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10 Must Reads for the CRE Industry Today (February 15, 2017)

10 Must Reads for the CRE Industry Today (February 15, 2017)


  1. Fortress to be acquired for $3.3B by Japanese telecom giant “Fortress Investment Group — the $70 billion investment manager that’s an active lender in New York real estate — is being acquired for $3.3 billion. Japanese telecom giant SoftBank Group Corp. will buy the publicly-traded company for $8.08 per share — a 39 percent premium — the companies announced. SoftBank will operate Fortress alongside a soon-to-be formed $100 billion technology investment fund. Fortress principals Pete Briger, Wes Edens and Randy Nardone will continue to run the company within SoftBank, Bloomberg reported. Fortress was founded in 1998 and went public in 2007 in a $634.3 million IPO, debuting at $18.50 a share. But the company’s performance slumped during the financial crisis and has traded as low as $.077 per share. SoftBank’s acquisition is aimed at bringing investment talent in-house, a company spokeswoman said. The deal, which is subject to shareholder and regulators’ approval, is expected to close by the end of the year.” (The Real Deal)
  2. Commercial Real Estate Loans in U.S. Reach Record-Setting Levels in Late 2016 “According to CBRE, commercial real estate lending volume in the U.S. finished the year on a strong note as loan closings surged in November and December 2016. Despite concerns throughout the year regarding the direction of the global economy, U.S. capital markets remained favorable to borrowers in Q4 2016 due to low relative rates and abundant capital. The CBRE Lending Momentum Index, which tracks the pace of U.S. commercial loan closings, reached a value of 266 in Q4 2016, the highest level on record. This represented a 37% increase from the Q3 2016 level, as well as from the prior year. Life companies led all other major lenders in Q4 2016 and increased their share of loans closed by CBRE Capital Markets, accounting for more than 34% of non-agency commercial loan closings. This is up from 25% in Q3 2016 and above the 23% share recorded in Q4 2015. After a strong start during the first half of the year, bank lending continued to cool. Banks accounted for 27.7% of loan volume in Q4 2016, compared with a 42.7% share a year earlier.” (World Property Journal)
  3. There's good news, with caution, for commercial real estate under President Trump “The president's support of lower corporate taxes and deregulation are favorable, as is his stated intention to grow the economy at a faster rate than we have seen over the past several years. Perhaps counterbalancing these is the Federal Reserve's forecast it will raise interest rates two or even three times later this year. That will put pressure on commercial real estate yield spreads, but could also encourage more bank lending. A strong case can be made that banks will increase lending in response to a new regulatory paradigm, higher interest rates and a stronger economy. The Trump administration's executive order aimed at scaling back the Dodd-Frank Act, as well as his freeze on new or pending regulations means banks should be able to do business without worrying about new restrictions or penalties for the first time since the financial crisis. Higher interest rates should also make banks more willing to lend because loan spreads will be more attractive. Typically, that which is good for the economy is good for commercial real estate.” (Pension & Investments Online)
  4. Fed harps again on growing risk in U.S. commercial real estate  “While commercial property debt remains modest relative to the overall economy and banks have tightened lending standards, the report said, the rising "valuation pressures may leave some smaller banks vulnerable to a sizable CRE price decline." Commercial real estate loans by U.S. banks surpassed their pre-financial crisis levels in September 2015, and at last reading for January stood at a record $1.97 trillion, according to Fed data. Small banks hold nearly two-thirds of that total, some $1.22 trillion. U.S. commercial property prices have more than doubled from their post-crisis low in mid-2009, according to Green Street Advisors' Commercial Property Price Index, although 2016's increase of around 3 percent was the smallest yet in the recovery.” (Reuters)
  5. Economy Watch: CRE Executives, Consumers Still Optimistic “Commercial real estate industry executives are fairly optimistic about market conditions in the first quarter, and they’re taking a “wait and see” approach to new administration policies and potential tax reform, according to The Real Estate Roundtable’s first-quarter 2017 Economic Sentiment Index, which it released late last week. The index came in at 55, seven points up from the last quarter, and is in positive territory again, since any score over 50 is positive. The Current Conditions Index increased four points from the previous quarter, ending at 55 as well. Moreover, the Future Conditions Index was 55, up nine points from the previous quarter. Why such optimism? CRE execs are glad that the election is over, for one thing, and hope that pro-business policies are in the offing. Also, a common notion in the industry is that despite previous concerns about peak pricing, many feel that asset prices have stabilized. Although 36 percent of survey participants said asset prices increased “somewhat higher” compared to one year ago, 43 percent said they expect generally flat valuations a year from now.” (MultiHousing News)
