10 Must Reads for the CRE Industry Today (September 19, 2016)

10 Must Reads for the CRE Industry Today (September 19, 2016)


  1. Closing college campuses add to local commercial real estate surplus “Friday marked the final day of classes at MedTech College, meaning their students now officially join a list nobody wants to be on: academics looking for a new home. With the announced closure of three for-profit colleges here in Fort Wayne, the world of higher education is not the only industry impacted by the decision. Commercial real estate agents will have more than 100,000 square feet of office space to sell once those three campuses vacate. ‘Brown Mackey, ITT, and MedTech are gonna throw some space on the market,’ explains Steve Zacher, President of The Zacher Company. ‘That's going to impact the suburban real estate market.’ This newly added property will even further saturate a market already faced with a surplus of available office space. ‘The total office market in Fort Wayne is almost 13-million square feet. The overall market vacancy is 14.4%, but it's under 10% downtown. The biggest vacancy is in the northeast quadrant: 26.5% vacancy.’ To put those numbers into perspective, the 12.9 million square feet of office space in Fort Wayne translates to roughly 297.36 acres. And the nearly 1.9 million square feet of vacant office space is enough to fill almost 39 football fields. (21Alive.com)
  2. Diverse economy continues to fuel Omaha’s hot commercial real estate market “There are plenty of reasons why Omaha’s commercial real estate market is performing so well. But Trenton Magid, executive vice president with Omaha’s NAI NP Dodge, says that diversity might be the key. Omaha is powered by an especially diverse economy. The city and its surrounding areas don’t rely on just tech firms to boost its economy. Oil, energy or aviation aren’t the sole drivers here. Instead, Omaha relies on a wide mix of industries to keep its economy healthy, everything from agricultural operations to financial institutions to tech start-ups. And that protects this city when the national economy falls into a slump. ‘You think of Nebraska and you think that we are dependent on the agricultural economy and farming,’ Magid said. ‘But in Omaha, those aren’t the only industries that we have. We have insurance companies and financial institutions. We have stepped up our game when it comes to the Silicon Prairie and technology companies. We not only have a lot of established technology firms with a presence here, we have start-ups, too. The schools we have here have done a great job of educating future tech employees.’” (REJournals.com)
  3. Real Estate Debuts as the S&P 500's Newest Sector Today “The S&P 500 will introduce real estate as its 11th sector on Monday, marking the first time since 1999 in which a new sector will be added. Twenty-eight real estate trusts, which previously fell under the category of financials will now make up the real estate sector. The real estate market value is at $559 billion and will make up 3% of the S&P 500. S&P Dow Jones Indices managing director and chairman of the Index Committee David Blitzer joined this morning's ‘Squawk Box’ on CNBC to discuss the newest addition to the S&P 500."As we looked at real estate over the last few years I think two or three things happened. First of all, real estate used to be tucked into financials and REITs don't behave the same way financials do," Blitzer said. Chiefly, REITs differentiate from the financials because they carry a much larger dividend yield, about one-third greater than the financials. ‘Second of all, real estate and especially REITs have become much more popular in the last 15-16 years,’ Blitzer noted.” (The Street)
  4. Thirst for Yield Drives Record Investor Inflows to Real Estate Funds “Real-estate funds just posted their biggest-ever weekly inflows, a sign of investors’ continued appetite for income-providing holdings in an era of ultra-low interest rates. Despite a rough week in terms of performance, mutual fund investors poured the most money on record into real estate in the second week of September, according to EPFR Global, which tracks exchange-traded funds that invest in U.S.-listed real estate companies. The net $2.9 billion committed trounced the previous record of $1.68 billion set earlier this year. A number of factors could be at play. Some traders may be taking advantage of short-term valuation anomalies, EPFR said.” (The Wall Street Journal)
  5. Aeropostale landlords slash rents, 400 stores to remain open “Thanks to new rent-reduction deals with mall landlords, bankrupt teen apparel retailer Aeropostale will be able to keep 400 of its North American stores open — about 75% more than previously estimated — the New York Post reports. Rents will be reduced at 171 Aeropostale stores, saving some 5,300 jobs, according to new reports. Earlier this month, a bankruptcy court approved the $243.3 million sale of Aeropostale to a consortium of entities led by landlords Simon Property Group and General Growth Properties, and also including liquidators Gordon Brothers Retail Partners LLC and Hilco Merchant Resources LLC, and licensing firm Authentic Brands Group.” (Retail Dive)
  6. Report: Sears to shut more Kmart stores in 13 states “Sears Holding Corp. plans to shutter additional Kmart stores in at least 13 states by mid-December, Business Insider reports, using information from store employees and financial filings. The wave of closures comes after Sears already announced that it would close 68 Kmart and 10 Sears stores nationwide this summer. Investment research firm Moody’s last week singled out Kmart as especially troubling for Sears, noting that recent downbeat ratings of the company “reflect our view on the uncertainty of the viability of the Kmart franchise in particular given its meaningful market share erosion.”
