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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

 

 

 

Should California’s Costa-Hawkins rent control act be repealed?

Debating the pros and cons of rent control at the Urban Land Institute

The Urban Land Institute of San Francisco held a public forum at the Google Community Space Tuesday night debating Proposition 10, the November ballot initiative that would repeal the 1995 Costa-Hawkins Act and allow California cities to potentially expand their rent-control ordinances.

Arguing in favor of Proposition 10 and potential rent-control expansion was Amy Schur, the director of the Alliance of Californians for Community Empowerment.

John Eudy, co-chair of the “no” campaign Californians for Responsible Housing (and also a vice president at Essex Property Trust) argued against repeal.

David Garcia, a policy director at UC Berkeley’s Terner Center For Housing Innovation, appeared as a third-way party; however, since Garcia appeared to nominally oppose Costa-Hawkins repeal, he often functioned as a second anti-Proposition 10 voice.

All three parties agreed that the state’s goal should be more housing production. They also agreed that Costa-Hawkins as it exists now is ineffectual at protecting renters and that the status quo won’t do in the future.

 

 

Read more on Curbed SF

 

 

Facebook creates three huge Bay Area job hubs for expansion

Facebook has created three Bay Area work hubs that each total at least one million square feet, following big leases with two legendary developers that widen its Silicon Valley footprint.

The tech titan could employ as many as 19,000 in the expansion sites, located in Fremont, Sunnyvale, and Menlo Park.

The social networking giant is already expanding in its hometown of Menlo Park and has signed a mammoth lease in Sunnyvale. Now, it has signed major leases with Sobrato Organization and Peery Arrillaga totaling 18 buildings in a part of Fremont near the Dumbarton Bridge’s east end.

The most recent set of leases in Fremont total 1.04 million square feet, according to Facebook.

 

 

Read more on The Mercury News

 

 

 

Free time and fun: the new must-haves at apartments

As the luxury multifamily market approaches a peak, apartment owners and managers turning to social amenities to engage residents at their properties.

The new must-have amenity for luxury apartment projects? Time.

During this economic growth cycle apartment developers have engaged in a virtual arms race of amenities. Most were physical goodies they could tout in property tours – features like furnished guest suites for resident’s out-of-town visitors, rooftop pools, and walk-in lobby refrigerators for food deliveries.

Now, say apartment developers and property managers, the trend is towards providing services that save residents time, or experiences that make effective use of it.

Across the country high-end apartments are now offering a host of new services to attract renters: dog-walking, wine tastings, poker nights, errand-runners.

“There’s this feeling that the amenities war has run its course – everyone has the same check list on their website,” said Tom Geyer, vice president of branding at the Bozzuto Group, the Greenbelt, MD.-based developer and apartment manager.

“But I do think the battle of services is a newfound strategy to build value.”

Bozzuto, which owns or manages more than 60,000 units up and down the East Coast, has become a specialist in adding these experience-based and time-saving services, and notes the appeal of service and experience-based amenities goes across all age groups.

For its part, Geyer said Bozzuto doesn’t try to mold their properties to fit a certain age group – for millennials, say.

Rather, the company sees its properties and tenants in terms of “tribes.” Some properties have a preponderance of bike riders, some have dog owners, and others are dominated by retirees looking for urban living experiences.

“Most of our residents are not non-social people,” said Geyer. “Building amenity space is about supporting interaction, looking for a chance meeting of the tribe.”

For example, Geyer said residents aren’t just interested in an onsite gym, they want access to classes.

“Classes are the number one thing, group classes,” he said.

That means not just adding amenities, but re-designing some of the existing amenity spaces. Gyms have to be designed to accommodate the new trends of cross-fit, PX-90 workouts. And equipment has to be placed to accommodate classes.

National Development, a multifamily developer and manager based in Boston, agrees with the new thinking. It hired a full-time marketing and community engagement manager who coordinates events for a dozen National Development properties.

“It’s not an either-or proposition,” said Ted Tye, a managing partner at National Development. “There’s been a real push for physical amenities, and that hasn’t abated. Layered on top of that, as the market gets more competitive, is the social amenity.”

 

 

Read more on CoStar

 

 

 

Big downtown San Jose office, retail Museum Place complex pushes ahead

A new vision has emerged for a crucial downtown San Jose development known as Museum Place that would add offices and retail next to The Tech Museum of Innovation, according to city documents being reviewed this week.

Some details about the new Museum Place approach were contained in San Jose city staff reports regarding an agreement to bring aboard a group led by realty entrepreneur Gary Dillabough. The Dillabough group will provide fresh capital and investments to get the project moving forward. This news organization had reported previously about Dillabough’s planned involvement in the Museum Place development on Park Avenue.

