Situs Newswatch 10/11/2017

Situs Helps Investor Prepare for Class A Office Property Acquisition
A New York-based real estate investor needed time-sensitive financial analysis and due diligence to be done on its acquisition of a Class A office building in Florida. The client approached Situs to perform pre-acquisition financial modeling, cash flow projections and a thorough analysis of property operations.

Situs provided enhanced client focus to better negotiate the deal terms by:

  • Obtaining essential property-level information, including the current rent roll, budget and historical occupancy reports;
  • Building out a ground-up cash flow and asset valuation model using ARGUS.
  • Creating an Agreed Upon Procedures (AUP) model that tested and verified various revenue and expense line items, reviewed and confirmed cash flow assumptions and prepared multiple analyses.
  • Designed a customized equity valuation/ joint venture (JV) model. The model is fully scalable and can be used by the client for future transactions.

To learn more about the process Situs used to manage pre-acquisition due diligence, financial modeling, cash flow projections and equity valuation/ joint venture modeling for its client, click here.

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Basel Offers Wiggle Room to Keep Banks’ Funding Rule on Track
National banking regulators will get leeway in applying a new rule aimed at ensuring that lenders hold enough long-term funding, the global Basel Committee said on Friday.

The new rule is known as the net stable funding ratio, or NSFR, and the discretion is aimed at gaining national regulator support to ensure the regulation stays on track for next year.

“This should facilitate the implementation of the NSFR, which is expected to begin on 1 January 2018,” Basel said in a statement following a two-day meeting.

Banks say the rule unduly penalised them in the way derivatives liabilities are treated when calculating the ratio.

The committee has agreed to allow member countries to apply a much lighter treatment for derivatives liabilities, Basel said.

read more: Reuters

Commerzbank, Other Banks Join UBS and IBM Trade Finance Blockchain
Commerzbank AG, Bank of Montreal, Erste Group Bank AG and CaixaBank SA have joined an initiative launched by UBS Group AG and IBM Corp aimed at building blockchain-based technology to support trade finance transactions.

The platform called Batavia would help banks and their clients automate the trade finance process, which remains highly manual and paper-based, the participating companies said on Wednesday.

In trade finance, banks provide funding and other services to importers and exporters to facilitate commerce.

Among other things,Batavia will allow parties to track a transaction from when a shipment leaves a port to when it reaches its destination.

Blockchain, which was first developed to power cryptocurrency bitcoin, is a shared ledger of data that is maintained by computers, rather than a central authority. Over the past few years, banks have been investing millions of dollars in adapting the technology to run some of their data heavy and complex processes.

read more: NYT

CRE Pros Give Trump a Slightly Higher Approval Rating, Ask for Details on Tax Reform Proposal
The commercial real estate industry’s approval rating for president Trump has improved a bit since September. In a poll of about 900 NREI readers conducted between Sept. 2 and Oct. 3, 29.7 percent indicated they approved of the president’s performance so far, vs. 28.1 in September. On the other side of the spectrum, 56.2 percent disapproved of the president’s performance and another 14.1 percent of respondents indicated they were neutral.

In the open-ended comments section, readers’ reviews of Trump’s overall performance ranged from glowing — “Very positive. First time in eight+ years we have seen 3 percent GDP growth. This positive impacts are just showing signs. This will be a fantastic eight years,” to damning “I am sorry that I voted for him and will never do so again.”

The president’s just-released tax reform proposal received an approval rating of 36.7 percent. Slightly more of the survey’s respondents (38.5 percent) disapproved of the proposal. The remaining 24.7 percent indicated they were neutral on the proposed legislation.

However, an overwhelming majority (81.1 percent) of respondents said the proposal in its current form is not detailed enough and 76.3 percent expressed doubt the administration will be able to get tax reform passed before the end of the year. Just 23.7 percent of respondents believe the legislation will pass by that date.