  7. Battle against BIDs heats up “They were once considered a panacea for troubled city neighborhoods, but Business Improvement Districts (BIDs) in New York City are now viewed with increasing cynicism. With 72 BIDs currently operating in the city, many question their motives. In Queens, community activists are trying to prevent the largest BID in the city from forming in Jackson Heights. Residents and small business owners fear they’ll be pushed out as gentrification and national retailers set up shop. ‘They are cartels for landlords,’ Moshe Adler, an adjunct professor of urban planning at Columbia University told Crain’s. ‘Make no mistake, BIDs may help small businesses when it suits them. But their fundamental role is advancing the interests of property owners.’ Property and business owners contribute to the maintenance, development and promotion of their commercial districts, and in return effectively form lobbying groups for those landlords. BIDs invested $172 million in districts last year, The Real Deal reported last month, in a story that looked how developers use them to exert their influence on city policy.” (The Real Deal)
  8. Has Starbucks become so “basic” that it’s bad for business? “With 24,000 locations across the world, Starbucks has become an everyday stop for millions. But that ubiquity could now be its problem. ‘Starbucks is now competing with chains like Dunkin’ Donuts and McDonald’s,’ Business Insider proclaimed this week. ‘It has gotten, in a sense, too basic.’ ‘Basic,” according to Urban Dictionary, is a pejorative term used to describe anything “involving obscenely obvious behavior, dress, action.’ Other examples of brands deemed basic: Lululemon, Michael Kors and Ugg Australia. So what’s an overexposed company to do? Starbucks in recent years has begun looking for ways to restore its luster. In December 2014, it opened a Roastery & Tasting Room in Seattle, where $10 cold brews are the norm. The high-end concept is soon to expand to New York and Shanghai, with nearly a dozen other locations in the works, according to Business Insider.” (Denver Post)
  9. Homebuilder sentiment jumps to 65 in September, highest level in nearly a year "Americans are making more money, and that is making the nation's homebuilders feel a lot better about their business. A monthly survey of builder confidence jumped a striking six points in September to the highest level in nearly a year. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) hit 65; anything above 50 is considered positive sentiment. August's reading was revised down one point. The index stood at 61 one year ago. ‘As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers, a positive sign that the housing market continues to move forward,’ said NAHB Chairman Ed Brady, a homebuilder and developer from Bloomington, Ilinois. ‘The single-family market continues to make gradual gains and we expect this upward momentum will build throughout the remainder of the year and into 2017.’” (CNBC)
  10. A German grocery chain that crippled its rivals in the UK is about to invade the US “A new wave of European grocery stores is about to invade the US. The German supermarket chain Lidl is gearing up to open stores in dozens of cities along the East Coast, spanning from New Jersey to Georgia, the company told Business Insider. Lidl wouldn't reveal how many stores it's planning to open, but sources told the commercial real-estate firm CoStar that the company will open as many as 150 US stores by 2018. The company currently has 10,000 stores in 26 European countries. Lidl has already snatched up leases in dozens of US cities, according to local-news reports, and it's seeking store managers in areas including Burlington County, New Jersey; Richmond, Virginia; Charlotte and Raleigh, North Carolina; Greenville, South Carolina; and Augusta, Georgia.” (Business Insider)
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