“The developer has a formidable vision for San Jose’s future,” according to a memo prepared by Kim Walesh, San Jose’s economic development director. “Mr. Dillabough has indicated a strong desire to make the Museum Place project a standout location that the City of San Jose can look to with pride.”

 

 

Read more on The Mercury News

 

 

How to Find Continued Value in Apartment Acquisitions

With concessions ticking up and rent growth slowing, is it time to question or finetune allocation levels and strategies in multifamily investing?

The stability, durability and continued capital flows into multifamily investing permeate today’s headlines, with industry pundits believing apartments to be the most popular product type with real estate investors in 2018, second only to industrial. Mixed signals abound among varying markets, and it’s important to dissect and triangulate the real data as the analytics don’t always tell the full story.

A first quarter report from Fannie Mae cited:

  • Positive, but slowing net absorption in 2018 compared with 2017 (CoStar)
  • Surging apartment development, peaking at over 440,000 units nationwide and up 16 percent from 2017 (Dodge Data & Analytics)
  • Rising nationwide vacancy rate predicted to approach recent historical average of six percent by year-end (Fannie Mae)

With concessions ticking up and rent growth slowing, is it time to question or finetune allocation levels and strategies in multifamily investing? Two principal factors are worthy of consideration here: geography and investment horizon.

Nationally, development is projected to keep pace with net absorption, as Fannie Mae projects net rental demand of 380,000 to 460,000 units in 2018. However, parsing geographies more discerningly reveals that new multifamily construction has been heavily concentrated in America’s largest cities, where pockets of oversupply are projected. New York, Boston, Washington, D.C., Chicago, Los Angeles and San Francisco present some of the highest unit construction per capita in the country, yet are all projected by Moody’s Analytics to experience job growth in 2018 that lags the national forecast of 1.5 percent.

All markets do not bear these metrics though, especially in select secondary markets where Fannie Mae reports the ratio of projected population and employment growth to rising apartment inventory is more favorable. Cities such as Houston, Dallas, Austin, Texas, Salt Lake City and Portland, Ore., even while seeing brisk construction, are forecast to increase job growth between two to three percent amid continued rental escalation. Two markets worth investigating include Phoenix, where projected 2.6 percent employment growth forecasts the demand for 10,000 units against projected 2018 delivery of 8,000 units, and Las Vegas, where projected 2018 absorption is double the number of units under construction.

Development nationwide should peak in 2018, as planned units in comparison to those under construction taper off, even in cities with the most active pipelines. This suggests that investors with a longer hold horizon may see their patience rewarded when new supply is absorbed and vacancy rates level off. Several long-term demographic trends also bode well for multifamily absorption and rental rates:

  • Householders continue to delay marriage and childbirth, thus tending to remain in apartments
  • Population growth in many areas, particularly in the Southwest, is being fueled by immigrants who tend to be renters
  • Real household income growth is occurring only in the upper 20 percent of earners, rendering home ownership less affordable for many
  • Student loan debt, which doubled as a percentage of GDP between 2006 and 2012, stymies home ownership for younger households
  • Conversely, the 65+ baby boomer generation, America’s most rapidly growing domestic cohort, is demanding more rental housing as they age out of owned homes and reevaluate their investment and retirement options

In our view, investors who choose their geographies wisely and take a long-game approach should see their properly selected multifamily investments buoyed by these market and demographic trends, while enjoying relatively predictable cash flows in the interim.

Read more from National Real Estate Investor

 

San Francisco’s homeless crisis is driving tourists away

San Francisco’s hotels are facing a serious problem.

The city’s idyllic image of the Golden Gate bridge and grandiose views of the bay are being replaced by concerns about needles and feces littering the streets, homeless citizens sleeping on sidewalks or in Bay Area Rapid Transit stations and aggression toward visitors by people with untreated mental illness. Visitors are noticing and rethinking booking events and vacations at hotels around the city.

San Francisco’s homeless population was down by 0.5% in 2017 compared to 2015, but is about 17% higher compared to 2013, according to SFist. While homelessness is nothing new for the city, hoteliers and local business say street conditions have worsened.

Within 153 blocks in downtown, there were over 300 piles of feces, 100 drug needles and trash on every block, a recent report by NBCBayArea revealed. Complaints of poor street conditions to 311 have skyrocketed in recent years. In 2016, 311, a city agency where visitors and residents can report issues or seek information about the city, received 44,000 complaints of encampments, human waste and needles, up from 6,300 complaints in 2011, according to the San Francisco Chronicle.

“[Visitors] are noticing it and hearing about it and saying, ‘well, why would I bring my conference here?’” Hotel Council of San Francisco Executive Director Kevin Carroll said.

Visitors often have rave reviews for the local restaurants and hotel service, but say they will not come back or will not bring their families here, he said.

