The Texas “Death Star” Bill

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According to LegiScan, House Bill 2127 (known as the “Texas Regulatory Consistency Act”) was signed into law by Gov. Greg Abbott on June 14 and will go into effect on September 1. According to the bill text, “[t]he purpose of th[e] Act is to provide statewide consistency by returning sovereign regulatory powers to the state where those powers belong in accordance with Section 5, Article XI, Texas Constitution.”

The law amends certain sections of the Texas Code with a field preemption clause stating that “[u]nless expressly authorized by another statute, a municipality or county may not adopt, enforce, or maintain an ordinance, order, or rule regulating conduct in a field of regulation that is occupied by a provision of this code. An ordinance, order, or rule that violates this section is void, unenforceable, and inconsistent with this code.” According to ChangeLab Solutions, preemption is a legal doctrine that allows a higher level of government to limit or even eliminate the power of a lower level of government to regulate a specific issue.

Bloomberg reports that HB 2127 explicitly strips from cities the ability to set or enforce eviction regulations. Four Texas cities have eviction-related ordinances on the books today, according to the report, including Dallas which has established a ten-day “right to cure”, affording tenants a window of time to avoid eviction by catching up on their rent or applying for rental assistance. Bloomberg, citing Mark Melton (a Dallas-based attorney and housing advocate), reports that under HB 2127, those rights would be preempted.

The law (HB 2127) states that “[a]ny person who has sustained an injury in fact, actual or threatened, from a municipal or county ordinance, order, or rule adopted or enforced by a municipality, county, or municipal or county official acting in an official capacity in violation of any of the [listed] provisions or a trade association representing the person has standing to bring and may bring an action against the municipality, county, or official” and may recover declaratory and injunctive relief, costs and reasonable attorney’s fees.

Opponents of the legislation have nicknamed it the “Death Star” bill and see it as being part of a prolonged effort by those on the political right to rein in the power of Texas’ left-leaning metropolitan areas, according to Bloomberg.

New York’s LLC Transparency Act Aims To Correct the “Public Policy Mistake” of Anonymous Corporate Ownership and Require Public Disclosure of Beneficial Owners

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The New York legislature passed the LLC Transparency Act (Bill No.: A03484A) on June 20. According to the Bill Memo, the bill aims to end the practice of anonymous ownership of limited liability companies in New York by defining beneficial ownership, requiring the disclosure of the identities of beneficial owners upon company formation or registration, and publishing beneficial owners of limited liability companies in New York’s publicly searchable business entity database. The Memo goes on to state that “[a]nonymous LLCs leasing real property are correlated with more numerous code violations, higher rents, and more evictions compared to non-corporate owners.” According to Commercial Observer, Assembly member Emily Gallagher of Brooklyn introduced the LLC Transparency Act and State Senator Brad Hoylman sponsored the bill in the Senate. Globest.com reports that the bill, which drew support from trade unions and public policy groups, is expected to be signed by Gov. Kathy Hochul.

The bill adopts the same standards promulgated by the Treasury Department pursuant to the Corporate Transparency Act and requires that the same information also be filed with New York’s Department of State, according to the Memo, which notes that the bill creates a waiver process “[t]o protect genuine privacy interests that some individuals may have”. A key difference between the LLC Transparency Act and the federal statute (Corporate Transparency Act) is that FinCEN’s database is held private in a confidential, encrypted database, whereas New York is creating a publicly available database on the NY Secretary of State’s website, according to Globest.com.

Minimum Energy Efficiency Standards and Their Impact on UK CRE

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Minimum Energy Efficiency Standards (MEES) are regulations requiring a minimum energy efficiency standard to be met before properties in England and Wales can be leased or sold. The standards are measured by an energy performance certificate (EPC) rating. According to Chesterfield Borough Council, EPC ratings range from A (most energy efficient) to a G (least energy efficient); they are valid for 10 years; and landlords can be fined if they don’t obtain an EPC when they need one.

Leased commercial properties in England and Wales must have an EPC rating of E or higher, except where certain exemptions apply. This minimum rating requirement will go up over time, according to Retail Gazette, which reports that the government will ban commercial properties from being rented out unless they carry a minimum energy performance rating of “C” by 2027 and “B” three years later. According to Gordons LLP, landlords must register for the exemptions as they are not automatic; the exemptions last for five years but are personal to the owner. Thus, if the landlord sells the property during the five-year period the new owner would have to re-register for the exemption. Property Reporter states that the maximum penalty for commercial property noncompliance is £150,000.

Savills research indicates that around 73 percent of London office space (with a registered EPC rating) currently have a rating of EPC D or lower and his percentage jumps to 96 percent, when considering premises with an EPC rating of “C” or lower. The Telegraph (citing data from Savills) writes that new energy standards will make 91 percent of all retail space including high street stores and shopping centers across UK city centers unleasable by 2030 without urgent and costly action; and it will cost between £55bn and £90bn to upgrade retail stock across Britain, with around £10bn needed in London alone. Financial Times reports that the City of London is planning to fast-track applications to convert unused older offices for new purposes such as hotels to avoid buildings remaining empty as stranded assets. Older buildings that do not meet tightening environmental standards are likely to struggle to attract tenants, as companies switch to hybrid working and property owners face mounting debt costs amid rising interest rates, according to FT.

