Urbanexus Update - Issue #123
H. Pike Oliver assembles and distributes selected economic, real estate and community development news and perspectives every few weeks. Some items are behind a paywall.
The economy in the USA
Per the latest edition of the U.S. Federal Reserve's "Beige Book (October 21, 2020), economic activity continued to increase across the USA, with the pace of growth characterized as slight to modest in most regions. Changes in activity varied greatly by sector.
Manufacturing activity generally increased at a moderate pace. Residential housing markets continued to experience steady demand for new and existing homes, with activity constrained by low inventories. Banking contacts also cited increased demand for mortgages as the key driver of overall loan demand. Conversely, commercial real estate conditions continued to deteriorate in many Districts, with the exception being warehouse and industrial space where construction and leasing activity remained steady.
Consumer spending growth remained positive, but some Districts reported a leveling off of retail sales and a slight uptick in tourism activity. Demand for autos remained steady, but low inventories have constrained sales to varying degrees. Restaurateurs in many Districts expressed concern that cooler weather would slow sales, as they have relied on outdoor dining. Banking contacts in many Districts expressed concern that delinquency rates may rise in coming months, citing various reasons; however, delinquency rates have remained stable.
Employment gains were reported most consistently for manufacturing firms, although firms continued to report new furloughs and layoffs. Most Districts continued reporting tight labor markets, attributing it to workers' health and childcare concerns, with many firms consequently offering increased schedule flexibility. A few of the Districts, however, noted some firms were finding it easier to hire workers.
Wages increased slightly in most Districts, often tied to firms' difficulty finding workers, especially for low-wage or high-demand jobs. Some firms reported returning wages (and raises) to normal levels, but many reported more stable wages.
Seven high frequency indicators for the US economy — www.calculatedriskblog.com
These indicators assembled by the Calculated Risk Blog are mostly for travel and entertainment. It will interesting to watch these sectors recover as the vaccine is distributed.
The other key message from the blog is: Be safe now - if all goes well, we could all be vaccinated by Q2 2021.
In a survey of over 11.5 million professionally managed market-rate apartment households, the National Multifamily Housing Council’s Rent Payment Tracker found that 86.8% of households made a full or partial rent payment by Oct. 13.
This marks a 2.4 percentage point, or 271,000-household decrease from the share of renters who had made a full or partial payment through October 13, 2019. In September 2020, 86.2% of renters had made a payment by September 13.
It should be noted that professionally managed apartments are likely occupied by higher-income households that have been less affected by pandemic related loss of employment.
Residential
U.S. market for new homes surges
The market for new homes in the U.S continued to surge in September 2020, with the trailing twelve month market cap reaching levels not seen since the days of the first housing bubble. Per the Political Calculations blog, he trailing twelve month average of the market capitalization of new homes sold throughout the U.S. in September 2020 is $26.87 billion. In nominal terms, only the period between July 2004 and June 2006 saw higher value for the market cap of new homes sold in the U.S.
Housing starts in the USA increased to 1.53 MM annual rate in October — www.calculatedriskblog.com
Total housing starts in October were above expectations, and starts in August and September were revised up, combined.
Every one of the 181 metropolitan statistical areas tracked by the National Association of Realtors reported year-over-year home price gains during the third quarter of 2020, according to NAR’s quarterly Metro Home Price Report.
NAR attributes these strong gains to record-low interest rates and strained housing inventory nationwide. "Favorable mortgage rates will continue to bring fresh buyers to the market," says Lawrence Yun, NAR’s chief economist. "However, the affordability situation will not improve even with low interest rates because housing prices are increasing much too fast."
Sixty-five percent of these metros, or 117 out of 181 areas, reported double-digit YOY price growth, compared with 15 out of 181 metros in the first quarter of 2020. Bridgeport, Connecticut, saw the strongest price growth at 27.3%, followed by Crestview, Florida, at 27.1% and Pittsfield, Massachusetts, at 26.9%.
The national median existing single-family home price rose 12% YOY, up to $313,500. All four major regions experienced double-digit price gains, led by the West at 13.7% and followed by the Northeast at 13.4%, the South at 11.4%, and the Midwest at 11.1%.
Retail and Entertainment
Pennsylvania Real Estate Investment Trust (PREIT) has filed for Chapter 11 bankruptcy as of Sunday, Nov. 1. PREIT (NYSE: PEI), which is based in Philadelphia, owns and operates 22.5 million square feet of retail space including 19 mall properties in New Jersey, Pennsylvania, Massachusetts, Maryland, Virginia, Michigan, North Carolina and South Carolina.
