Situs Newswatch 8/28/2017

During second quarter 2017, Situs RERC asked regional investment survey respondents to rate the major property sectors on value vs. price in order to get a feel for how values compare to prices in the West, Midwest, South and East regions. The ratings are from 1 to 10, with 10 indicating that value greatly outweighs price, and 5 indicating that value is equal to price.

Situs RERC’s value vs. price rating for overall CRE was highest in the South region, as respondents saw the most value relative to price during second quarter 2017 (see chart below). Among the individual property sectors, the industrial sector offered the most value compared to price in every region except the South, where respondents indicated that the office sector had the most value for investors compared to price. In contrast, respondents suggested that the retail sector was slightly overpriced relative to value in the East, Midwest and West regions, though the retail sector appears to be faring better in the South region.

In the West region, the value vs. price rating for overall CRE indicated that values supported prices in second quarter 2017, as Situs RERC’s survey respondents saw even more value for investors relative to price. While the industrial sector offered the most value relative to price among the individual property sectors, the office and apartment sector ratings showed that value outweighed price in the second quarter. For the hotel sector, the rating indicated that value equaled price. The rating for the retail sector fell below 5.0, where value equals price, as respondents considered the sector slightly overpriced relative to value.

OPPORTUNITIES IN THE WEST (from a value vs. price perspective):

  1. Industrial – Very Good
  2. Office – Very Good
  3. Apartment – Good
  4. Hotel – Fair
  5. Retail – Poor

The Midwest was the only region where respondents considered overall CRE values to be equal to prices during second quarter 2017. The industrial sector value vs. price rating indicated that value greatly outweighed price. The apartment sector rating was slightly lower, though respondents still considered the apartment sector to be fairly priced compared to values. For the office, retail and hotel sectors, respondents reported that the ratings hovered around 5.0, where values were equal to prices.

OPPORTUNITIES IN THE MIDWEST (from a value vs. price perspective):

  1. Industrial – Good
  2. Apartment – Good
  3. Office – Fair
  4. Hotel – Fair
  5. Retail – Fair

Among the four regions, the South region received the highest value vs. price rating for overall CRE, indicating that respondents felt that CRE offered the most value relative to price. As such, values supported prices for overall CRE during second quarter 2017. Among the majority of individual property sectors, value vs. price ratings indicated that values outweighed prices. The exception to this was the apartment sector rating, which showed that values were equal to prices. The office sector offered the most value relative to price compared to the other property sectors, followed closely by the industrial and retail sectors. For the hotel sector, the rating indicated that values only slightly outweighed prices during second quarter.

OPPORTUNITIES IN THE SOUTH (from a value vs. price perspective):

  1. Office – Very Good
  2. Industrial – Very Good
  3. Retail – Very Good
  4. Hotel – Good
  5. Apartment – Fair

East region respondents maintained that overall CRE values outweighed prices during the second quarter of 2017, as the value vs. price rating for overall CRE was unchanged quarter-to-quarter. The industrial sector continued to offer the most value for investors relative to price. While the ratings for the office and apartment sectors indicated that both of these sectors were fairly priced relative to value, the hotel sector was slightly overpriced compared to value. For the retail sector, respondents remained concerned about overpricing relative to value.

OPPORTUNITIES IN THE EAST (from a value vs. price perspective):

  1. Industrial – Very Good
  2. Office – Good
  3. Apartment – Good
  4. Hotel – Fair
  5. Retail – Poor

To download this as a PDF, click here. For more information, please contact Ken Riggs.

Trump’s Economic Adviser Considered Resigning After Charlottesville 
A prominent Jewish member of President Trump’s administration said that the White House “can and must do better” in consistently condemning hate groups.

The sharp critique from Mr. Trump’s top economic adviser, Gary D. Cohn, came nearly two weeks after deadly violence in Charlottesville, Va., in response to a rally led by white nationalist groups. Mr. Cohn, who is Jewish, seriously considered resigning and even drafted a letter of resignation, according to two people familiar with the draft.

In his first public remarks on the national dialogue about the violence, Mr. Cohn said in an interview on Thursday with the Financial Times, that as a “patriotic American” he did not want to leave his job as the director of the national economic council. “But I also feel compelled to voice my distress over the events of the last two weeks,” Mr. Cohn said.

In the days after the Charlottesville rally, when Mr. Trump defended white nationalist protesters, Jewish members of the administration were mostly silent. Mr. Cohn is so far one of the few in the administration to publicly condemn the president’s remarks. Military leaders posted messages on social media denouncing neo-Nazis and racism, but did not specifically mention the commander in chief. Public deviation from the president by the military is unusual.

