10 Must Reads for the CRE Industry Today (October 7, 2016) Photo by Mark Wilson/Getty Images

10 Must Reads for the CRE Industry Today (October 7, 2016)

 

  1. Verizon Close To Selling Cloud Data Centers, Analyst Says “Deal could bring in $3.5 billion. Verizon is getting close to selling off its cloud data center unit after almost a year of testing the market for a possible divestiture, according to one Wall Street analyst. California-based data center operator Equinix is probably the buyer. ‘We believe a transaction involving Verizon’s co-location assets is imminent and that Equinix is the most likely acquirer,’ Cowen & Co analyst Colby Synesael wrote in a report on Wednesday. Verizon declined to comment. CFO Fran Shammo said last month that the company would have an update on the sale process when it reports third quarter earnings. For several years, the carrier has been shedding businesses that don’t fit into its strategic plans in order to raise money to pay down some of the debt it took on when it bought out its wireless partner Vodafone in 2014.” (Fortune)
  2. Stephen Jones on how Cowboys 'supersized' The Star and future real estate targets "The Dallas Cowboys' new mixed-use development, The Star, is off to a winning season with most of the office space rented and good reviews of the Ford Center sports and event center. Stephen Jones, Dallas Cowboys executive vice president, told shopping center execs and retail real estate brokers meeting in Dallas on Thursday that the Frisco location has given the $1.5 billion project success. ‘We felt like we really had a blue-chip location,’ Jones told a lunch meeting of the International Council of Shopping Centers in downtown Dallas. ‘That Frisco location is in one of the highest-growth markets in the country. The Star would have been successful with or without the Cowboys because of the location,’ Jones said. ‘We kind of supersized it when we put an entertainment-type aspect with the Cowboys partnering with the city and the school district.’ The first phase of the 91-acre mixed-use project opened in August.” (Dallas Morning News)
  3. Trump personally lobbied Congress to give real estate developers bigger tax breaks “In 1986, President Ronald Reagan and Congress came together to pass a landmark tax reform bill that streamlined tax brackets, cut rates, closed loopholes and eliminated tax breaks. Reagan declared it ‘a sweeping victory for fairness.’ Donald Trump, however, wanted the loopholes and tax breaks back. In testimony before a House Budget Committee task force in November 1991, Trump called the 1986 tax reform legislation an ‘absolute catastrophe’ that had pushed the real estate business into an ‘absolute depression.’ To fix the situation, Trump advocated a combination of higher tax rates for the rich and the restoration of special exemptions for real estate investment. Together, they would incentivize people seeking to lower their tax bills to invest in real estate. Trump called for accelerated depreciation of property and rules that encouraged certain investors to seek out “passive losses” that could offset their other income and slash their steep tax bills. Trump cited wealthy dentists as the typical investor he hoped to attract.” (The Washington Post)
  4. Real estate adds diversification, but how should you invest? “By all measures, the real estate sector, along with the rest of the economy, is roaring again. Just look at median home prices of existing homes. In July they were $244,100, a 5.3 percent rise from the same period a year before, according to the National Association of Realtors. That, plus historically low interest rates, has made investors take notice. ‘I used to have people say, 'I need a 6 percent yield on my investments to retire,'’ said Michael Berry, a certified financial planner and CPA based in Seattle. ‘I don't know where you're going to find it these days, except in real estate.’ Indeed, the average yield of stocks in the Standard & Poor's 500 index is 2.29 percent, and the 10-year Treasury note yields just 1.69 percent. But real estate can yield more than that, while also adding important diversification to a portfolio.” (CNBC)
  5. Hurricane heading for priciest real estate on planet, including Trump's Mar-a-Lago “Hurricane Matthew is now expected to make landfall around Palm Beach, Florida. If that happens, its economic toll will include some of the most expensive real estate on the planet. The average home price in Palm Beach topped $7 million in the second quarter, according to Douglas Elliman and Miller Samuel — believed to be the highest in Florida. And town tax records show that the total value of real estate in Palm Beach County is north of $140 billion. But those numbers obscure the true scale of many of the homes in the town of Palm Beach, which include several homes valued at more than $100 million. The highest-profile property in Palm Beach, of course, is Donald Trump's Mar-a-Lago. While the premises have a beach club that could suffer damage, the main property is a hulking mansion built from concrete, steel and anchored to a coral reef below ground. According to the Palm Beach Daily News, Mar-a-Lago has withstood hurricanes going back to the 1920s, with very little damage.” (CNBC)