In their open-ended responses, a number of NREI readers expressed concern about reconciling the tax reform proposal with the need to balance the federal budget. “I am all for reducing corporate and personal taxes. But the real task of Trump’s administration and Congress will be to significantly reduce government spending,” wrote one respondent. “Since so few details have been provided, it is not possible to have an opinion,” wrote another. “My guess is that the vast majority of people will derive little or no benefit. If the federal revenue is significantly cut, it will significantly increase the deficit. If, instead, the fed budget is rapidly shrunk, it will result in a recession, not to mention many, many people and industries being hurt.” According to the third, “Certainly there are some positives, but very vague on details. When you add that it raises the deficit and without structures that truly would support job growth (like reducing the employment taxes as just one example), think it’s just another poor idea, with no thought, no policy expertise and no way it will get passed in Congress. Other than all that, I’m sure it’ll be awesome.”

read more: NREI

Hurricane-Battered U.S. Shed 33,000 Jobs in September
The U.S. economy was nicked by two summer hurricanes in September but is showing signs of underlying strength.

The country shed 33,000 jobs in September, the first loss in seven years, the Labor Department said Friday, ending the longest stretch of job growth on record.

But that decline was skewed down by Hurricane Harvey, which hit Texas in late August, and Irma, which hit Florida in early September. The storms came just before businesses filled out monthly surveys of payrolls, which are submitted to the government and used to tabulate hiring. Many businesses reported reduced payrolls during the survey week of Sept. 12. Employment in the restaurant industry, in particular, took a big hit, falling 105,000 in September from the month before, after averaging growth of 29,000 during the prior six months.

“The net effect of these hurricanes was to reduce the estimate of total nonfarm payroll employment for September,” the Bureau of Labor Statistics said.

A separate survey of households, rather than businesses, told a different story. It showed a big jump in employment, by 906,000, in September alone and a 0.2 percentage point drop in the national unemployment rate to 4.2%, the lowest level since early 2001, which marked the tail end of a technology boom.

read more: WSJ

Bankrupt U.S. Retailers Begin to Catch a Break
An unexpected helping hand from creditors, landlords and vendors is allowing more U.S. retailers to stay in business following bankruptcy with most of their stores and employees in the fold.

The new approach marks a turning point for the beleaguered sector, which has seen at least 19 brick-and-mortar retail chains shut down the bulk of their operations since 2014.

Until this year, most bankrupt retailers, including American Apparel, Sports Authority and The Limited, were dismantled during their bankruptcy process. Investors and companies acquired their intellectual property and other assets, but refused to take on their business as a going concern because they saw little value in assuming costly store leases. Instead, they often opted to revamp some of the battered brands online.

However, several creditors, landlords and vendors now see more value left in some retailers, and are seizing on an opportunity to minimize their own losses in the retail rout.

This could spell a slowdown in the decline in brick-and-mortar retail jobs, which fell by more than 100,000 this year, as more than 6,000 stores shuttered under increasing pressure from competition among traditional retailers as well as e-commerce firms such as Inc.

“We’re seeing a set of situations come together in which the constituencies have more interest in the retailer surviving than not,” said Holly Etlin, a managing director at AlixPartners LLP, a consulting firm that worked on the bankruptcy of Gymboree.

read more: Reuters

CMBS Delinquencies Fall to 3 Percent in August
Granted, a slew of bad vintage loans continues to dog the performance of pre-crisis CMBS transactions.

But in a sign of robust industry health, the overall delinquency rate for securitized commercial mortgages fell in August to 3.02 percent, its lowest level since January, according to a report by Morningstar Credit Ratings.

Headlining the improvements were industrial loans, whose delinquencies dropped over 10 percent from the August 2016 level. The lapsed payment rates for residential, lodging, and retail properties progressed as well, with office space the only sector that showed slight deterioration.

Underscoring the strength of the broader market, a sizable chunk of delinquencies were concentrated in just a few regions. With more than $2 billion overdue, the Washington, D.C., metro area alone accounted for nearly 10 percent of the industry’s delinquent mortgages in August, despite making up only a fraction of a percent of outstanding CMBS as a whole.

Chicago borrowers have struggled as well, holding 57 delinquent loans totaling nearly $800 million in late payments.

“Downtown Chicago has seen increasing occupancies, while the suburbs have felt the pain,” Steve Jellinek, the author of the Morningstar report, told CO. He described turbulence in the D.C. and Chicago markets as the result of simple cyclical churn. “As companies change their demands and their business plans, they’re going to pull up stakes and move to new locations,” he said.

read more: Commercial Observer

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