CRE Weak in July
Let’s hope for a better August!
CRE property pricing remained weak in July, according to the Ten-X Nowcast. This monthly pricing index, which combines Google Trends data, Ten-X Commercial’s proprietary transaction data and investor survey data provided by Situs RERC, indicates CRE pricing trends in real time.
The Ten-X All Property Nowcast was down 0.3% in July, the third consecutive monthly decline, and it brought the annual growth index back down to where it was at the start of the year. July’s results show the market remains in the doldrums, not surprising given the current political climate in Washington and the adjustment to higher interest rates.
Once again, the situation was mixed across property segments and regions. July’s biggest news was weakness in the apartment segment, which has been posting the strongest pricing gains by far in this cycle and through the first half of this year.
The Ten-X Apartment Nowcast fell 1.4% in July, its first monthly decline since late 2015. The drop brought the year-over-year apartment Nowcast growth down to 12.3%. Many had been surprised by the resilience of apartment pricing this year. While other segments responded to the uncertain macroeconomic environment, higher rates and fundamentals were shifting gears as supply picked up — especially as vacancy rates have ticked modestly higher and rent growth, while still positive, has cooled. One month does not define a trend, but July’s results suggest that this segment is vulnerable to these market forces. The Midwest was particularly weak in July, with the Nowcast for that region falling 4.3%. This could reflect the relative strength of the single-family segment in that region, where homes remain mostly very affordable and competitive with renting. The Southeast was the only region where the apartment Nowcast increased in July, rising 0.5%.
The Ten-X Industrial Nowcast dipped 0.2% in July, continuing a saw-toothed trend in place all year. Despite the monthly drop, industrial prices were up a stronger 7.1% year over year in July owing to a weak comparison month in 2016. Surprisingly, the only region that posted a gain in July was the Southwest, where the Nowcast increased 1.5%. Given the renewed weakness in oil prices, we would have expected investors to react unfavorably there.
The hotel, office and retail segments continue to drift, all showing marginal monthly increases in July. The national Ten-X Office Nowcast edged up 0.1% in July. However, this reflected a strong 4% jump in the Northeast, while all other regions declined. The news on office fundamentals remains grim, with no improvement in fundamentals in the second quarter and limited rent increases. The hotter markets are seeing demand pick up, while the weaker markets continue to drift amid limited economic drivers.
Retail eked out a second consecutive monthly Nowcast increase, a rare event for this beleaguered segment. Despite this, the Ten-X Retail Nowcast is up just 6.2% year over year, remaining in the doldrums it has been in this year. Regional patterns were mixed for retail, with the West and Southeast weaker.
Trump Adviser Calls for Firing of CFPB Chief
An adviser to President Trump has called for the firing of Consumer Financial Protection Bureau director Richard Cordray.
Corey Lewandowski, Trump’s former campaign manager who still speaks regularly to the president, criticized a CFPB rule that would make it easier for consumers to sue financial companies. Currently, many consumers are required to settle disputes related to credit cards and other banking products through mandatory arbitration.
“CFPB reform is far easier to achieve than tax reform or replacing Obamacare,” says The Collingwood Group Chairman Tim Rood. “Using the pretense of consumer protection, the CFPB has often been accused of acting on the assumption that individuals aren’t intelligent enough to make financial decisions for themselves. Moreover, lending and servicing communities feel like they have been cast as villains that prey on consumers leading up to and post the financial crisis.”
Collingwood’s Rood sees better times ahead: “The pro-business message coming from Washington is a welcomed change for lenders and mortgage servicers who are desperate for impartial and balanced regulations and enforcement actions.”
The CFPB was created under the 2010 Dodd-Frank Wall Street reform law, and the bureau is charged with protecting consumers from predatory lending practices that were commonplace during the financial crisis.
Under current law, the president can fire Cordray only for cause. The legal burden to show cause is high, and Cordray’s term does not expire until July 2018.
Cordray is widely expected to run for governor in Ohio, though he has not announced any plans to do so.
Private Equity Takes Fire as Some Retailers Struggle
A wave of retail bankruptcies washing through court has revived an old debate about the role of private-equity firms in accelerating the problems of companies in distress.
Payless ShoeSource Inc., Gymboree Corp., rue21 Inc. and True Religion Apparel Inc. were all acquired by private-equity firms during the past decade. Now, lawyers for creditors have questioned whether private-equity firms share blame for the retailers’ financial collapse, in some cases by loading debt on the companies.
In the case of Payless, investors Golden Gate Capital and Blum Capital, after a leveraged buyout in 2012, over the next two years paid themselves $350 million in dividends — in total putting more than $700 million in debt on the company. In 2016, Payless said in court papers, it had about $2.3 billion in global net sales, and nearly $840 million in debt.
Vendors and landlords alleged in court papers that the dividend payouts, along with other payments to the investors, left the retailer particularly vulnerable to collapse just as technology and shifting consumer behavior upended the retail industry.
“The depletion of their coffers put the company on a dangerous path that ultimately led to this instant bankruptcy filing,” a group of Payless’s unsecured creditors said in June court papers.
Golden Gate in a statement said that the firm supported Payless, alongside Blum, since the company’s 2012 acquisition, “including making investments in critical systems and providing operational support that enabled Payless to better compete in the hyper-competitive and rapidly changing retail environment.” Blum didn’t respond to requests for comment.
