Situs Newswatch 10/25/2017

WeWork Finds Success in Disruption
Despite the grassroots sounding name, WeWork has a valuation of more than $20 billion, or about 20 times its annualized revenue. This positions WeWork as the fourth most valuable U.S. startup after Uber Technologies Inc., Airbnb Inc. and SpaceX. WeWork’s valuation has grown significantly in each of the past five years. WeWork takes on long-term leases for raw office space and then builds out the interior with modern design sensibilities and open floor plans that it then subleases for flexible terms.

The strategy that WeWork employs shares the same risks and rewards as traditional real estate, but is implemented through a somewhat nontraditional business model. Its client list focuses on startups with uncertain futures. Historically, WeWork has taken on long-term leases instead of owning its own buildings. However, the company has just made a big splash in the real estate world, purchasing the Lord & Taylor building on Fifth Avenue in Manhattan for $850 million. WeWork will use the iconic building as its global headquarters.

“WeWork has an interesting business model and they’ve done an admirable job of crafting a hip image, but at the end of the day, this is still a real estate company,” said Situs Vice President Dan Meyer. “As the rest of the industry catches up by using technology and flexible term leases for office spaces, WeWork is going to have to redefine their value proposition.”

Investors have put billions into companies claiming they can disrupt traditional industries whether through the use of technology or their unique appeal to millennials.

Similar hopes surrounded IWG, another flexible workspace provider. Originally called Regus when it went public in 2000, it was hit hard when the dot-com bubble burst, leaving it with high fixed lease costs and sinking rents from subtenants. In the U.S., IWG was forced to seek bankruptcy protection. IWG was valued at around $5,600 for each desk, compared with WeWork’s $135,000 per desk.

“Whether they think of themselves as a real estate company or not, WeWork is in a position many real estate firms have found themselves in — being forced to adapt to a new market,” says Meyer.

Situs RERC and Urban Property Australia are pleased to present the second issue of Australian Real Estate Trends – Amazon the Disruptor, which examines the impact of Amazon’s imminent entry into Australia. Click here to download your free copy.

Where Internet Orders Mean Real Jobs, and New Life for Communities
Ellen Gaugler remembers driving her father to the Bethlehem Steel mill, where he spent his working years hauling beams off the assembly line and onto rail cars.

When the Pennsylvania plant shut down about two decades ago, Ms. Gaugler thought it was the last time she or anyone in Bethlehem would come to its gates to find a job that paid a decent wage for a physical day of work.

But she saw an ad in the paper last year for a position at a local warehouse that changed her mind. She’d never heard of Zulily, the online retailer doing the hiring, but she knew the address: It was on the old mill site, steps from where her father worked.

“When I came for the interviews I looked up and said, ‘Oh, my God, I feel like I am at home,’” Ms. Gaugler said. She got the job.As shopping has shifted from conventional stores to online marketplaces, many retail workers have been left in the cold, but Ms. Gaugler is coming out ahead. Sellers like Zulily, Amazon and Walmart are competing to get goods to the buyer’s doorstep as quickly as possible, giving rise to a constellation of vast warehouses that have fueled a boom for workers without college degrees and breathed new life into pockets of the country that had fallen economically behind.

Warehouses have produced hundreds of thousands of jobs since the recovery began in 2010, adding workers at four times the rate of overall job growth. A significant chunk of that growth has occurred outside large metropolitan areas, in counties that had relatively little of the picking-and-packing work until recently.

read more: NYT

Hipcamp, The Airbnb Of Camping, Is Changing Flyover Country Into A Big Welcome Mat
When, earlier this month, wildfires began to rage across Northern California, consuming more than 200,000 acres of land and displacing 100,000 people, many Americans felt helpless. But Simone Mosely, a 28-year-old mother of two who was attending a hip-hop conference in Atlanta when the fires broke out, immediately mobilized. As a Hipcamp host and manager of Chanslor Ranch, with tents and tepees on a nature preserve that encompasses 400 acres of bucolic California Pacific coastland, Mosely had at her disposal just what the evacuees needed. With the approval of her boss, the land’s owner, Jonathan Wang, she opened the gates and has been hosting up to 40 people at a time since.

Mosely and Hipcamp CEO and founder, Alyssa Ravasio, blew the bugle to open up private campsites to provide free refuge for those fleeing the fires. And more than 20 other Hipcamp hosts answered the call, providing shelter for hundreds of people — at a personal cost of tens of thousands of dollars — in their barns, campgrounds, treehouses and yurts.

Hipcamp‘s efforts are an example of the positive potential of technology at a time when such rosy notions have been taking a bruising. The company’s online platform allows you to search for and rent campsites on privately owned land, but it aspires to much more — to transform the way Americans behave and see themselves. By opening up private land, Hipcamp is trying to change flyover country into a big welcome mat.

