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10 Must Reads for the CRE Industry Today (May 4, 2017)

An analysis by Goldman Sachs found that the proposed tax reform plan doesn’t make sense, according to The Street. The Fed opted not to raise interest rates at its May meeting, reports MarketWatch. These are among today’s must reads from around the commercial real estate industry.

  1. Fed Holds Interest Rates Steady, Dismisses First-Quarter Slump as ‘Transitory’ “The Federal Reserve on Wednesday left the cost of borrowing unchanged and dismissed a weak first quarter as temporary, signaling it is still on track to raise interest rates at gradual pace. The decision leaves the benchmark short-term fed funds rate in a range of 0.75% to 1%. The median forecast of Fed officials is for two additional quarter-point rate hikes this year. Investors who bet on the future path of the fed funds rate project the next rate hike occurring in June, according to CME FedWatch.” (MarketWatch)
  2. Home Prices Will Not Fully Recover Until 2025, and a New Report Explains Why “Check out any one of the many national home price reports, and headlines scream of new peaks and growing gains each month. Home prices are rising faster than inflation, faster than incomes and faster than some potential buyers can bear. Those reports are heavily weighted toward large metropolitan housing markets. In fact, most of the U.S. housing market has not recovered from the epic crash of the last decade.” (CNBC)
  3. Goldman Says Tax Plan Devised by Former Goldman Execs Doesn’t Add Up “The math on the tax blueprint presented by National Economic Council director Gary Cohn and Treasury Secretary Steven Mnuchin last week turned White House officials doesn't add up, according to a Wednesday note from Goldman Sachs. The White House officials' plan to drop the tax rate to 15% on corporations and pass-through businesses would blow a hole in the deficit that it would be hard to make up for with growth. Taxing pass-through businesses at Trump's proposed 15% corporate rate instead of the individual rate could lower tax revenues by $2 trillion over 10 years, said Goldman analysts.” (The Street)
  4. Why Paul Volcker Fears Trump’s Push to Roll Back Dodd-Frank “Volcker, who is 89, returned to Washington for a rare speech in mid-April to rally those eager to sustain the reforms. ‘In the event of a major financial crisis, there is no possibility of an international ‘bailout’ of the American financial system,’ he warned. ‘So we had better work to keep it strong.’ Not only is he mounting a strong defense of the Volcker Rule and Dodd Frank, Volcker is putting forward a new plan to revamp the alphabet soup of federal regulatory agencies that oversee the financial sector.” (MarketWatch)
  5. City Connections Shutters EB-5 Centers “When City Connections Realty launched an EB-5 regional center in the fall of 2015, the mid-sized firm expected business to boom. Fearing imminent regulatory changes to the popular program, thousands of foreign nationals — mostly from China — jumped at the opportunity to invest in U.S. real estate projects in exchange for a visa. But after just 18 months, City Connections quietly pulled the plug on its regional center.” (The Real Deal)
  6. Nine Twitter Accounts for Aspiring Real Estate Investors to Follow “We've all heard success stories of individuals getting rich from a smart real estate investment opportunity. But like any other wealth-building strategy, success in the real estate market isn't based on luck: It requires real knowledge and skills that can only be obtained through learning. A good place for aspiring investors to begin educating themselves is Twitter, where the best and brightest minds in the industry come together to share their valuable insights. We asked members of the Forbes Real Estate Council to share follow-worthy Twitter accounts for those looking to enter the world of real estate investing.” (Forbes)
  7. Look for Remaining Sears and Kmart Stores to Get Smaller “Sears and Kmart shoppers soon may notice the chains' stores getting smaller - or sold. Trimming store sizes is one strategy that Sears Holdings Corp., their parent company, is using as it seeks to cut $1.25 billion from annual structural costs. Another strategy is the sale of its owned properties, many of which are Sears stores. At the same time, the real estate trust that took over 224 former Sears and Kmarts in 2015 is actively ‘recapturing’ portions of 10 stores in Michigan that have been leased to either chain.” (MLive)
  8. How to Handle the CMBS Refinancing Challenge “With retail and office loans comprising roughly 53 percent of the volume maturing through September, the commercial real estate financing industry has been taking greater caution and adopting more conservative underwriting standards. McDermott Will & Emery Partner Daniel Martin revealed to CPE why he remains optimistic about the CRE lending market and advises owners on what could be the biggest challenge they will face in today’s lending environment.” (Commercial Property Executive)
  9. On Israeli Bond Market, U.S. Real Estate Players Are Now Mishpacha “In 2015 and early 2016, the Israeli bond market had become the Promised Land for U.S. developers. Players here had raised hundreds of millions of dollars in cheap debt from Israeli investors, and the nascent financing model was expected to become a long-term source of funding for U.S. projects, particularly as EB-5 was going through legislative challenges. Then came Urbancorp. The Canadian condominium developer, which raised $48 million through an issuance on the Tel Aviv Stock Exchange in late 2015, filed for bankruptcy protection in April 2016.” (The Real Deal)
  10. Korean Funds Are Rabid to Invest in Mezz Debt on U.S. Real Estate “Mezzanine debt used to be mainly the purview of smaller, more nimble lenders. They would provide small slices of funds, often at double-digit interest rates, to help buyers fill in their capital stack. Some even hoped to take over the properties they were lending on, in a practice that was somewhat disparagingly called “loan-to-own.” But mezzanine debt has become a much different game. Now, institutional funds that were historically conservative investors are hungry for mezz—if it’s on the right asset or project and behind the right senior debt.” (Commercial Observer)
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