10 Must Reads for the CRE Industry Today (September 16, 2016)

10 Must Reads for the CRE Industry Today (September 16, 2016)


  1. Wells Fargo fallout: More pressure to break up the banks? “Wells Fargo's image has taken a beating over the past several days, and the scandal over its illegal sales practices are causing concern that the damage could spread. Among the potential ramifications: More heated calls to break up big banks, dimming enthusiasm to rein in the Consumer Financial Protection Bureau, and still more pressure on executive pay. ‘The fallout from WFC's ... recent news will continue to impact both the company and the industry well into next year,’ Keefe, Bruyette & Woods analysts Brian Gardner and Michael Michaud said in a note to clients. ‘We see several policy areas where the impact will be felt the most.’ Wells Fargo, the second-largest bank by market cap and assets, has taken a beating in the public eye over revelations that its workers routinely signed up clients for accounts without their knowledge in order to inflate sales figures. The bank paid $185 million in fines and penalties and jettisoned 5,300 employees involved in the scheme.” (CNBC)
  2. U.S. Households Make Long-Awaited Gains in Housing Recovery “Middle-class families are starting to see their biggest housing challenges ease. Housing affordability is finally improving after years during which the struggle to pay rent swelled to crisis levels for many poor and middle-class Americans, according to an analysis of American Community Survey data released Thursday. Jed Kolko, chief economist at job-site Indeed and senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley, said just over 49% of renters were cost-burdened in 2015, meaning they spent more than 30% of their incomes in rent, compared with about 50% a year earlier—the lowest level since 2008. Indeed, across the board, there are signs that affordability challenges are beginning to ease. Some 33.6% of households were cost-burdened in 2015, meaning they spent more than 30% of their incomes on housing costs, down from 34.6% a year earlier, the fifth straight year of declines.” (Wall Street Journal)
  3. LOL JK: 1 WTC isn’t for sale, says Port Authority “The Port Authority of New York and New Jersey has no immediate plans to sell the 3 million-square-foot One World Trade Center, despite the idea given by a recent report. ‘It’s certainly not on the block,’ Port Authority chairman John Degnan told Politico on Thursday. ‘We’re not talking to any brokers about it.’ Back in 2014, the Port Authority released a report stating the bi-state agency should divest itself of non-transportation-related assets – such as its vast real estate holdings – and focus on its core mission. A news report published in early September said the agency had plans in place to sell the tower, and executives believed the property could fetch as much as $5 billion. The report drew the attention of many in the industry including Douglas Durst, whose company owns a 10 percent stake in the building. Durst sent a letter to Degnan complaining that his employees were concerned about losing their jobs, and tenants and brokers were getting worried about the future of the building.” (The Real Deal)
  4. Renters in U.S. Becoming More Skeptical About Home Ownership in Q3 “According to the National Association of Realtors' Housing Opportunities and Market Experience (HOME) survey, lofty U.S. home-price growth and tight supply are leading to softening confidence among renters about whether it's a good time to buy a home or not. In NAR's third quarter HOME consumer survey, respondents were asked about their confidence in the U.S. economy and various questions about their housing expectations, including a series of questions related to down payments and the amount of money they believe they need to purchase a home. Heading into the autumn months of 2016, the share of homeowners and renters who believe now is a good time to buy remains at a solid majority but has crept downward since the beginning of this year. Seventy-eight percent of homeowners (80 percent in June; 82 percent in March) and 60 percent of renters (62 percent in the previous two quarters) said it's a good time to buy. In the inaugural HOME survey in December 2015, 68 percent of renters said it was a good time to buy. Lawrence Yun, NAR chief economist, says it's clear the ongoing run-up in home prices and severe inventory shortages in a large portion of the country are hitting consumer psyche - especially among renters. "This summer's historically low mortgage rates injected some additional demand into the market, but the dearth of homes for sale continues to keep a lid on sales but not prices," he said. "Given the stiff competition and limited homes available at the lower end of the market, it's not surprising at all that those under the age of 34 and in the West are the least confident about it being a good time to buy." (World Property Journal)
  5. Judge orders dismissal of predatory lending suit against Madison Realty Capital “A Kings County Supreme Court judge granted a motion to dismiss a lawsuit against Madison Realty Capital accusing the firm of predatory lending practices. Brooklyn-based SMK Property Management filed a $150 million suit in September 2015 over seven defaulted mortgages on several of its Greenpoint properties for which Madison was the lender. SMK, led by Sylvester Smolarczyk, claimed in the suit that it seemed “odd that a lender/investor who had purchased such distressed/defaulted mortgage notes and obviously knew about the plaintiff’s ‘borrower’s’ history of default would agree to fund a multimillion dollar loan.’ In a court decision filed Tuesday Justice David Vaughan wrote that the motion to dismiss and for costs is granted and that the action is dismissed with prejudice. In a statement, a spokesperson for Madison said, ‘Sylvester Smolarczyk brought a frivolous lawsuit against Madison Realty Capital, raising causes of action which had no merit.’ At the time the suit was filed, Josh Zegen, co-founder of Madison, denied the allegations, saying SMK owed the firm $15 million in debt payments.” (The Real Deal)
