Situs Newswatch 11/9

Election Aftermath: Good, Bad or Ugly for CRE?

By now you probably know Donald Trump will be the next President, elected in a stunning upset.

Mr. Trump faces a divided nation but will this be advantageous to Commercial Real Estate Investors and those in associated industries?

Commercial Real Estate, especially in the industrial sector, performed well in recent years under President Obama – construction has reached new highs, rent values are above average and there is great demand.

“I don’t see the new President immediately reducing regulations, in fact it feels like the pendulum is still swinging toward more regulation given the recent events,” says Steven Bean, Situs Executive Managing Director, “but as long as he doesn’t pile more on I think Commercial Real Estate will continue to prosper.”

“Real Estate is on a seven year upswing now.  The regulators have done a pretty good job of getting banks focused on the quality of their data,” says Bean, who leads Situs’ U.S. advisory services. “One of the ultimate consequences of putting Dodd-Frank and stress testing in place effectively caused us not to overbuild, and that has helped us sustain this seven year rally in commercial real estate prices.”

For an election supposedly based on the economy, real estate and housing policy was not just conspicuously but egregiously absent from the rhetoric.  Perhaps this will change now that Mr. Trump is President-elect.

Adds Situs’ Bean, “In today’s global economy, I don’t give the President too much credit for the economy’s performance, because it’s just going to do what it’s going to do, whether the Chief Executive does what he/she is supposed to do or not.”

Americans Still Don’t Believe It’s a Good Time to Buy a Home!

The Fannie Mae Home Purchase Sentiment Index (HPSI) dropped another 1.1 points to 81.7 in October, the third decrease in as many months as consumer anxiety persists.

  • The share who think it is a good time to buy remained at an all-time survey low.
  • The net percentage of those who say it is a good time to sell rose 4 percentage points to 19% in October, 1 percentage point away from the all-time survey high seen in July. The share who think it is a bad time to sell tied an all time survey low last reached in July.
  • The net share of Americans who say that home prices will go up continued to fall in October, falling 3 percentage points from last month to 31%.
  • The net share of those who say mortgage rates will go down over the next 12 months fell 1 percentage point to -45%.
  • The net share of Americans who say they are not concerned with losing their job fell 1 percentage point to 69%.
  • The net share of Americans who say their household income is significantly higher than it was 12 months ago fell 8 percentage points to 4%, the lowest it has been in more than three years.

Will Britain ever be able to check out of the EU?

The celebrated melody “Hotel California” by The Eagles — featuring the lyrics “You can check out any time you like, But you can never leave” — is a new favorite, for various wry reasons, at the German Bundesbank. Amid the furor after last week’s U.K. High Court ruling that Parliament should decide on triggering Britain’s European Union’s exit, the song appears more than ever a metaphor for difficult-to-break EU ties.

In Frankfurt, the tune (they even play it on ceremonial occasions) is held to epitomize the difficulty of getting any member of economic and monetary union actually to depart. It stands, too, for the intractability of the European Central Bank’s unconventional monetary policies; Bundesbank officials first spoke about “exit” six years ago.

Uncertainty about whether Britain will depart from the EU, and under what conditions, has been present since the referendum result on June 24. Many European officials don’t believe the British government is serious in wishing to implement “the will of the people.”

Neither do upset Brexiteers who foresee betrayal by Prime Minister Theresa May.

Desire to counter party mistrust explained why May intensified “hard Brexit” rhetoric at the Conservative conference in Birmingham a month ago. She implied that immigration controls had clear priority over unimpaired EU trade. However nothing she has said before or since has confirmed that she wishes to proceed in that way.

For similar reasons, she showed unnecessary belligerence at the conference against serial Remainer Mark Carney. This has allowed the Bank of England governor, at least temporarily, to regain the upper hand by declaring he will stay until 2019 to save sterling GBPUSD, -0.9745%  .

Suspicion of the government’s Brexit credentials explains, too, the heated aftermath of last week’s logical High Court decision to allow parliamentary scrutiny over the Article 50 withdrawal mechanism. It would have been folly indeed to have sought to have wrest back lawmaking control from Europe only to deny Parliament the right to supervise that transition.

read more: MarketWatch

Greek Bank Wars Leave $187 Billion with Uncertain Management

As Greek banks struggle to clean up their balance sheets of bad loans, investors have been left pondering another uncertainty: Who will lead the country’s biggest lenders?

The General Council of Greece’s bank recapitalization fund, HFSF, may convene Monday to discuss whether to call an extraordinary meeting of National Bank of Greece shareholders aimed at forcing the lender’s chief executive officer, Leonidas Fragkiadakis, and other board members to resign, two people familiar with the matter said on condition of anonymity. Last week, the board of directors of NBG rejected an HFSF request to appoint Dimitris Tsitsiragos as its non-executive chairman, electing instead octogenarian Panayiotis Thomopoulos against the wishes of its biggest shareholder.

State-owned HFSF, which holds a 40.4 percent stake in NBG, used its power to delay the board’s reconstitution to decide its response, the people said, asking not to be named, as they weren’t authorized to publicly comment on the matter. A compromise solution could see Tsitsiragos serving as deputy to Thomopoulos under a clear succession plan, another official said.

