Get Back to Work! The Office is Back …and That’s Great for CRE
The boss wants workers back at the office.
Bank of America, IBM, Aetna and Honeywell are among employers that have ended or reduced work-at-home arrangements as managers demand more collaboration, closer contact with customers and more control over the workday, according to the Wall Street Journal.
“We are going to see revitalization of downtown cities and real estate as a result of this change,” says Situs Executive Managing Director Warren Friend. “This is a good idea and Apple figured it out a long time ago. Its new headquarters allows people to collaborate in so-called ‘sharing cafes.’”
U.S. workers who performed all or some of their work at home fell to 22% last year, from 24% in 2015. At-home work hours averaged 3.1 hours a day last year, down slightly from 2015, according to the Labor Department’s American Time Use Survey.
Situs’ Friend adds, “Companies began offering remote-work policies because they expected large savings in office and real estate costs, but the savings were less than expected, and there was less collaboration, so workers are being called back to the office.”
More Renters Expected to Buy Homes This Year
Rental apartments may soon have more competition from for-sale houses, according to a new report from the Joint Center for Housing Studies of Harvard University.
“The national housing market is finally returning to normal,” per the Joint Center’s 2017 State of the Nation’s Housing report.
As the economy improves, some renters may finally turn to homeownership, provided they qualify for home loans. That will be especially prevalent in housing markets where homes are relatively affordable.
“We’ve been waiting a long time for millennials to create households, now it’s finally happening at a stronger pace,” says the Collingwood Group Chairman Tim Rood. “Moreover according to Zillow, in Q1 2017 there were roughly 1.1 percent (854,000) more homeowner households and 0.9 percent (365,000) more renter households nationwide compared to Q1 2016.”
But, Collingwood’s Rood warns, “millennials and first-time buyers are going to have a hard time competing with all-cash offers from well-capitalized and emboldened institutional investors. An overwhelming majority of millennials would struggle to come up with $1,000.”
Since 2005, the number of renter households has grown by nearly 10 million. That includes several types of households that traditionally prefer homeownership, according to the Joint Center.
The increase in the number of homeowners in 2016 was the largest since 2006. The Joint Center adds that there are early indications that home buying activity continued to gain traction in 2017.
Fed Winding Down Bond and Mortgage Holdings
The Federal Reserve will start to reduce its massive $4.5 trillion pile of government and mortgage debt “relatively soon.” Analysts see this long-expected move showing the central bank’s optimism in a steadily growing economy.
Yellen and company signaled Wednesday, the bank aims to whittle down its collection of bonds over the next several years, though the Fed said it’s unlikely to restore its balance sheet to pre-recession levels of around $800 billion.
As expected, the Fed also left a key interest rate unchanged.
After the Fed decision, stock markets held onto earlier gains, but the dollar fell and bond yields were lower.
The Fed’s official statement in July differed only slightly from that issued after its last meeting in June, but the bank did offer a note of caution on inflation.
Meet Your New Landlord: Wall Street
When real-estate agent Don Nugent listed a three-bedroom, two-bath house, offers came immediately, including a $208,000 one from a couple with a young child looking for their first home.
A competing bid was too attractive to pass up. American Homes 4 Rent, a public company that had been scooping up homes in the neighborhood, offered the same amount—but all cash, no inspection required.
Twelve hours after the house went on the market in April, the Agoura Hills, Calif.-based real-estate investment trust signed a contract. About a month later, it put the house back on the market, this time for rent, for $1,575 a month.
A new breed of homeowners has arrived in this middle-class suburb of Nashville and in many other communities around the country: big investment firms in the business of offering single-family homes for rent. Their appearance has shaken up sales and rental markets and, in some neighborhoods, sparked rent increases.
On Jo Ann Drive alone, American Homes 4 Rent owns seven homes, property records indicate. In all of Spring Hill, four firms—American Homes, Colony Starwood Homes, Progress Residential and Streetlane Homes—own nearly 700 houses, according to tax rolls. That amounts to about 5% of all the houses in town, a 2016 census indicates, and roughly three-quarters of those available for rent, according to Lisa Wurth, president of the local Realtors’ association.
Those four companies and others like them have become big landlords in other Nashville suburbs, and in neighborhoods outside Atlanta, Phoenix and a couple dozen other metropolitan areas. All told, big investors have spent some $40 billion buying about 200,000 houses, renovating them and building rental-management businesses, estimates real-estate research firm Green Street Advisors LLC. Still, they own less than 2% of all U.S. rental homes, according to Green Street.
