Good morning, readers.
Commercial real estate owners might have a new tactic for dealing with properties made undesirable in the current climate — just default on the mortgage when it matures. The threat of simply not paying could be a powerful bargaining chip against lenders who probably aren’t interested in getting into the property-ownership game themselves.
Meanwhile, as the federal government moves to address the immediate fallout of two high-profile bank failures,The Business Journals’ Andy Medici takes us deeper into the potential consequences on the larger banking system.
Read on to learn more about those and other top news and trends in U.S. business to start your day.
Recent loan defaults by major office landlords Brookfield Property Partners LP and Columbia Property Trust might not herald widespread defaults, but they could represent a tactic for owners looking to unload properties that are undesirable in the current market, reports Ashley Fahey of The Business Journals.
The landlords defaulted on loans backed by prominent office properties they own. But from Brookfield’s perspective, for instance, the two office towers backing its defaulted loans represent about 1% of its portfolio, said Nick Villa, associate director at Moody’s Analytics Inc. — and that’s probably not enough for the default to hurt, especially since the prospective income from the properties goes down with rising interest rates.
“The math isn’t really working out on these properties,” Villa said of the Los Angeles towers.
The threat of defaulting rather than paying out mature loans could be a strong bargaining chip for the growing number of landlords in a similar situation. Most lenders, however, aren’t in the business of owning real estate, especially assets distressed enough to be worth this kind of tactic.
Thomas LaSalvia, senior economist at Moody’s, saidmost lenders will try to work with the current management to see if the owner is willing to put in any additional equity.
“But that owner might just have no interest in it,” LaSalvia said. “It’s a very interesting back-and-forth, I think, these parties are going to go through. (Those) lending institutions, they really are not in a good situation to figure it out on their own.”
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The end of last week and the start of this one brought rapid-fire failures at two banking institutions, Silicon Valley Bank (Nasdaq: SIVB) and Signature Bank (Nasdaq: SBNY). The closure of these banks may indicate a reckoning is at hand for the industry, reports Andy Medici of The Business Journals.
The federal government has already stepped up with guarantees, alleviating some of the short-term concerns surrounding the closures, but the big question is whether regulators’ actions will be enough to prevent additional failures, calm depositors and avoid future bank runs.
“The challenge that policymakers face is that they are stuck between the need to provide security to the banking system and to the financial system and what some would call the moral hazard question,” said John Rizzo, a senior vice president of public affairs at the Clyde Group. “If you provide support to banks that maybe made bad judgments on how they used their resources, are you incentivizing more of it in the future?”
Experts say the nation’s regional banks are likely to face the stiffest headwinds in the coming days and weeks, as they serve larger customers with more unsecured deposits than small community banks but lack the too-big-to-fail perception of their heavyweight counterparts.
The heart of the issue for the two recent failures is a mismatch between the short-term deposits and long-term investments that made it hard to adjust when depositors asked for their money back, said Bert Ely, an expert on monetary policy and banking regulation at the Cato Institute.
But while other banks have similar portfolios, both banks had exacerbating factors, which means that some limited number of further failures may be on the horizon without a broad systemic collapse.
As vehicle manufacturers spend billions of dollars shifting production to electric vehicles, other parts of the industry are making their own changes. For instance, you might start noticing changes as local as your auto dealership, as many such businesses are upgrading their own facilities to meet demand for electric-vehicle charging and more, reports Connor Hart of the St. Louis Business Journal.
Hart spoke with dealership owners and managers in St. Louis who are ramping up the number of EV charging stations at their sites, updating showroom displays for electric vehicles, training technicians and upgrading power infrastructure to handle the increased load.
Some dealerships are even gearing up to serve a new function as the gas station analogue for electric vehicles. Some car manufacturers are adding a little extra encouragement to that effect by requiring dealerships to maintain charging stations in the hopes that they might sooth potential customers’ anxiety about vehicle range.
“If every Ford dealership (installs) high-speed chargers, which they’re doing, then 95% of Americans will be within 20 minutes of a high-speed charger,” said Brad Sowers, the president of Jim Butler Auto Group who recently acquired a Ford Motor Company dealership, said. “That statistic kind of blew my mind.”
A quirk of the Inflation Reduction Act could drive the type of products biotechnology companies try to develop, reports Rowan Walrath of theBoston Business Journal.
For instance, biotech investor Peter Kolchinsky, who manages the Boston-based RA Capital Management, is already advising one of his portfolio companies to formulate a new drug as a biologic — a large molecule made from a living cell line — rather than a small molecule, which is chemically derived, even though the small molecule is theoretically cheaper to produce.
That’s because the IRA gives drugmakers more time with biologics before Medicaid can start negotiating prices: 13 years after Food and Drug Administration approval, versus nine years for small molecules.Those extra four years of control over the drug price could mean significantly more profits.
Chicago-based Invenergy LLC is investing in a new, $600 million manufacturing joint venture called Illuminate USA in Pataskala, Ohio, reports John Bush of Columbus Business First.
Illuminate will manufacture solar panels, bringing 850 jobs to central Ohio. Invenergy, which already has a number of solar projects in the state, will be the anchor customer for the facility.
As demand for renewable power in the U.S. grows, so too will the importance of a domestic supply chain, said Art Fletcher, executive vice president of global sourcing at Invenergy. Construction is slated to begin in April. Once complete, the facility would deliver as much as 5 gigawatts of solar module capacity per year. That represents nearly 50% of total U.S. utility-scale solar installations last year.
New York-based Pfizer Inc. (NYSE: PFE) has reached a $43 billion agreement to acquire Bothell, Washington-based biotech company Seagen Inc. (Nasdaq: SGEN), reports Rick Morgan of the Puget Sound Business Journal.
The deal brings four more regulator-approved cancer drugs into Pfizer’s stable, which already included 24 such medications. From Pfizer’s perspective, the deal broadens its footprint in oncology, which CEO Albert Bourla said is the largest growth driver in global medicine.
The deal is set to close by early next year, though it will still need to get approval from regulators and Seagen shareholders.
As interest rates rise and the financials behind homebuying tighten up, Paris Dean wants to remove the middleman from the process, reports Matt Hooke of Maryland Inno.
His Towson, Maryland, startup Sparen connects homebuyers and sellers directly without going through a Realtor, as opposed to other sites that function as advertising platforms for realtors.
Sparen’s 2020 pilot program facilitated $112 million in real estate deals over the course of 72 days. Dean is now preparing for a second launch in March, which already has 16,000 users waitlisted.
Sparen plans to roll out to a new state once every two months, starting with Michigan and Florida.
Thanks for reading. Be sure to check back tomorrow for the latest on business news and trends, and email any questions or comments to jmann@bizjournals.com.
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