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


  1. Norway's $900 billion wealth fund says real estate may lose some of its shine “Management at Norway's $900-billion sovereign wealth fund, the world's largest, said on Tuesday returns on unlisted property investments may not remain as competitive in the future as they have been recently if interest rates start to rise. In 2016, the fund invested 19.1 billion crowns ($2.22 billion) in unlisted real estate, lifting its property investments to 191 billion crowns, or 2.5 percent of the fund's overall value by the end of the year. The fund is a co-owner of London's Regent Street and properties on the Champs-Elysees in Paris and Hudson Square in New York. ‘Direct property yields are still significantly higher than 10-year government bonds in most of our strategic markets,’ said Karsten Kallevig, CEO of the fund's real estate investment unit, in a report about the fund's investments in that field. ‘However, nominal prices are high and we potentially face a reversal of the yield tightening (on bonds) seen since the financial crisis.’ The fund, which funnels the revenues from Norway's oil and gas production, invests in stocks, bonds and real estate. In unlisted real estate is focusing on investing in 10 locations, which it considers to be global cities that capture the fruits of globalization. New York, London and Paris account for 19.2 percent, 17 percent and 13.1 percent respectively of the fund's unlisted property investments.” (Reuters)
  2. Rising rates will speed up the clock on retail's $3.7 billion time bomb “Things are about to get even harder for distressed retail chains thanks to rising interest rates. After years of low rates fueled a private equity "feasting" on retail firms, the number of troubled chains has tripled over the past six years, and is now at its highest level since the Great Recession. Moody's Investors Service says that 19 of these companies have ‘well over’ $3.7 billion in debt that matures over the next five years. Roughly 30 percent of that total is due by the end of next year. The timing for higher rates couldn't be worse. Revenue continues to tumble as the debt maturities swell. Though credit markets have so far remained strong, allowing many retailers to proactively refinance their debt, Moody's warns that rising U.S. interest rates could abruptly change those conditions. The Federal Reserve is expected to raise rates three times this year, with the first such move anticipated on Wednesday.” (CNBC)
  3. Why the Fed Will Hike Rates Again And Again “With 235,000 new jobs created according to the U.S. Labor Department, and 298,000 created according to ADP, February was a booming month for new jobs. But the employment news could be too rosy for the Federal Reserve, which will be compelled to once again raise interest rates in an effort to keep inflation in check and rein in a fast-moving economy. ‘Friday's jobs number is the best we've seen in ten years,’ notes Dan Celia, financial expert and nationally syndicated television and radio host based in Philadelphia, Pa. ‘That's not necessarily because of the 235,000 new jobs-after all, we are still at a late 1970s labor participation rat. But the best news of all is that 300,000 people re-entered the workforce, yet the unemployment rate decreased. It means that these 300,000 actually got jobs, and that is the best news story from these numbers.’ Celia adds that although the labor participation rate is still stuck in the late '70s, his hope is that numbers will soon compare to 1980. ‘That's when the average annual labor participation rate was 64,’ he points out. ‘Currently, it sits at a full point lower.’” (The Street)
  4. Multifamily Completions to Peak in 2017 “Construction spending in January fell 1 percent to $1.18 trillion compared to $1.19 trillion in December 2016, according to the U.S. Census Bureau. However, residential construction spending grew by 0.5 percent to $476.4 billion, the highest level since August 2007, according to statistics from Trading Economics. Is the growth in residential development a sign that we are at cycle peak? “Yes, we expect multifamily completions to peak in 2017. We’ve already seen weakness in starts and permits data, meaning that construction will start tapering off in 2018,” Paula Munger, director of industry research and analysis at the National Apartment Association, told Multi-Housing News. Though multifamily construction is on the rise, many U.S. markets are dealing with a supply shortage. Industry experts attribute the shortage to developers building the same type of assets in the same areas where they are no longer needed.” (MultiHousing News)
  5. Anbang wants a bunch more condos at Waldorf conversion “Chinese investment enigma Anbang Insurance filed a “test-the-market” application with the New York State Attorney General’s Office for its planned condominium conversion of part of the Waldorf Astoria hotel. The application reveals Anbang is now considering 409 apartments for the vintage skyscraper, up from the 321 it included in last fall’s filed construction plans. Anbang shuttered the doors of the iconic, 1,413-key hotel on March 1 in order to begin conversion work. In November, the company filed its first construction plans with the city’s Department of Buildings. The company announced it would maintain the building’s distinctive art deco interiors last summer after facing pressure from preservationists (it’s now officially landmarked). Anbang famously bought the Waldorf Astoria from Hilton Hotel Group for $1.95 billion in 2014. While the update points to a change in appellation—the project, at least for filing purposes, is listed as “The Towers at 301 Park Avenue” — a representative for Anbang said this is the legal name of the condo association and no formal name change is planned for the building or the hotel.” (The Real Deal)
