Situs Newswatch 7/21/2017

Location, Location, Location — Maybe Not
“Location, location, location” – no one can deny the real estate cliche is at least partly true. A good location for a home or business can mean a world of happiness and success, while poor placement can lead to countless problems.But is a prime location ever too good and costly to be true?

For retail spaces in particular, location with consistent foot traffic and easy access to the storefront is a key part of a business’s success. But a prime location also means high rents, and if businesses can’t make enough to offset the cost to remain in such a location, they will be forced to vacate the space often.

For residential real estate, on the other hand, whether a popular location is a dream or nightmare can vary by region, price and type of buyer.

Retail: 

“Clearly the retail industry, facing such challenges as Amazon and other e-tailers, is at a crossroads, as many experience their biggest sales volume through online sources, and the golden years for many major department stores and shopping malls appear to be fading fast,” says Situs CEO Steve Powel. “We expect up to one-third of shopping malls in the U.S. to close in the coming years, but so called ‘Class B’ and ‘Class C’ shopping centers are holding their own. Apple, new-era movie theaters, and restaurants are replacing many of the traditional anchor stores at the mall; change is always inevitable in retail.”

Residential:

With the current state of the residential real estate market, however, buyers in hot markets are paying a higher price and making additional sacrifices to live in their ideal location – and that trend doesn’t seem to be slowing significantly.

“A lot of households and young families are drawn to areas with walkable amenities that are transit-oriented,” says The Collingwood Group Chairman Tim Rood. “However, millennials still tend to move to suburbs as their families and their need for more living space grow, and their overall lifestyle needs change.”

At the same time, US News reports that homes in New York City’s ultra-luxury market, which has seen significant interest over recent years from developers, are a bit slower to sell now than before. Rather than having an excess of demand, the development of residential buildings in desirable locations at peak prices now needs to wait a bit longer for the right type of buyer.

While location may be the reason you decide to buy a new home, some are keeping other important factors in mind. For example, In some parts of Edina, a suburb of the Twin Cities, people are buying just outside of a prime neighborhood in order to be able to afford new-construction houses – a slight sacrifice of location for the condition they want.

Similarly, it’s not uncommon with today’s tight inventory, for a buyer to happily take on a fixer-upper to get a lower price.

Powel and Rood agree – when it comes to location, there’s always a premium. They suggest you consult a trusted advisor such as Situs or Collingwood Group with your valuation needs.


Existing Home Sales Numbers for July will be released at 10:00 a.m. ET Monday. The Collingwood Group Managing Director Tom Booker crunches the data for NBC Radio.


Retail: The Next Big Short?
For a small band of hedge funds that slapped down prescient bets against the tottering US housing market, the financial crisis was the biggest money-spinner in generations. Some investors think they have now found the next “big short” in the retail industry.

The reshaping of how Americans shop by the internet is accelerating. The US retail industry faces a growing headache, with 10 companies pushed into bankruptcy already in 2017, according to Standard & Poor’s. Even Sears, a once mighty department store chain founded in 1886, is now tottering.

“We think the magnitude of this short could be bigger than subprime,” says Stephen Ketchum, the head of Sound Point Capital, a hedge fund that manages more than $13bn in assets. “Go to the Amazon website and type in ‘batteries’. What you see is just the tip of the future iceberg. And retail is the Titanic.”

The relentless rise of online shopping is posing a huge challenge for US shopping malls, developers and investors who own shares and bonds in household names. The core problem is a dramatic overbuilding of stores, coupled with the rise of ecommerce, Richard Hayne, Urban Outfitters’ chief executive, told analysts on a conference call earlier this year. “This created a bubble, and like housing, that bubble has now burst,” Mr. Hayne said. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”

The impact is far-reaching. Credit Suisse estimates that as many as 8,640 stores with 147m square feet of retailing space could close down just this year — surpassing the level of closures after the financial crisis and dotcom bust. The downturn is hitting the largely healthy US labour market — the retail industry has lost an average of 9,000 jobs a month this year, according to the Bureau of Labor Statistics, compared with average monthly job gains of 17,000 last year.

