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10 Must Reads for the CRE Industry Today (July 6, 2018)

Notes from the Federal Reserve’s June meeting show officials plan to end stimulus growth measures, reports the Wall Street Journal. Forbes looks at cell tower REITs. These are among today’s must reads from around the commercial real estate industry.

  1. Fed Expects to Keep Raising Rates, Ending Years of Stimulus “Federal Reserve officials at their meeting last month signaled they could raise interest rates over the next year to a level that no longer seeks to stimulate growth, formally ending a long postcrisis chapter in which the central bank unleashed unprecedented stimulus campaigns. In a sign of the economy’s shifting fortunes, officials intensified their discussions over how to manage rates if growth accelerates so rapidly that bubbles or unsustainable price pressures emerge, according to the minutes of the Fed’s June [meeting].” (Wall Street Journal, subscription required)
  2. Hobby Lobby, Burlington Expected to Move into Empty Toys ‘R’ Us Stores “Hobby Lobby Stores Inc., Burlington Stores Inc. and TJX Cos. are among the retailers expected to fill the spaces vacated by defunct retailer Toys “R” Us Inc., according to one of the nation’s biggest owners of open-air shopping centers. More than 700 Toys “R” Us stores in the U.S. closed their doors last week after the retailer abandoned its plan to reorganize in a chapter 11 bankruptcy case. Many retailers also bid on Toys “R” Us locations in bankruptcy court, including Big Lots Inc., Scandinavian Designs, Ashley Homestores...” (Wall Street Journal, subscription required)
  3. The REIT Way to Invest in Cell Towers “As with anything, tower REITs will need to diversify and grow in any areas they can, possibly on an international scale. American Tower is looking into that aspect, as Crown Castle International is focusing on building up on U.S. soil, before 5G comes to fruition. Clients implementing public wireless internet connections may prefer 5G, with speed gains, cost reductions and ease of deployment—leaving behind big fiber-optic cable providers such as Uniti Group (UNIT) and Zayo Group Holdings (ZAYO).” (Forbes)
  4. Surge in Illegal California Pot Shops Undercuts Legal Market “Broad marijuana legalization arrived in California at the start of the year. From the beginning, there was concern the legal market would be undercut by the massive black market that has existed for decades. And that’s what’s happening. Nowhere is it a bigger problem than in the state’s biggest legal local marijuana market: Los Angeles County. The number of outlaw dispensaries in the county greatly outnumbers about 150 licensed storefront retailers. That reality is a buzzkill for those trying to play by the rules.” (The Associated Press)
  5. Screening for High-Yielding, High-Quality REITs “Because REITs can’t retain earnings, there is no rainy-day stockpile that can be tapped in down years, meaning that dividend fluctuations are more likely than with corporate dividends. Lower dividend security, even for good quality REITs, also tends to push yields higher. (In other words if REIT A and Corporation B have identical levels of business risk, A’s dividend will be less secure simply because it has no surplus that can be used to fund the dividend in down years; on the other hand, shareholders get 100% of what A has but a small percentage of what B has because the IRS and the Board’s desire to retrain earnings come ahead of shareholders).” (Forbes)
  6. New Buildings Rise in Flood Zones “Rather than retreating from flood-prone neighborhoods after Hurricane Sandy, some developers are wading deeper into waterfront markets, especially in Queens and Brooklyn, where they are finding large parcels of land close to mass transit. These are calculated risks, bolstered by years of flood-zone price growth and unwavering demand. Whether these new apartment buildings can endure another major storm does not seem to be a concern for most residents, who are glad to have new options in inventory-starved markets.” (The New York Times)
  7. One Year Later, Kroger Rival Lidl’s U.S. Expansion Has Fallen Short “A year ago, the grocery world was abuzz as German deep-discounter Lidl began opening its first U.S. stores on the way to what was expected to be 100 in a year and more after that. Its growth plans left many wondering how established supermarket operators such as Kroger Co. would respond. Now, a year later, the talk about Lidl has quieted to a whisper and the operator has just 53 U.S. stores. That’s a far cry from the hype last summer as Lidl opened its first 10 stores in June 2017 while targeting 100 within the next year.” (Triad Business Journal)
  8. Silverstein Lines Up $800M Deutsche Loan for ABC Complex Buy “Silverstein Properties has lined up financing for one of the largest investment-sales deals of the year. Deutsche Bank is providing about $800 million in financing toward the developer’s $1 billion purchase of the massive American Broadcasting Company headquarters on the Upper West Side, which is expected to close next week, sources told The Real Deal.” (The Real Deal)
  9. Prop C’s Impact on San Francisco Rents “In June, San Franciscans took to the polls to vote in statewide primary elections and on a number of new initiatives. Among them were two propositions with potentially far-reaching impact on the city’s commercial real estate. Both measures stood to increase taxes on commercial buildings in the city, already one of the world’s most expensive office markets. The first, Proposition C, would levy a 3.5 percent tax increase on office properties and a 1 percent increase on industrial buildings within city limits.” (World Property Journal)
  10. City Nixes Property Tax Break for Trump’s NYC Apartment “New York City has nixed a $48,000 tax break President Trump was set to receive on his Trump Tower condo following inquiries from the Daily News about whether he is still eligible for the savings. On Tuesday, city records indicated that Trump was set to save $48,834.62 on his tax bill for the year beginning July 1 through the city’s condominium abatement, a popular tax break available to condo and co-op owners. But a homeowner is only eligible for the tax break if the condo is his primary residence.” (New York Daily News)
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