Situs Newswatch 7/25

CRE Election Blues

Welcome to a new week of political excitement: this time it’s the Democrats’ turn to make their case.

Philadelphia will host the Democratic National Convention this week as delegates meet to officially nominate Hillary Clinton as their presidential candidate, just a week after Donald Trump clinched the Republican nomination.

This contentious election cycle is being blamed in part for a slowdown in the commercial real estate market.

“Election years always create a lot of uncertainty which affects the current business environment; people take a ‘wait and see’ attitude as we await the election outcome,” said Situs Executive Managing Director Warren Friend. “The significant differences with the two major candidates this year only heightens the level of market uncertainty.”

“People do not believe government is working holistically,” said Friend. “The voter reaction through the primaries has been to side with those candidates that were viewed as outsiders.  The American vision of politicians being drawn to serve the country is under intense scrutiny; is the task a ‘job’ or a ‘calling’?”

Political forces, combined with post-Brexit fears and global terrorism concerns, are causing many companies and investors to postpone making key real estate decisions.

Situs RERC President Ken Riggs concurs with the findings of the just-released Situs RERC Flash Report (2Q 2016), which does not foresee CRE value and price increases for most property types going forward in 2016. This expectation made CRE investment prospects decline for the second quarter in a row.  However, with the shifting landscape triggered by the Brexit vote, commercial real estate in the U.S. attractiveness has more recently been enhanced.

On the positive side, preliminary required going-in capitalization rates decreased 20 basis points from the previous quarter for the central business district (CBD) office and industrial warehouse sectors and were down 10 basis points for the neighborhood/community retail and hotel sectors. However, going-in cap rates increased 10 to 20 basis points for all other sectors, except the apartment sector, where the going-in cap rate remained steady. Additionally, expected rental growth declined or was flat for nearly all property sectors in second quarter, except for the CBD office sector, where expected rental growth increased.

“If the economy stays on track, interest rates remain low and employment growth holds, we are hopeful that once the uncertainty of the November elections is over, CRE investment will re-establish itself,” said Friend.

Significant Drop in Post-Brexit CRE Confidence

The UK commercial property market has seen a significant drop in confidence and investor demand following the vote to leave the European Union, according to a new survey, with more than a third of respondents saying the market is now in the early stages of a downturn.

A quarterly survey conducted by the Royal Institution of Chartered Surveyors found that London experienced the steepest decline in the second quarter of the year: both investment and leasing deals have been affected by the change in sentiment, the survey said, and rent and capital value expectations are now in negative territory.

During the period, investment enquiries were found to have fallen sharply across the UK, especially among foreign investors: 27% of respondents said they had seen a drop in interest from overseas buyers.

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Europe’s Richest Man’s Real Estate Portfolio

Amancio Ortega, Europe’s richest man and founder of global fashion group and Zara owner Inditex , held more than 6 billion euros ($8.7 billion) in prime real estate assets at the end of 2015, corporate filings showed on Tuesday.

The famously-reclusive magnate’s real estate investment arm, Pontegadea Inmobiliaria, booked assets of 6.06 billion euros at the end of 2015, up 8.3 per cent from the previous year, making it one of the biggest property companies in Spain.

Ortega, who turned 80 this year, consolidated most of his private interests into holding company Pontegadea Inversiones last December, with him at its helm and his wife Flora Perez and a close business partner listed as his vice-chairmen.

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Bank Regulator Flashes Warning Light Over Commercial Real Estate

A leading U.S. banking regulator wants lenders to do more to manage their exposure to commercial real estate.

As property lending accelerates, the Office of the Comptroller of the Currency — which oversees American banks alongside the Federal Reserve Board and the Federal Deposit Insurance Corp. — is actively monitoring banks’ stress tests and risk-management practices, Comptroller Thomas Curry said in an interview with Bloomberg.

“With commercial real estate lending, we’re signaling a flashing yellow or a caution light,” Curry said. “We think that if banks act now and if supervisors are vigilant, this type of potential risk can be managed effectively.”

