive Officer David Michery.
The stock soared as much as 88.2% intraday, before paring gains to be up 32.8% in afternoon trading. Trading volume swelled to an already record 1.78 billion shares, compared with the full-day average over the past 30 days of about 205.0 million shares.
On Wednesday, the stock blasted 69.4% higher, the biggest one-day gain since it ran up 145.6% on Feb. 28, 2022, on then-record volume of 1.39 billion shares. That followed the company’s announcement that it retained a law firm to combat illegal naked short selling.
A short sale is a way for investors to bet that prices will fall. The short seller must pay to borrow stock owned by another investor so they can sell it with the hope of buying the stock back at a lower price. If the investor who originally owned the stock sells their stock, the borrower must cover their short so they can return the stock.
“Naked” short selling refers to the illegal act of shorting a stock without borrowing it first. While that is often blamed for what companies believe are unwarranted declines in their stock, market structure experts have often refuted those claims.
Read: Short sellers are not evil, but they are misunderstood.
Before the stock’s two-day bounce, it had closed Monday at a record low of 10.1 cents, even after the company reported last week that it recorded revenue for the first time, and that it received additional financing that put it in the “best financial position” in its history.
Mullen had said on Wednesday that it “believes it may have been” targeted by naked short sellers, and therefore decided to investigate any “potential wrongdoing.”
The latest exchange data showed that the percent of Mullen’s public float, or shares freely available to trade, that have been shorted was 16.2%, according to FactSet data. That’s less than half what the percentage was a month ago.
In comparison, fellow “meme” stock AMC Entertainment Holdings Inc.
AMC,
has 23.6% of its float shorted and 20.8% of GameStop Corp.’s
GME,
float is shorted.
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Financial disruptions in 2008 contributed to the deep economic downturn that came to be known as the Great Recession. Could recent bank failures similarly lead to a broad U.S. recession?
The $532 billion of assets of the three banks that failed in March and April 2023 exceed the inflation-adjusted value of $526 billion of assets of the 25 banks that failed in 2008. Yet the current situation differs in many ways from the underlying economic circumstances at the outset of the Great Recession.
Still, that experience, as well as others, show how financial distress can lead to macroeconomic weakness which then contributes to further financial distress, resulting in a downward spiral during which credit becomes tight, investment is curtailed and growth stalls.
Bank distress can have adverse consequences for borrowers and the broader economy. One source of recent U.S. bank vulnerabilities is the rapid increase in interest rates. Banks take in deposits that can be withdrawn in the short term and use them to make loans and invest in securities at interest rates that are fixed for some time.
As interest rates rise, the value of banks’ existing portfolio decreases as new investments at higher rates are more attractive. By one estimate, the U.S. banking system’s market value of assets is $2.2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity.
These book losses are realized if banks have to sell those assets to cover withdrawals from depositors. At the same time banks face challenges in maintaining deposit levels, depositors are less willing to place their money in low-return checking and savings accounts as higher-interest opportunities become increasingly available.
Banks that failed in 2023 have had specific weaknesses that made them particularly vulnerable. Silicon Valley Bank (SVB), for example, was particularly exposed to risk from rising interest rates as it had heavily invested in longer-term government bonds which lost market value as interest rates rose and its management failed to hedge against this risk.
SVB was also especially vulnerable to a run by depositors because over 90% of the value of its deposits exceeded the $250,000 amount guaranteed by the Federal through the Federal Deposit Insurance Corporation (FDIC). Depositors holding accounts in excess of this guaranteed amount, both individuals and companies (whose accounts were used for making payroll, among other reasons) are only partially protected in case of bank failure so they have an incentive to withdraw funds at the first sign of trouble.
Moreover, depositors were connected to each other through business and social groups, so news traveled quickly seeding the conditions for a classic bank run at Twitter speed. Signature Bank also had about 90% of its assets uninsured and its portfolio was heavily concentrated in crypto deposits. Both banks grew rapidly with inadequate risk and liquidity management practices in place and, while regulators had raised concerns about these risks, they had not taken more forceful actions to address them, according to a GAO report. Meanwhile, First Republic Bank, catered to wealthy depositors and for this reason also had a high share of uninsured deposits that made it more vulnerable to a bank run as its bond assets lost value amidst rising interest rates.