  6. Real estate funds just clocked their best week of inflows ever “Global real estate funds have seen their biggest week of inflows on record, according to new research, with U.S.-based funds taking the lion's share. Equity and bond funds saw outflows for the week ending September 14, according to data from fund tracker firm EPFR Global on Thursday evening. But that cash found a home with real estate funds which posted a record setting inflow of nearly $3 billion."It is not clear at this point if these flows represent investors taking advantage of a cheaper entry point to jump into a sector with a good record of producing income, are another sign that mutual fund investors don't expect the (Federal Reserve) to raise rates this year, are the result of real estate's separation from financials in the S&P 500 or show investors building up short interest in a sector that some see as coming off the peak of the latest cycle," said Cameron Brandt, research director at EPFR Global, in a statement.” (CNBC)
  7. National Storage JV to Acquire $630M Portfolio “National Storage Affiliates Trust, a Greenwood Village, Colo.-based REIT, has formed a joint venture with a major state pension fund advised by Heitman Capital Management LLC to acquire the 66-property portfolio of iStorage for approximately $630 million. The portfolio contains about 4.5 million square feet of rentable space in over 36,000 storage units across 12 states and 24 markets. The portfolio is 86 percent occupied and will add four new states–New Jersey, Ohio, Pennsylvania and Virginia–to NSA’s holdings as well as provide significant growth in NSA’s top markets such as Florida and California. The portfolio contains about 4.5 million square feet of rentable space in over 36,000 storage units across 12 states and 24 markets. The portfolio is 86 percent occupied and will add four new states–New Jersey, Ohio, Pennsylvania and Virginia–to NSA’s holdings as well as provide significant growth in NSA’s top markets such as Florida and California.” (Commercial Property Executive)
  8. Flooding in Louisiana Creates Uncertainties for Roughly $1.1 billion in CMBS Loans “According to analysis by Morningstar Credit Ratings, 302 properties, with an allocated property balance of $1.1 billion, may be at elevated risk because of major flooding in Louisiana last month. These properties, backing 214 loans in commercial mortgage–backed securities (CMBS), are in the 20 Louisiana counties, called parishes, that were declared major disaster areas by the Federal Emergency Management Agency (FEMA). Almost all of the properties, with a balance of $1.01 billion, are in the Livingston and East Baton Rouge parishes, which suffered the most damage, according to the New York Times. While we see the potential for physical and monetary damage for many of the properties in affected areas, the undamaged multifamily and hotel properties may see an uptick in demand in the short term, as thousands of homeowners seek out both temporary and permanent residence. To further quantify the damage caused by the flooding, we called leasing agents at the ten largest properties in the flood zone, which account for 25.3 percent of the total balance. We confirmed flood damage at only one property, St. Jean Apartments, which backs a $27.6 million loan in FREMF 2014-KF05. The multifamily complex experienced flooding on the first floor and will not have available units for the next six to 12 months, said a leasing agent. An additional three multifamily properties were shown in flood zones on local government preliminary flood maps; however, leasing agents were hesitant to confirm whether the buildings had experienced flood damage. While one leasing agent confirmed that availability was limited because of flooding, it was unclear whether this was because of damage or because of increased demand from displaced homeowners.” (Urban Land Institute)
  9. Developer shells out $111M for site of contentious South LA project “Developer Carmel Partners has paid nearly $111 million for an 11-acre property at La Cienega and Jefferson boulevards, where it plans to build a massive complex with apartments, offices, and a grocery store, reports The Real Deal. The firm already won approval for the contentious project. It made plans to build before actually owning the property…As part of its complex, Cumulus plans to erect a 30-story high-rise. The Coalition to Preserve LA, the group that’s trying to place a measure on the March ballot for a two-year moratorium on most development city-wide, is suing to halt construction of the tower.” (Curbed Los Angeles)
  10. Not your grandma's retirement home: Check out this luxe living “Jeff and Sharon Kay Brown are not retired yet, but they moved into an active adult community in Broomfield, Colorado, just outside Denver, less than a year ago. After living in several different cities over the years, they wanted a social atmosphere with people their own age, but they didn't want to skimp on the luxuries. ‘Because this is it. This is the last house you're going to have. You gotta get what you want,’ said Sharon, who is 56 and works from home. They bought a new home in a community by luxury homebuilder Toll Brothers. The prices in their community, and in one going up in nearby Aurora, Colorado, can be as high as $1.2 million.” (CNBC)


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