The Russians are Coming, The Russians are Coming
Russians are looking to spend Rubles on American real estate now that Donald Trump is in the White House. Like a game of chess, the Oligarchs plan to return in mass with hopes that President Trump will ease sanctions on real estate purchases imposed on Russia over its involvement in the Ukraine crisis.
Global Real Estate Consultancy Knight-Frank surveyed the number of Russians who have expressed interest in buying luxury properties in the U.S. and says the result has spiked by 35% in a year.
U.S. real estate is a bargain for Russians according to the National Association of Realtors (NAR) a condo costing $1.6 million in New York would cost more than $2 million in Moscow.
Knight Frank says Russians are interested in vacation homes as well as investment properties. Nearly all are looking to spend between $500,000 and $5 million on a residential property, while 10% are hoping to buy commercial real estate.
“Having Russians buy resort properties and investment properties in the United States should not be of any concern,” says Ken Riggs, President Situs RERC. “In fact we should welcome it. There’s a large percentage of Russians living here now, if we call ourselves a global economy, this should not be of any consequence and fuels prices and a free market.”
As you might expect from those fleeing the cold Russian climate, Miami is a favorite market for Russian buyers, as is New York City.
Prior to sanctions on Mother Russia, CNN Money reports some of the purchases that were over the top:
Ekaterina Rybolovleva, the daughter of billionaire Dmitry Rybolovlev, made headlines when she purchased the then most expensive apartment in Manhattan. The Central Park West condo was bought by a trust under the name of the then 22-year old for $88 million.
Rybolovlev himself bought a $95 million beachfront estate in Palm Beach, Florida in 2008. The seller? Donald Trump.
The sanctions, coupled with falling oil prices, put a huge strain on Russia’s economy and sent the ruble plummeting.
Now, Russian buyers appear to have returned in force.
Overseas buyers snapped up more than $100 billion in U.S. real estate in 2015 according to the NAR, as the foreign wealthy sought safe shelter for their fortunes.
But casting a shadow over it all, the U.S. Treasury Department continues tracking secret buyers of high-end properties. The initiative focuses on Manhattan and Miami-Dade County, concentrating on all-cash purchases made by shell companies that often shield purchasers’ identities. The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating real estate sales that involve shell companies. But, President Trump’s plan to do away with regulations may be a halt to it all.
As they say in Russian: Вре́мя — лу́чший до́ктор (time heals all wounds).
Situs Executive Managing Director Steven Bean appeared on the Jim Bohannon radio show to discuss Robbins. Click here to listen to part 1 and keep an eye out for part 2 on Monday.
Help Wanted!: Hiring Surges, Job Cuts Fall
It’s all about JOBS, and the economy is surging which clearly is a positive for the CRE industry.
Employers announced plans in February to cut just 36,957 jobs, that’s a 19% decline from January, according to outplacement consultancy Challenger, Gray & Christmas.
It’s a 40 percent year-over-year decrease from February 2016, when employers cut 61,599 jobs.
The strong showing came a day after another private report found an unexpected surge in private-sector job growth by 298,000 in February.
That report by ADP and Moody’s Analytics boosted expectations that the Federal Reserve might spoil the party by announcing an interest rate hike next week.
According to Challenger, employers said they would hire 166,266 workers in the first two months of 2017, the highest January-February on record. The previous January-February record was in 2013, when employers announced plans to hire 152,957 workers.
The retail sector once again planned the most cuts as companies closed brick-and-mortar locations and steered business online. Retailers said they would cut 11,889 jobs in February, bringing their two-month total for 2017 to 34,380.
The energy sector saw a massive year-over-year drop in job cuts, announcing only 5,930 compared with 45,154 in February 2016.
As a result, Texas was the hardest-hit state by job cuts in February, with 10,476 layoffs.
Trump Tower Sales Surge
Condominium sales at Trump Tower have surged since Donald Trump announced his run for president in mid-2015, and the tumultuous early days of his administration don’t appear to have slowed the momentum.