San Francisco is not the only major West Coast city dealing with issues of homelessness and street conditions impacting tourism and hospitality. Anaheim, home to Disneyland with its spotless, litter-free Main Street, U.S.A., has the stark contrast of homeless people who live just outside the park. The city has been looking into ways to help its homeless population, such as providing emergency shelter and employment opportunities. Honolulu also took action in recent years on cleaning up the streets, including around its popular Waikiki area.

Read more from Bisnow

 

 

 

Could cryptocurrency be the future of real estate buying?

In August 2014, a secret buyer contacted the realty arm of Martis Camp, a luxury real estate community in North Lake Tahoe in California, with an unorthodox deal: a purchase of land for 2,739 Bitcoins. At the time, the cryptocurrency that recently turned the Brothers Winklevoss into a pair of Bitcoin billionaires was worth about $580 per coin. Multiply that 2,739 times over, and the buyer paid $1.6 million for a 1.4-acre piece of land.

“Many of our buyers are in the tech sector and are early adopters of Bitcoin. We understand the importance of adapting to cutting-edge purchasing methods,” said Martis Camp sales director Brian Hull, who described the buyer only as a “Silicon Valley entrepreneur.”

That Bitcoin-financed real estate transaction was one of the largest, but it was not the first. Five months earlier, in March 2014, another secret buyer purchased a villa in Bali for 800 Bitcoins, or roughly the equivalent of $500,000. Two months later, a suburban home in Kansas City, Missouri, sold for the same amount. Last September, a buyer—identified only as working in the tech industry—bought a single-family home in Austin, Texas.

Most of these transactions involved the buyer converting Bitcoin into U.S. dollars to make the purchase—a liquidation of assets, much in the same way a first-time homebuyer might use investment dollars to afford a down payment.

Then, in late December, what was considered to be the first Bitcoin-only real estate deal went down when Ivan “Paychecks” Pacheco, co-founder of cryptocurrency website Bits to Freedom, transferred 17.741 Bitcoins ($275,000) to a seller to buy a two-bedroom condo in Miami. In early February, Bitcoin investor Michael Komaransky sold his Miami mansion in a deal where the buyer—again, anonymous—paid the $6 million listing price almost entirely in Bitcoins (455, to be exact).

Read the full article from Curbed

20 Secondary Cities to Watch in 2018 (and Why)

It took about 7 years from the height of the housing collapse for primary markets to rebound.

Until 2016, they were still exceeding the appreciation rates of secondary markets, but then secondary markets surpassed them in the second half of 2016 and continue to outpace primary markets.

PwC (PricewaterhouseCoopers) and Urban Land Institute have highlighted secondary cities that are on the rise in their recent market outlooks. We take a look at which secondary cities we need to be paying attention to in 2018 and why they have become so popular with investors.

Why Secondary Cities?

In PwC’s survey, some of the top primary markets like San Francisco and Manhattan tumbled down to 27 and 46 respectively while secondary cities leapt into the top 20. There are several reasons for the surge in investor interest – chief among them is affordability. Other factors:

·      Investors have come to understand the complexities underlying the potential of secondary cities

·      Unlike typical real estate cycles, new construction in secondary cities has remained low, preventing the problems created by overbuilding

·      Hiring costs for businesses are 14% – 16% lower than in primary markets

·      Cost of living is much lower in secondary cities with housing a full 45% lower

·      Foreign investors are increasingly focusing on secondary cities, accounting for 10% of transactions involving secondary markets last year

Lower costs of living and of doing business in secondary cities enable investors to save more money on their investments while reaping more of the profits. On the opposite side of the coin, as real estate pricing continues to go up in primary markets, investors are pocketing less and less while also being constrained by limited inventories and interest waning in assets in places like New York, DC and LA. What is more, those macroeconomic factors are predicted to hold for years to come.

Read more from NAI Global

Why Silicon Valley isn’t headed for a recession any time soon, economist predicts

At least one respected economist has an uplifting message for the real estate community: stop worrying about a downturn.

Christopher Thornberg, founding partner of Los Angeles-based Beacon Economics, on Tuesday told the crowd at Colliers International’s 19th annual Trends event that it isn’t yet time to start collective hand wringing. In fact, he predicted the economy would be full steam ahead for another 24 months and that, in many ways, the economy may better in 2018, even as he warned that he did see signs of a new bubble that could impact the market in the long-term.

“When you look at the underlying indicators, not only is there no chance of a downturn over the course of the next 24 months, if anything, the economy is actually going to accelerate,” he said. “It’s going to be a good year.”

The message comes as a welcome reassurance in Silicon Valley, which has seen economic upswing for a nearly unprecedented stretch, bringing consistent gains in leasing activity, transaction dollar amounts and development across the Valley.

Read more from Silicon Valley Business Journals