Situs Newswatch 4/17/2017

The Taxman Cometh
Tomorrow is Tax Day in the U.S. You need to pay Uncle Sam by Tuesday midnight or at least file for an extension.

Hey, at least we got a slight break — this year’s deadline is a couple of days later than April 15, because the usual deadline fell on Easter weekend. You’ve been warned!

Despite Doom and Gloom, Retailers Will Survive – And Thrive

The retail industry is in a transition period. Macy’s, The Limited, Sears and Payless Shoes have all announced store closures. This news is causing retail real estate investors to pause. However, these somber announcements do not signal the demise of the industry as a whole.

Ken Riggs, President of Situs RERC, states “We live in a land of desire. America is a nation of consumers; personal consumption expenditures have been above 65 percent of our GDP since 1999. People will continue to buy things.”

What is changing is what we buy and how we buy it. No doubt, e-commerce has been a major disruptor and many stores are being forced to close because of online competition. But the stores that remain have proven that they are able to adapt – and thrive – in this ever-changing world.

Adds Riggs, “This is not the first time that the retail industry has been in a similar predicament. The retail industry has been through several seismic changes in the past,” says. “Think about Woolworth’s, Marshall Field’s and Wanamaker’s. All were once household names, but have died out. The big-box stores that are almost omnipresent in today’s retail scene hardly existed before the ‘90s. Even more recently, Whole Foods, which was once an innovator in the grocery sector, is having to adapt to increasing competition.”

The dog-eat-dog world of retail is shifting investment priorities for retail real estate. Many Class B and Class C regional malls have closed, yet consumers continue to show demand for high-end neighborhood and community retail centers, which often have smaller, more profitable footprints. Class B and C malls may be closing, but the market is merely rightsizing to adjust to the new realities of the sector. Class A malls are not going anywhere – think Mall of America – because they have adapted to changing consumer preferences, becoming entertainment meccas.

According to Riggs, “Despite the doom-and-gloom predictions for the industry, there are lucrative investment opportunities for the savvy investor. The shedding of stores in the retail space is merely a natural-selection process to make way for the new generation of retail innovators. Just like the TV show ‘Survivor,’ it is about who can outwit, outplay and outlast.”

Research from Situs RERC indicates that the retail sector is still in good shape. In analyzing retail real estate returns versus the amount of risk, preliminary data from the Situs RERC 1st Quarter 2017 institutional survey indicate that retail real estate returns are equal to the amount of risk assumed by investors. Although institutional investors have indicated that risk has increased relative to return in the property sector over the past two quarters, ratings are similar to what they were at the beginning of 2016.

Situs RERC also finds that vacancy loss – the percentage of total revenue uncollected due to space that remains vacant over a typical holding period – is in the mid-range for the regional mall compared to other property types (see Exhibit 1), likely reflecting the wave of store closures. However, the renewal probability for the regional mall is relatively high compared to the renewal probability for other property types. The stores that are besting the competition are not merely getting by, but are thriving and will continue to need spaces in which to sell their wares.

Exhibit 1:

Tech’s Data-Center Arms Race 
About $31.5 billion, and counting. Technology companies are spending lavishly on data centers to ensure we can shop, work, and veg out on video online. Company filings show that combined, Inc., Alphabet Inc.’s Google, and Microsoft Corp. doled out $31.54 billion in capital spending and leases in 2016, reports the Wall Street Journal. Not every dollar of that is spent on data centers that deliver infrastructure as a service but each company describes the cloud as a major investment area. “Investors are willing to tolerate the hefty tab, as they often do for energy exploration, or by telecommunications companies unfolding vast networks of fiber. That’s because the potential payoff is big: a piece of the roughly $500 billion businesses spent last year on computing, storage, networking, database technology and more, according to research firm Gartner Inc.,” he writes. The massive investment creates a barrier for new entrants who can’t match the money.

read more: Wall St Journal

First Brexit – Now Fears Grow of ‘Frexit’

Investors sold French assets Tuesday, a further sign of jitters ahead of the first round of voting in the country’s hotly contested presidential elections April 23.

Shares in French banks slumped for a second day, while the premium investors demand to hold French government debt over haven German bonds rose to its highest level in more than six weeks.

Meanwhile, a gauge of how much investors are willing to pay to shield themselves against a sharp move in the euro hit levels not seen since the height of the eurozone sovereign-debt crisis.

Some analysts attributed the moves to a rise in the polls of far-left candidate Jean-Luc Mélenchon, transforming the vote into a four-way race that could reduce the likelihood of victory for a mainstream party. Investors are already nervous at the prospect of far-right, Euro-skeptic candidate Marine Le Pen clinching the presidency.

“It clearly tightens the race a bit. There is some possibility that you end up with a runoff between the far right and the far left, which I think might unsettle markets,” said John Stopford, head of multiasset income at Investec Asset Management.

Mr. Stopford said he would look to take profit on a small bet he holds against French government bonds if they weaken much further.

read more: Wall St Journal

Beware of Greeks Bearing Shopping Malls

As risky bets go, Greece ranks right up there. When you add shopping malls to the mix, only the hardiest investors need apply.

That is the wager that U.S. private-equity firm Värde Partners LP made last week when it paid €61.3 million ($65 million) for a stake in two of Greece’s biggest shopping malls.

The deal stands out because there have been few commercial real-estate transactions over the last eight years in Greece, once the epicenter of Europe’s financial crisis. Of the €255 billion ($270 billion) of commercial property traded in Europe last year, only $650 million of deals took place in Greece, mainly in the hotel sector, according to real-estate research firm Real Capital Analytics.

