Situs Newswatch 7/17/2017

How CRE & Retail Can Learn A Great Deal from Barber Shops …

While many in the retail industry are taking a “haircut,” barber shops are not getting “clipped” but are adapting and becoming a “cut” above much of retail.

Retailers are shuttering stores in record numbers, but a cultural resurgence of men’s grooming, estimated to reach $26 billion by 2020, has barbers, brokers and landlords lining up to get their cut.

“Landlords love barber shops and shave shops because they see the industry as exempt from competition from e-commerce, a necessity service that provides a customer experience,” says Situs Executive Managing Director Steven Bean. “There is obviously no way to get a haircut online yet.”

Bean jokes, “Even if somebody were to invent a cyborg to give power shaves, people would still have to show up at the barber shop. It’s all part of the experience.”

Surprisingly, according to the Bureau of Labor Statistics (BLS), barbering is on track to be one of the fastest-growing profession in the U.S. With added amenities and higher price points, luxury barber shops can even match the rents of a high-end salon.

“What landlord wouldn’t appreciate a barber shop bringing ‘clean-cut’ clientele into their shopping areas to spend money on other things,” asks Situs’ Bean.

… Speaking of Haircuts and Making Money
As a young man, Warren Buffett estimated he could save $300,000 over his lifetime by adjusting his haircut schedule.

Americans looking for ways to buy homes or contribute to retirement funds can similarly look to their daily purchases — such as their morning cup of coffee — for potential savings, according to a Vanguard Blog for Advisors post by Frank Kinniry.

“By pocketing the $3.50 for coffee each day and investing it instead in a low-cost, diversified Roth IRA, you’d have an estimated $106,000 after 30 years,” writes Kinniry. “I don’t think anyone would pay $106,000 for coffee!”

This type of incremental savings plan is also endorsed by David Bach, author of “Smart Couples Finish Rich.”

“Becoming rich is nothing more than a matter of committing and sticking to a systematic savings and investment plan,” he writes. “You don’t need to have money to make money. You just need to make the right decisions — and act on them.”

read more: Business Insider

Americans Hoarding Money in Banks, So, Why Aren’t More People Buying Homes?

Cash is king again.

Enjoying a steady job market but reluctant to spend freely due to economic uncertainty, a wide swath of middle-class Americans are hoarding money in banks.

Total bank deposits rose 6.6% last year to $10.7 trillion, extending steady growth seen in recent years, data from the Federal Deposit Insurance Corp. show.

Deposits measured as a percentage of bank assets are 77.6% in the first quarter of 2017, the highest since 2006, according to data economic research firm Moebs Services.

“The mortgages and housing industries are missing out big time as Americans hoard cash in banks, and we only have ourselves to blame,” says The Collingwood Group Chairman Tim Rood. “Due to a lack of supply of starter homes and competition from cash buyers, first-time buyers and millennials can’t get into the market at reasonable prices. The industry and lawmakers must work together to fix this. It will not only help millennials participate in the American Dream and related wealth creations — it will help the mortgage and housing industries and give the general economy a much-needed boost.”

Home-Price Rebound Helps Banks Dodge Loan Mess
Rising home prices have turned the great home-equity-line reset into a small setback rather than a disaster for the banking industry.

Banks let home-equity lines of credit, or Helocs, flow freely in the run-up to the financial crisis, often to borrowers with bad credit or living in overvalued homes. Typically, the borrowers were allowed to pay back only the interest for 10 years. In recent years, banks worried those borrowers wouldn’t be able to keep up when the lines reset, which can raise monthly payments by hundreds of dollars.

Now, more than halfway through the problem resets, banks are more optimistic. Borrowers with Helocs taken out in early 2007 are falling behind at lower rates than the Helocs that reset over the past three years, according to data provided to The Wall Street Journal by credit-reporting firm Equifax.

About 3.8% of borrowers who signed up for Helocs in early 2007 were a month or more late on their payments four months after the lines reset, according to Equifax. That delinquency rate had been above 4% for each of the past three years, moving as high as 4.43% for loans made in 2004.

What’s changed: The economy and jobs picture have improved and the housing market has recovered enough in recent years to give borrowers more flexibility. Specifically, it has become less common for mortgage borrowers to owe more than their house is worth, a condition known as being “underwater” that makes it harder for Heloc borrowers to handle a reset.

In the first quarter, 9.7% of U.S. properties with a mortgage were seriously underwater, according to research firm Attom Data Solutions. In early 2014, that proportion was 17.5%. The firm defines seriously underwater as loans where the borrower owes at least 25% more than what the home is worth.

read more: Wall St Journal

Citi, Wells Fargo Report Stronger-Than-Expected Earnings
Citigroup and Wells Fargo joined J.P. Morgan Chase in reporting stronger-than-expected second-quarter profits.

Citigroup reported a surprising increase in revenue as its trading desk saw a smaller-than-anticipated drop-off in activity. Profit still fell 3% from a year ago but beat analyst expectations.

