Urbanexus Update - Issue #129
Urbanexus Update - Issue #129
This selection of economic, real estate, and community development news and information comes to you via H. Pike Oliver. Some items are behind a paywall.
The economy in the USA
Signals for recovery and growth
Back to Normal? The U.S. economy has improved significantly since April 2020, the peak of the pandemic-induced recession. The national unemployment rate stood at 6.0 percent in March of this year, well below the peak of 14.8 percent in April 2020. Companies were effective in implementing work-from-home technology, keeping unemployment rates for office-based service sectors relatively low. For those with a bachelor’s degree or higher, unemployment rates were only 3.7 percent as of March 2021.
In 2020, third-quarter GDP growth made up much of the second-quarter losses, followed by 4 percent annualized economic growth in the fourth quarter. Retail sales also rebounded quickly, returning to pre-pandemic levels by June and continuing to increase through the beginning of 2021.
However, the U.S. economy is still far from “normal.” Of the 22 million people who lost jobs in March and April 2020, about 42 percent had yet to regained employment by March 2021. Stronger growth should return jobs to industries hit hardest during the pandemic. In March, restaurants and bars added 176,000 jobs; arts, entertainment and recreation venues added 64,000 jobs and accommodations added 40,000 jobs. Still, employment in the overall leisure and hospitality sector is down by 3.1 million, or 18.5 percent from February 2020.
The economy is (almost) back but looks different
The recovery is profoundly unequal across sectors, unbalanced in ways that have big implications for businesses and workers. The central reality of the economy in 2021 is that it’s profoundly unequal across sectors, unbalanced in ways that have enormous long-term implications for businesses and workers.
The way that The Federal government measures inflation shows that there is little impact from the dramatic increase in M2 money supply. US Personal Consumption Expenditure Core Price Index YoY is only at 1.41%. Yet a number of commodities and housing have increased along with the massive expansion of Federal Reserve M2 money stock. For example, used cars (Manheim US used vehicle value index) has increased 36% since December 31, 2019. Lumber has increased 149% over the same time period and copper has increased 43%. Home price growth has increased to 12% YoY, up from 6.6% for December 2019.
Commercial real estate investment
Demand for architecture design services escalates
Strengthening to a score not seen since pre-Great Recession, the Architecture Billings Index (ABI) logged its second positive mark since the beginning of the pandemic, according to a new report today from The American Institute of Architects (AIA).This index is a leading indicator primarily for new commercial real estate investment.
Market mania vexes Wall Street — www.morningbrew.com
Besides producing exquisite high school wrestlers, the small town of Paulsboro, NJ, doesn’t have that many notable qualities. But a deli in town is owned by a public company that’s worth more than $100 million. Here’s the thing—the company, called Hometown International, doesn’t own anything else except the deli. And the deli did just $35,748 in sales over the last two years.
Office
The workplace will never be the same
The big message from a recent McKinsey and Company report is that the cubicle farm has to go. Offices must become places of magic.
For investors and owners of office properties, 2020 was a roller-coaster year that left an unprecedented amount of office space empty for many months. Although working from home is a challenge for many knowledge workers, in a recent survey 72 percent said they love it. Many employees wonder if the typical office might become a thing of the past. At the same time, rents were paid at approximately 95 percent of normal levels during the year, and delinquencies of more than 30 days were consistently below 3 percent.2 All of this added up: office real-estate investment trusts lost 20 percent of the prepandemic peak of their unlevered value.
Demand for office space back to pre-pandemic levels
An index that measures the demand among companies for leasing new office space showed that in December, the Seattle market had experienced the biggest drop in the nation since the start of the pandemic — and that happened despite the fact that our office-using employment numbers had fully recovered. That same index now shows that demand for office space in the Seattle market has come roaring back since the beginning of the year, surpassing pre-pandemic levels.
New York-based VTS, which provides leasing and asset management software for commercial real estate landlords, has produced this index number for major markets since January 2018 — the level of interest in new office space in that month was set as an index score of 100 for each market.
Most other major markets in VTS’ report also rebounded, but only Seattle exceeded the pre-pandemic average. Los Angeles, Washington, D.C., and San Francisco came pretty close. New York and Chicago showed decent recoveries, but Boston was still down 49% from its pre-pandemic average.
Retail
Retail REIT Kimco to acquire Weingarten
Kimco Realty Corp. (NYSE: KIM) has announced plans to acquire fellow retail REIT Weingarten Realty Investors (NYSE: WRI) for roughly $3.9 billion. The combined company is expected to have a pro forma equity market capitalization of $12 billion and a pro forma total enterprise value of $20.5 billion.
Triple Five's American Dream in limbo
Sixteen years in the making, American Dream endured lawsuits, business failures, and untold miscalculations (former New Jersey governor Chris Christie once called it the “ugliest damn building in New Jersey, and maybe America”) before it finally opened in October 2019—just in time for the pandemic. Right before coming online, some of the complex’s banner retail tenants, like Barneys New York, went bust. And then, thanks to COVID-19, American Dream sat shuttered from March until October of last year. In the coming weeks, the Triple Five Group, the complex’s developer, appears poised to lose a 49% stake in two of its other properties, the Mall of America and West Edmonton Mall, that it had used as collateral for $1.2 billion of construction loans for American Dream. At a Bloomington, Minn., city council meeting, Triple Five executive Kurt Hagen framed things this way: “It would have been much better if American Dream would have burned down or a hurricane had hit it, financially, because we would have been covered by insurance.”
