Situs Newswatch 7/22

Brexit Takes Toll on Commercial Real Estate (CRE)

Great Britain’s vote to leave the European Union has led the International Monetary Fund (IMF) to trim its forecast for global economic growth.

World Economic Output (WEO) will increase 3.1% this year, the same as it did in 2015, and improve to 3.4% growth next year, said the IMF. These forecasts for 2016 and 2017 are each a tenth of a percentage point lower than the April WEO, and the IMF said it places the blame squarely on Brexit.

Situs CEO Steve Powel agrees with the IMF’s assessment. In fact, he expects that there will even be some effect of Brexit on the U.S. CRE market. “Right now, daily marked funds in the U.K. are experiencing issues meeting margin and redemption requests. As a result redemptions at several funds have been halted, and over time, management will be required to find liquidity, which often requires selling off your most highly marketable core assets. For many global commercial real estate companies, those assets are U.S. properties,” he said.

Powel further added, “The fall in the value of the British Pound has been dramatic, but is being viewed as an offset to the costs of exiting the EU. The lower Pound is opening up a flow of capital investment into the country and reduction in the cost of goods which are mainly imported to the British Isle. The potential from a real estate perspective may be similar to the positive growth effects seen in Ireland over the past 5 years. However, the fact that the “Brexit” will take years to be fully executed will function as a cap on recovery and growth, not to mention the current disruption by terrorist activity.”

However, Situs RERC President Ken Riggs pointed to a silver lining for the U.S. CRE market–downward pressure on long-term rates in the U.S. and throughout the world caused by the Brexit vote.  This, in turn, has investors reexamining and recalibrating their outlook for CRE in the U.S. with a bias of lowering their requirements for cap and discount rates.

“One thing you can clearly say is that, due to uncertainties in the European CRE market, people are going to be looking for some kind of price adjustment, and it’s not going to be up,” says Chip Good, Managing Director of European business development at Situs. “Lawyers tell me that clients want prices adjusted lower for those CRE deals that have not yet been closed.”

Good, who leads sales activity for Situs in London, said, “We are here to help our clients negotiate their way through this, no matter whether they are buyers or sellers.”

Although CRE transactions have slowed, Good stated, “Deals are eventually going to happen, and clearly there are winners and losers in all transactions.  As the saying goes – one investor’s misery is another investor’s fortune.”

Always the optimist, Good said, “London is London, and London will keep its place as one of the leading real estate markets in the world.”

Trump Is Richer in Property and Deeper in Debt

In the year that Donald Trump was transformed from a long-shot presidential candidate into the presumptive Republican nominee, he took on more debt and sold at least $50 million of stocks and bonds. At the same time, the value of his golf courses and his namesake Manhattan tower soared.

Those are the findings of an updated Bloomberg assessment of the wealth of the man poised to accept his party’s nomination Thursday night in Cleveland. While the performance of Trump’s major assets was uneven, his net worth rose to $3 billion on the Bloomberg Billionaires Index, up from $2.9 billion a year ago.

Trump’s riches have been debated for decades, and the billionaire’s estimates have been higher than those made by others. Since becoming a candidate, he has repeated his assertion that he’s worth more than $10 billion, which he says is proof of his success as a businessman. Estimates in the past year by Fortune and Forbes magazines have come in at less than $5 billion.

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Argentina probes ties between ex-presidents, Miami real estate empire

Where did a mystery man from Argentina get nearly $65 million to spend on ultra-luxury Miami condos, New York apartments and South Florida strip malls?

That’s what Argentine prosecutors want to know, especially because Sergio Todisco doesn’t seem to have a fortune of his own — and because he once acted as an offshore corporate front-man for a top aide to former president Néstor Kirchner.

The controversy again shows how Miami’s gleaming condos attract secret and potentially illicit money from around the world.

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These Sicilian Mortgages Show How Difficult It Is to Rescue Italian Banks

Down the cobbled streets of Palermo, past baroque churches and gothic palaces, a lesson is lurking for Italy’s government as it hatches a plan to save the country’s banks.

