Urbanexus Update - Issue #119
H. Pike Oliver is back from vacation at Seabrook, a delightful new urbanist development on the coast of Washington State. During this break, he decided to lighten the curating load by reducing the Urbanexus Update publication schedule from weekly to twice a month. As before, some items are behind a paywall.
The economy and real estate
Colony Capital reports $2 Bn loss
Colony Capital, a Los Angeles-based real estate investment company, reported a net loss of $2 billion on revenues of $372 million in its second-quarter earnings.
JLL profits halved by pandemic
Profits were hammered during Q2 2020. Fewer companies signed leases and JLL, the second-biggest real estate services firm in the world, saw a 54 percent reduction in earnings before interest, taxes, depreciation and amortization to $103 million during the second quarter compared to the same time in 2019.
Commercial investor activity in U.S. rebounding According to global commercial real estate consultant CBRE, U.S. commercial investor sentiment and transaction activity are recovering from the depths of the COVID-19 crisis.
Real estate finance
Mortgage delinquencies spike in Q2 2020
The delinquency rate increased 386 basis points from the first quarter of 2020 and was up 369 basis points from one year ago. For the purposes of the survey, MBA asks mortgage servicers to report loans in forbearance as delinquent if the payment was not made based on the original terms of the mortgage. "The COVID-19 pandemic's effects on some homeowners' ability to make their mortgage payments could not be more apparent. The nearly 4 percentage point jump in the delinquency rate was the biggest quarterly rise in the history of MBA's survey," said Marina Walsh, MBA's Vice President of Industry Analysis. "The second quarter results also mark the highest overall delinquency rate in nine years, and a survey-high delinquency rate for FHA loans."
Secured Overnight Financing Rate (SOFR)
Learn how LIBOR (London Interbank Offering Rate) the world’s go-to benchmark for short-term rates is being replaced, how the transition to a replacement rate known as SOFR (Secured Overnight Financing Rate) may unfold & what it means for investors.
Two U.S. government sponsored enterprises--Fannie Mae and Freddie Mac, that buy and guarantee mortgages are among the most profitable Fortune 500 enterprises on a per employee basis.
Office
Facebook bets big on N.Y.C.'s future — www.nytimes.com Despite the pandemic, the social media giant leased all the office space in the former main post office at Penn Station in Midtown.
REI to sell its never-used headquarters
Recreational Equipment Incorporated (REI) says it is in talks to sell its nearly completed corporate campus in Bellevue (Seattle area) with “multiple interested parties. REI’s 1,200 headquarters employees have been working remotely since March 2 as the company has navigated the onset of the pandemic, the March 16 closure of its more than 160 retail sites and a dramatic decline in revenue. When the company returns to offices — the date is unknown — it expects to operate in several sites, including an existing one in Georgetown, as well as new satellite campuses that REI is scouting for on the Eastside and in south Puget Sound.
Residential
US Multifamily lending declines
Freddie Mac is predicting its loan originations to stay flat compared to 2019 but for overall multifamily lending to decline drastically due to economic setbacks stemming from the COVID-19 pandemic. The government-sponsored enterprise (GSE) is projecting that loan volume will decrease 20 to 41 percent across the multifamily sector this year compared with the total dollar amount of loans closed by lenders in 2019, which Freddie Mac estimates was $374 billion. Heading into this year, Freddie Mac expected that loan originations would increase 5 percent in 2020 to $390 billion.
Moving homeless people from shelters to motel rooms
Beginning in March 2020, King County took the unprecedented step of moving over 800 people out of congregate shelters and placing them in hotel and motel rooms. Early anecdotal evidence suggests that this response to the pandemic has created an “unplanned experiment” that has produced very positive results. It appears to offer hope, not only for public health, but for improving the social and economic outcomes of our most vulnerable community members. A University of Washington research team led by real estate professor Gregg Colburn (@ColburnGregg) is measuring the impact of this intervention to inform future strategic responses to homelessness in King County (Seattle area.)
Retail
Mall owner CBL plans for Chapter 11
The firm has struck a deal with its lenders on a restructuring plan that will eliminate $900 million in debt and reduce annual interest expense by $20 million and plans to use the Chapter 11 bankruptcy process to complete the restructuring. CBL revealed that it had drawn down its entire revolving credit facility, experienced $215.3 million in losses over the first half of the year, and expects to enter foreclosure proceedings on four malls. Those properties include Park Plaza in Little Rock, Arkansas, with $77.6 million in outstanding debt; Hickory Point in Forsyth, Illinois, with $27.4 million outstanding; EastGate Mall in Cincinnati with $31.9 million and Burnside Center Mall in Minneapolis with $64.5 million in outstanding debt.