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Amazon Tiptoes Into Banking Business Inc. is stepping into the student-loan marketplace.

The online retailer has entered into a partnership with San Francisco lender Wells Fargo & Co. in which the bank’s student-lending arm will offer interest-rate discounts to select Amazon shoppers.

An Amazon spokeswoman said this is the first time members of the company’s “Prime Student” service are receiving a student-loan offer by a lender through its site since that service was launched in 2010. The discount will be offered both to students who want loans to attend college and those who want to refinance existing loans.

The offer also represents the latest effort among private student lenders to stand out by discounting in an increasingly competitive market. Many offer discounts to customers who set up recurring payments to pay back their loans automatically or for loan refinancings by graduates who are members of professional associations.

Wells Fargo, the largest U.S. bank by market value and the second-largest private student lender by origination volume, will shave a half a percentage point off the interest rate on student loans it extends to applicants who are members of Amazon’s Prime Student. The subscription-based service charges $49 a year, half the cost of Amazon Prime, and offers free two-day shipping and unlimited instant streaming of movies, among other perks.

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Chatty, Bonehead Banker Exits HSBC

Sometimes you grind the sausage, and sometimes the sausage grinds you.

Rob Domanko, the senior banker at HSBC who embarrassed his bank and a client when he was caught openly chatting about a quid-pro-quo transaction, quietly left on the bank on Wednesday, The Post has learned.

Last year, The Post obtained transcripts of an Instant Bloomberg chatroom in which Domanko lays out in detail how the sausage is often made on trading desks throughout Wall Street.

Domanko, who headed the bank’s equity derivatives program since May 2012, advised his traders to sweeten a deal for a client — but not too much — because HSBC was already likely to win its business.

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Most Expensive North American Cities To Set Up an Office

The top of commercial real estate firm CBRE’s list – and ahead by quite a margin – is New York City. It is an energetic metropolis that attracts talent in almost all fields from places all over the world. Packed with culture, accessibility, media and money, it offers a new business a great space to launch and an existing one a giant new market to tap.

But setting up shop in the Big Apple will cost you. CBRE reports that the annual gross direct asking price of office space in New York is $75.35 per square foot. And that’s just the average—if you would like to be in a popular or prestigious neighborhood, expect to pay quite a bit more.

On top of office space, New York has a lower vacancy rate than most of the other cities on CBRE’s list, at 7.3%. Also, your workers will have to pay higher rents in New York, where the average monthly apartment rents for more than $4,400 per month (yes, per month) and the cost of living is 22% higher than the national average for a city.

Number two on CBRE’s list of most expensive cities to rent office space is San Francisco Bay Area—essentially the metropolis near Silicon Valley. Rents per square foot there are at $59.59 as of the first quarter of this year and vacancy rates are even lower than in New York City, at 6.9%.

The third most expensive market for office space lies in the true north, strong and free—in Vancouver, Canada. Companies looking to rent space there should expect to pay an average rent of $39.93 per square foot per year. That’s not too bad. And considering that vacancies are not as brutal as markets like New York, Northern California, or northern cousin Toronto; and apartment rents for workers are a relatively reasonable $1,055 on average (U.S., not Canadian), Vancouver makes itself out to be an attractive home for fledgling firms.

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Rupert Murdoch’s Manhattan Townhouse Sold for $28 Million in Cash

Rupert Murdoch’s West Village townhouse has found a new owner, Mansion Global has learned.

Dolly Lenz, the exclusive agent, confirmed the sale. She added that the home sold for about $28 million, very close to the asking price of $28.9 million.

In a tough New York luxury market, the price and the short time on the market make the sale impressive. The 21st Century Fox Chairman put the house on the market early April, one month after his wedding to former model Jerry Hall. Public records show the property went into contract last week.

Ms. Lenz said there were multiple serious all-cash bidders, pushing the deal to its near-asking price. “The winner of the bidding war is a domestic buyer,” she said.

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Have a productive week ahead!

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