10 Must Reads for the CRE Industry Today (August 31, 2016)

10 Must Reads for the CRE Industry Today (August 31, 2016)


  1. The Commercial Real Estate Risk Pushing the Fed to Raise Rates “Will the risk of overheating in the U.S. commercial real estate market prompt the Federal Reserve to move more quickly on rate hikes despite lackluster economic growth? Perhaps, says Boston Fed President Eric Rosengren, it should. Eight years of extremely low interest rates have pushed commercial real estate prices up rapidly, and they might also decline rapidly if economic conditions change, Rosengren said in remarks prepared for an event hosted by the Shanghai Advanced Institute of Finance this morning in Beijing. Because many banks hold real estate debt, they might sustain losses that force them to decrease consumer lending, sending shock waves through the consumer-driven U.S. economy.” (The Street)
  2. 13 retailers that are not only surviving but thriving “Seven years into a bull market for U.S. stocks, we’re seeing warnings every day that valuations may be too high. But the economic news is mostly positive, and many big retailers are increasing sales and widening profit margins…It’s rather grim to see half the sectors showing declining earnings per share for the second quarter. Still, analysts expect third-quarter earnings decreases for only three sectors: energy, industrials and telecommunications.” (MarketWatch)
  3. Report: Last-gasp bid could save Aeropostale from liquidation “Landlords, liquidators and licensing firm Authentic Brands Group are uniting in a last-ditch effort to save 229 Aeropostale stores from imminent closure, making a surprise $243.3 million joint bid for the teen apparel retailer at a bankruptcy auction, the Wall Street Journal reports. Citing sources familiar with the matter, the Journal states the consortium includes landlords Simon Property Group and General Growth Properties as well as liquidators Gordon Brothers Retail Partners and Hilco Merchant Resources. Private equity firm Sycamore Partners (an Aeropostale stakeholder) and liquidators submitted bids for the retailer last week, while investment firm Versa Capital Management — which was reportedly preparing a “stalking horse” bid  — did not. An auction scheduled to begin Monday in New York was adjourned Tuesday to allow the consortium’s deal more time to come together. Sycamore declined to comment on the developments, according to the Journal.” (Retail Dive)
  4. NAR Forecasts Slow, Upward Path for CRE “The creation of more jobs and continued demand for multifamily housing is helping keep commercial real estate fundamentals on a slow, upward path where vacancy rates for office, industrial and retail are expected to decline over the next year, according to the National Association of Realtors quarterly CRE forecast. The NAR expects national office rates to fall 1.5 percent to 10.4 percent over the coming year, when rising employment should boost demand. The vacancy rate for industrial space is forecast to decline 0.7 percent to 8.7 percent, while retail vacancy should also decrease 1.0 percent to 10.5, the report projects. New apartment construction is expected to keep the vacancy rate in the multifamily sector higher over the next year, edging up to 6.1 percent from 5.9 percent.” (Commercial Property Executive)
  5. Chinese Cash Pours Into U.S. Real Estate “For eight years, a pair of local developers gradually readied a 42-acre strip of waterfront land 10 miles south of downtown San Francisco for a major project, steering it through local land-use approvals. Now, a group of major Chinese developers is poised to do the heavy lifting. The venture of Greenland Holding Group, Ping An Trust and other investors paid $171 million last month for the site that juts into San Francisco Bay. The new owners are planning a more than $1 billion development aimed at biotechnology companies, an industry flourishing in the area. “We are pretty confident about the local market and particularly about the research-and-development market,” said Taotao Song, chief executive of the venture. Over the past three years, Chinese investors have plowed money into some of the highest-profile developments in the U.S. Other cities with projects under way or in the pipeline include New York, Boston, Chicago, Los Angeles and Miami.” (Wall Street Journal)
