|Profit from Tech: Data Centers are Hot
E-commerce gets the blame for the struggles of retail real estate, but is proving to be a boon for owners of data centers.As more people consume digital content and make purchases online, landlords and owners of data centers are looking to expand faster.“Data centers are a growth real estate sector,” says Situs Director Eugene Venanzi. “Big bets are paying off on big data as computing moves to the ‘cloud’ and as more computer centers are needed to house it.”The Wall Street Journal reports data center owner and operator Digital Realty Trust will acquire competitor DuPont Fabros Technology Inc. in an all-stock deal valued at $7.6 billion. San Francisco-based Digital Realty said the transaction will strengthen its existing portfolio in Northern Virginia, Chicago and Silicon Valley.
The moves show how technology is creating numerous winners in real estate even as it disrupts traditional industries such as retailing. While mall owners face growing pressure from the rise of e-commerce, for example, the increase in web activity is fueling demand for wireless infrastructure and racks of telecommunication equipment that need to be stored somewhere.
All of that is being reflected in share prices. Total returns from data centers were 22% in the first half of this year, up from the 4.9% return of all equity REITs, according to data from the National Association of Real Estate Investment Trusts and the 8.8% return for the S&P 500-stock index.
But Venanzi warns, “While investors will continue to clamor for data center investments, buyers, sellers and lenders should take special care and rely on the advice of a knowledgeable consultant like Situs before making a lending or purchasing decision. Rapidly changing technology and changes in the corporate landscape add an additional level of complexity to the analysis of these properties.”
Is Fintech Next to be Regulated?
Regulators are scrambling to catch up with the explosive growth of fintech and non-bank financial institutions, while also grappling with the bigger question of whether more oversight is needed to create a more level playing field.
“Fintech — using technology to better provide people with mortgages — is saving them money, it would be a shame to impose costly regulations on this industry,” says The Collingwood Group Chairman Tim Rood. “We believe that in disruption there is a wealth of untapped potential in the mortgage market, and we are witnessing many of our clients seizing this opportunity to drive business progress. While the goal of the mortgage industry — providing consumers with suitable, sustainable and well-priced mortgages — has not changed, the means to achieve the goal has. The key to harnessing disruption lies in the willingness of incumbents and new entrants to bolster their transformative capabilities to eliminate inefficiencies, reduce costs and improve customer satisfaction.”
In May, the Conference of State Bank Supervisors (CSBS) Board of Directors announced its Vision 2020 for fintech and non-bank regulation, which is a series of initiatives designed to create an integrated, streamlined 50-state licensing and supervisory system for non-banks by 2020. CSBS is a member organization of state regulators across the country. In addition to banks and credit unions, the state regulators oversee roughly 20,000 non-bank entities that include a variety of businesses such as mortgage lending, consumer finance and debt collection firms among others, according to CSBS.
NREI reports, potentially, a fintech company that wants to expand might end up working with 50 different state regulators and 50 different state laws. State regulators have committed to make changes that can result in a seamless experience for fintech firms and other non-bank entities by the year 2020, notes Kurtzke.
Fintech regulation, like the industry itself, is still evolving. Regulators are watching to see how various types of alternative debt sources function, how active they are in the current cycle, and how those lenders perform as the market cools and delinquencies rise.
Redfin Shares on Fire in Fintech IPO
Shares of online real estate broker Redfin hit the market on Friday with a boom.
The stock rose more than 30 percent when trading opened. The 9.23 million share offering priced at $15 a share, above the expected price range of $12 to $14.
Redfin specializes in buying and selling homes and uses a mobile app to do tasks like schedule home tours and suggest listings.
In its prospectus, Redfin differentiates itself from other tech companies that use only the internet and mobile apps to connect consumers with businesses.
L.A. Overtakes Manhattan in Commercial Property Sales
Los Angeles overshadowed New York as the largest U.S. commercial real estate sales market in the first half of this year, according to preliminary data from Real Capital Analytics.
Investors purchased $12.6 billion of Los Angeles property during the six-month period, compared with $10.6 billion in Manhattan, said the data firm, which plans to update the numbers later this week.
Usually Manhattan far overshadows other markets because it is bigger and more attractive to global investors.
But investors are increasingly migrating to other markets because prices in New York have reached high levels, according to Jim Costello of Real Capital.
