Commercial Real Estate: Situs RERC survey: CRE remains attractive to investors, but stocks are gaining ground

Situs RERC survey: CRE remains attractive to investors, but stocks are gaining ground

In 2Q 2018, commercial real estate (CRE) remained the most preferred investment alternative compared to traditional assets such as stocks, bonds and cash, but the attractiveness of stocks increased dramatically between 1Q 2018 and 2Q 2018, according to a survey conducted by Situs RERC for its 2Q 2018 Situs RERC Real Estate Report, “The Waiting Game.”

The rating for the attractiveness of CRE held steady at 5.2 in 2Q 2018, based on a scale of 1 to 10, with 10 being excellent, while the preference for stocks soared from 4.1 in 1Q 2018 to 5.1 in 2Q 2018. These ratings are based on Situs RERC’s quarterly survey of institutional investors, representing pension funds, insurance companies, financial institutions and private equity firms, who are asked to provide their sentiment about various CRE trends.

The preference for both bonds and cash increased slightly quarter over quarter (QoQ) to 4.0 and 5.1, respectively.
While the stock market came under pressure in 2Q 2018 due to fears of a trade war, strong earn­ings growth backed by changes in the tax code boosted investor sentiment. The tax changes also supported the repatriation of cash on the balance sheets of larger multinational compa­nies and encouraged stock buybacks, which are expected to reach a record level in 2018. The strength in the energy sector further bolstered investor confidence during the quarter. The bull­ishness in the stock markets explains the upsurge in preference for stocks in 2Q 2018.

The recent flattening of the yield curve has alarmed many investors as they view it as a potential sign of a recession. Additionally, a trade war could undermine global growth. In the flight to safety, investors’ preference for bonds slightly increased, lowering bond yields. How­ever, due to budget deficits, tightening monetary policy and some potential growth in inflation from the fiscal stimulus, the preference for bonds is expected to decline in the coming quarters.

Citing uncertainty about the timing of the next correction and future raises in short-term interest rates, survey respondents also rated the preference for cash higher QoQ. The CRE rating remained above average, signifying investors’ belief in the strength of the asset class, seeing it as a low-volatility alterna­tive that also hedges against inflation. Similarly, the Situs RERC Attractiveness Index indicates that investors still prefer CRE over the traditional asset classes of stocks, bonds and cash.

To learn more about Situs RERC’s services or to subscribe to the Situs RERC quarterly Real Estate Report, visit our website or call 319-352-1500.


House panel moves bills on brokered deposits, CFPB — will Senate bite?

The House Financial Services Committee advanced a dozen bills last Thursday, including bipartisan measures to revise the definition of deposit brokers and to require the Consumer Financial Protection Bureau to establish a process for issuing guidance.

The House committee has steadily moved regulatory reform legislation this year. But most reform provisions face a stiffer challenge in the Senate, where a coalition of Republicans and moderate Democrats enacted a targeted regulatory bill last spring.

“I don’t believe most, if any, of these bills will be going anywhere in the Senate,” Brandon Barford, an analyst at Beacon Policy Advisors, said of the legislation considered last week. “I think they are mostly doing it because House members want to be able to show progress on issues they care about and their job as a co-equal branch is to pass legislation that is a priority for House Republicans and their constituents, rather than worry about what the Senate may or may not do.”

Read more: American Banker


Can outlet centers continue to succeed by luring shoppers with bargains and ‘experience’?

As regional malls continue to grapple with tenant bankruptcies and store closings, outlet centers by many accounts have been thriving.

Shopping centers offering an “experience” and value retail are faring well overall. Outlet centers boast both the “bargain hunting thrill” and deals that are often difficult to find through e-commerce channels.

“Because of the bargain hunting of outlet centers, you cannot necessarily get that same experience on your computer or smart device,” says Mark Hunter, managing director of retail asset services leading CBRE’s mall business. “When you walk into Ralph Lauren or Coach, they may only have one of those purses or jackets, and you’re not necessarily going to find that at the price or value that you would want to pay via an e-commerce channel. That’s an important factor as to why you see the growth of outlet centers.”