PREIT has reached a Restructuring Support Agreement (RSA) with its bank lenders, under which an additional $150 million will be committed to recapitalize the business and extend its debt maturities. The announcement coincides with the Chapter 11 filing of Tennessee-based CBL & Associates (NYSE: CBL), which owns and manages a portfolio of 107 properties totaling 66.7 million square feet across 26 states, including 65 enclosed, outlet and open-air retail centers and eight properties managed for third parties.
Simon, Taubman merger agreement price reduced
Simon Property Group (NYSE: SPG) and Taubman Centers Inc. (NYSE: TCO) have modified their merger agreement to include a new purchase price of $43 per share, enabling Simon to proceed with its acquisition of an 80 percent interest in Taubman.
The decline in the agreed-upon share price from $52.50 per share effectively reduces the price tag of the deal by $800 million. Under the terms of the original agreement, which was consummated in February, Indianapolis-based Simon would have acquired an 80 percent stake in Michigan-based Taubman for $3.6 billion.
While the price tag is now lower, Simon still intends to acquire the 80 percent interest. The modified merger agreement also provides that Taubman will not declare or pay a dividend on its common stock prior to March 1, 2021, and then, only subject to certain limitations and conditions.
In June, Simon moved to terminate the deal, claiming that Taubman had failed to properly adjust its operating costs and capital expenditures in response to COVID-19. The merger is now expected to close under the revised terms in late 2020 or early 2021.
Simon owns approximately 200 properties totaling 240 million square feet in North America and Asia, making it the largest mall REIT in the United States. Taubman owns about 25 malls worldwide.
Gap Inc. to shutter 350 Stores
Gap Inc. has announced plans to close 350 stores under its Banana Republic and Gap banners in an effort to transition focus to e-commerce and off-mall retail locations. Store closures are scheduled for completion by fiscal year 2023, which ends Feb. 1, 2024, with 75 percent scheduled to close in 2021. By that time, the company expects 80 percent of its revenue to come from e-commerce and off-mall locations, including street-front retail stores and shops in strip and outlet centers.
Gap’s comparable sales were up 13 percent at the end of the second quarter, due in large part to an expanded focus on e-commerce and to the success of the company’s activewear brand, Athleta, which saw a 6 percent increase in sales during the quarter. The company also began producing and selling face masks at the start of the pandemic, sales of which brought in $225 million as of Oct. 2. Gap is the latest mall staple to shutter locations amid struggles due to the COVID-19 pandemic, following Ascena Retail Group — the parent company of Ann Taylor, Justice, Loft, Lane Bryant, Catherines and Lou & Grey — Bed Bath & Beyond, J.C. Penney and GNC.
Pet Valu winding down operations,
The retailer announced it is closing all of its 358 U.S. locations, as well as its headquarters office in Wayne, PA. The retailer will close all 358 stores in the Midwest, Northeast and Mid-Atlantic, as well as its warehouses and its U.S. headquarters office in Wayne.
No timeline for closures was disclosed, but Pet Valu is currently doing final liquidation sales for all its merchandise. Additionally, the retailer is marketing all of its store fixtures, furniture and equipment for sale.
Roark Capital, an Atlanta-based private equity group, purchased Pet Valu in 2009 and merged the retailer with Pet Supermarket in 2016 to form Pet Retail Brands, though the combined company continued to operate its stores under the original brand names of Pet Valu and Pet Supermarket.
In addition to pandemic-related struggles over the past few months, competition in the pet food and supplies industry is at an all-time high. National brands such as PetSmart, Petco and online pet food giant Chewy have benefitted from an uptick in sales during the pandemic as a result of their heavy investment in curbside and delivery options, according to CNBC.
Guitar Center Files for bankruptcy — www.nytimes.com The filing by the nation’s largest retailer of musical instruments highlights the growing gap between the strongest and weakest companies in the pandemic.
What to do with dead movie theaters? — www.bloomberg.com As the pandemic keeps audiences away, developers could soon face an adaptive reuse dilemma: What can you do with dead megaplexes?
Hospitality
Newport Beach Marriott Hotel sold
Maryland-based Host Hotels & Resorts has sold the Newport Beach Marriott Hotel & Spa for a price that equates to roughly $406,000 per room. According to The Orange County Register, the sales price is 14 times the property’s net income for 2019, a year in which it averaged 79 percent occupancy. The paper reported that for assets sold in 2019, Host Hotels on average received 21 times the asset’s net income.
Office
SL Green selling Amazon-tenated Office Building in NYC
SL Green Realty Corp. (NYSE: SLG) and its joint venture partners have entered into a contract to sell 410 Tenth Avenue, a 20-story, 636,000-square-foot office tower near Hudson Yards on Manhattan’s west side, for $952.5 million. The transaction marks the largest commercial property sale in the U.S. since March 2020, according to the seller.