The buying spree amounts to a huge bet that the homeownership rate, which currently is hovering around a five-decade low, will stay low and that rents will continue to rise. The investors also are wagering that many people no longer see owning a home as an essential part of the American dream.
read more: Wall St Journal
Malls Working to Woo Back Shoppers
Malls are raising the curtain on their second act.
Fed up with watching their apparel chains, department stores and electronics locations go dark as Amazon steals their sales and traffic, malls from coast to coast are signing leases with entertainment and experiential businesses to woo back shoppers — and the early results are promising.
At mall operator Westfield’s Topanga, Calif., property, traffic was up 3.6 percent through the early part of 2017 from a year earlier after it added YogaWorks, Kate Hudson’s Fabletics and Total Woman Gym + Spa.
On one hand, the malls are starting to give American consumers what they want — experiential activities. Across the US, spending on apparel and electronics is down while cash spent on hotels, dining and travel increased.
Also, malls seem to be learning how not to get steamrolled by Amazon.
“Mall owners are trying to sell something that you can’t buy at Amazon,” said Joshua Stein, a New York City real estate lawyer who represented one such experiential business, called Gloveworx, in its Westfield lease.
Gloveworx is a boxing studio founded by Leyon Azubuike, a former US national heavyweight boxer. He likes that his business is helping bring people back to malls.
“I never imagined that I’d be part of the rebirth of a shopping center,” Azubuike told The Post last week.
Two-year-old Gloveworx will be opening a second location in Westfield’s Century City shopping center in October near an Equinox gym, SoulCycle and the first Eataly food market in California.
“We have a serious commitment to this category of fitness,” Westfield’s David Ruddick, executive vice president of leasing, told The Post. “It’s everything from the fitness studio to the shake you have afterwards.”
Westfield is spending $9.5 billion to redevelop its 35 shopping centers by 2020, adding so-called outdoor lifestyle centers to some of its traditional malls and filling them with spas, yoga studios and new restaurant concepts.
Gloveworx is not anything like the gritty boxing gyms in Philadelphia where Azubuike honed his skills growing up. About 85 percent of its members are women — who might be inclined to shop at Bloomingdale’s after their workout — and “no one is getting punched in the body or face,” Azubuike said. The gym offers mostly conditioning and training.
Another experiential chain being wooed by malls is Punch Bowl Social, a nine-store restaurant chain that offers bowling, table tennis, pool, arcade games and karaoke.
It is doubling its footprint over the next two years as mall developers like GGP, Simon Properties and others fall in love with the Denver chain.
Plus, the 25,000-square- foot restaurants can take up a good chunk of space as big box stores pull up stakes. In November, Punch Bowl Social moved into a former Nordstrom store at Simon Properties’ Circle Centre Mall.
read more: NY Post
Robots Are Replacing Workers Where You Shop
Last August, a 55-year-old Wal-Mart employee found out her job was being taken over by a robot.
Her task was to count cash and track the accuracy of the store’s books from a desk in a windowless backroom. She earned $13 an hour.
Instead, Wal-Mart Stores started using a hulking gray machine that counts eight bills per second and 3,000 coins a minute. The Cash360 machine digitally deposits money at the bank, earning interest for Wal-Mart sooner than if sent by armored car. And the machine uses software to predict how much cash is needed on a given day to reduce excess.
“They think it will be a more efficient way to process the money,” said the employee, who has worked with Wal-Mart for a decade.
Now almost all of Wal-Mart’s 4,700 U.S. stores have a Cash360 machine, making thousands of positions obsolete. Most of the employees in those positions moved into store jobs to improve service, said a Wal-Mart spokesman. More than 500 have left the company. The store accountant displaced last August is now a greeter at the front door, where she still earns $13 an hour.
“The role of service and customer-facing associates will always be there,” said Judith McKenna, Wal-Mart’s U.S. chief operating officer. But, she added, “there are interesting developments in technology that mean those roles shift and change over time.”
Shopping is moving online, hourly wages are rising and retail profits are shrinking—a formula that pressures retailers, ranging from Wal-Mart to Tiffany & Co., to find technology that can do the rote labor of retail workers or replace them altogether.
As Amazon.com Inc. makes direct inroads into traditional retail with its plans to buy grocer Whole Foods Market Inc., Wal-Mart and other large retailers are under renewed pressure to invest heavily to keep up.
