Situs Newswatch 7/26/2017

Tech Targets Self-Storage Sector

The tech sector is turning its sights on the self-storage sector and its estimated $30 billion in annual revenue. The self-storage sector is heating up as demographic trends favor more folks renting and needing additional storage space. With home price increases, millennials are renting longer as well.A handful of startups such as Clutter and MakeSpace Labs are using the latest in logistics and web technology to offer what they claim is a more efficient and user-friendly way for people to store furniture, keepsakes, sports equipment and other stuff that has been clogging up their basements and attics.

“Positive demographic trends and the strength of the multifamily market will stimulate further need for storage space,” says Situs Director Eugene Venanzi. “Strong population growth and rising incomes foster a broad and widening tenant pool. In addition, the retirement and downsizing of baby boomers plus the continued emergence of millennial households will sustain demand for self-storage.”

But Situs’ Venanzi warns there may be headwinds: “While the underlying demand for storage continues to strengthen, mounting supply pressures are a growing concern. Though new supply has not been enough to overwhelm pent-up demand, construction may have a greater impact as we move further in the development cycle.”

Executives at the big self-storage companies, like Public Storage, CubeSmart and Extra Space Storage Inc., say they aren’t worried. They say the tech startups’ costs of transportation and handling will be so high they won’t be able to price their service competitively.

Still, the Wall St Journal reports self-storage startups are beginning to get traction with customers and financiers. Last week, Culver City, California-based Clutter announced it had raised $64 million in its latest funding round from its existing investor, Sequoia Capital, as well as new investors Atomico, Fifth Wall Ventures and Alphabet’s GV.

MakeSpace, which has 300 employees in four cities, raised $30 million in March for a total of about $60 million to date, with the venture-capital firm 8VC taking the lead. Founder Sam Rosen envisions the firm being in 30 to 50 markets five years from now.

Foreign Investment in U.S. Real Estate Surges to All-Time High
Foreign investment in the U.S. housing market saw an explosion of growth from last year as it surged to a new high.

China remained the top country for sales dollar volume for the fourth consecutive year. However, the reason for the sudden explosion in growth was a hike in activity from Canadian buyers. Transactions from Canadians increased from $8.9 billion last year to $19 billion in this survey, a record for Canada, according to the National Association of Realtors (NAR).

This annual survey of residential real estate purchases from international buyers showed nearly half of all foreign sales were made in three states: Florida, California and Texas.

Between April 2016 and March 2017, foreign buyers and recent immigrants purchased $153 billion in residential property. This is an increase of 49 percent from 2016’s $102.6 billion, and surpasses 2015’s $103.9 billion as the survey high.

Overall, foreign buyers purchased 284,455 residential properties, NAR’s report showed. This is up a significant 32 percent from 2016 and accounted for 10 percent of the dollar volume of existing home sales.

“The political and economic uncertainty both here and abroad did not deter foreigners from exponentially ramping up their purchases of U.S. property over the past year,” NAR Chief Economist Lawrence Yun said. “While the strengthening of the U.S. dollar in relation to other currencies and steadfast home-price growth made buying a home more expensive in many areas, foreigners increasingly acted on their beliefs that the U.S. is a safe and secure place to live, work and invest.”

read more: HousingWire

Home Sales Fizzle as Houses for Sale Drop Even Lower
Existing home sales fell more than expected in June as a dearth of houses for sale lifted home prices to a record high.

June sales dropped 1.8 percent from the previous month, to an annual rate of 5.52 million units, according to National Association of Realtors (NAR). The number of homes on the market slipped 0.5 percent to 1.96 million units. Supply was down 7.1 percent from a year ago. As a result, the median house price jumped 6.5 percent from a year ago, to an all-time high of $263,800 in June.

May’s sales pace was unrevised at 5.62 million units. Economists polled by Reuters had forecast sales falling 1.0 percent to a 5.58 million-unit rate.

“Existing home sales are not entirely out of line given the tight supply of properties for sale creating a seller’s market,” said the Collingwood Managing Director Tom Booker. “I am concerned that climbing price, coupled with fairly flat wage growth will diminish affordability in the medium to long term. Right now, the home buyer sees the higher price but also sees a better rate on the mortgage compared to last month. If prices continue to rise, and income growth remains tepid, we will need rates to stay low to keep the ‘perception’ of housing becoming expensive in check. In this environment, rising rates could do more to impact the perception of housing as ‘expensive’ than the real rising cost of housing can do on its own.”

An acute shortage of properties has hampered monthly sales, which have increased three times this year, leaving them in a narrow range. The shortage of properties has led to bidding wars, which have resulted in house price increases outpacing wage gains.

U.S. Foresaw Better Return in Seizing Fannie and Freddie Profits
In August 2012, the federal government abruptly changed the terms of the bailout provided to Fannie Mae and Freddie Mac, the mortgage finance giants that had been devastated by the financial crisis. Instead of continuing to receive payments on the taxpayer assistance, Treasury officials decided to begin seizing all the profits both companies generated every quarter.