Shuttered shopping malls and struggling department stores are the most visible example of what analysts have termed “the Amazon effect,” as spending migrates from bricks-and-mortar shops to the online realm dominated by the likes of Jeff Bezos’s internet retailing giant. But it is also likely just the first stage, with some investors predicting that every corner of commerce is about to experience a painful burst of creative destruction as shoppers migrate online.

“There’s a big shakeout in how people consume goods,” says another big hedge fund manager. “It will have a massive economic impact. It is already a bad year, and it feels like it has the momentum to become something bigger.”

When Amazon swooped for the Whole Foods grocery chain this summer, it sent shivers down the spines of many investors. Traditional supermarket chains like Walmart and Kroger in the US, Tesco and Sainsbury in the UK and Carrefour and Metro in Europe were long thought to be relatively insulated from the online retailing wave, but their shares all slumped as investors reappraised that assessment in the wake of Amazon’s acquisition.

“Buying patterns are permanently changing,” says Wayne Wicker, chief investment officer of ICMA-RC, a pension fund for US public sector workers. “These things creep up on you, and suddenly you realise there’s trouble. That’s when people panic and run for the exit.”

read more: Financial Times

Office Market Outlook Mixed
Ten-X Commercial’s latest analysis of the U.S. office market shows a sector that has continued its agonizingly slow recovery into 2017, but faces the prospect of rising cyclical risks associated with slower employment growth.

The Ten-X Office Market Outlook report pinpoints Oakland, Calif., Portland, Ore., Sacramento, Calif., Dallas and Atlanta as the five cities showing the greatest promise as “buy” opportunities for investors of office properties. Concentrated largely in the West, these markets are boosted by growing populations and strong employment, keeping rents high even as supply additions loom on the horizon.

The Ten-X analysis also identifies Memphis, Tenn., Baltimore, Houston, Fort Worth, Texas, and suburban Maryland as areas where investors may wish to consider selling office assets. While the respective employment climates in these markets vary considerably, each is seeing rents decline as new supply meets with slow or even negative absorption rates.

The report specifically highlights slowing employment gains across much of the country. Limited job creation – a dynamic arising in a labor market approaching full employment – is likely to suppress the need for companies to add to or expand their office space requirements, slowing absorption.

The Ten-X analysis notes that vacancies remained flat to start the year and have subsequently hit the midyear point with little improvement. According to the report, U.S. office vacancies remained stable at 15.8 percent in the first quarter and have fallen just 20 basis points from a year ago. Vacancies remain at a level far higher than during the prior expansion. Stalled vacancies have resulted in lower rent growth, with rents advancing at their slowest pace since 2012. Ten-X expects vacancies to reach a cyclical trough of 15.3 percent in 2018, however the firm’s downside recessionary model foresees vacancy levels reaching 17.6 percent by the end of 2020, which would be on par with their recessionary peak in 2010.

The Office Market Outlook took note of changes in both technology and workplace culture that have combined to reduce the market demand for office space. The growth of cloud computing has decreased the need to devote on-location space to servers and computers, while the increasing obsolescence of paper filing also lowers space requirements. At the same time, the growing embrace of open-floor plans is lowering the square-foot-per-worker ratio.

“While we’re seeing tepid growth nationally, office investors have to be aware of cyclical risks associated with subdued job growth. It is noteworthy that our analysis resulted in downgrades in 17 regions, and an upgrade to only one,” said Ten-X Chief Economist Peter Muoio. “That said, a number of economically vibrant metro areas around America are seeing high levels of absorption and present buyers with strong investment opportunities.”

Brexit Talks End With Major Disagreements
European Union negotiator Michel Barnier stuck to a hard line at the end of the second round of Brexit talks, refusing to offer concessions and telling his British counterpart David Davis that he still wanted more clarity on the U.K.’s position.

“The first round was about organization, the second round about presentation, the third round must be about clarification,” Barnier told reporters in Brussels.

