maralago Photo by Joe Raedle/Getty Images

10 Must Reads for the CRE Industry Today (April 12, 2017)

If San Francisco Federal Reserve Bank President John Williams has his way, there could be up to four interest rate increases this year, Reuters reports. Geopolitical uncertainty is one of the themes accounting for the recent drop in 10-year Treasury yields, according to Business Insider. These are among today’s must reads from around the commercial real estate industry.

 

  1. Fed's Williams sees rate hikes, blasts tariffs: reports “San Francisco Federal Reserve Bank President John Williams said on Tuesday the U.S. central bank should raise interest rates three or four times this year, and begin to trim the Fed's multitrillion-dollar balance sheet in late 2017. ‘We need to further raise our benchmark interest rate and bring it back to a normal level over this year and next year, and we should also begin to normalize our balance sheet toward the end of this year,’ Williams said in an interview in the German publication Borsen Zeitung. ‘Three to four interest rate hikes seem appropriate this year,’ he said, adding that unemployment, at 4.5 percent, has already overshot what is in his view full U.S. employment. ‘It certainly makes sense that we position ourselves so that we are able to either pause or further increase toward the end of the year.’ In a separate interview, published by German paper Handelsblatt, Williams took aim at the possibility that U.S. President Donald Trump could follow through on a campaign promise to impose tariffs on China and other countries that run a trade surplus with the United States.” (Reuters)
  2. Treasury yields are sinkingTreasury yields are plunging as traders rush for safety amid renewed uncertainty surrounding geopolitical tensions in the Middle East and on the Korean peninsula. Aggressive buying has yields down as much as 7 basis points in the belly of the curve, and testing their recent lows…The 10-year yield has flushed below the 2.30% level, and is flirting with its lowest close since the week following President Donald Trump's Election Day victory. The benchmark yield reached a high of 2.64% in mid-March as traders speculated Trump's agenda would bring back inflation to the United States.  However, the Republican plan to repeal and replace Obamacare never made it out of the House of Representatives, and that has caused traders to question Trump's ability to forge ahead with other pieces of his agenda of rolling back regulations and cutting taxes.” (Business Insider)
  3. Lending for Commercial Property Falls as Investors Pull Back “Commercial real estate lending by banks, insurance companies and other financial institutions is declining as sales activity slows and regulators voice concern about the sector. Lenders closed roughly $491 billion of mortgage loans in 2016, down 3% from 2015, according to new statistics from the Mortgage Bankers Association. Most of the decline occurred in the fourth quarter, when volume was 7% lower than the same quarter in 2015, according to Jamie Woodwell, the trade group's head of commercial property research. Despite the decrease, the new volume number was the third highest since the association began doing the survey, behind 2015 and the record year of 2007. The decline between 2015 and 2016 was due partly to a slowing of property sales, meaning fewer buyers needed financing. "There's a very tight correlation" between the two, Mr. Woodwell said. Buyers, for their part, are getting jittery because values have been rising for eight years and are near record highs. In all, investors purchased $493.7 billion worth of U.S. commercial property in 2016, down 10% from 2015, according to data firm Real Capital Analytics.” (The Wall Street Journal, subscription required)
  4. Real-estate and construction sector is sole gainer among S&P 500 stocks “Shares of construction, real-estate companies and real-estate investment trusts led S&P 500 gainers on Tuesday, after some positive comment on the sector from industry insiders and a growing view among analysts that the sector’s recent drubbing may be overdone. Mall REITs in particular have seen their shares pummeled in the last year as investors react to the weak traffic trends and store closures that are making headlines in the retail sector. Data released last week by real estate researcher Reis Inc. showed vacancy rates in shopping centers rose in 28 of 77 U.S. metro areas in the first quarter from the year-earlier period, a slight improvement from the fourth quarter, The Wall Street Journal reported. Retail REIT executives speaking at the NYU Schack Institute symposium last week argued that malls cannot be lumped together as one but should be evaluated individually based on quality. Sandeep Mathrani, Chief Executive of GGP Inc. GGP, +0.37% said the pipeline of retailers seeking high-quality property is “very deep,” REIT.com and other media outlets reported. ‘If you invest in the best real estate, you will thrive,’ Mathrani said.” (MarketWatch)
  5. Care Capital to Acquire $400M Hospital Portfolio “Care Capital Properties Inc. recently announced that it has entered into an agreement to acquire six behavioral health hospitals, currently owned by affiliates of Signature Healthcare Services LLC, in a sale-leaseback transaction for approximately $400 million and to fund up to $50 million in capital expenditures to finance expansion and improvements in the portfolio. The properties are located in California, Arizona and Illinois and contain a total of 712 beds. The transaction is expected to be closed in the second quarter of 2017 and will be funded through cash on hand, disposition proceeds and borrowings under the CCP’s revolving credit facility. CCP expects to fund approximately $380 million at closing and will have an option, in the fourth quarter of 2018, to purchase one additional building for an amount that is expected to be approximately $20 million. The properties will be leased to affiliates of Signature on a ten-year triple-net basis, with five renewals of five years each. The initial GAAP yield on the transaction is expected to be approximately 8.7 percent and the investment was underwritten at 1.5x EBITDAR coverage on cash rent, while the full year GAAP accretion is projected to be approximately 13 cents. Signature has been advised by Goldman, Sachs & Co. in this transaction. Aurora Vista del Mar Hospital offers 87 beds and is located on a 16-acre site in Ventura, Calif. Part of the portfolio sale are also Aurora Charter Oak Hospital, located in Covina, Calif. and Aurora San Diego Hospital, located in San Diego. Aurora Charter Oak Hospital offers 146 beds and Aurora San Diego Hospital 80 beds.” (Commercial Property Executive)
