Situs Newswatch 11/7

Pave Paradise and Put Up a Parking Lot

With apologizes to singer, songwriter Joni Mitchell for stealing the above headline from her song ‘Big Yellow Taxi,’ — we use it to demonstrate why the parking lot business is booming —  but as Ubers (replace “big yellow taxis’), and self-driving cars become more prevalent will it all change in the near future?

With parking lots and garages represent an evolving $30 billion industry, Situs RERC partnered with JNL Parking and Parking Property Advisors to publish an analysis of parking facility capitalization (cap) rates for the second quarter 2016. Our survey of parking lot owners, investors, advisors, brokers, and appraisers across the U.S. shows an overwhelming majority of participants (78 percent) indicating the current parking market environment is strong.

But, will parking lots and garages become dinosaurs as Ubers, self-driving cars and other technological changes result in fewer people needing to own automobiles, especially in big cities where these parking facilities are concentrated?

“Uber is definitely having a negative effect on the parking business, especially in hotel valet operations,” says Ted Anglyn, President Parking Property Advisors. “But at least for the short-term I don’t see Uber having a significant impact on parking demand at office buildings and the like.”

“As for self-driving or autonomous cars,” says Lance Miller, Partner and Co-founder JNL Parking “these vehicles too are going to need somewhere to park eventually.”

Believe it or not, no new parking facilities of note have been constructed in the last 15 years in most major markets, due to rules and regulations limiting construction by private entities, so parking garage and lot owners are sitting pretty.

Talk about the law of unintended consequences, “Many cars are now equipped with ‘self-parking’ technology which will allow parking facilities to create smaller spaces and thus fit more cars into garages and make more profit,” says Miller. “You don’t need a 9-foot wide parking space if a machine is driving and you don’t have to open the car doors.”

As for the coming generation off self-driving cars, that may be change things in the future. “The buzz is that one of these self driving vehicles could replace up to 12 cars with drivers, says Miller.

But at least for now, Situs RERC finds most parking lots and garages were purchased with significant leverage; 84 percent of parking facility acquisitions were purchased with 50 percent or more in leverage. Only 16 percent of parking facilities are purchased with a majority in cash. Parking facilities represent a valuable asset class with overall strong investor interest. From a cap rate standpoint, parking facilities compare favorably to other asset classes.

There’s still plenty of money to be made in the parking business, both Anglyn and Miller agree that “It’s easier to get zoning to build an adult bookstore in most cities than to get a permit to build a parking facility.”

December Fed Rate Hike More Certain After Jobs Report 

Wages rose more in October than any time since the economic recovery began, a sign that the labor market is tightening and the Fed should be on course to raise interest rates in December.

On a year-over-year basis, wage growth of 2.8 percent is the highest since mid-2009. Job growth of 161,000 in October fell short of the 175,000 expected, but September jobs were revised 35,000 higher to 191,000, and the three-month average rose to 176,000.

“It’s good data, the fastest wage growth we’ve seen this entire cycle,” said Ward McCarthy, chief financial economist at Jefferies. “The Fed should have gone this week … they are well on their way to their objective, and this data is just the latest in a number of data releases that should compel them to get on with it.”

Policymakers this week declined to raise interest rates, but the Fed is widely expected to raise rates in December for the second time in 10 years, barring serious changes in market conditions or the economy. Economists have said the Fed would probably hold off if the outcome of Tuesday’s election creates market turbulence.

The labor market has been one bright spot for the Fed, with steady job growth and a return of discouraged workers. But the sought-after inflation level has been elusive, with personal consumption expenditures inflation at 1.7 percent, falling short of the Fed’s 2 percent goal. A move higher in wages is a sign that inflation is picking up, and inflation along with employment comprise the Fed’s dual mandates.

The economy has been moving along through the recovery for quite some time, but we never had any wage pressure, mostly because of the slack in employment. Now that we have tightness in the labor market — it shows you’re in the later stages of the employment cycle,” said Luke Tilley, chief economist at Wilmington Trust. Tilley expects the Fed to raise interest rates in December and then twice next year.

read  more: CNBC
Why a Chinese Real Estate Bubble Could Bring Down The Global Economy

Analysts are sounding the alarm about growing Chinese debt loads and a potential real estate bubble that threatens to dramatically slow growth in Asia, which could be a drag on the entire global economy if it bursts.