  6. Hines, AEW Capital Sell Texas Industrial Park “Parc 114 Business Park, a seven-building, Class A industrial park adjacent to Dallas-Fort Worth International Airport in Irving, Texas, has a new owner: Colony Capital, which purchased the property through its Colony Industrial Fund. The purchase price was not released. HFF marketed the property on behalf of the seller. The 568,272-square-foot industrial business park was owned for nearly two years by a partnership between AEW Capital Management, on behalf of a separate account client, and Hines Interests. The HFF investment sales team representing the seller was led by Managing Director Adam Herrin and Executive Managing Director Joe Thornton. Parc 114 was constructed between 2010 and 2016. It offers a variety of building types, including bulk distribution, shallow bay and light industrial with average clear heights of 28 feet, building depths ranging between 120 and 200 feet and a 30 percent office finish.” (Commercial Property Executive)
  7. City’s sale of landlord debts is harming tenants: officials “Housing advocates and city officials are pushing for changes to the city’s lien sale program that could include foreclosing on properties or selling debts to nonprofits. Each year since 1998, the city has sold off landlords’ unpaid fines and bills to private investors, who then collect payments and can seize properties if the owners don’t pay. But when the debt is sold off the inflating interest can becoming a crushing burden, and residents often feel the brunt of the pain as landlords cut costs on crucial services, according to a new report expected to be released Friday by Public Advocate Letitia James. Between 2010 and 2015, more than 15,000 properties spanning some 43,600 units were affected by the lien sales, the New York Times reported, and housing advocates along with city officials are urging the city to rethink how the program is formulated.” (The Real Deal)
  8. Deutsche Bank as Next Lehman Brothers: Far-Fetched but Not Unthinkable “All it took was the threat of a $14 billion fine against Deutsche Bank for the word ‘contagion’ to rear its ugly head. Global markets have been shaken up in recent weeks over fears that Deutsche Bank, a symbol of German financial might and Europe’s fourth-largest biggest bank by assets, cannot absorb a fine of that magnitude. The German government said flatly that it would not bail out the bank, leading to what some called market “panic” that Deutsche Bank could face a messy Lehman Brothers-style collapse and set off a global financial crisis. Among investor concerns are the high amount of borrowing the bank uses to support its asset base, the difficulty in valuing many of the assets that make up its capital cushion, and the high-risk trading strategies embraced by some of its clients. Those fears seem wildly overblown.” (The New York Times)
  9. Greenbuild Special Report: Mandatory Green Building “As the most populous state in the U.S., California is achieving quite a feat in raising the green building bar. The state is the first in the U.S. to adopt a mandatory code to reduce negative environmental impacts and encourage sustainable construction practices. Representatives from the California Building Standards Commission and the Department of Housing and Development spoke on a panel at the 2016 Greenbuild International Conference and Expo in Los Angeles to discuss the importance of the California Green Building Standards Code (CALGreen) for residential and non-residential construction, and what improvements are being made as we head into 2017. ‘The code put green standards into an organized format and made it a mandatory set of provisions for all new construction, as well as for additions and alterations,’ explained Michael Nearman, deputy executive director at the California Building Standards Commission. While the initial code, created in 2007, was voluntary, it evolved to become a combination of mandatory and voluntary provisions starting in 2010, as the state sought to reduce greenhouse gas emissions to 1990 levels by the year 2020. ‘Looking at the construction process, buildings in general and product development, it was determined that that was the area we need to address for these mandatory provisions,’ Nearman said.” (MultiHousing News)
  10. LA developers on pace to build highest number of apartments in two decades “A new market analysis from real estate group Marcus and Millichap suggests that Los Angeles developers are on pace to add 13,430 new units to the multifamily rental market by the end of 2016. That total represents the quickest pace of development in two decades, the report says, and would more than double the output in 2015, when just 5,300 units were built. Nearly one-quarter of all units in the LA area are being constructed in the Downtown area, with 4,100 units set to open by the end of the year. Other development hotspots are Hollywood, the South Bay, and the San Fernando Valley. The vast majority of new apartments are being offered at market rate, though 400 affordable units and 500 senior units are also included in the total. Those hoping the surge in development might lead to a slight dip in rental prices will likely be disappointed. Though the report predicts the added units will help raise the city’s dismally low vacancy rate, they probably won’t be enough to counteract the effect of sky high housing prices on the rental market. As the report notes, rents have already climbed more than seven percent over the past four quarters.” (Los Angeles Curbed)
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