Situs Newswatch 9/12

Moving to the Middle in Commercial Real Estate Markets

The recent $150 million purchase of Miami’s Datran Center by ABS Partners Real Estate and Acre Valley Real Estate Capital is seen as evidence that investors’ appetite for commercial real estate is beginning to shift from big to medium-sized cities.

Investors have mostly focused until recently on major cities like New York, San Francisco and Chicago, but sky-high prices are pushing them to seek deals in smaller markets like Miami, San Jose or Dallas.

Situs RERC analyzes value and price metrics for all major property types based on proprietary data to determine the top investment opportunities for 48 markets.  According to Ken Riggs, President of Situs RERC, “Now is the time to invest in properties that are core and core-plus in secondary or smaller markets.  Traditionally red-hot metros in the coastal primary markets are clearly showing pricing metrics exceeding valuation metrics.  Investors need to focus on secondary markets in the South and Southeast where population is stronger than the national average and there is an abundance of high-paying jobs, but capital flows have not forced prices above their underlying values.”

For specific metros, “Austin, Orlando, and Dallas reign supreme in the secondary market,” says Riggs. “All three markets have had tremendous job growth in the past quarter, naturally boosting CRE fundamentals.”

According to a survey released in February by commercial real estate company CBRE Group Inc., the cap rates for Class A stabilized properties in New York were between 4.00 and 4.50 during the second half of 2015. For San Francisco, the range was 4.75-5.50 and for Boston, 4.50-5.75, all of which are below the rate for the Datran Centre.

Midtown New York, downtown San Francisco, and downtown Boston were also listed by CBRE as the priciest U.S. office markets as of March 31, 2016. According to the Journal, falling cap rates tend to indicate rising prices. Thus, the pricier the market the lower the cap rate is likely to be.

Fed Pres. Says Real Estate Prices Show Need for Rate Hike

Boston Fed President Eric Rosengren said Friday he backs gradual interest rate hikes, adding that waiting too long risks some asset markets like commercial real estate “become too ebullient.”

“My personal view, based on data that we have received to date, is that a reasonable case can be made for continuing to pursue a gradual normalization of monetary policy,” Rosengren said in a breakfast speech to the South Shore Chamber of Commerce in Quincy, Massachusetts.

Rosengren, a voting member of the Fed policy committee this year, refrained from discussing exactly when he thought the Fed should move. The Fed has three meetings left this year: Sept. 20-21, Nov. 1-2 and Dec. 13-14. A majority of economists surveyed by the Wall Street Journal expect the Fed to hold off raising rates until December. And financial markets are pricing in only a one-in-four chance of a rate hike at the next meeting on Sept. 20-21.

Markets are watching closely a series of speeches over the next few days for signals of a possible more this month. In his remarks, Rosengren said commercial real estate prices adjusted for inflation “have risen quite rapidly over the past five years, especially for multifamily properties.”

Korean Companies Increasing Investment in U.S. Commercial Real Estate 

Global investors are becoming more and more cautious about the American commercial real estate market, which has grown at a rapid pace based on low interest rates, after the Federal Reserve hinted at an interest rate hike.

In the meantime, South Korean financial investment companies and institutions are increasing their investment in real estate assets in the United States nowadays. This has to do with their alternative investment strategy with stock and bond investments not ensuring sufficient profits.

For example, Mirae Asset Global Investments signed a stock purchase agreement in June to acquire Hyatt Regency Hotel Waikiki from Blackstone. Earlier, it had concluded a similar contract with regard to the Fairmont Orchid in Big Island, Hawaii. More recently, the company bought four State Farm office buildings in Dallas, Texas for 950 billion won, too.

Kiwoom Asset Management also purchased the KPMG Plaza in Dallas, Texas with other South Korean organizations for 250 billion won while Hana Asset Management paid approximately 400 billion won to take over a multinational pharmaceutical company’s building located in Princeton, New Jersey with Hana Financial Investment and Mirae Asset Daewoo.

“South Korean investors’ rush for such commercial real estate properties in the United States needs to be given a second thought in that local investors are stepping out of the market one after another with an increase in interest rate around the corner,” said a real estate asset management firm, adding, “They would be well advised to look into how well prepared they are for an impact of the interest rate hike with many of them taking out loans for acquisition.”

read more: BusinessKorea

Congress Considers Dodd-Frank Replacement

A House committee this week is set to consider a Republican alternative to the Dodd-Frank financial reform law.

Chairman Jeb Hensarling’s (R-Texas) House Financial Services Committee will debate his legislation, known as the Financial Choice Act tomorrow (Tuesday).

With just weeks left in the current Congress and Democrats fiercely opposed to the bill, it faces long odds. But if Donald Trump wins the White House, many observers believe Hensarling’s plan could serve as a starting point for GOP efforts to overhaul Wall Street regulations.

Trump himself has not yet proposed a plan for regulating the financial sector, but has been critical of Dodd-Frank, enacted in 2010.

