Urbanexus Update - Issue #89
Urbanexus Update - Issue #89
H. Pike Oliver compiles this weekly update of real estate and community development news. Please note that some links may lead to items that are behind a paywall.
The economy
Philly Fed’s economic indexes are strong — confoundedinterest.net
The Federal Reserve Bank of Philadelphia has released the leading indexes for the 50 states for November 2019. The indexes are a six-month forecast of the state coincident indexes (also released by the Bank). Forty-one state coincident indexes are projected to grow over the next six months, and nine are expected to decrease.
Real estate outlook for the USA
2020 could be a pivotal year for the U.S. commercial real estate industry, with geopolitical, economic and local regulatory issues in keen focus. Despite transformational changes, CBRE’s 2020 U.S. Outlook predicts a very good year for commercial real estate. Key conclusions are:
the rise of co-working and short-term lease agreements, office and retail assets are much less predictable
cap rates are expected to remain stable for the most part. Industrial cap rates are expected to increase by 10 bps, retail will increase by 20 bps, and multifamily will decrease by 10 bps
a challenge may be an oversupply of Industrial. CBRE expects supply will outpace demand by 20-30M SF (.2%), the first time there will be an “overhang” of space since 2008
investment volume is expected to decrease by 5% to 10% compared to 2019 due to investor caution driven by high asset prices.
A steeper yield curve is better
Today’s yield curve is striking for it’s “normality”, ie. it is uninverted and fairly steep. A year ago, the 2, 5 and 10 year treasury yields were bunched together, all within about 10 bps (2.55%, 2.58% 2.67%). The yield curve then inverted in August 2019, as the 10 year dipped below the 2 year yield. Today’s yield curve (1.57%, 1.65%, 1.87%) indicates confidence in the economy (high 10 year yield) and in the Fed’s promise to stand pat with no rate increase this year (lower 2 year yield). So, 2020 begins with lower rates and a healthier curve. With low delinquency rates, an active secondary market, large allocations from portfolio lenders, and overall solid fundamentals, 2020 looks like another big year for commercial mortgage loan volume.
Economy is expanding but economists are glum At an annual gathering of the profession, researchers presented evidence and talks that amounted to warnings on the state of the record-long expansion.
The December employment report — www.calculatedriskblog.com
Overall this was a disappointing report per Bill McBride of the Calculated Risk blog. The headline jobs number for December 2019, was below expectations, and the previous two months were revised down. The unemployment rate was unchanged at 3.5% and wage growth was well below expectations. In 2019, the US economy added 2.108 million jobs, down from 2.679 million jobs during 2018 (although 2018 will be revised down with benchmark revision to be released in February 2020). So job growth has slowed.
Financing
Creative financing for acquiring leased land
George Smith Partners placed a $10 MM acquisition financing of a land lease for a Southern California condominium complex, sized to 100% of the purchase price. Members of the Home Owners Association (HOA) owned their individual units on a ground-lease with 35 years remaining. Through the HOA, the individual homeowners were afforded a one-time purchase option to acquire the land and collapse the ground-lease assuming 100% participation in the acquisition. Their alternative would be to lose all of their improvements to the expiring lease in 35 years. Their equity in their residences would have zero value at that time and diminish rapidly as that lease termination date neared.
Office
EQ Office invests another $1.2Bn in Seattle
EQ Office is paying $1.2 billion for two 1980s-era Seattle office towers, 999 Third and US Bank Centre, and company said it plans to spend $89 million repositioning the assets. The acquisitions come six months after Blackstone paid more than $540 million for the 42-story 800 Fifth in Seattle. The latest buys increase EQ’s investment to 3.1 million rentable square feet, or 16 percent of the city's Class A office market. Two years ago, EQ/Blackstone bought the Exchange Building in Seattle.
Housing
While HUD ditches a housing rule NYC doubles down
HUD’s reversal of an Obama-era mandate on discrimination comes as the De Blasio administration in New York City releases its own, very different fair housing blueprint.
Transportation
Banning cars won’t solve the USA’s transportation problem Rather than focusing on an outright ban on cars, we need to make it easier for more people to live in places where shorter trips are the norm.
Community development
Behind the Science Center Boom of the 1980s
In the late 20th Century civic boosters in the USA were convinced that planetariums and Tesla coils could revive American downtowns.
Regional and metropolitan dynamics
Moving destinations in the USA
Americans are moving into Idaho, and Idaho is moving up—in the ranking of most popular 2019 moving destinations, that is. According to the results of United Van Lines' 43rd Annual National Movers Study, which tracks customers' state-to-state migration patterns over the past year, Idaho saw the highest percentage of inbound migration among states experiencing more than 250 moves with United Van Lines: 67.4%. This is Idaho's first time leading the list of inbound states in more than 25 years.
More on domestic migration trends in the USA
Population in the USA continues to move principally to the South and secondarily to the West. Since 2010, 4.1 million residents have moved from the Northeast and the Midwest to the South and West. Approximately 82% of these moves have been to the South. In the last year, the South accounted for approximately 89% of the net domestic moves between regions.
A decade of urban transformation — www.nytimes.com A satellite’s view of what’s been built, destroyed and remade across the United States
Environment and resilience
Wood buildings are climbing skyward "Mass timber” construction is gaining ground, although not all environmentalists agree on its potential for slowing climate change.
Fossil gas has no future in low-carbon buildings
The Rocky Mountain Institute explains why electrifying air heating and cooling with air-source heat pumps will immediately reduce emissions when compared to gas, oil, and propane alternatives– even in the coldest, most heating-intensive climates
Around the world
Removing physical, social, cultural and economic barriers that separate informal settlements from the rest of the city.