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Mogul Minute 5/5/2016
May 5 | 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:

U.S. Hotels Located in Oil, Gas Regions Continue to Struggle in 2016 (World Property Journal)

  • According to a new study performed by the STR consulting & analytics division, demand is slowing and construction is continuing to grow in regions with heavy concentrations of the oil and gas industry. STR has identified 39 submarkets that are driven primarily by the oil and gas industry with 20 of those accounting for the vast majority of hotel rooms and accommodated demand. Those 20 submarkets experienced a 4.4% drop in demand in 2015 followed by an 8.8% decline in the first quarter of 2016.  In addition to the troubling drop in demand, supply rose 4.1% during 2015 and again 3.7% in the first quarter of 2016
  • Needless to say, decreasing demand and increasing supply is not a good combination. RevPAR for the 20 identified submarkets saw a 14.2% decrease for 2015 is down 18.4% through the first quarter of 2016
  • Despite the recent mini-run for oil in the early part of 2016, oil prices remain a far cry from the highs seen during the first part of the recovery and sentiment is not strong for drastic future gains in oil prices. According to Steve Hennis, STR’s VP of consulting & analytics, “the foreseeable future for the hotels in these markets is bleak barring a miraculous turnaround for the energy sector, which is largely dependent on global factors beyond the control of the U.S. That being said, oil prices change course quickly at times. Just as prices plunged quickly over the course of just a few months, they can skyrocket just as unexpectedly. However, hope is not a very comforting strategy for hotel investors in these tertiary markets where the ability to induce other forms of room night demand is negligible”
  • The chart below shows 12-Month RevPAR Changes for Major Oil & Gas submarkets versus the rest of the US. Note the drastic decline from Major Oil & Gas submarkets from mid-2015 and beyond:

Freddie Posts $354M Quarterly Loss (Globestreet)

  • Marking the second time in the past three quarters, Freddie Mac posted a Q1 net loss of $354M attributed mostly to $2B of fair value losses related to net declining interest rates and wider spreads on certain mortgage loans and mortgage related securities. Comparatively, Freddie Mac posted a net profit of ~$2.2B in Q4 2015 and $524M in Q1 2015
  • Multifamily lending continues to be strong as new business totaled $18B in the quarter, up from $13B in Q4 2015. By comparison to the downturn, multifamily lending for the entire year of 2010 totaled only $15B
  • Among those with the strongest April rent growth, Sacramento, Seattle, Portland, Las Vegas, and Boston topped the list.

Millennials Making Permanent Changes To Commercial Real Estate (Globestreet)

  • As they are projected to be 50% of the workforce by 2019, Millennials and the current and future impact on the real estate industry was a hot topic at this week’s DLA Piper’s Global Real Estate Summit
  • Owen D. Thomas, the chief executive officer of Boston Properties maintained that a great location will remain a great location but he reinforced the idea that a sense of “place” was crucial. Thomas expanded, “You need to have amenities, either in the building or in the neighborhood. As an office developer, we are providing the shell, but we also try to supply the most flexibility possible”
  • Uncertainty was raised whether millennials would remain in these urban environments in the future and for how long once they reach their late 30’s and their priorities shift. The answer is unclear but Frank Cohen, senior managing director of Blackstone, believes “that many of the cultural changes brought about by this generation are permanent, and will continue to have a profound impact on the world of real estate. The desire to work in buildings that have what people see as authenticity and live in walkable environments, among other preferences, are more properly seen as paradigm shifts rather than passing fads”

America’s great housing divide: Are you a winner or loser? (Washington Post)

  • Single-family home values have gained an average of 14% since 2004, however this is not spread across the nation equally and the most expensive neighborhoods have seen increases far beyond this number. At the beginning of the period, values escalated rapidly fueled by subprime lending and peaked in 2007. The collapse occurred and the market reached its trough in 2011 where values have generally increased at various levels since then
  • The study finds that there is a great disparity in home values with race and demographics being primary factors. Among the big picture findings:
    • African-American neighborhoods, as determined by a majority of the population, are typically seeing substantially lower home value growth (they cite Atlanta as an example)
    • White collar, higher wage cities are seeing much better home value growth than blue-collar cities (Charlotte and San Francisco)
    • Distance to jobs is a significant factor where inner-ring suburbs are outperforming out-ring ones (Washington DC)
  • Below is a geographic representation of home value growth throughout the nation (blue is less than average home growth, green is average, and yellow with better than average home growth):

Worse than mostAverageBetter than most

                                                                                      

Teen retailer Aeropostale has filed for bankruptcy (CNN Money)

  • The struggling teen retailer has announced they will close 113 stores in the US and 41 stores in Canada. The company has said they intend to emerge from bankruptcy within the next 6 months after getting rid or re-negotiating disputes with their former investor Sycamore Partners. The company will also continue to search for potential buyers during this six-month period. The company will be de-listed on the NYSE due to its low trading price
  • Sales have been declining rapidly and they dropped 16% during the most recent quarter as they faced stiff competition from Zara, H&M, and Forever 21
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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