Hensarling’s proposal is far-reaching, and would make significant changes to many key aspects of the Wall Street reform law, which was passed in the wake of the financial crisis.

The bill would allow some large banks to largely avoid many Dodd-Frank rules by raising how much capital they keep on their books as a cushion against losses. It would significantly curtail the activities of regulators and bring them under closer scrutiny from Congress, and huge sections of the law would be repealed outright.

5,300 Wells Fargo Employees Fired Over 2-Million Bogus Accounts

Talk about ‘shadow banking’.
Federal regulators charge Wells Fargo employees secretly created millions of unauthorized bank and credit card accounts — without their customers knowing it — since 2011.

These bogus accounts earned the bank unwarranted fees and allowed Wells Fargo employees to boost their sales figures and make more money.

Wells Fargo says it has fired 5,300 employees over the last few years related to the shady behavior. 

Employees went so far as to create phony PIN numbers and fake email addresses to enroll customers in online banking services, the CFPB said.

An analysis conducted by a consulting firm hired by Wells Fargo concluded that bank employees opened over 1.5 million deposit accounts that may not have been authorized.

The way it worked was that employees moved funds from customers’ existing accounts into newly-created ones without their knowledge or consent, regulators say. The CFPB described this practice as “widespread.” Customers were being charged for insufficient funds or overdraft fees — because there wasn’t enough money in their original accounts.

Additionally, Wells Fargo employees also submitted applications for 565,443 credit card accounts without their customers’ knowledge or consent. Roughly 14,000 of those accounts incurred over $400,000 in fees, including annual fees, interest charges and overdraft-protection fees.

The CFPB said Wells Fargo will pay “full restitutions to all victims.”

Wells Fargo has the highest market valuation among any bank in America, worth just north of $250 billion.


 

New York, London, Frankfurt, Copenhagen … Robbins, North Carolina, Situs’ Global Reach is Strong

Free-flowing work areas define the newly expanded work space at Situs’ building in Robbins, North Carolina. A remodeling project completed last year increased the company’s office to 30,000 square feet, and there is still room to grow.

Based in New York City, Situs works with clients worldwide to evaluate, optimize and manage real estate assets and securities. Its Moore County division serves primarily in a supporting role for these efforts.

“This is the dream realized,” said Nicole Bozich, a managing director for Situs’ local office. “If you look back 10 years ago, this is what we wanted to do and how we said we’d do it. And we have done it. We hit some hurdles, but in the ultimate dream — that is to build CRE (commercial real estate) experts in rural Moore County — we have succeeded.”

There is an engaging thread of irony in the local Situs story. Located in a renovated sock mill, space once abandoned when off-shore outsourcing obliterated the state’s textile industry, the Robbins operation serves as a textbook case for successful “rural outsourcing.” Renovations added more desks, windows and decorative arches for visual interest, but the factory floor feel remains. Where knitting machines once stood is today an orderly maze of cubicles, computers and a crack team of financial analysts.

“We have tried to keep some of that manufacturing atmosphere because it is part of our story,” said Bozich. “Our goal was to make the space more functional in ways that allow for a collaborative environment.”

First known as Hemp, then Robbins, the town has undergone enormous changes in the last century. However, none surpassed the rise — and eventual fall — of the area’s textile and hosiery mills.

Steven Bean knows this history well.

A hometown boy raised on a farm, he was member of North Moore High School’s class of 1981. The first person in his family to graduate from a four-year college, Bean began his professional career as a bank auditor. That role led him to financial institutions pursuing capital markets and commercial real estate and, eventually, he went to work with a mortgage-backed securities firm performing due diligence.

When commercial real estate analysis was first shipped overseas to India, Bean was right in the middle of those efforts. When that company was sold in 2006, he decided to take a little time off and traveled back home.

By then, the northern stretches of Moore County were ravaged by the twin losses of tobacco farming and the shuttering of manufacturing mills. Unemployment was high and morale was low.

A cousin appealed to Bean’s sense of place and asked him to consider Robbins for his next commercial venture. Using his experience with off-shoring and a strong belief that the local population was an untapped natural resource, he developed a then-unique business model.

Bean took his idea to the biggest fish in the pond — Situs — and pitched the idea of rural outsourcing. He recommended the small farm-friendly Robbins as an ideal location to grow a commercial real estate support team.

Situs leadership loved the concept and, in short order, the very first space redeveloped was the Robbins training room.

read more: The Pilot 

Situs on the Global Stage

Situs Executive Managing Director Steve Bean also dissected the state of U.S. and Global Real Estate for China’s CCTV Nightly Business News:

Click here to watch on YouTube


Hunt for Holiday Workers Heats Up, Giving Wages a Boost

Christmas is still more than three-months away, but competition for the workers needed to make online holiday orders arrive on time is already heating up.

