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While Trump’s victory has certainly drawn strong reactions from almost everyone, several high profile industry leaders believe that Trump will be good for commercial real estate. Count Thomas Barrack, founder of Colony Capital, and Steve Schawrzman, Blackstone’s CEO, among them.
- Colony Capital Founder Expects Trump Presidency Will Spur 4% GPD Growth in 2 Years (Bisnow) - Barrack believes that Trump could increase GDP growth by 4% in the two years and the increasingly positive sentiment could encourage investors to allocate more capital into equities and out of the bond market. Note that Barrack has significant Trump ties as he is the head of his inauguration committee.
- Blackstone’s Schwarzman Sees Business Benefiting Under Trump (Bloomberg) – Though he didn’t mention Trump by name, Schwarzman is bullish on the future as he is “excited” about the prospects for economic growth in the US and expects the business community to look “infinitely better” in the next few years. Carlyle Group LP President Glenn Youngkin also added that “this is the first time in a long time that we have a uniformly pro-business policy outlook, and we think that’s really positive.”
Yellen says Fed might hike interest rates ‘relatively soon (MarketWatch)
- Yellen remarked yesterday that a federal funds rate increase could come “relatively soon” as the Fed waits for “incoming data providing some further evidence of continued progress toward the Committee’s objectives.” Though her commentary was vague, Stuart Hoffman, chief economist for PNC believes that “Yellen’s prepared remarks followed by strong economic data for October (including the earlier released data on strong retail sales in October and September supported by strong sales gains just reported by Target, Wal-Mart and Best Buy) all but guarantee a December funds rate hike by the FOMC.”
Five Pillars Of Change For CRE Investors (Globe St)
- Marcus & Millichap’s (M&M) latest report believes commercial real estate investors are likely to see big changes in five areas. Below is a summary:
- Fiscal policy – “With a united Congress and White House, Republicans will likely coalesce around a combination of tax cuts and increased investment into infrastructure and defense.” Specifically, the report mentions that the tax treatment of carried interest is something to monitor going forward as it could cause “developers and some investor syndicates to reconsider their business structures.”
- Infrastructure – In increase in investment in infrastructure should be positive for job creation and increased efficiency while “roads, transit, bridges, the electrical grid and numerous other projects would vie for funding, potentially benefiting surrounding commercial properties.”
- Monetary Policy – If the above predictions ring true regarding an increase in GDP growth then we are likely looking a more aggressive rate hikes than in past years.
- Regulatory Policy – Trump’s anti-regulation stance could lead to the potential repeal of the Dodd-Frank Act and a “rollback of environmental restrictions and increased access to federal land for oil and gas drilling could also emerge.”
- Trade Policy - “A cornerstone of the president-elect’s campaign focused on the rejection of notable trade agreements such as NAFTA and TPP, based on this, future trade agreements would likely carry a more protectionist tone in an effort to bolster American manufacturing and employment. While these policies could crimp the flow of imports and exports, a potential increase in the US dollar value could partially offset the rising cost of foreign goods.”
Apartment Demand, Rental Rates Hold Steady Against Unprecedented Supply in Healthy-But-Slowing Apartment Market (CoStar)
- 3rd quarter multifamily numbers are in and CoStar is reporting that the sector is in good shape despite a surge in new supply in certain markets. "Despite the record levels of new supply we're seeing in downtown areas, apartment fundamentals remain mostly in check across the U.S. on an annual basis," said Michael Cohen, CoStar director of advisory services. Refer to the chart below showing a vacancy rate below the historical average and demand continuing to remain strong:
- “CoStar is forecasting continued strong construction levels with total deliveries of 201,000 units expected in 2016. Although modestly below the total number of units added in 2014 and 2015 levels, construction levels remain well above the 15-year average of about 140,000 units, with another 244,000 units slated for delivery in 2017.” However, demand for renting continues to be strong for a variety of factors including delayed household formation, increased burdens of student debt, and a lack of new single family home construction. Cohen believes the homeownership rate will have a significant impact moving forward, "the trajectory of homeownership will have an outsized impact on future renter household formation and certainly bears close monitoring."
- Among individual markets, Sacramento, Seattle, and the Inland Empire rank among the best markets in terms of year-over-year rent growth. See the chart below for The Top 20 Rent Growth Markets.
Hotel Room Growth Continues, But Rates Still Climb (Trepp)
- A large glut of recent and oncoming supply has started to take a toll on the hotel sector as STR is reporting the 3.3% growth in revenue per available room (RevPAR) for the third quarter of 2016 is the slowest since 2009. Occupancy rates remained flat year-over-year at 71.1%.
- While AirBnB is beginning to make an impact in the sector, Lodging Econometrics is expecting 841 hotels and over 95,000 rooms to open this year in the US. We have already seen 594 hotels and over 68,000 rooms come online through September of this year. To make matters worse, the research firm is expecting another 1,000+ hotel openings next year with over 118,000 rooms being added to supply.
- A large chunk of the supply is coming online in New York (31,000 rooms under construction as of September) while Houston (20,000 rooms), Los Angeles (18,000 rooms), and Dallas (16,000 rooms) are other markets with big supply figures.
- Cap rates, which are loosely tied to investor yields, have also increased year-over-year moving from 8.2% last year to 8.5% this year (as of September). This is all occurring as other property types have seen cap rates continue to remain flat or decrease.