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10 Must Reads for the CRE Industry Today (March 31, 2017)

The apartment market is finding itself in a state of oversupply this year, Business Insider reports. Fortune looks at how e-commerce has functioned to stem store closures. These are among today’s must reads from around the commercial real estate industry.


  1. America is building more apartments than renters want “The US apartment market remains overdeveloped, with supply outpacing what prospective renters are asking for, especially in the most expensive segment of the market. US apartment occupancy slipped to 94.5% in the first quarter from 95.1% last fall, according to the apartment-data provider Axiometrics. Properties completed in late 2016 and 2017 are ‘scrambling’ to find their initial residents, especially in the luxury market, the firm said in a report Thursday. Over the past two quarters, demand for apartments was more than 100,000 short of the number of units that were available. ‘Apartment markets are still solid, but we knew that this would be a year when apartment supply would outpace demand,’ Jay Denton, vice president of RealPage’s Axiometrics business, told Business Insider. The company estimates that new deliveries would average 102,000 units per quarter for the rest of this year, compared to 82,000 in late 2016 and early 2017.” (Business Insider)
  2. How E-commerce Is Making Stores Relevant Again “After a tough holiday season, many big- box retailers went on a cost-cutting binge. J.C. Penney, Macy’s, and Sears all announced that they would shutter dozens of stores each as shoppers increasingly shift online. But the carnage could have been much worse. Oddly enough, it was that very shift to e-commerce—the one bright spot for most retailers during the holidays—that spared even more stores from the reject rack. The counterintuitive strategy boils down to this: If traditional retailers have any hope of countering Amazon’s dominance, it’s by using their brick-and-mortar stores as local arms of their online businesses. Whether or not that’s ultimately successful, a number of retail CEOs touted the idea during recent earnings calls.” (Fortune
  3. Senate banking chair wants financial rules reform by early 2018 “The chairman of the U.S. Senate Banking Committee said on Thursday he wants to pass a major piece of bank reform legislation by early next year at the latest. Senator Mike Crapo, a Republican, intends to go beyond rewriting the 2010 Dodd Frank financial reform legislation and craft a bipartisan bill that advances economic growth and capital formation, he told attendees at a Chamber of Commerce event focused on capital markets. "My hope is ... that is either late this year or early next year. I'm not looking further than that," Crapo said. Crapo's agenda is being intensely watched on Wall Street, as his committee is widely seen as playing a critical role in crafting any rewrite of Dodd Frank. That 2010 law was enacted after the financial crisis, and the industry is eager to see if Republicans now in charge of the White House and Congress can significantly relax its requirements. Some of the Dodd Frank provisions that are most contentious prohibit banks from some higher risk investments and require higher capital requirements of the biggest banks. A bill that attacks Dodd Frank directly is set to be introduced in the House of Representatives soon by Jeb Hensarling, the Texas Republican who chairs the Financial Services Committee. But that bill is seen as a tough Republican approach that may not garner enough support in the Senate to be passed.” (Reuters)
  4. Economy Watch: Demand for Student Housing Stays Strong “The outlook is good for the U.S. student housing sector, according to a report released on Wednesday by TH Real Estate. Last year, the sector attracted considerable interest: investment sales totaled about $9 billion. Looking ahead, favorable demographic trends still underpin demand for the property type. Millennials (born between 1981 and 1997) are pursuing college and post-graduate degrees in record numbers, creating a sizable demand. Also, the company reports that further opportunity for investment exists due to state budget cuts. Higher education is facing funding cuts in many states, with per student spending on higher education for 2015 remaining below that of 2008 in 47 states. That presents an opportunity for investors to provide on-campus housing stock that universities are unable to provide for themselves.” (MultiHousing News)
  5. Traders are betting against another company to capitalize on Sears' demise “As Sears nears bankruptcy, some investors are looking for ways to profit from the retailer's collapse.  In an annual report filed on March 22, the company said its operating results showed "substantial doubt" about whether it would remain in business. Sears has closed hundreds of stores and sold off assets to raise cash. Traders who bet against the company by short-selling its stock have profited as it tumbled. According to financial analytics firm S3 Partners, almost all the shares that can be lent have already been taken. But there's another closely related company that traders are betting against.” (Business Insider)
