Situs Newswatch 10/7

Sunny Skies Ahead in South Florida for CRE

After Hurricane Matthew passes, the commercial real estate market outlook for Miami-Dade is sunny. That’s the forecast from industry experts at the Building Owners and Managers Association of Miami-Dade’s 2017 Commercial Real Estate Outlook event, according to the Miami Herald.

“The Miami economy is the strongest it has been in my memory and commercial real estate is booming as a result,” says Situs CEO Steve Powel.  “Population growth is strong, immigrants are flocking to South Florida and international trade is booming.”

“In the office market, rents are at an all-time high in certain submarkets,” said Brian Gale, Cushman & Wakefield’s Vice Chairman of Brokerage Services who represents nearly 5 million square feet of office space in South Florida.

“On Brickell, office space is hitting around $60 a square foot for Class-A space; back in 2008 the high was in the upper $40s,” said Gale, during the panel discussion at the East Miami in Brickell. “Downtown Miami is just behind it, and Aventura and Airport West have hit all-time highs, too,” he said.

“As a diverse market, Miami has strong fundamentals and capital is flowing to this area for all property types,” says Ken Riggs, President of Situs RERC.  “This has been clearly noticed by investors over the past year, which has pushed prices to record levels for certain property types and reduced the supply of undervalued assets.  Most assets are fully priced but retail remains a strong asset class from a value versus price perspective and will continue to demonstrate solid values during 2017,” according to Riggs.

Growth in shared office spaces has also exploded — for instance, WeWork recently leased 65,000 feet at Brickell City Centre and there are now more than 20 shared workspace centers in downtown Miami alone. Sometimes these shared office centers can act as an incubator for a building; when the companies grow out of the co-working space they take space on other floors, In both the office and industrial markets, new-to-market tenants are pushing the records. The last three years have brought more than 700,000 square feet of new-to-market office tenants.

Situs’ Powel says , “All that growth is creating tremendous opportunity for CRE and related industries.”  And Powel emphatically adds, “Our best thoughts go out to the people of Florida and the entire east coast to be safe in wake of Hurricane Matthew.”

Prudential’s $1 Trillion Asset Manager Bets on Real Estate, Debt

PGIM Chief Executive Officer David Hunt said the $1 trillion asset manager is betting on debt and real estate as pension funds and insurers turn to private investments for better returns.

“Real estate has been one of the real beneficiaries of this search for yield,” Hunt, who runs Prudential Financial Inc.’s investment manager, said in an interview Monday at PGIM’s New York office. “We think people will more and more trade some liquidity for return, and they will probably allocate less to public markets and more to private markets.”

Hunt has almost doubled assets under management to $1 trillion since joining from McKinsey & Co. in 2011, and led the firm’s expansion in India with the purchase of a Deutsche Bank AG unit this year. The unit, which offers asset classes such as bank loans and emerging markets equity, was renamed PGIM this year and its private capital group lent more than $5.3 billion in the first half of 2016.

Institutional investors have been coping with low bond yields, suppressed by years of easing by central banks around the world. Some insurers boosted investments in commercial real estate and infrastructure debt.

He said that PGIM already has teams for betting on assets such as commercial real estate, and wagers on areas including public fixed income, private debt and equities. It manages money for more than 1,250 third-party clients, with offices in areas including Asia and Europe, according to its website.

read more: Bloomberg

Onetime Housing Skeptic Plans $1 Billion Bet on Homes

Donald Mullen Jr., the former Wall Street executive who a decade ago helped oversee Goldman Sachs Group Inc.’s lucrative bet against the U.S. housing market, co-founded real-estate investment firm Pretium Partners LLC, which is raising $1 billion to buy single-family homes to rent out to tenants, according to fundraising documents reviewed by The Wall Street Journal.

Mr. Mullen, the onetime head of Goldman’s mortgage-and-credit business, is now pitching pensions, endowments and other large investors on a wager that, four years after the housing market hit bottom, rents and home prices will continue to rise.

“We believe tight credit availability is preventing new households from being able to obtain mortgages to purchase their first home,” Pretium wrote in its 69-page pitch to investors. “Households that have been unable to obtain mortgages have become renters, thus driving high occupancy rates and robust rent growth.”

Through a spokesman, Mr. Mullen and Pretium declined to comment.

During the housing crash, the ranks of apartment renters swelled across the U.S., pushing up rents by 20% since 2012. In the second quarter, the U.S. home ownership rate fell to 62.9%, the lowest level since the government began keeping track in 1965.

At the same time, the housing market has stormed back, with the S&P CoreLogic Case-Shiller index of national home prices in July just 0.6% shy of its 2006 peak. It has jumped 37% since its 2012 bottom.

But economists expect the home ownership rate to keep declining over the next decade due to tough lending standards and a younger generation of potential buyers mired in student debt and less compelled to own homes.

During the crash, investors swooped into the housing market, picking up homes in foreclosure auctions and renting them out to tenants. In all, the six largest home buyers have spent more than $28 billion on U.S. houses since the latest peak, according to research firm Green Street Advisors.

read more: Wall St Journal

RBS to pay $120 Million to Resolve Connecticut Mortgage Bond Probe

Royal Bank of Scotland Group Plc will pay $120 million to resolve a Connecticut state investigation into the bank’s underwriting of toxic mortgage-backed securities ahead of the 2008 financial crisis.

