Situs Newswatch 11/3/2017

Situs Hosts CREFC Breakfast Panel on Borrower Decision Making
Earlier this week, Situs Vice President Dan Meyer moderated a panel hosted by CREFC focusing on the borrower decision-making process, and the challenges faced by borrowers and lenders in gathering information from third parties.The panelists were: Christopher Albano, Managing Director, Citi; Mark McCarthy, Managing Director, Shorenstein Properties LLC; Joel Traut, Director, Real Estate, KKR; and Rich Walsh, Managing Director and Co-Head of Commercial Mortgage Production, NY Life Investment Management.

A few key takeaways included:

  • The uncertainty surrounding the election lasted longer than most expected, with a number of 2016 deals being pushed into 2017. Panelists noted that they are currently seeing the same issue, with deal pace slowing due to uncertainty surrounding the future tax structure.
  • With respect to tax reform, there’s a feeling that businesses might be leaving money on the table if they move on a deal now. If corporate tax rates shift downward 10 to 20 percentage points, that’s significant enough to put a hold on transactions until businesses know more about where the rate may settle. Uncertainty is rarely good for the market;
  • The downtime associated with deals is causing consternation for borrowers. Panelists cited concern about rate fluctuation and transfer rights as two of the primary causes for slow deal pace;
  • Experts estimate that the full origination business amount for next year will be $515 billion. With the assumption that $90 billion of that will go to CMBS and $140 to agency lending, there will be $285 billion spread among balance sheet lenders, meaning that origination will be flat for first time since the downturn.

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GOP Releases Tax Plan, Cutting Corporate and Some Middle-Class Taxes
Republican lawmakers are unveiling the most sweeping rewrite of the tax code in decades, outlining a plan to cut taxes for corporations, reduce them for middle-class families and tilt the United States closer, but not entirely, toward the kind of tax system long championed by businesses, according to talking points circulated on Thursday.

The House plan, released after weeks of internal debate, conflict and delay, is far from final and will ignite a legislative and lobbying fight as Democrats, business groups and other special interests tear into the text ahead of a Republican sprint to get the legislation passed and to President Trump’s desk by Christmas.

“This isn’t the last product,” said Rep. Carlos Curbelo, Republican of Florida and a member of the House Ways and Means Committee. “This is just the kickoff to this tax reform exercise.”

read more: NYT

Trump taps Powell to be next chairman of the Federal Reserve
President Donald Trump on Thursday nominated Jerome Powell to head the Federal Reserve, putting a non-economist and former private equity executive in charge of the most senior economics policymaking position in the world.

Shortly after 3 p.m., Powell and Trump emerged from the Oval Office and walked together into the Rose Garden, ending months of speculation over who Trump would select to run the central bank.

Trump said that Powell is “strong, committed, and smart” and will provide the leadership to help sustain the economy’s strong performance this year.

In a brief statement, Powell said he would work to make sure the Fed “remains vigilant and prepared to respond to changes in markets and evolving risks.” He highlighted the longstanding tradition of Fed monetary policy independence.

Powell has been on the Fed board of governors since 2012 and has a reputation of being a centrist and quiet team player. As a result, Wall Street thinks Powell represents continuity on monetary policy.

Powell has never dissented from any decision made by the Janet Yellen-led Fed, whose term as head of the central bank expires in February. He’s agreed to lift interest rates four times in five years and says he expects interest rates to move on a gradual upward trajectory.

read more: Marketwatch

Fed Leaves Rates Unchanged, Cites ‘Solid Rate’ of Economic Growth
The Federal Reserve left short-term interest rates unchanged Wednesday, but suggested it remained on course to lift them before year’s end amid signs the economy is gaining momentum.

Officials have penciled in one more move for 2017 if the economy stays on track. The Fed has one more meeting scheduled before the end of the year, on Dec. 12-13. The central bank has raised its benchmark federal-funds rate four times since late 2015, in quarter-percentage-point steps, to a current range between 1% and 1.25%.

“Economic activity has been rising at a solid rate despite hurricane-related disruptions,” the Fed said in a statement Wednesday after the conclusion of its two-day policy meeting.

Gross domestic product, the broadest measure of goods and services produced in the U.S., rose at a 3% annual rate in the third quarter, the Commerce Department said Friday. That followed 3.1% annualized growth in the spring, for the best six-month stretch of growth in three years.

The storms that hit the Gulf Coast and Florida in late summer “are unlikely to materially alter the course of the national economy in the medium term,” the Fed said.

read more: WSJ

Department Stores Have One Thing Left to Sell: Real Estate
In 1914, legacy department store Lord & Taylor opened a giant flagship on Fifth Avenue. The building was the work of celebrated interior design firm Starrett & Van Vleck and featured a men’s-only entrance, three dining rooms, and an equestrian section equipped with a mechanical horse on which shoppers could test the merchandise.

The extravagance of the New York City destination was in part because, as the New York Times notes, department stores were “largely places to pass the hours,” and shopping was a “consummate theatrical experience.”

Just over a century later, the Lord & Taylor flagship is hardly a cathedral of American retail. Stores in general are shuttering by the hundreds in what’s now widely called the “retail apocalypse.” Foot traffic is down, and Credit Suisse predicts a quarter of American malls will be gone by 2022. Department stores, once a shopper’s paradise, are getting hit hard: As of September 2017, according to the Census Bureau, sales are at $12.6 billion, down from $14.2 billion in September of 2013.

As a result, Hudson’s Bay Co., which bought Lord & Taylor in 2015 and also owns Saks Fifth Avenue, has taken some headline-making measures. Last week, it announced a deal to sell its legacy Fifth Avenue building to tech startup WeWork for $850 million. The exact details are being worked out, but Lord & Taylor will likely rent one or two floors from WeWork, which will turn the rest of the building into its global headquarters and shared office space. HBC said it’s also looking to sell another building in Vancouver, which Reuters reported could be worth as much as $900 million.

read more: Racked

Large Banks Uncertain of Path Forward on Small-Dollar Loans
Almost four years after banks ditched the deposit-advance business, some are eyeing a return, looking to take a different tack this time around.

But it’s unclear what their business model would look like.

That was a key takeaway from third-quarter earnings season, which wraps up this week. At least two big banks — Fifth Third Bancorp and U.S. Bancorp — expressed interest in getting back into short-term credit, once a significant source of fees, while others are reviewing their options. But executives said it is too early to talk about how they plan to design a loan that is profitable for their companies and safe for consumers.

“We’re trying to figure out what the right answer is,” Greg Carmichael, CEO of Fifth Third Bancorp in Cincinnati, said in an interview after his company’s earnings call, noting recent changes in the regulation of small-dollar lending. “What’s most important is that … we can help our customers when they have emergency shortfalls.”

read more: American Banker

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