Situs Newswatch 8/4/2017

Forget Brexit? This Could Be Largest Transaction Ever in UK for Office Buildings 
Officially, it is 20 Fenchurch Street. To Londoners, it is the “Walkie Talkie,” so named for its unique shape, with the building bulging out as it rises into the British capital’s skyline.The 37-story office block was sold to LKK Health Products Group, a Hong Kong-based company best known for making Lee Kum Kee oyster sauce, for 1.3 billion pounds, or about $1.7 billion. LKK said its purchase of the Walkie Talkie was the “largest ever transaction in the United Kingdom for a stand-alone office building.”

“Clearly this and other big recent commercial property transactions show London remains a most attractive investment proposition, despite the ‘threat’ of Brexit,” says Wilhelm Hammel, Managing Director, Head of Distressed Solutions, at Situs in Germany. “While Brexit is bringing changes, positive real estate investment fundamentals will always be the determining factor in investment decisions and the Walkie Talkie sale is certainly an example of a compelling fundamental investment case. I feel that the uncertainty as to the shape of Brexit means that it is far too early to include a ‘Brexit effect’ in analyzing long-term trends in UK commercial real estate.”

London property has been one of the most astonishing asset classes in the world in recent decades, and it has become a major portfolio element for the international super-rich. Over the past 40 years, [residential] prices in central London have risen 50-fold, according to one estimate. That is twice the rise in the Dow Jones Industrial Average over the same period.

But Britain’s forthcoming exit from the European Union, the political turmoil in the wake of the recent election, new taxes on transactions and sky-high price still threaten.

But, says Situs’ Hammel, “Be assured: London will always be London, and its place as a global leader in commercial real estate and a hub for investors is going nowhere.”

Situs RERC Hires Managing Director
We are pleased to announce that Jamie Molloy has joined Situs RERC as managing director, reporting to Situs RERC President Ken Riggs. He will lead the expansion of valuation services to bank, private equity and pension fund clients.

A longtime valuation and appraisal expert, Jamie brings unparalleled experience and market knowledge to our clients. Along with Situs senior management, Jamie will be instrumental in further developing our suite of solutions to address the evolving needs of the industry, while expanding the effective reach of Situs RERC.

Jamie comes to us from Deutsche Bank where he has spent the past 10 years as Global Head of Real Estate Valuation, directing a global team of real property valuation professionals in New York, London, Frankfurt, Mumbai, Hong Kong and Tokyo. Jamie is a member of the Appraisal Institute, a Fellow with the Royal Institute of Chartered Surveyors, a Counselor of Real Estate, a New York State Licensed General Real Estate Appraiser and a member of the Risk Management Association.

Situs Selected as Loan Servicer by Attestor Capital, Opens Netherlands Office
has been selected by Attestor Capital as loan servicer and workout specialist on a portfolio of CRE loans collateralized by Dutch real estate. The loan book has a face value of approximately €220 million ($260 million), comprising about 50 borrower groups with approximately 150 properties as collateral.

The engagement coincides with Situs opening its Amsterdam office to provide services to the CRE market in the Netherlands.

“The Project Stack engagement represents the culmination of a considerable amount of collaboration between Attestor Capital and Situs, to establish a bespoke servicing solution to meet Attestor’s particular needs,” said Wilhelm Hammel, Managing Director, Head of Distressed Solutions, at Situs.

To read the full press release, click here.

BOE Cuts Growth, Wage Forecasts as Rate Kept at Record Low
The Bank of England cut its forecasts for economic growth and wages as it extended keeping its benchmark rate at a record low.The downgrades, linked to Brexit, were enough for the majority of the Monetary Policy Committee to keep their cautious stance, with the vote for no change coming in as expected at 6-2. Ian McCafferty and Michael Saunders maintained their push for a 25 basis-point increase, which would reverse the rate cut put in place a year ago this week.

The new forecasts reflect the deterioration of the economic outlook since May as faster inflation outpaces wage gains, holding back consumer spending. While the bank sees the weaker pound and stronger global growth bolstering exports, uncertainty surrounding the U.K.’s talks to leave the European Union is creating a drag.

The bank also said that a response to above-target inflation and domestic price pressures will be needed. If the economy performs as it expects, the benchmark interest rate will need to rise by a “somewhat greater extent” than markets currently anticipate, it said.

The BOE’s forecasts continue to assume a smooth Brexit and are based on a rate hike fully priced in by the third quarter of 2018. It now projects economic growth of 1.7 percent this year and 1.6 percent in 2018, down from 1.9 percent and 1.7 percent.

There’s little sign so far that wage growth is picking up, even with unemployment at the lowest since the 1970s.

read more: Irish Times

Deutsche Bank Expects to Move 4,000 Jobs to EU After Brexit
Deutsche Bank AG envisions shifting almost half its U.K. positions to the European continent over coming years as the lender’s Brexit plans take shape, people briefed on the matter said.

