All Forum Posts by: Sanjeev Advani

Tempur Sealy, the world's largest mattress supplier, is divesting 176 Mattress Firm and Sleep Outfitters stores to gain approval for its $4 billion acquisition of Mattress Firm. The deal with Mattress Warehouse addresses antitrust concerns raised by the FTC, which has challenged the merger, fearing it would stifle competition and raise prices.

Tempur Sealy expects the acquisition, combined with the divestiture, to solidify its market dominance, with over 2,800 retail locations worldwide. The FTC’s scrutiny reflects its broader efforts to curb retail mergers, including those involving Kroger and Tapestry. Hearings on the acquisition will begin in November, with the deal expected to close by late 2024.

Single-family rental (SFR) and build-to-rent (BTR) properties have seen a surge in demand over the past five years, but the sector is now confronting a slowdown. Despite rising interest from young families and institutional investors, the number of new SFR and BTR units is expected to decline sharply, from 34,000 in 2024 to just 9,500 in 2025, a 73% decrease.

While demand remains, rent growth in this segment has turned negative, falling by 0.8% in Q2 2024 due to higher vacancies in 2023. The challenges stem from cautious equity investment and local opposition to these developments, which are believed to attract large families with school-age children.

LL Flooring, formerly known as Lumber Liquidators, is closing all 430 of its retail stores after failing to secure a buyer during its Chapter 11 bankruptcy process. The flooring retailer is the latest in a growing list of companies forced to shut down due to changing market conditions, rising competition, and the lingering effects of the COVID-19 pandemic.

The company’s financial struggles began after the pandemic-fueled home improvement boom fizzled out. In addition to store closures, LL Flooring is liquidating a large distribution center in Virginia. With over 3 million square feet of retail space soon to be available, the closure marks a significant shift in the retail landscape.

The company, which rebranded in 2022 to distance itself from past legal controversies, including a 2015 class-action lawsuit over unsafe laminate flooring, ultimately could not overcome its financial hurdles.

CBRE’s latest survey reveals a potential turning point in the office market. Among 225 corporate real estate executives surveyed across the U.S., Canada, and Latin America, 38% expect to expand office space over the next three years, up from 20% last year. Meanwhile, the percentage of companies planning to downsize dropped to 37%, the lowest since 2021.

Julie Whelan of CBRE noted positive net absorption for the first time since Q3 2022, signaling potential recovery. However, office vacancy rates are still expected to peak in mid-2025 at 19.8%.

Smaller companies are stabilizing and shifting toward expansion, while 58% of larger firms continue downsizing. The report emphasizes the need for CFOs to leverage data on submarket dynamics to negotiate better deals.

While challenges remain, the office market’s evolving landscape presents growth opportunities for strategic decision-makers.

Long Beach, California, is revitalizing its historic Queen Mary ship and hotel to attract tourists during the 2028 Los Angeles Olympics. Once on the verge of being scrapped, the ship has undergone $45 million in repairs, boosting visitor numbers and profitability. City officials plan to make the Queen Mary a centerpiece of their Olympic tourism strategy, alongside hosting five Olympic events.

In addition to refurbishing the ship, Long Beach is developing its downtown and waterfront areas, including a new amphitheater and commercial spaces. While challenges remain, officials hope to leverage Olympic visibility to increase tourism and support broader economic growth. The Queen Mary’s resurgence, with expanded hotel capacity and popular attractions like ghost tours, is a key part of this effort. City leaders are optimistic that these developments will help transform Long Beach into a modern tourism and business hub.

The Nordstrom family is making a renewed effort to take their iconic department store chain private, marking their second attempt since 2017. Teaming up with Mexican retail giant El Puerto de Liverpool, the family has made a $3.8 billion bid at $23 per share.

Nordstrom, like many department stores, is struggling with changing retail trends, including competition from discount chains and the rise of online shopping. If successful, this move would give the Nordstrom family 50.1% control, while Liverpool would own 49.9%.