Wells Fargo’s profit rose as the nation’s third-largest bank tries to regain its footing and grow again nearly a year after its sales-practices scandal.

read more: Wall St Journal

Uncertainty About Retailers Affecting Mall Transaction Activity
Growing concern about the long-term prospects for in-store retail is creating a slowdown in the sale of shopping centers.

Retail property sales in the second quarter of 2017 fell 45.9 percent year-over-year, and first-half sales are 26 percent below 2016, according to preliminary data from Real Capital Analytics. Only $10.3 billion of retail asset sales were completed in the second quarter — the lowest quarterly total since the first quarter of 2013. Year-to-date through June, $28.7 billion of retail properties have changed hands, down from $47.4 billion in 2016 and $55.2 billion in 2015, according to RCA. Sales declined in several segments of retail, led by lifestyle/power centers, single-tenant and drug stores.

Transaction volume for all of commercial real estate is down this year, falling by about 20 percent to $177 billion in the first half of 2017, compared to $221 billion in the first half of 2016. Even so, in the second quarter of 2017, shopping center deal flow fell at a rate greater than any other major asset class, fueled by concerns about the changing face of retail and whether individual tenants will be able to withstand the impact of e-commerce. More than 5,000 store closings have been announced year-to-date, putting the industry on pace to easily surpass the record set during the 2008 recession, when more than 6,000 stores closed.

That retail is changing isn’t a novel concept, but attention on the issue has crystallized to a large degree over the last year, fueled by the spate of closings and discussions about technological trends. John Sarokhan, an executive director and head of retail asset management for the U.S. core equity real estate fund of PGIM Real Estate (formerly Prudential Real Estate Investors), said that the drumbeat of media focusing on retail store closings over the last six to nine months has left market players uncertain over the fundamentals of the sector.

“There is no lack of capital for real estate … (and) there is capital willing to take the risk, but being able to price the risk is hard,” said Sarokhan, speaking at a recent seminar on retail sponsored by the CRE Finance Council. “There is a big gap between buyers and sellers.”

Jim Costello, senior vice president at RCA, noted that property owners have little incentive to sell at a price that discounts the value of current income, unless they need access to cash or are facing a liquidity event, especially given the dearth of replacement properties available.

“The pricing issue is key. It’s hard to price today because buyers and sellers are not sure where the market is headed,” he said.

read more: CP Executive

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Analysts Recommend Retail … What Happened?
Wal-Mart – The retailer’s stock was upgraded to “buy” from “neutral” at Goldman Sachs, which also added Wal-Mart to its “Conviction Buy” list. Goldman said the company was well-positioned to succeed in the evolving world of mass market retail and to weather competition from

Gap – JPMorgan Chase added the clothing retailer’s stock to its “Focus List,” following a meeting with company management. The firm said Gap’s free cash flow, dividend yield, and current valuation is “too hard to ignore” despite a challenging retail environment.

read more: CNBC

CRE Construction Soars
The Dodge Momentum Index took another step forward in June, increasing 1.1% to 141.1 (2000=100) from its revised May reading of 139.6.

The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. June’s lift was due to a 4.8% advance by the institutional component of the Momentum Index, while the commercial component fell 1.3%.

The Momentum Index has exhibited substantial strength since mid-2016, with the institutional and commercial components trading off as the driver of growth almost on a month-to-month basis. Although the commercial component of the Momentum Index declined in the latest month it is 11.8% higher than it was in June 2016, while the institutional component is 9.5% above a year ago. The overall rising trend for both sectors continues to suggest that construction activity will remain healthy through the end of the year.
emphasis added

According to Dodge, this index leads “construction spending for nonresidential buildings by a full year.” This suggests further increases in CRE spending over the next year.

read more: Calculated Risk

China’s $800 Billion Sovereign Wealth Fund Seeks More U.S. Access
China’s sovereign wealth fund is looking at big bets in America. But the $800 billion investment behemoth said it faced an obstacle: the United States government.

The fund, the China Investment Corporation, urged American authorities to allow better access to the market, at a time when Chinese deals are facing more scrutiny.

“We hope that the U.S. government will provide us with a more liberal, equal and nondiscriminatory investment environment,” said Liu Fangyu, the fund’s managing director and head of public relations and international cooperation.

In some ways, the fund’s interests are aligned with those of the United States.

The Chinese investor is particularly focused on infrastructure, an area where the Trump administration has been pushing for private players to invest more money. And sovereign wealth funds are a good source of financing for such major, long-term deals.

But the flood of Chinese money flowing into the United States has prompted concerns about the Chinese government’s influence.

Some White House officials and lawmakers want to expand the power of the Committee on Foreign Investment in the United States, a multiagency government panel that can effectively quash deals for national security reasons. While high-tech investments in areas like defense and the military are particularly delicate, even entertainment and real estate deals are causing concern.

read more: NY Times

Apartment Vacancy Rates Remain in Low Single Digits in Gateway Markets
Vacancy rates for rental apartments remain low in the top six U.S. markets, despite an influx of new development.

“All of these markets continue to register very favorable supply/demand dynamics,” says Greg Willett, chief economist with RealPage, parent company to MPF Research.