The Bank of Greece opposes the option of an extraordinary meeting of shareholders to topple either Thomopoulos or Fragkiadakis, as it would perpetuate the state of uncertainty in the country’s financial system, a central bank official said. Overruling board decisions would also go against the principles of good corporate governance, the official said, asking not to be named, in line with policy.

read more: Bloomberg

Banking Technology Vendors Feel the Pinch

Bankers aren’t the only ones feeling the pinch from cost-cutting at banks.

Executives at DH Corp., Fiserv Inc., Fidelity National Information Services Inc. and others who sell technologies and services to banks have pointed to a drop in new spending by their clients as a factor in slower growth in key businesses.

One reason cited by analysts and executives is a delay in expected interest-rate increases, which lenders have been counting on to boost income. The rate outlook has pressured revenue gains, leading banks to push back technology budgets to next year. Also, they say, banks are so focused on fixing compliance problems that they’re working on those issues instead of upgrading core systems that can generate revenue.

The tepid results for the bank technology firms have hurt their shares, even while bank share prices have picked up. The KBW Nasdaq Bank index—comprising financial institutions—is up 2.8% in the past month, but KBW Nasdaq Financial Technology index—made up of bank tech firms—is off by 4%.

That’s a reversal: Through September, the tech index had been up 3.6%, and the bank index off by 3.9%.

Banking technology vendors make software and sell consulting services for functions like payment processing and account tracking. Banks have in recent years opted to buy more software than build it themselves, a boon to these firms. But increasingly, some banks are outsourcing functions entirely, cutting back on their own needs, or letting contracts linger rather than shopping for tech upgrades.

read more: Wall St Journal

LendingClub’s stock jumps after results beat expectations

Shares of LendingClub ran up 4.3% in premarket trade Monday, after the online credit marketplace reported better-than-expected expected third-quarter results, and provided an upbeat outlook. The loss for the quarter through Sept. 30 was $36.5 million, or 9 cents a share, compared with earnings of $950,000, or breakeven on a per-share basis. Excluding non-recurring items, the adjusted loss per share was 4 cents, beating the FactSet consensus for a loss of 7 cents per share. Total revenue fell to $114.6 million from $116.3 million, with operating revenue declining to $112.6 million from $115.1 million. The FactSet consensus was $103.7 million. Transaction revenue of $100.8 million, up from $100.4 million, beat the FactSet consensus of $95.7 million. For the fourth quarter, revenue is expected to be $116 million to $123 million, compared with the FactSet consensus of $116 million. “We actively reengaged with investors of all types to deliver on our plan and enable $2 billion in loan originations,” said Chief Executive Scott Sanborn. “In the months ahead we are focused on increasing the diversity and resiliency of our funding mix, realigning our resources, and regaining our operating rhythm.” The stock has tumbled 54% year to date through Friday, while the S&P 500 SPX, -0.17% has gained 2%.

read more: MarketWatch

Add to Cart: Warehouses Are Hot Property—Thanks to Internet Shopping

Singapore’s sovereign-wealth fund has agreed to pay €2.4 billion ($2.7 billion) for a portfolio of European warehouses, a sector that is thriving as investors bet on internet shopping.

GIC Pte. will buy P3 Logistic Parks, which owns and manages 163 warehouses in nine countries, from private-equity firm TPG Capital and Ivanhoé Cambridge, the property arm of Quebec’s state pension fund, the firms said in a joint statement on Monday.

With online shoppers expecting quick deliveries, industrial warehouses have become increasingly important to retailers. Real-estate investors have noticed.

The sale of P3 is one of the biggest real-estate deals in Europe this year.

And while transactions involving industrial property fell in the U.K. and Germany in the first nine months of this year compared with the 2015 period, they remain above their long-term average, according to property-data firm Real Capital Analytics. Transactions rose in smaller economies such as the Netherlands, Italy and Norway.

A big draw of warehouses over office towers is that the returns are better. The average capitalization rate—a measure of income on property—for European warehouses was 6.5% in the third quarter, compared with 5.9% for retail properties, Real Capital data show.

read more: Wall St Journal

Turkey Strategy

JC. Penney Co. will open for Black Friday business starting 3 p.m. Thanksgiving Day and stores will remain open until Friday, Nov. 25 at 10 p.m.

Black Friday sale prices will be available online the day before, starting at midnight Nov. 23, and from Nov. 20 through Nov. 22, there will be online-exclusive sales. Black Friday deals were previewed for J.C. Penney app users on Nov. 4, and pre-Black Friday deals will be available in-store and online starting Monday through Nov. 19. Black Friday sales have already begun on appliances. Cyber Monday sales will extend from Nov. 27 to Nov. 28, with free shipping on orders of $49 or more.

Toys R Us once again will open its doors on Thanksgiving Day to welcome Black Friday shoppers.

The toy retailer plans to announce Monday that its stores will open at 5 p.m. local time Nov. 24 for 30 hours of continuous shopping. This is the fourth year in a row the retailer has opened at this time.

“Our customers have voted at the doors year after year, and they continue to want the option to get an early start on their holiday shopping lists,” said Joe Venezia, executive vice president of global store operations at Toys R Us, in a statement.

Toys R Us plans to boost the number of employees working Black Friday and is prepping stores with toy experts, express checkout lanes and stocking its shelves with the hottest toys of the season.

read more: CNBC

Have a prosperous day ahead!  

We will not publish on Friday, Veterans Day in the U.S., as we remember those who served.  We’ll be back as usual on Monday.