Read more: New York Times

Fed’s Yellen Defends Postcrisis Regulations
Federal Reserve Chairwoman Janet Yellen defended the sweeping financial regulations enacted in the wake of the financial crisis that began a decade ago, while keeping the door open to modest changes to the postcrisis rules.“The balance of research suggests that the core reforms we have put in place have substantially boosted resilience without unduly limiting credit availability or economic growth,” Ms. Yellen said Friday in a speech prepared for delivery at the U.S. central bank’s annual late-summer retreat in Grand Teton National Park.

But, she added, the Fed is “committed to evaluating where reforms are working and where improvements are needed to most efficiently maintain a resilient financial system.”

For the third time in four years, Ms. Yellen delivered the opening address at the economic policy symposium, which is hosted by the Federal Reserve Bank of Kansas City. The theme of this year’s conference is “Fostering a Dynamic Global Economy.”

It could be her final appearance at the Jackson Lake Lodge as the Fed’s leader, since her term is up in early February. President Donald Trump has said she is among the candidates he is considering for the post; another is Mr. Trump’s National Economic Council director, Gary Cohn. The job requires confirmation by the Senate, where Republicans hold a slim majority.

The Trump administration has made rolling back federal regulations a priority, and Republicans have long been critical of the 2010 Dodd-Frank financial overhaul law enacted in the wake of the 2007-09 crisis and recession.

“I have so many people, friends of mine, that had nice businesses. They can’t borrow money,” Mr. Trump said in February. “They just can’t get any money because the banks just won’t let them borrow it because of the rules and regulations in Dodd-Frank.”

read more: Wall St Journal

Here’s One Mortgage Monopoly the U.S. Government Wants To KeepThe FICO credit score is as ubiquitous as it is crucial in getting a mortgage.

Now, an odd-bedfellows alliance is out to break FICO’s lock and allow scores from rival companies.

At stake, proponents say, is credit access for as many as 35 million consumers whom FICO doesn’t evaluate, especially blacks and Hispanics with scant borrowing histories.

They’ve hit a wall in the form of mortgage giants Fannie Mae, Freddie Mac and their regulator, the Federal Housing Finance Agency. Allowing competitors would have little impact on consumers, the FHFA says, and could produce a “race to the bottom” if credit-score companies sought to make mortgages easier to get rather than improve accuracy.

The decade-long battle may be reaching a head. Fannie and Freddie face a year-end deadline to decide whether they’ll allow FICO rivals, such as VantageScore Solutions LLC. And frustrated by the government’s delays, lawmakers in both parties have introduced bills that would require the mortgage companies to consider different credit models. They’re backed by advocates including the Consumer Federation of America and business groups like the National Association of Realtors.

The delay “doesn’t make sense,’’ said University of Southern California professor Richard Green, a former economist for Freddie Mac. “Competition can’t make things worse.’’

read more: Bloomberg

Mall Landlords Step Up Mobile Efforts to Woo Shoppers
Retailers are making progress incorporating the benefits of online shopping into the physical shopping experience, but consumers are still uncomfortable with location-based services that track their smartphones, according to a recent survey of 5,000 shoppers.

Faced with competition from online vendors, shopping-mall landlords and retailers have been trying to transform brick-and-mortar spaces with innovations such as click-and-collect services and other interactive shopping functions.

One in five shoppers nationwide buys goods online and picks them up in stores two to three times a month, according to a joint report by Tata Consultancy Services and Retail Info Systems News based on an annual survey of 5,000 shoppers nationwide.

This year, nearly a third of shoppers said they have encountered problems such as waiting in long lines to pick up their purchases, an improvement from the 41% recorded in the survey last year. A quarter of the respondents say their items weren’t ready for pickup when they arrived, down from 30% recorded last year.

“Retailers are figuring out click-and-collect over time and are making real progress toward omnichannel maturity,” said the report. Omnichannel retailing is a strategy of getting goods to customers seamlessly, whether online or in stores.

There has been a surge in the number of retailer bankruptcies and store closures this year, including many mall-based chains that are suffering from weaker mall traffic and competition from Amazon.com Inc.

read more: Wall St Journal

Walmart Wants To Go Airborne
Wal-Mart Stores Inc. opened a new front in its battle with Amazon.com.The world’s largest retailer has applied for a U.S. patent for a floating warehouse that could make deliveries via drones, which would bring products from the aircraft down to shoppers’ homes.

The blimp-style machine would fly at heights between 500 feet and 1,000 feet (as much as 305 meters), contain multiple launching bays, and be operated autonomously or by a remote human pilot. Amazon was granted a patent for a similar vessel in April 2016.

The migration to the skies represents the latest volley in a clash between Wal-Mart and Amazon to grab shoppers’ attention, loyalty and dollars. In the process, the companies are increasingly treading on the other’s turf: Amazon is opening physical stores and agreed to pay $13.7 billion for upscale grocer Whole Foods Market Inc. Wal-Mart, meanwhile, has beefed up its e-commerce business through acquisitions and offers like free two-day shipping.An unmanned airborne warehouse — laden with drones — could help retailers lower the costs of fulfilling online orders, particularly the so-called “last mile” to a customer’s house, which is usually handled by a local or national logistics company. To avoid that expense, Wal-Mart and other retailers often encourage shoppers to pick up those orders at the store, where they might grab a few additional items. Last week, Target Corp. agreed to acquire a software company that coordinates local deliveries.

