|Freeing Fannie & Freddie Will Have Consequences
Paulson & Company and Blackstone Group are among investors backing a proposal that Fannie Mae and Freddie Mac be recapitalized and released from U.S. control without legislation.
Bloomberg reports taxpayers would receive as much as $100 billion, according to the plan, which could also deliver a windfall for shareholders. This would be accomplished by allowing administration officials to use their statutory power to create single purpose insurers with a narrow mission and free the GSEs of their once-highly leveraged investment portfolios. The Mortgage Bankers Association, however, warns it would serve shareholders rather than taxpayers
“On the commercial side, both Freddie and Fannie are managing their portfolios quite well, says Dan Meyer, Vice President Business Development for Situs. “Freddie Mac’s new credit risk transfer vehicle allows them to free up their balance sheet during which time they would otherwise have been warehousing loans, while also providing yield to their investors. This is reducing the GSE’s balance sheets and their risk, while also providing the yield that they need.”
Paulson, Blackstone and other investors are the latest voices in the renewed debate over the fates of Fannie and Freddie, which have remained critical backstops for the U.S. mortgage market while under government control.
Treasury Secretary Steven Mnuchin has said dealing with the companies will be a Trump administration focus in the second half of this year. Both John Paulson and Blackstone Chief Executive Officer Stephen Schwarzman have acted as economic advisers to President Donald Trump.
Situs Executive Managing Director Warren Friend worries privatizing the GSEs may not be the best solution for commercial interests: “Freddie’s multifamily side is a phenomenal model for a public-private partnership to create affordable housing.”
The plan favored by Paulson and Blackstone envisions building between $155 billion and $180 billion in capital by allowing Fannie and Freddie to retain earnings, letting current shareholders contribute new money and raising more through the capital markets. It would also have the government substantially reduce the remaining balance of its outstanding preferred shares.
Freddie’s Latest Multifamily Deal
Since the K-Deal was first introduced, the pace of issuances has increased from two deals per year in 2009 to an average of four deals per month in 2016, according to Freddie. Although it took nearly four years for Freddie Mac Multifamily to surpass the $50 billion milestone in 2013, the program reached $100 billion two years later, in April 2015. Program growth topped $150 billion in May 2016, one year later, and $200 billion this year.
“The significant growth and evolution in our K-Deals have led to fundamental changes in multifamily housing finance,” said David Brickman, Freddie Mac Multifamily executive vice president. “Today, investor demand is stronger than ever, our credit losses are virtually zero, and we continue to roll out new and innovative ways to transfer credit risk. In short, the K-Deal has allowed us to expand the amount of private capital flowing to multifamily apartment properties nationwide, keep rents affordable and minimize taxpayer exposure to risk.”
To date, Freddie Mac Multifamily has issued more than 200 K- and SB-Deals. K-Deals transfer credit risk on five-, seven-, and 10-year term conventional multifamily loans; floating-rate loans; single borrower loans; legacy portfolio loans; and seniors, student, military and targeted affordable-housing loans. Launched in 2015, SB-Deals are backed by small balance loans of up to $6 million, and finance properties with as few as five units.
read more here: MarketWired
Housing Market Soaring: ‘Blame’ Millennials
We’re always blaming millennials for something. Well, here’s something good, for a change to blame them for. Millennials are the largest group of homebuyers (34 percent) for the fourth consecutive year, according to NAR’s 2017 Home Buyer and Seller Generational Trends study.
“Aspirationally, millennials are no different than other generations when it comes to their desire to own a home — they are just doing it later in life,” says the Collingwood Group Chairman Tim Rood.” Only a third of the roughly 87 million millennials are of prime homebuying age 28-34. Over the next 10 years this cohort will create 20-25 million new households and roughly 60 percent will eventually own a home. That’s a tsunami-size wave of stored demand that will be released just as baby boomers are no longer able or willing to age in place.”
Research by the National Association of Homebuilders finds more than 90 percent of millennials say they eventually want to buy a house.
A majority of millennials polled by the Collingwood Group say they would give up going to Starbucks and paying for things like cable television in order to come up with a down payment to buy a home.
Millennials want big homes: 2,375 square feet on average, according to the latest NAHB tracking survey. Nearly half (48 percent) of the millennials surveyed said they wanted four bedrooms or more. Only 20 percent of boomers and seniors want that many bedrooms. Millennials also want outdoor spaces — a deck, a patio and a front porch — exterior lighting, a shower and tub in the master bath and hardwood floors on the main floor.
Where are they buying? Realtor.com analyzed search data from August 2016 to February 2017 and found that the top 10 cities were: (1) Salt Lake City, (2) Miami, (3) Orlando, (4) Seattle, (5) Houston, (6) Los Angeles, (7) Buffalo, New York, (8) Albany, New York, (9) San Francisco, and (10) San Jose.