Economists say many retail jobs are ripe for automation. A 2015 report by Citi Research, co-authored with researchers from the Oxford Martin School, found that two-thirds of U.S. retail jobs are at “high risk” of disappearing by 2030.
read more: Wall St Journal
As Amazon and Wal-Mart Consolidate, Small Retailers Left in the Dust
Amazon’s “hulking shadow” just won’t go away, and it’s only going to grow, according to a new note from Moody’s Investors Service.
“Almost every sub-segment of retail is feeling the looming shadow of Amazon’s ever-increasing presence online,” Charlie O’Shea, Moody’s lead retail analyst and author of the report, said.
He used Prime Day as an example of how Amazon is separating itself from the rest by creating its own shopping event and leaving the so-called little guys scant room to compete.
“Virtually every sub-segment of retail, other than auto retail and pharmacy, are caught in the cross-hairs of Amazon’s constantly-morphing online presence,” O’Shea said.
Aside from the internet giant, Moody’s also expects other “bigger competitors” — Target, Best Buy and even department stores — to continue to consolidate ahead of “smaller competitors.” This will put further stress on smaller retailers — J. Crew, GNC and Abercrombie & Fitch, as examples — and elevate the risk of default, the firm has predicted.
“Competitors going up against mega-retailers such as Walmart or Amazon face a Darwinian choice: fight a price battle with these retail leaders, which they will likely lose, or find someone weaker from whom they can grab market share,” O’Shea wrote.
The problem struggling retailers face is that these companies aren’t “assessing who their competitors really are.” Too many retailers see their competition as much “narrower” or more “predictable” than it is.
J. Crew, for example, should be looking at a Target or a department store like J.C. Penney as its competition, because they’re all in the business of selling clothing. But not everyone has that mindset, Moody’s pointed out.
For small retailers, the circumstances are becoming more and more “dire” in the brick-and-mortar space, O’Shea added. But there’s really not much that can be done at this point.
“Distressed retailers have very little room to maneuver in a falling sales environment. Any drop in revenue could be the tipping point for those scrambling to maintain enough liquidity to meet upcoming debt maturities and, at the same time, enough money to support a competitive online capability.”
read more: CNBC
Best Buy Will Let You Rent Gadgets Before You Purchase
Retail is tough. Customers have to be able to figure out which item will best suit their needs while retailers need to make sure their customers are happy enough with their purchases to keep them.
One way to serve both needs is with a solid “try before you buy” system, which lets consumers get some hands-on time with items before committing to a full purchase. This is even more useful when customers are looking for big-ticket items like fancy wearables and high-end cameras. Big-box electronics retailer Best Buy has partnered with gadget rental startup Lumoid to provide just such a system, which is due later this month.
According to ReCode, Best Buy you will soon be able to rent items like cameras, wearables and audio devices with a featured button on Best Buy’s website.
This new program could give Best buy an advantage over Amazon, which does not currently offer a similar rental service. Letting customers rent a higher-priced item like a Sonos speaker, Sony Alpha camera or Apple Watch could get them the time they need with the device to decide if the purchase is worth it. Lumoid’s founder, Aarthi Ramamurthy, says that wearables get the highest conversion rate from rental to purchase, with one in three renters deciding to buy after the try.
read more: Engadget
Extreme Commuting: What it Means for YOUR Business
In 1492, after an arduous voyage aboard Columbus’s vessel the Santa María, Rodrigo de Triana, a lookout, bellowed, “Tierra!”
This is pretty much how Corey Ferrell, a commuter, sometimes feels upon docking at his Manhattan office following a heroic three-and-a-half-hour, one-way commute — by bicycle, two trains, and on foot — from Oxford, Conn.
About 180 miles to the west, in Bethlehem, Pa., Scott Ubert, a corporate chef in Manhattan, starts his extended day at 5 a.m. An hour later, coffee in hand, he drives 10 minutes to an open-air bus stop where he catches the 6:20 to the Port Authority Bus Terminal — two hours if the stars align. From there, he has a leg-stretching 20-minute walk to work.
“The ride is pretty comfortable,” Mr. Ubert said. “But just hope you don’t get one of the old clunkers.” Like nearly all “extreme commuters” — defined here as people who commute a minimum of two hours each way, five days a week — Mr. Ubert settles in, pulls out his iPhone and laptop and gets to work answering emails, texting and planning menus. He typically logs a 10- to 12-hour workday, returning home at close to midnight.
“My wife always waits up, which is nice,” Mr. Ubert said. “Our little guy goes to bed at 9 p.m., which is not so cool, but he loves the backyard and neighborhood, so it’s completely worth it.”