“There are some big question marks hanging over Greece,” said Walter Boettcher, director of research at Colliers International, a real-estate broker.

read more: Wall St Journal

Mall Madness: Lenders Tighten The Spigots on U.S. Mall Landlords

The retail malaise hasn’t stopped shopping-center landlords from getting loans — it’s just getting harder.
With an oversupply of malls, changing consumer habits and increasing competition from e-commerce, property owners frequently have to spruce up their assets to make them trendier and draw more foot traffic.​

But the process of getting the financing for this reinvestment has gotten more complicated, said analysts, lenders and landlords. Lenders now grill landlords repeatedly about tenants’ creditworthiness and exposure to competition from neighboring developments and e-commerce. On top of that, borrowers may have to pay higher interest rates than they are used to, as the perception of risk increases and the Federal Reserve boosts short-term interest rates.

“There is a sea change in attitudes over the last eight months,” said Joseph Miller, co-founder of Runyon Group, a real-estate company with offices in Los Angeles and New York. “Everyone is more cautious.”

read more: Wall St Journal

Manafort May have Received Tax Break for Trump Tower Condo

President Trump’s former campaign chairman and a key player in the FBI probe of Russian election meddling appears to be getting an illegal property tax break on his Trump Tower luxury condo, the Daily News has learned.

Paul Manafort gets $5,000 trimmed off his annual tax bill under a city condo tax abatement program that’s only available to properties that are an owner’s primary residence. Manafort claims to the city that his exclusive Fifth Ave. aerie on the 43rd floor — 23 floors below Trump’s — is his primary residence. But he also claims that his Palm Beach, Fla., condo is his primary residence to get a big tax break down there known as a homestead exemption. Both New York and Florida have the same rule — you only get the tax break if the property is your primary residence.

read more: NY Daily News

Why Marry? More Americans Choosing to Just Live Together 

More Americans 50 years and older are copying younger generations and eschewing marriage, opting instead to live with their partners, according to new research.

In 2016 about 18 million Americans were cohabiting, defined as living with an unmarried partner, and nearly a quarter of them were people over 50, an increase of 75 percent since 2007, data released on Thursday from Pew Research Centre showed.

“Baby Boomers have a higher divorce rate and there are a greater number of unmarried people in that age group” than previously, Pew research analyst Renee Stepler said in an interview Thursday.

Government figures show that so-called “grey divorce,” or splits among adults 50 and over, has about doubled since the 1990s and could partly account for the increase in cohabitation.

Fewer marriages, changing social norms and women’s greater economic independence are other explanations for the rise, Stepler added.

As cohabiting has gone up, the marriage rate in the United States has dropped, from 8.2 per 1,000 population in 2000 to 6.9 in 2014, according to figures from the Centres for Disease Control and Prevention.

Stepler also pointed to an increase in the number of older Americans who have never married. Pew found that 27 percent of people 50 years and older who are cohabiting have never married, while more than half are divorced and 13 percent are widowed.

In younger age groups, the majority of cohabiting adults have never tied the knot: 97 percent of 18-24 year olds and 85 percent of 25-34 year olds.

Although cohabitation rates are rising, cohabiting couples account for only about 7 percent of the overall U.S. population and 4 percent of over-50s.

Most older cohabiting couples were in their 50s. But nearly 30 percent of them were in their 60s, 10 percent in their 70s and 3 percent were 80 years or older.

read more: Reuters

Higher Percentage of Millennial Homeowners in China and Mexico than in U.S.

report from HSBC finds 70% of millennials in China and 46% of Mexican millennials own a home versus 35% of young adults in the U.S. Young people in China are benefiting from wage growth that is projected to outpace the rate of home price appreciation set last year.

And the U.S. doesn’t just fall behind China — France (41%) also came out ahead. In the United Arab Emirates, only 26% of millennials own a home, and Australia does only slightly better at 28%. (The average millennial U.S. homeownership rate in a separate WalletHub study rested around 40%.)

In the U.S., the Land of 10,000 Lakes should probably go by the Land of Lennies. In Minnesota, almost 50% of millennials own a home, a greater share than in any other state in the country, according to a separate report from WalletHub. Close behind were West Virginia (49%) and Iowa (48%). The District of Columbia rated the lowest on that list, with only 23.5% of millennials owning property there. Other states with more muted levels of millennial homeownership, including Hawaii, New York, Rhode Island and Oregon.

read more: HSBC

Hijacking a Bank

The new model of hacking a bank isn’t so different from the old-fashioned method of robbing one. Thieves get in, get the goods, and get out. But one enterprising group of hackers targeting a Brazilian bank seems to have taken a more comprehensive and devious approach: One weekend afternoon, they rerouted all of the bank’s online customers to perfectly reconstructed fakes of the bank’s properties, where the marks obediently handed over their account information.

Researchers at the security firm Kaspersky  described an unprecedented case of wholesale bank fraud, one that essentially hijacked a bank’s entire internet footprint. At 1 pm on October 22 of last year, the researchers say, hackers changed the Domain Name System registrations of all 36 of the bank’s online properties, commandeering the bank’s desktop and mobile website domains to take users to phishing sites. In practice, that meant the hackers could steal login credentials at sites hosted at the bank’s legitimate web addresses. Kaspersky researchers believe the hackers may have even simultaneously redirected all transactions at ATMs or point-of-sale systems to their own servers, collecting the credit card details of anyone who used their card that Saturday afternoon.

read more: Wired

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