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10 Must Reads for the CRE Industry Today (May 5, 2017)

The House voted May 4 to approve the Final Choice Act, a bill that if made law would repeal Dodd-Frank, according to The Atlantic. Fortune looks at whether Chipotle can ever make a comeback. These are among today’s must reads from around the commercial real estate industry.

  1. The House Gets One Step Closer to Scrapping Dodd-Frank “On Thursday, the House Financial Services Committee approved the Final Choice Act, thus helping President Donald Trump move one step closer to his long-stated goal of repealing the Dodd-Frank Act. The bill now must be passed by the full House and Senate before becoming law. The Choice Act—which stands for Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs—is in some ways a repeal-and-replace initiative for the financial sector. For instance, the bill would do away with Title II of Dodd-Frank, the section that created the Orderly Liquidation provision and provides a government guided wind-down process for banks facing bankruptcy. In its place, Republicans would create a new section of the bankruptcy code specifically targeted at large financial institutions. But overall, the Choice Act is heavier on repeal than it is on replace. The Act would do away with Title IV of Dodd-Frank, which gives the Financial Stability Oversight Council (FSOC) the ability to designate financial organizations as systemically important and impose more rules and regulations on them. The Act would also call for the dissolution of FSOC, repeal the portion of the law responsible for the Volcker Rule (which a major bank just got caught breaking for the first time), and kill the fiduciary rule once and for all.” (The Atlantic)
  2. Why Chipotle May Never Make a Big Comeback “The good news for Chipotle is that its food doesn’t appear to be making customers sick anymore. The bad news is that investors should be sick over the embattled company’s unrealistic growth expectations and financial mismanagement. Many investors are still buying expensive Chipotle shares in hopes that the company returns to its prosperous days in 2014. That’s not going to happen. Before 2015, Chipotle was the envy of restaurant operators across the country. Many industry participants were convinced Chipotle had cracked the code on an industry operating model that led to outsized margins. But the outbreak of foodborne illnesses that broke out coast to coast for five months in 2015 has permanently impaired the profitability of its business model. Simply put, the company’s lack of investment in basic food safety procedures violated the first rule of running a restaurant: Don’t get the customer sick.”(Fortune)
  3. Q&A: Gordon Brothers Real Estate Executive Weighs in on Challenging Retail Real Estate Landscape “With retailers and shopping center owners heading to Las Vegas later this month for RECon, the world’s largest retail real estate convention, we asked Mark Dufton, CEO of the Real Estate practice of Gordon Brothers, for his take on the evolving retail real estate market.” (CoStar News)
  4. When Your Game Needs a Boost, Call the Commercial Real Estate Coach, Rod Santomassimo “If you’re a broker pulling in an extremely respectable $8 million in gross commissions a year, what do you do to jump to the next level? If you’re Cushman & Wakefield’s Robert Knakal, you call real estate coach Rod Santomassimo.” (Commercial Observer)
  5. Gramercy Europe, AXA Trade $1.1B Portfolio “Gramercy Property Europe plc, a Europe-focused real estate investment fund sponsored by Gramercy Property Trust (GPT) and managed by a GPT subsidiary, has entered into an agreement to sell 100 percent of its assets to a consortium of clients managed by AXA Investment Managers – Real Assets, GPT announced Tuesday. The deal’s total gross valuation reportedly is about €1.0 billion ($1.1 billion), with an exit cap rate of approximately 6.2 percent. Simultaneously, GPT will dispose of its 5.1 percent direct minority interest in eight Gramercy Europe properties. The two transactions are expected to result in net distributions to the REIT of about ˆ90.7 million ($96.6 million). Gramercy Europe (Jersey) Ltd., Gramercy’s Jersey-based investment and asset management subsidiary, will manage the assets for the buyer for one year following the closing date.” (Commercial Property Executive
