SITUS SPECIAL REPORT: CRE & THE ROBOTIC REVOLUTION
Your Business Needs to Adapt or be Taken Over by the Robots
98% chance of automation
Median annual salary: $40,543
Traditionally, a loan officer decided which businesses and individuals would qualify for funding. If you were lucky, perhaps you got someone who was able to bend and show a little compassion as you were trying to secure a mortgage to get your first house. But as some lending companies go the route of automation and don’t employ any loan officers, your fate will most likely be in the hands of a computer with a complex algorithm that decides your future.
Situs Chief Technical Officer James Watson says, “This is clearly a warning sign — change your business model now. Artificial Intelligence is definitely moving out of the ‘hype’ stage and will transform the financial industry in the same way robotics did in manufacturing. We are seeing real examples of companies saving millions of dollars by automating back office tasks, including data extraction and data entry. Situs is actively evaluating several components of AI technology to streamline processes and improve quality, driving improved value for our clients.”
The U.S. has lost between 360,000 and 670,000 jobs to robots since 1990, according to research published by economists Daron Acemoglu and Pascual Restrepo. Axios’ Chris Matthews reads between the lines:
“A growing problem: The pace of displacement is set to accelerate from here. Acemoglu and Restrepo say that if automation proceeds at predicted rates, millions of jobs could be lost while wage growth is reduced by up to 2.6% between 2015 and 2025.”
Compounding inequality: The rise of automation has occurred at a time when more income is going toward ownership relative to labor than at any time since economists began widely collecting such data. If automation is partially to blame for this shift, the increasing use of robots will only worsen the problem.
This comes the same day as Maureen Dowd’s article in Vanity Fair:
Elon Musk’s Billion-Dollar Crusade to Stop the A.I. Apocalypse:
“Musk is famous for his futuristic gambles, but Silicon Valley’s latest rush to embrace artificial intelligence scares him. … Inside his efforts to influence the rapidly advancing field and its proponents, and to save humanity from machine-learning overlords”:
Musk [says] “this … one reason we needed to colonize Mars [is] so that we’ll have a bolt-hole if A.I. goes rogue and turns on humanity.”
You’ve been warned!
Banks Using Robots to Cut Costs
Big banks have cut more than $40 billion of costs since the financial crisis.
They aren’t done.
While prospects for revenue growth at banks have brightened since the election, a handful of the biggest firms are considering ways to slash still more from their back-office budgets. One effort, dubbed “Project Scalpel,” is aimed at cutting the administrative and operational costs involved with processing stock and bond transactions after a trade is struck, according to people familiar with the discussions.
Talks around this effort are at an early stage but so far have included a number of banks, such as Goldman Sachs Group Inc., Morgan Stanley and Bank of America Corp., the people said. If the idea materializes, it could create a joint venture that allows banks to share trade processes and technology.
The hope is this would be widely used by the industry and eventually trim at least $2 billion from the banks’ annual spending, the people said. In the past, banks viewed their ability to efficiently process trades, and handle transfers of ownership and associated activities like dividend and interest payments, as a competitive advantage.
read more: Wall Street Journal
Score Another One for the Robots
The largest fund company in the world, BlackRock, has faced a thorny challenge since it acquired the exchange-traded-fund business from Barclays in 2009.
These low cost, computer-driven funds have exploded in growth, leaving in the dust the stock pickers who had spurred an earlier expansion for the firm. The rise of passive investing — exchange-traded funds, index funds and the like — has revolutionized the investment world, providing Main Street investors with greater opportunities at lower fees while putting pressure on even Wall Street’s biggest money managers.
Now, after years of deliberations, Laurence D. Fink, a founder and chief executive of BlackRock, has cast his lot with the machines. BlackRock laid out an ambitious plan to consolidate a large number of actively managed mutual funds with peers that rely more on algorithms and models to pick stocks.
The initiative is the most explicit action by a major fund management firm in reaction to the exodus of investors from actively managed stock funds to cheaper funds that track every variety of index and investment theme.
Some $30 billion in assets (about 11 percent of active equity funds) will be targeted, with $6 billion rebranded BlackRock Advantage funds. These funds focus on quantitative and other strategies that adopt a more rules-based approach to investing.
“The democratization of information has made it much harder for active management,” Mr. Fink said in an interview. “We have to change the ecosystem — that means relying more on big data, artificial intelligence, factors and models within quant and traditional investment strategies.”
As part of the restructuring, seven of BlackRock’s 53 stock pickers are expected to step down from their funds. Several of the money managers will stay on as advisers. At least 36 employees connected to the funds are leaving the firm.
While BlackRock is proceeding gradually, in many ways the new plan is a direct attack on the cult of the brainy mutual fund manager, popularized in the 1980s and 1990s by Peter Lynch, a stock-picking wizard at the fund giant Fidelity.
