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Brexit: The Good, The Bad, The Ugly
The “Doom-and-Gloomers” were wrong again, this time about Brexit…at least in the short-term.
So called “experts” who forecasted the UK’s demise after the vote to exit the European Union are having to take it back.
The slump in the pound since the Brexit vote has produced an immediate boost for tourism with airline bookings into Heathrow flying high.
“I’ve never seen as many people in London as I did last weekend” says Situs CEO Steve Powel, a frequent traveler to the British capital city. “It’s all about cheap money – it’s twenty percent less expensive for foreigners to come here now than it was six-months ago.”
A rise in visitors attracted by the cheaper pound is translating to a great summer for tourist attractions, restaurants, hotels and shops, which are already expecting to benefit from a growth in domestic “staycation” breaks as Britain’s consumers tighten their belts amid Brexit uncertainty.
“There is already a short-term positive impact from Brexit on the retail sector,” says Situs’ Powel, “and I’m betting some foreign money will come in here to scoop up Commercial Real Estate deals as well.”
But clearly not all is rosy:
“The UK is now a debt-fueled country,” says Situs managing director Prasad Chaganti, “after the Bank of England cut rates to 0.25% and pumped more money into the system.”
In fact, these concerns that corporate debt is rising in Britain have some coining yet another new word: “Crexit,” a mashup of the twin risks of Brexit and credit.
“But it’s no laughing matter,” says Chaganti, “It’s a very concerning development for any global company that has holdings in the UK.”
Brexit Bulletin: U.K. Home Sales Slump
Brexit is hitting the housing market. Sales dropped the most since the financial crisis in 2008, according to data from the Royal Institution of Chartered Surveyors. Prices rose at the slowest pace in three years in July and new sales declined.
Still, Singapore-based City Developments, an investor in U.K. property, reckons the impact of Brexit will be short-lived and sees signs the market is already stabilizing. Brexit may be an opportunity to invest, the company said today.
Clinton Hits Trump on Economic Plan
In her first full-throttled rejection of Donald Trump’s economic agenda, Hillary Clinton sharply criticized her opponent for advancing policies that would lift the ultra wealthy and cast middle-class and working Americans further into financial distress.
Presenting a contrast between two starkly different economic visions during a major economic speech in Detroit, Clinton called parts of Trump’s tax plan a discount to benefit his ultra-wealthy peers and relatives. Faulting Trump for promising deep tax cuts for the wealthy and a gentler approach to financial regulation, she portrayed his proposals as reflective of traditional Republican thinking that would exacerbate the gap between rich and poor.
“Donald Trump wants to give trillions in tax cuts to people like himself,” she said, citing his positions on eliminating the estate tax and reducing corporate taxes.
“Even conservative experts say Trump’s agenda will pull our economy into recession,”she said, adding that he “made a career out of stiffing small businesses.” She also faulted him for making his products overseas, saying it’s “just wrong.”
For all of Mrs. Clinton’s efforts tar Mr. Trump, he remains a difficult opponent to critique in traditional terms. Although some of his policies, which he presented in Detroit on Monday in his most expansive economic speech, align with those of Congressional Republicans, others, like his promise to rip up global trade agreements, break with Republican orthodoxy.
Clinton did not expected to present any new policies in her Thursday address. She has spent the past 18 months explaining her main economic proposals, including investing $275 billion on the biggest infrastructure plan since World War II, making public colleges and universities tuition free for in-state middle-class families, rewriting the corporate tax code to penalize companies that move jobs overseas and giving tax incentives to companies that share profits with employees.
Oversupply Beats Brexit as London Office Risk, UBS Says
The wave of office buildings under construction in London is a bigger threat to rents and values than the risk of companies moving out after the U.K.’s vote to leave the European Union, according to UBS Group AG.
“We saw a build-up of oversupply of office space long before Brexit which can’t be stopped,” Thomas Wels, global head of real estate at the Zurich-based bank’s asset-management unit, said in an interview. The additional space “will hit the market in 2017 and 2018 and isn’t priced into rents.”
Developers tried to capitalize on rising rents by starting work on a record number of central-London office projects in the six months through March. Values may decline as much as 20 percent there as companies consider moving some operations to continental Europe or delay expansion plans following the vote, according to Green Street Advisors.
International businesses could shift as many as 100,000 jobs away from London within two years of the U.K. officially starting a process to leave the EU because they risk losing their passporting rights, Jefferies Group LLC analyst Mike Prew said in June. Wels, who oversees $77 billion of real estate assets in 29 countries, estimates the number of jobs that move will be closer to 25,000.
