10 Must Reads for the CRE Industry Today (September 26, 2016)

10 Must Reads for the CRE Industry Today (September 26, 2016)

 

  1. Examining The Core Value Of REITs “When researching a REIT, it is fairly easy to find discussion about FFO, AFFO, dividend yield, price and NAV. What is harder to find, is analysis of the actual assets being purchased, the prospects for appreciation of those assets and the risk that those assets might become liabilities if a tenant leaves. As someone who works in real estate during my day job, I have seen REITs make some great purchases, and others make some really risky purchases. When considering whether or not to purchase a REIT, I want to know the quality of the assets and whether the REIT is paying a premium… REITs have experienced great capital growth in recent years, and along with that has been increased competition for NNN leases. The result is a large increase in the costs of purchasing a leased building, especially for companies that have investment grade ratings.” (Seeking Alpha)
  2. China’s housing frenzy is still onHome prices in China are ‘high and hard to accept,’ said 53.7 percent of the respondents in a survey by the People’s Bank of China, published in the People’s Daily, the official paper of the Communist Party. Only 42.9 percent found them ‘acceptable.’ And only 23.1 percent predicted that they would rise next quarter, while 11.9 percent expected them to fall. But that isn’t stopping people from wanting to participate in this frenzy. “Nevertheless, the ratio of residents who were prepared to buy a house within the next three months increased 1.3 percent from the third quarter to reach 16.3 percent,” according to the People’s Daily. That’s a lot of people “prepared to buy a house,” even with prices “high and hard to accept.” There are several remarkable things in this survey: the worried tone in terms of the soaring prices, the increased desire to buy because, or despite, of the soaring prices, and the fact that this survey came via the official party organ from the PBOC which has been publicly fretting about the housing bubble, the debt bubble that comes along with it, and what it might do when it deflates.” (The Real Deal)
  3. They built towering new cities in China. Now they're trying it in downtown L.A.“Los Angeles real estate has long attracted foreign investment, be it from Japan, Canada and South Korea. But no one is building from the ground up the way the Chinese are today. Chinese developers such as Greenland, Oceanwide and Shenzhen Hazens are pouring billions into the neighborhood, adding thousands of new residential units in soaring skyscrapers that will fundamentally change the city’s skyline. Since 2014, Chinese developers have been involved in at least seven of 18 land deals downtown in excess of $19 million, according to real estate firm Transwestern. ‘When all these megaprojects are finished, they’re going to have to reshoot the postcard picture of downtown L.A.,’ said Mark Tarczynski, executive vice president for Colliers International’s L.A. office. By investing in Los Angeles, the builders are staking downtown’s revival closer to the Chinese economy. A sizable share of home buyers for the new downtown developments are expected to come from China, where many in the middle and upper class are looking to the perceived safety of foreign real estate to diversify their wealth. That trend has been exacerbated by the uncertainty of China’s slowing economy. The building boom is something of a showcase for Chinese real estate companies, which are willing to pay a premium to establish themselves as global brands. The foray overseas has also demonstrated the many differences between building in both countries — an experience both sides will need to learn from if the U.S. is to remain a prime destination for Chinese capital.” (The Los Angeles Times)
  4. Here's What is Next for Marriott After Finalizing Its Acquisition of Starwood “On Friday, Marriott International finalized its $13 billion acquisition of Starwood Hotels, creating the world's largest hotel company. Marriott's global chief commercial officer Stephanie Linnartz said the company would have preferred to pay the initial price it offered Starwood, before it raised its offer due to competing bids from China-based Anbang Insurance. Still, Marriott expects hundreds of millions of dollars in cost synergies. TheStreet's Scott Gamm reports from Wall Street.” (The Street)
  5. Restarting the Stalled Condo Market in Cities Like Chicago “Condominium development is back in Chicago, starting off smaller—but often grander—than before the recession that slowed construction to a crawl for nearly a decade. At the current stage of the latest condo construction cycle, projects are much smaller, typically featuring fewer than 100 units. Yet the size of the individual units, along with their price tags, has swelled in 2015 and 2016. And that is unlikely to change anytime soon, according to a ULI Chicago panel discussion held September 22 at the Union League Club of Chicago. ‘The days [when] we could build a two-bedroom, two-bath condominium unit of 1,100 to 1,200 square feet [102 to 111 sq m] and sell [units] for $300,000 are gone,’ residential developer Alan Lev, president and CEO of Belgravia Group, said during the event. ‘It’s not going to be back. A two-bedroom unit, if you’re lucky, is in the high fours. And this is not downtown. This is out in the neighborhoods.’” (Urband Land Institute)
