Special Report: CRE — U.S. Primary, Secondary, Tertiary Markets: Searching for Value
This week, Situs shines its spotlight on the best investment opportunities in U.S. commercial real estate.
Our three part series is focusing on Primary, Secondary and Tertiary markets.
Part Three: Tertiary Market
In the final part of the series, Situs RERC investigates investment opportunities in markets that are smaller population centers relative to our defined Primary and Secondary markets. In total, Situs RERC follows 48 markets. Based on many dimensions of a commercial real estate market that include looking at demographics, transaction activity, buyer/seller profiles, and general investment characteristics, Situs RERC identified 13 metros that fall within our definition of a tertiary market. These metros tend to be comprised of regionally-focused investors that live and work in that market, but are backed by institutional capital, albeit not at the level of institutional capital we see in our other defined markets. Based on our examination of the value vs. price relationship for these 13 metros, we have highlighted the notable ones.
Omaha, NE takes the number 1 spot among the tertiary markets. Strong fundamentals and relatively solid pricing contribute to its high ranking. The retail sector, buoyed by wage growth (contributing to demand) and strong auto sales is a particular bright spot for Omaha’s commercial real estate market. For the office, retail and apartment sectors, transaction volumes have increased since the beginning of the year (including a couple of high-profile deals) and this is leading to an uptick in prices compared to the previous quarter. Prices and transaction volumes in the industrial sector are tepid, but a recent increase in manufacturing means that investors may find some good deals from a value vs. price perspective.
At the same time that Ohio State University is near the top of the football rankings, its home, Columbus, OH, was ranked second-highest among the tertiary markets, according to Situs RERC. From a value perspective, several key fundamentals are important to note. Employment and income growth rates are increasing and are on par with national averages, while the population of Columbus has stabilized. Growth in manufacturing and distribution, office and retail jobs are expected to continue into 2017, spurring demand, and rent increases, in these sectors. However, growth in these sectors is expected to be weaker than that of Omaha. Columbus’ commercial real estate prices are below average, but because of the weaker fundamentals, investors get less bang for the buck from a value vs. price perspective.
“The Big Easy” nickname may also refer to softening fundamentals for the New Orleans market. New Orleans was ranked at the lower end of Situs RERC’s identified tertiary markets. The Situs RERC viewed of this market is reflected in transaction volumes that have slowed in 2016 for the apartment sector. However, the retail sector is experiencing growth in terms of volume and pricing on an annual basis; however, this is largely due to a particularly dismal 2015 transaction volume. New Orleans is still recovering from major natural disasters over the past decade, negatively impacting fundamentals and economic growth. Until New Orleans can jump-start demand, lagging fundamentals will continue to contribute to lower expectations from a value vs. price ranking.
We hope you enjoyed this week’s series on the primary, secondary and tertiary market analysis. For the full list of the top investment opportunities in each of these markets, go to store.rerc.com to purchase the full report.
Banks Ordered to Brace for CyberAttacks
Big banks will have to toughen up their cybersecurity practices to protect customers against attacks, according to proposed new regulations.
Under the new rules, banks would have to employ the most effective controls available and be able to recover from a cyberattack within two hours. The proposals by the Federal Reserve, FDIC and the Comptroller of the Currency, will focus on the 35 or so big banks that have assets of more than $50 billion.
Banks will get several months to comment on the rules, which could be finalized in January.
“Covered entities would be required to be capable of operating critical business functions in the face of cyber-attacks,” the regulators said in a statement.
Hackers routinely try to hack their way into big bank systems, though major U.S. institutions haven’t suffered any substantial harm so far. One of the highest-profile hacks occurred this year when attackers siphoned $81 million out of the Bank of Bangladesh’s account at the New York Fed.
read more: CNBC
Miami’s New World Tower Sold
The New World Tower in downtown Miami sold for $84 million Wednesday.
The buyer is East End Capital, a commercial real estate firm based in New York and Miami. The 30-story office building at 100 Biscayne Blvd. last sold in 2006 for $60.4 million.
“In the last few years, downtown Miami has seen a dramatic transformation into a vibrant urban center,” Jonathon Yormak, founder of East End Capital, said in a statement. “The shift in Miami’s downtown demographics to mostly highly-educated, full-time residents speaks to the need for the more creative and amenity-rich office space that we will offer.”
The firm said it plans to spend an additional $10 million renovating the 310,000-square-foot office tower, where tenants include Zyscovich Architechts and luxury brand LVMH, the parent company of Louis Vuitton, Bulgari and other global retailers. The building opened in 1963.
East End Capital also developed the Wynwood Arcade and has plans for a mixed-use residential project in the arts-centric neighborhood.
Investors are competing for prime office properties in and around Miami’s urban core as the population grows. In August, an investor group paid $150 million for the Datran Center in Dadeland. The hot market is reflected in higher rents. Asking rents for Class-A office buildings in Miami-Dade County rose 10.3 percent year-over-year during the second quarter of 2016, the biggest increase in Florida, according to brokerage Cushman & Wakefield.
read more: Miami Herald
Calls on Taubman to Tighten Up or Explore Sale
A prominent real-estate investor is calling on Taubman Centers Inc., one of the nation’s largest shopping mall operators, to tighten its belt or explore selling itself.