The first attempt in 2018 failed due to an inadequate offer. However, this time, with stronger financial backing, the family is hoping to regain control and potentially monetize their 350 locations, including the flagship Seattle store and Nordstrom Rack outlets.

The outcome remains uncertain, but this bold move could shape Nordstrom’s future in a challenging retail environment.

Topgolf Callaway Brands is set to split into two independent companies, Callaway and Topgolf, by the second half of 2025. This move comes after a strategic review, three years after the merger of the two companies. It aims to streamline operations and improve financial performance.

Callaway, which leads the U.S. market in branded golf clubs and is second in branded golf balls, will focus on growing its equipment business, while Topgolf will continue expanding its entertainment venues. In 2024, Topgolf plans to reduce its venue pipeline to between four and six locations to free up cash for the spinoff. After the separation, Callaway will retain financial debt, while Topgolf will emerge as a debt-free entity.

CEO Chip Brewer emphasized Topgolf’s potential as a free cash flow-generating business with strong future prospects. Both companies expect to benefit from optimized capital allocation and simpler operations as they focus on their core strengths in the post-spinoff phase.

August 2024 payroll numbers continue to show a resilient job market, despite revisions expected to push the data higher, following a trend seen in previous years. Economists note that job growth in typically underreported industries fell by 42,000 compared to the 6-month average, suggesting August’s numbers may understate actual gains.

• Construction: +34,000 jobs, driven by heavy civil engineering and nonresidential trade contractors.
• Healthcare: +31,000 jobs, though slower than the past year's monthly average of 60,000.
• Social Assistance: +13,000 jobs, with more modest growth compared to previous months.
• Other growing sectors include financial activities, wholesale trade, and government (+24,000 jobs).

• Manufacturing: -24,000 jobs.
• Retail: -11,100 jobs.
• Temporary help employment continues to shrink, reflecting business uncertainty.

Wages rose by 0.4% in August, up 3.8% year-over-year, supporting a cautious approach by the Federal Reserve on deeper rate cuts. A 25 basis point cut is likely, with a 75% probability, as the Fed weighs solid wage growth and labor market strength.

Part-time employment surged by 264,000, reflecting business caution. Meanwhile, the U.S. needs 145,000-200,000 new jobs each month to keep up with population growth, spurred by increased immigration.

Conclusion

While job market momentum has slowed, it's not breaking. The August report underscores a resilient economy, supported by wage growth and increasing work hours, signaling adaptability to changing dynamics as we look toward the Fed’s next move.

Despite concerns over store closures, demand for retail space surged in the second quarter of 2024. Retail tenants filled nearly 13 million square feet, marking an 80% increase from the first quarter and the 14th consecutive quarter where more space was filled than vacated. However, availability remains tight, with a record-low vacancy rate of 4.5%.

Retail move-ins reached 86.3 million square feet, while move-outs balanced the market at 86 million square feet. The 13 million-square-foot demand increase was mainly due to new pre-leased spaces becoming available.

Looking ahead, demand for retail space is expected to remain strong despite upcoming store closures, as expansion plans from tenants are likely to offset vacancies. Retail real estate continues to be a valuable asset amid limited availability and high demand.

Big Lots has filed for Chapter 11 bankruptcy and agreed to a $620 million sale to Nexus Capital Management. The deal is part of the retailer's plan to restructure and focus on profitability by 2025. Nexus Capital will serve as the stalking-horse bidder, acquiring most of Big Lots' assets and operations.

The company, known for selling home goods through closeouts and liquidations, secured $707.5 million in financing to support operations during the bankruptcy process. CEO Bruce Thorn noted Big Lots would close underperforming stores and focus on optimizing its store fleet. The retailer previously announced plans to shut up to 315 locations.

Big Lots joins several other retailers, like LL Flooring and 99 Cents Only, in filing for bankruptcy as the industry grapples with inflation and changing consumer habits. Nexus Capital sees potential in Big Lots, and the sale is expected to close by the end of 2024.