Situs Newswatch 8/3

Bank of England Expected to Cut Rates Tomorrow, “Super Thursday”

The Bank of England is widely expected to cut interest rates tomorrow, for the first time in seven years, in wake of Brexit.  The central bank will release its rate decision on what has been dubbed “Super Thursday.”

“We expect a 0.25% cut to the bank lending rate making it 0.25%”, says Situs Managing Director Chip Good, “plus other measures to increase credit availability to the U.K. economy.”

Since voting to leave the E.U. there have been a slew of negative numbers pointing to a sharp decline in Britain’s economy.  Analysts are now virtually certain BOE’s Monetary Policy Committee will deliver easing measures aimed at countering the post-Brexit hit to the economy.“

“Unless the U.K. spurs economic growth, there will continue to be a domino effect across Europe,” says Situs CEO Steve Powel. “At some point all of Europe could be affected.”

British bank NatWest has become the first to warn business customers that they may be charged negative interest rates on deposits.

And, the contagion could spread to the U.S. — Citigroup cited “significant uncertainties” as it warns of a challenging business environment, and Bank of America told investors to brace for several years of market volatility. Plus, JPMorgan Chase CEO Jamie Dimon said the breakup of the whole EU was a possible long-term risk following Brexit. 

This is sparking a slowdown that is cutting into the CRE market in a big way.

Stay tuned!

The “Brexit Effect: Good for U.S. Mortgage Lenders

The “Brexit Effect” is the focus of Black Knight Financial Service’s current Mortgage Monitor.  The report, covering June mortgage performance data, notes that the aftershocks from the United Kingdom’s vote to leave the European Union have resulted in an increase in the numbers of “refinance-able” homeowners to the largest pool since late 2012.

Mortgage interest rates, driven by a surge of investors running to the safety of sovereign notes globally, including those of the U.S. Treasury, have declined by about 15 basis points (bps) post-Brexit, but this, Black Knight says, has been enough to increase the number of refinance candidates by about 1.3 million to a pool of 8.7 million borrowers.  Even prior to the vote in late June there were roughly 1 million more potential refinancers than when interest rates were at their lowest in early 2015; however, refinance originations and prepayment speeds in the early part of this year, the company says, have hovered well below last year’s levels.

About 18.5 million borrowers, 45 percent of those with a 30-year mortgage, have a current interest rate between 3.5 and 4.5 percent and 25 percent (9 million) have rates between 4 and 4.5 percent.  The “Brexit effect” and its 15 bps drop push 2.8 million borrower sitting right at 4.25 percent “into the money.”  Black Knight estimates that over 1.2 million of these meet broad-based eligibility criteria — loan-to-value ratios of 80 percent or less, credit scores of 720 or higher and are current on their mortgage payments. 

Building Boom Going Bust – Warning from #Housing Which Has Led #Economic Recovery

Spending on construction tumbled 0.6% in June, with declines spread evenly across the private and public sectors according to the Commerce Department.

That was well below forecasts. Outlays are still 6.2% higher for the first six months of the year compared to the same period in 2015.

Housing seems to be holding its own: private residential construction was up 2.6% during the month, making it one of the strongest categories.  But this is a clear warning to the sector that has been a star of the otherwise weak economic recovery.

Situs RERC finds the Vacancy rates continued to creep up across all regions for apartment properties.  Vacancy rates increased the most in the Midwest by 72 bps since 2Q 2015. Rent growth still remains strong in the West, South and Midwest, at 6.5%, 4.7% and 3.9%, respectively. 

The boom was spurred by housing and office construction. Residential spending alone contributed almost 0.3 percentage point to economy’s 2.4 percent growth rate. New industries, such as e-commerce, also drove construction work.  But that is all coming to an end.

Construction may be a victim of its own success. A breakneck pace of apartment building  has saturated some markets, and believe it or not rents in some big cities are starting to decline because of the over supply.  It was a good ride!

Spiking Data Center Demand Driven by Exploding Cloud Services

According to JLL’s latest data center report, unprecedented demand for online content such as movies, videos, apps, social media and photos have become a staple part of the digital diet. Because of such, the adoption of cloud services to store all this content is expected to double the size of the North American data center industry by 2021…With a spike in protective data sovereignty laws enacted this year, JLL’s annual North America Data Center report also observes that countries are beginning to regulate where the cloud ‘lives.’ Data sovereignty means that digital data is subject to the laws or legal jurisdiction of the country in which it is stored. With this some of the industry’s biggest players are expanding globally faster than ever to meet growing demand and regulatory compliance requirements.” 

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Why Corporate America Is Leaving the Suburbs for the City

For decades, many of the nation’s biggest companies staked their futures far from the fraying downtowns of aging East Coast and Midwestern cities. One after another, they decamped for sprawling campuses in the suburbs and exurbs.