National restaurant chains in trouble amid COVID-19 Will more restaurants close or file for bankruptcy amid COVID-19? Chains like Outback, Applebee's and IHOP are most at risk for not paying back debts.
Industrial
Warehouse demand and design changes
Since the Great Recession, demand for industrial space has been at a premium, not only in Texas but also in most markets throughout the United States. Out of necessity for how our lives are changing, the industrial market has become a darling of the real estate industry. In 2020, thanks to the exponential growth of e-commerce activity and manufacturing jobs, we are breaking new ground on how a standard industrial park looks, feels and operates.
While COVID-19 has not changed the expansive, open-space feel of warehouses where social distancing is inherently built-in, the pandemic has started to impact the industrial world on the development side. Developers and REITs are starting to see better returns on investment, as well as additional opportunities to expand their holdings. These opportunities came about as supply chain disruption during the first few weeks and months of the stay-at-home orders identified a weakness in the ability to keep necessary goods stocked for mass distribution.
Facebook's data center near Nashville Facebook has broken ground on an $800 million data center, shown here in a rendering, located roughly 18 miles north of Nashville in Gallatin.
Regional and metropolitan dynamics
COVID work trip reduction estimates America’s elite central business districts have symbolized the ascendency of big cities, epitomized by soaring office towers. But today, due the COVID-19 pandemic, so much office work performed in these CBDs can be done remotely, that their future seems far less towering than in the past. In contrast, less dense areas, notably exurbs, appear to have suffered less loss in their employment patterns.
Suburbs — not cities — are worse for COVID-19?
Knoxville is one of the top cities for urban sprawl, and a new study shows that sprawling metropolitan regions can be worse for COVID-19 transmission than a dense city like Hong Kong.
America’s downtowns, particularly those of the major cities at the heart of large metro regions of over one million people, have seen significant residential development and population growth in the recent years. Downtown Chicago, for example, has nearly 100,000 more residents than it did in the 1980s. Visit almost any downtown and see many nearly identical apartment buildings sprouting.
But while downtown and near-downtown neighborhoods across America are in fact seeing population growth, much of it white, outside of this fairly contained zone, white (non-Hispanic) population trends in the broader central areas turned negative during the course of the 2010s, as the housing market recovered from the Great Recession and enabled renewed outmigration to the suburbs.
For roughly the past half century, the middle swath of America has been widely written off as reactionary, backward, and destined for unceasing decline. CNBC recently ranked the “worst states” to live in, and almost all were in what is typically defined as the Heartland. Paul Krugman of the New York Times sees the region populated by “jobless men in their prime working years, with many suffering ‘deaths of despair’ by drugs, alcohol or suicide.”
To be sure, the Midwest and the less urbanized South have lagged behind, but the Heartland now also boasts some of the fastest-growing large metros. This revival reprises the critical role of the vast interior in providing what Japanese political scientist Fuji Kamiya described as sokojikara, or “reserve power,” the unique combination of America’s vast fertility, its openness to change, and innovative spirit.1
Urban planning and community development
Analytical debates about the future of driving
A new study from accounting firm KPMG predicts that auto travel in the United States will be 9 to 10 percent less after the pandemic than it was before. Telecommuting, says the report, will lead to a 10 to 20 percent reduction in commuting by car while on-line shopping will lead to a 10 to 30 percent reduction in shopping trips. The report also found that 43 percent of former transit riders don’t plan to go back to riding transit after the pandemic, and most of them will substitute autos for transit. If true, that will increase driving by about 5 billion vehicle miles. KPMG acknowledged that transit’s loss would somewhat offset the decrease in auto travel, but did not include that in its calculations.
KPMG’s study failed to account for many possible interactions in the transportation sector. It asked transit users if they planned to switch to single-occupancy vehicles, carpools, or ride hailing, but didn’t ask how many expected to end up telecommuting. And it asked how many cars would be taken off the road because of telecommuting, but it didn’t ask how many more would be added to the road as people take advantage of lower congestion.
A pro-housing reform in Portland, OR
The City Council for Portland, OR, has changed zoning rules to allow duplexes, triplexes, fourplexes in areas previously reserved for single-family homes. The revised ordinance also prohibits new extra-large homes on most lots, requires more wheelchair-friendly housing, creates incentives for affordable housing in high-income neighborhoods. Adoption of the Portland Residential Infill Project follows a six year process that became more and more ambitious with every iteration.