  6. Miami developer loads up on more downtown apartments “A Miami housing developer that's building the tallest tower in the South Loop is adding to its already big bet on the downtown apartment market, agreeing to buy a 45-story high-rise overlooking the Chicago River. Crescent Heights has signed a preliminary agreement to buy Coast, a 515-unit building in the Lakeshore East development that opened in 2013, according to people familiar with the transaction. The firm is acquiring the tower at 345 E. Wacker Drive from a joint venture between Chicago-based Magellan Development Group and JP Morgan Asset Management of New York. Crescent Heights has been loading up on apartments in downtown Chicago the past few years, a golden era for investors and developers as rents and property values have soared. In 2015 the firm bought Burnham Pointe, a 298-unit building in the South Loop, and last year acquired North Harbor Tower, a 600-unit high-rise a short walk from Coast.” (Crain’s Chicago Business)
  7. Measure JJJ triggers new incentives to encourage affordable housing near transit “Los Angeles voters overwhelmingly approved a November ballot measure meant to spur development of affordable housing and ensure that builders rely on local labor. Now, the city’s planning department has released guidelines for a key part of that initiative. Measure JJJ, which passed with nearly 64 percent of the vote, sets affordable housing mandates and hiring restrictions favoring local laborers on residential projects requiring a zoning change or an amendment to the city's General Plan. It also creates incentives for developers building near transit stops. New guidelines from the planning department make clear just how those incentives will work. Based on how close a site is to a transit stop—and what type of stop—different amounts of affordable housing will be required to trigger the incentives. Projects within 750 feet of a Metro rail station will need the most affordable units to qualify for incentives, while projects around a half-mile from Metrolink stops or major bus stops will require the least. The number of affordable units developers must build depends on just how affordable they choose to make them. For instance, developments within 750 feet of a Metro stop will need to make either 11 percent of units available to tenants making under 30 percent of median income, 15 percent to those making less than 50 percent, or 27 percent to those making less than 80 percent.” (Los Angles Curbed)
  8. Homebuilder sentiment roars to a 12-year high as regulations get rolled back “Sentiment among home builders roared to a 12-year high in March, propelled by industry approval of early steps from President Donald Trump. The National Association of Home Builders’ closely-watched confidence index surged 6 points to 71, the highest level since June 2005. The index jumped sharply to a fresh cycle high in the month after the election, but then retreated slightly. Economists had forecast a 1-point increase to 66 in March. The index’s sub-categories also surged higher. The tracker of current sales conditions rose 7 points to 78, and the gauge of sales over the coming six months was up 5 points to 78. The measure of prospective buyer traffic leapt 8 points to 54, also the highest since mid-2005. Any reading over 50 signals improvement, and the traffic component is only rarely higher than that. It broke above the 50 line in December after the election for the first time since the bubble era. In a statement, NAHB noted its member approval for early steps from Trump, including an executive order that would roll back a clean-water rule that NAHB calls ‘burdensome.’” (MarketWatch)
  9. Economy Watch: Retail Sales Edge Up in February “U.S. retail and food services sales eked out a 0.1 percent increase in February, considerably less than in January, the Census Bureau reported on Wednesday. The January increase was also revised to 0.6 percent, while sales in December were up 1 percent. Compared with February 2016, the retail sales increase was 5.7 percent. The bureau adjusts for seasonal variation and holiday and trading-day differences, but not for price changes. Since inflation has been relatively low in recent years, price changes haven’t been that much of a factor in retail sales, except for gasoline, which tends to be volatile (down 0.6 percent in February, but up 19.6 percent for the year, as gas prices rose). Electronics and appliance retailers took the biggest hit in February, with sales down 2.8 percent for the month and 6 percent for the year, as the Internet becomes the go-to place to buy electronics. Severely declining sales were certainly a factor in the recent bankruptcy of HH Gregg, an electronics retailer headquartered in Indianapolis.” (Commercial Property Executive)
  10. Europe, US still more attractive than Asia for commercial property investors: JLL “Asian property plays are exciting, but it's commercial real estate in Europe and North America that are the most attractive to investors, a study by consultancy JLL found. 'The Asian Pacific markets, despite them being very active in terms of real estate and growing rapidly, are not as mature as the European and the American markets when it comes to direct real estate investment into the commercial sector proportionate to their economies,' Chris Fossick, managing director of Singapore and Southeast Asia said. The firm's Investment Intensity Index compares the volume of direct commercial real estate investment in a city over a three-year period from 2014 relative to the city's GDP. Released this week, the report found cities in Europe and North America topping the list of preferred investment destinations.” (CNBC)
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