In September, Ma Jun, the chief economist of the People’s Bank of China’s research bureau, argued that the Chinese government must take action to stamp out real estate speculation.

”Measures should be taken to put a brake on the excessive bubble expansion in the property sector, and we should curb excessive financing into the real estate sector,” Ma said, according to a translation of a Chinese news report by Bloomberg News.

Other Chinese analysts have been even more vehement.

“The dangers of overly inflated housing prices are huge,” writes Hu Shuli, chief editor of Caixin Media in Beijing. “Indicators such as the ratio of mortgage payments to a buyer’s income indicate that on a relative basis, China’s current housing prices are now more expensive than those during Japan’s property bubble, and are close to U.S. prices just before the global financial crisis exploded.”

Chinese policymakers have instituted measures aimed at cooling the overheating housing market, with some cities imposing “local purchase restrictions, raising mortgage down payment ratios, and tightening developers’ financing,” according to Zhiwei Zhang, chief economist with Deutsche Bank Research. He also points out, however, that these measures may have simply led investors to funnel money into property into cities where real estate has been appreciating less quickly.

read more: Fortune

Retail Calling

Massive Doric columns aren’t usually the preferred architectural features for retail spaces, but in the case of one Manhattan landmark they have become a selling point.

The owners of the historic American Telephone & Telegraph Company Building at 195 Broadway have completed a $47 million restoration and renovation of the first floor, creating high-end retail space and opening up an interior that largely has been closed to the public for decades.

Next year, access to the lobby will be routine, as people make their way to the glass-encloses spaces leased by Japanese restaurant Nobu and retailer Anthropologie.

“You will always be able to see the forest of columns,” said David Levinson, chief executive of L&L Holding Co., which bought the building in 2005. He added, “The lobby is truly one of the great architectural treasures of New York City.”

Designed in the vein of Greek and Egyptian temples, the building’s first-floor interior was intended to signify “quality, durability and permanence,” reflecting the phone company’s “commitment to public service,” according to documents prepared for the New York City Landmarks Preservation Commission. The building, constructed between 1912 and 1922, served as AT&T Inc.’s headquarters until 1983, according to city documents.

read more: Wall St Journal

Atlantic City Rolls Dice on Recovery Plan

In a last-ditch effort to stave off a state takeover, Atlantic City said Wednesday it would retool and resubmit the city’s financial-recovery plan to New Jersey officials who rejected it this week as unworkable.

City Council President Marty Small said six years of state oversight of Atlantic City has been ineffective, and that local officials would continue to oppose what would be the biggest intervention yet by Trenton during the administration of Gov. Chris Christie.

Mr. Small, a Democrat, criticized the state report released Tuesday that outlined its rejection of Atlantic City’s proposal as politically motivated and “extremely disrespectful.”

“The state has never had a plan, never will have a plan, and in their 75 pages of nonsense they didn’t offer a plan,” Mr. Small said. “All of the criticism that they had for the city government—the state has oversaw every decision that we made in the city of Atlantic City since 2010.”

Mr. Christie’s spokesman referred requests for comment to the state Department of Community Affairs, which reviewed and rejected Atlantic City’s plan. A spokeswoman for state Department of Community Affairs Commissioner Charles Richman said the city was given 150 days to address “any items for consideration.”

read more: Wall St Journal

More Americans Leave Expensive Metro Areas for Affordable Ones

Americans are leaving the costliest metro areas for more affordable parts of the country at a faster rate than they are being replaced, according to an analysis of census data, reflecting the impact of housing costs on domestic migration patterns.

Those mostly likely to move from expensive to inexpensive metro areas were at the lower end of the income scale, under the age of 40 and without a bachelor’s degree, the analysis by home-tracker Trulia found.

Looking at census migration patterns across the U.S. from 2010 to 2014, Trulia analyzed movement between the 10 most expensive metro areas—including all of coastal California, New York City and Miami—and the next 90 priciest metro areas, based on the percentage of income needed to pay a monthly mortgage on a typical home.

The net population flows skewed away from the most expensive markets, though the trend became less pronounced for those higher up the income scale. For example, there was a net flow of more than 27,000 people making less than $30,000 from high-cost markets to more affordable markets throughout those five years, but for those making more than $100,000, the net loss declined to 2,438 people.

read more: Wall St Journal

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