Happy Early Monday!
Happy Early Monday, Spring Ahead!
We hope you set your clock ahead an hour— if not YOU ARE LATE FOR WORK. Daylight Saving Time officially began at 2 am Sunday.
Here’s a quick briefing on what you need to know:
Fed Expected to Hike, ECB Keeps Rates at 0: What it All Means for CRE
Happy Monday, it’s a busy week ahead with interest rates in the spotlight.
It’s almost a certainty that Janet Yellen and company will hike rates by a quarter point on Wednesday.
“The party is not over for Commercial Real Estate,” says Situs CEO Steve Powel. “Interest rates are still near historic lows, and there are still great buying opportunities.”
Meantime, on the other side of the pond it’s a different story as the ECB left its benchmark interest rate unchanged at ZERO, saying it would continue with its asset-buying program, marking the two-year anniversary of quantitative easing (QE) in the euro zone.
Situs Europe Managing Director Wilhelm Hammel in Frankfurt, Germany says “The growth in the European economy is still too sluggish to warrant an interest rate rise or an end to the QE programme, despite a scale back of the latter from April 2017.”
“Making it especially difficult,” he says, “is that ever since the inception of the Euro, the Euro countries have lost their ability to adjust monetary policy to their individual situation and hence the economies of Northern and Southern Europe have diverged. While the German economy continues to grow stronger, economies of countries including Italy continue to grow weaker.”
As for how all this effects Commercial Real Estate on the continent, Situs’ Hammel says, “While there are still some attractive deals, it is rather difficult to make the case for real estate in the euro zone right now, given the political and financial uncertainty in the Euro zone and the relative attractiveness of certain stock markets especially for non-EU investors due to continued pressure on the EURO exchange rates. However, the lack of perceived safe havens continues to make European real estate one of the most desirable asset classes for investors particularly where worries about the financial or political instability exist and exceed the issues in the EU.”
And as Britain moves toward Brexit, U.K. Chancellor Philip Hammond had some welcome news to share: a brighter near-term growth picture and public finances that are performing better than expected. The Office for Budget Responsibility, the U.K.’s budget watchdog, upgraded its 2017 growth forecast sharply to 2% from 1.4%, and said the deficit for the fiscal year that is about to end will be much smaller, at £51.7 billion ($63.2 billion) versus £68.2 billion forecast in November.
But a warning from the Wall Street Journal, the range of economic outcomes possible from Brexit is large and could yet throw things off track. So far, the U.K. economy has been buoyed by a stronger global economy. With the government yet to trigger the process for exiting the European Union, its policy aspirations for the U.K. to be a great trading nation, but outside the EU, remain untested.
All the relief that Brexit didn’t cause a near-term economic catastrophe has done little for the pound, however. It gained a little against the dollar as Mr. Hammond spoke, but is close to its low for the year. Despite the better growth and budget outcomes of the recent past, Brexit uncertainty still weighs heavily indeed.
Week Ahead: Green with Envy
It’s all about Green in the week ahead. As we told you earlier and it bears repeating due to its importance the Fed is expected to raise the cost of Green (money) on Wednesday by a quarter point and on Friday the wearing of the Green for St. Patrick’s Day.
Here’s the way the week shapes up:
Tuesday
Fed Meeting Begins
NFIB Small Business Optimism Index
Wednesday
Fed Meeting Announcement 2:00 PM ET
Fed Forecasts 2:00 PM ET
Fed Chair Janet Yellen News Conference 2:30 PM ET
Thursday
Housing Starts 8:30 AM ET
Friday
Happy St. Patrick’s Day
All About Jobs!
The U.S. economy is red hot, 235,000 jobs were added in February and employers raised pay at a healthy pace.
The unemployment rate dipped to a low 4.7 percent from 4.8 percent, the Labor Department reported Friday. More people began looking for jobs, increasing the proportion of Americans working or looking for work to the highest level in nearly a year.
The strong job growth, decent pay gains and low unemployment rate make it all but certain that the Federal Reserve will raise short-term interest rates on Wednesday.
