10 Must Reads for the CRE Industry Today (August 29, 2015) Photo by Drew Angerer/Getty Images

10 Must Reads for the CRE Industry Today (August 29, 2015)

 

  1. Real Estate Strikes Out on Its Own in the Stock Indexes “Since its inception, the financial sector has included banks, real estate, insurance companies and diversified financial groups. But in 2014, as part of regular reviews of the indexes, MSCI and what by then had become S&P Dow Jones Indices decided to create an 11th sector, real estate. (They also added a subindustry group for copper.) David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said the decision came after lengthy debate on how real estate’s role in investing had changed since the standard was created. ‘Think back to 1999 or 2000,” he said. “No one really talked about investing in real estate. We were trying to recover from the tech boom and bust.’ But in the years since, the market capitalization of real estate investment trusts, or REITs, which allow investors to buy stock in companies that own real estate, jumped to $900 billion in 2014 from $124 billion in 1999. Mr. Blitzer said the teams at S.&P. and MSCI agreed that it was time to give real estate its own sector. The changes will go into effect on Aug. 31 for MSCI-managed indexes and on Sept. 16 for S.&P.’s indexes. The question of what the change means in the short and long term for investors has been the subject of much debate. And that has led investors to think about the value of real estate investing more broadly.” (The New York Times)
  2. U.S. Commercial Market to Benefit from EU's Recent Brexit Vote “According to a new report by Transwestern, the impact of Brexit will be long and protracted, which will likely result in increased volatility in the capital markets. In the short term, the impact has been generally positive for the U.S. with the flight to safety driving down 10-year treasury notes to a new historic low of 1.39%. In addition, a new headline sector under the Global Industry Classification Standard (GICS) for Real Estate, effective Sept. 1, 2016 bodes well for the industry, as it speaks to the sector's growth over the last two decades. The change is expected to bring $100 billion of inflows from equity funds into the REIT sector. Transwestern reports these positive indicators for commercial real estate even as the U.S. economy loses some steam. April and May sales and consumption numbers were strong, but corporate profits, business investment and job growth continue to decline, leading to an underwhelming second-quarter GDP growth of 1.2%. Commercial real estate has enjoyed positive fundamentals and ample liquidity on the equity side, but the debt side saw some contraction in the first half of 2016, primarily in CMBS and bank financing.” (World Property Journal)
  3. Chinese investors are shaping the look of Downtown “The Downtown Los Angeles skyline has never really been a point of pride for locals. With it’s lack of density or distinguishing high rise architecture, it barely squeaks by Omaha in a head-to-head battle for most photogenic. That might change very soon, thanks in part to the recent influx of Chinese investment in LA real estate. Billions of overseas dollars are transforming acre upon acre of land in Downtown into sleek, sometimes gargantuan, new developments. According to the Los Angeles Times, since 2014, Chinese developers have been behind at least seven of the last 18 land deals Downtown in excess of $19 million. In that same time period, the four highest prices paid per square foot for land in Downtown were by Chinese investors. Perhaps the scale of development is best encapsulated by Mark Tarczynski of Colliers International, who tells the Times, ‘when all these megaprojects are finished, they’re going to have to reshoot the postcard picture of downtown L.A.’ Among the half a dozen Chinese real estate projects coming to Downtown are several large scale projects that will add multiple towers the skyline.” (Curbed Los Angeles​)
  4. Developers want to build luxury condo — for cars, not people — in Overtown “Would you park your Porsche or Maserati in Overtown? Developers plan to build a condo — for cars, not people — on mostly vacant land in the historic neighborhood struggling with high crime and low employment. The seven-story storage facility would include a members-only social club and roof-top restaurant. No one will live there. It’s a place to store and show off your ride and mingle with other collectors, with 24-hour security. ‘A lot of people that own second or third homes here in Miami, when they leave to go back to wherever they live, they take vehicles that are high in value and they store them,’ said developer Louis Birdman, who’s also part of the team behind ultra-luxury One Thousand Museum condo tower in downtown Miami. ‘We’re trying to make a space where they can display their cars in a gallery-type setting and get together with people who share their interests.’ The site sits just west of I-95 at 375 NW 7th St. near the Lyric Theater. Prices for the 45 climate-controlled units range from $350,000 to more than $1.5 million. Buyers can also outfit them with wet bars and sound systems.” (Miami Herald)
  5. What Trump Or Clinton Could Mean For Commercial Real Estate “Regarding long-term capital gains, Trump would cap taxes on capital gains at a top marginal rate of 20%, Wohl reports. Trump also proposes to eliminate the net investment income surtax. Given the reduction in rates here, Trump, on his website, says, ‘many of the current exemptions and deductions will become unnecessary or redundant,’ so that ‘those within the 20% bracket will keep more than half of their current deductions and those within the 25% bracket will keep fewer deductions.’ Clinton would charge a minimum 30% tax on incomes over a million dollars, and she’d raise the total tax rate to 43.6% for those making over $5 million, according to reports. ‘Additionally, she would limit the value of tax deductions, and require longer holding periods to get the low long-term capital gains tax rate plus other rulings that would make the tax code less favorable to the affluent,’ said Wohl. Trump had tweeted in February, ‘It is so important to audit The Federal Reserve’ – a reference to an ‘Audit the Fed’ Senate bill that the central bank fiercely opposes, Wohl comments. “He has said the Fed played a role in stoking asset bubbles and predicted a ’very massive recession.’ Last year, before the Fed raised rates in December, Trump accused the central bank of keeping interest rates low at the bidding of President Barack Obama, something the White House has denied. ‘It doesn’t appear that Clinton has weighed in on whether or not the Federal Reserve should raise its key interest rate, Wohl notes. However, in May, Clinton came out in favor of reforming the Federal Reserve including reducing the number of bankers in key central bank positions. Clinton called for the Fed to increase the racial and gender diversity of its leadership, and ban private bankers from the boards of the 12 regional Fed banks. In a statement she said: ‘The Fed needs to be more representative of America as a whole,’ adding that ‘common sense reforms—like getting bankers off the boards of regional Federal Reserve banks—are long overdue.’” (Globe St.)
  6. Fed can 'realign' market’s rate hike forecast, economist says “The Federal Reserve could pull the rug out from under investors who are overlooking signs that policymakers could soon raise interest rates, according to Carl Tannenbaum, chief economist at Northern Trust. Markets do not appear to be pricing in a rate increase despite upbeat U.S. jobs reports that bolster the case for a hike and hawkish statements from policymakers, Tannenbaum said Monday on CNBC's Squawk Box. Despite the view of some economists that the Fed is following the market's lead, it would be relatively simple for the central bank to flip that dynamic, he added. ‘At some point, if the Fed thinks the market misunderstands, there's a very clear way that they can realign those expectations, and that's by saying, look our economy is in very fine shape. It's different from others, so we don't have to do what other central banks are going to do, and in order to avoid financial excess down the road, we're going to remove just a little bit of excessive monetary accommodation,’ he said. Low interest rates have pushed investors into riskier assets, raising concerns that stock prices and other assets have become artificially inflated. The Fed faces the prospect of raising rates at a time when central banks around the world are pushing them down or adopting negative interest rates in a bid to stimulate growth. The Federal Reserve could pull the rug out from under investors who are overlooking signs that policymakers could soon raise interest rates, according to Carl Tannenbaum, chief economist at Northern Trust.” (CNBC)
  7. Feed and entertain them, and they will come “There’s a reason that dining and entertainment destinations are the key success components at retail centers these days: They are e-commerce-proof, the two marketplace options that continue to draw traffic and post upward-trending numbers. Spending at restaurants has grown faster than any other retail category since the recession, according to the Commerce Department, pushing dining dollars past grocery dollars for the first time. That spending growth has translated into increases in restaurant leasing. Gross square footage leased by restaurants in the U.S. grew by 11% since 2013 to roughly 400 million sq. ft. this year, according to CoStar Group. That compares to an 8.5% rise in overall retail square footage during the same time period. Entertainment spending, too, has posted heady gains. Box office at movie theaters, sporting events, and live entertainment has rebounded in a big way since the early days of the Great Recession. Commerce reports it rising 32% since 2008 to $72.3 billion last year. Retail entertainment concepts are experiencing boom times, as well. Dave & Buster’s Entertainment will open as many as 10 new locations in the coming year to lift its total to 97. Square footage leased by movie theaters, bowling alleys, billiards parlors, and arcades has increased by 10% since 2013, according to CoStar.” (Chain Store Age)
  8. Amazon launching physical bookstores in Chicago, San Diego, Portland, report says “Amazon's quiet march toward direct competition with brick and mortar bookstores will expand with the launch of an additional store in one of the biggest cities in the U.S. The move follows what some had seen as an experiment in the launch in 2015 of a physical bookstore in Amazon's headquarter city of Seattle. According to a report in the Financial Times on Friday, the online bookseller has confirmed plans to launch a physical bookstore in Chicago. That store joins previously mentioned locations in San Diego and Portland, Oregon.” (Mashable)
  9. Premier Indy Office Campus Fetches $163M “Parkwood Crossing, a premier office campus in Indianapolis, has changed hands in a transaction valued at $163 million. Duke Realty Corp. sold the 1.2 million-square-foot property to a joint venture of Rubenstein Partners and Strategic Capital Partners, with commercial real estate services firm JLL providing a helping hand to both seller and buyer. Duke tapped JLL to market the eight-building complex as part of its portfolio repositioning program—the REIT is getting out of the suburban office business and focusing on the industrial and medical office sectors. But Duke’s non-core asset is another investor’s core-property conquest.” (Commercial Property Executive)
  10. Moskovits, Rubenstein land $197M construction loan for Williamsburg office project “Toby Moskovits’ Heritage Equity Partners and Philadelphia-based Rubenstein Partners have secured enough financing to start building their massive office project in North Williamsburg. Wells Fargo Bank and Natixis Real Estate Capital LLC have provided a $197 million construction loan to begin work on 25 Kent Avenue, the Wall Street Journal reported. The project, which will span 480,000 square feet for office and light-manufacturing use, doesn’t yet have any committed tenants. Typically, especially after the 2008 economic downturn, developers must prelease their projects before banks are willing to provide financing. Experts told The Real Deal in July that lenders often require up to 50 percent of a project’s rentable space to be preleased. ‘It took a long effort by a lot of people to get it over the finish line,’ Jeremiah Kane, director of Rubenstein’s New York operations.” (The Real Deal)
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