  6. For REITs, getting own S&P 500 category could be a boon “As of Thursday, real estate investment trusts will no longer be grouped with banks and insurers in the MSCI and S&P 500 stock indices. Instead, they will become their own category, in a move that could impact how certain funds invest in the sector.There is going to be more money looking at the sector,’ Matthew Norris of London-based real estate firm Grosvenor Group told the Wall Street Journal. ‘This is going to bring real estate into focus.’ REIT returns have outperformed the S&P 500 over the past 25 years, but so-called generalist funds that invest in a basket of stocks have allocated a comparatively small portion of their money to REITs. Separating real estate stocks from banks could draw more attention to that fact and spur investment in REITs, analysts at Jefferies International said. The separation could also make real estate stock prices less volatile. Bank stocks tend to experience great price swings, and by being grouped with them, REIT stocks often see some of that volatility spill over.” (The Real Deal)
  7. San Francisco's out-of-control housing market might start looking more 'normal' by the end of the year “San Francisco's housing market is very slowly cooling down. The city is one of the most dire examples of the current housing crunch, in which potential homebuyers are plentiful and ready but inventory is insufficient.On Tuesday, the S&P/Case-Shiller home price index showed that San Francisco's market may become more "normal" in the coming months, though affordability would remain a problem, according to Ralph McLaughlin, Trulia's chief economist. For now, the pace of home-price growth is slowing. The S&P/Case-Shiller 20-city composite fell by 0.1% month-on-month in June, the third straight decline, while it rose 5.13% year-on-year.” (Business Insider)
  8. Columbus, Ohio: A growing mecca for small business “The Columbus metro area ranked in the top 15 nationally for start-up activity on the Kauffman Foundation's 2015 and 2016 start-up indexes, with nearly 72 start-ups for every 1,000 businesses in the area. Local resources are helping fuel small business growth in a wide range of industries — from retail to food and beverage and technology. Two years ago, the city created the nation's first Small Business Concierge, a one-stop-shop and point of contact for all entrepreneurs, meant to assist them with everything, from finances to actually opening up shop. It's also free, an important benefit for cash-strapped start-ups….The city has a robust loan program as well, in partnership with nonprofit lending organizations including the Economic Community Development Institute and Finance Fund, according to Schick. It's provided more than $1 million in loans leveraging more than $7.7 million in total funding to 26 businesses in 2016. The city also funded 25 grants in 2015 for revitalization totaling more than $235,000.” (CNBC)
  9. Tribune Tower to be sold to CIM Group “The owner of the Block 37 development in the Loop has agreed to pay $240 million for Tribune Tower, a long-awaited deal that could lead to a major redevelopment of the iconic building. Tribune Media, which owns the 36-story tower at 435 N. Michigan Ave., said that it has reached an agreement to sell the property and a site next door to CIM Group, a Los Angeles-based developer. CIM will pay $205 million in cash when the sale closes and an additional $35 million at a later date, based on the satisfaction of certain unspecified conditions, according to a Tribune Media statement. CIM has been a busy investor and developer in Chicago since it bought Block 37 in 2012. It recently completed the Marquee at Block 37, a 690-unit apartment tower atop the State Street mall. The firm is also developing a 397-unit apartment building in the Loop and recently bought the 39-story office tower at 440 N. LaSalle St.” (Crain’s Chicago Business)
  10. Thor Scores Big on San Francisco Office Sale “For Thor Equities, the San Francisco office market is nearly three times as nice as it was in 2008. Eight years after acquiring the landmark Phelan Building for $130 million, Thor has sold the 250,000-square-foot mixed-use property for approximately $370 million. The proud new owner, according to a report by commercial real estate services firm Colliers International, is Joseph Hotung/AIG. Designed by architect William Curlett, the Phelan Building was erected at 760 Market St. in 1907, replacing the structure that had stood at the site before it went up in flames in one of the post-earthquake fires of 1906. Fast forward a hundred years and Thor takes the reins at the Phelan Building, and wastes precious little time transforming the asset into a top destination for the tech set and a desirable site for leading retailers. Thor instituted upgrades and restructured the office space at the property to provide today’s highly coveted, large open-floor plans, and in a few years, such names as Credit Karma and online publishing platform Medium popped up on the office tenant roster. And the 11-story building’s 52,000 square feet of retail space is occupied by the likes of Starbucks, Orogold Cosmetics, Walgreens, Verizon and Marshalls.” (Commercial Property Executive)
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