Trump Infrastructure Building Plan May Collide With His Immigration Crackdown
President Trump will begin to map out his highly anticipated ideas for repairing roads, bridges and airports tomorrow (Tuesday) in a speech to a joint session of Congress. Mr. Trump’s speech could offer the first real glimpse into his infrastructure plans since taking office in January.
“The market is eagerly awaiting the details of President Trump’s infrastructure plan and how the spending will ultimately impact CRE, both directly and indirectly, and in the short and long term. The focus on infrastructure spending would mean a big economic boost not only for the skilled trades, but also the service and material firms that focus on infrastructure projects,” says Ken Riggs, President of Situs RERC.
But Riggs cautions, “There is currently a major shortage of construction workers in particular trades and geographic regions. This shortage will be compounded by Trump’s strong stance on immigration, and the cost of labor will certainly to go up. Construction costs for CRE are already steep and this added pressure will only make new projects harder to pencil out. Another downdraft on new construction is keeping supply in check.”
The Trump administration has detailed new plans for a sweeping crackdown on undocumented immigrants, saying it will deport many more people without court hearings.
The Pew Center estimates up to 14% of construction workers are undocumented. With a shortage of labor already felt in many U.S. markets it’s clear the construction industry will be hard hit by a sweeping immigration crack down.
Even workers with green cards and work visas under the H1-B program for skilled foreign workers are worried about possible restrictions under President Trump and it’s having reverberations in the housing market as well. The areas most at risk according to Bloomberg include Miami, Silicon Valley, Los Angeles, San Francisco and New York, which have the biggest concentrations of foreign-born home buyers. Immigrants, long a pillar of growth in home buying, may be deterred from new purchases.
While the U.S. homeownership rate in 2015 was the same as it was in 1994 — 66 percent — it has risen 2.4 percentage points for the foreign-born population, to more than half, according to real estate website Trulia.
“You can’t just throw money at a problem and expect it to fix itself. You have to carefully consider the complex interplay of the advantages and disadvantages of your decision. I think an increase in infrastructure spending would be a net positive for the CRE market, but there are two sides to every coin,” says Riggs.
Guess Where the Tightest Office Market in the Country is Located?
The Cambridge-Boston office market is the tightest in the country. Its practically zero-vacancy climate is causing the life science industry to elbow out technology and startup companies, leaving subleasing as the only option to find space.
Cambridge office rents averaged $65.26/SF in Q4 2016 with vacancy at 3.8%, according to CBRE. Some companies, like SAP and the Brattle Group, have been forced to leave due to the extreme lack of availability while pharmaceutical companies like Shire rush to take lab space before it even hits the market. Landlords looking to retain credit tenants like those in life science have prioritized building out lab spaces. If rents remain high and supply low, brokers anticipate non-life science companies will look elsewhere.
“What has been a tech and startup culture is being pushed out by Big Pharma, which is a great story for Boston,” said Aaron Jodka, director of research at Colliers International.
While Kendall Square is heralded as the most innovative square mile on the planet, both startups and more established brands are looking across the river for more space and better pricing. Companies like Amazon and Facebook have been shown sites in the Financial District and Seaport. Cities along the Route 128 Corridor have also lured companies with lower rents while still being easily accessible to central Boston.
Microsoft announced last year that it would move 300 employees to Burlington over the course of two years and sublease 125k SF of its Kendall Square offices, adding to what Colliers International calls a sublease phenomenon. The direct vacancy rate in the 11.3M SF office market is at 2.2% — the lowest seen since the tech boom in late 2000. However, there is twice as much subleased space on the market as direct space, causing the real estate company to peg the local office vacancy rate at 6%. Microsoft’s lease runs through 2021, so while it might be too early to gauge what this sublease movement signals, Jodka said, “When it starts to tick up, it implies there’s an imbalance somewhere.”
Nevertheless, he said the variety of innovative industries in the market point to continued strength. Projects like Volpe Transportation Center and North Point are potential relief valves — MIT will add 3.5M SF of office and lab space to Cambridge’s extraordinarily limited supply between Volpe and its Kendall Square Initiative — but years away, rendering subleasing as the best way for new companies to get a foot into Cambridge.
read more: BisNow
Mnuchin Zeal for Fannie-Freddie Overhaul Faces Test After Ruling
U.S. Treasury Secretary Steven Mnuchin’s seriousness about overhauling the nation’s $10 trillion mortgage market will soon be tested.
A federal appeals court dealt a major blow to hedge funds that own Fannie Mae and Freddie Mac shares Tuesday, ruling that investors weren’t entitled to billions of dollars of profits. The decision clears an obstacle to addressing an issue that has vexed policy makers for almost a decade: What to do with the government-controlled companies that guarantee 43 percent of U.S. mortgages.
Yet some housing industry groups and analysts say they’re skeptical anything will happen quickly because Republican lawmakers have bigger priorities, such as repealing Obamacare and overhauling the tax code. And while most everyone agrees something must be done about Fannie and Freddie, there isn’t much consensus over how to proceed.
“The court decision will force Mnuchin to show just how high a priority housing-finance reform is for the Trump administration,” said Brandon Barford, a partner at Beacon Policy Advisors, a Washington-based policy research firm, and former staff member for the Senate Banking Committee.
While shareholders are likely to appeal, the decision makes it less likely private investors will have sway in forcing action on the fates of Fannie and Freddie. That puts more onus on Congress and Mnuchin, who has said that figuring out a solution is a priority and would play a leading role in coaxing lawmakers to act.
Fannie and Freddie buy mortgages from lenders, put them in securities and make guarantees to investors in case of default.
Former President Barack Obama’s administration said the decision was an effort to wind down the companies and would prevent the companies from needing more bailout money to pay the 10 percent dividend. Shareholders say the change in terms was illegal.