In general, private-equity executives say they often help companies improve operations and grow and that, sometimes, economic forces are beyond what any company could weather.
Moreover, retail woes are much bigger than private equity and extend to many companies that aren’t owned by such investors. Some private-equity investments haven’t had the problems others are experiencing.
Bankruptcy cases are messy by nature, and creditors — typically facing losses — are often determined to minimize them. In Payless’s case, which moved closer to exiting bankruptcy protection this month, lenders owed a majority of its debts will take control of the company.
read more: Wall St Journal
New Documents Give Hope to Fannie, Freddie Shareholders
Shareholders of Fannie Mae and Freddie Mac say a trove of documents they have obtained bolsters their case that the government lied when it decided to take all of the mortgage companies’ profits.
Investors have filed dozens of lawsuits in courts across the country over a 2012 government decision to replace Fannie and Freddie’s 10 percent dividend to the U.S. Treasury with a new one equal to almost all of their profits. At the time, officials said the change was made to hasten the companies’ wind-down and avoid the need for bailout money to pay dividends, a process known as a “circular draw” or “death spiral.”
A victory in any of the cases could earn shareholders billions of dollars in profits and also influence the future of the housing-finance system, which has remained in limbo for nearly nine years. Congress and the Trump administration are working on what to do about the mortgage companies at the heart of the housing market, and shareholders have struggled to influence the debate.
The documents, which include emails and memos from the months preceding the government’s final decision, may be used in a suit filed by Fairholme Funds Inc. and other shareholders, said Pete Patterson, an attorney in that case. In one email, a Treasury official writes that Fannie and Freddie’s regulator told Treasury Secretary Timothy Geithner the companies “will be generating large revenues over the coming years, thereby enabling them to pay the 10% annual dividend well into the future.”
Fannie and Freddie rallied after the release of the documents, with common shares up about 4 percent and classes of some preferred shares up more than 10 percent. Patterson said on a call with investors and reporters the documents “show unequivocally” that the Federal Housing Finance Agency, which controls Fannie and Freddie, and Treasury, “understood that there was no threat of a death spiral at the time the net worth sweep was adopted.” The rally was short-lived, with the shares declining on Thursday.
In interviews, former Obama White House and Treasury officials also rejected the shareholders’ characterization of the material, standing behind their long-stated reasoning for the so-called “sweep” of the companies’ profits to the Treasury.
read more: Bloomberg
Amazon Hiring 50,000 People Today!
Earlier this year, Amazon announced it was hiring 5,000 people — and letting them all work from home. They are not the only ones, of course, but people who missed out on that opportunity with Amazon won’t want to miss this new one — but it all ends today, Wednesday.
Because by the end of the day, Amazon will hire 50,000 new employees to work at one of 13 fulfillment centers around the United States. To be hired, you have to show up in person at one of these centers on Wednesday.
These are real jobs. They’re hard work, and require some manual labor and difficult conditions at times. And the pay — well, you’re not going to get rich. Looking over the Amazon jobs site, we see hourly rates all over the place, depending on location (we go through them all below), but some are in the $11.50-an-hour range. But these are real jobs, and Amazon will be hiring on-the-spot today. They’re both full-time and part-time jobs that offer medical benefits and tuition reimbursement.
There are 13 locations. In alphabetical order by state: Romeoville, Ill.; Hebron, Ky.; Baltimore, Md.; Fall River, Mass.; Robbinsville, N.J.; Buffalo, N.Y., Etna, Ohio; Whitestown, Ind.; Oklahoma City, Okla; Chattanooga, Tenn.; Kent, Wash.; and Kenosha, Wis.
Let’s put that 50,000 jobs number into context. In June, the entire United States economy added 222,000 jobs, so Amazon’s one-day total — they’re calling it Amazon Jobs Day — will be almost one-quarter that amount. It’s also far more than any single industry added last month.
In case you’re wondering, this does not make Amazon the biggest employer in the United States. They’re in the top 10 for sure, but Wal-Mart is number 1 with well over 2 million employees.
read more: Inc.com
The Hamptons are Hot This Summer
There’s more than just the stock market that’s soaring this hot summer.
Buyers in the Hamptons are taking some of their equity in stocks and plunking down more for homes along the South Fork resort towns.
The median sale price for a single-family Hamptons house has reached a record $1.07 million, up 7.5 percent from a year ago, according to a report late last week by appraiser Miller Samuel and brokerage Douglas Elliman Real Estate.
And the higher end seems to be flourishing as well, with 48 homes priced at $5 million or higher being sold in the three months leading up to the summer season — the most for any quarter since the end of 2015.
But that doesn’t mean the sky’s the limit.
Buyers still demanded a deal, however, with 86 percent of houses and condos bought in the quarter selling for less than what the seller sought, said Jonathan Miller, president of Miller Samuel. The average discount was 12 percent from the last asking price.
“Even when the numbers make sense, buyers will still say, ‘I don’t want to pay full ask,’ ” Raymond Lord, a local Douglas Elliman broker, told Bloomberg. “They always want to negotiate.”
read more: NY Times
Have a prosperous day and enjoy your Hamptons home or wherever the summer takes you.
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