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Mogul Minute 09/27/2016
September 27 | 2016

Here at RealtyMogul.com, we keep our finger on the pulse of all things real estate, from finance to technology and everything in between. We make a point of sharing interesting articles and think pieces among RealtyMogul.com staff to help our team stay abreast of the market, and ahead of the curve.

So we thought, why not share some of these insights with you, our partners?

Got A Minute? Here’s some recommended reading with key points from the content:

Marriott Completes $13B Starwood Buy (CPE)

  • While Anbang threw some doubt into this arrangement, the deal between Marriott and Starwood has finally closed to create the world’s largest hotel company. The combined company will have more than 5,700 properties and 1.1 million rooms in its portfolio.

Jobs Recovery Reaches Plateau, Posing a Challenge for Forecasters (WSJ)

  • While the national unemployment rate is in good shape at just a shade under 5.0%, there is some mixed labor data that is suggesting the labor market “is close to as good as it gets.” The unemployment rate seems to have stagnated and the participation rate is near a 40-year low. According to HIS Markit Chief Economist Nariman Behravesh, “averages hide a lot of problems. A lot of low-skilled and blue-collar workers have been left behind. They might have a job, but it pays less than the job they had before the recession.”
  • The face numbers on its own are not overly concerning, however, the lack of growth potentially is. This is concerning as “long stretches of sideways movement in labor measures were followed by an economic downturn” in previous expansions. Refer to the charts below which show a plateauing labor market: 

Five Trends Affecting Commercial Real Estate: Looking Ahead to 2017 (NREI)

  • NREI believes that the “U.S. property market landscape in 2017 will be characterized by continued strong fundamentals, increased investor flows and high transaction volume.” Among the factors and things to watch out for in 2017:
    • Global economic and political uncertainties – “For U.S. markets—real estate in particular—the impact is likely to be largely positive as U.S. assets become more attractive and valuable to global investors. We can probably expect enhanced inbound foreign investment in U.S. real estate as the U.S. becomes even more of a safe haven. The IMF predicts higher economic growth in the world as emerging markets find their footing and commodities continue their recovery. Stronger global growth is likely to provide more real estate inflows into the U.S. market as the U.S. remains one of the most attractive commercial real estate markets.”
    • Low interest and cap rate environment – The author believes the federal funds rate will increase by 25-50 bps in 2016 and possibly by the same amount in 2017. They also believe that the 10-year Treasury yield will normalize to a longer term range of 1.75%-2.0%% by early 2017. This increase in interest rates should also have an impact on cap rates as investors will have to adjust to decreased cash flows. 

  • Foreign investment in the US – “International capital flows into U.S. real estate assets will continue—and increase. The U.S. property market is the most stable and transparent in the world, with higher relative yields and price appreciation potential, making it an easy investment choice. And, while slowing growth in China and much of Europe may dampen currencies and incomes over there, there is still abundant non-U.S. capital looking for placement and very strong demand for U.S. assets, as 2015 proved with record inflows.”
  • Slowing new supply – “Additions to supply will remain limited across the board, with only modest supply growth in a few sectors—multifamily (now slowing for the remainder of 2016), student and seniors housing (creeping up) and single-tenant industrial (regional distribution centers)—and repurposing in others (suburban malls). Lending sources were extremely skeptical about funding new construction (particularly hotel and hospitality) coming out of the last recession, and the current lending environment is showing signs of reticence as bank reserve requirements from Basel III and CMBS risk retention requirements from Dodd-Frank are due to kick in by late 2016. Market volatility has sharply reduced CMBS offerings as well.”
  • Volatile Energy Markets – “The impacts vary considerably by region and sector. Negative effects are largely concentrated in a few metropolitan areas with high economic exposure to the energy industry (including Houston, Texas and the oil shale region in North Dakota). For most metro areas and property types, lower oil prices have been a net positive. Spending less on gasoline encourages consumers to spend more on other items, which helps retail and hotel market fundamentals. Lower oil and energy costs will also reduce certain construction, manufacturing and logistics costs. This aids business investment and expansion, which, in turn, increases demand for industrial and manufacturing space. . .  However, for major energy-producing metro areas, the short-term benefits of low prices will be discounted by the negative impacts on energy-related firms. The long-term health of the property markets in these metro areas will greatly depend on the speed with which oil prices rebound to sustainable levels for U.S. producers.”
 
Tim Ednoff Headshot
Written by , Associate - Commercial Equity at RealtyMogul.com

Tim evaluates investment opportunities as well as performs due diligence and writes content for various equity and debt transactions. Outside of the office, Tim is an avid sneaker collector, a passionate health and fitness advocate, and a dedicated podcast enthusiast.

 
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