Overall, U.S. sales volume continues to lag last year, according to the preliminary statistics. In the first half, $209.4 billion of office buildings, stores, warehouses and other commercial real estate changed hands, down 9% from the same period in 2016, Real Capital said.
read more: Wall St Journal
IMF Warns Eurozone Against Complacency, Sees Serious Threats
The immediate outlook for economic growth in the eurozone is “favorable,” but that shouldn’t distract attention from deep-seated problems that continue to threaten the currency area’s cohesion, the International Monetary Fund warned .
The eurozone economy has gained momentum this year, outpacing the U.S. in the first quarter and likely to come close to matching it in the second. There is also a sense of relief among mainstream politicians at having seen off challenges from parties hostile to the euro and the European Union in elections in the Netherlands and France.
But if the eurozone’s leaders were preparing to engage in a period of self-congratulation, the Washington, D.C. based Fund is out to spoil the party with a reminder of how much work remains to be done before the threats to the currency area’s survival are minimized.
In its annual review of the eurozone’s economic policies, the Fund warned it faces “significant downside risks,” with government debt levels still too high and the banking sector still fragile and weighed down by bad loans.
It also noted that the convergence in income levels that has long been at the heart of the EU project has stalled, and the gap between highly productive economies such as Germany, and less productive economies such as Italy is widening.
read more: Wall St Journal
Libor, Used in Many CRE Deals May Be Going Away
The benchmark is one of the most important in the world. It underpins trillions of dollars in financial products. It was the center of a huge scandal when banks were accused of rigging it.
Now Libor is going away.
British regulators say they wanted to phase out the scandal-plagued interest rate by 2021, replacing it with new measures that are more closely tied to the lending markets.
The London interbank offered rate, or Libor, dates back to the 1980s, when banks in Britain decided to use a uniform benchmark across their increasing range of financial products, rather than referring to various currencies and interest rates. Today, Libor is the underlying rate for a vast array of financial products, from home loans and credit cards to small business loans.
To set Libor, banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and at varying maturities. But that process has been undermined in recent years.
Several banks were accused of adjusting their Libor submissions to benefit themselves and their traders’ positions, rather than reflecting the rates at which they were actually making loans. An inquiry into manipulation of the rate led to billions of dollars in fines and shook the reputations of some of the world’s biggest banks, including Barclays, Deutsche Bank, Royal Bank of Scotland and UBS.
And because Libor is so prevalent in everyday financial life, the scandal has also touched consumers.
Libor is tied to more than $350 trillion in derivatives, corporate bonds and other financial products, according to the ICE Benchmark Administration, a division of Intercontinental Exchange, which oversees the rate. Like the prime rate in the United States, it is also often used to help determine how much interest banks and other financial institutions should charge consumers.
read more: NY Times
Just 1% More Home Construction Could Ease Housing Crunch
Stop us if you’ve heard this one: There isn’t enough inventory in the housing market.
It’s a well-worn refrain, but a new analysis from Trulia offers a conclusion so simple it seems silly. Too little fresh supply — new homes being built — is far and away the single biggest contributor to the meager level of housing inventory.
Anyone keeping tabs on the housing market is familiar with the low-construction theme. While the pace of new-home sales has perked up over the past few years, they still represent only about 69% of their long-run sales pace.
Trulia’s analysis suggests that in the largest 100 metros of the U.S., a one-percentage-point increase in home-building over the past five years — if builders had increased housing supply by 2% more homes rather than 1%, for example — would mean existing inventory would stand 13% higher in 2017 — in addition to the actual number of homes that were constructed.
That’s because newly-constructed homes are usually purchased by people who already own their homes and who are now buying pricier properties. If there’s new supply for them, they sell, freeing up inventory all the way down the housing food chain and creating a multiplier effect that goes beyond the number of new homes constructed.
Put another way, we’d now have more than 81,000 more homes in the market across the U.S. Or consider Charlotte as a local example. The overall number of housing units increased by 51,458 between 2010 and 2016. But if builders had built just 1 percentage point more homes, the multiplier effect of having more supply in the market would mean additional inventory of 901 more homes in the second quarter of 2017 than those that were constructed.
In contrast, another housing-market development that’s often blamed for tight inventory — investor purchases of homes to rent — has a much smaller effect throughout the market: a 2.5% decline in inventory for a 1 percentage-point increase in investor ownership. That’s because investors are typically buying at the lower end of the market. If a $400,000 home is purchased as a rental, it will only quash one or two lower-priced trade-ups.
read more: MarketWatch
Multifamily Growth Forecast
Freddie Mac forecasts the multifamily market will continue to grow for the rest of 2017 and into 2018. The company says the market will continue to moderate from cyclical highs, and demand for rental housing units will remain steady. As a result, Freddie Mac is predicting that origination volume is likely to hit another record in 2017, reaching between $270 and $280 billion.