Commercial banks reduce lending when their deposits fall or when they otherwise cannot meet regulatory requirements. Deposits represent an important source of banks’ ability to lend. As a bank’s deposits decrease, it has less resources available for lending since other sources of funds are not as easily obtained.
A bank may also cut lending in an effort to satisfy regulations such as meeting or exceeding the Capital Adequacy Ratio. Regulators require banks to have enough capital on reserve to handle a certain amount of loan losses. The Capital Adequacy Ratio decreases when loans fail and the bank sees its loan loss reserves decline. The bank can then increase its Capital Adequacy Ratio by using funds that would otherwise be devoted to commercial loans or by shifting from loans to other assets that are less risky (such as government securities).
There is evidence that this effect contributed to the cutback in bank lending in New England in the 1990-1991 U.S. recession when there was a collapse in that region’s real estate market. A bank may choose to reduce lending if there are concerns about solvency even if it is not yet hitting up against the formal capital adequacy ratio requirement.
A credit crunch occurs when borrowers who would otherwise receive loans are precluded from doing so because of a restriction on the supply of loans by banks. But a reduction in bank lending could also reflect a decrease in borrowers’ demand for loans.
Researchers have used a variety of methods to identify when there is a credit crunch rather than just a lower demand for loans. For example, a credit crunch could be identified through looking for differential borrowing, employment, and performance patterns by bank-dependent companies as compared to those that have access to financing through bond or equity markets. Bank-dependent companies are typically smaller than those that have access to other types of financing.
Credit crunches due to bank distress can undermine investment and economic growth. An early and influential analysis by Ben Bernanke, who went on to chair the Federal Reserve and served during the 2008 Great Financial Crisis, analyzed the effects of bank failures during the Great Depression. He found that bank failures had a particularly strong effect in reducing the amount of borrowing by households, farmers, and small businesses in that period, which contributed to the severity and duration of the Great Depression.
The U.S. banking system has been made more resilient since that time, but there is still evidence of the effect of a credit crunch on regional U.S. economies. The April 2023 IMF Global Financial Stability Report argued that a credit crunch in the United States could reduce lending by 1%, which would lower GDP growth by almost 0.5 percentage points.
Michael Klein is the executive editor of EconoFact. He is the William L. Clayton Professor of International Economic Affairs at The Fletcher School at Tufts University.
This commentary was originally published by EconoFact: Banks, Credit Crunches, and the Economy.
More: Justice Department to weigh updating banking competition rules
Also read: Senators make headway on clawing back pay from failed banks’ CEOs, as key committee advances bill
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U.S. stocks jumped on Tuesday, with the S&P 500 scoring its best daily gain in almost two weeks as technology shares climbed and housing data pointed to continued resilience in the U.S. economy, despite the Federal Reserve’s sharply higher interest rates. The Dow Jones Industrial Average
DJIA,
rose about 211 points, or 0.6%, ending near 33,926, according to preliminary FactSet data. The S&P 500 index
SPX,
gained 1.1%, posting its best daily percentage gain since June 15, according to FactSet data. The Nasdaq Composite Index
COMP,
rose 1.7%. Stocks appeared poised to resume a tech-fueled rally that has the S&P 500 up 14% on the year so far and the Nasdaq about 29.5% higher. The S&P 500’s information technology sector jumped 2% Tuesday, while Communication Services rose 1.1%. Bolstering the tone, new home sales surged 12.2% in May, while the S&P CoreLogic Case-Shiller 20-city house-price index climbed in April.