Today, asset managers like Pimco, Franklin Templeton, Aberdeen and, of course, Fidelity continue to make the case that their bond and equity managers can outsmart the broader market — and charge a premium price for doing so.
Since 2009, however, as the performance of these funds has suffered, millions of investors have rejected this proposition, abandoning their expensive mutual funds for better-performing funds that track various indexes at a fraction of the cost.
Now the biggest fund companies are Vanguard, the indexing pioneer, and BlackRock, which together oversee close to $10 trillion in assets.
BlackRock, with its fleet of iShares E.T.F.s, has certainly benefited from the investor revolution — one that threatens to disrupt the mutual fund industry in the years ahead.
read more: NY Times
“Robotic Shop” on Hold for Now
Amazon.com is facing a setback in its efforts to modernize brick-and-mortar retail as technical glitches delay the opening of its first cashier-less convenience store.
Amazon Go was due to open to the public by the end of this month, after launching in beta mode to employees in December, according to people familiar with the matter. It is unclear when it will now open, as the company works out kinks in the technology to automatically charge customers when they leave, instead of using cash registers, checkouts and lines.
Brick-and-mortar stores are important to Amazon’s plan to capture more food sales, opening the door to a crucial driver of consumer spending and broadening the online retailer’s influence. However, the delay with Amazon Go highlights new challenges the retail giant faces due to its limited experience in anticipating and managing the flow of customers and products in a physical space.
The Amazon Go store in the company’s hometown of Seattle uses cameras, sensors and algorithms to watch customers and track what they pick up, according to the people familiar with the matter. But Amazon has run into problems tracking more than about 20 people in the store at one time, as well as the difficulty of keeping tabs on an item if it has been moved from its specific spot on the shelf, according to the people.
For now, the technology generally functions flawlessly only if there are fewer than about 20 customers present, or when their movements are slow, the people familiar with the matter said. After it opens, the store will still need employees for the near future to help ensure the technology is accurately tracking purchases.
read more: Wall Street Journal
Hungry? Call Your Neighborhood Delivery Robot
If you’re walking on a Washington, D.C. sidewalk and see a 2-foot-tall robot rolling beside you, don’t be alarmed. It’s just a new member of the on-demand delivery workforce in Washington.
The little bots have officially debuted in the District, courtesy Starship Technologies, which have deployed its first fleet in a partnership with San Francisco-based Postmates. New D.C. legislation made the nation’s capital an option and the partnership’s first pilot market.
The semi-autonomous machines are delivering meals, groceries and other goodies for Postmates, which also makes deliveries via foot, car, bike or scooter. For now, a human is accompanying the robots on all trips — those that cover short distances or involve cheap items that otherwise wouldn’t make sense to order because of a delivery fee.
read more: Washington Business Journal
Australia Battles Housing Bubble
In their struggle to cool red-hot property prices in Australia’s big cities, authorities are ratcheting up measures that could dent the whole market but avoiding more targeted steps that have had some success in New Zealand and China.
Australian regulators first focused on reining in investment loans nationally in 2015, by imposing an annual limit of 10 percent on how much banks could expand their investor loan book.
Those steps worked for a while, but the heat is on again in Sydney, where prices are rising almost 20 percent a year, having more than doubled since 2008, and Melbourne, where the pace is over 15 percent, according to property consultant Core Logic.
That and all-time high household debt prompted the Australian Prudential Regulatory Authority (APRA) to move again on Friday, asking banks to limit new interest-only loans to 30 percent of total new mortgage lending, from 40 percent now, and promising a lot of “monitoring”, “scrutinising” and “observing”.
Industry players doubt that will do the trick.
“I personally don’t think this will have a material impact,” said Simon Orbell, director at Sydney-based mortgage broker Smartmove, as prices kept rising even though it was already a tough lending market.
“Maybe more needs to be done,” he added.
Behind-the-scenes pressure has already led the major banks to raise rates on investment loans, particularly for interest-only products favored by speculators, according to sources with knowledge of the situation.
read more: Reuters
If you missed it last week, click here to learn more about Situs RERC and Urban Property Australia’s inaugural issue of Australian Real Estate Trends.
Canada’s Hudson Bay Company Soars on Real Estate
Hudson’s Bay Co. had its biggest gain in 16 months after the owner of Saks Fifth Avenue signaled it may take its real estate assets public, unlocking value for the Canadian retailer as same-store sales decline.
In a call with analysts Wednesday, Chairman Richard Baker showed a new sense of urgency when asked about his real-estate plans as U.S. interest rates rise. An initial public offering of a real estate investment trust has been a goal since Hudson’s Bay teamed up with REITS in the U.S. and Canada to create joint-ventures two years ago. At the time, Baker said he wanted to “fatten up the portfolio” first.
