Situs Newswatch 11/27/2017

Situs at CREFC Europe 
Five hundred delegates attended the CREFC Europe Autumn Conference in London earlier this month. The theme for the conference was “Adapting in a changing industry” and panelists discussed market dynamics as well as the technology disrupting it.

Situs Vice President Jonathan Jay was in attendance and came away with some key insights into the current market environment:

  • In light of the historically low interest rate environment, funds are re-evaluating expected returns, and are marketing to investors lower returns of 8-12%, rather than the 15-18% returns they advertised only a few years ago.
  • On a risk adjusted return basis, debt returns of 8% are achievable in today’s market, compared to potentially 12% in equity deals, and a significant number of LP’s are prioritizing debt funds in the current environment. Although debt returns are capped, the chasm between the two sources of finance is not wide enough to justify the capricious upside of equity returns.
  • In the capital stack, mezzanine debt has become very competitive, so some funds are venturing into new markets, whilst others are creating innovative structures: like part equity part debt positions to align themselves fully with the sponsor and mutually benefit in the upside.
  • Speculative developments at high LTC ratios are still difficult to source; despite the abundance of debt in the market. Successful sponsors with proven track records are able to obtain financing, although not at the same levels pre-2008.
  • Alternative lenders are an increasingly important constituent in the UK real estate loan book (23% according to the latest De Montfort study) and unique propositions are being established – such as green lending – to differentiate offerings in the market.
  • Traditional senior lenders are working in competition to crowdfunding platforms, and despite the fact they might be investors in and lenders to these platforms, they often work alongside by taking senior positions.
  • There are a number of growing PropTech business that are starting to scale and disrupt the market – although it was debated whether the property industry were late to adopt technology – delegates got to see first-hand commercial real estate finance databases using AI, underwriting automation software and innovative office complexes that provide much more than just desk space.

Specials thanks to co-chairs Katie O’Neill (Deutsche Bank), Lesley Chen Davison (Delancey) and Emma Matebalavu (Clifford Chance).

What Retail Advisors are Really Worried About this Holiday Season
Forecasts for the holiday shopping season are strong, because economic indicators generally are as well: the stock market, wages and consumer confidence are all up.

Bain & Company is forecasting growth 3.5 percent to 3.9 percent. The National Retail Federation is anticipating a rise between 3.6 percent and 4 percent.

Those numbers though, don’t tell the whole story. An uptick in sales will not benefit all retailers uniformly. There will be winners and losers in the holiday season. This is what, and how, industry advisors and executives will be watching the next two months.

Same-store sales is an important metric for the Street, but what industry advisors are most concerned about is how much money retailers make during the season.

Avoiding the discount spiral can be challenging. With a few clicks on a smartphone, shoppers can quickly see where they can buy the cheapest items. Further, retailers in bankruptcy — or trying to avoid bankruptcy — are likely to have blowout sales. Sears, for example, has already put the whole store on sale, offering “first-of-their-kind” discounts ranging from 10 to 50 percent at Sears stores, and 10 to 40 percent at Kmart. Those sales may have an impact on competitors like J.C. Penney, who has been looking to encroach on Sears’ territory with appliance sales.

read more: CNBC

Mall Owners Ramp Up Holiday Spending in an Era of Diminished Expectations
The biggest mall and mixed-use center landlords across the U.S. are digging deep into their pockets to attract customers this holiday season, rolling out everything from winter castles and Santa sightings to gingerbread-making classes and temporary skating rinks.

But they are under no illusion their efforts will bring windfalls to them or their tenants.

Fully aware that most consumers nowadays intend to do at least some portion of their holiday shopping online, many landlords will be happy if the people coming in to ice skate make a few impulse purchases along the way.

“You do have to make a certain amount of investment,” said Barbara Garrett, general manager of a mixed-use project Atlantic Station in Atlanta, which opened a seasonal outdoor ice skating rink and held a Santa parade at its outdoor retail center on Saturday . The owner, property giant Hines, has been spending more in recent years for its Christmas events and decor, but believes it is worth it, Ms. Garrett said.

read more: WSJ

Urgent care is latest prescription for retail landlords
Once an upstart with its self-service, low-priced footwear retail concept, Payless ShoeSource has struggled of late.

But even before the retailer filed for bankruptcy protection earlier this year and announced the closure of up to 22 stores in New York City, an unlikely savior had swooped in: urgent care.

As landlords face rising vacancy rates across the city, urgent-care centers are eagerly snapping up space abandoned by foundering retailers. The largest local player is CityMD, with 21 walk-in health clinics in Manhattan and 25 more throughout the city. CityMD has signed leases at six former Payless stores in the city.

“With the depressed market we’re in, CityMD is taking a lot of space that a bank would have taken in 2006,” said Benjamin Birnbaum, executive managing director at Newmark Knight Frank, who represents CityMD in all its leasing deals.

Since its inception in 2010, CityMD has grown to 82 clinics in three states, attracting customers with the promise of quick and convenient care from emergency room–trained physicians.

read more: Crain’s

Yellen says inflation below 2% goal poses one of Fed’s ‘biggest challenges’
As Federal Reserve Chairwoman Janet Yellen’s tenure nears its end, she said one of the “biggest challenges” to the central bank remained inflation staying below its 2% target.

Inflation has remained stubbornly low even as slack in the labor market appears to have been much diminished. Core inflation as measured by the PCE price index, which strips out volatile food and oil prices, rose to a 1.3% annual rate in the third quarter, up from 0.9% in the second quarter.

“The issue facing monetary policy at the moment is how to craft a monetary policy that maintains a strong labor market, but also moves inflation back up to our 2% objective,” she said Tuesday evening in a talk with Mervyn King, former governor of the Bank of England, at New York University.

Yellen argued low inflation could prove dangerous, as it could allow inflation expectations to “drift down, and there is some evidence and after many years of low inflation, it may be drifting down.”

She added if it stayed subdued, the impetus to raise and normalize interest rates may not be apparent, leaving the benchmark fed funds rate much lower than historical levels. That could entail a new normal where the neutral rate was much lower than investors thought. The neutral interest rate is the level at which it neither stimulates nor slows the economy, and when the central bank’s tightening cycle is considered to have run its course.

read more: Marketwatch

Los Angeles and Orange County Among Top Markets for Office Market Growth
Los Angeles and Orange County were among the top three markets to get a boost in office market growth from the rise of the high-tech sector, according to CBRE’s annual Tech-30 report.

The report, which measures the tech industry’s impact on office rent in the 30 leading tech markets in the U.S. and Canada, found that Los Angeles County saw jobs in high-tech software/service sectors rise 20 percent during 2015-2016, nearly a three-fold increase from the prior two-year period’s 6.7 percent. Consequently, average office asking rents in Los Angeles climbed 11 percent to $37.08 per square foot annual from the second quarter of 2015 as compared to the same period in 2017. In the area’s top tech submarket in Santa Monica, average rents reached $71.28 during the period.

The rise in high-tech jobs and subsequent need for office space, has led companies either priced or locked out of high-demand areas on the Westside or near major entertainment studios, to the submarket of Downtown Los Angeles according to CBRE’s Senior Vice President John Zanetos. Vacancy rates in Downtown Los Angeles were 17 percent, for instance, compared to around 7 percent in Santa Monica, according to CBRE research.

read more: Commercial Observer

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