The number of annual apartment sales at Trump Tower jumped to 22 in 2016, according to StreetEasy analyzed by The Real Deal. That’s up from 15 in 2015 and 11 in 2014, even as luxury sales fell across the city (see chart). Winter is normally a quiet time in the condo market, but as of Monday there were 21 active sales listings at Trump Tower, Streeteasy data show.
The seller of the tower’s most expensive current listing, a 58th-floor combination pad asking $11 million, hails from Mexico. Construction heir Elias Sacal bought his two apartments in January 2015, six months before Trump announced his candidacy. He listed them for sale again little more than a year later, in March 2016. Sacal’s broker, Rana Williams of Keller Williams NYC, declined to comment on whether politics played a role in his decision to sell. The Mexican government has repeatedly clashed with the Trump administration over its plans to build a wall on the border separating the two countries.
On-Line Residential, a listings platform, recorded six new condos listed for sale in January and February of 2017 — the highest January/February total since at least 1997. OLR doesn’t record all listings, and it’s likely that previous years have seen more units hit the market that weren’t tracked by the system. Still, OLR’s numbers seem in line with the general trend over the past two years.
read more: TheRealDeal
Sixth Avenue King of Manhattan Office Leasing
Midtown Sixth Avenue is the new king thoroughfare of Manhattan office leasing.
That’s according to CoStar Group’s report on all 2016 leasing activity in the borough, as interpreted by the Avenue of the Americas Association and Rockefeller Group, which owns two office towers on Big Six.
CoStar found that 37 of last year’s 50 largest Manhattan office deals — including new leases, renewals and expansions — were in Midtown.
The data seem to say that Midtown retains its appeal despite defections to more-modern buildings at Hudson Yards and the World Trade Center.
But a closer look shows that Sixth Avenue clobbered everybody else, with eight large leases that totaled 2.31 million square feet.
Tenth Avenue (Hudson Yards) ranked second with five deals totaling 1.41 million square feet — while Park Avenue tagged along with 1.32 million square feet.
read more: NY Post
A Sign of the Times: More For-Rent Notices in Manhattan
Dusty windows on Madison Avenue. Ghostly traces of signs on Columbus Avenue. Graffiti on a shop in SoHo.
Manhattan’s top retail strips, some of which are among the world’s priciest shopping districts, appear to have seen better days.
Once-packed streets are being hit by competition from emerging neighborhoods, and deep discounting from online retailers, according to community officials, landlords and brokers.
“Retailers are experiencing painful adjustments right now, there’s no doubt about it,” said Rafe Evans, a longtime broker with the firm Walker, Malloy and Company. He added that he had struggled to fill some Upper West Side buildings with tenants that last more than a few years.
While middle-class neighborhoods may be enjoying healthy vacancy levels, generally defined as about 5 percent, the rate in more affluent areas is as much as 20 percent, according to a survey of major streets that brokers later confirmed.
read more: NY Times
AIG CEO Peter Hancock to Resign After Turnaround Plan Falters
American International Group said Chief Executive Peter Hancock has informed the board that he intends to resign, following a major setback in the insurer’s turnaround plan.
Mr. Hancock will remain as CEO until a successor has been named.
The Wall Street Journal reported late last month that AIG’s board was expected to debate whether to replace Mr. Hancock in the aftermath of the company’s $3.04 billion fourth-quarter loss, one of AIG’s worst results since the U.S. government bailed it out during the financial crisis.
read more: Reuters
Coming Soon to Your Local Mall: Celery and Dog Food
Mall landlords are now eagerly courting a type of retailer they once ignored: grocery stores.
As the internet reshapes the way Americans shop, landlords of mid- and low-quality mall properties are adapting to stay relevant, trying everything from restaurants to indoor skydiving.
Now a few are bringing in supermarkets.
Natick Mall in Natick, Mass., is leasing 194,000 square feet of space vacated by J.C. Penney Co. to upscale grocer Wegmans Food Markets Inc., which is planning to open a store in 2018.