February’s job gains were boosted by 58,000 additional construction positions, the most in nearly a decade. That figure was likely enhanced by unseasonably warm weather in much of the nation.
Friday’s report was the first to cover a full month under President Donald Trump. Mr. Trump already tweeted cheerfully about a survey of private-sector hiring released earlier this week that suggested a robust job gain in February.
That survey, by payroll provider ADP, concluded that private employers added 298,000 jobs in February, the biggest monthly gain in three years.
Business and consumer confidence has soared since the presidential election, with many business executives saying they expect faster economic growth to result from Trump’s promised tax cuts, deregulation and infrastructure spending.
Here’s Why Real Estate Funds are Sitting on Billions
Institutional investors both foreign and domestic are flocking to America’s commercial property market for safe investments and strong yields, causing somewhat of a dilemma — there is an abundance of available capital to deploy but a lack of attractive real estate to buy.
This is one instance where the saying “you can never have too much of a good thing” does not apply. Last year, real estate investment funds had a whopping $237B available in dry powder (cash reserves set aside for investment purposes) according to Preqin, a jump from the $229B that was on reserve in 2015.
“In a nutshell, cap rates are going down. There’s more money searching for the same deals essentially, and there’s a lot of money [coming] from overseas,” McDermott, Will and Emery partner Daniel Martin said. “For example, the flight to [quality] of the U.S. dollar is driving a lot of investment dollars [to the U.S.] from sovereign wealth funds and pension funds abroad. Then you have traditional real estate developers who are also still looking for deals, but as cap rates go down, those deals become less attractive.”
It should come as no surprise that the top three markets in the world foreign investors flocked to last year were New York City, Los Angeles and San Francisco, according to this year’s AFIRE rankings of investor sentiment.
And there is no reason to think foreigners’ appetite for U.S. property will slow. Last year, foreign investors acquired $48.5B worth of U.S. property, up 7.8% compared to 2007’s peak, though slightly down from the record in 2015, according to JLL. Offshore investors stormed the hotel and office industry in particular: 48.4% of the year’s deals involved hotel, and more than $20B of foreign real estate capital was spent on offices.
The problem, Martin said, is institutional investors in the U.S. expect a certain return on their properties but are competing for the same assets that offshore investors are throwing money into, and are often willing to accept lower yields on.
“I think it’s very frustrating,” Martin said. “There’s a lot of demand in the U.S. from investors that did not have a big presence here before, [including] Middle Eastern sovereign funds and Chinese and Russian money in particular. As that new money comes in, I know it’s frustrating for investors in traditional funds to see cap rates go down and prices go up.”
read more : Bis Now
Keeping jobs in Small Town America: Situs Executive Managing Director Steven Bean appeared on the Jim Bohannon radio show. Click here to listen to part 2
Fintech: New Real-Estate Search Tool Sparks Backlash
Brokers in Manhattan’s high-flying real-estate market, where the average price of a condominium is now more than $2 million, are challenging what has become a standard practice in the real-estate industry across the U.S.: The sale of prospective buyers’ personal information by online property-search sites.
The backlash follows the introduction last week of a new feature on Streeteasy.com, a search site developed for the New York market that is now owned by Zillow Group Inc. StreetEasy has the largest share of the listing business in New York City—more than all broker-industry sites combined, according to managers at several brokerage firms.
The new tool on the website directs messages from potential buyers to brokers who pay a fee to StreetEasy rather than to the broker who listed the property, as it has in the past.
Susan Daimler, general manager of StreetEasy, said the new system introduces choice to consumers and helps them connect with independent buyer representatives who act in their best interest.
Many brokers said the system is sowing confusion and misunderstanding. In some cases, buyers thought they were being contacted by a property’s listing agent but instead were contacted by brokers who paid a fee to StreetEasy for the information and had little knowledge of the neighborhood.
One broker, Brian Manning, at Brown Harris Stevens, said he clicked on a “contact agent” button on a listing on the Upper East Side of Manhattan that a client wanted to see. Instead of talking to the listing agent, he was connected with a broker in Cincinnati, who said she had bought leads for listings in New York and could put him in touch with a New York broker she worked with.
