Situs Newswatch 10/31

Taking the Fifth on Buying NYC’s Most Expensive Property

Landlords on Manhattan’s Fifth Avenue are sitting on a record amount of open space as retailers balk at committing to expensive new leases in one of the world’s most prestigious shopping districts, according to Bloomberg.

The availability rate on the famed strip, home to Saks Fifth Avenue and Tiffany & Co.’s flagship store, jumped to 15.9% in the third quarter, up from about 10.0% a year earlier, according to Cushman & Wakefield. The rate has climbed steadily this year, surpassing the prior peak of 11.3%, set in the fourth quarter of 2014.

Ken Riggs, President of Situs RERC says, “Location, location, location…but at such a cost!  Clearly, tenants have gone past the brink of what they will agree for in retail rents – even with the glittering marquee of Fifth Avenue in NYC. The old sitcom theme goes, ‘Darling, I love you but give me Park Avenue,’ but even that allure can be broken by the bank. Go ask Oliver Douglas when he is plowing a field.”

Forbes reported that New York City’s Upper Fifth Avenue (between 49th and 60th streets) is the world’s most expensive retail street, with a square foot of retail space coming to a whopping $3,500 per year.  This is 31.5% more expensive than the nearest contender, Hong Kong’s Causeway Bay ($2,399 per square foot) and 60.8% more expensive than Paris’ Champs-Elysees ($1,372 per square foot).

Situs’ Riggs adds, “In NYC, we see the retail real estate industry continuing to pressure retail merchandisers or tenants to pay staggering rents. Talk about a love-hate relationship! We have hit a breaking point where even world-class retailers are saying they cannot generate the sales volume to make it pencil out at the current asking rent levels. The tenants are pushing back even on Fifth Avenue. Investors need to take out some of the frills to get the marriage to work.”

The rise of empty storefronts isn’t limited to Fifth Avenue. Bloomberg reports It’s part of a Manhattan-wide space glut as retailers — buffeted by e-commerce, tepid demand for luxury goods and a strong dollar that’s eroded tourist spending — push back against rents that have soared to records.

Retailers are being squeezed across the U.S. In 2016, malls and other types of shopping venues have been hit by 280 major-brand store closures, totaling 12.8 million square feet (1.2 million square meters), data from Reis Inc. show. Another real estate research firm, Green Street Advisors LLC, estimates that several hundred malls around the country will cease operations over the next decade.

Blackstone Cashes In on China’s Overseas Shopping Binge

Blackstone Group LP has emerged as a big beneficiary of China’s global shopping spree by unloading billions of dollars worth of holdings to Chinese buyers.

In its latest such sale, the private-equity and real-estate giant on Monday agreed to sell a 25% stake in Hilton Worldwide Holdings Inc. to Chinese conglomerate HNA Group for $6.5 billion. That was the latest notch on Blackstone’s belt after flipping Strategic Hotels & Resorts Inc. to China’s Anbang Insurance Group Co. for $5.5 billion earlier this year, and guiding the sale of New York’s marquee Waldorf Astoria to Anbang for a record-breaking $1.95 billion in 2014.

During the past three years, as Chinese companies have plowed increasing amounts of money into assets abroad, New York-based Blackstone or a portfolio company have sold at least $16 billion in hotels, office buildings and other overseas real-estate assets to Chinese buyers, according to Dealogic and research by The Wall Street Journal.

read more: Wall St Journal

Germany is Building, the UK has Stalled

Lenders are increasing their exposure to German construction projects, while finance for UK development remains constrained.

Financing property development can be a risky business, as one debt fund lender explained during a recent meeting.

“The biggest risks are in the ground,” he said. “You never know what might be found once the digging starts.”

Contaminated sites, escalating material costs, overrunning works; the list of potential pitfalls is lengthy. To fund a development, the debt fund manager added, requires ongoing vigilance to ensure money is only released once milestones are reached.

Two major reports published recently show that while lenders in Germany are increasingly embracing that development risk, finance for construction projects remains tight in the UK.

In their relentless pursuit of deals, German real estate lenders are diversifying their portfolios and edging up the risk curve, according to the latest German Debt Project survey produced by the real estate business school at Bavaria’s University of Regensburg.