Activist investor Jonathan Litt plans to launch a public broadside after spending the summer privately pushing for change in meetings with Chairman and Chief Executive Robert S. Taubman, according to people familiar with the matter. Mr. Litt, frustrated by a stock price that in his view lags behind the value of the malls the company owns, is urging it to cut costs and stop expanding—and failing that, to sell itself, the people said.
The company, owner of high-end properties including the Mall at Short Hills in New Jersey and the Dolphin Mall in Miami, had a market capitalization of $4.3 billion as of Tuesday’s close—or about $6 billion including the Taubman family’s ownership. Its shares are down 7% this year, closing at $71.17 Tuesday. Wall Street analysts estimate the net asset value of its properties amounts to $99.62 a share, according to FactSet. Mr. Litt blames that gap on poor governance and in addition to the other moves is seeking new blood on the board.
read more: Wall St Journal
More Borrowers Default at LendingClub
LendingClub Corp (NYSE:LC) has had to contend with poorer borrower quality and rising default in online lending business; it has been forced to increase interest rates and tighten lending criteria, according to Reuters.
The stock fell 7.25% to close Monday at $4.99 after trading 18.19 million shares, more than double its average volume of 7.90 million shares.
Investors worry that the tighter norms and harder rates will curb delinquencies and improve margins, but on the flip side, the moves will crimp loan volume and ultimately reduce profits. It’s a difficult trade off, but the peer-to-peer lender likely has no choice.
Lending Club is the world’s largest online marketplace connecting borrowers and investors.
read more: Scibility
Rent Control for Tech Millionaires…There’s NO App for that Yet
Soaring apartment costs in Silicon Valley are fueling popular support for an idea bitterly opposed by many landlords in America’s technology capital: rent controls.
Voters in five small and midsize cities in the Bay Area are set to decide Nov. 8 on whether to enact various forms of rent regulation that would keep rent increases for existing tenants pegged near the rate of inflation.
Tenant organizations, unions and church groups are knocking on thousands of doors in an effort to drum up support for measures designed to protect apartment dwellers from runaway rents.
New construction in Palo Alto, Calif. Critics say Silicon Valley has added too many jobs without enough new housing units.New construction in Palo Alto, Calif. Critics say Silicon Valley has added too many jobs without enough new housing units.
On the other side, landlords and real-state agents are pouring money into mailers and television ads in a vigorous effort to battle the initiatives.
“We’re taking it very seriously,” said Thomas Bannon, chief executive of the California Apartment Association, a landlords group. “We are engaged in some pretty aggressive campaigning to get the word out as to why rent control is not the answer.”
In all, the proposals’ opponents have raised more than $1.8 million against the measures in the five cities, according to campaign finance records, largely from groups like the National Association of Realtors and an array of landlords including apartment giant Equity Residential. That far outstrips the roughly $200,000 reported raised by various groups supporting rent control.
Community organizers and unions won efforts this year to put measures on the ballot box in five municipalities scattered across Silicon Valley and near Oakland in the East Bay: Google Inc.’s home of Mountain View, Burlingame, San Mateo, Alameda and Richmond.
While the largest cities in the area, San Francisco and Oakland, have had such controls for decades, the fact that midsize suburbs now are pondering these market controls shows how the region is struggling to manage its rapid growth in prosperity.
read more: Wall St Journal
Apple Wants to Get Inside Your House Before You Buy It
In a darkened master bedroom, David Kaiserman stood in shirtsleeves next to a turned-down king bed. “Good morning, Siri,” he said to the iPad in his hand, and the lights went on while the blackout shades retracted.
“Your home is ready to rise and shine,” the virtual assistant replied.
Inside this four-bedroom stucco house in Alameda, California, Kaiserman, president of the technology division at construction company Lennar Corp., was pitching a vision of a home controlled via iPhone or iPad.
Tap your phone, and AC/DC’s “Back in Black” blasts. Tap again, and the bath runs at a blissful 101 degrees. Sweet, right? Of course, your dad might view it as a bit over the top. All told, $30,000 worth of gadgets and gizmos were on display here, many run with Apple’s free HomeKit app.
As iPhone sales growth slows, Apple is teaming up with a handful of builders and using these kinds of test beds to inch its way into the market for Internet-connected home furnishings, a nascent field that has attracted rivals like Alphabet Inc.’s Google and Amazon.com Inc.
The gamble is that pricey wireless home devices will be an easier sell when bundled into the home itself. Builders market granite countertops and brushed-nickel fixtures at thousands of models homes across the U.S. Why not video doorbells?
Unlike Google and Amazon, however, Apple isn’t hawking hardware meant to connect the home. Instead, the HomeKit app could increase the value of its iOS ecosystem — and make it tougher for users to switch to Android phones and tablets.
“We want to bring home automation to the mainstream,” said Greg Joswiak, Apple’s vice president of product marketing. “The best place to start is at the beginning, when a house is just being created.”
read more: Bloomberg