  6. How Commercial Real Estate Use Is Changing: Five Adaptive Reuse Success Stories “The practice of taking an existing structure and repurposing it for some other use is not necessarily a new idea. This practice of adaptive reuse has, however, become increasingly common in the apartment industry. No single reason explains this boom; it is a combination of factors. But one factor that is easy to point to is the fact that people enjoy living downtown. Renters have proven this over time by their willingness to pay more for urban core units. Without deeply discussing principles of urban geography, one can see many structures that handily lend themselves to adaptive reuse in or near downtown areas. As cities evolved, centrally located buildings that once served a non-residential purpose (e.g. mills, factories, warehouses, etc.) are now placed in areas that present attractive residential opportunities. Adaptive reuse can be a great way for developers to leverage extremely valuable but otherwise inaccessible plots of land. If a structure has been designated historically significant and therefore cannot be torn down, developers can get creative by repurposing these buildings into trendy, “hip” units that renters are willing to pay a premium for.” (Forbes)
  7. Take an aerial tour of Apple’s epic new campus as its opening date approaches “Employees of Apple Inc. are set to move into the company’s new spaceship-like, Silicon Valley corporate headquarters, dubbed Apple Park, this April. Newly captured aerial footage from a drone of the 175-acre Apple house of worship shows the project nearing completion. While some employees are set to move in next month, Apple Park isn’t expected to be completed until later this year. In total, Apple will move more than 12,000 employees there over the next six-months, while construction on non-core buildings and landscaping will continue through the summer. The 2.8 million-square-foot main building features curved class and solar panels that will enable much of the facility to operate on renewable energy. It will also include a 1,000-seat auditorium for the company to host future flagship product events. In addition to the main building, Campus 2 has an underground theater, several parking garages that are connected to the main building through a network of underground tunnels, and a 100,000-square-foot fitness center for employees.” (MarketWatch)
  8. Chetrit, Somerset seeking $500M loan for Bronx megaproject “They’re building among the most ambitious projects the Bronx has ever seen. And the financing they’re seeking will likely set a new record for the borough. The Chetrit Group and Somerset Partners are in the market for a construction loan of up to $500 million for a seven-building, 1,300-unit rental complex in Mott Haven, The Real Deal has learned. The South Bronx complex is slated to cost over $600 million, according to Somerset’s Keith Rubenstein, with the partnership team set to cough up between $100 million to $150 million in equity. Sources said the developers are targeting domestic lenders and hope to secure either a mezzanine loan, first mortgage or preferred equity. Maverick Commercial Properties’ Adi Chugh and Iron Hound Management Company’s Robert Verrone are jointly handling the search for the financing. Chugh declined to comment, and neither Verrone nor Chetrit could be reached.” (The Real Deal)
  9. Honda Expands $2.2B Alabama Plant “The announcement by Honda Manufacturing of Alabama that it’s planning an $85 million multi-phase expansion of its $2.2 billion plant in Talladega County could spur additional investment in the region’s industrial market. With this project, which is expected to complete its initial construction phase by 2018, Honda’s total capital investment at the Lincoln plant exceeds $750 million, including the addition of more than 450 workers…The new investment includes a building expansion of the south end of Line 1 for HMA’s vehicle assembly operations at the plant. The current 3.7 million-square-foot facility, which has more than 4,500 employees now, has the capacity to produce 340,000 vehicles and engines each year.” (Commercial Property Executive)
  10. San Francisco landlord reaps $200 million from sale of Schwab HQ office building “Investment firm Blackstone has made a deal to buy 211 Main St. in San Francisco from CIM Group, according to real estate sources. The price was $313 million or about $750 per square foot for the 18-story, 417,200-square-foot building, according to sources familiar with the deal. The sale comes a few months after CIM locked in Charles Schwab (NYSE: SCHW) — one of San Francisco’s most high-profile headquarters tenants — into a lease for the entire building. Blackstone (NYSE: BX) is one of the nation's biggest investment firms with $367 billion worth of assets under management including private equity, real estate, hedge funds and credit. Its real estate assets totaled $102 billion at the end of last year. The firm has bought up various Bay Area properties and is a partner on a major apartment development in Oakland.” (San Francisco Business Journal)
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