At first Mr. Ubert thought he would hate the commuting life, but that soon changed. “It’s really not so bad, and what we get in return is amazing.” What they get in return is a 3,100-square-foot, five-bedroom, four-bath colonial on one rustic acre, for which they paid $375,000 last year.
“It’s true, we are living the American dream, with deer running around in our yard, and bald eagles, too.”
Escaping to the distant exurbs is not new, although the frontier for the New York area seems to be expanding deeper into regions like Bucks and Pike counties in Pennsylvania — even to Philadelphia; Dutchess, Rockland and Orange in New York; Sussex and Warren in New Jersey; and New Haven and Middlesex in Connecticut. These commuters are heeding the old real estate adage: “Drive until you qualify.” This suggests that you explore farther and farther out until reaching the off ramp where houses meet your style and budget.
It would be an overstatement to say extreme commuting is a major trend. After all, how many people can withstand 200 hours a month traveling back and forth? On the other hand, given the woeful state of New York City’s transportation network this summer, a five-mile commute can feel like hitchhiking to the Catskills.
For those who can, however, the motivations are similar: the need to leave an unaffordable city, expanding families, a search for better schools, tranquil environs and more real estate bang for the buck. And as employers become more open to flexible work hours, combined with technology that makes it easier to carry the office with you, the long-distance commute is expected to grow significantly.
“Technological changes have made it more possible to redefine the workplace,” said Mitchell L. Moss, director of the Rudin Center for Transportation at N.Y.U. “Even in New York City, which has been famous for not allowing people to work at home, there is now more tolerance of flexible time.”
There is little data on long-distance commuting. The United States Census Bureau defines “long commutes” as 60 miles each way, which is hardly breaking a sweat for today’s morning marathoners. In 2013, 21 percent of commuters spent 60 minutes or longer getting to work, half of those driving alone. New York State had the highest rate of long commuters, about 16 percent, followed by Maryland and New Jersey, at roughly 15 percent.
For Connecticut rail commuters, until recently, New Haven was where the earth dropped off: more than two hours each way. Today, terra firma extends north into the Naugatuck River Valley south of Waterbury, and east toward New London.
“We are now getting more middle- and upper-level executives with young families looking for prime waterfront property,” said Meig Walz of Coldwell Banker in Madison, Conn., which is about 15 minutes east of New Haven and halfway between New York and Boston. Four- and five-bedroom waterfront homes in Madison are in the $2 million range, half of what they would fetch in Fairfield County, and with lower taxes. Middlesex County, traditionally a region where city dwellers bought second homes, is seeing growth in full-time residents who commute, Ms. Walz added.
read more: NY Times
Give Me Land Lots of Land, Don’t Fence Me In
(Listen to the Song While You Read Along)
Risk-averse investors looking for income have a new option to consider: ground leases.
iStar Inc, a New York-based real-estate investment, financing and development firm, has spun off some of its ground leases—or the land under buildings—into a separate real-estate investment trust called Safety, Income and Growth Inc. SAFE 0.51% that is expected to raise $250 million from an initial public offering and concurrent private placement.
The shares trade on the New York Stock Exchange.
Pulling apart and structuring the components of the real estate asset, that is, the ground lease from the building itself, would be a more efficient use of capital, said Jay Sugarman, chairman and chief executive officer of iStar and the CEO of Safety.
“Different risk profiles should be owned by different investors,” said Mr. Sugarman. He said a ground net lease is akin to a double-A bond and occupies “a very safe place in the capital structure.”
The REIT projects to pay an annualized dividend of 60 cents, which translates to a yield of 3% at the IPO price of $20, according to the prospectus.
The REIT is the first publicly traded company tied directly to leases on the land underlying commercial real estate. In many commercial developments, ownership of the land is separate from ownership of the building on top, and landowners collect income from the owners of the brick-and-mortar buildings. Owners of hotels and office buildings, for example, often must pay ground leases.
The leases generate steady income for landowners, potentially making them attractive to investors looking for safety at a time when real-estate and stock-market valuations are high and interest rates remain near historic lows.
“Ground leases are real estate’s analogy to buying Treasurys,” said Jim Sullivan, president of Green Street’s Advisory Group. “When structured properly, they are perhaps the safest form of real estate that an investor can own.”
read more: Wall St Journal
Have a prosperous day and a great weekend — don’t get fenced in!
Click here to subscribe to Situs Newswatch.
Thank you for choosing the Situs Newswatch. If you want to see your company here or have an idea for coverage, please respond to this email or email email@example.com for more information.