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10 Must Reads for the CRE Industry Today (July 22, 2016)

 

  1. What Banks And Borrowers Can Do To Minimize The Risk Of A Commercial Real Estate Bubble “Without actually using the dreaded B-word, a U.S. federal regulator warned last week of rapid commercial real estate growth accompanied by looser underwriting standards. Let’s examine what commercial real estate players can do to minimize the danger posed by a possible CRE bubble. But first we’ll look at the problem laid out by the Office of the Comptroller of the Currency. 'It’s at this stage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk,' currency comptroller Thomas Curry said in remarks accompanying the release of the OCC’s semiannual risk report. 'While leveraged lending and auto lending remain concerns, CRE lending and concentration risk management has become an area of emphasis for regulators.' Underwriting problems the OCC found include less restrictive covenants, extended maturities, longer interest-only periods, limited guarantor requirements and deficient stress-testing practices.” (Forbes)
  2. The real-estate market is about to either take off or collapse “Given the housing market's importance, economists and analysts spend quite a bit of time trying to figure out where the market is and what will happen next. As it stands, however, there appears to be no consensus on the matter. On the one hand, some economists think the market is only just now entering its full-throated recovery from the housing crisis. In its latest 'Macro Insights,' the Goldman Sachs Asset Management team said the housing market was still early in its cycle. 'We think the US real-estate market remains firmly in the expansionary phase of the cycle, with the commercial property market running somewhat ahead of the residential market,' the note from GSAM said. The GSAM note points to the low vacancy rate in commercial real estate, the early-in-the-cycle-looking number of single-family housing starts, and the still relatively loose lending standards for banks as indicators that real estate still has room to run.” (Business Insider)
  3. Brexit Strengthens The Case For Real Estate Investment Trusts “After the Fed raised interest rates in December, investors fearing more interest rate hikes started to sell REITs. However, since then, the Fed has kept interest rates steady — still close to zero. After the Brexit vote, virtually everyone expects Europe’s economy to weaken. Sam Miklosko says this makes it difficult for the Fed to raise interest rates and strengthens the case for holding onto REITs. Sam started his REIT Opportunity fund at Marketocracy in April, 2009. His returns have averaged 20.90% since then, which compares nicely to the S&P 500’s 15.71% return over the same period. His returns would rank in the top quartile of all U.S. Equity fund managers for the past 5 and 1 year periods. Before taking anyone’s investment advice, you should always check out their track record. (Forbes)
  4. The ‘Whole Foods Effect’ shines on “The surge in health-conscious retailers is evident wherever one shops. In the space of a few years, the likes of Lululemon, Fresh Market, and Orangetheory Fitness have proliferated in shopping centers. But Whole Foods, arguably a chief driver of the trend, has transformed its own business as well as that of centers. In the past five years, Whole Foods increased its store count nearly 50% to a total of 450 in three countries. The $15 billion juggernaut of organic food shows no signs of slowing, nor do competitors such as Sprouts and Trader Joes. Whole Foods’ growth has helped forge a value proposition that is reshaping the commercial real estate market. People who once came to a shopping center simply to shop today come to spin, to eat better foods, or to learn how their dog food affects the environment. The result has been a surge in health-conscious retail real estate, with tenants spanning grocery, restaurants, fitness concepts, and pet stores. It’s a trend peopled by educated and accelerated Millennials who are acutely conscious of what goes in and on their bodies and the effects those products have on the earth. Not to be forgotten are Baby Boomers, who are getting older and more health-conscious, too.”  (Chain Store Age)
  5. Here’s how much a top capital broker makes “Brokers will talk your ear off about deals they’ve done. When it comes to commissions, however, they’re far more secretive. A recent personal bankruptcy filing by a top capital markets broker reviewed by The Real Deal offers a rare window into the clandestine world of commercial brokerage commissions. Michael Campbell, a partner at the prominent real estate investment banking firm Carlton Group, filed for personal bankruptcy in May. In the court documents, Campbell lists pending and contingent debt and equity deals that he expects to close in the coming six to 12 months, along with an estimate of commissions. The 10 deals total $1.63 billion, according to the documents, although the Carlton Group told TRD the actual figure is around $1.98 billion. For those deals, Campbell estimates that the Carlton Group is set to make just under $25 million in fees – an average of 1.3 percent (of $1.98 billion). Campbell’s own commissions, he estimates, will total $6.23 million – about a quarter of the Carlton Group’s take, or about 0.3 percent of the money raised.” (The Real Deal)
