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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

 

 

Are food halls a magic elixir for retail owners?

The concept of the food hall has taken deep root in U.S. retail properties, with scores up and running and hundreds in the pipeline.

Though a popular addition for struggling retail properties, celebrity chef Todd English said that without the right approach, food halls are not always the solution for owners. English spoke at the recent Second Annual International Council of Shopping Centers-Baruch College Real Estate Conference, as reported by Real Estate Weekly.

He warned that some food halls are merely “glorified food courts with better options.” He further called food halls a WeWork model, a kind of coworking space that “has to be about more than just food.”

Food halls are a draw because of their perceived authenticity, as local eateries, healthier options and craft breweries edge out standard food court fare (fast food, that is).

While not every food hall is going to feature chef-curated or otherwise expensive options, they have to be creative in some way, English said during the ICSC conference. “It’s not just another great turkey sandwich or croissant, or whatever the latest trend is, it’s something that brings people in.”

For retailers, a successful food hall is thus not a matter of simply setting up a food hall. With the increasing number of food halls, they too need to stand out to be competitive.

 

 

Read more on Bisnow

 

Identifying lucrative value-add multifamily opportunities as the cycle lengthens

There are ways to drive returns on value-add multifamily investments without spending a fortune on redevelopment.

The appetite for value-add multifamily investments remains strong—and in light of this increasing competition, many investors are struggling to identify and secure assets that present high-reward opportunities.

While some investors have turned to extreme measures, including taking on projects that require extensive remediation and complete overhauls—or even repurposing entirely different product types for multifamily use—some of the greatest opportunities for growth and stability lie in strategically identifying and refreshing functional, yet under-managed vintage communities.

 

 

Read more on National Real Estate Investor

 

 

Apartment rentals make up a larger share of new housing units in the U.S. than they have in decades

New preferences, low affordability of new homes drive greater demand for apartment rentals.

Apartment rentals have been luring residents away from other kinds of housing since the housing crash—and that is not likely to change in the foreseeable future.

“Apartments should continue to play a role in the total housing market that goes beyond the historical norm,” says Greg Willett, chief economist for Real Page Inc., a property management software and services provider based in Richardson, Texas.

In the years after the Great Recession, millions of people lost homes to foreclosure and had to move, often into apartments. The extra demand for units was not expected to last more than a few years. However, today—more than a decade after the collapse of Lehman Brothers—the percentage of American households that own their own home is still near its low point. New households are still much more likely to chose to live in rental housing than in the years before the crash.

 

 

Read more on National Real Estate Investor

 

 

 

The 10 top emerging trends that will shape real estate in 2019

The Urban Land Institute’s annual look at the year ahead focuses on technology and transformation at an uncertain moment.

It’s complicated. In the course of compiling its annual Emerging Trends report, the Urban Land Institute found that the only certainty in its outlook for 2019 was uncertainty. Expert analysis points to a more complex, multi-layered series of overlapping trends, with unpredictable results, as opposed to a few strong narratives.

Will technology offer more opportunity and enhance competition and efficiency, or help consolidate the industry and drive out smaller players? How will shifts in demographics and shopping patterns challenge current investment practices? Will the U.S. ever get a grip on its housing affordability issues?

The report, a joint project of ULI and PricewaterhouseCoopers researchers unveiled during its fall meeting in Boston this afternoon, considered the responses of more than 750 real estate professionals in creating an high-level overview of the trends it believes will impact the real estate world. While the report expects an overall economic slowdown next year, emerging trends and markets in flux that could provide new opportunities.

 

 

Read more on Curbed

 

 

 

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

 

 

Mayor wants to lure modular housing factory to SF to provide both homes, jobs

As San Francisco officials continue to scout locations for a factory that can churn out modular housing units, Mayor London Breed is lining up the city to be the first customer.

Breed is expected to announce Monday that the city is prepared to spend $100 million on hundreds of modular apartments that would grow the city’s stock of affordable housing.

Who will run the modular housing factory won’t be known for some time, though the leading plan is to seek a private operator on city-owned or city-leased property. And even after a site is selected, it will take years to get a factory up and running.

But Breed and other officials hope the early — and sizable — promise to buy will entice interested operators to set up shop in San Francisco.

Read more on SF Chronicle

UC Berkeley professor blames rent control for California’s housing shortage

Kenneth Rosen hopes to sway voters against Proposition 10.

Kenneth Rosen, a UC Berkeley economist and real estate consultant, published a paper Wednesday titled The Case For Preserving Costa Hawkins, in hopes of swaying voters against Proposition 10.

Proposition 10, which will go before voters in November, would repeal the 1995 Costa-Hawkins Act, a state law that severely curtails rent control in California cities. For example, under Costa-Hawkins, only San Francisco apartments built before 1979 may be subject to rent control.

Passing Proposition 10 would not in and of itself create any new rent control housing, but it would allow cities to expand rent control stock for the first time in decades if they so choose.

Rosen, however, argues that turning the clock back to 1994 will stifle new housing and drain apartment stock.

 

Read more on Curbed SF

 

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

 

 

 

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