European Commercial Real Estate: Putting the Puzzle Together
Looks like London’s Commercial Real Estate Market is booming again!
The Knight Frank ‘London Report – 2017’, finds the central London property market has witnessed significant capital inflows since the Brexit referendum, despite an initial pause for breath. Much of the investment coming from overseas.
“Even though total direct CRE investments in the UK last year were down by 28% year-on-year and stood at £44bn, and almost half of the acquirers have been overseas investors, there is still a significant amount of capital interested in CRE investments,” said Situs Managing Director Prasad Chaganti. “Business rates, Brexit and stress on the occupier market already have triggered some yield corrections in the UK this year. With Asian investors looking inward to boost domestic growth, this year could see an increased participation from UK institutions.”
Knight Frank reports, last year, 73% of the transactions involved foreign buyers. China and Hong Kong accounted for the largest overseas investment. A key theme for the market over the last few years has been the rise of the Chinese buyer, whose overseas investment appetite has grown exponentially.
Spain’s Littered With Unsold Homes. This U.S. Firm Wants to Build More
Ignore those million-plus empty new homes scattered across Spain. A developer owned by Lone Star Funds says there’s never been a better time to build more.
Neinor Homes, bought in 2014 by the Dallas-based investor, aims to become one of Spain’s biggest homebuilders by increasing construction in big cities where the housing stock is running low, according to Chief Executive Officer Juan Velayos. Competition is thin after the 2008 real estate collapse wiped out about half the company’s competitors and made banks reluctant to finance development.
“During the boom years, anyone could simply get a bank loan to finance construction,” Velayos said in an interview at his Madrid office. “It is a very different story now, you need equity and that is going to be the real game changer.”
The apartment blocks standing empty in secondary towns and cities contrast with the scene in Madrid and Barcelona, where the country’s economic recovery is more advanced and construction has fallen behind demand. Bank lending to the real estate industry fell by 65 percent between 2009 and last year, handing the advantage to private-equity backed companies like Neinor and Dos Puntos, which was bought by U.S. investor Varde Partners LP in 2015.
Lone Star, founded by billionaire John Grayken, bought Neinor from Spanish lender Kutxabank for 930 million euros in 2014. The company built 2,000 homes in 2016 and expects that to rise to 3,250 a year from 2018 to 2020. The owner plans to sell 25 percent to 50 percent of the company this year in a deal that could value Neinor at around 2 billion euros.
read more: Bloomberg
For our European readers, Situs Managing Director Wilhelm Hammel will be speaking at the Distressed Investments and NPL 2017 Forum on February 23rd in Berlin. You can learn more about the event here.
Europe’s Banks are Sick, Are they Healing?
Horrific numbers for investors: If you had invested €100 in European banks 10 years ago, it would be worth €59 now, according to estimates by UBS’s Jason Napier. The same amount of money invested in the overall market would leave you with €134. Translation: Banks have been an exercise in value destruction on an epic scale. So, yes, they’re “back in fashion” now, but they have ways to go before they repay the faith (and the money) investors placed in them over the last decade.
But they’re still hugely important to both markets and economies: Despite their plummeting share prices, banks still account for about one-fifth of the market valuation of European equities and in countries like Italy and Spain, that percentage is much, much higher. And for all the efforts by the European Commission to improve capital markets, banks still provide some 70 percent of all credit and loans to consumers and corporates alike. Banks — can’t live with them, can’t live without them.
So how’s the sector looking? There’s still plenty of “room for improvement,” to use a management consultant’s euphemism. In particular:
Europe remains ‘overbanked:’ There are too many lenders (Germany has more than 1,700 banks!) to create decent returns for shareholders, especially when rates are low. “In the medium term we expect a very significant increase in bank mergers, involving listed and unlisted player,” Napier and his team write.
The IT systems are messy and/or broken as most bank’s customers know, and will need to be overhauled at great cost.
There are far too many branches: UBS estimates that branch footfall is decreasing, on average, by 8-10 percent every year. The logical conclusion? Thousands of branches will have to go.
Now, the cycle’s direction favors bank profits (rising rates in the U.S., growing economies, more appetite for deals, etc.), but a rosy backdrop will only mask the underlying weaknesses of the European banking sector. Unless we start seeing some decisive action in terms of mergers, IT improvements, or branch pruning, we will continue to talk about a sickly sector for a very long time.
read more: Politico
Situs Executive Managing Director Warren Friend joined the Jim Bohannon Show to talk leadership and business. You can listen to part 2 here.
One of U.S. Government’s Largest Landlords Pays Millions to Trump Company
President Donald Trump’s company receives tens of millions of dollars a year from Vornado Realty Trust, which relies on the federal government for a significant portion of its revenue and is vying for new work from Mr. Trump’s administration.
Mr. Trump and Vornado’s founder and chairman, Steven Roth, have forged a years long relationship, with Mr. Trump’s family company a minority owner of two skyscrapers controlled by Vornado. Messrs. Trump and Roth are friends, and Mr. Trump said in January that he had appointed Mr. Roth as co-chairman of a council charged with overseeing the president’s potential $1 trillion infrastructure-spending plan.