  6. County considers special tax for Trump's Mar-a-Lago visits “Commissioners in a Florida county are so tired of spending money on President Donald Trump's frequent visits to his Mar-a-Lago resort that some are suggesting a special tax be levied against the property if the federal government doesn't reimburse its costs. Palm Beach County spends more than $60,000 a day when the president visits, mostly for law enforcement overtime -- almost $2 million since January. Sheriff Ric Bradshaw says the county was expected to spend $250,000 during Trump's recent meeting with Chinese President Xi Jinping, the president's sixth trip to his Winter White House in the 12 weeks since his inauguration. County Commissioner Dave Kerner has suggested turning Mar-a-Lago into a special taxing district and imposing a levy on the resort to pay the president's security costs. Because Mar-a-Lago is incorporated as a club, it pays lower property taxes than hotels. It also gets a tax break because Trump surrendered development rights after he purchased the property from the estate of cereal heiress Marjorie Merriweather Post for $10 million in 1985. The 500 members pay $14,000 annually in dues. The initiation fee was recently doubled to $200,000. Forbes Magazine estimates the club is now worth $150 million.” (CNBC)
  7. Germany’s BVK to Invest $805M in US Multifamily “BVK has initiated a USAA Real Estate Company-sponsored evergreen independent account. The account has been created for the purposes of investing $805 million in core multifamily properties within the United States. The move comes in the wake of BVK’s 2016 announcement it plans to add four specialized mandates focused on U.S. markets, including multifamily. The program strategy’s execution will call for USAA Real Estate Company (USAA RealCo) to target core, build-to-core and value-add acquisitions. These acquisitions will be situated in premier, central neighborhoods within major U.S. metropolitan market areas. The mandate’s objective is to assemble a portfolio of best-in-class rental properties that will generate robust cash flow yield, and in addition will demonstrate substantial potential for appreciation. These goals correspond to BVK’s long-term perspective and objective. USAA RealCo will invest a 10 percent ownership interest in all future acquisitions. The company will invest up to 30 percent in all future ground-up development transactions. The mandate was seeded with a portfolio comprised of six recently built, urban infill and transit-oriented properties in five major markets.” (MultiHousing News)
  8. Why Related pulled the plug on Auberge “A combination of Miami’s slowing luxury condo market and a landlocked location may have factored into the Related Group’s decision to cancel its planned Auberge Residences & Spa Miami condo tower near the Arsht Center. The 298-unit project, announced in 2016, was originally slated to break ground in 2017. Last summer, Related said it was pushing back the start date to late 2018, citing a slow market. That breather became a permanent slumber in December, when Related closed Auberge’s $2 million sales center at 1440 Biscayne Boulevard and returned deposits to buyers, according to story published Friday published Friday by The Real Deal and confirmed by a Related spokesman. Executives at Related were unavailable for comment. The location, several blocks west of the waterfront may have contributed to the decision, said Anthony M. Graziano, senior managing director of Integra Realty Sources Miami/Palm Beach (IRR). “The water is always a strong selling point...When the market starts to get thin, it's a lot easier to adjust your prices when you're on the water than when the location carries against you. That's important.'...‘We have to be a little more patient,’ Carlos Rosso, president of Related’s condo division, told the Herald in August. ‘I think it’s very good for all of us that the market takes a breather.’” (Miami Herald)
  9. A Different Los Angeles’: The City Moves to Alter Its Sprawling Image “Los Angeles conjures a particular image in the popular imagination: sprawling and spacious, dotted with single-family homes and riddled with traffic. But Angelenos have signaled that they are ready for a change, most recently by voting down a measure that would have slowed new construction for two years. The effort to slow construction, known as Measure S or the Neighborhood Integrity Initiative, was financed mainly by Michael Weinstein, the president of the Hollywood-based AIDS Health Foundation. Mr. Weinstein’s office is on the 21st floor of a Hollywood skyscraper with a view of the hills, next to the future site of two 28-story mixed-use residential towers. Mr. Weinstein said that kind of development was out of character for the neighborhood. He and other supporters of Measure S have contended that new luxury developments can contribute to rising rents. The Measure S campaign pitted slow-growth factions, who called the city’s planning process corrupt, against a coalition of public officials, developers, labor groups and others who conceded that while reform was necessary, so was growth.” (New York Times)
  10. Old oil drilling site could be converted into affordable housing “An oil company is trying to build affordable housing at a drilling site in Arlington Heights, amid concerns over the safety of the parcel. Sentinel Peak Resources acquired the 1.1-acre property on 4th Avenue in December, the Los Angeles Times reported, and is is now in talks with City Council about closing the site, cleaning it up, and converting it into an affordable housing complex. The Denver, Colorado-based firm already has the blessing of Council President Herb Wesson.This is an unbelievable win for a very active community,’ he told the Times. Neighborhood activists, however, caution that the idle wells on the site could leak chemicals. They are demanding Sentinel Peak comply with a city review of the facilities, which planning officials say they will move forward with.” (The Real Deal Los Angeles)
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