Situs Newswatch 9/22/2017

Situs RERC Report: Dallas Offers Best Prospects for CRE
Dallas, Seattle and San Francisco offer commercial real estate investors the best opportunities among large markets from a relative value vs. price perspective, reported Situs RERC.Situs RERC ranked 48 metros in primary, secondary and tertiary markets from a relative value vs. price perspective to determine the best investment opportunities.“The index is meant to reflect where investors will receive the best relative value based on current pricing and market fundamentals,” said Situs RERC President Kenneth Riggs.

“Relatively low prices compared to other metros, strong population growth, income growth and job creation are driving the demand for commercial real estate in the area,” the report said. “The population and job growth should continue as Texas draws employers because it has no income tax and other factors attracting firms to locate and/or expand, especially in Dallas and Austin.

In addition, Dallas will likely continue to thrive as a logistics hub as e-commerce flourishes, Situs RERC said. “Moreover, Dallas has become a hot spot for data centers due to low construction and utility costs in the region.”

read more: MBA

Fannie/Freddie Bailout Can Wait Till Next Year, or Can It?
Mel Watt, director of the Federal Housing Finance Agency (FHFA), last month announced Fannie Mae and Freddie Mac could require a federal bailout of as much as $100 billion in the event of an economic downturn.

In fact, a bailout of these two institutions is virtually inevitable as early as next year, if not sooner. The need for an emergency draw on the U.S. Treasury Department to fund these agencies, however, will have nothing to do with the financial health of either Fannie Mae or Freddie Mac, according to Forbes.

Both agencies are exceptionally well-managed and regulated, and are highly profitable; they reported combined earnings of nearly $10 billion in the first six months of this year. As with the most recent meltdown of the housing market, irresponsible federal housing oversight will be the cause of their failures, according to Forbes.

“When you consider all of the revenue-stripping activities imposed on them, plus the added burdens of implementing and monitoring government loss mitigation and foreclosure prevention activities, it’s a remarkable feat that the GSEs remain so profitable, says The Collingwood Group Chairman Tim Rood. “You would be hard pressed to find government agencies/organizations that provide meaningful public value and are self-sufficient, much less immensely profitable.“

During the buildup to the collapse of the housing market, federal financial regulators ignored the many obvious predatory features of subprime lending and allowed reckless, exploitative and fraudulent mortgage finance-related practices to permeate the mortgage market.

The result was nearly 8 million foreclosures since 2007, collapse of home prices of more than 30 percent nationally, and the near implosion of the U.S. financial system.

This time around, federal policymakers have structured bailout terms for Fannie Mae and Freddie Mac that require that all earnings of the two agencies be “swept” directly into the Treasury. Simultaneously, both agencies are required to wind down their capital reserves (savings needed to cover future losses) to zero by the end of this year.

Height Securities analyst Edwin Groshans estimates it would take roughly a decade for Fannie and Freddie to be adequately capitalized if they were allowed to retain 100 percent of their earnings.

Ironically, the agencies were taken into federal conservatorship because of inadequate capital reserves.

Treating Fannie Mae and Freddie Mac as two large cash cows for federal spending leaves them financially vulnerable to failure. As late as last Thursday, U.S. Treasury Secretary Steven Mnuchin clarified the administration’s position to wait until next year to address the capital levels for those agencies.

Future adverse economic scenarios, including interest rate fluctuations, could again send these two agencies, hat-in-hand, back to the Treasury for another taxpayer bailout.

The announcement of another housing bailout for Fannie Mae and Freddie Mac, which manage a combined $5 trillion book of business, could unsettle capital markets, further limit access to mortgage credit, and elicit a new round of politically motivated attacks against these agencies from Congress.

Playing a game of chance with the nation’s housing finance system would benefit neither households nor the economy. Already, the U.S. housing market is significantly underperforming. In spite of a nearly full one-percentage point year-over-year bounce in the 2nd Q, 2017, the U.S. homeownership rate remains near a 50-year low.

Some powerful members of Congress believe the federal government should not support the mortgage market. Many politicians have argued that losses by the two government housing agencies justify shuttering them.

US Existing-Home Sales Fall to 12-Month Low
U.S. home resales fell to their lowest in a year in August as Hurricane Harvey depressed activity in Houston and a perennial shortage of properties on the market sidelined buyers.

The National Association of Realtors said on Wednesday existing home sales decreased 1.7 percent to a seasonally adjusted annual rate of 5.35 million units last month. That was the lowest level since August 2016.

July’s sales pace was unrevised at 5.44 million units.

Economists had forecast sales rising 0.3 percent to a 5.46 million-unit rate.

