10 Must Reads for the CRE Industry Today (July 27, 2016) Photo by David Silverman/Getty Images

10 Must Reads for the CRE Industry Today (July 27, 2016)

 

  1. Sluggish Economy Dampens U.S. Occupier Sentiment, Yet Investor Demand Rising “According to RICS' US Commercial Property Monitor for Q2, 2016, a slow U.S. economy seems to be taking a toll on occupier sentiment in many parts of the United States though demand still rose in the office and industrial segments. And the New York market is at peak or even already in a downturn according to a majority of respondents, though the industrial sector is a notable exception there as well. Despite these occupier trends, investor demand continue rising across all segments of the market, with interest from foreign buyers also increasing. The report is based on a survey of RICS qualified professionals conducted quarterly. Nationally, the more subdued economic picture has led to a slight reduction in expectations for rental growth over the coming three and 12-month periods. Over the next year, respondents expect rental values to rise 1.2%, with multi-family expected to outperform with 2.6% growth predicted. Back to the investor side, over the next quarter, respondents expect capital values to keep rising in office and industrial, with retail prices predicted to remain stable.” (World Property Journal)
  2. It's Not Yet Time To Sell Real Estate Investment Trusts “For years now, real-estate investment trusts (REITs) have paid dividends that are roughly 100 times what savings accounts and money market funds have been paying in interest. Throughout this time, investors have been quick to sell REITs whenever the Fed talks about raising interest rates. Sam Miklosko says the price of oil may tell us more about the direction of interest rates than anything the Fed says. Sam started his REIT Opportunity fund at Marketocracy in April, 2009. His returns have averaged 20.85% since then, which compares nicely to the S&P 500’s 15.65% return over the same period. His returns would rank in the top quartile of all U.S. Equity fund managers for the past 5 years, and for the past 1 year he has outperformed all of them. Before taking anyone’s investment advice, you should always check out their track record.” (Forbes)
  3. Economy Watch: IMF Warns of Structural Problems in US Economy “The U.S. economy is doing well at the moment, but continued solid growth over a longer term hinges on addressing chronic issues of falling labor force participation, weak productivity, rising income polarization and high poverty rates, the International Monetary Fund said in its annual review on the state of the U.S. economy, which was released recently. The economy has been resilient lately, the report noted: for instance, 2.4 million new payroll jobs have been created over the past year; the unemployment rate has fallen to 4.9 percent, about half of its peak during the recession; and inflation remains contained. Even with the added stresses of a strong dollar, an energy-sector contraction, and global economic jitters, the IMF nevertheless predicts U.S. GDP growth this year of 2.2 percent, and 2.5 percent in 2017. Over the longer term, however, the U.S. economy faces a confluence of forces that will weigh on its prospects, the report asserted. Namely, lower labor force participation mainly due to a rising share of the labor force that’s shifting into retirement, scant gains in productivity, income and wealth distribution that are increasingly polarized, and high levels of poverty.” (MultiHousing News)
  4. Workspace Property Trust Buys Office, Flex Portfolio for $969M “For the second time in less than a year, Workspace Property Trust has made a major deal with Liberty Property Trust, acquiring 108 office and flex buildings in four states for approximately $969 million, in a strategic relationship with global investment firm Safanad. Once the deal closes in the third quarter, WPT’s total portfolio will total approximately 9.9 million square feet across 149 properties in five markets. This latest deal follows the December 2015 deal in which WPT acquired 41 properties in Horsham, Pa., from Liberty as its first transaction as a CRE firm. WPT is a privately held, vertically integrated company specializing in the development, management and operation of office and flex space in the Northeast, set up as a partnership among Rizk Ventures, Forum Partners, JMP Group and EverWatch Capital. It is run by industry veterans Thomas Rizk and Roger Thomas.” (Commercial Property Executive)
  5. Owners are combining businesses into one retail location and finding crossover appealA Brooklyn florist sells cocktails. A Lower East Side men’s clothing store offers barber services. Elsewhere, surf shops hawk coffee, yoga studios morph into bars at sundown and clothing boutiques house studios for designers. These are not just gimmicks to entice jaded consumers. By selling flowers to a happy-hour patron on his way home or helping a shopper in need of a trim, business owners are running two—or more—storefront businesses for the price of one.The businesses support each other and work as this little ecosystem,’ said Taavo Somer of his Freemans mini-empire, which also includes a restaurant steps away from his men’s sportswear store and barbershop. Different elements of Freemans appeal to different crowds, which keeps Freeman Alley, off Rivington Street and  where the three businesses are located, busy at all times of the day. Connected ventures, whether jointly owned or closely managed, make the customer of one the potential customer of the other.You have to walk past the clothing store to get to the restaurant,’ said Somer. He said some locals come more than once a day, say for breakfast and then a browse through the shop.” (Crain’s New York)