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U.S. stocks closed lower Monday, after Russia on the weekend was rocked by a brief revolt from the Wagner mercenary force. The Dow Jones Industrial Average
DJIA,
fell about 11 points, or less than 0.1%, ending near 33,715, according to preliminary FactSet data, giving up earlier gains in the final moments of trade. The S&P 500 index
SPX,
fell 0.4%, while the Nasdaq Composite Index
COMP,
closed down 1.2%. Stocks have been struggling to extend a recent rally driven by a handful of technology stocks that earlier in June lifted major indexes to their highest levels in more than a year. Investors and oil markets were on edge Monday after a brief mutiny in Russia over the weekend raised concerns about potential disruptions to global oil supplies. U.S. crude prices edged higher Monday, with West Texas Intermediate oil for August
CL00,
CLQ23,
ending slightly below $70 a barrel.
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UNITED STATES: Apartments and a small lake in Reston, Virginia, a planned development not far from … [+]
If you know what type of asset class you want to invest in and have found an opportunity, you’ll want to put together a business plan. This can include where the property is located, how you plan to improve it, and details related to the project. Once you have formulated the business plan, you might consider bringing in a partner—especially if you don’t have experience in real estate investing.
Since commercial properties typically have starting prices in the millions of dollars, new investors frequently struggle to gather the needed capital to make an acquisition. Rather than trying to figure it out alone, bringing on a great partner can help resolve these initial funding obstacles. If you connect with someone who has a track record of accomplishments and relationships with investors and lenders, it could be the perfect way to step into the game. Moreover, you’ll benefit from their experience and can pick up insight as you go through the investment process.
Use these guidelines as you search for a partner who can help you break in and achieve more in the commercial real estate space.
Look to see which investors, operators, and developers are actively carrying out projects that are similar to yours. Check online, read trade publications, and review what’s trading. Make a note of anyone you see who is already doing the type of project you want to emulate.
Oftentimes an established professional who is doing a larger project might be interested in the idea of bringing on a junior partner to do the day-to-day business on smaller deals. Suppose you’re looking to convert mixed use properties in Brooklyn. Maybe you’re considering a 10-unit multifamily with a store. There could be a developer who is doing a project involving 100 units with five stores. You could ask if they would consider partnering with you for a smaller arrangement. Offer to take care of the daily tasks and help with what’s needed.
Reach out to professionals you’ve worked with, including your attorney, mortgage broker, and investment sales broker. Tell them you’re looking for a partner for a potential project. Check if they have other clients or know developers who might be interested in hearing about your business plan. Your deal team could provide the inner track to get you connected with the right person.
Many cities have real estate associations—check your area to see what’s available at a local level. Look for national organizations and tap resources like Bisnow to see how you can connect. I helped found the Colgate Real Estate Council at my alma mater as a place where alumni, students, parents, faculty, and staff can connect with others in the real estate industry. Check alumni groups from your years of education, as they may open doors and lead to potential partners. Also review your social media channels and groups—sites like LinkedIn can be a powerful tool. Start following influencers who share information and updates on commercial real estate in your area; also reach out to others who share your same interests.
As you evaluate a potential partner, follow up on references they provide. Then go a step further and research their background and transactions. Find the lenders and brokers they worked with in the past and ask questions to see what they were like when doing business. Keep in mind that not every transaction has optimal results. Sometimes it’s equally as important to see how someone acted when things didn’t go as planned. Integrity goes a long way in this space, and you’ll want to work with others who have a stellar reputation (which will help you as you build your own too!).
While it’s easy to connect digitally today, there’s really no substitute for meeting someone in person and getting a feel for them. You’ll be able to identify what their values are and how they will act as a partner. You want to understand their traits and skills so you know exactly who you’ll be working with as you go into a deal. While expertise and a history of high-performing projects plays a role, the way they achieved their success is far more important.
When I started in real estate, I built a couple of strong relationships that have lasted for decades. In fact, throughout my 25-year career I have relied on these personal connections, as they have led to some of the best long-term deals that have outperformed the market. As you move ahead, choose a partner wisely—if done well, you can create a working relationship that is maintained in deal after deal.
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James Nelson, Contributor
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