IQHQ's $1.7Bn capital raise — rebusinessonline.com
Life sciences real estate development firm IQHQ Inc. has completed a $1.7 billion equity raise. The company — which completed an initial equity raise of $770 million earlier this year — plans to use the combined funds to build 4.4 million square feet of projects that are currently in its development pipeline.
Mixed-use and master-planned development
Some megaprojects have suffered coronavirus-related delays but most are ready to begin or continue construction. Here is an update on seven of the most expensive mixed-use developments in the country.
Nexton, a 5,000-acre master-planned community owned by a business entity of North America Sekisui House (NASH) and developed by Newland, has announced the details of its newest neighborhood, Midtown, which will offer more than 2,500 homes across 1,000 acres in Summerville, SC. The Midtown community will feature single-family homes, townhomes, and multifamily residences alike. The single-family homes will range from approximately 1,000 square feet to more than 3,500 square feet, with lot sizes ranging between 30 to 70 feet wide.
Regional and metropolitan dynamics
Employment in STEM fields In U.S. cities
Of the 98 U.S. cities for which the Census Bureau tabulated detailed 2019 occupational data, Seattle ranks No. 1 with 19% of employed residents working in STEM fields. San Jose, California, is just a bit behind at 17.5%. San Francisco ranks third, at 14.9%.
The number of Seattleites employed in STEM fields has more than doubled since 2010, hitting almost 89,700 in 2019, The city with the most employed residents working in STEM is San Jose, CA, which had a total of 94,717.
San Francisco apartment rents decline
The median monthly rate for a studio in the city tumbled 31% in September from a year earlier to $2,285, compared with a 0.5% decline nationally, according to data released from Realtor.com. One-bedroom rents in San Francisco fell 24% and two-bedrooms were down 21%, to $2,873 and $3,931 a month, respectively.
The figures underscore how the pandemic has roiled property markets and changed renter preferences. With companies allowing employees to work from home, people have fled cramped and costly urban areas in droves, seeking extra room in the suburbs or cheaper cities. Tech firms, in particular, have told staff they should expect to work remotely well into next year -- and may be able to do so permanently.
Bargains can be had in other high-cost areas, too. Studio rents dropped 15% to $2,495 a month in Manhattan. In King County, Washington, which includes Seattle, they fell 12% to $1,490.
Weary city dwellers escape to Montana
Even with a spike in covid-19 cases, Montana is booming with buyers seeking to flee the coronavirus pandemic and racial justice protests — for good. Even as the state’s fierce winter looms, the transplants are pushing house prices to record levels. Some are offering millions of dollars in cash for houses and land they have seen only on the Internet. Montana has remained a mystery to most Americans, even though it boasts some of the most magnificent scenery in the West. But as the pandemic has taken hold across the United States, what once were rural outposts here have turned into boomtowns.
Out-of-area buyers also in Spokane — depts.washington.edu The coronavirus pandemic is accelerating a growing trend of out-of-area buyers and remote workers moving to Spokane in search of a better quality of life and affordable housing. Despite the nationwide economic slowdown, homebuying conditions are as competitive as ever.
Environment
Offsetting ongoing carbon emissions from housing
According to the U.S. Energy Administration, a 2,386-square-foot American home releases 20,260 pounds of carbon annually through the combined consumption of electricity and natural gas. Jad Daley, CEO of American Forests, says the average tree consumes 10 pounds of carbon per year. If one tree was planted for every one square foot of an average home, the trees would consume or sequester 23,680 pounds of carbon on annual basis, surpassing the 20,260 pounds released annually by a home.
Around the world
Karachi — www.bloomberg.com Incomplete roads in Karachi — the biggest city in Pakistan and the third-largest in the world — show what happens when a megacity becomes a political orphan.
Abu Dhabi — blogs.lse.ac.uk Do roads help or hinder city functionality for the inhabitants? A new project looks at Abu Dhabi, a city which has transitioned from the local streets of the old town to today's sprawling roadscape in less than a generation.
Real estate leaders
Jon and Judy Runstad learned to be doers
With about 80 years of combined experience in Seattle real estate, Jon and Judy Runstad have made their mark: Jon as a co-founder of Wright Runstad & Co. and Judy as one of the most prominent real estate, land use and environmental law attorneys in the region. They are the namesakes of the University of Washington’s Runstad Center for Real Estate Studies. Over their careers, they have seen the highs and lows of the region’s development, from the Boeing bust in the '70s to Covid-19 now.