Retailers such as Amazon.com Inc. and Wal-Mart Stores Inc., logistics companies and package-delivery giants like United Parcel Service Inc. and FedEx Corp. are expected to step up recruiting, start hiring earlier than usual and pay more for the extra help they need for the peak shopping season.

The scramble for holiday-season logistics workers has been intensifying steadily in recent years, fueled by the growth of online shopping. Industry executives say they expect the nation’s relatively low unemployment rate and rising wages for workers at the bottom of the income ladder to make the temporary jobs even harder to fill.

“There’s pressure from both sides,” said Ashfaque Chowdhury, head of supply chain for XPO Logistics Inc., which provides warehousing and transportation services to retailers.

Labor has become an increasingly important make-or-break factor in determining the success of retailers and delivery companies during a period marked by a sudden surge in online orders. In 2013, some companies in the industry were understaffed, leading to delays and cost overruns caused by last-minute hiring, overtime pay and customer refunds. A year later, some ended up being overstaffed, again leading to a financial hit.

read more: WSJ

Women Better Than Men at Paying Mortgages

Women often pay more for mortgages than men, but that doesn’t mean that they’re a higher risk when it comes to missing mortgage payments. A new study from the Urban Institute says that women actually are less likely to miss a payment, compared to men.

The study looked at all types of borrowers, including single men, single women and couples. They compared data from 13 million women and 17 million men. They found that “if a male-only (a single man) borrower has a 6% probability of default, a female-only (a single woman) borrower with the same characteristics would be expected to default at a 5.8% rate,” according to the study. That means women are .2% better at not missing payments.

“This is the first step in saying the barometer is consistently not accurately predicting whether women are able to pay their mortgages,” Sheryl Pardo, a spokesperson for the Housing Finance Policy Center at the Urban Institute, said.

The two basic reasons why women have higher interest rates is because they have more subprime loans, and their credit profiles aren’t as good. When anyone applies for a loan, the lender looks at a series of predictors to determine how likely that person is to default. And because default risk and mortgage rates go hand-in-hand, experts at the Urban Institute are saying assessments need to change because they’re not matching up.

“Women’s predictors are lower, which suggests she’s not going to do as well,” the Urban Institute said. But those predictors are wrong, the institute continues.

“They’re not predicting accurately,” Pardo said. “Women do better than their characteristics say they should do. And, in fact, they perform better than men.”

Women borrowers generally have more debt to income, which affects their credit scores. They also have less income than men income ($68,000 versus $95,000 for men.) Bundle these things together, and it means they typically must pay higher interest rates for men: 5.48% versus 5.41%. Moreover, women have a higher denial rate. It puts them at a greater disadvantage.

This Hedge Fund Made 2,100% From World’s Most Extreme Market Mania

Plenty of professional investors like to tout their talent for turning volatility into opportunity. Few have managed to deliver on that promise as well as Wang Bing.

With deft timing and the magnifying power of leverage, the 37-year-old trader of Chinese commodity futures has navigated the most fevered speculative mania of 2016 to produce the kind of returns that only volatile markets can provide. Wang says his Guli Trend Aggressive Strategy fund has climbed about 750 percent this year, extending an advance since its March 2015 inception to 2,100 percent.

Those gains would stand out in any market environment, but they’re even more remarkable at a time when hedge funds around the world are getting battered by weak performance and client outflows. While many of Wang’s peers have embraced computer-driven strategies in an attempt to gain an edge, the former iron-ore importer says his trades are dictated by old-fashioned analysis of supply and demand. Whether that makes him a long-term star of China’s futures markets or a short-lived outlier, only time will tell.

“There are always more opportunities to make big profits, or big losses if you are wrong, amid wide price swings,” said Wang, whose fund has climbed the most this year among Chinese peers tracked by Shenzhen PaiPaiWang Investment and Management Co., a compiler of domestic hedge fund returns.

read more: Bloomberg

Want to Airbnb Your Luxury Home? These Companies Will Handle Everything

After a road trip took him through Nashville, Tenn., Harrison Paul bought a $400,000 home there as a place to stay on occasional visits. He contemplated renting it out short-term on the Airbnb website but initially nixed the idea.

“I was worried about getting the permits, insurance, interfacing with the guests, and providing toiletries and towels, because I live so far away,” said Mr. Paul, a freelance art director in Santa Monica, Calif.

Today, Mr. Paul’s property is managed by Lease Killers, a nine-month-old Nashville firm owned by three 20-something entrepreneurs. The company maintains the home’s Airbnb listing, sets rates, which range from $299 to $900 a night, communicates with guests, coordinates cleanings and ensures that Mr. Paul complies with city regulations. In return, Lease Killers gets a 10% cut.

The next frontier in short-term rentals: luxury homes with resort-style services and amenities. Right now on Airbnb and other top rental websites, only about 3% of the listings charge over $500 a night, according to estimates from Airdna, an industry analyst in Denver. But the rapid growth of third-party management services and tools is enticing more high-end homeowners to try short-term renting—for the right price.

read more: WSJ