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#MogulMinute 12/22/2016
December 22 | 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:

Rite Aid to Sell 865 Stores to Fred's (Fox Business)

  • Rite Aid Corp said it would sell 865 stores to Fred's Inc for $950 million to satisfy antitrust concerns over its proposed takeover by Walgreens. Fred's Pharmacy will continue to operate the acquired stores under the Rite Aid banner during the transition period.
  • The transaction is expected to close in early 2017.
  • Fred's currently operates 647 stores and three specialty pharmacy-only locations across 15 states in the southeastern United States, including 18 franchised locations. Fred's also has 371 full-service pharmacy departments within its stores, including four franchised locations.

US Capital Trends – The Big Picture (RCA)

  • While deal volume has been falling throughout 2016 (chart below) on a year-over-year basis after a banner 2015, activity is still elevated overall. The pace of transactions for the year to date through November is 12% ahead of the pace set in 2014 and 35% ahead of the pace set in 2013. So while deal volume in 2016 is down from an exceptionally strong 2015, it is not as if activity is going through the 2008-09 style correction.
  • Apartment transaction volume is up 28% year-over-year while development sales are lagging with deal volume 29% below the 2015 pace:

  • What will happen to cap rates as interest rates rise? RCA believes the movement of Moody’s Baa-rated corporate bond yields is important to watch. “These yields tend to mirror cap rate trends and since the election the spread between the 10yr UST and these bonds has narrowed by 30 bps. Cap rate spreads to the 10yr UST could behave in a similar manner with the interest rate increases.”
  • Where cap rates settle out is tied to the willingness of investors to hold risky assets. Cap rates fell sharply in the period from 2003-07 as investors tolerated risk given the prospects they saw for economic growth. Future growth would need to be well above historic norms to keep cap rates at their current low levels. Still, stronger growth might push up cap rates less than the 10yr UST with corporate bonds.

Yuan Headed for Biggest Annual Decline in More than Two Decades (Bisnow)

  • Although China has made efforts to stop outflows, an average of $50B has flown out of China every month since June and this period will coincide with the yuan’s largest annual decline in more than 20 years. This could increase foreign investment in the US if China is unable to stop the outflow of money.

Percentage of Young Americans Living With Parents Rises to 75-Year High (WSJ)

  • Almost 40% of young Americans were living with their parents, siblings or other relatives in 2015, the largest percentage since 1940, according to an analysis of census data by real estate tracker Trulia. The trend runs counter to that of previous economic cycles, when after a recession-related spike, the number of younger Americans living with relatives declined as the economy improved. Analysts believe the main cause is rising rents and tougher mortgage standards:

US Regulator Says Bank Loosened Lending Standards for Fourth Year in a Row (Bisnow)

  • The Office of the Comptroller of the Currency is reporting that “major US banks jacked up the risk they’re willing to take on four the fourth year in a row, lowering lending standards in an attempt to drum up more business.” A potentially troubling finding as risk increases the further along we get in the cycle.

Cramer says department stores are in real trouble and Nordstrom is 'cannibalizing themselves' (CNBC)

  • JPMorgan downgraded Nordstrom to “underweight” on Friday in the wake of recent meetings with the company’s management team amid concerns over declining traffic and website improvements that could hurt the chain long-term.  "The better Nordstrom's website becomes the less incentive you have to actually go to their stores. In other words, they are cannibalizing themselves" – Jim Cramer.
  • Traffic levels in their stores are at their worst level since 1972 and analysts believe Nordstrom does not have a way to solve for it.

Economy Watch: Job Seekers Fare Better in Tech Towns, State Capitals (MHN)

  • According to a new survey by NerdWallet which analyzed Bureau of Labor Statistics and Census info, these cities were rated as the best for job seekers: Austin, Denver, Nashville, Seattle, and Durham.
  • The survey factored in Millennial concentration, cost of living, and employment opportunities.

 

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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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