It was an unusual move, given that the companies still had public shareholders. But it was necessary, the Treasury said, to protect taxpayers from likely future losses in their operations. Justice Department lawyers have reiterated this view in court, saying that the bailout terms were modified because the companies were in a death spiral.

But newly unsealed documents show that as early as December 2011, high-level Treasury officials knew that Fannie and Freddie would soon become profitable again. The materials also show that government officials involved in the decision to divert the profits knew the change would most likely generate more money for Treasury than the original rescue terms, which required the companies to pay taxpayers 10 percent annually on the bailout assistance they had received.

A December 2011 information memo to Timothy F. Geithner, the former Treasury secretary, is among the newly released documents. The 17-page memo from Mary John Miller, assistant secretary for financial markets, shows that the idea to extract all of Fannie’s and Freddie’s profits coincided with their anticipated turnaround.

Ms. Miller outlined “restructuring and transition options” for Fannie and Freddie in the memo, saying the No. 1 option was changing the terms of the bailout to “replace the current 10 percent fixed dividend with a permanent ‘net worth sweep.’” The memo noted that Freddie Mac was “expected to be net income positive by the end of 2012 and Fannie by the end of 2013.”

Another unsealed document, a draft memorandum circulated before the profit sweep, shows that federal officials recognized it would generate more money than the original bailout terms. Net income generated by Fannie and Freddie and paid to the government “will likely exceed the amount that would have been paid if the 10 percent was still in effect,” it stated.

Ms. Miller, who left Treasury in 2014 and sits on the board of the SVB Financial Group, the parent of Silicon Valley Bank, did not respond to an email seeking comment, nor did a Treasury spokeswoman.

The documents, released under a court order, emerged in a lawsuit against the government by Fannie and Freddie shareholders, who contend that the profits — now totaling in the tens of billions of dollars — rightfully belong to them. The plaintiffs argue that the move was a taking of private property without remuneration.

read more: NY Times

Jamie Dimon Takes on Washington
J.P. Morgan Chase’s outspoken CEO  broke into an impassioned, expletive-tinged rant on the state of Washington politics and its impact on the economy during an analyst call to discuss second-quarter results.

Dimon said U.S. growth was held in check by a lack of policy momentum in D.C. that has failed to deliver a spate of pro-growth legislation that could help to boost an otherwise sluggish economy. “We have to focus on policy that is good for all Americans,” Dimon said, speaking  on a call with reporters to discuss earnings.

Later in the morning, on a call with analysts, a more-animated-than-usual Dimon took his earlier statements one step further:

“So, no, in spite of gridlock, we’ll grow at 1.5% or 2%. I don’t buy the argument that we’ll relegate this forever. We’re not. If this administration can make breakthroughs in taxes and infrastructure regulatory reform. We have become one of the most bureaucratic confusing litigious societies on the planet. It’s almost an embarrassment to be an American citizen traveling around the world and listening to the stupid sh—t we have to deal with in this country. And at one point we all have to get our act together or we won’t do what we’re supposed to do for the average Americans. And unfortunately, people write about this being like it’s for corporations. It’s not for corporations. Competitive taxes are important for business and business growth, which is important for jobs and wage growth. And honestly, we should be ringing that along to every single one of you, every time you talk to a client.”

Dimon cited business friendly policies in other countries he has visited recently as the source of his increasing frustration over a lack of progress on policy.

“I was just in France. I was recently in Argentina. I was in Israel. I was in Ireland. We met with the Prime Minister of India and China. It’s amazing to me that every single one of those countries understands that practical policies that promote business and growth is good for the average citizens of those countries for jobs and wages.”

During his earlier talk with the media, Dimon said U.S. policy woes “isn’t a Republican issue, it is not a Democratic issue.”

Continued gridlock may not further weigh on growth, but Dimon said better policies could deliver a helpful jolt to the economy: “We need infrastructure reform. We need regulatory reform.”

read more: MarketWatch

IMF Cuts U.K. Forecast, Warns of Correction
The International Monetary Fund has cut its growth forecasts for the UK and US this year after a weak first quarter and warned that richly-valued equity markets are at risk of a correction, as the Federal Reserve normalizes monetary policy and the U.K. negotiates its exit from the European Union

In its latest World Economic Outlook, the IMF said a high level of policy uncertainty, over priced stocks and very low volatility “raise the likelihood” of a market fall that could hit growth and confidence.

The fund lowered its 2017 projections for the UK and US following a softer-than-expected performance at the start of the year but it raised estimates for growth in the euro region, saying the rebound could be “stronger and more sustained” amid receding political risks.

read more: Financial Times 

World’s Largest Tunnel  
Elon Musk says he won verbal government approval to build the world’s longest tunnel for an ultra-high-speed train line to connect New York to Washington.

