Situs RERC Flash Report Looks at Investment Conditions
Investment conditions improved for all property sectors compared to the previous quarter except for hotel. The industrial sector provided the strongest investment conditions as online retailers continued to demand more space for warehouses and implemented last-mile delivery strategies.
Despite the negative news coverage about the retail sector, investors were more positive across all retail subtypes compared to last quarter. Investors may be more optimistic about investment conditions for retail because of the better-than-expected holiday sales recorded for brick-and-mortar stores. The largest improvement in retail investment conditions ratings was for power centers, which rebounded after a sharp drop in the third quarter.
Central business district (CBD) office recorded one of the largest increases in investment conditions compared to other property types. CBD offices (compared to suburban offices) are more likely to have the state-of-the-art amenities and technology-driven open spaces that tenants demand. The increase for investment conditions for CBD office may also reflect the continued desire of millennials, and their employers, to be situated in easily walkable, urban areas. However, we note that if/when more millennials begin to start families, we could see a disruption in this trend.
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Situs Acquires MountainView Financial Solutions
Situs, the premier provider of strategic business and technology solutions to the real estate industry, announced Friday that it has entered into a definitive agreement to acquire MountainView Financial Solutions, a leading service provider to the financial services industry.
The transaction, which is subject to customary closing conditions, is expected to be completed on or before Jan. 31. Headquartered in Denver, CO, MountainView is an industry-leading valuation and risk analytics business for the financial services sector.
Read more: Situs
Fed Minutes Reveal Uncertainties Over Tax Cuts
Federal Reserve officials in December debated whether looming tax cuts might require them to raise short-term interest rates more aggressively in 2018 than last year, when they lifted borrowing costs three times.
Officials expressed growing confidence in the strength of the labor market and the economy, according to minutes of the Fed’s Dec. 12-13 policy meeting, which were released Wednesday. Since the meeting, Congress approved and President Donald Trump signed into law a $1.5 trillion tax cut, which could muddy the central bank’s efforts to ensure the economy stays on an even keel.
“Participants discussed several risks that, if realized, could necessitate a steeper path of increases” in their benchmark federal-funds rate, according to the minutes. “These risks included the possibility that inflation pressures could build unduly …perhaps owing to fiscal stimulus or accommodative financial-market conditions,” the minutes said.
After holding the fed-funds rate near zero for seven years, the Fed has raised it five times since late 2015, most recently in December, to a range between 1.25% and 1.5%. The Fed also penciled in three quarter-percentage point rate increases in 2018 and two more moves in 2019.
read more: WSJ
Fed Plans to Raise Rates in 2018 but Lacks Consensus on Frequency
The Federal Reserve has entered 2018 without a clear plan for raising its benchmark interest rate and with the added uncertainty of an imminent change in its leadership.
An account of the Fed’s final meeting of 2017, which the central bank published Wednesday, said officials generally agreed that the Fed should continue to raise its benchmark rate in the new year. But Fed officials expressed a range of views about the frequency of future hikes.
Six of the 16 officials on the Federal Open Market Committee predicted during the December meeting that the Fed would raise rates three times in 2018. But six officials predicted two hikes or fewer and four officials predicted the Fed would raise rates at least four times.
The decision about how often to raise rates will be made under new management. The Fed’s chairwoman, Janet L. Yellen, plans to leave the Fed in early February; her nominated successor, the Fed governor Jerome H. Powell, is awaiting a Senate confirmation vote.
read more: NYT
What’s the Verdict on Urban vs. Suburban CRE Investment?
In the recent past, it has been widely believed that urban markets triumphed over suburban ones to such a degree that many institutional investors avoided the suburbs altogether. Now, many are insisting suburbia is making its comeback and perhaps surpassing urban markets for investment opportunities.
This is understandable. Originally, it was predicted that the millennial generation would differ from their baby boomer parents and reside in large metropolitan areas in hip loft apartments, walking to the nearest farm-to-table eatery and eschewing cars altogether.
However, when the millennials began having children and were anticipated to be buying suburban homes with yards, investors began to rethink their urban-only strategies. Those investors, however, may have jumped the gun.
Here is the reality. First of all, today’s suburban interest is focused on close-in transit-oriented and highly amenitized “first ring” suburban locations, as opposed to the more traditional, outlying suburban locales developed after WW II.
In addition, a shorter commute, both to work and to urban lifestyle options, is more desirable than a larger home deep in the suburbs, especially in those markets lacking easily accessible mass transit. This will likely mean that the jobs and, therefore strong office demand, should stay predominantly in the city core.
read more: NREI
Internet Giants Fuel Warehouse Demand as Land Prices Surge
Land fit for future fulfillment centers for the likes of Amazon and Walmart saw huge spikes in prices last year, according to real estate services firm CBRE.