S&P Global: 576 U.S. Banks Exceeded Regulatory Guidance on CRE Loan Concentration by the End of Q1–2023

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A total 576 U.S. banks exceeded regulatory guidance on CRE loan concentration by the end of Q1–2023, an increase of 30.3 percent compared with a year earlier, according to S&P Global Market Intelligence. Regulators increase their scrutiny of banks that exceed either of two thresholds: 1.) construction loans with at least 100 percent of risk-based capital; or 2.) CRE loans with at least 300 percent of risk-based capital levels and 50 percent growth in CRE over the past 36 months, according to the report.

Fitch Ratings reports that banks are the largest participant in the office loan market with roughly $720 billion in outstanding loans and “[a]ssuming a hypothetical stressed loss rate of 20 [percent] for these loans … this results in about $145 billion of cumulative losses, or 8 [percent] of the sector’s $1.76 trillion of tangible common equity, which banks should be able to absorb over time as they work through their maturities and renewals.” Fortune (citing data from MSCI) reports that the amount of distressed commercial property assets rose 10 percent in Q1–2023, climbing to nearly $64 billion.

On a separate but related note, according to Investor’s Business Daily, Deutsche Bank estimates that a resumption of student loan payments will cut consumer spending by up to $14 billion per month ($305 per borrower). Goldman Sachs estimates (reported in IBD) that personal consumption spending could face an average hit of six-tenths of a percentage point in the last four months of 2023, however, if the U.S. Supreme Court permits the Administration’s student loan forgiveness plan to stand, this drag on spending would be cut in half. If the court strikes down the $400-billion forgiveness program, the U.S. economy could face a close brush with recession, according to the report.

“The Hamptons of the Middle East”

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In November 2022, Reuters reported that The Trump Organization has partnered with Saudi developer Dar Al Arkan, to license the Trump Brand to a $4 billion project in Oman that includes a golf course, hotel and villas. Named AIDA, the mixed-use project will be developed over 10 years on an area of 3.5 million square meters located on a 100-meter-high hilltop in Muscat, according to Business Traveller. The Oman Daily Observer reports that AIDA is nestled within the masterplan of Yiti Integrated Tourism Development.

In March, Dar Global (the international real estate arm of Dar Al Arkan), announced that it has officially launched sales of AIDA, which it reports is a joint venture with Omran Group, the Sultanate’s executive arm for tourism development. The New York Times reports that “[t]he Omani government is providing the land for the development, is investing heavily in the infrastructure to support it and will get a cut of the profits in the long run.” The Times also reports that “Trump Organization will not put up any money for the development, but will help design a Trump-branded hotel, golf course and golf club and will be paid to manage them for up to 30 years, among other revenue.”

According to Salon, Eric Trump, the former U.S. president’s son, has described the new affluent community as being “the Hamptons of the Middle East.”

Record Loadshedding Fuels Demand for Solar Panels in South Africa

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South Africa is experiencing a 15-year power crisis that is causing widespread rotational power cuts, known as loadshedding. In 2022, there were 3,773 hours of loadshedding (the most intensive year of loadshedding in South Africa’s history), according to CleanTechnica. The record levels of loadshedding have surged demand for solar panels. In the first five months of 2022, South Africa imported solar photovoltaics (“PV”) panels worth nearly 2.2 billion rand ($135 million), according to Reuters. The South Africa Rooftop Solar Market size is expected to grow from 1,983.66 megawatt in 2023 to 2,920.05 megawatt by 2028, at a CAGR of 8.04 percent during the forecast period 2023 to 2028, according to Mordor Intelligence.

Retail, office and industrial properties in South Africa’s five largest cities have 68.7-million square meters of rooftops that have no solar panels, according to a study by Gmaven, cited in Bloomberg and Engineering News. Installing solar panels on two-thirds of the commercial properties in these cities’ main nodes would cost as much as R55 billion, yet could generate electricity that leads to R12.3 billion of savings each year, according to the Gmaven study, which found that only 6.4 percent of the 41,000 properties it surveyed already have solar panels in place.

According to South Africa’s National Treasury, the Minister of Finance announced a solar panel incentive on February 22, 2023. The program is intended to encourage households to invest in clean electricity generation capacity which can supplement the existing electricity supply. Individuals who pay personal income tax will be able to claim a rebate (against their tax liability) to the value of 25 percent of the cost of new and unused solar PV panels, up to a maximum of R15,000 per individual. The rebate is not intended for solar installations at business premises.

BDO South Africa states that “[i]n the residential rental market, tenants are becoming much more solar savvy when it comes to choosing their rental property and are more likely to seek properties that already have renewable solutions in place.” According to BDO, almost all major banks now offer loans to finance backup utilities, including solar panels.

Brazil Economy Update: June 2023

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According to The Washington Post, Brazil’s gross domestic product (GDP) expanded four percent on an annual basis in the first three months of 2023; the country’s rate of inflation is at 3.9 percent; CPI is seen finishing the year at 5.42 percent; and the Selic (Brazil’s federal funds rate) is currently at 13.75 percent.