The strongest four markets in the country — New York, San Francisco, Los Angeles and Boston — seem almost impervious to shifts in new supply. Vacancy rates are still very low overall, though certain neighborhoods arguably have too many new super-luxury apartments all leasing at the same time. Seattle and Washington, D.C., also have strong demand for apartments that has kept up with a flood of new units so far.

In fact, new construction can make these core markets seem even more attractive, according to at least one source. “More residents in urban areas [do] create a virtuous cycle: amenities improve to serve the affluent newcomers, which in turn attracts more affluent newcomers,” says John Affleck, a research strategist with the CoStar Group.

Developers have opened about twice as many new apartments as usual in the top six coastal markets over the past four to five years, according to RealPage. In San Francisco and Seattle, developers have opened a little more than twice the historical average number of apartments. In Boston and Washington, D.C., they have opened close to the historical average. In Los Angeles and New York, they have opened slightly less than the historical average, says Willett.

Despite this, the percentage of vacant apartments remains stubbornly low: in five of the six markets, the vacancy rate ranges from 2.0 percent to 3.0 percent. In Washington, D.C., the vacancy rate has risen to 4.0 percent, according to RealPage.

read more: NREI

Startups Help Landlords Turn Apartments Into Hotel Rooms
A handful of startups are betting they can help apartment-building owners convert empty units into hotel rooms, a controversial practice that could help landlords generate more revenue.

The rise of home-sharing services such as Airbnb Inc. has been a boon for owners of single-family homes looking to make extra money by renting out properties. But the services have been met with fierce resistance by local governments and some tenants worried that large residential buildings could morph into hotel-like properties brimming with tourists and other transients.

Yet some startups contend they can navigate these potential pitfalls.

Arlington, Va.-based WhyHotel aims to turn apartment buildings into pop-up hotels, complete with front desks and maid services, to help owners generate revenue while they are in the midst of finding full-time tenants. of Miami leases sections of apartment buildings or even entire properties, bringing in designers to transform the units into hotel rooms. A soon-to-be-launched startup Parallel similarly will rent blocks of units from landlords, decorate them and rent them out to overnight guests with an in-house hospitality team.

Pillow Residential, which last month raised $13.5 million in funding, offers a platform that allows building owners to access information about Airbnb guests and see which units in their building are being rented out and when.

The services are sprouting up just as the red-hot U.S. apartment market is beginning to cool.

read more: Wall St Journal

China’s Booming Housing Market Proves Impossible to Tame
The more China tries to rein in its roaring housing market, the more obsessed people get about buying.

In February, with the southern megalopolis of Guangzhou in the throes of a property frenzy, state banks raised mortgage rates. Then came higher down-payment rules for second homes and limits on owning multiple apartments.

The result: Prices in Guangzhou continue to climb, and the market one town over has heated up.

Pei Zhiyong, a 56-year-old advertising executive, was barred by the new restrictions from buying a third apartment in Guangzhou. One Sunday in April, he drove his BMW SUV to Foshan, an hour away, to check out a new riverfront high-rise. He figures it’s the ideal time to buy.

“The harder the government tries to control the market, the more prices will rise,” Mr. Pei said.

With each new policy intended to restrict home purchases, buyers are piling in. Stressed about the prospect of being left behind, many are borrowing heavily, believing prices will continue to rise despite the restrictions and will soar if the government has to lift restrictions to spur economic growth.

Another article of faith is that the Communist Party won’t allow housing prices to collapse. “The government will spare no effort to make sure there are no big swings in the property market,” says Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank.

The desperate home buyers are exposing Beijing’s inability to control a housing market it has been relying on for economic growth. A decade ago, the real-estate sector, including construction and home furnishings, accounted for about 10% of China’s gross domestic product, according to Moody’s Investors Service. It now accounts for almost one-third, reflecting both a dearth of other investment options and the petering out of manufacturing growth.

read more: Wall St Journal

Secret App Makes Manhattan Skyscrapers Change Color
On warm nights, Bobby Francis and his three roommates like to hit the balcony of their Manhattan apartment, pull out their phones and change the color of the New York City skyline.

With a few taps, spires atop two Midtown skyscrapers flicker blue, red and orange.

“It doesn’t feel like something I should have access to at all,” said Mr. Francis, who turns 23 on Wednesday. The consultant sleeps in the former kitchen of a converted two-bedroom apartment.

Yet he does. Mr. Francis and his roommates are members of New York’s latest exclusive club: Spireworks, a much whispered-about free app that allows users to change the colors of the spires atop two of New York’s tallest buildings.

The only way to join is to be invited by a current user, so access has spread through an unlikely network of colleagues, friends and denizens of the city’s rooftop bars. Among fans, invites remain a precious commodity, creating a new class of haves and have-nots.

The have-nots plead their case on social media, and a black market for invitations has opened up on and other websites, where they sell for $100 and up. The app owners recently asked Tinder, the dating app, to take down a profile hawking a Spireworks invite for $1,000.

read more: Wall St Journal

Have a prosperous day and hope you “light up” the week ahead!

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