In a trend largely stemming from the growth of e-commerce players across the U.S., some plots of land now cost twice the amount they did a year ago, the group found. This is especially true in major markets, including Atlanta and Houston.
In surveying 10 U.S. markets, CBRE found the average price for “large industrial parcels” (50 to 100 acres) now sits at more than $100,000 per acre, up from about $50,000 a year ago.
Industrial land plots of five to 10 acres, which typically house infill distribution centers for completing “last-mile” deliveries, watched their prices soar to more than $250,000 per acre by the end of 2017, up from roughly $200,000 a year ago, according to CBRE. Located in more bustling metropolitan settings, these warehouses must help retailers serve consumers closer to their homes.
To be sure, industry experts say that despite an uptick in construction of late, there’s still a long way to go before supply aligns with demand.
read more: CNBC
Job Growth Slows, But Unemployment Rate Remains 4.1% in December
The pace of hiring slowed last month, but employers added better than 2 million jobs for the seventh straight year in 2017 and the unemployment rate held at a 17-year low.
Nonfarm payrolls rose a seasonally adjusted 148,000 in December, the Labor Department said Friday. That brought employment gains for the year to 2.1 million. It is only the second time on record — the other being in the 1990s — when the economy has produced jobs at that pace for that long. Still, last year was the worst for payroll gains since 2010.
Meanwhile, the unemployment rate remained at 4.1%, matching the lowest level since December 2000 for the third straight month. Hourly wage growth, from a year earlier, failed to accelerate, but wage gains look a bit better on a weekly basis, because Americans are working more hours.
Recent economic data “all point to an economy that has shifted into third gear in front of a large corporate tax cut that figures to turbocharge growth in the near term despite the modest deceleration in the pace of hiring in December,” said Joseph Brusuelas, chief economist at consulting firm RSM US.
Economists surveyed by The Wall Street Journal had expected 180,000 new jobs and a 4.1% unemployment rate in December. Revised figures show employers added 252,000 jobs in November and 211,000 in October, for a net downward revision of 9,000.
read more: WSJ
Dow Industrials Cross 25,000 for First Time
The Dow Jones Industrial Average jumped past 25000 for the first time Thursday, the index’s fastest run to a fresh 1,000-point milestone in history.
The S&P 500’s long-running rally also reached a new landmark Thursday, becoming the greatest bull market in the postwar era. The broad index has more than quadrupled since the bull market began in March 2009, surpassing the tech-fueled rally of the 1990s, according to the research firm Leuthold Group, which excluded dividends from its calculations. The Dow has risen 283% over that same period, according to the WSJ Market Data Group.
Thursday’s moves marked the latest feats for a rally that has repeatedly wrong-footed skeptics and sent stock indexes around the world to multiyear highs. The Dow industrials hit five 1,000-point milestones last year, the most such records in its 120 years.
Faster economic growth around the globe and improving sentiment from consumers and businesses have helped power this rally in recent weeks. Economic data in the first days of the new year continued to suggest steady expansion in the U.S., China and Europe.
read more: WSJ
Sears, Macy’s To Close More Stores This Year
With the 2017 holiday season behind it, two of America’s biggest department store chains, Macy’s and Sears Holdings, unveiled which locations they will be closing next — adding up to more than 100.
These companies have had an especially rough ride in recent months, as they work to right-size their overwhelming real estate footprints against a backdrop of Amazon stealing market share and more brands marketing themselves directly to consumers, bypassing department stores altogether.
To start the year and building on previous announcements, Sears will be closing 64 Kmart stores and 39 Sears stores, all of which are expected to shut between early March and April.
Macy’s has revealed 11 locations (as part of a previously announced plan to close 100 stores, beginning in 2017) that will also shut in early 2018, with liquidation sales beginning as soon as next week.
Meanwhile, the industry is closely watching which Sears and Macy’s stores are going dark, as it could be a death sentence for a mall to lose both anchor tenants. The scenario isn’t uncommon, either.
read more: CNBC
To Stay an S Corp or Not: Tax Law Puts Small Banks in a Bind
It used to be an automatic that being a Subchapter S corporation could trim the tax bills of a lot of small-bank owners — no longer.
Leaders of S Corp banks, along with their accountants, analysts and lawyers, are trying to determine whether the new tax law provides them the same upper hand they once enjoyed over traditional corporations. If not, it might encourage more banks to shed their S Corp status before the March 15 federal deadline.
“Everybody’s scrambling right now,” said Guy Williams, president and CEO of Gulf Coast Bank & Trust in New Orleans, which is mulling a switch. “There’s a key deadline … and you have to decide by then whether you want to be a C Corp or an S Corp. Everyone is doing that analysis right now.”
The new law is clearly more beneficial to C corporations, the head of the $1.5 billion-asset bank said.
read more: American Banker
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