Urbanexus Update - Issue #124
Urbanexus Update - Issue #124
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 and employment in the USA
Industrial production in the USA is now at 95% of the pre-pandemic level — www.calculatedriskblog.com
Industrial production increased 0.4 percent in November. After having fallen 16.5 percent between February and April, the level of the index has risen to about 5 percent below its pre-pandemic (February 2020) reading. In November, manufacturing output advanced 0.8 percent for its seventh consecutive monthly gain. An increase of 5.3 percent for motor vehicles and parts contributed significantly to the gain in factory production; excluding motor vehicles and parts, manufacturing output moved up 0.4 percent. The output of utilities declined 4.3 percent, as warmer-than-usual temperatures reduced the demand for heating. Mining production increased by 2.3 percent after decreasing 0.7 percent in October.
But, a weakening economic recovery could be the calm before an even worse storm
The latest numbers from the Brookings Metro Recovery Index point to a weakening regional economic picture, even ahead of the alarming caseload and hospitalization peaks occurring in November 2020.
And COVID-19 employment losses exceed Great Recession numbers
The current employment recession in the USA is by far the worst recession since WWII in percentage terms, and is still worse than the worst of the "Great Recession".
High-frequency economic indicators — www.calculatedriskblog.com
These indicators are mostly for travel and entertainment. It will interesting to watch these sectors recover as the COVID-19 vaccines are distributed.
Real estate finance
The sunset of LIBOR and the rise of SOFR
For years, interbank offered rates, including USD LIBOR (London Interbank Offered Rate), have been the most-referenced benchmark interest rates in the world. However, global indexing is moving to risk-free rates, including the Secured Overnight Financing Rate (SOFR) in the United States, with pivotal milestones taking place between now and the end of 2021.
Concerns about LIBOR first became known well over a decade ago. LIBOR panel bank submissions were egregiously manipulated, which highlighted the secular decline in its underlying market.
Capital markets slowdown — rebusinessonline.com
The ability to find debt and equity financing for acquisitions and new development has been deeply affected by the coronavirus. Heading into 2020, there was plenty of inexpensive capital available to real estate investors and developers. The once wide field of potential lenders has shrunk significantly over the past nine months. And as for equity availability, it will be important in the coming months to be patient and diligent.
Office
Lab office building portfolio acquisition Building on its bet on life sciences assets, Blackstone (NYSE:BX) agrees to acquire a 2.3M-square-foot portfolio of lab office buildings from a Brookfield Asset Management (NYSE:BAM) real estate fund for $3.45B.The focus on life sciences assets becomes even more high profile as pharmaceuticals developments are key to controlling the COVID-19 pandemic.
Hospitality
How the American atrium hotel became a global icon — www.bloomberg.com In the 1970s, new downtown hotels often boasted soaring atrium lobbies, filled with glass elevators, bars and restaurants. What’s inside this uniquely American building style?
Residential
Flight from urbanity or accelerated trends?
RCLCO examines some of the housing market influences of the coronavirus pandemic in the context of a strong housing market and consider which trends are truly related to the pandemic as opposed to being more a continuation of established patterns.
Suburban shift continues — eyeonhousing.org
A trend of higher demand for housing in lower-density areas reported in the second quarter National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) has persisted into the fall, as single-family and multifamily construction continued to over perform in lower cost markets like suburbs and exurbs. The third quarter HBGI reveals that a suburban shift for consumer home buying preferences in the wake of the COVID-19 pandemic is accelerating as telecommuting is providing consumers more flexibility to live further out within large metros or even to relocate to more affordable, smaller metro areas.
Largest built-to-rent community sale
Christopher Todd Communities has sold Stadium, a 313-home built-to-rent community in Phoenix to an affiliate of The Inland Real Estate Group of Companies for an undisclosed price, marking the largest built-to-rent property sale by unit count in the USA.
Sale of an older multifamily portfolio
Raintree Partners has purchased a Southern California multifamily portfolio for $142 million from an unnamed private seller. The seller was a Southern California family, that held the properties for an average of 34 years. The properties are located in Hollywood, Glendale, Camarillo, and Canoga Park. The buyer plans to invest in renovating the properties, which were all built between 1964 and 1985.
Construction
A game-changing system accelerates construction
Rainier Square is Seattle's second tallest building, is a 58-story, 1.1 million-square-foot mixed-use skyscraper. The structure was completed in just ten months and would have taken nearly two years to erect the tower using traditional construction methods. Through the innovative use of prefabrication and extraordinary steel erection techniques, the tower's structure was completed in only 10 months — reducing the overall construction schedule by nearly one year!
Advisory services
Zonda (FKA Hanley Wood / Meyers Research) expands
Zonda has acquired Belfiore Real Estate Consulting, a leading full-service residential market research firm based in the Phoenix area. The acquisition further accelerates Zonda’s reach in Arizona and enhances data and advisory services for home builders in the state.