Mr. Trump has said that while he is in the White House, he won’t personally be involved in his real-estate business, which is being run by his sons. He has rejected calls to sell his assets or put them in a blind trust, and he remains the assets’ owner.
Two of the most valuable real-estate assets in Mr. Trump’s company, the Trump Organization, are 30% stakes in a pair of office buildings controlled by Vornado.
read more: Wall St Journal
HUD Secretary Ben Carson Snaps up D.C.-Area Home for a Discount
Ben Carson, President Donald Trump’s pick for secretary of Housing and Urban Development, has dropped $1.22 million on a new home in Vienna, Virginia, just outside of Washington, D.C.
Carson and his wife, Lacena “Candy” Carson, closed on the brick colonial at the end of January, according to county property records. The seller was Mark Langevin, a lawyer.
The sales history for the home shows that the Carsons got a deal on the 1.5-acre property. The neurosurgeon-come-politician paid less for the home than its last two owners. The house changed hands for $1.56 million more than a decade ago, in 2005, and again in 2012 for $1.3 million.
Carson bought the home for a discount off the original asking price, too. He got it for 13% less than the $1.599 million set when the five-bedroom first hit the market last year.
The family will be moving from a permanent residence in West Palm Beach, Florida, to be close to the capitol, where in his future role, Mr. Carson will be tasked with helping boost American homeownership and affordable housing.
Read more: MansionGlobal
Fintech: Defaults Slash Returns for Online Loan Investors
For online lenders, 2016 was an arduous year marred by layoffs, executive departures and falling share prices. For the funds that purchased their loans, it wasn’t much better.
Two of the largest investment managers in the sector, LendingClub Corp. subsidiary LC Advisors and Colchis Capital Management, reported the lowest returns in their main funds since each launched in 2011, according to investor documents reviewed by The Wall Street Journal. Publicly listed funds that buy online loans, such as P2P Global Investments PLC, are trading at deep discounts to their net asset value.
At LC Advisors, the Broad Based Consumer Credit (Q) Fund returned 1.83% in 2016, down from 5.76% in 2015 and 8.02% in 2014, according to the investor documents. That was worse than the 2.65% return of the Bloomberg Barclays U.S. Aggregate Index, a broad measure of performance of various fixed-income securities that LC Advisors uses as a benchmark.
The sluggish returns have been a disappointment for investors who were hoping the online consumer space would offer fatter yields. Part of what is hurting performance: higher-than-expected defaults on older batches of unsecured consumer loans. Online lenders rely on outside money managers to buy their loans, and diminished returns could prompt some managers to shift into other asset classes.
To keep loan investors engaged, lenders raised rates for borrowers several times last year and cut off riskier loan customers. Fourth-quarter results released this week by online business lender On Deck Capital Inc., however, showed that loan quality is still shaky, which led to a sharp decline in its shares.
read more: Wall St Journal
Los Angeles Looks to Ban Major Real-Estate Developments
Voters in the second-largest U.S. city are considering a measure that could effectively halt major real-estate projects, the most extreme example yet of a revolt against development that is breaking out across the country.
A boom in luxury development over the last five years has transformed urban America, bringing young people, restaurants, retailers and jobs back to city centers.
But construction activity has tilted toward the high end. Many longtime residents have become resentful of new towers that cast shadows over their neighborhoods of single-family homes and push up rents. Average apartment rents nationwide have surged 26% since 2010, according to MPF Research, due in large part to strong demand after the housing crash.
Now some activists are pushing back with actions that threaten to grind housing production in some cities to a crawl. The moves threaten to further constrict a tight supply of housing. Housing starts dropped 2.6% in January, the Commerce Department said Thursday. The number of single-family and multifamily starts per 1,000 households last month was about 36% below the 50-year average, according to Ralph McLaughlin, chief economist at Trulia.
In Los Angeles, residents in early March are set to vote on a ballot initiative that, if passed, would suspend for two years any development that requires a modification to the city’s existing planning rules. Currently, such modifications are routine for new developments.
read more: Wall St Journal
Not Playing Around
As the above song goes — ‘I’d Like to Be a Toys “R” Us Kid’ — but you probably don’t want to be a Toys “R” Us employee!
Toys “R” Us is laying off 10% and 15% of its corporate employees, the latest retailer to cut jobs as shopping rapidly shifts from physical stores to online ones.
About 250 jobs were eliminated at the Wayne, N.J.-based company, people familiar with the matter said. The layoffs were announced Friday, a day before the toy industry’s annual convention kicked off in New York.
The reorganization is the latest effort by Toys “R” Us’s chief executive, David Brandon, to adjust the privately held company to a fast-changing market. Like other primarily brick-and-mortar retailers, Toys “R” Us had trouble attracting enough shoppers to stores during the critical holiday season as e-commerce sales continued to pick up speed.
For the nine weeks ended Dec. 31, its sales at U.S. stores open at least a year declined 2.5%. Overseas, they fell 4.9%.
Read More: Wall St Journal
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