How the stock market’s wild ride could affect CRE investment

Stock market volatility may spur investors to allocate more funds to direct ownership of real estate.

The stock market’s recent rollercoaster, with October’s sharp correction followed by a post-midterm election surge, can put the investment community on edge, including commercial real estate investors.

“People who invest in real estate don’t invest in a vacuum,” says Mark Dotzour, a real estate economist who spent 18 years as chief economist of the Real Estate Center at Texas A&M University before opening a private consultancy three years ago.

It’s impossible to completely separate one’s emotional reactions from financial behavior, says Mike Ervolini, CEO of Cabot Investment Technology, which sells behavioral finance software to professional equity fund managers. Ervolini previously served as a portfolio manager and CIO with AEW Capital Management.

Real estate investors pay close attention to what’s happening in the stock and bond markets and while they may be able to overlook recent volatility, they’ll need to keep an eye on longer-term trends to determine if commercial real estate investment is still the best bet for their financial portfolios, according to Dotzour. For now, it seems the answer is yes.

 

 

Read more on National Real Estate Investor

 

 

How will S.F.’s tallest buildings fare in the next big earthquake? Report expresses concerns

San Francisco’s tall buildings may be at risk of damage during the next big earthquake, a study released by research nonprofit Applied Technology Council (ATC) last week warns.

The 36-page report outlines vulnerability concerns over outdated building standards and provides a strategy for proactive safety checks.

The study’s release comes just days after cracks were found in two steel beams of San Francisco’s newly minted $2.2 billion Transbay Transit Center, and as Millennium Tower next door continues to sink and tilt. Last year, the late Mayor Ed Lee commissioned the report, which was prepared by a group of engineers.

The report probed the city’s 156 tallest buildings — either constructed or permitted for construction — that are at least 240 feet high, primarily located in San Francisco’s Financial District. About 60 percent of these buildings house business and office space, while the rest are zoned residential.

 

Read more on San Francisco Business Times

 

 

Powell sees bright moment for economy with more hikes ahead

Ten years after the peak of the financial crisis, Jerome Powell’s Federal Reserve sees a U.S. economy capable of humming along without support from monetary policy.

Unemployment is low. Inflation is stable and anchored. Financial conditions merit watching, but don’t look overly worrisome. And against that backdrop, policy makers are raising interest rates gradually despite renewed criticism from President Donald Trump.

They made an expected rate increase on Wednesday, their third in 2018, while telegraphing another before year-end. In an optimistic press conference, the chairman also indicated that the path is clear for future hiking well into 2019.

“It’s a particularly bright moment,” Powell said of the economy. He praised the value of gradual rate increases, which have allowed the Fed to watch their policy moves play out.

“What we’re going to be doing, as we go through time, is asking at every meeting whether monetary policy is set to achieve our goals,” Powell said.

 

 

Read more on Bloomberg

 

 

Business fees to fund housing will be studied in San Jose

The concern, even for some council members who voted for the study, is that despite its housing shortage, San Jose still has many more residents than jobs, which is the opposite of the situation in many surrounding cities.

The imposition of commercial linkage fees to fund below market-rate housing is still alive in San Jose after Tuesday’s 9-2 City Council vote to add a discussion of them to next week’s agenda.

The vote came on an item of how the city should respond to a Santa Clara civil jury report issued in June that included among its findings that the fees are overdue and would increase housing.

Five council members, including Mayor Sam Liccardo, wrote memos changing the staff-authored response of disagreement with the finding to say the city would consider a study to confirm the causal relationship between job creation and an increased need for housing and a second study of the feasibility of enacting fees.

 

 

Read more on Silicon Valley Business Journal

 

 

 

Co-working space costs nearly 15% more than office space, study says. Is it worth it?

More than 1.7 million people will work in co-working spaces by the end of 2018, according to the Global Coworking Survey, and a staggering 29 percent of such spaces were opened over the last year.

Growth of this new workplace trend is most impressive in San Francisco, the city of seemingly infinite startups, many of which aren’t large enough to warrant an office space, but too big for the CEO’s living room.

San Francisco has 51.45 co-working spaces for every 100,000 people — more than any other city in the country — according to a new survey from business development tool SimpleTexting. The study compiled data from Yelp, the U.S. Census Bureau and multiple office-space rental websites.

The cost of co-working space for a single employee is actually more expensive than traditional office space, by about $400 a year in San Francisco, the study found. A years-long co-working pass in the city is about $4,572, compared to $4,200 in an office. Nationally, co-working rent costs an average 14.8 percent more per employee than traditional office space.

 

 

 

Read more on SF Gate

 

 

Markets may be signaling rising recession risk: Fed study

A narrowing gap between short-term and long-term borrowing costs could be signaling heightened risk of a U.S. recession, researchers at the San Francisco Federal Reserve Bank said in a study published on Monday.

The research relies on an in-depth analysis of the gap between the yield on three-month and 10-year U.S. Treasury securities, a gap that like other measures of short-to-long-term rates has narrowed in recent months.

Several Fed officials have cited this flattening yield curve as a reason to stop raising interest rates, since historically each time it inverts, with short-term rates rising above long-term rates, a recession follows.

The study, published in the San Francisco Fed’s latest Economic Letter, bolsters that view.