Since the introduction of the new program, called Premier Agent, some brokerage firms said they were considering withholding their listings, and have barred agents from using company funds to pay for it.
The Real Estate Board of New York filed a complaint with New York saying the new program is misleading and violates rules designed to prevent consumer confusion.
read more: Wall St Journal
Hurt by Weak Holiday Sales, More Retailers File for Chapter 11
The seeds of a disappointing holiday retail season are beginning to sprout scores of store closings.
Within the past week, two long established retailers filed for bankruptcy protection — electronics chain, HHGregg and women’s apparel chain, BCBG Max Azria Group — while Vanity Shop, a 137-store apparel chain in Fargo, ND, said on Tuesday that its liquidating all its stores.
Meanwhile, two other chains, Gander Mountain and Radio Shack, could file for court-protected reorganization this week while a third chain, Payless Shoes, could file for bankruptcy protection in April, according to industry sources.
“There is a seasonality component,” said bankruptcy lawyer Jeffrey Cohen of Lowenstein Sandler. “After coming out of a fourth quarter that was not as good as they’d hoped, retailers are placing new orders for the spring which creates tension between them and their lenders.”
Rising interest rates are also a factor in the acceleration of filings, say retail experts.
“Lenders recognize that if sales numbers are not turning around and forecasts by the retailers are falling short of their own guidance, they have no interest in pumping even more money,” into these failing businesses, said Richard Weltman, a bankruptcy expert at Weltman & Moskowitz.
As many has 5,000 stores are expected to close this year, a 25 percent increase over last year, according to Cushman & Wakefield.
read more: NY Post
Rents Decline for Every Apartment Size
Rents fell last month for Manhattan apartments of all sizes, the first across-the-board price decline in at least four years, as a construction boom brought more buildings to market and allowed some tenants to leave for bigger or newer units.
For studios, which held their own last year while costs for bigger apartments slid, the median rent dropped 2.6 percent, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report Thursday. It was the biggest year-over-year decrease since the firms started tracking the data in 2012. The median price of studios last month was $2,500, the lowest it’s been since January 2015.
“There’s so much inventory, and that influx is hitting across all price points, even the studios,” Hal Gavzie, executive director of leasing for Douglas Elliman, said in an interview. “There were a lot of studios that hit the market and have been sitting there. They had to reduce prices.”
Until now, studios — smaller, cheaper and in demand among young job-seekers in Manhattan — had better withstood the pressures from the wave of apartment construction that’s kept a lid on prices across the market. Now, even those units are getting reductions as landlords fret about rising vacancies and renters at all price levels sense they have the leverage to demand a better deal.
Apartments available for rent at the end of February numbered 6,872, a jump of almost 12 percent from a year earlier. The number of new leases fell 28 percent last month to 3,634.
“In the months of January and February, we had customers requesting three to four months free, which is pretty unheard of,” said Melinda Sicari, a broker with Douglas Elliman.
read more: Bloomberg
This New Orleans Neighborhood Is Fighting Flooding By Welcoming It
Click here for our favorite song about New Orleans:
For decades, New Orleans fought to keep water out of the city. In the city’s new resilience district, with projects that will break ground later in 2017, the goal is to let water in—which paradoxically can reduce flooding.
The plan was developed as part of the Rockefeller Foundation’s 100 Resilient Cities initiative; New Orleans’s strategy launched in 2015, and last year, the city was awarded $141.3 million through the U.S. Department of Housing and Urban Development’s Natural Disaster Resilience Competition to further the implementation of the plan. “What Katrina exposed for us is that we cannot just rely on manmade, engineered systems . . . you have to have a more resilient system that has redundancy and multiple different flood protection features in order to protect the city,” says Jeff Hebert, the city’s chief resilience officer. “The second thing is that we really have to go back into history and learn how to live with water in a city that is so wet.”
“This is the first time where we’re taking a lot of the learning that we’ve done since Katrina and putting it over a distinct geography to show that we can reimagine the way New Orleans lives with water,” Herbert says. “Then we can take that approach and do it in the next districts of the city.”
read more: CoExist
Have a prosperous day and a great week ahead!
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