Situs Newswatch 6/12/2017

FED Rate Hike Expected Later This Week; Still, CRE Lending Growth Remains Strong

Janet Yellen and company end their two-day FOMC meeting later this week and are expected, at 2 PM ET on Wednesday to announce a rise in rates by another quarter-point.

While the Fed’s recent series of interest rate hikes have had an adverse impact on commercial, industrial and personal loans, commercial real estate lending activity has bucked the trend and is growing at a faster rate than any other loan category.

“CRE loans are primarily refinance and purchase transactions. Both scenarios have attributed to the continued growth in CRE loans,” says Situs’ Executive Managing Director Steven Bean. “For purchase transactions, the continued interest in investing in CRE has driven significant purchase activity over the last few years. For the refinance activity, many CRE borrowers are acting now, rather than waiting for even higher rates due to promised future increases from the Fed.”

The Fed’s optimistic rate hike schedule called for three rate hikes each year from 2017 to 2019. But some economists now believe that the outlook for further rate hikes is dimming somewhat.  The markets’ odds of a “one-and-done” at the June meeting, with the Fed holding pat through the end of the year, has risen to nearly 50 percent from just 37.7 percent a month ago.

Still says Situs’ Bean, “As borrowers know, it’s a toss-up to attempt to time the market, especially since we are trending toward continued interest rate increases for the first time in years.”

Job Creation on Upswing
Gallup’s Job Creation Index was +37 in May, tied with the record high found in March. This marks 15 straight months of the index reaching +30 or higher.

The index has generally been moving upward since bottoming out at -5 in April 2009 during the Great Recession. It has been in positive territory since February 2010.

Gallup’s Job Creation Index is based on employed U.S. adults’ reports of whether their employer is hiring workers and expanding the size of its workforce, or letting people go and reducing the size of its workforce. Gallup computes the index by subtracting the percentage of those who say their employer is cutting jobs from the percentage who say their employer is adding jobs.

In May, 46 percent of employees said their company was hiring, compared with 45 percent in April. Meanwhile, the percentage who said their company was letting workers go held steady at 9 percent. Forty percent of workers said their employer was not changing the size of its workforce.

The Job Creation Index is a nearly real-time indicator of the nation’s employment picture across all industries and business sectors. Gallup’s index does not measure the type (full time or part time) or quality of the job gains or losses as reported by workers.

Offices Will Have Voices of their Own in Future
Our knowledge of technology and how it can enhance our home and working life has changed dramatically over the last few years.

In 2014, two thirds of American consumers did not know what a smart home was. Now, almost nine out of 10 consumers know what smart home technology is, according to research from Finn Partners, and three out of 10 of us want to use robots to do our chores.

With this advancement in the home, it is only natural that technology for smart offices is forging ahead, too. Companies have been working toward the concept of the frictionless office for years. The ability to talk to your computer or other devices has long been on our wish list for seamless communications.

The voice-recognition market is estimated to be over half-a-billion-dollar industry by 2019, and it shows no sign of decreasing as customers rush to buy the next voice assistant.

But this flood of voice-enabled systems is not as new as you may think. Microsoft Exchange 2007, which was released in 2006, had voice control for its unified messaging product.

Users could access their mailbox by voice, triage emails, and send notifications to calendar invitation participants. They could say say “I’ll be 10 minutes late,” speed up the reading of emails, delete, or move to the next email. Voice control worked well providing users gave clear commands in a relatively noise-free room.

Voice assistants have evolved significantly over the last 10 years, and a plethora of voice assistants, with differing response abilities, are now available.

It is not just about Amazon Alexa, though. Other vendors are joining the race for voice in the office. Martix Voice enables developers to bring voice-control apps to the Raspberry Pi.

read more: ZD Net

Questions Ahead for London Financial Pros
Financiers in the City of London woke up to the outcome they hadn’t prepared for in the U.K. election: a hung parliament.

At the beginning of the trading day, the pound fell more than 2 percent to a new low: £1.27 against the dollar and £1.13 against the euro. The currency’s volatility also triggered reactions on the equity market, with the FTSE 100 index opening up over 1 percent, while the U.K.-focused FTSE 250 shed 0.6 percent.