This is Zonda’s second acquisition of the year. The company acquired Bird.i, a Scotland-based startup that combines the latest satellite imagery and artificial intelligence technology to deliver land and building insights, in April.
Regional and metropolitan dynamics
Where and why Americans are relocating While taxes spur relocations by the rich, lower costs, bigger living spaces and better quality of life are driving other Americans during the pandemic.
Increasingly, many of today’s innovators are fleeing the State of California. One half of the company arguably most symbolic of tech development in the state—Hewlett Packard Enterprises—one part of the now broken-up old Hewlett Packard and focused on lucrative areas like cloud computing and IT infrastructure—has decided to leave for Houston. And Elon Musk, the latest in the line of truly transformative California tech entrepreneurs, also announced that he would move to Texas, along with Oracle, a Fortune 100 company and global leader in database management. Other recent departures also include more traditional firms such as Charles Schwab, McKesson, Bechtel, Parsons Engineering, and CB Richard Ellis.
New taxes and policies in San Francisco
For years, San Francisco’s golden goose seemed impossible to kill, no matter how expensive or over-regulated the city got. Until COVID-19 arrived.
A rational person might expect leaders and voters to respond to a recent exodus by making the city a more affordable and attractive place to live and work. But this is San Francisco, where reason and practicality have never been in great supply. If anything, recent blunders suggest the city is oblivious to the crisis on its hands, determined to accelerate its own decline — or some combination of both.
Real estate value concentration — www.visualcapitalist.com
U.S. real estate value is concentrated in a handful of urban centers.
Planning and community development
Building more housing lowers rents for everyone — cityobservatory.org
Housing policy debates are tortured by the widespread disbelief that supply and demand operate in the market for housing. In our view, its been a growing demand for cities and urban living, running headlong into a relatively fixed, or at best slowly growing supply of urban housing that’s been the principle reason for affordability problems in many cities. But many housing advocates refuse to believe that increasing housing supply will have any beneficial effect on rents.
A new study from Andreas Mense an economist at the University of Erlangen-Nuremberg, using detailed data on housing construction and rents in Germany, documents the direct and widespread effects of new market-rate construction on rent levels. The paper uses variations in the completion rates of new housing units over time to tease out the effects of increments to supply on rent levels. Here’s a typical chart showing how rent increases vary in response to additional housing completions in the month of December (the red line on the chart). In the wake of completions (the period to the right of the red line), rent changes are negative. The core finding is that a one percent increase in housing completions tends to be associated with a 0.4 percent to 0.7 percent decrease in rents.
How will the pandemic shape cities? — www.cnn.com
Around the world cities are adapting. But will the changes last, and which more radical design proposals -- be it sewer monitors or "epidemic skyscrapers" -- will shape the post-pandemic city?
The case for embracing road tolls
Road pricing’s main benefit is to manage demand, i.e. disperse it. Hotels raise prices during peak business activity, like holidays, because more people are bidding to access a relatively static supply of rooms. This helps the hotels maximize profit, and follows a certain logic—people who don’t really want or need to travel on that holiday will save money by booking on a different day, when hotel vacancy rates are higher. This “surge pricing” also gets applied to trips by plane, train and rideshare.
Tony Hsieh’s impact on downtown Las Vegas Tony Hsieh’s Downtown Project drew its fair share of critics, but nevertheless helped transform downtown Las Vegas into a destination.
At least seven self-driving projects have now demonstrated driverless vehicles, which are likely to have a major long-term impact on community development. This activity brings to mind a quote attributed to Bill Gates quote: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction.” [Gates, B., Myhrvold, N., & Rinearson, P. (1996). The road ahead. Rockland, MA: Wheeler Pub.]
Around the world
Zanzibar goes digital to prove property ownership — news.trust.org
A new project means islanders can now get documentation proving land ownership in 20 minutes instead of five years.
Sustainability and resilience
National Green Building Standard celebrates certification of 250K homes
When the National Green Building Standard (NGBS) started in 2009, the goal was to provide a national, credible, rigorous, and affordable green building certification for the residential construction industry. Before then, residential building certifications lagged significantly behind other building types. Homes, townhouses, multifamily buildings, housing for students and seniors, and assisted living facilities were all foregoing high-performance green building certifications because they were too difficult and expensive to attain.
Real estate leadership
Emile Haddad — lsc-pagepro.mydigitalpublication.com
A civil engineer by training and an entrepreneur at heart, Emile Haddad has spent his career working to improve the built environment. Fresh out of college, he started a business weatherproofing Beirut's concrete buildings. After coming to the USA at age 27, he worked his way up in the housing industry, eventually becoming Lennar's Chief Investment Officer. Today, as CEO of Irvine, CA-based Five Point Holdings, he manages a firm that has four significant master-planned communities under development.
Keep politics out of the office — www.bisnow.com
Real estate executives discuss the importance of keeping politics out of the office, especially after the 2020 roller coaster of an election.