  6. Fed Inaction Is Bullish For Real Estate And Lumber “Lumber is an interest rate sensitive commodity. Low rates created a bullish environment for lumber as home building surged. In the U.S. the new home market has outpaced resales of existing housing units…The latest inaction from the U.S. central bank was welcome news for the lumber market. A Fed Funds rate of 25-50 basis points for the ninth straight month in 2016 means the downward risk in the stock and bond markets has decreased dramatically for the coming months. One of the trends that have emerged in the housing market over recent years is that sales of new construction are outpacing existing home sales. Prices for new homes have increased dramatically, and new communities are popping up all over the U.S. Many home buyers prefer a fresh and new home as historically low interest rates afford the opportunity to borrow cheap money for those with the income and credit to seize the opportunity.”  (Seeking Alpha)
  7. HFF Arranges $210M Financing for National Retail Portfolio “HFF has arranged a total of $210 million in first lien financing for Westwood Financial Corp., secured by 10 retail centers totaling roughly 974,000 square feet in Arizona, California, Kansas, North Carolina and Texas, HFF announced late last week. The two new loans comprise a substantial chunk of Westwood’s restructuring of 77 of is 120 retail center holdings (representing more than 280 entities), plus its management company, into a single $1.2 billion retail real estate company, operating as Westwood Financial. In an announcement about 10 days earlier, Westwood co-CEOs Joe Dykstra and Randy Banchik had highlighted ‘massively reduced complexity,’ easier access to capital and appeal to larger investors as major advantages from the reorganization.” (Commercial Property Executive)
  8. Cleveland’s $132M Rockside Road Project Gets Green Light  “The Seven Hills, Ohio, city council recently approved the PUD zoning required by LSB Seven Hills LLC for its 52-acre, mixed-use Rockside Road project. According to Cleveland.com, the estimated cost of the Rockside Crossings development is $132 million. LSB bought the site in 2015 and is now looking to develop luxury apartments, retail, a 120-key hotel and an independent senior living facility close to the intersection of interstates 77 and 480. Neighbored on one side by a dense residential area and a large cluster of offices and hotels on another, Rockside Crossings will rise 10 miles south of Downtown Cleveland. The team behind the project includes Boca Raton, Fla.-based Focus Development, architectural firm Bialosky Cleveland, Atwell Group, Goodman Real Estate, law firm Thompson Hine and Cleveland-headquartered Project Management Consultants LLC.” (MultiHousing News)
  9. Westbrook wouldn’t let Clinton rent office space at 444 Madison “Hillary Clinton probably shouldn’t bank on a vote from executives at Westbrook Partners. The investment firm refused to let the presidential nominee sublease the 32nd floor of its 444 Madison Avenue, the New York Post reported. Clinton had reached an eight-year agreement in 2014 to sublease the entire floor from Rainier Investment Management, which had leased the space for two years. Though the deal was fairly far along, the landlord stepped in and blocked Clinton Executive Services Corp., a private company owned by the Clintons, from leasing the space, the Post reported. Westbrook, whose founder Paul Kazilionis is a registered Republican, wouldn’t say if the decision was political, but indicated that the firm didn’t want to deal with such a famous tenant at the 42-story, 475,000-square-foot building.” (The Real Deal)
  10. Landlord-slay suspect seems to sleep during closing arguments “The man on trial for the murder of a prominent Brooklyn landlord looked more sleepy than concerned during closing arguments Thursday — dozing off at one point despite the fact that he could face life behind bars if convicted. Kendel Felix’s fate now lies in the hands of a 10-woman, two-man jury, but he spent part of prosecutor Howard Jackson’s summations with his face cradled in one hand, apparently lulled to sleep by the mountains of evidence Jackson and ADA Emily Dean have leveled against him in a three-week trial. Felix’s eyelashes fluttered as he listened to Jackson describe the ‘damning evidence’ that placed him at every stage of the botched robbery that left Menachem Stark dead, and his charred body burning in a Great Neck dumpster in January 2014.” (New York Post)
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