The NAR said Harvey, which struck Texas in the last week of August had resulted in sales in Houston declining 25 percent on a year-on-year basis. Stripping out Houston, existing home sales would have been unchanged in August.

read more: Fox Business News

Battle Heats up for Amazon Headquarters
The $5 billion bid for Amazon’s new 50,000-person headquarters is intensifying.

New York City is doubling down on its bid to be the site of Amazon’s second HQ. At the same time, Boston and Los Angeles are facing pushback from residents amid fears of financial loss and an “Amageddon” scenario of overcrowding and an increased cost of living that has taken place in Seattle.

The New York City Economic Development Corporation, a nonprofit that promotes economic development in the city, is soliciting “ideas and information regarding space, programs, and other assets that could be included in the City’s proposal and ultimately bring Amazon to New York City” on its website, USA Today reported.

America’s largest city has a clear advantage: young people.

“Amazon added to the drama by saying both that it would give priority to metro areas with 1 million-plus people and that places interested in vying for the second headquarters should think ‘big’ and ‘creatively,'” USA Today said.

But other cities are pushing back against Amazon’s demand for bids and perks.

Los Angeles Times columnist Michael Hiltzik wrote that Amazon was taking advantage of communities whose bids would presumably include generous tax incentives.

“The company’s approach is arrogant, naive and more than a teensy bit cynical,” Hiltzik wrote. “Rather than be offered bribes to move its headquarters into a community, Amazon should be made to pay for the privilege.”

read more: Business Insider

Amazon Killer?
The discount grocer is known for its low prices on staples like eggs, cheese and yogurt, plus an affordable line of organic products. And now there is another reason to start shopping Aldi, the German supermarket chain: you can now buy one of the best wines in the world there for less than $10.

Aldi’s Exquisite Collection Côtes de Provence Rosé 2016, which retails for about $8, has won awards from the International Wine Challenge two years in a row. This summer, the pink-hued wine took a silver medal in the main contest, and the top prize in the Great Value Awards.

The wine is made in France. Before now, it hadn’t been sold in the States; Aldi does sell another Côtes de Provence Rosé at its U.S. stores, but it’s not award-winning. (Look for the “exquisite” on the label to make sure.) The wine became available Sept. 20, at the stores that already sell alcohol, and while supplies last.

In June, Aldi announced plans to add 900 more locations across the United States; new stores in St. Petersburg and Sun City Center in Florida have opened in recent months.

Aldi’s product information describes the Exquisite Collection Côtes de Provence Rosé as having flavors of “strawberry, white fruit and subtle spice.” Sounds delightful with a cheese plate made with their $1.99 honey goat cheese.

read more:

Fed to Start Paring Holdings, Keeps December Rate Rise on the Table
The Federal Reserve announced it would initiate in October its long-intended plan to shrink its portfolio of bonds acquired after the 2008 crisis and the ongoing possibility of raising interest rates by December.The Fed left rates unchanged Wednesday and hinted it could raise rates again in 2017 even though persistently low inflation has given some officials pause about such a move.

The unanimous decision to reduce its bond portfolio signifies the Fed’s long-known desire to close the books on an unprecedented and sometimes controversial bond-buying experiment to support the U.S. economy, consumers and financial markets.

The bigger question heading into this week’s meeting centered on how the Fed would frame the debate over raising rates in December and beyond. Fed officials’ newest economic projections indicated officials still largely expect to raise rates one more time this year. But they showed slightly less urgency about the level of rates over the long run, and more officials now see the Fed undershooting its 2% inflation target for longer than they did in June, the last time they released economic projections.

Some 12 of 16 officials said they expected the Fed would need to raise rates at least one more time before the end of the year, the same as in June. Policy makers continued to expect three more rate increases next year, but only two more in 2019 and one in 2020.

read more: Wall St Journal

Risky UK Rate Rise Ahead
A U.K. rate hike is on the horizon for the first time in a decade but some economists say it could be followed by a rate cut next year.

Barclays, HSBC and RBC Capital said they now expect the Bank of England to raise rates in November after previously forecasting no change.

Hawkish comments from the Monetary Policy Committee and from one of the bank’s most dovish members in a separate speech have raised the market odds of a November hike to 80%.

Ahead of the meeting, the market was pricing in just two rate rises by 2020.

Bank of England Governor Mark Carney repeated the BOE’s message that interest rates may need to rise “within months” to keep a lid on price growth, after annual inflation hit 2.9% in August, well in excess of the BOE’s 2% target.

read more: Wall St Journal

Housing Bubble 2.0?
Less than a decade removed from the Great Recession where countless Americans walked away from their homes as default rates and foreclosures hit record highs, something else is beginning to bubble beneath the surface. Despite Washington officials promising it wouldn’t happen again, posing strict controls on bank lending and requiring deeper background checks and higher deposits, one sector of the 24 trillion-dollar U.S. housing market is showing signs that 2005-2008 may not be a one-off. Welcome to the enigmatic world of house flipping.

