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10 Must Reads for the CRE Industry Today (February 21, 2017)

10 Must Reads for the CRE Industry Today (February 21, 2017)


  1. Banks Retreat From Apartment Market “Swelling supplies of apartment units are prompting big banks to pull back from new projects, forcing developers to scramble for capital, in a sign that the U.S. apartment industry headed for a downturn. The apartment sector, which contributes some $284 billion to the economy annually, has been a winning bet for investors since the housing crash, as the economy recovered and more renters sought out units. Since 2010, average U.S. apartment rents have increased by 26%, according to data tracker MPF Research, a division of RealPage. But fresh supply is beginning to overwhelm demand. More than 378,000 new apartments are expected to be completed in 2017, a 30-year high, according to real estate researcher Axiometrics Inc. In the fourth quarter of last year, 88,000 units were completed but only 50,000 of those were rented by tenants, according to MPF. ‘Our business has radically changed,” said Toby Bozzuto, president and chief executive of the Bozzuto Group, which owns or manages 59,000 apartments in cities across the U.S. “I haven’t seen anything this seismically different since 2008, when credit dried up.’ Now banks are in retreat, forcing developers to look to nontraditional lenders and seek more expensive types of financing to complete projects, said apartment executives, industry analysts, mortgage brokers and bankers. ‘We had fairly robust growth in our construction, real estate construction book, and that’s slowing now,’ said P.W. Parker, chief risk officer of Minneapolis-based U.S. Bancorp, during an earnings call last month. ‘Multifamily is an area that, if you look at the forecasts, there are forecasts pretty broad-based of potential rent declines in a lot of the major cities. So we’re being more cautious there.’” (The Wall Street Journal, subscription required)
  2. Macy's beats on earnings, says it made $673 million from unloading real estate “Macy's released fourth-quarter earnings on Tuesday, beating slightly on sales and earnings. The retailer posted adjusted earnings of $2.02 per share, higher than the $1.96 per share expected by analysts. In addition, comparable sales — or those at stores open longer than a year — fell by 2.1% from the same quarter a year ago, but was a bit better than the 2.2% fall expected by analysts. The company also released preliminary guidance for 2017, expecting sales to decline by 2% to 3% for the full year at all owned and licensed stores. ‘While 2016 was not the year we expected, we made significant progress on key initiatives that are starting to bear fruit,’ said CEO Terry Lundgren in the company's earnings release. ‘These include continued improvement in our digital platforms, the rollout of our new approach to fine jewelry and women’s shoes, an increase in exclusive merchandise and the refinement of our clearance and off-price strategy. We also took a big step forward in rightsizing our physical footprint and restructuring our entire organization.’ The recent slew of real estate sales for Macy's also generated significant amounts of cash for the company, totaling $673 million for 2016 according to the press release. Lundgren said in the release that the retailer plans to continue on the same path for 2017.” (Yahoo! Finance)
  3. Wendy’s plans to add 1,000 units by 2020 “To get bigger, The Wendy’s Co. is getting smaller. The Dublin, Ohio-based burger chain wants to add another 1,000 locations by 2020, executives told investors on Thursday. One strategy the company plans to use to encourage that growth is a new, more flexible design that will enable Wendy’s to go into smaller spaces. Traditionally, the quick-service chain needed at least an acre of real estate to build its traditional, standalone units. But its new ‘smart design’ can go into much smaller spaces, said Abigail Pringle, Wendy’s chief development officer. ‘The new designs enable the company to build on half an acre or even a quarter of an acre if needed,’ Pringle said.” (Nation’s Restaurant News
  4. Parkway to Sell Interest in Houston Portfolio for $512M “It’s a Texas-sized deal. Parkway Inc. has arranged to sell a 49 percent interest in its Greenway office portfolio in Houston for $512.1 million, or an implied $210 per square foot, the company announced last Friday. The portfolio comprises an 11-building office campus totaling about 5 million square feet, in Houston’s Greenway submarket. The 11 properties are One, Two, Three, Four, Five, Eight, Nine, Eleven and Twelve Greenway Plaza; 3800 Buffalo Speedway and Phoenix Tower. As of the end of 2016, the portfolio was 89 percent leased overall, a Parkway spokesperson told Commercial Property Executive. The properties’ new owner will be a joint venture, with Parkway retaining a 51 percent interest, serving as general partner, and providing property management and leasing services. The Canada Pension Plan Investment Board and a partnership between TH Real Estate and Silverpeak Real Estate Partners will each acquire 24.5 percent interests in the portfolio.” (Commercial Property Executive)
