Situs Newswatch 12/2

Weekend Vote In Italy Could Boot Up Another European Banking Crisis

This Sunday’s referendum in Italy could kick off another banking crisis in Europe.

“Sunday’s vote as well as many other elections in continental Europe in the next 12 months will more or less capture the sentiments surrounding the future of the European Union,” says Situs European Managing Director Prasad Chaganti. Italy is facing anti-EU sentiments due to the rise of Five Star, Italy’s largest political opposition group,  and this may affect banks plans for deleveraging in the medium term.”

Italian voters have been asked to approve reforms to the country’s constitution, but most voters see the upcoming referendum as a vote on the prime minister and the current government. Prime Minister Matteo Renzi has previously stated that he would resign if the reforms are rejected. Expectations are that voters will say “no” to the reforms and bring political and financial instability back to the third largest euro zone economy.

A banking crisis in Italy is seen as being possible if investors decided to stop contributing to a solution that addresses some of Italy’s weakest banks. Asset managers, insurers, and banks agreed earlier this year to set up a 5 billion euro fund ($5.30 billion) to bail out weaker lenders, and thus, calming concerns over the stability of the Italian banking sector – burdened by a high level of non-performing loans.

But call this the ‘law of unintended consequences’ as Italy’s problems may be good for the United Kingdom. “For the U.K.,” says Situs’ Chaganti, “Brexit fears have been factored in already by most investors and hence creates a safer investment haven for CRE in the midst of uncertainties looming around Eurozone.”

London’s Housing Market Is Slumping and Still Hugely Expensive

The slowdown in London’s property boom is starting to spread and deepen.

The fall in values in London’s ritziest neighborhoods nearly reached double-digits in September, the latest month with reliable data, while soaring values in more affordable districts began to cool off, according to a Bloomberg analysis of data from the U.K. Land Registry. But while growth is slowing, home prices are still rising faster than incomes, and London is less afordable than ever. The average home now costs 14.2 times a resident’s annual gross salary of £33,720 ($42,000), more than double the ratio for the U.K. as a whole.

read more: Bloomberg

Situs is honored to yet again be considered for the prestigious Real Estate Capital Award, an industry peer recognition from one of the largest real estate industry publications in Europe and worldwide.
Situs has been nominated in two categories:

•    European Loan Servicer of the Year
•    European Loan Transaction Advisor of the Year

Voting is now open, and the link to the voting page can be found here.

New Treasury Secretary Vows to Trim Dodd-Frank; Save Fannie Mae & Freddie Mac

Steven Mnuchin, Donald Trump’s Treasury Secretary designee, made much of his banking fortune amid the fallout of the 2008 financial crisis, buying and reselling a distressed bank in California.

Now, the former Goldman Sachs banker will have the President-elect’s ear in an effort to roll back the Dodd-Frank Act, legislation put in place with the goal of preventing such a crisis.

Revising Dodd-Frank is “the number one priority on the regulatory side,” Mnuchin told.

Mnuchin’s choice as Treasury secretary may have also increased the chances of Fannie Mae and Freddie Mac coming out of conservatorship.

“A resolution of the conservatorship of the GSEs appears likely with Mnuchin as Treasury secretary”, says Tim Rood, chairman of The Collingwood Group. “His experiences at Dune Capital, particularly the IndyMac/OneWest purchase and turn around, will most certainly influence his decision-making calculus.”

Mnuchin said in a Fox Business Network interview said that resolving Fannie and Freddie will be a top priority. “We will make sure that when they are restructured, they are absolutely safe and don’t get taken over again,” he noted.

Fannie and Freddie shares are soaring as a result.

Both have been in conservatorship since September 2008, when the Treasury Department declared them insolvent and then became their de-facto owner by pumping billions of dollars in taxpayer money into the two. Both GSEs are once again profitable, and there have been calls from different factions of the industry to recap and release them, while leaving in place the government guaranty on their MBS.

Apartments Lead Ten-X Commercial Real Estate Trends Higher

Ten-X’s latest U.S. Commercial Real Estate Capital Trends report, which reveals that capital markets saw a modest increase in the third quarter of this year, following two consecutive quarters of decline. The multifamily sector was responsible for 33.2 percent of transactional volume in the quarter, a rate well above its 10-year average for overall market share.

Overall transaction volume jumped 2.1 percent from the year’s second quarter to $111 billion, driven largely by increases in the hotel and apartment sectors. Volume has now topped $100 billion during each of the last nine quarters, and Ten-X research shows the market remains relatively healthy in the face of both global and domestic economic uncertainty.

Apart from a flood of deals sent that sent volume soaring during late-2015, the overall market appears to have plateaued since 2014, evidenced by a 0.3 percent year-over-year decline in deals during Q3. Several factors, however, including surging wages and the market’s continued ability to attract high levels of foreign investment help it remain promising for investors.

“While widespread volatility in the wake of Brexit and the uncertainty surrounding the U.S. presidential election have hampered many major markets across the world, the domestic commercial real estate market has remained the picture of resilience,” said Ten-X Research Chief Economist Peter Muoio. “Property prices continue their steady climb while interest rates appear poised to remain historically low, making the market a relatively safe haven for investors looking for shelter from swirling global headwinds.”

Each of the five market sectors outperformed their 10-year total dollar volume averages during the quarter. Apartment volume led the way by outperforming its average by more than 70 percent, as consistently rising rents continue to buoy overall confidence in the sector. Office, retail and industrial each topped their 10-year averages by better than 30 percent. Hotels, meanwhile, bested its 10-year average by a mere 5.6 percent during Q3.

How About a Bunker for Doomsday

A Texas investor group is planning for a doomsday scenario by building a $300 million luxury community replete with underground homes and airlock blast doors designed for people worried about a dirty bomb or other disaster.

“The initial perception is that it’s defined as a doomsday scenario,” said James O’Connor, CEO of Dallas-based Vintuary Holdings, which represents the collection of investors backing the Trident Lakes project. “I’m trying to change the perception to a long-term sustainable community, with the concept of a 200-year community. We’re not looking at just putting all our residents underground; we’re looking to put together a beautiful place to live that’s also secure.”

The standard luxury amenities will apply: 18-hole golf course, high-end spa, gun ranges, zip lines, shops and restaurants, and not just a single helipad but a row of them. But plans call for the 700-acre spread to also include an equestrian center, polo fields and 20-acre lakes with white-sand beaches. The entire compound will be wrapped by a 12-foot wall and have private security manning watchtowers. The project has received the necessary approvals, O’Connor said, and people are expected to take up residence in 2018.

Developers intend to construct about 400 condos that have 90 percent of their living space underground. Most would cost in the mid-six figures and each topped with a terrace overlooking one of the lakes. The community could have as many as 1,600 residents who, should disaster strike, can rely on water and energy production that’s off the grid. O’Connor said designs and concepts may change as the project progresses, but a navigable tunnel network and an air-purification system are planned.

As is a DNA vault. The vault is an opportunity for “family sustainability,” said Richie Whitt, spokesman for Trident Lakes. “You can take DNA and preserve it, where if something should happen, then technology down the road could take DNA and replicate a person,” he said. “It’s kind of science fiction-y but it’s also not that far in the future.”

Whitt said Friday that Vintuary Holdings has purchased land in Ohio for a similar community and investors hope to expand the idea to other states. He didn’t provide further details.

It’s not clear just how many similar bunker communities are open for business in the U.S. or other countries. The Vivos Group, based in California, has six in the U.S. and one in Germany.

read more: Press Herald

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