  6. Real estate developers are losing faith in the Silicon Valley office market “A closely watched measure of real estate developers’ sentiment turned sharply lower, suggesting a pullback is on the horizon for the region’s go-go office growth. That’s the message from the latest Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey. The report, released Wednesday, found that by 2019, Silicon Valley office developers expect rental rates to be lower, and vacancy rates higher, than they are today. “What our panelists are saying is as they’re looking forward to 2018, they’re seeing markets that are not quite as good as they are today, that this building boom is kind of topped out,” said Jerry Nickelsburg of the UCLA Anderson School of Management, in a video complement to the report.  The dip in optimism comes after a remarkable run-up in real estate values and development activity propelled by tech hiring, led by behemoths such as Google, Apple, Facebook and Amazon. Their growth in turn pushed other tenants to seek out new spaces, giving a lift to submarkets throughout the Valley. But signs have been emerging that the office market is losing steam, and the recent round of brokerage reports found less deal activity and in some submarkets, rising vacancy rates." (Silicon Valley Business Journal)
  7. MZ Real Estate in Fresno adding petroleum division “MZ Real Estate Investments in Fresno is adding more to its roster of services – fuel contracts. Brothers Joe and Fred Martinez and brother-in-law Steve Zabarsky specialize in buying and selling gas stations and truck stops. It’s a niche market the men found themselves in five years ago when Zabarsky suggested they get into the real estate business. …Now, MZ Real Estate is working with developers nationwide to find retail, office and multifamily development opportunities in cities such as Atlanta, Miami, St. Louis and San Francisco. And new partnerships with oil refineries in Texas allow the company to work with clients who need fuel contracts. A new petroleum division is being added to the company, Martinez said." (The Fresno Bee)
  8. $1.2B Redevelopment Planned for Downtown San Diego “A plan for a 70-acre waterfront redevelopment in San Diego is moving closer to reality now that the San Diego Port Authority Commission has voted to back a $1.2 billion proposal that would include a 480-foot-tall SkySpire observation tower. The commission is expected to complete a final review of the Seaport San Diego plan by October. It was one of 11 received by the SDPAC for a redevelopment of San Diego’s Seaport Village and Central Embarcadero area. The spire, which would be erected by ThrillCorp Inc. of Orlando, Fla., is part of a mixed-use project proposed by a consortium led by Protea Waterfront Development as the managing member. The plan calls for an interactive aquarium, beaches, hotels, marinas, retail, dining and other entertainment venues. Once approvals are secured and the current leaseholder’s lease expires in 2018, construction could begin by 2020 and be completed three years later.” (Commercial Property Executive)
  9. Revealed: Prices at Related’s 15 Hudson Yards “The Related Companies is keeping prices relatively grounded at 15 Hudson Yards, the first residential offering at its Far West Side megaproject. The condominium’s 285 market-rate units have a blended average of $3,255 per square foot, according to Schedule A pricing filed with the New York State Attorney General’s office and reviewed by The Real Deal. The two most expensive pads span just under 5,200 square feet each and are asking $32 million, or $6,200 per square foot. Overall, the building, designed by Diller Scofidio + Renfro, Rockwell Group and Ismael Leyva Architects, is projecting a total sellout of $1.74 billion. It will include 106 affordable units. Units on the lower floors begin at $1.92 million for an 843-square-foot one-bedroom apartment, according to the Schedule A. More than 200 of the total 285 market-rate condos are priced at below $7 million. The move is reflective of a general drift in the market towards smaller homes at less ostentatious price points, as supply begins to outpace demand for top-shelf Manhattan product.” (The Real Deal)
  10. Detroit’s Blight Removal Program Hits Major Milestone “Motor City is seeing the largest and fastest blight removal program in the country. Since its debut in 2014, the initiative led to the demolition of 10,000 vacant buildings—meaning an average of 75 abandoned homes being razed each week. These numbers make Detroit a leader when it comes to the scale of all blight removal programs in the U.S. 'We have made real progress in the past 2½ years and improved the quality of life for residents in a lot of neighborhoods, but we still have lots of work to do. But 10,000 demolitions is a great start, and we are not going to let up one bit,' Mayor of Detroit Mike Duggan said in a prepared statement. If operations continue at the same pace and with the same level of funding, the City of Detroit estimates that the task will be fully completed in about six years. Projections for this year include 5,000 blighted structures, with 6,000 planned to be razed next year. In 2015, Motor City demolished 4,000 houses. The program also includes commercial properties, with 150 targeted for demolition this year.” (MultiHousing News)
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