“Germany is building,” the report proclaimed. Taking results from its sample of lenders and extrapolating them across the wider German property market, the authors said that new business for ‘project developments’ was €32.2 billion in 2015, up 22.6 percent from the previous year. New lending to existing properties was higher, at €104.9 billion, although the year-on-year increase was only 18.9 percent.

read more: Real Estate Capital

Crowd Funding Finds Fanbase in Germany Property Market

For Hermann Tecklenburg, head of a family-run construction firm in western Germany, the country’s property boom was double-edged: while orders kept growing, he ran out of cash to back loans for new projects, prompting him to look for alternatives.

With banks cutting back on risk and setting strict rules on collateral, he turned to a fledgling crowd-funding industry, where individual savers lend money in the hope of high returns.

The 68-year-old has now raised 2.75 million euros ($3 million) from private investors and, having financed four projects in 18 months, has a fifth in the pipeline.

“I was in need of new outside capital or would’ve simply not been able to keep construction going,” Tecklenburg said of his Duesseldorf-based company which has been run by his family for five generations since 1878.

He is one of a growing number of German entrepreneurs, particularly in the property industry, to turn to crowd-funding.

German crowd-funding ‘proptechs’ (property technology firms) raised around 49 million euros in the first nine months of this year, more than double the total amount for 2015 and also more than twice any other business sector, according to data from Crowdinvest, an online platform tracking German crowd-funding.

While that is still small compared with the United States, where investors poured $484 million into crowd-funding real estate projects last year according to University of Cambridge data, some industry watchers see a big potential in Germany.

“Crowd-funding is particularly suitable for Germany,” said Tanja Aschenbeck-Florange, a Germany-based lawyer with Osborne Clarke who specialises in investment products and banking regulation.

“Through crowd-funding, a new and younger customer base is discovering the (real estate) market.”

read more: Reuters

Moving on Up to the Bronx

Saks Fifth Avenue inked a 10-year lease for its first-ever Bronx location, documents filed with the city show.

The luxury fashion retailer plans to open a new department store at Prestige Properties & Development Company’s Bay Plaza Shopping Center on Baychester Avenue in the Bronx. The store – which will be the Saks Off 5th Avenue brand used for the company’s outlet stores – will span 25,000 square feet and is expected to open in the summer of 2017, a company spokesperson told The Real Deal. Representatives Prestige were not immediately available to provide additional information. Other stores in the shopping center include K-Mart, Little Caesars and Party City.”

read more: Real Deal

Your Bank Wants to Chat.

This week Bank of America, MasterCard and several financial start-ups announced new tools — known as chatbots — that will allow customers to ask questions about their financial accounts, initiate transactions and get financial advice via text messages or services like Facebook Messenger and Amazon’s Echo tower.

The early versions of the financial chatbots generally do little more than answer basic queries about recent transactions and spending limits.

But companies are aiming to build the chatbots into full-service automated financial assistants that can make payments and keep track of your budget for you.

“What will banking be in two, three or four years? It’s going to be this,” Michelle Moore, the head of digital banking at Bank of America, said in describing the bank’s new offering, which it has named Erica.

Critics of chatbots have said that even with artificial intelligence, bots will continue to lack the intuitive and empathetic understanding that humans need when dealing with difficult problems, such as financial decisions.

“We all know the technology is not there yet,” said Josh Reich, the co-founder of Simple, an online bank that has not released any bot features. “It’s just people picking up on a hype cycle.”

read more: NY Times

Why AirBnb Hasn’t Pulled an Uber in NYC

In New York City, Uber has flourished. And yet its tech sector compatriot, Airbnb, just suffered a nasty blow, courtesy of the state legislature and Gov. Andrew Cuomo, who last week signed a law that could seriously undermine the company’s operations in the five boroughs. So why did two tech industry giants with multi-billion dollar valuations that purport to partake in the “sharing economy” arrive at such diametrically opposed destinations? Why does Uber flourish in regulation-heavy New York City, while Airbnb encounters so many obstacles in the five boroughs? Ask smart people in and around both companies that question, and they say, with caveats, that Airbnb’s problems boil down to two things: well-organized, publicly sympathetic adversaries, and political self-sabotage.

read more: Politico