“With the plan for a stronger mandate shot to pieces, it makes perfect sense for market participants to target a reversal of sterling’s gains,” said Derek Halpenny, European head of global markets research at MUFG.

Speaking to the BBC’s Today program on Friday, Carolyn Fairbairn, director general of the Confederation of British Industry, said businesses “will be pretty stunned by the outcome and the main concern in the short term will be the uncertainty.”

Looking ahead to Thursday’s Bank of England monetary policy decision, Schroders’ senior European economist, Azad Zangana, said, “the BoE is unlikely to change its policy in the near-term, but it will offer reassurance that it stands ready to act in the event of financial instability.”

read more: Politico

German Real Estate Rated Expensive
German real estate is expensive for institutional investors, according to a survey by Universal-Investment.

The fourth annual survey of institutional investors found prices for new investments are considered high by respondents. Around half of respondents consider real estate prices in Germany to be high – but still marginally acceptable. A further 37% consider prices to be too high.

Investors plan to make 45% of new investments in the German market, compared with 67.5% last year.

Only a quarter of respondents view prices in Europe as unacceptable.

The survey found that institutional investors are relying more and more on indirect real estate investments for new investments, with some 87% likely in the next 12 months.

Direct real estate investment has fallen further to 13%, reflecting an ongoing trend towards indirect investment vehicles.

read more: IPE RealEstate

Blackstone Group Raises €7.8 Billion for European Property Fund
Blackstone Group, one of the world’s largest private real-estate investors, has closed a €7.8 billion ($8.9 billion) fund that will focus on European commercial real estate, the biggest of its kind ever raised.

The fund will follow an “opportunistic” strategy, meaning it will typically buy riskier properties that need fixing up or repositioning. The goal is to deliver to investors double-digit returns. The fund could have about €24 billion worth of buying power because Blackstone often uses as much as 70% leverage when buying property. Blackstone overall has $368 billion of assets under management, including $102 billion of real estate.

Blackstone has been a major player in the European property market through years of political and financial upheaval. The firm has kept buying through Brexit, the Greek debt crisis and worries about the possible collapse of the euro, partly because prices fell below what it cost to replace the properties.

“There were a lot of negative headlines,” said Jonathan Gray, Blackstone’s head of real estate. But the firm believed it was being “appropriately compensated” for taking the risks because prices reflected the distress, he said.

read more: Wall St Journal

Europe’s Banking Crisis 
Banco Popular Espanol was declared to be failing by the European Central Bank late one evening last week.

On the next morning, its branches opened for business as usual, with its 77 billion euros ($86 billion) of deposits available: no market panic, no lines of desperate clients at cash machines, no political finger-pointing.

The calm was a victory for the European Union policy makers and bureaucrats who had spent years building the machinery for euthanizing major banks without using taxpayers’ cash or setting off a domino effect in the markets. And by all accounts, the debut of the Single Resolution Board was by the numbers. Overnight, the Brussels-based authority signed up Banco Santander SA to take over Banco Popular for a euro, and ensured that functions such as deposit-taking and payment services were never interrupted.

The EU had faced mounting concern that its rules for handling bank failures wouldn’t work when the time came. Critics pointed to Italy’s campaign to prop up banks including Banca Monte dei Paschi di Siena SpA, rather than wind them down, as evidence that the political will was lacking to pull the plug on a major firm.

In some ways, Banco Popular was a good first test for the Single Resolution Board, led by Elke Koenig, a former head of Germany’s bank supervisor BaFin. The scale of its problems meant that more radical tools, such as imposing losses on senior creditors, didn’t have to be deployed. Instead, shareholders were wiped out, along with holders of the bank’s riskiest debt.

“This shows that banks can be resolved without generating systemic effects,” said Isabel Schnabel, a professor of financial economics at the University of Bonn and one of German Chancellor Angela Merkel’s economic advisers. “This is good news for the credibility of the new resolution regime.”

read more: Bloomberg

ECB Hints at Exit from Stimulus Program
The European Central Bank ruled out further interest-rate cuts in a sign that it’s moving closer to an exit from its stimulus program.