“The core challenge of traffic and driving distance in any major city or in a very rural location can be helped by a floating warehouse,” said Brandon Fletcher, an analyst at Sanford C. Bernstein. “Movable warehouses are a really nice idea because any flexible part of a logistics system allows it to be more efficient when demand varies wildly. The e-commerce world suffers from highly variable demand and more creative solutions are needed.”

read more: Bloomberg

Stonemont Financial Group Buys Portfolio of 100 Properties for $1.3 Billion
Stonemont Financial Group, an Atlanta-based real-estate-management firm, is buying a 100-property portfolio of office, industrial and retail holdings across 20 states for $1.3 billion, saying demand for properties with investment-grade tenants remains strong.

The deal, Stonemont’s largest acquisition ever, was fueled in part by debt capital seeking to finance strong real-estate portfolios, the company said Wednesday.

“We were able to hit the debt market at an optimal time, securing very attractive acquisition financing that will ultimately be recapitalized as part of the longer-term strategy of the fund,” said Zack Markwell, Stonemont Financial’s chief executive and managing principal.

Stonemont recently launched a fund focused on long-term, diversified assets with investment-grade yield. This is the fund’s first acquisition.

The seller of the portfolio, Chicago-based private-equity real-estate firm Oak Street Real Estate Capital, will continue to provide management services to Stonemont.

read more: Wall St Journal

Boston Penthouse To Seek Record $40 million
An under-construction penthouse duplex in Boson will be going on the market for $40 million.

Located in the Four Seasons Private Residences One Dalton Street, Boston, the unit is the last of three penthouses, all situated on the 60th and 61st floors of the building, to go on the market. Developer Richard Friedman, president and chief executive of Cambridge-based Carpenter & Company, said a buyer entered into contract for one of the penthouses for “about $40 million” last year, and the second penthouse went into contract in June. The building is slated for completion in 2018; Mr. Friedman declined to say when he expected the penthouse deals to close.

Expected to be roughly 7,300 square feet, the newest penthouse to come to market will have a 570-square-foot terrace and “spectacular, unobstructed views,” said Mr. Friedman. It will have four bedrooms, five bathrooms and two powder rooms. The building, in Boston’s Back Bay neighborhood, will include a private residents’ club on the 50th floor, a spa, restaurant, golf simulator and indoor lap pool.

read more: Wall St Journal

Famed Plaza Hotel Is on the Block
The Indian owners of the Plaza Hotel have hired a broker to sell the New York City landmark, a sign that a worldwide scramble among investors, celebrities and governments to acquire the property could be nearing an end.Sahara Group, a Lucknow, India-based conglomerate and the hotel’s majority owner, has enlisted JLL Hotels and Hospitality Group, a unit of real-estate firm JLL, to find a buyer, according to a person familiar with the matter.

While it is unclear how much a buyer would pay for a trophy property like the Plaza, hotel investors and brokers suggest it could be one of the most expensive hotel sales on a per-room basis, a popular industry metric. By that method of valuation it could bring in more than $500 million.

A Sahara spokesman didn’t comment on the hiring of a broker but said a “sale is under process and it has not yet concluded.”Dozens of real estate moguls, foreign government funds and other hotel investors around the globe in recent years have looked into buying the Plaza after Sahara indicated it would listen to offers, according to people familiar with the matter.

A Qatari sovereign-wealth fund, a Shanghai municipal investment fund and Pras Michel, the Grammy-winning co-founder of the hip-hop group Fugees, are among those that have expressed interest, say people who have been close to the process.

read more: Wall St Journal

UN New York Hotel Will Soon Become Hilton-branded
On Aug. 30, the luxury hotel known as UN New York will come under the Hilton flag as the Millennium Hilton New York One Plaza. But what does that mean?

Hotel ownership and branding are confusing everywhere, especially in New York City. So with a little help from Hilton, we’ll try to unravel it. Stay with us!

The recently modernized and renovated hotel at First Avenue and East 44th Street is owned, not by publicly traded Hilton, but by a different publicly traded company, Millennium Hotels and Resorts. It’s the seventh property in the city to be managed or franchised under the flag of Hilton Hotels & Resorts, which is Hilton’s flagship brand.

In addition to the Millennium Hilton New York One Plaza, Hilton Hotels & Resorts also manages the Hilton Midtown (on Sixth Avenue) and the Millennium Downtown (on Church Street). Four other city properties under the HH&R brand are franchised.

read more: NY Post

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