California’s wine country resort sells for $2 million a key
Ohana Real Estate Investors has sold the Montage Healdsburg, a 130-room luxury hotel located within California’s Sonoma County wine country. Sunstone Hotel Investors Inc. (NYSE: SHO) bought the resort for $265 million, more than $2 million per key. Montage Healdsburg is a newly built, 258-acre resort situated within walking distance of downtown Healdsburg.
Mixed-use
1.1 million sq. ft. in Bellevue, WA
Plans for Avenue Bellevue call two high-rises (24 and 25 stories) with 365 condominiums, 73,000 square feet of retail and restaurants, and the first InterContinental Hotels & Resorts property in the Pacific Northwest. The project is just north of the Bellevue Mall and is being developed by Fortress Group LLC of Bellevue. New York City-based Silverstein Capital Partners says it has closed on a $700 million construction loan for the project.
Regional and metropolitan dynamics
Pandemic migration has stayed mostly the same
It may have felt like all your neighbors moved to the 'burbs for more space last year, but a new analysis shows they may just not like you.
According to the NYT's Upshot, which analyzed 30 million change-of-address requests in 2020, "Migration patterns during the pandemic have looked a lot like migration patterns before it." In other words, the U-Haul that you spotted in 2020 was probably going to the same place as the one you spotted in 2019. After all, Miami had nice weather before the pandemic, too.
In some cases, however, the pandemic did cause more dramatic migration shifts, especially away from high-cost coastal cities. In 2020, metro NYC and SF experienced outflows at twice the rate of 2019.
Could COVID exodus speed heartland revival in the USA? Over the past two decades America’s largest urban areas enjoyed a heady renaissance, driven in large part by the in-migration of immigrants, minorities and young people. But even as a big-city dominated press corps continued to report on gentrification and displacement, those trends began to reverse themselves in recent years as all three of those populations started heading in ever larger numbers to suburbs, sprawling sunbelt boomtowns and smaller cities and out of the biggest ones.
Don’t call It an urban exodus A year of migration data shows movement outward in some of the densest and most expensive metro areas during the pandemic. But most people stayed close by.
Urban planning and community development
US rethinks interstate highways When interstate highways were built they often sliced through Black neighborhoods, disrupting and devastating thriving communities. Now, there is increasingly political will – and, potentially, congressional funding – to reroute those expressways.
Black neighborhood resists affordable apartments
Residents of the i historically Black neighborhood, Hamilton Park in Dallas are opposed to new affordable apartments. They are joined by the ethnically diverse neighborhood area of Stults Road in their opposition to this proposed apartment complex named Cypress Creek at Forest Lane. This presents the opportunity for a discussion of the potential benefits versus the potential detriments of inserting subsidized housing in neighborhoods that don’t want them, including the historic black neighborhood of Hamilton Park.
Milpitas Metro Plan takes full advantage of transit
More than a decade before the first trains rolled into the new Milpitas Transit Center, the City of Milpitas in the San Francisco Bay Area embarked on an ambitious plan to transform older industrial areas surrounding the site into vibrant mixed-use neighborhoods connected by a network of linear parks, pedestrian bridges, and complete streets. Today, as the City celebrates the success of its earlier planning efforts, planners are busy reimagining transit-oriented development to create significant new opportunities for affordable housing and jobs and complete the vision of the original Transit Area Specific Plan.
Defy the California Coastal Commission at your peril
In January 2021, the Fourth District Court of Appeal upheld a Coastal Commission fine of $1 million on homeowners who performed major reconstruction on their Malibu home without obtaining coastal permits and refused to halt construction after notification of the violation by Commission staff. (See our report: Coastal Commission Order to Homeowners to Remove Seawall and Pay $1 Million Fine Upheld). More recently, the Second District Court of Appeal has upheld a Commission penalty of $4,185,000 on Malibu homeowners who refused to remove structures that blocked a public access easement granted to the Coastal Commission by a prior owner of the home. Lent v. California Coastal Commission, No. B292091 (2nd Dist., April 5, 2021).
Architecture and urban design
A bizarre conspiracy theory — www.bloomberg.com
On YouTube videos and Reddit boards, adherents of a bizarre conspiracy theory argue that everything you know about the history of architecture is wrong. A dedicated group of YouTubers and Reddit posters see the Singer Building in NYC (constructed in 1908 and demolished in 1967) and countless other discarded pre-modern beauties and extant Beaux-Arts landmarks as artifacts of a globe-spanning civilization called the Tartarian Empire, which was somehow erased from the history books.
Environment and resilience
KB Home and the Well Living Lab, a research lab founded by Delos and Mayo Clinic, have launched the first phase of a multiyear research project with the unveiling of a concept home designed to educate customers the potential health benefits of a healthy home. The home is located at KB's Santolina at South Mountain community in Phoenix.