Due to steady economic growth and strong demand for multifamily units, rent growth is expected to be similar to 2016 levels and vacancy rates will increase more slowly than initially forecast. However, the number of construction projects are expected to peak in 2017 or early 2018, which will push vacancy rates higher. Absorption of new units in some areas will take longer than in prior years, putting some downward pressure on rent growth.
“In the first half of 2017 multifamily performance, by most measures, remained near the historical average in the majority of markets across the country,” said Steve Guggenmos, Freddie Mac Multifamily vice president of research and modeling.
Some larger metropolitan areas — such as San Francisco, New York City, Washington, D.C. and Miami — saw significant construction in the past year, which has pushed vacancy rates up and slowed rent growth. However, according to the Outlook, nearly two-thirds of metros will end the year with vacancy rates below their historical averages. In these areas, demand continues to outpace supply, which allows rents to keep rising.
Guggenmos added, “All things considered, 2017 will be yet another good year for the multifamily market. And importantly, it will not be the market’s last strong year. Strong demand, fueled by demographic changes and lifestyle preferences, will ensure the multifamily market’s continued strength in the years ahead.”
read more: MarketWired
Guess Who Benefits from Lagging Home Sales
A shortage of new single-family homes across the U.S. is pushing up prices and locking many buyers out of the market. The silver lining: a boom in renovations of existing homes.
Americans are expected to pour a record $316 billion into home remodeling this year, up from $296 billion a year earlier, according to Harvard University’s Joint Center for Housing Studies.
The burst of renovations has been a boon for contractors as well as big home-improvement companies, which have enjoyed strong revenue growth even as most other retailers are struggling.
It also reflects rising home prices and growing consumer confidence, as people are once again willing to invest in their homes, either through savings or by tapping home equity.
“We turn away as much work as we do,” said Bill Halliday, owner of Home Improvements of Vero Beach, in Florida. “It used to be you could call me and I could get somebody to you in a couple of days. Now I can get somebody to you in four or five weeks.”
Analysts polled by FactSet expect Lowe’s Cos. to post adjusted earnings on a per-share basis of $4.62 in its current fiscal year, up from $3.99 a year earlier. Home Depot Inc. is forecast to post earnings of $7.24 in its fiscal year, up from $6.45 a year prior. The earnings results would be the highest level recorded in data tracing back to 2004, according to FactSet.
But economists caution that the current boom is unlike earlier ones in that it is largely a reflection of a broken housing market. Many Americans are electing to stay put rather than trade up because the inventory of affordable homes is so small.
read more: Wall St Journal
To rent an apartment on LoftSmart, a website for college students looking for off-campus housing, users browse listings, take a virtual tour, and read reviews from current or past tenants. If they find a place they like, they can put in an application, sign a lease, and pay their security deposit—all online.
That makes the website highly unusual in the online real estate industry, where most listing services direct apartment hunters to get in touch with a broker if they like a listing. It also offers a clue to the way technology is changing the process of finding an apartment for a wider universe of renters. A college student whose first housing transaction takes place entirely online may not be so quick to accept the stressful, time-consuming open houses of traditional renting during their next search.
“This demographic is a really interesting testing ground for the future of real estate,” Sam Bernstein, the startup’s 23-year-old chief executive officer and co-founder, said. “They’re untarnished by cumbersome legacy institutions.”
Bernstein started building LoftSmart in 2015 as a sophomore at the University of Virginia, intending to create a Yelp-like product to help his classmates avoid landlords known for shirking basic repairs or withholding security deposits. By the following fall, he had dropped out of college to work on the company full-time. He moved to Austin, Texas, and on his first night in town struck up a random conversation with an engineer named Sundeep Kumar, who would go on to become a co-founder.
read more: Bloomberg
The Starbucks-owned Teavana brand is closing down all its storefronts, in what is the latest blow to struggling American malls.
Starbucks announced y that all 379 Teavana stores — which are primarily based in malls across the country — have been “underperforming.” The move will impact 3,300 workers.
“The company concluded that despite efforts to reverse the trend through creative merchandising and new store designs, the underperformance was likely to continue,” Starbucks said.
read more: CNN
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