Research by ATTOM Data Solutions defines a house flip as a property that is “sold in an arms-length sale for the second time within a 12-month period.” In other words, these properties are bought and sold by someone whose sole purpose is making a capital gain. However, the data collected by ATTOM shows that those flipping houses are making less return per house, while taking on more financing to do so. “In markets where distressed discounts have largely dried up, flippers are showing more willingness to leverage financing when acquiring properties, often purchasing closer to full market value and then relying more heavily on price appreciation to fuel their flipping profits,” said Daren Blomquist, senior VP at ATTOM Data Solutions.

Leveraging up on housing. Sound familiar? In the second quarter of 2017, the total value of homes flipped topped $4 billion for the first time since the third quarter of 2007, and 35 percent of homes flipped were done so with financing – the highest level since the third quarter of 2008. And while the number of houses being flipped increased in the second quarter, the return on investment fell, both from the previous quarter and the second quarter of last year.

Source: ATTOM Data Solutions

While return on investment remains worthwhile for house flippers, some risks can lower profitability fast, as it did from 2005 to 2008. With the number of homes being flipped and financing on the rise, it puts extra pressure on the seller to limit the time the house is on the market. For every extra day a financed home sits unsold, the holding cost eats into profitability.

read more: Investopedia

Florida: Despite Bigger Storms and Hurricane, Real Estate Still is Hot
Florida was built on the seductive delusion that a swamp is a fine place for paradise.

The state’s allure — peddled first by visionaries and hucksters, most famously in the Great Florida Land Boom of the 1920s — is no less potent today.

Only, now there is a twist: Florida is no longer the swampy backwater it once was. It is the nation’s third most populous state, with 21 million people, jutting out precariously into the heart of hurricane alley, amid rising seas, at a time when warming waters have the potential to bring ever stronger storms. And compared with the 1920s, when soggy land was sold by mail, the risks of building here are far better known today. Yet newcomers still flock in and buildings still rise, with everyone seemingly content to double down on a dubious hand.

More than a week after Hurricane Irma, nearly 400,000 weary, sweat-soaked people in the state remain without power; at least 26 did not survive the storm or its even more dangerous aftermath; and the billions in property damage are still being calculated. Meanwhile, Hurricane Maria rumbles across the Caribbean.

Many saw last week’s storm as another dress rehearsal for the Big One. But it wasn’t much of a reckoning for a state mostly uninterested in wrestling with the latest round of runaway development, environmental degradation and the mounting difficulties from catastrophic storms. Since the recession’s end, new condominiums and houses have been built at a gallop. Many rise on or near the coast, or, in some cases, environmentally important wetlands, which were nature’s way of absorbing water. Meanwhile, the seas climb higher, floodwaters roam wider, evacuations grow increasingly tangled, the cost of insurance jumps and infrastructure decays.

“People want to live here,” said Craig Fugate, a Floridian who served as Florida’s chief emergency manager for two Republican governors and went on to head the Federal Emergency Management Agency under President Barack Obama. “In too many cases, we have not planned for how to build and live with the hazards we have, so that when storms hit we are not wiping people out financially and putting people at extreme risk. I am not someone who says we should not grow or build, but we are continuing to build in ways that are not sustainable.”

read more: NY Times

Time is Ripe for Home Buyers in Bordeaux
“There is, of course, the new high-speed train, but the city has also completely changed in the last 10 years, in terms of architecture, culture and nightlife and people want to live here,” said Etienne Delpech, a broker at Sotheby’s International Realty.

Bordeaux’s global fame stems from its wine industry, which dates back to the third century. It has around 287,000 acres of vineyards and produces almost a million bottles a year, ranging from table wines to some of the finest labels in the world: Châteaux Margaux, Lafite-Rothschild, Latour, Haut Brion and Mouton-Rothschild.

But as Mr. Delpech suggests, this city on the Garonne River in southwest France is more than a giant winery. It is a Unesco World Heritage city, with some magnificent 18th-century buildings and no fewer than 362 historic monuments.

Alongside all that wine, Bordeaux has a thriving gastronomic scene. Some of the world’s best-known chefs, including Joël Robuchon and Gordon Ramsay, have restaurants in the city.

Property buyers can take their pick from city center apartments in buildings that are 300 to 400 years old, to farmhouses, châteaux and hobby wineries on its fringes.

According to research from Knight Frank, the average price of a property in Bordeaux stood at €366, or $439, per square foot in January. That’s a 21 percent increase from the year before, when the average value was $361 per square foot.

Have a prosperous day and a great weekend.

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