  6. Under Armour moving into former FAO Schwarz flagship “The former FAO Schwarz flagship on New York City's Fifth Avenue has signed on a new tenant. On a conference call with investors following its second-quarter earnings report, Under Armour CEO Kevin Plank said the athletic wear company would be moving into the 53,000-square-foot flagship store as soon as 2018. It's part of the firm's strategy to use "landmark retail space" to tell the Under Armour story and build its brand and sales. Under Armour likewise confirmed rumors that it would expand its distribution in 2017 into Kohl's, where competitor Nike already sells its merchandise. Though Plank said the partnership has been in the works for years — emphasizing the deal was not signed in reaction to The Sports Authority's bankruptcy — it should help plug a hole in the company's revenues. The sporting goods chain's liquidation caused Under Armour to slash its full-year revenue forecast in May to $4.93 billion from about $5 billion. Under Armour reiterated that guidance on Tuesday, though its third-quarter forecast came in short of analysts' expectations. The brand will initially launch at 600 Kohl's stores before expanding to all 1,100 locations.” (CNBC)
  7. Retailers install bars, hoping to lure shoppers offline Work's out and it's time for happy hour. Where to go for a stiff drink? One surprising destination of choice: Urban Outfitters.  The hipster retailer has begun to offer customers much more than clothing at certain locations. Now visitors can shop, or just head for its bar area. Aiming to stand out in a world overflowing with retail shops and online competitors, some chains  want to become destinations for diners and drinkers, not just shoppers. The Urban Outfitters here in Brooklyn, called Space Ninety 8, has two bars — one on the roof and another on the third floor near the men's department — as well as an Israeli barbecue restaurant. The store doesn't discourage walking around the clothing displays with a drink in hand.” (USA Today)
  8. Is Your Hotel Paying Too Much Property Tax? “The value of a hotel for purposes of tax assessment is not the same number as its value as a going concern.  Understanding the difference between the two will save the hotel owner from an excessive property tax bill. For assessors, the challenge is to correctly distinguish taxable assets from the non-taxable, and therein lies both a problem and an opportunity. By fully separating the assets, the property owner may reduce its taxes. But failing to properly prove the allocation results in the owner paying real estate taxes on non-real estate—and likely non-taxable property. Let’s step back for a moment and note that hotel operation comprises four closely related asset components: land; the building or buildings; furniture, fixtures and equipment; and the business itself. The main distinction here is that land and buildings are taxable as real estate, whereas the business components and fixtures, furniture and equipment are not. Nevertheless, each asset component is tightly linked to the others in making up the value of the going concern.” (Commercial Property Executive)
  9. The capital stack for condo construction is becoming more layered than ever “When it comes to condominium construction, the many tiers of equity and debt needed to get the job done have become all the more complicated. As the amount of money that U.S. banks are willing to lend to developers has decreased tremendously in the past year — especially for ultra-luxury projects — those looking to build condos from the ground up must cobble together financing from a wider array of alternative sources. That includes additional equity partners, high-yield debt funds, hedge funds and foreign investors. Extell Development, for example, is seeking $190 million in EB-5 financing for its 95-story Central Park Tower at 217 West 57th Street and $200 million for its 80-story One Manhattan Square project at 252 South Street.” (The Real Deal)
  10. SeaTac ordered to pay $18 million to couple it cheated in secret land grab “A three-month-long civil trial revealed the shadowy subterfuge behind a secret land grab that was orchestrated by the city of SeaTac, replete with backroom deals, baldfaced deceptions, and a mayor intent on driving Somali refugees from the neighborhood. The aim of it all: to wrestle 4.23 acres of prime real estate from entrepreneurs Gerry and Kathy Kingen, according to the judge and jury who heard the case. The West Seattle couple sued the city and won, proving in court that SeaTac officials intentionally sabotaged their development plans, strong-armed them into giving up their property and then violated the state’s Public Records Act by withholding city emails and documents proving the deception. The trial judge also concluded the former SeaTac mayor wanted condos built on the site, believing they would price out Somalis who had moved into ‘his neighborhood.’” (Seattle Times)
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