Grocery giant Kroger Co., meanwhile, has purchased a former Macy’s Inc. location at Kingsdale Shopping Center in Upper Arlington, Ohio, and plans to build a new store in its place.
The goal for landlords of covered malls is to provide one-stop destinations where consumers can pick up a broad array of items and, ideally, visit multiple times a week. These massive rectangular structures surrounded by vast parking lots are usually built to serve shoppers up to 25 miles away.
“Consumers, particularly millennials, are placing a high priority on experiences while also valuing convenience,” said Tom McGee, chief executive of the International Council of Shopping Centers, a trade group. “As a result, among other things, we are seeing more restaurants, movie theaters, health clubs and grocery stores serve as anchors.”
While some malls have brought in grocery stores as tenants in the past, the pace has accelerated sharply in the past few years as higher-end grocery stores look to expand, analysts said.
In recent years, institutional investors such as private-equity firms have become more interested in acquiring grocery-anchored shopping centers as they take on defensive investment strategies, eyeing assets that are more immune to competition from e-commerce.
Overall, investment in retail-property assets declined almost 19% in 2016, but investment in grocery-anchored shopping centers and single-asset grocery shops rose 0.4% over the same period, according to commercial real-estate services firm JLL.
In some cases, replacing a department store with a grocery store can contribute to a higher value for the building, said Margaret Caldwell, managing director of investment sales at JLL. Grocery stores will generally pay higher rents than department-store tenants, which have historically paid low rents. And the demographics of grocery shoppers, who currently skew older, are likely to change over time, Ms. Caldwell said.
“Millennials will begin to go to the grocery stores more as they age,” she said.
read more: Wall St Journal
Short Sellers Target Mall REITs
As U.S. retailers grapple with slumping sales, short sellers are turning their attention to the struggling chains’ landlords.
Shares of retail-focused real-estate investment trusts, which own malls and shopping centers, have slumped since August last year, when Macy’s Inc. announced it would close 100 stores. Sears Holdings and J.C. Penney Co. later said they would close more than 100 stores each.
A regional-mall REIT index plunged about 22% from late July until March 6, according to data from the National Association of Real Estate Investment Trusts.
Short sellers have been especially active. The amount of so-called short interest, a measure of short-selling activity, on retail-focused REITs increased to $7.6 billion as of March 6 from $5.6 billion as of the end of December, according to S3 Partners, a financial analytics firm.
Short sellers are betting landlords will face higher costs to spruce up their centers or struggle to replace stores that close, especially in weaker locations.
So far, short trades against REITs with more class B and C malls, such as CBL & Associates Properties Inc., Pennsylvania Real Estate Investment Trust and Washington Prime Group, have been more profitable, according to data from S3 Partners.
But even shares of Class A mall REITs, which own the most productive malls in the country, have faced pressure. Short interest on mall giant Simon Property Group jumped to $1.3 billion on March 3 from $916 million at the end of 2016, near its record high. Over the same period, short interest trades in GGP Inc. increased to a record $689 million from $430 million.
read more: Wall St Journal
Specialty REITs Eating More of the Pie
A new wave of specialty REITs is outpacing the slowing growth of the larger sectors.
The REIT market has traditionally focused growth on the major commercial property types, which have performed especially well during the long recovery from the Great Recession. However, a new wave of specialty REITs is outpacing the slowing growth of the larger sectors.
While net operating income (NOI) grew by an average of 3 percent for major property categories and 7 percent for all equity REITs in 2016, it surged by an average of 16 percent in specialty sectors, including data centers (+27 percent), self-storage (+17 percent) infrastructure (+15 percent) and health care (+12 percent), according to the most recent National Association of Real Estate Investment Trusts’ (NAREIT) Total REIT Industry Tracker Series (T-Tracker®). The four specialty categories represent only 30 percent of total equity REIT NOI but garnered over 60 percent of total NOI growth last year.