On June 14, 2023, S&P Global Ratings revised the outlook on its long-term global scale ratings on Brazil to positive from stable, stating that “[t]he positive outlook reflects signs of greater certainty about stable fiscal and monetary policy that could benefit Brazil’s still-low GDP growth prospects.” Nasdaq (citing data from IBGE) reports that retail sales in South America’s most populous country rose 0.1 percent in April compared with the previous month and sales also increased 0.5 percent on a yearly basis in April.

According to Mordor Intelligence, the size of Brazil’s Commercial Real Estate market is $37.71 billion this year and is anticipated to register a Compound Annual Growth Rate (CAGR) of over four percent during the forecast period 2023 to 2028. Average asking rent for high-end office space in São Paulo was BRL 89.18/sq. m/month in Q1–2023 and the vacancy rate stood at 24 percent, according to Newmark’s Sao Paulo Office Market Report. In Rio, the average asking rent (Class A office, CBD A) was BRL 84.73/sq. m/month in Q1–2023, with the vacancy rate at 27.5 percent, according to Cushman.

Canada’s Household Debt Level Is the Highest Among G7 Nations

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The Canada Mortgage and Housing Corporation reports that as of 2021, the country’s household debt was at 107 percent of its GDP, and its “very high levels of household debt … makes the economy vulnerable to any global economic crisis.” Three-quarters of Canada’s household debt comes from mortgages, according to the report, which states that “[l]onger term, reestablishing housing affordability in Canada will be key to reducing household debt [for those Canadians who choose] to become homeowners.”

At the beginning of this year, Canada enacted a two-year ban on non-Canadians purchasing residential real estate in the country in an effort to alleviate unaffordability. According to the BBC (citing data from the Canadian Real Estate Association), the average home price in Canada is C$716,083 ($528,000; £426,000); homes in Toronto average about C$1.15MM; and in Vancouver, the average price for a residential property is around C$1.29MM.

Westfield To Relinquish Ownership of Its San Francisco Centre Mall

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Westfield has decided to surrender the nine-story San Francisco Centre mall to its lenders, according to The Real Deal, which reports that the firm—owned by Paris-based Unibail-Rodamco-Westfield and its partner, New York-based Brookfield Properties—will cease making payments on a $558 million loan. According to The New York Times, Westfield has stated that at San Francisco Centre, sales fell 35 percent from 2019 to December 2022 whereas in nearby San Jose, sales increased 66 percent during that same period and sales across its 18 U.S. malls rose 23 percent.

Forbes reports that Nordstrom is pulling out of Westfield San Francisco Centre at the end of August by opting not to renew its lease, which will leave the mall 45 percent empty, according to the Times. A blog post at the CATO Institute notes that even before Nordstrom announced the closure, S&P had estimated that the mall’s value had declined by over 70 percent since it was appraised in 2016. Cinemark Century San Francisco, which was the movie theater at Westfield San Francisco Centre, closed permanently on Thursday (June 15) shortly before the conclusion of its lease term and “following a comprehensive review of local business conditions”, according to ABC7 News, which quotes a statement from a Cinemark representative.

According to S&P Global Ratings, “Westfield San Francisco Centre and San Francisco Emporium is a 1.45 million-sq.-ft. mixed-use (1.2 million sq. ft. of retail [553,366 sq. ft. of which is collateral] and 241,255 sq. ft. of class B office space) property located at 865 Market Street in downtown San Francisco. The Westfield San Francisco Centre portion was originally developed in 1988. The San Francisco Emporium portion, which was a redevelopment of the Emporium department store that dated back to the 1890s, was co-developed by the sponsors in 2006 into retail and class B office space.” European multinational commercial real estate company Unibail-Rodamco-Westfield SE (previously Unibail-Rodamco SE) acquired Australian shopping center operator Westfield Corporation in June 2018, according to Wikipedia.

U.S. Consumer Spending Remains Resilient but With Indications of Increased Angst and Caution

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According to the U.S. Census Bureau, “[a]dvance estimates of U.S. retail and food services sales for May 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $686.6 billion, up 0.3 percent (±0.5 percent)* from the previous month, and up 1.6 percent (±0.7 percent) above May 2022.” The 0.3 percent increase is above economists’ expectations of a 0.1 percent decline, according to Refinitiv (reported at CNN). [“*The 90 percent confidence interval includes zero. There is insufficient statistical evidence to conclude that the actual change is different from zero.”]

There are signals that inflation, higher interest rates, more stringent credit conditions and the impending resumption of student loan payments are impacting consumer choices. According to a CNBC and Morning Consult survey (reported at CNBC), 92 percent of Americans are pulling back spending, with concerns particularly heightened among middle-income Americans (those who make between $50,000 and $100,000 per year) who report being “somewhat” or “very” worried about higher prices. Sourcing Journal reports that spending on apparel and footwear continued to slow in April, up just 2.7 percent from the same month last year marking the fourth consecutive month of decline.