  6. Amazon steps up logistics footprint “The online retailer is expanding its presence in California. Amazon has pre-leased an additional one million sq. ft. of logistics space from Goodman Commerce Center Eastvale, California, according to a statement by Goodman. Goodman will construct the logistics center for Amazon…The 205-acre mixed-use development, located directly off the Cantu-Galleano Ranch Road Exit on the I-15, will offer a variety of space options, including distribution, business park, retail and medical. Developing and managing e-commerce distribution centers is one of the key growth drivers of Goodman's business. The online retailer is scheduled to take occupancy of the new logistics facility in 2018, Goodman said.” (Chain Store Age)
  7. Report: Many anchors blocking landlord attempts to refurbish malls  “Green Street Advisors last year suggested department stores must close hundreds of additional locations in order to recapture previous levels of productivity — action that could decimate malls. That would bring the number of malls closer to what they should be according to J. Rogers Kniffen Worldwide Enterprises founder-CEO Jan Kniffen, who said last year that while there are some 1,100 enclosed malls in the U.S., the number should be closer to 700. ‘Simply put, it all comes down to productivity,’ Suzanne Mulvee, director of U.S. research, retail for CoStar Portfolio Strategy, said in the report. ‘Retailers on average are generating fewer sales per square foot than they did during the decade leading up to the recession.’Now reciprocal easement agreements appear to be fostering a real estate-specific “tragedy of the commons,” an economic conundrum where individuals move to reap the most benefit from a resource (in this case, shopping malls) to the detriment of the greater group. While anchors — often department stores that are reeling from difficulties addressing changing consumer tastes and shopping behaviors — may see leverage in their contracts with their landlords, they may be hurting themselves in the long run if they don’t go along with much-needed modifications.” (Retail Dive)
  8. Fort Worth considers up to $7.2 million in tax breaks for boutique hotel near new arena “Illinois-based hotel company, Heart of America Group, plans to start construction later this year on a 202-room full-service boutique hotel off Camp Bowie Boulevard that will open a few months before Fort Worth's new multipurpose arena in the nearby Will Rogers Memorial Complex. The City Council on Tuesday heard terms of an economic development incentive for the project, called Hotel Renovo, that would rebate the hotel's 7 percent city occupancy tax for 16 years. The incentive would be capped at $7.2 million. Council will vote on the incentive Feb. 21. The company plans a $47 million, 12-story hotel that will also have 11 suites at the northwest corner of Camp Bowie Boulevard and Van Cliburn Way. The hotel, with about 196,000 square feet, will include retail space on the street level as well as a 9,000-square-foot restaurant. It will also have ballroom and meeting space.” (Dallas Morning News)
  9. Flushing Has Seen an Influx of Luxury Condos, But Will Luxe Retail Follow? “In Flushing, the neighborhood located at the very last stop of the 7 train in Queens, condominium prices having been climbing dramatically over the past few years. In the Downtown area, which is home to the city’s second-largest Chinatown, many condo units have traded for over an eye-popping $2 million a piece. (For comparison, Manhattan’s average condo price is $3 million, according to Douglas Elliman’s fourth-quarter 2016 report.) And that steep incline has affected all aspects of the residential market in Flushing. The average price of a condo in Flushing (including areas beyond Downtown) was $575,000 in the fourth quarter of 2016, a jump of 31.5 percent from five years ago, when it was $437,767, according to data provided to Commercial Observer by appraiser and consultant Jonathan Miller of Miller Samuel. No, these are not the $20 million 57th Street apartments of Manhattan, but where there are buyers taking $1 million and $2 million condos, surely there’s retail to cater to them, no? Actually, not yet. Flushing’s luxury retail seems to still be in the early stages, according to area experts; but the same experts also claim more luxury retailers and upscale restaurants will soon engulf the neighborhood as new developments come to market.” (Commercial Observer)
  10. Apartment market starts to tilt in tenants' favor “If you're looking for a deal on a brand new apartment in downtown Chicago, it's getting easier to find one. Amid a historic building boom, the downtown apartment market is tilting in favor of tenants, who have endured big rent hikes for several years. Eager to fill up new buildings, some developers are now offering two months of free rent to tenants who sign leases of 12 to 14 months, according to Ron DeVries, vice president of Appraisal Research Counselors, a Chicago-based consulting firm. "We're looking at a lot of giveaways," DeVries said at a lunchtime presentation at the Standard Club. Downtown landlords are bracing for a flood of new apartments—roughly 8,000 units this year and next—an increase that will make it harder for them to hold the line on rents and keep their buildings full.” (Crain’s Chicago Business)


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