The higher growth of specialty REITs come from a combination of factors. Major property types that have healthy fundamentals in recent years–including apartments and hotels–are starting to see a moderation in the rate of rent growth. Property types that have longer operating histories and more established sectors have less room for growth.
What’s more, while specialty property types require more focused design and management than some of the broader categories, demand for new property classifications continues to grow and is reflected in rising NOI.
An interesting sidebar to the structure of the REIT industry over the last 15 years is the slow disappearance of the diversified REIT, which is a company that owns a variety of property types. Over time, REITs have generally come to focus on a specific property type for strategic and tactical reasons. For example, diversified REITs were accused of investing in sectors that were outside the area of management expertise. But as rent growth slows in the larger sectors, REITs might begin to invest more in both direct ownership of higher-growth specialty property types as well as whole REIT acquisitions by larger property groups.
Specialty REITs represent about 20 percent of the 167 equity REITs tracked by NAREIT, and so there are many interesting combinations to consider. In each major property type, there are few very large REITs with another dozen or so mid-capitalization REITs, in addition to several dozen small cap owners. Strategy teams at major REITs are believed to be identifying smaller REITs to buy or emulate in order to boost NOI growth. That could lead to a new wave of more diversified approaches to REIT portfolio construction to capture emerging opportunities.
read more: CP Executive
Miami Condo Market Cools, but a Big Project Gets Financing
A sprawling, $2 billion mixed-use real-estate development in what was a gritty part of downtown Miami is lining up financing despite signs the city’s real-estate market is softening.
In the latest step forward, the signature condominium and retail project on a 27-acre development that has been planned for more than a decade has closed on a $285 million construction loan. The tower, named Paramount Miami Worldcenter, is expected to cost a half-billion-dollars. It is already under construction and expected to be completed in 2019.
The loan took more than a year to secure, as banks have virtually frozen financing for new condominium construction in the city. Only one other downtown Miami condo project is expected to be completed in 2019.
“Financing has gotten harder. This cycle has not been one of euphoria where lenders are giving out easy money,” said Nitin Motwani, managing principal of the joint venture dubbed Miami Worldcenter Associates, the master planner and developer.
In late February, Miami Worldcenter Associates also obtained $74 million for infrastructure improvements from a bond sale by a special taxing district set up for the project. The improvements include sewers, sidewalks, landscaping, transit station improvements and other upgrades.
Meanwhile, the developer of a 444-unit rental residential tower on the site, a venture of Falcone Group and CIM Group, has obtained a $90 million construction loan from Fifth-Third Bank and Banco Santander. Construction began on that 42-story tower last year and is slated to finish in mid-2018.
The site of the development, one of the largest private projects under way in the U.S. and about the same size as the Hudson Yards project on Manhattan’s west side, used to be an area of warehouses and parking lots. The development partners started cobbling together properties for the site in the early 2000s. Their master plan was approved by Miami’s City Commission in 2014.
Miami Worldcenter, which also will include a hotel, public spaces and other uses, is rising when it is difficult for developers to obtain construction financing from banks and other lenders because of stricter regulations and concerns about risk.
The downtown Miami market is expected to see the most new condos delivered this year since 2008, roughly 3,500 new units in all, according to a report commissioned by the Miami Downtown Development Authority. That number is expected to decline below 2,000 by 2019.
Miami condo resale pricing fell 7% year-over-year, the first decline in eight years, and could fall as much as an additional 6%, according to Anthony Graziano, principal of Integra Realty Resources, a real-estate tracking firm that conducted the research for the report.
The Worldcenter developers have solved this problem partly by putting up a lot of equity. For example, the Paramount developers so far have used equity to finance that tower. They also turned to a federal visa program known as EB-5, which grants green cards to foreigners who invest at least $500,000 in businesses or construction projects that create American jobs.
Project officials say that nearly 60% of its 562 condo units have been sold, raising about $300 million.
read more: Wall St Journal
Have a prosperous day and great weekend!
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