The Governing Council dropped its guidance that rates might fall further, saying only that it now expects borrowing costs to stay at present levels for an extended period. But policy makers reiterated their pledge to increase the size or duration of their bond-buying program if the economy deteriorates.

read more: Bloomberg

Swedish Real Estate Gains
Home prices in Sweden have increased sharply since the 2008 global financial crisis, driven by the combination of a strong economy, low mortgage rates, a chronic housing shortage and rapid population growth, specifically an influx of refugees and others moving to urban centers for jobs and schools. But even during the recession Sweden’s real estate market didn’t suffer much, thanks to the shortage of housing and the swift countermeasures taken by the government and central bank, said Olof Manner, head of research for Swedbank, a financial services group based in Stockholm.

Prices are now about 50 percent higher than they were in 2008, he said. “I don’t think we have a bubble,” he said of the market. “But it’s very richly priced.”

Recently, however, the price increases have been slowing,  Manner said. In 2015, prices rose 15 percent over the previous year; in 2016, that number fell to 10 percent. Home prices are now 7 percent higher than they were at this time last year, he said.

He attributed this to several factors: Banks have become stricter about mortgage applicants’ debt-to-income ratios; the government recently changed its mortgage amortization rules to require faster repayment schedules on new loans; fixed mortgage rates have risen slightly; and the novelty of the low rates has worn off.

A continuing challenge, he added, is that there aren’t enough new homes being built to meet demand, and the ones that are built don’t suit the refugee population’s need for small, affordable units.

read more: NY Times

In Europe, It’s All About Building Vaults
From safety-deposit boxes in leafy west London to high-security facilities housing gold and silver in Frankfurt, companies that store valuables are expanding to meet demand.

A rush into haven assets that began during the financial crisis is getting a new lease on life from an upsurge in populist politics and a quickening of inflation. Two firms say they’re planning to open vaults in Europe capable of holding more than 100 million euros ($112 million) in gold, offering customers lower costs than exchange-traded products and protection from rising prices.

“Inflation is a key concern for many of our clients,” said Ross Norman, chief executive officer of bullion dealer Sharps Pixley Ltd., which operates a gold vault within walking distance of Buckingham Palace. “A safe-haven asset isn’t just about what you buy — it’s also about where you keep it.”

Political surprises like Britain’s decision to leave the European Union and the election of Donald Trump as U.S. president have shaken investors over the past year. At the same time, negative interest rates have persisted across much of Europe and inflation has shown signs of life, threatening to wipe out the fixed coupon payments offered by bonds and increasing the allure of storing wealth in a dark room with walls of tempered steel.

“I was just dealing with a customer here in Germany who got charged negative interest rates on his bank account,” Daniel Marburger, the CEO of, said by email from Frankfurt. The client decided to buy gold and silver with some of his cash. “That is definitely a driving factor and will lead to more sales and also more storage clients.”

CoinInvest, a European gold dealer, is in negotiations over the construction of a 100 square-meter (1,076 square-foot) vault that would hold more than 100 million euros of the precious metal. The safe will weigh 82 metric tons, with the door alone tipping the scales at 1.5 tons.

read more: Bloomberg

Weed Startups Will Make Warehouse Values Smokin’ Hot
Industrial rents in already-pricey cities like Los Angeles and Boston are poised to rise further thanks to one burgeoning industry: cannabis.

Marijuana startups are snapping up space in those cities as part of a wave of legalization that was set in motion by ballot-box victories last November, when eight states voted to permit cannabis in some form. California and Massachusetts will begin allowing residents to purchase recreational pot — not just medicinal marijuana — making the states especially attractive to entrepreneurs.

Legal weed already has a track record of driving up rents. The going rate for industrial real estate in Denver, Seattle, and Portland, Oregon — places that previously relaxed cannabis laws — have grown faster than in cities where the substance is still banned, according to new research from CoStar Group Inc. The firm, which tracks data on commercial properties, expects the trend to continue in cities in California, Maine, Massachusetts and Nevada, all of which are now legalizing recreational marijuana.

Denver rents rose 33 percent from the first quarter of 2014 through May 2017. Industrial rents in Seattle and Portland each rose 27 percent in the same period. That compares with 19 percent gains in the other 54 largest U.S. markets.

Cannabis is the first industry in a long time to have such a clear impact, said Rene Circ, CoStar’s director of industrial research. In some urban areas, it’s been more pronounced than the effect of e-commerce, he said.

read more: Bloomberg

Have a prosperous week ahead!

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