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10 Must Reads for the CRE Industry Today (October 17, 2016)

10 Must Reads for the CRE Industry Today (October 17, 2016)


  1. 42 of the country's top new commercial real estate projects of 2016 “A 750-foot, $1.02 billion “hybrid high-rise” tower in Boston. A new San Francisco tower with 200 to 300 hotel rooms, 200 residential units, and 250,000 to 425,000 square feet of office space. A22-story, 226,778-square-foot luxury office tower in Dallas. General Electric's new 2.5-acre campus on the waterfront in Boston. These are among the largest new commercial real estate projects announced across the country in recent months.” (Louisville Business First)
  2. How Would Trump’s Wall Impact U.S. Real EstateMuch has been said about the impact of Donald Trump’s proposed wall on immigration, how it would get built, and whether he can actually get Mexico to pay for it. But how would it affect real estate? Given The Donald’s “yuge” real estate empire, he presumably has given this some thought. Unfortunately, he hasn’t shared those thoughts, so let’s take a crack at it ourselves. Looking at precedents such as Germany’s Berlin Wall is not encouraging. Real estate values in Berlin declined precipitously when it was built. Now that it has come down, the site of the former wall is the hottest real estate market in Berlin. And the scale of Trump’s wall is nearly unprecedented: the Berlin Wall was 91 miles long. Trump’s wall would be 1,000 miles long. His original proposal was for a 2,000-mile wall, but he has since reduced the length, arguing that natural obstacles make parts of the Wall unnecessary. Of course the Great Wall of China is over 5,000 miles long and it was built in segments over a period of more than 1,000 years. It did help to control unwanted immigration from the Mongols but I can’t honestly tell you how it affected real estate values in China….Here’s how we think the Great Wall of Trump, in combination with his other immigration and trade policies, will affect real estate markets in the U.S.: 1. Demand for housing and neighborhood retail will boom in border towns during construction. Forty thousand workers will have to be housed in apartments and hotels, and they will also need to shop for food and clothing… 2. Construction costs will increase. Building the wall would require 8 million cubic yards of concrete, 5 billion pounds of steel rebar, and 40,000 construction workers per year for at least four years.” (Barron’s)
  3. Growth of NHL hockey nationwide boosts apartment markets “As the 2016 National Hockey League season heats up, one thing that isn’t dropping are rental prices nearest hockey-only stadium venues. That’s the analysis from RENTCafe and MarketWatch, which looked at more than a dozen NHL-primary arenas in the U.S., and showed that some of the newest arenas, those less than 20 years old, have been the biggest drivers of higher rental prices. RENTCafe attributes the higher rents to the growth of retail and entertainment districts around the arenas as they have solid attendance and dozens of games during the season. For example the Verizon Center in downtown Washington, D.C., which is home to the NHL franchise Washington Capitals (And the NBA’s Washington Wizards and WNBA’s Mystics) has proved a catalyst for growth in what once was a moribund and unsafe part of the city especially after dark.” (MarketWatch)
  4. Is the Market for New York Apartments Softening? “The housing market in New York is not what it was a year ago. Gone are the days when you could list your apartment for 20 percent more than the last comparable sale and watch the offers roll in over the next couple of days. “This has been the story for 2016,” said Jonathan J. Miller, the president of the real estate appraisal firm Miller Samuel. “The market has largely reset.” While 2015 was a tale of sparse inventory sparking crazed bidding wars, 2016 has taken it down a notch. More apartments are on the market, and they take longer to sell. The market has softened, particularly at the top. So for those of you trying to unload a $65 million spread, now is the time to lower your expectations. The lower end of the Manhattan market, with apartments priced around $500,000, is still tight, as those homes are in high demand. Your $2 million two-bedroom falls somewhere in the upper middle of the market.” (The New York Times)
  5. Yardi Matrix: An End to San Francisco’s Bull Run? “A Millennial hotspot and an economic juggernaut, home to more than 30 international financial institutions and a plethora of iconic tech brands, San Francisco continues to be a key city for multifamily investors. However, rent growth has finally ended its bull run after years of double-digit increases, as properties are bumping up against the limits of affordability. Broad-based job growth and an influx of skilled young professionals have propelled rental rates to extreme highs, reaching a record average of $2,216 in 2015. Homeownership is out of reach for most San Franciscans, and the lack of affordable housing options is pushing workers toward commuter towns in the East Bay, where home prices are slightly lower. Future supply is robust, with more than 15,000 units underway and over 66,000 in the planning stages. Major projects, such as the $4.5 billion Transbay Transit Center, which will accommodate more than 100,000 passengers each weekday and as many as 45 million people per year, are likely to spur on further investment and attract renters looking for transit-friendly apartments.” (Commercial Property Executive)