Four days of talks in the Belgian capital have succeeded mainly in establishing the areas where the EU wants more detail or movement from the U.K.:

The clock is ticking until Britain leaves the bloc in March 2019, but the U.K. cannot begin talks on the free-trade agreement it wants with the EU after Brexit until “sufficient progress” has been made on the issues discussed this week. The next round of talks will be held in the end of August.

Both sides want to move to the next stage and open those trade talks when EU leaders hold a summit in Brussels in October. If no deal is reached, Britain will crash out of the EU with no preferential access to the single market, meaning that tariffs will be imposed as with any third country.

U.K. Brexit Secretary David Davis put a positive spin on the week in the joint press conference. “I’m encouraged with the progress we’ve made in understanding each other’s positions,” he said. “Getting to a solution will require flexibility on both sides.”

Barnier, though, suggested that he didn’t feel the moment had yet arrived for him to give any ground. “The U.K. decided to leave the EU,” he said. “That’s a serious decision, a serious matter with serious and grave consequences. We take it seriously. I know one has to compromise in negotiations but we are not there yet.”

read more: Bloomberg

Puerto Rico for Sale
Distressed-mortgage investors are descending on troubled Puerto Rico. There are big names among them: Goldman Sachs Group Inc. and Perella Weinberg Partners and TPG Capital. What’s luring them is the opportunity to scoop up home loans and foreclosed properties for pennies on the dollar.

The gambit could certainly work out – many of the homes, after all, have spectacular views of the Caribbean that could be pitched to well-heeled Americans – but long-time Puerto Rico investors see trouble ahead. Chief among their concerns: bidding wars are breaking out for the loans at the same time that their quality is deteriorating. It’s a tell-tale sign that the market is getting frothy and that turning a profit could prove tricky on an island where the government is mired in default, the economy has been contracting for a decade and foreclosure is a long and cumbersome process.

“A lot of competitors came in,” said Sam Kirschner, an investor with New York-based CPG Real Estate, which partnered early on with Goldman and Perella Weinberg. “A couple banks started hiring brokers, and our phone lit up. And all these hedge funds – we were getting calls from 10 hedge funds a week, saying we would like to partner on such and such a portfolio.”

The investors’ success is thus far unknown. In many cases, the investment vehicles snapping up homes left behind are structured as private equity funds, and returns aren’t disclosed to the public. Goldman, Perella Weinberg and TPG Capital all declined to comment, as did Lone Star Funds, another group that’s been active on the island.

The firms are wagering they can strike a deal with borrowers to make the debt viable or go after property in court and resell it. Many have made out well investing in such properties on the mainland, where U.S. housing prices have rebounded about 40 percent from post-crisis lows. Yet investors risk inundating the market with foreclosed properties, driving down prices even further and impeding an economic recovery – a concern to working-class Puerto Ricans hoping to protect the last shred of equity in their homes.

read more: Bloomberg

One in Five Americans Say a Housing Decision They Made in the Past Is Holding Them Back
As the Sinatra song goes: “Regrets, I’ve Had A Few.

America’s sentiment about housing has changed since home prices hit bottom in 2012. Hearts and minds are coming around: Americans feel more positive about homeownership, and overall regrets about housing choices have edged lower.

But the market’s wild ride has left scars since Trulia last asked Americans what they shoulda, coulda and woulda done about their real estate decisions in 2013. Today, 44% of Americans have a regret about their current home or the process they went through to when choosing it, a slight decrease from 46% five years go. According to a June 2017 survey, conducted online by Harris Poll among 2,264 U.S. adults ages 18 and older:

  • A majority of Americans, 62%, believe housing costs have become less affordable since 2012 – of which 26% say it is much less affordable.
  • More than one in five Americans, 21%, say a housing purchase mistake they made in the past is now holding them back from changing their current housing situation.
  • Even 26% of those with an annual household income of $100,000 or more – well above the median U.S. household income of $73,298 – believed they could not afford to buy a home in the current market.
  • Among Americans who were involved in choosing their current home, the top regret among renters was deciding to rent instead of buying a home, 41%, while more homeowners wished they had chosen a larger home, 33%, which are the same top regrets they had in 2013.

Have a prosperous day and a great weekend ahead; forget those “regrets” for now!

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