The train, known as a hyperloop, would make the 220-mile connection in 29 minutes, the Tesla Chief said in a Twitter post (below). He provided few details, and a spokesperson for his new digging enterprise, called the Boring Company, declined to comment on the project.

It’s not clear what Musk is doing with these announcements on Twitter. Such an ambitious project would require billions of dollars in funding and extensive approvals from federal, state, and local authorities. The tunnel would be more than twice as long as the current record holder: the Gotthard Base Tunnel, a rail line that runs through the Swiss Alps. For some urban context: a recently opened stretch of subway in New York cost $4.5 billion for less than 2 miles of rails. It was first proposed in 1919 and opened to the public in January 2017. These things take time.

Even if the Boring Co. did receive some kind of approval to start digging a tunnel, it’s not clear how quickly the company will be able to move. Musk began digging in May on a small test tunnel using a second-hand boring machine, called Godot, which he acquired for his speculative new enterprise. Here’s how Musk described the Boring Co. at a Ted Talk in April: “This is basically interns and people doing it part time. We bought some second-hand machinery. It’s kind of puttering along, but it’s making good progress.”

read more: Bloomberg

Rent Spikes Creating Fine Dining ‘Deserts’ In New York City
In 1995, the restaurateur Jonathan Morr opened a 3,800-square-foot noodle shop called Republic on Union Square West in New York City, paying an annual rent of $220,000. “The rent was relatively inexpensive for what it was,” he said. “But remember, when I opened, Union Square was very different than it is today. There was very little there along with the drugs in the park. At the time we were taking a risk.”

Twenty-two years later, Union Square has been gentrified beyond recognition. It’s home to a Whole Foods supermarket and an apartment building whose penthouse sold for more than $16 million. And now Republic is on its way out. Morr said he expects to close the space by the end of 2017, three and a half years before the lease expires. “It’s just a fact of life — there’s no way that we’re staying there after the lease is up,” he said. Taking advantage of an impatient landlord, Morr plans to leave the space early and will “split the difference between what [the landlord] gets from us and what he’ll get from the next tenant, and call it a day,” he said.

Republic is joining a slow but distinct restaurant exodus from the area, following in the footsteps of Danny Meyer’s Union Square Cafe, whose prohibitively high rent forced it to search for a new space in 2015. “There’s no such thing as a New York restaurant that’s immune to real estate,” said Richard Coraine, the chief of staff for Union Square Hospitality Group. He noted that the original 1985 rent for USQ was $4,500 a month. A roughly fivefold increase over 30 years is what prompted Meyer to move his beloved restaurant to its current home, on a corner a few blocks northeast of Union Square.

The space currently occupied by Blue Water Grill, also on Union Square West, is being formally marketed to potential tenants for close to $2 million a year, according to Leslie Siben, a principal at LB Realty Services LLC, who has been approached about the property. “There’s no way there won’t be a lot of turnover there as tenants who have been there for a really long time face the notion of ‘fair market value,'” she said, adding that the astronomical rents are an unsurmountable barrier to many potential food service occupants. “Think about those numbers: That area is going to have to become a food desert, [because] no normal restaurateur with any experience would touch that as it is now.”

“The rent at this location was just recently raised to well over $2 million,” wrote a spokesperson for Landry’s, the owner of Blue Water Grill. “Even though this is one of New York’s most successful restaurants, it can’t be successful with a $2 million plus rent; therefore, we will be relocating within the next year. In the meantime, it is business as usual.”

read more: Bloomberg

I’ll Drink to That
One of the biggest liquor companies in the world plans to begin distilling vodka in Manhattan in October.

OUR/Vodka, a unit of Pernod Ricard, is building a distillery in Chelsea that will sell a wheat-based vodka.

There are 21 distilleries currently operating in New York City, with 18 in Brooklyn, two in the Bronx, and one in Queens, according to the New York State Liquor Authority. OUR/Vodka’s OUR/New York operation would be the only one in Manhattan.

The majority of ingredients will be sourced from New York state farms, the New York partners said. That will allow the business to operate lawfully with a farm distillery license, which requires 75% of ingredients to be sourced from the state.

License holders are allowed to distill up to 75,000 gallons of spirits a year, host on-site tastings, sell at farmers’ markets, and open off-site locations.

OUR/Vodka has spent years arranging everything, including signing up a couple of New York entrepreneurs to run the distillery. The saga began in October 2013, when the phone rang at Dave’s Wear House, a skate shop on Baxter Street in lower Manhattan. The caller identified himself as a talent scout for a spirits company.

“We thought the guy wanted us to design a T-shirt. Maybe we’d get a few free bottles,” said Kevin Carney, 47 years old, co-owner of the Skate Shop, along with Dave Ortiz, 47, a former graffiti artist.

read more: Wall St Journal

Have a prosperous day ahead! Drink lots of liquids and stay cool!

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