  5. Economy Watch: Inflation, Leading Indicators Tick Up in January “The Consumer Price Index  increased 0.6 percent in January, the Bureau of Labor Statistics reported last week. Over the last 12 months, the all items index rose 2.5 percent before seasonal adjustment. The January increase was the largest monthly all items increase since February 2013. A sharp rise in the price of gasoline accounted for nearly half the increase, but advances in the prices for shelter, apparel and new vehicles were also major contributors. Also last week, the Conference Board reported that its Leading Economic Index for the U.S. increased 0.6 percent in January to 125.5 (2010 = 100), following a 0.5 percent increase in December, and a 0.2 percent increase in November.” (MultiHousing News)
  6. New bill seeks to reform how AMI is calculated for 421a projects “A new bill seeks to change how affordability in housing projects is calculated, a measure that could dramatically reshape the makeup of projects built under a new 421a. Democratic State Senator Michael Gianaris and Assemblymember Brian Barnwell introduced legislation that would change how area media income (AMI) is calculated. The U.S. Department of Housing and Urban Development looks at AMI regionally, using a formula that lumps the five boroughs together with Putnam, Westchester, and Rockland counties. For 2016, the HUD placed the region’s AMI at $65,200. The proposed legislation would require affordable housing developers to instead calculate AMI based on the specific zip code of the area where the project is being built.It shouldn’t matter what is affordable in Westchester to determine what is affordable in Queens,’ Barnwell said in a statement. ‘This proposal will help lifelong residents of the area to be better able to actually afford the new housing. No longer will lifelong residents be forced out due to gentrification.’” (The Real Deal)
  7. NYC Mayor Bill de Blasio shows off designs for planned tech hub “New York City Mayor Bill de Blasio and his team have revealed the designs for the 250,000-square foot Union Square Tech Hub. The hub, which was first announced in December, will include 58,000 square feet of “fluid space” for startups and a 36,500-square foot tech training center. (Partners in the training program include the New York City Foundation for Computer Science Education, General Assembly, Per Scholas, FedCap, Code to Work and Coalition for Queens.) The anchor tenant will be Civic Hall — a 1,000-member work and event space that focuses on what founder and CEO Andrew Rasiej said is “the idea that technology can be used to support the public good. De Blasio unveiled the designs at an event this afternoon at the New York City headquarters of adtech company AppNexus, where he also talked about his hopes for the space.” (Tech Crunch)
  8. Developers detail plans for two more Legacy office towers in Plano “Developers that own one of the last large high-rise sites in Plano's popular Legacy Town Center have detailed construction plans for the property. Dallas-based Tier REIT owns the four acres located on the east side of the Dallas North Tollway on Bishop Drive. Tier REIT plans to build two office towers with more than 600,000 square feet on the vacant tract which is next to the former Encana Oil & Gas Tower at 5851 Legacy Circle. The proposed office towers would be 10 and 11 stories tall. Tier REIT plans to build the office towers in partnership with Dallas-based Lincoln Property Co.” (Dallas Morning News)
  9. Here’s LA’s plan to make developers pay for affordable housing “A plan to make real estate developers pay for affordable housing in the city of Los Angeles, where rents are sky-high, heads to the Planning Commission on Thursday in what is likely its first major step toward approval. The so-called linkage fees would generate an estimated $75 million to $92 million each year. That money would not only fund construction of new units that are deed restricted to tenants with qualifying incomes, it would also be earmarked for rehabbing and maintaining existing affordable housing units. LA has been under-building housing of all types. The region’s housing shortage is blamed for helping drive up the cost of rent—to an average of $2,169 in 2016, a price that’s out of reach for many middle and lower-income households. ‘If we want a livable city for everyone, we need this fee,’ said Lisa Payne, policy director at the Southern California Association of Nonprofit Housing. ‘We have so many people who can not afford a place to live decently in the city.’” (Los Angeles Curbed)
  10. The Related Group’s Carlos Rosso is bullish on Miami’s future “Developer Jorge Pérez, chairman of The Related Group of Florida, is widely known as Miami’s condo king for the tens of thousands of units his firm has erected across the region, reshaping the skyline as his business has grown. But he hasn’t done it alone. Like all large successful firms, Related leans on a broad and deep management team to lead its varied enterprises, including affordable housing, workforce rentals, townhouses, property management and the luxury condos for which it is best known. Leading its signature division is Carlos Rosso, president of condominium development. Since joining the firm in 2002, Rosso has developed more than 16,000 units in South Florida and Latin America. The division now has 20 projects underway, including Brickell Heights, Hyd Midtown, Gran Paraiso, Paraiso Bay, One Parais, Paraiso Bayviews, Paraiso Bay Homes, Park Grove and SLS Lux in Miami. In Broward, the firm is developing Hyde Beach House Hollywood, Hyde Resort & Residences Hollywood, W Fort Lauderdale, Auberge Fort Lauderdale and Icon Las Olas.” (Miami Herald)
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