Urbanexus Update - Issue #93
H. Pike Oliver compiles this weekly update of real estate and community development news focused primarily on the USA. The inclusion of an article does not imply endorsement. And please note that some links may lead to items that are behind a paywall.
The economy
A strong 2020 start for labor — eyeonhousing.org The labor market started the new year with a solid gain. Total payroll employment increased by 225,000 and the unemployment rate was 3.6% in January.
But, a decline in freight shipments
December 2019 data for the Cass Transportation Index indicate a decline in economic activity in the USA. Both the shipments and expenditures components of the Cass Freight Index marked their lowest reading of 2019 and took another step backwards in terms of year over year growth. There is lots of hope in the stock market and the freight market for a better 2020, but the trends have yet to turn.
And construction loans drop — eyeonhousing.org
The Federal Reserve's latest Senior Loan Officer Opinion Survey contains the reported lending practices, as of the fourth quarter of 2019, of 80 large domestically chartered commercial banks and up to 24 large U.S. branches and agencies of foreign banks. The questions that comprise most of the survey are those relating to Commercial & Industrial (C&I) loans, Commercial Real Estate (CRE) loans, and residential real estate (RRE) loans1. For the C&I loan category, banks left their lending standards for large to middle-market firms basically unchanged from the previous quarter, while the demand for such loans weakened, with 11% of such banks reporting less demand. The survey reported a net tightening of banks’ lending of commercial real estate loans for construction and land development, but modestly less demand for such loans in the fourth quarter of 2019. This stands in stark contrast to the prior quarter, which had seen an expansion in AD&C loans.
Retail
Simon Property Group (NYSE: SPG) has agreed to acquire an 80 percent interest in Taubman Centers Inc. (NYSE: TCO), a Michigan-based retail owner-operator, for approximately $3.6 billion. Under the terms of the agreement, Simon is buying all of Taubman’s common stock at a price of $52.20 per share in an all-cash deal. The transaction is expected to close in mid-2020.
The purchase price represents a 51 percent premium over Taubman’s closing price of $34.67 per share on Friday, Feb. 7. Taubman’s existing debt, which Simon will assume, was factored into the price, which represents a capitalization rate of 6.2 percent. Taubman will continue to operate as a separate entity.
Taubman’s portfolio spans 26 super-regional malls and power centers totaling more than 25 million square feet of gross leasable space in the United States and Asia.
Macy’s Inc. (NYSE: M) has unveiled plans to close 125 of its least productive stores over the next three years. The retailer will also close its offices in San Francisco, downtown Cincinnati and Lorain, Ohio, leaving the New York City office as the sole corporate headquarters.
The reorganization strategy also includes increasing the Macy’s digital platform, while optimizing its brick-and-mortar portfolio and lowering overhead costs. Beginning this year, Macy’s expects the strategy to generate annual gross savings of approximately $1.5 billion, to be fully realized by year-end 2022.
Office
Volatile special purpose entity leases Special-purpose entities are standard in many coworking real estate deals, but a soured deal in Boston may cause landlords to think twice.
Housing
Unaffordable rents may be 'new normal' in the USA
A growing number of Americans cannot afford to pay their rent as rental property prices hit a record high, researchers said on Friday, amid an outcry over rising evictions and homelessness. The number of U.S. households living in rentals also surged to 43.7 million in 2018 - up 21% from 2004 - a study by Harvard University found, as a growing share of older, larger families can no longer afford to buy their own homes.
Rent vs buy tilts slightly toward buy in the USA
A combination of rising rents, lower mortgage rates and moderating home prices are making purchasing a home more attractive in many of the nation's largest metros, according to realtor.com's quarterly Rent vs. Buy report.
The report, which analyzed the cost of buying versus renting in 593 counties across the U.S., in the fourth quarter of 2019, found that it was cheaper to buy than rent in 16% of the counties with populations of 100,000 or more, up from 12% a year earlier. Despite homeownership becoming more affordable, it is still cheaper to rent than buy in 84% of the nation's largest counties, including New York City, San Francisco and Los Angeles.
Housing in the next US recession — blog.firstam.com
The last recession was caused in part by a downturn in the housing market. It’s unclear when the next recession will come. But a recent report argues that when it does the U.S. housing market is unlikely to adversely affected in any major way. First American Deputy Chief Economist Odeta Kushi explains why.
Taylor Morrison acquires William Lyon
Taylor Morrison Home Corporation (NYSE: TMHC) has closed its acquisition of William Lyon Homes (NYSE: WLH). Key details of the deal include:
Creates the nation's fifth largest home builder based on last twelve months (LTM) closings
Puts the combined firm in the top five homebuilders in 16 of the combined 22 markets
Total consideration for acquisition will be approximately $2.5 billion, which includes $950 million of equity.
Economic development
Envy and the Amazon HQ 2 search
A team of Bloomberg reporters interviewed 12 people familiar with Amazon’s HQ2 search effort. Jeff Bezos’s frustration with what he deemed meager government largess compared to what Elon Musk had obtained for Tesla prompted executives to scrap lessons learned through the years. Instead, the Amazonians made an unapologetic appeal for tax breaks and other incentives to meet Bezos’s demand for Tesla-size government handouts.
Community planning and development
A primer on road diets — www.pps.org A road diet reallocates a street’s space to better serve the community around it and its full range of users.
Around the world
The law imposes a freeze for five years from June 18, 2019, with the possibility of an inflation-related increase of about 1.3% allowed from 2022 and limited increases allowed to pay for upgrades. Rents in Berlin were for years lower than rents in other major European cities, but they have more than doubled since 2008 as around 40,000 people a year moved to the German capital, where some 85% of residents rent rather than own homes.