The deal, announced by Connecticut Attorney General George Jepsen and state Department of Banking Commissioner Jorge Perez, came as the bank has been seeking to resolve a series of probes and lawsuits over mortgage bonds.

Before the financial crisis, authorities said, the bank’s RBS Securities Inc unit was the lead underwriter on $250 billion worth of residential mortgage-backed securities, an investment product backed by payments by thousands of homeowners.

read more: Reuters

Refis Push U.S. Mortgage Applications Higher, but….

Mortgage application were up 2.9 percent last week, according to the Mortgage Bankers Association, but refis not new home purchases drove the gains.

Applications to refinance loans rose 5 percent from the previous week

Mortgage applications to purchase a home actually fell 0.1 percent for the week and dropped 14 percent from a year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.62 percent, the lowest level since July, from 3.66 percent.

“The mortgage industry is celebrating the one year anniversary of the TRID/KBYO regulatory implementation date this week,” said Michael Fratantoni, chief economist for the MBA. “Purchase application volume last week was almost 14 percent below the same week a year ago. That was the last week for mortgage applications to be covered by the prior disclosure regulations and as a result there was a spike in application activity.”

Lack of inventory for sale, and high prices are being blamed by many for the downturn in home sales, making it especially tough on millennials and new buyers.

Target Sets Bullseye on Smaller Stores & Millennials

Target Corp. is the latest big-box store to try small boxes.

The chain is opening several smaller stores in urban areas and college towns from New York City to State College, Pa., as it battles declining traffic and sales at its nearly 1,800-strong fleet of largely suburban stores.

Near the University of Minnesota campus, Target opened a store less than 15% the size of an average store. It stocks a limited assortment of products geared toward college students, like miniature ironing boards and twin-size sheets. Ping-pong balls are near the beer. There are no children’s toys or strollers.

“We could see hundreds of these,” Chief Executive Brian Cornell said. “It could be a huge part of future growth outlook over time.”

The retail chain recently reported its first decline in existing store sales in two years and its stock has lost 13% over the past year. Mr. Cornell is trying to reinvigorate sales and better appeal to younger shoppers who are increasingly buying essentials online. Inc., which targets citydwellers for its Prime membership, has recently increased efforts to attract college students.

read more: Wall St Journal

NYC Real Estate Moguls on Forbes 400

The latest Forbes 400 ranking of wealthiest Americans lists Blackstone Group CEO Stephen Schwarzman as No. 45, with a net wealth of $10.3 billion. Stephen Ross, chairman of the Related Companies, follows with a net worth of $7.4 billion and a ranking of 58th on the list, and Richard LeFrak ranked 73rd on the list with $6.7 billion.

Meanwhile, Donald Trump’s net worth checks in at $3.7 billion, $800 million less than last year. All told, the top 400 billionaires have an aggregate net worth of $2.4 trillion. Of that, those in the real estate industry— across the country — are worth a combined $129 billion.

Here’s a rundown of figures tied to New York real estate who made Forbes’ list:

  1. Stephen Schwarzman, $10.3B #45
  2. Stephen Ross, $7.4B, #58
  3. Richard LeFrak, $6.7B, #73
  4. Leon Black, $5B, #105
  5. Sam Zell, $4.7B, #117
  6. Henry Kravis, #124
  7. Sheldon Solow, $4.4B, #128
  8. Leonard Stern, $4.1B, #134
  9. Jerry Speyer, $3.7B, #156
  10. Donald Trump, $3.7B, #156
  11. Jeff Sutton, $3.6B, #174
  12. Nathan Blecharczyk, $3.3B #194
  13. John Catsimatidis, $3.3B, #194
  14. Jeff Greene, $3.3B, #194
  15. David Rockefeller Sr., $3.1B, #214
  16. Allan Goldman, $3B, #222
  17. Jane Goldman, $3B, #222
  18. Amy Goldman Fowler, $3B, #222
  19. Diane Goldman Kemper, $3B, #222
  20. Charles Cohen, $2.8B, #239
  21. Barry Diller, $2.7B, #246
  22. Mort Zuckerman, $2.7B, #246
  23. Joshua Harris, $2.5B, #274
  24. Marc Rowan, $2.5B, #274
  25. David Walentas, $2B, #353

Potty Talk

In its Survey of Construction the US Census Bureau publishes data on the number of bathrooms in new homes started. In the last several years, the share of new single-family homes with 3 or more full bathrooms has increased, which may reflect the move by builders to focus on higher-end, larger homes in the post-recession period. However, recent data indicate that this trend started to reverse: the median square feet of new homes declined in the second quarter of 2016. Growth in the number of smaller homes, such as townhomes, may emerge going forward in response to first-time buyers returning to the market.

Of new single-family homes started in 2015, 4 percent have 1 or less full bathrooms, 59 percent have 2 full bathrooms, 27 percent have 3 full bathrooms, and 10 percent have four or more full bathrooms.