“In light of the evidence on its predictive power for recessions, the recent evolution of the yield curve suggests that recession risk might be rising,” wrote San Francisco Fed research advisers Michael Bauer and Thomas Mertens.

Still, they noted, “the flattening yield curve provides no sign of an impending recession” because long-term rates, though falling relative to short-term rates, remain above them.

 

 

Read more on Business Insider

 

 

 

Getting downtown ‘right’ in San Jose has been a trial-and-error process

The plan for San Jose’s downtown is years old. What’s new is that Google has bought into that vision.

The critical challenge of getting things right in the next iteration of downtown San Jose has been a hot issue at least since the 1980s, when downtown was torn up and many businesses suffered and died during construction of the Valley Transportation Authority’s light rail system.

Downtown’s future was a central focus of the thousands of people who participated in the four years of work that in 2011 produced the city’s latest general plan, Envision San Jose 2040, that anticipated Diridon’s status as a transit hub amidst 40,000 new jobs.

“This is not a novel idea we just came upon because Google came around last year,” Mayor Sam Liccardo said.

Kim Walesh, San Jose’s deputy city manager and economic development director, said the plan always envisioned “having an anchor developer who would do a cohesive master planned development in that central area.”

That doesn’t mean, however, that latest round of planning efforts and community engagement sparked by Google’s development announcement last year has pleased everyone who will be affected by what happens around Diridon.

 

 

Read more on Silicon Valley Business Journal

 

 

 

Oakland leaders declare Section 8 landlord incentive program a success

An incentive program aimed at bringing new landlords into the Section 8 low-income housing program — and keeping them around — has yielded positive results, with hundreds of new units added this year, Oakland city leaders announced today.

The three-tiered incentive program was launched by the Oakland Housing Authority in January. As of June 30, 75 new property owners had signed up to accept Section 8 housing vouchers.

“In just six months, 684 families have found stable, secure, affordable housing in Oakland. That is something to celebrate,” Mayor Libby Schaaf said at a press conference today.

Section 8, a federal program that provides rental assistance to qualifying low-income families, has been struggling in Oakland in recent years.

From 2015 to 2016, the Section 8 program shed more than 1,000 owners, according to Eric Johnson, executive director of the Oakland Housing Authority.

Since then, the program has been in “recovery mode,” he said, looking for ways to attract new owners.

“It can be a challenge to get to know us,” Johnson said. “We have lots of forms, and the first time through them is not easy.”

At a 2016 cabinet that discussed ideas to address Oakland’s housing and displacement crisis, city leaders identified incentives for Section 8 landlords as a priority.

 

 

Read more on Hoodline

 

 

WeWork brings its newest office model to San Francisco to chase mid-size companies

WeWork is putting a twist on its co-working model with HQ, a new concept aimed at medium-sized companies that offers more privacy.

Co-working space operator WeWork is bringing a new concept aimed at medium-sized companies to San Francisco.

The fast-growing company eased 17,500 square feet in 800 Market St. for its first location of the new model, known as HQ, outside of New York City.

WeWork’s HQ is geared toward businesses with 11 to 250 employees that need office space, but don’t want to sign a traditional lease or don’t need the common areas the company provides in its co-working location.

“Since launching HQ By WeWork, we have been inundated with inquiries from businesses looking for private, flexible, cost-efficient spaces that allow them to reflect their identity,” said David Fano, the company’s chief growth officer, in a statement. “San Francisco was the obvious next destination.”

The company already runs six HQ locations in New York totaling more than 400,000 square feet, with the goal of reaching 1 million square feet within the next year.

Read more on San Francisco Business Times

 

 

Get ready for a big fight over California’s property taxes in 2020

A big battle over property taxes in California is shaping up for the 2020 ballot.

Supporters of a bid to increase taxes on commercial land announced Tuesday they’ve collected more than 860,000 signatures to force a vote on the issue in two years.

“This is a defining moment for California,” Fred Blackwell, CEO of the San Francisco Foundation, said in a statement. “Closing the commercial property tax loopholes is important to our state.”

Backers, including the California Federation of Teachers, the League of Women Voters and community organization California Calls held news conferences Tuesday in Los Angeles, Berkeley, Fresno, San Diego and San Bernardino to demonstrate support across the state for the idea. Of the signatures turned in to the Secretary of State’s office, 585,407 must be deemed valid for the measure to qualify for the November 2020 election.

The initiative would make dramatic changes to the tax system established four decades ago by Proposition 13, which capped how much property tax bills could increase every year. The proposed measure would boost property tax revenues from commercial and industrial properties by assessing them at their current market value. Property tax protections would remain unchanged for residential properties.

The changes could net $6 billion to $10 billion annually in new property tax revenue statewide, according to an estimate from the state’s nonpartisan Legislative Analyst’s Office. The analyst’s office also warned that the measure could have significant downsides for California’s economy by causing businesses to leave or opt against relocating to the state.

Business groups are girding for the fight over the tax hike, known as “split-roll” because it assesses residential properties different from commercial and industrial properties.

“California already has the worst climate for business and job creation in the country,” Rex Hime, president of the California Business Properties Assn., said in a statement. “A split-roll property tax will just increase pressure on many businesses that are already finding it hard to make ends meet.”

 

 

 

Read more on LA Times