Outlets centers also continue to be a significant source of profits for retailers. Sales at outlet centers doubled to approximately $50 billion in the past five years, according to Newport Beach, Calif.-based research firm Green Street Advisors. Overall occupancy for outlets centers averages 96 percent.

Read more: National Real Estate Investor


Why even a weakened Hurricane Florence is still a threat to North, South Carolina’s economy

While Hurricane Florence didn’t pack as big a punch as expected when it made landfall, the way it struck the Carolinas could still bring significant economic damage.

Last Friday, JPMorgan said Florence may hammer the region economically, but is unlikely to affect the vast US economy as a whole. “We believe that the effects of the storm could be significant for the impacted regions, but likely will be very small in the quarterly GDP data for the $20 trillion US economy,” the bank said, adding that September’s jobs report could see some modest “distortions” based on Florence.

“It remains to be seen just how widespread Florence’s damage will be, but North and South Carolina’s combined output is larger than that of the Houston metro area, which was impacted by Hurricane Harvey in 2017, but less than half of that of the New York metro area, which was hit by Hurricane Sandy in 2012,” the bank wrote.

Read more: CNBC


Where are all the millennials going?

With today’s young adults choosing city life at a much-higher rate than in previous generations, which neighborhoods in the country are attracting the highest concentrations of millennials?

A new study looked at which ZIP codes have become millennial strongholds and found that New York, Chicago and Los Angeles were among those that were attracting the most.

The analysis, by RENTCafe.com, found that Los Angeles has the top-two neighborhoods in the country in terms of increasing numbers of millennials. The 90014 and 90013 ZIP codes topped the list of more than 3,000 ZIP codes in the 250 largest cities.

Downtown Los Angeles’ 90014 is both the most gentrified ZIP code in the nation, as well as the “next millennial hotspot,” the study found. It saw a 91 percent increase in its share of millennials – the highest growth rate in the country. The Downtown ZIP that includes the blighted Skid Row — 90013 — ranked second, with a 60 percent increase.

Read more: The Real Deal


Price of a Whole Foods basket of groceries has barely budged since Amazon took over

Even with the discounts offered to Amazon.com Inc.’s Prime members, the cost of a $400-plus broad basket of items purchased at Amazon-owned Whole Foods Market yields only $1.50 in savings over prices one year ago, Gordon Haskett Research Advisors found.

Since buying Whole Foods Market in 2017, Amazon has announced a number of new perks and promotions, particularly for Amazon Prime members, including an additional 10% off Whole Foods sale items and Prime Now delivery in as little as an hour in dozens of cities for Whole Foods grocery purchases.

The Amazon Prime Rewards Visa card, introduced in February, also offers 5% back on Whole Foods purchases.

But one expected perk — a notable decrease in prices considering Amazon’s vast network — has not come to pass, according to analysts led by Chuck Grom.

Read more: MarketWatch


Ultra-luxury $400 million hotel coming to Montana

Montage International and CrossHarbor Capital Partners LLC, a Boston-based private equity firm, are breaking ground on a $400 million property that will be one of the few ultra-luxury resorts in Montana.

The hotel, in an area called Big Sky, will feature 150 rooms and 39 branded residences, offering ski-in, ski-out access to the second-largest ski resort in the U.S. The site also provides access to a golf course designed by Tom Weiskopf and lies roughly equidistant from the western entrance of Yellowstone National Park and Bozeman’s international airport, appealing to fly fisherman and golfers alike.

“We like luxury destinations that have a true sense of place, and a sense of discovery,” said Alan Fuerstman, chief executive officer of Montage, based in Orange County, California. “It’s a market our customer seeks out.”

Montage, which launched in 2002 with a resort in Laguna Beach, California, currently operates eight hotels and generated $400 million in revenue last year. In addition to the Montana project, to open in 2021, it has hotels under way in Manhattan and Sonoma County, California, among other locations. The company expects annual revenue to top $1.1 billion in 2022, Fuerstman said.

Read more: National Real Estate Investor


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