Nordstrom Family Putting Money Behind Retail
The company said member of the Nordstrom family, including Co-Presidents Blake Nordstrom, Peter Nordstrom and Erik Nordstrom; Chairman Emeritus Bruce Nordstrom; President of Stores James Nordstrom and Anne Gittinger, have formed a group to explore the possibility of acquiring 100 percent of the shares outstanding.
Bruce Nordstrom owned 15 percent of the shares outstanding as of March 17, according to FactSet, and Gittinger owned 9.2 percent of the outstanding shares. The stock had tumbled 15.5 percent year to date through Wednesday, while the SPDR S&P Retail ETF XRT had lost 8.0 percent and the S&P 500 SPX had gained 8.7 percent.
read more: MarketWatch
Sears is Losing. You’ll Never Believe Who Has the Most to Gain
Yes, Amazon.com appears to be the big winner in retailing, but that’s a result of the shift to the internet from brick-and-mortar stores, not Sears’ own problems. Cowen’s Oliver Chen and team dig into Sears’ woes and come away with a surprise winner: JC Penney.
They explain why:
“Dislocation from closures at Sears and K-Mart will create significant opportunities for competitors to capture billions in lost share. In our view, the off-price channel and to a lesser extent JC Penney are in best position to capture share and sales given (1) similar average household income and average age dynamics based on our proprietary study; (2) growing overlap between Sears and K-Mart shoppers with off-price retailers – over past two years, Sears customers shopping at Home Goods increased by 10.9pp and Marshalls by 8.3pp based on Cowen’s study; (3) JCP has been aggressively expanding its home department by adding appliance show rooms and is conducting home service tests – JCP previously noted their best performing stores are ones located in malls shared with Sears and (4) off-price retailers have significant room for expansion over the medium term with potential growth of 50% to 70%, including both existing banners and new banners, while we anticipate continued closures and disruptions in the department store channel with most significant closures at mall-based Macy’s (M) and JCP. We also believe ‘Super Value’ stocks such as outperform-rated Costco Wholesale (COST) & Wal-Mart Stores (WMT) may benefit from share gains, given existing traffic momentum and attractive low prices and merchandise margin structures.”
read more: Barron’s
Hollywood Comes to Believe it or Not: the Bronx
York Studios is breaking ground on a $100 million movie studio on a 10-acre vacant lot off the Bruckner Expressway in Soundview. The production complex is about 2 miles from Silvercup Studios’ new $40 million facility in the Port Morris neighborhood, which opened in August.
The new production center will be the second for York Studios, which opened a 40,000-square-foot space in Maspeth, Queens, in 2012. The hit show Elementary and a number of feature films, including The Amazing Spider-Man 2 and This Is Where I Leave You, were shot there.
Executives for the studio said they decided to expand because of the production boom taking place in the city, stemming in large part from the $420 million annual tax-incentive program that was just renewed through 2022.
“I get calls every other day from producers looking for stage space for feature films, television and commercials,” said John Battista, executive vice president of operations for York Studios. “There are so many more platforms out there, like Netflix and Amazon, and everyone is looking for more and more content.”
Indeed, Queens MediaWorks, whose principals include veteran reality-television execs and international soccer star David Villa, plans to open a 150,000-square-foot production studio for unscripted and nonfiction TV programs in Queens.
York specifically looked for space in the Bronx because of its easy access to Midtown, Westchester and Queens, Battista said. The borough also offers an abundance of options for location shoots, many of which have yet to be seen on film.
“Most productions spend half a day on the stage, then pop out for exterior shots,” Battista said. “The Bronx has great iconic locations and is diverse in its architectural structures and people.”
The first phase of construction will yield a 170,000-square-foot facility housing five sound-stages and support space at a cost of $45 million. Three of the stages will be 15,000 square feet, and two will be 18,000 square feet. They are expected to be up and running by October 2018. The next phase will create three larger stages.
When completed, the development, which was designed by Gerald Caliendo Architects, will have nearly 350,000 square feet of production space.
“[The campus] is unique as it marks the first ground-up construction of a state-of-the-art television and film production facility in the Bronx,” said John Kalafatis, chief executive of York Studios and the owner of Skyline Restoration Inc., a company that restores building facades.
The studio is projected to generate nearly $100 million in new tax revenue for the Bronx, employ more than 400 industry professionals and create hundreds of construction jobs. The city has already approved $33 million in tax benefits for the site over the next quarter century.
Last year a record 52 prime-time episodic television series were filmed in the five boroughs, a 13% increase from 2015. The city was also home to 336 feature-film projects, an almost 40% increase, according to the Mayor’s Office of Media and Entertainment.
read more: Crain’s NY
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