“We have a tremendously valuable portfolio of realestate, which could be monetized in a variety of ways,” Baker said on a call discussing quarterly results. “What we should have done and what we should be doing as quick as possible is IPO-ing our U.S. real-estate portfolio and/or IPO-ing our Canadian real-estate portfolio.”
Hudson’s Bay rose 8.3 percent to C$10.50 at 1:20 p.m. in Toronto, the biggest intra-day increase since November 2015. The stock earlier rose as much as 11 percent.
U.S. Mortgage Loan Size Hits Record High
The average size of mortgage loans for purchase applications has reached a new high of $318,200.
This, as the Mortgage Bankers Association reports mortgage applications decreased 1.6% last week from one week earlier. And broken up, the Refinance Index decreased 4% from the previous week, while the seasonally adjusted Purchase Index increased 1% from one week earlier.
Mortgage rates are higher than they were before the election, but they really haven’t moved much in the past few weeks.
read more: Housing Wire
Jamie Dimon Calls for Sensible Banking Regulations
JPMorgan Chase Chief Executive Jamie Dimon called for more flexible banking regulations — like having financial institutions be required to hold smaller capital cushions.
In his annual letter to shareholders — one that was more focused on public policy than his bank — Dimon seemed to reach all the way to Washington in an attempt to effect change in a very pro-business administration.
Dimon, 61, said easing off on some regulation would spur lending.
Over 45 pages, Dimon said the banking sector could survive more sensible regulation because it is “safer and stronger today” — because of many of the provisions in the Dodd-Frank financial laws, including higher capital requirements.
“We are not looking to throw out the entirety of Dodd-Frank or other rules,” he wrote, adding that he wants to “open up the rulebook in the light of day” to scrap some rules.
Dimon said that while US was still the greatest country in the world, there is “something wrong” within its borders.
“Our problems are significant, and they are not the singular purview of either political party,” the executive wrote. “We need coherent, consistent, comprehensive and coordinated policies that help fix these problems.”
read more: NY Post
Parking Problems — There’s an App for That
Real estate developers and the municipal codes they’re operating under can’t seem to nail the parking-space formula — putting the right number in the right places — at multifamily housing and commercial projects in cities and suburbs.
And because there’s been flawed policy in place for decades, at least according to some urban-planning groups, there’s actually an ample inventory of parking in most high-density, or otherwise highly traveled, areas. Those spaces just need smarter use.
That solution may lie in part with parking matchmaker apps that, by closing the gap between supply and demand, generate supplemental income for listers, convenience and cost-effectiveness for drivers, and improved neighborhood liveability. The apps aren’t new, nor are they exclusive to the U.S. (U.K.-based Just Park operates there and elsewhere), but their acceptance is broadening, with help from big thinkers on planning.
“One-size-fits-all parking standards from transportation engineers and municipal ordinances apply the same guidelines whether the development sits two blocks from transit or covers the needs of two to three cars in a far-flung suburb,” said Linda Young, a managing director focused on urban analytics at the Center for Neighborhood Technology. The Chicago-based nonprofit has studied the parking patterns of the Chicago; Seattle; Washington, D.C.; and San Francisco metro areas in particular.
In Chicago, for example, rental buildings oversupply 0.27 parking spaces for every unit.
Urban-planning organizations, which previously may have been willing to wait, or had little choice but to wait, for building-code policy to catch up to trends see the “sharing economy” helping to alleviate the problem sooner, especially when used as part of a broader plan that includes mass-transit subsidies, car-share programs and bicycle-friendly design.
Parking-rental apps, much like an Airbnb for parking, are helping, including the app from Chicago-based ParqEx. These apps differ from apps that inform drivers of their proximity to available parking garages and lots, such as ParkWhiz and SpotHero. Even Google Maps now lets users know if parking will be easy or limited at their destination.
read more: MarketWatch
Luxe in Flux: New York City’s Most Expensive Townhouse Just Sold
An Upper East Side mansion has just sold for a record setting $79.5 million, according to city property records. The 41-foot-wide limestone townhouse at 19 East 64th Street served as the Wildenstein family art gallery for more than 85 years. The mystery buyer is a Chinese hedge fund, sources say. The seller is David Wildenstein, heir to a controversial fortune that included money earned by dealing in art that Nazis stole from Jews. His father is Guy Wildenstein, who was cleared earlier this year of money laundering to avoid inheritance taxes in France – even though the judge, Olivier Geron, said that Wildenstein and his family had shown a “clear intention’ to conceal their wealth.”
read more: New York Post
Have a prosperous day ahead and a great weekend. To our Jewish readers we wish a happy, joyous and safe Passover.
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