  6. Goldman, Deutsche Bank and Morgan Stanley Lend $760M on Olympic TowerCrown Acquisitions has nabbed a $760 million refinancing for the commercial portion of the Olympic Tower plus three surrounding Midtown properties, according to property records filed with the city this afternoon. The debt was provided by a trio of lenders: Goldman Sachs, Deutsche Bank and Morgan Stanley. The loan consolidates a $250 million Deutsche Bank loan on the building from March 2012 and a $510 million new mortgage provided by the threesome. The financing covers the Olympic Tower’s retail and office condos, located at 641 Fifth Avenue between East 51st and East 52nd Streets, and the neighboring seven-story office building at 10 East 52nd Street and two retail properties at 647 Fifth Avenue and 649 Fifth Avenue.” (Commercial Observer)
  7. Why Hudson's Bay is shopping for a takeover among 2017's bloodbath “The first quarter of the year has deepened a period of bloodletting in the retail industry: Over the last few months, nearly a dozen retailers have filed for Chapter 11 bankruptcy protection and many more have announced major store closure plans and financial restructuring efforts. As retailers slim down their store counts — and in some cases buckle under mounting debt burdens — analysts anticipate a period of consolidation for the industry, in which similar retailers will merge in order to survive. Retailers that position themselves as conglomerates stand to gain, making Hudson’s Bay Company’s growth strategy — leveraging the prime real estate of luxury department stores — particularly intriguing.” (Retail Dive)
  8. Cousins Continues $300M Disposition Plan with Atlanta Sale “Cousins Properties and Gables Residential have completed the $199 million disposition of Emory Point I and II, a mixed-use property in Atlanta. The asset features 750 apartment units and 125,000 square feet of first-floor retail space. Located at 855 Emory Point Drive, the community offers one-, two- and three-bedroom units ranging in size from 393 to 1,469 square feet. Community amenities include granite countertops, tiled flooring, washer and dryer appliances and 10-foot ceilings. The property also features controlled access, fitness and business centers, clubhouse, playground, three swimming pools with spa, media room and 858 parking stalls. Emory Point is located close to Emory University, Atlanta VA Medical Center and Tuco Hill Shopping Center.” (MultiHousing News
  9. Soon-to-be Witkoff-owned project will add to SaMo’s affordable housing supply “A fully affordable apartment complex is underway in Santa Monica, the biggest project of its kind in three years. The five-story, 64-unit complex, which broke ground last week, is being developed and financed by KRE Capital in an agreement with the city. As part of the deal, the city approved its 249-unit market-rate project nearby at 500 Broadway. New York developer Steven Witkoff is in talks to acquire both complexes, The Real Deal reported in March. The “Arroyo” affordable apartments will span 55,700 square feet and contain one-bedroom, two-bedrooms, and three-bedroom units. The Community Corporation of Santa Monica will manage the complex. KRE will bankroll the $44 million project, Santa Monica Lookout reported, with the help of a construction loan and low-income housing tax credits. Construction is slated to be complete within 18 months.” (The Real Deal Los Angeles)
  10. Pennsylvania Real Estate Investment Trust (PEI): Ignore the noise and focus on the technical “With all other things going on, Pennsylvania Real Estate Investment Trust (NYSE:PEI) has been on a free fall — declining -22.91 percent in just three months. It looks like traders are not happy with the stock. On the other side, analysts now consider Pennsylvania Real Estate Investment Trust a neutral, and a technical analysis of the stock is setting somewhat neutral outlook for now. Let’s talk about the gap between analyst price targets for the next 12 months and Pennsylvania Real Estate Investment Trust (PEI)‘s current share price. Normally this spread should be in positive territory, indicating that analysts expect an investment’s value to increase over time. So is with Pennsylvania Real Estate Investment Trust. The median target of analyst views collected by Yahoo Finance was as much as $4.5 below PEI’s recent stock price. That’s the optimistic view from Wall Street.” (USA Commerce Daily)


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