Now, corporate America is moving in the other direction.

In June, McDonald’s joined a long list of companies that are returning to downtown Chicago from suburbs like Oak Brook, Northfield and Schaumburg.

Later this month, the top executive team at General Electric — whose 70-acre wooded campus in Fairfield, Conn., has embodied the quintessential suburban corporate office park since it opened in 1974 — will move to downtown Boston. When the move is completed in 2018, the renovated red brick warehouses that will form part of G.E.’s new headquarters won’t even have a parking lot, let alone a spot reserved for the chief executive.

But even as they establish new urban beachheads, business giants like G.E. are also changing the nature of their headquarters, staffing them with a few top white-collar employees and a smattering of digital talent, rather than recreating the endless Dilbert-like pods they once built in the ’burbs.

“Part of it is that cities are more attractive places to live than they were 30 years ago and are more willing to provide tax incentives, and young people want to be there,” said David J. Collis, who teaches corporate strategy at Harvard Business School.

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The Truth About “Dorms for Adults”

“Co-living,” the idea of young professionals living in dorm-like surroundings, has been billed as the hot new trend in housing.

WeWork, the $16 billion co-working startup, is reportedly betting that its co-living venture, WeLive, will provide the company with 21 percent of its revenue by 2018. Other startups like Common are trying to build an entire business out of the idea. But today, co-living is far from revolutionary.

Business Insider interviewed residents, co-living startup founders, industry insiders, and lawyers.

The big revelation: Co-living isn’t a bunch of people trying to recapture the magic of drunken college revelry. None of the WeLive or Common residents I interviewed described an experience even close to that, though there is a beer tap in the WeLive laundry room.

At the same time, co-living doesn’t seem to offer the major improvements to housing that its biggest boosters want it to.

Right now, co-living simply describes an apartment building where residents pay a premium for a ton of amenities, communal events, and the type of “on demand” flexibility with living space we have come to expect from other kinds of startups like Uber. That’s it.

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The Ideal Office Floor Plan, According to Science

The open office plan that everybody loves to hate is here to stay. The ideal seating plan still involves sitting almost on top of your co-workers, according to new research from Harvard Business School. What changes, however, is who exactly sits next to whom. 

For two years, researchers followed the seating arrangements and output of 2,000 workers at an unidentified technology company, measuring the proximity and productivity of the participants by looking at how quickly they completed tasks. The denser an area is with productive people, the better it was for a nearby worker’s productivity, effectiveness, and quality of work, the research found.1 

The converse also holds true for sitting near “toxic” workers, or people who break the rules at work. The researchers call this the “spillover effect”—people at nearby desks rub off on each other, in both good and bad ways. Workers can’t be too far away for this to work: The effect diminishes outside a 25-foot radius.

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Apartment Construction Declines in Big Apple

The number of residential permits issued by the New York City Department of Buildings (DOB) dropped by more than half in the 12 months after the demise of the 421-a program, according to a New York Building Congress analysis of U.S. Census data. The program gave developers a 10-year tax exemption for building a multi-unit residential project on vacant land. During the 12-month period running from the expiration of the program (July 1, 2015) through June 30 of this year, the DOB authorized construction of 20,144 new units of housing in the five boroughs, a drop of 62 percent from the 52,618 residential permits that were issued between July 1, 2014 and June 30, 2015. That said, the 20,144 permitted units is right in line with the average of 19,928 residential permits that were authorized annually between 2005 and 2014.”

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These Landlords Are Making a Killing on College Students

College students aren’t famous for their tidiness, sober living, or financial prudence, to name three qualities landlords might look for in a tenant. But despite the beer-soaked carpets and general flakiness, renting off-campus apartments to undergrads is turning out to be a great business.   

Shares in Education Realty Trust, a Memphis-based landlord whose earnings report met Wall Street expectations this morning, are up 54 percent in the past year. American Campus Communities, the only other publicly traded student housing landlord, is up 44 percent. By comparison, a Bloomberg index of North American apartment landlords is up 12 percent over the same period.  

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Rising Sea Levels Could Cost Homeowners $1-Trillion

When talking about housing, “underwater” usually means you owe more on a mortgage than the home is worth. But “underwater” takes on a more literal meaning as rising sea levels could soak homeowners for $882-billion, according to a new report from Zillow. The research takes is based on that in the journal Nature, which in March found sea levels could rise more than 6 feet by the end of the century. Florida could lose close to 1 million homes.  That comes out to $400 billion in value—a figure that doesn’t include losses to commercial buildings.  Under the worst case scenario, New York City could lose about 32-thousand homes at $27-billion in value and Newport Beach, California could lose $1-billion in property.

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