Senator Mike Crapo of Idaho, the Republican chairman of the Senate Banking Committee, last week said it could take two years before housing-finance legislation advances.
read more: Bloomberg
We Work IPO Ahead?
WeWork is restructuring its leadership into four separate divisions amid substantial IPO buzz.
Among its first major steps in the process, the co-working giant valued at roughly $17B is hiring James Woods, whose résumé include running Brooklyn Bowl and serving as an exec at Starwood Property, The Real Deal reports.
Woods will head up the company’s co-living operation, WeLive. Another Starwood alumnus, Richard Gomel, will lead WeWork’s co-working business. Both have been on board at WeWork since January. The company will now be split into co-working, co-living, services and “enterprise” divisions — the latter designed to meet the needs of major corporate clients.
Previously, the company was been divided more informally, along the lines of specific functions like leasing, tech, customer service and others, and its culture often included employees weighing in on matters outside their formal areas of expertise.
The new structure sets up hierarchies that correspond to specific business lines, and mirrors structures often seen in large public companies. As a possible step in preparing for such changes, former Time Warner chief financial officer Artie Minson came aboard as president about 18 months before the recent hires.
CEO Adam Neumann has said that an IPO is a possibility, but has not committed to a timeline. Chief culture officer Jennifer Berrent told TRD that the structural changes are not being made with an IPO in mind.
read more: BisNow
Saks Opens NYC Financial District Mens Store
Saks Fifth Avenue, which is owned by Canada’s Hudson’s Bay Co. has just opening a third store New York City, targeting men in the financial district. The Saks Fifth Avenue Men’s Store will be at 250 Vesey Street in Manhattan, which was formerly 4 World Financial Center. Shoppers will have access to a “tech bar,” and be able to design their own suits. Hudson’s stock, listed on the Toronto stock exchange, has lost 12% over the past three months.
read more: MarketWatch
Dick’s Sporting Goods is expanding its breadth. The chain is preparing to open five stores during the second week of March, a move totaling approximately 180,000 sq. ft. of retail space. Specifically, a new Dick’s Sporting Goods will open in the Glendale area of Queens, New York, in one of the former Sports Authority locations that the company took over late last year. Another Dick’s store will open in Hinesville, Georgia. The company will also open a Dick’s Sporting Goods, Field & Stream and Golf Galaxy all under one roof in Davenport, Iowa – the third all-inclusive store of its kind in the country, the chain said. These new locations have created more than 370 total jobs through the hiring of full-time, part-time and temporary associates.”
read more: Chain Store Age
Amazon Drive Thru — I’ll Drink to That
Amazon has applied for a liquor license for its secretive drive-through grocery store in Seattle, one of the first official documents that links the almost-complete site to the online sales behemoth.
Plans for the 9,700 square-foot building describe it as “a new model of grocery shopping.” Customers place their orders online, then drive by during a specific 15-minute to two-hour window and have their groceries delivered to their cars.
The documents filed with the city’s planning department never name the company building the proposed drive-through grocery facility. However, the liquor license application for the address in the Ballard neighborhood of Seattle, filed Feb. 7, lists Amazon as the proprietor.
After perusing the plans, retail food consultant Roger Davidson with the Oakton Advisory Group called the design “amazing.” While there are many chains that offer drive thru and pickup service for groceries, with this building Amazon has one-upped them all, he said.
“They’ve designed this facility so that it’s super efficient, so they’re going to be more competitive on costs and labor. I bet you can put in an order and have it in 30 minutes the way it’s arranged,” he said.
Amazon has done an excellent job of getting consumers to buy all sorts of things they once wouldn’t have dreamed of buying online, said Rupesh Parikh, an analyst who covers food and grocery at Oppenheimer & Co. Inc. “Now, grocery is the next category that people are going to feel comfortable with,” and Amazon wants their business, he said.
read more: USA Today
German With a Texas Accent
Low-cost German grocer Lidl is looking to enter the North American market with two proposed stores in the Houston area. The company has put forth plans for a 36k SF store at the corner of FM 518 and Liberty Drive in Pearland, Community Impact News reports. The grocer submitted a plat application to the city and is seeking a variance to allow alcohol sales within 300 feet of a school. In December, the Galveston County Daily News reported Lidl was looking to build a 35k SF store at SH 96 and Tuscan Lakes Boulevard.
Lidl is slowly wading into the water after announcing plans for North American expansion back in 2015. After settling on a regional HQ and distribution center, Lidl was quiet until this week when the grocer announced it would open 20 stores this summer, mostly in Virginia, North Carolina and South Carolina.
If Lidl does decide to enter the Houston market it will face stiff competition. Twenty-one new grocery stores are planned to open here in 2017 alone.
read more: BisNow
Real Estate Mogul is Mystery Buyer of Record-Setting Brooklyn House
Gimme Shelter can reveal that real estate mogul Joe Sitt — president and CEO of Thor Equities — is the secret buyer of last year’s most expensive residential sale in Brooklyn.
Sitt spent $11.36 million on the property that, despite its price, was not the expected stately mansion in Brooklyn Heights or a penthouse apartment with East River views.
Located at 1993 E. Fifth St. in Gravesend, the house is a modest two-story built in 1925.
Sitt already owns a home in the neighborhood, and we hear the 2016 purchase was for tax reasons.
read more: NYPost
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Case-Shiller Home Price Index 9:00 AM ET
MBA Mortgage Applications 7:00 AM ET
Gallup U.S. Job Creation Index 8:30 AM ET
Weekly Jobless Claims 8:30 AM ET
Fed Chief Janet Yellen Speaks 1:00 PM ET
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