Sicily’s biggest city is the focal point of a 2007 securitization of non-performing loans, or NPLs, that shows just how long it can take to resolve soured loans in the country. The deal, known as Island Refinancing, should also act as a warning for investors of the dangers of buying similar securities as Italian banks gear up to sell more of them.

The Island bonds are backed by two portfolios of NPLs originated by a Sicilian bank that’s now a subsidiary of UniCredit SpA. Just under half of the loans originated in the 1990s and they include residential mortgages as well as loans financing hotels and industrial buildings.

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Manhattan office market stumbles during the first half of 2016

The commercial real estate market is showing growing signs of weakness. In the first half of the year, office leasing in midtown Manhattan plummeted by 18.7% to 8.6 million square feet from the same period last year, according to a report from Cushman & Wakefield Tuesday. That led to a borough-wide drop of 11.2% to 13.6 million square feet from the first half of 2015.

Meanwhile, sales of raw land for development in Manhattan, frequently an early indicator of the health of the market as a whole, will be in even worse shape. The firm forecasts a 24% drop in the dollar volume to about $45 billion for the year. And an even bigger drop in the number of properties to change hands—a total of 90, down from 119 last year.

“It’s really remarkable how fast this market has shifted,” said Bob Knakal, Cushman’s head of property sales.

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Blackstone Said to Plan Invitation Homes IPO

Blackstone Group LP expects to take its Invitation Homes unit public in the first half of next year, capitalizing on a rally in U.S. single-family rental landlords to list the biggest company in the industry, according to two people familiar with the matter.

The size and exact timing of an initial public offering haven’t been decided, said the people, who asked not to be named because the process is private. A Blackstone spokeswoman declined to comment. Invitation Homes referred questions to the parent company.

Invitation Homes, which would go public as a real estate investment trust, oversees about 50,000 houses across the U.S. Blackstone built the company in the aftermath of the housing crash, making the largest investment among big buyers that snapped up properties at depressed prices to institutionalize the business of leasing single-family homes. Their bet depended on unprecedented demand for rentals from Americans who lost residences to foreclosure and those unable to get mortgages as banks tightened credit.

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RealtyTrac Rebrands to Attom Data Solutions

Property data company RealtyTrac, which had been known for its monthly foreclosure reports, said it is rebranding itself to Attom Data Solutions, with a new multi-sourced national property database.

With foreclosures on the decline, the Irvine, California based company has expanded its property data licensing business along with existing consumer websites, and

“Under the new Attom Data Solutions brand, our mission as a company will continue to be increasing real estate transparency for businesses and consumers,” Chief Executive Rob Barber said in a statement. “That mission will be carried out in a variety of venues, including bulk file licenses, APIs and customized reports, along with our increasingly popular consumer websites.”

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CRE Borrowers Are Turning to Alternative Lenders

Since the 2008 recession, the commercial real estate debt origination market has made a tremendous rebound, but regulations that have incrementally set in (and will continue to do so) are changing not only how deals get done but also who is doing them in the first place.

Banks in particular are feeling the regulatory brunt with the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel III requiring banks to hold more capital on their books as a means of managing risk. Alternative lenders, including private equity funds and mortgage real estate investment trusts, are poised to pick up some of the slack, especially when it comes to acquisition, development and construction loans (ADC) classified under “High Volatility Commercial Real Estate.” The rule—which was implemented on Jan. 1, 2015 as a part of Basel III—forces banks to retain 150 percent of risk weight on a loan that falls under HVCRE, compared to the 100 percent required previously. In short, greater capital requirements on part of banks limit their ability to lend as much and to provide higher-leverage debt.

Across the board, alternative lenders, who are not subject to the rule, have seen increasing activity, in 2015 originating 68 percent more than the year prior, according to Mortgage Bankers Association’s Commercial/Multifamily Annual Volume Origination Summation for 2015. That number is nearly double the 35 percent increase that commercial banks and savings institutions saw over the same time period.

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