“We’re creating community across the political divide and the consistent geographical line that marks the split, usually between rural and urban,” Ravasio says.

In 2012, Ravasio wasn’t espousing such ideals. She was unemployed, had been bumming around India for a while, and was in Big Sur, California, looking for a good spot to camp so that she could watch the sun rise on New Year’s Day, 2013. Frustrated with the lack of online resources, she took a 10-week coding class and created Hipcamp, where people can go online and look up campsites on both private and public land — although, up to now, they can only book the private ones viewable on the site.

read more: Fast Company

Hurricane Nate Property Damage Could Top $1 Billion
Hurricane Nate preliminary loss estimates are estimated to be between $650 million and $1.35 billion, according to CoreLogic. The loss estimates were calculated based on data analysis, total insured and uninsured loss for both residential and commercial properties, including damage from both flood and wind, the company said in statement. This total does not include residential or commercial uninsured flood loss, which was negligible.

Of those loss estimates, an estimated $500 million to $1 billion in insured loss is attributed to damage from wind for both residential and commercial properties, CoreLogic said.

Residential Loss

CoreLogic estimates flood loss for residential properties from Hurricane Nate will be between $100 million to $200 million. This includes storm surge, inland and flash flooding in Alabama, Florida, Louisiana and Mississippi. The vast majority of flood damage from Hurricane Nate is expected to be insured because the low severity of the storm kept the flooding contained to Special Flood Hazard Areas (SFHA), which are designated by the Federal Emergency Management Agency (FEMA) and are therefore required to have flood insurance.

Of the total wind damage, CoreLogic said an estimated $375 million to $750 million represents residential loss. Most damage from hurricane wind is typically covered by private insurers.

read more: Insurance Journal

What Do NAFTA Negotiations Mean for Industrial Real Estate?
President Donald Trump recently called the North American Trade Agreement (NAFTA) the “worst trade deal in history” and said he would renegotiate or dissolve it. He also discussed the possibility of slapping a 35 percent tariff on Mexican-made products imported to the United States.

These remarks were made during Canadian Prime Minister Justin Trudeau’s visit and as the fourth round of NAFTA talks got underway. Trump contends that the U.S. and Canada will be fine without NAFTA, and has indicated he would pursue a separate trade deal with either Canada or Mexico if his administration couldn’t reach a deal with both nations.

NAFTA essentially eliminated tariffs on products moving between the U.S., Canada and Mexico. Since it became law in 1994, the economies and logistics/supply chain of NAFTA nations have become interconnected, and interdependent, notes Jason Tolliver, vice president and expert in industrial real estate with real estate services firm Cushman & Wakefield. The complexity of these supply chains makes it virtually impossible to dissolve NAFTA without a tremendous drag on the economies of all three nations, he adds.

NAFTA logistics activity has generated tremendous capital investment in U.S. industrial real estate over the last 20 years, especially along logistics/supply chain corridors and demand for space should continue to grow, Tolliver adds. But he notes that uncertainty is beginning to impede investment in this sector, as well as economic growth, which is why it’s important to get clarity on NAFTA.

read more: NREI

Morningstar’s Lea Overby on the ABCs of CMBS
It’s been a busy year for commercial mortgage-backed securities. The wall of maturities may be behind us now, but there’s plenty of new issuance to keep those in the sector, including Lea Overby, busy. Overby joined Morningstar Credit Ratings last August and was appointed head of CMBS research and analytics in June. In her new role, Overby is responsible for the ongoing management and development of the rating agency’s CMBS business, including new issue and surveillance ratings, research and analytical products. Overby may have fallen into CMBS “somewhat randomly,” by her own account, but she already has 15 years of experience under her belt. Before Morningstar, Overby was the head of CMBS and asset-backed securities (ABS) research at Nomura Securities and, before that, a CMBS portfolio manager for BNY Mellon Treasury.

read more: Commercial Observer

Airbnb is Pushing up US Rents and Home Prices: Study
Opponents of Airbnb have long claimed that the home-sharing service pushes up rents and worsens housing affordability in New York City.  Now, a new study from the University of California Los Angeles has found that is actually the case nationally.

The paper, which is yet to be published, found that a 10 percent increase in Airbnb listings can create an average 0.39 percent increase in rents and an average 0.64 percent increase in home prices, the Wall Street Journal reported.

The authors of the paper looked at rents and home prices in 100 of the biggest metropolitan areas across the country between 2012 and 2016, according to the newspaper.

The increases may be small, but in those years, the rents went up by an approximate average of 2.2 percent annually, according to Edward Kung, an author on the paper and an assistant professor of economics at UCLA.

read more: The Real Deal

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