Can Big Data Help Bankers Avoid Another CRE Debacle?
If examiners were to raise a stink about his commercial real estate loan concentrations, Bob Mahoney at Belmont Savings Bank in Massachusetts is ready to get down and dirty.
Using big data, the head of the $2 billion-asset bank is trying to keep tabs on all 380 tenants in properties where it is the commercial mortgage lender. If an accounting firm in an office building is named in a lawsuit, Mahoney is alerted. If a dental practice has its credit score downgraded, he knows about it.
“This lets us create a list of tenants — here are the high risks and here are the low risks,” said Mahoney, who is using software from Dun & Bradstreet to flag risks early.
Many banks are girding themselves for probing questions about CRE-related risk management. Commercial real estate, as a percentage of the industry’s total loans, remains stubbornly high, and examiners are said to be peppering bankers with questions about how they plan to avoid the kind of meltdown that took place in such portfolios nearly a decade ago.
The Malls are Changing
Macy’s will close approximately 100 stores next year as the department store continues to pare back its business in the face of changing shopping patterns and more online competition.
The company announced a series of strategic changes Thursday aimed at setting up the retailer for more sustained growth in the future. The plan includes bringing in more brand shops within the stores, improving online search and ordering, and hosting in-store events to drive traffic.
The 100 closures, about 15% of Macy’s 675 full-line locations, are only the latest round of closures Macy’s has done in recent years to cast off stores where profitability has waned. Macy’s hasn’t announced which locations will close, but said they represent about $1 billion in annual sales, excluding sales the company expects to retain online or at nearby stores. That’s nearly 4% of Macy’s total annual sales in 2015.
Lopsided U.S. Housing Rebound Leaves Millions of People Out in the Cold
The housing recovery that began in 2012 has lifted the overall market but left behind a broad swath of the middle class, threatening to create a generation of permanent renters and sowing economic anxiety and frustration for millions of Americans.
Home prices rose in 83% of the nation’s 178 major real-estate markets in the second quarter, according to figures released Wednesday by the National Association of Realtors. Overall prices are now just 2% below the peak reached in July 2006, according to S&P CoreLogic Case-Shiller Indices.
But most of the price gains, economists said, stem from a lack of fresh supply rather than a surge of buyers. The pace of new home construction remains at levels typically associated with recessions, while the homeownership rate in the second quarter was at its lowest point since the Census Bureau began tracking quarterly data in 1965 and the share of first-time home purchases remains mired near three-decade lows.
The lopsided recovery has shut out millions of aspiring homeowners who have been forced to rent because of damaged credit, swelling student loans, tough credit standards and a dearth of affordable homes, economists said.
U.S. Home Foreclosure Inventory Hits 9-Year Low
Home Foreclosure inventory in the U.S. hit it’s lowest level in nine years.
CoreLogic’s June 2016 National Foreclosure Report shows foreclosure inventory declined by 25.9 percent and completed foreclosures declined by 4.9 percent compared with June 2015. The number of completed foreclosures nationwide decreased year over year from 40,000 in June 2015 to 38,000 in June 2016, representing a decrease of 67.5 percent from the peak of 117,835 in September 2010.
“The impact of the inexorable reduction over the past several years in both foreclosure trends and serious delinquencies is driving the long-awaited return to more historic norms for the U.S. housing market,” CoreLogic President and CEO Anand Nallathambi said.
“We expect the combination of continued home price appreciation of more than 5% and rising employment levels in the year ahead will help cement the gains we have had and perhaps accelerate them,” Nallathambi said.
Since the financial crisis began in September 2008, there have been approximately 6.3 million completed foreclosures nationally, and since homeownership rates peaked in the second quarter of 2004, there have been approximately 8.4 million homes lost to foreclosure.
Investors See Gold in Distressed Properties in Brazil
International investors that have made big bets on Brazil real estate have no illusions that the Olympic Games that begin on Friday will do much to shorten the grueling marathon the country’s economy is running.
But some say there is one emerging bright side to Brazil’s prolonged recession, corruption scandals, ailing currency and political crisis: Distress levels for some property owners are reaching the point that they are selling at steep discounts.
The latest sign of this: Blackstone Group LP is in talks with listed real-estate company JHSF Participacoes to buy a 50% stake in five of the company’s malls in a deal that would value the portfolio at more than two billion reais ($620 million), according to people familiar with the matter. JHSF’s shares have been trading at below one real, compared with more than four reais in 2012 and it has been under pressure to reduce debt.