  6. Deutsche could trim US operations amid $14B settlementGermany’s largest bank, Deutsche Bank AG, is considering scaling back its United States operations as part of plans to reduce its global workforce by 9,000 employees and mounting legal expenses. The bank is looking to trim its operations as part of a broader review of its strategy amid a potential $14 billion legal settlement with the U.S. Justice Department over residential mortgage-backed securities, Bloomberg News reported. ‘For Deutsche Bank, there’s only one solution, which is to go on a diet,’ Algebris Investments founder Davide Serra, who holds the bank’s debt, including the riskiest securities, told Bloomberg. ‘I think the diet comes in the investment-banking division mainly and in my expectation you are looking at a third of reduction of the balance sheet and a third reduction of the number of staff overall in the next two to three years.’ Deutsche Bank CEO John Cryan last year announced a restructuring plan that seeks to eliminate 9,000 jobs, including 4,000 in its home market.” (The Real Deal)
  7. Commercial brokerages still hot commodities in South FloridaNationwide, mergers and acquisitions in the commercial brokerage sector have slowed down. But the big firms will continue to aggressively target boutique firms in South Florida due to the strong commercial real estate market here, according to top executives for Colliers International, Avison Young, and Real Estate Sales Force.We have a growth strategy of acquiring boutique companies,’ said Pike Rowley, principal and managing director of Avison Young Florida. ‘These small owners want  to chase institutional work but don’t have the size to do it. Now, the window is open and the time is right.’ Rowley spoke during the keynote panel of the Realtors Commercial Alliance Miami Super Conference Friday afternoon at the Biltmore Hotel in Coral Gables. In the last three years, Avison Young has expanded its Florida presence by acquiring West Palm Beach’s WG Compass Realty Cos., Tampa’s Lane Witherspoon & Carswell Commercial Real Estate Advisors. Orlando’s Morrison Commercial Real Estate, and Miami’s Abood Wood-Fay Real Estate Group. Another panelist, Jorge Guerra, founder of Coral Gables-based Real Estate Sales Force, or RESF, echoed Rowley’s comments. ‘When the market is hot and the real estate services industry is doing good, the big companies are going to step up [efforts to acquire] smaller companies.’” (The Real Deal)
  8. The most expensive street in the world for retail is… “Thinking about setting up shop between 49th and 60th Streets on Manhattan’s Fifth Avenue? Better be prepared to pay big bucks. The upper part of Fifth Avenue is the most expensive retail street in the world (based on rental value), with rents rising to a whopping $3,500 per square foot in 2015, according to the 27th edition of Cushman & Wakefield’s report, Main Streets Across The World. Causeway Bay, in Hong Kong, ranks second, coming in at $2,399 per square foot. Rounding out the top five: Paris’ Avenue des Champs Élysées, at $1,372; London’s New Bond Street, at $1,321; and Via Montenapoleone, in Milan, at $1,035. ‘Our latest results show that rents have risen in 35% of streets around the world – despite the increased global uncertainty experienced over the last 12 months,’ the report stated. ‘Going forward, improving employment prospects, rising real wages and healthier consumer confidence in advanced economies are set to offer positive momentum for the retail sector.’” (Chain Store Age)
  9. Is Amazon planning a drive-up grocery store in SoDo, too? “Back in August, GeekWire discovered something called Project X in Ballard that turned out to be plans for an Amazon drive-up grocery store. Per the permit, a 9,759 square-foot retail space at 5100 15th Ave. N.W. in Ballard would allow customers to pick up groceries ordered online. Now it looks like this next wave in Amazon’s diversification isn’t sticking to Ballard. It looks like they might be doing something similar as GeekWire now reports that Amazon is remodeling the former Sears store at the Starbucks headquarters in SoDo with 40,000-square-feet of distribution space, a retail lobby, and an outdoor canopy that seems very similar to the one in Ballard. As with Ballard, Amazon remains mum on their plans but either way they are planning a massive renovation of the first floor of the former Sears space and seem to be going out of their way to make it customer-friendly. Planning documents say that the canopy will be used ‘for drive-through/pick-up activities’ and blueprints include seven parking bays.” (Seattled Curbed)
  10. Struggling Sears elevates Hollar to CFO “Sears Holdings chairman and CEO Edward Lampert noted that the company enjoys a ‘deep bench of financial leadership’ in Hollar and Riecker. ‘In his time with the company, Jason has been focused on driving efficiencies and creating value as our company undergoes rapid change,’ Lampert said in a statement. ‘His leadership and financial acumen are important skills as we accelerate our transformation and deliver for our members, associates and shareholders.’ Considering the challenges facing its flagship and Kmart brands, it’s far from clear whether Sears Holdings could attract top talent from outside the organization if it so chose, however. Both Sears and Kmart continue to struggle mightily in what Lampert calls a ‘challenging retail environment,’ and earlier this month he took pains to refute rumors that Kmart is shuttering altogether. While the company’s Shop Your Way loyalty program is likely keeping many customers on, even that could deteriorate now that the company has decided to sell its iconic Craftsman tool brand. While the prospect of unloading Craftsman could bring in much-needed cash to help the retailer survive the holiday shopping season, it's also just another sign of its decay and its impending disappearance from the retail landscape.” (Retail Dive)
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