Most of the 4,000 positions will move to Frankfurt and Berlin under the bank’s base case scenario, the people said, asking not to be identified discussing internal planning. Deutsche Bank will start relocating jobs next year at the earliest once it has dealt with regulatory approvals and other preparations, another person said. No plans have been finalized and numbers could still change depending on the U.K.’s talks with the European Union, the people said.

Banks, concerned by the lack of progress in Brexit talks and the potential for London to be shut out of the single market, are activating contingency plans and establishing hubs on the continent. Frankfurt and Dublin are getting the lion’s share of relocated banking jobs, with Germany’s financial center also set to attract banks, including Citigroup Inc. and Standard Chartered Plc.

read more: Bloomberg

At Long Last, Europe’s Banks Are Stabilizing
After years of crisis, Europe’s banks are finally stabilizing.

This earnings season, several of Europe’s largest lenders reported solid if uninspiring results, a welcome change that shows the sector’s grinding restructuring is starting to pay off.

Not long ago, investors fretted about whether European banks had enough capital to survive downturns and whether they would be able to level their mountains of bad loans. Many problems remain, but investors now have more-mundane worries, such as profitability and margins. European banks still badly lag behind their U.S. peers in profits and dividends.

On Monday, HSBC Holdings PLC said it would buy back another $2 billion in shares and left the door open to return more cash to shareholders as strong returns in its business bolster its capital, in the latest sign of strength from the global banking giant.

Last week, UBS Group AG and Credit Suisse Group AG posted better-than-expected profits; both have thrown more effort into their wealth-management businesses. French bank BNP Paribas SA logged a decline in its second-quarter profit but still beat analysts’ expectations. Barclays PLC posted a loss, but that came from charges linked to its retreat from Africa.

“The capital question is now done,” said Barclays Chief Executive Jes Staley. “Now the final thing is earnings.”

European bank shares have shot up 50% over the past year as investors bet on lenders riding a European economic recovery and a lightening of regulations. European fund managers are still piling into the sector and see banks in the European Union as the most undervalued stocks, according to a survey this month by Bank of America. A newfound optimism has permeated once-gloomy bank boardrooms.

Now the test is whether European banks can live up to the hype. The main problem: Interest rates are still at rock-bottom levels. “After a long, long deleveraging process we are entering into a phase where we can show some growth” in Spanish loan volume, Santander CEO José Antonio Álvarez told analysts.

read more: Wall St Journal

Brexit Cited As Fewer EU Citizens Seek Work in U.K.
Neil Goldman, who employs workers from across the European Union’s in his food-packaging business, blames the U.K.’s Brexit vote last year for making vacancies harder to fill.

Britain has for years been a magnet for European job seekers drawn by decent wages, the English language, and plentiful openings in the country’s easy-to-hire economy. That attraction now appears to be waning as a consequence of its vote to leave the EU, as well as accelerating growth in the Eurozone.

In industries as diverse as agriculture, health care and manufacturing, executives are growing anxious about labor shortages that they fret could crimp expansion plans and restrain the British economy. Already, growth in the U.K. is sputtering as quickening inflation squeezes consumer spending.

The Confederation of British Industry, an employers’ lobby group, has said continued access to high-skilled and low-skilled workers from abroad is critical to sustain economic growth.

EU citizens from outside Britain, and especially from Eastern Europe, have long boosted the U.K.’s workforce, but there are signs that flow is starting to ebb since the Brexit vote.

Any ebbing of the flow of foreign workers shouldn’t come as a surprise, since Brexit was designed in large part to make that happen. Reducing immigration from the EU is a central plank of Prime Minister Theresa May’s Brexit strategy. Quitting the bloc, she says, was a vote to take back control of Britain’s “borders, laws and money.”

Indeed, Brexit advocates say, scarcity has a silver lining: Labor shortages could help boost Britain’s lagging productivity if firms respond by investing in new machinery and training. On the other hand, economists caution, foreign workers are themselves an important source of productivity-enhancing skills.

read more: Wall St Journal

U.K. Voters Believe Economic Damage is Price Worth Paying
Three out of five Brexiteers and one in three Remainers would be happy if the British economy sustains “significant damage” in order to be proven right on Brexit, according to a YouGov poll published Tuesday.

According to the poll — which surveyed 2,043 Leave and 2,248 Remain voters between July 12-19 — 61 percent of Leavers think “significant damage” to the British economy is “a price worth paying for bringing Britain out of the European Union.” Only 20 percent of Leave voters said damaging the economy was too high a price for Brexit. About 19 percent said they didn’t know.