Last year, private-equity firm GTIS Partners took private Brazil Hospitality Group, one of Brazil’s largest hotel owners, in a $400 million tender offer, or about 35% of replacement cost. GTIS took advantage of the company’s low stock price and the pressure it was under from an activist shareholder, said Tom Shapiro, GTIS co-founder and president.
Mortgage Debt Increases along with other Household Debt
U.S. household debt hit $12.29 trillion in the second quarter, up $434 billion from a year earlier as auto loans and credit card debt increased, a Federal Reserve Bank of New York survey showed on Tuesday.
Mortgage debt was $8.36 trillion, up $246 billion from last year, while student loan debt was $1.26 trillion, up $69 billion.
Some 4.8 percent of the outstanding debt was in some stage of delinquency, down from 5.6 percent from a year ago, according to the quarterly household debt and credit report.
Auto debt was $1.10 trillion, up $97 billion from a year earlier, while the aggregate credit card limit increased for the 14th straight quarter, reflecting Americans’ easier access to credit as the 2007-2009 financial crisis fades.
#Office Space for #Rent
Twitter is looking to sublease more than a quarter of the space at its San Francisco headquarters complex on the heels of a disappointing quarter.
The unprofitable company is offering 183,642 square feet of space on four separate floors in two buildings at the corner of 10 and Market Street, according to a prospectus.
“We’re always looking at ways to use our office spaces more efficiently and effectively,” Twitter said in a statement. “We remain committed to our home in San Francisco’s Mid-Market area.”
Twitter currently occupies more than 600,000 square feet in the two buildings. Earlier this year, it subleased another one of its floor after cutting 8 percent of its workforce, according the San Francisco Business Times, which reported the latest sublease offer.
New York City’s Economy Slows to a Crawl
New York City’s economy is showing its first concrete signs of a slowdown, City Controller Scott Stringer says in a new report. The economy grew 1.7% from April to June of this year – the slowest rate since the end of 2013, according to the quarterly economic update set to be released Wednesday. Job growth also lagged, with 13,400 private sector jobs added – a 1.4% increase but down from 4.6% in the first quarter of the year. … the average wage of all private sector workers fell to $33.48 from $33.51 the same time last year – the first year-over-year decline in nearly seven years. … the wage gap shrank – with average wages growing 3.3% in low-wage industries last year, growing 3.1% in middle-wage industries, and falling 0.9% for the highest-paid industries.
WeWork Misses Mark on Some Lofty Targets
When shared-office-space giant WeWork Cos. sought fundraising in 2014, it told investors that it planned to open 14 locations with dorm-like residences dubbed ‘WeLive’ by the end of 2016, accounting for 12% of the company’s revenue. Now, the company is on track to have just two by the end of 2016. Another, in Seattle, isn’t expected to open until at least 2018, and no others have been publicly disclosed. Six years after it was founded in a small space in Manhattan, WeWork has amassed a valuation of $16 billion, placing it among the world’s most valuable startups. But as many startups that raised Silicon Valley cash in recent frothy times are finding, a business model based on super-rapid growth projections might not play out as expected.
Sorry, Chicago: Brooklyn Will Soon Be The Third Largest City In America
For years, Brooklynites have boasted that if their homeland seceded from the rest of New York City, it would be the fourth largest city in the United States. Now, the borough is poised to leapfrog Chicago, the current holder of third place, by 2020. Watch your back, L.A.
According to estimates from the U.S. Census Bureau, Brooklyn’s population has grown by 5.3 percent percent since 2010, an increase of more than 130,000 residents. This growth fits with a larger pattern for New York City. The Census Bureau estimated New York’s 2015 population at just under 8.6 million, up from from 8.2 million in 2010.
Commuters Waste Full Week in Traffic Each Year
The average commuter wasted 42 hours — more than a typical work week — and $960 last year snarled in traffic, according to a recent study from the Auto Insurance Center, an insurance information website.
That’s just the average. Commuters in large metropolitan areas, especially Washington, D.C., New York City, and Los Angeles, had it far worse.
Commuters in the nation’s capital had nearly double the traffic costs last year, spending an average of $1,834. New York area commuters paid $1,739, while L.A. drivers spent $1,711.
Four of the 10 counties with the longest morning drives are in New York. By region, commuters in the Northeast corridor lost the most hours to traffic.
Drivers in D.C. sat for an average of 82 hours in traffic last year, New York City commuters spent 74 hours, and Boston drivers waited 64 hours. Though not to be outdone, the typical L.A. commuter wasted 78 hours in traffic.