Results were different when Leave voters were asked if they personally were willing to endure economic hardship as consequence of Brexit. About 39 percent said they are happy to risk their own or their family members’ jobs to take the U.K. out of the EU, while 38 percent said they would not risk their jobs.

On the Remain side, 34 percent of respondents said they would consider significant damage to the economy to be a price worth paying to keep the U.K. in the EU. About 38 percent said they would not consider damage to the economy, and 27 percent said they didn’t know.

read more: Politico

London’s New Subway Symbolized the Future. Then Came Brexit
Up an alley, beyond some hoarding, through what can feel like Harry Potter’s secret portal, the underworld of an unfinished Crossrail station sprawls beneath the traffic and commotion of Tottenham Court Road. Escalator banks descend through a sleek, silent black ticket hall where towering, empty, white-tiled passageways snake toward the new, vaulted train platform, curving like a half moon into the subterranean darkness.

Crossrail is not your average subway. London’s $20 billion high-speed train line, which plans to start taking passengers late next year, is Europe’s biggest infrastructure project.

It will be so fast that crucial travel times across the city should be cut by more
than half. The length of two soccer pitches, with a capacity for 1,500 people, its trains will be able to carry twice the number of passengers as an ordinary London subway. While Londoners love to moan about their public transit network, by comparison New York has barely managed to construct four subway stops in about a half-century and its aged, rapidly collapsing subway system now threatens to bring the city to a halt.

But standing one recent morning on that empty Crossrail platform, where construction workers in orange gear and hard hats hauled shiny metal panels to line the walls, I still couldn’t help wondering whether the new train leads toward another glorious era for this city, or signals the end of one.

read more: NY Times

Spain’s Long Economic Nightmare Is Finally Over
Inside a factory as cavernous as an airport terminal, half-built cars glide down the assembly line in a parade that never ends. Workers in coveralls sidle up on queue, attending to the meticulously timed tasks of turning steel into road-ready sedans.

The bustling activity at the SEAT auto factory in this industrial town just west of Barcelona attests to the new reality coloring life in Spain. The economy is growing again, expanding at around 3 percent pace over the last year, producing goods for export, generating jobs and restoring a sense of normalcy to a nation that has been saturated in despair.

This is good news not merely for Spain, but for Europe and the rest of the global economy.

For most of the last decade, Spain has suffered as an extreme example of the economic carnage that has assailed the 19 nations sharing the common European currency. Its astonishing levels of unemployment, which peaked at 26 percent, stood as a prominent marker of the desperation inflicted by the implosion of its real estate investment bubble, combined with the global financial crisis.

Now, Spain’s economy has returned to its pre-crisis size, according to data released by the government on Friday. This seemingly puts the finish to one of the worst economic catastrophes to play out in Europe in the years since World War II. It suggests that the continent, still grappling with formidable, even existential challenges, has finally achieved recovery.

read more: NY Times

Your Banker Is Always In: Sweden Rolls Out the Robots
After blazing a trail in online and digital banking, Sweden’s financial industry is now emerging as a pioneer in the use of artificial intelligence. Besides Aida at SEB, there’s Nova, which is a chatbot Nordea Bank AB is introducing at its life and pensions unit in Norway. Swedbank AB is adding to the skills of its virtual assistant, Nina. All three are designed to sound like women, based on research suggesting customers feel more comfortable with female voices.

“There are some frequent, simple tasks that we need to deal with manually today, and in that effort we’re looking into AI to see how we can deploy it, and Aida is one,” Johan Torgeby, the chief executive officer of SEB, said in an interview.

Chatbots have access to vast amounts of individual client data, meaning they can quickly handle straightforward customer requests. That in turn frees up human employees to deal with more complex services, like coming up with the best mortgage plan to suit a specific customer.

“Basically all banks are closing branches,” Mattias Fras, head of Robotics, Strategy and Innovation at Nordea, said in a phone interview. “This is a way to return to full service again.”

Nordea’s chatbot will eventually help customers who want investment advice, who want to cancel lost credit cards or to open savings accounts.

Swedish banks have already seen their customer satisfaction scores drop to a 20-year low after shutting branches and pushing people onto online services.

But AI might be part of the cure. According to a recent study by market researcher GfK, there are wide gaps between what consumers hope to receive from banks in terms of service and financial advice, and what they actually get. AI applications such as chatbots “hold the promise of filling in these service gaps, given the right data and programming,” GfK said.

Swedbank, which already operates its chatbot Nina in Sweden and plans to roll it out to its Baltic markets as well, says one of the benefits to the technology is that it eases users into the new digital age.

AI “can help our customers become more digitized, for example, by guiding a client in paying bills on the Internet,” Swedbank spokeswoman Josefine Uppling said.

read more: Bloomberg

Have a prosperous day and a great weekend; beware the robots.

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