Marriott Completes Starwood Merger Making The Worlds Largest Hospitality Company

 

Marriott became the largest hotel chain in September closing the 13 billion deal with Starwood Hotels Worldwide. Transaction costs for the merger are expected to total $140 million, according to Marriott (NASDAQ: MAR). Shares in Starwood ended trading before Friday’s opening bell on the New York Stock Exchange. Starwood shareholders receive 0.8 shares of Marriott stock for each share of Starwood stock, plus $21 in cash. The acquisition of Starwood Hotels & Resorts Worldwide, will combine Marriott, Courtyard and Ritz Carlton brands with Starwood’s Sheraton, Westin, W and St. Regis properties.

Thirty hotel brands will fall under Marriott’s hotel chain with the company now having 5,800 properties and 1.1 million rooms in over 110 countries. According to CNBC, Marriott now eclipses Hilton Worldwide’s 773,000 rooms and the 766,000 that are part of the Intercontinental Hotels Group family, according to STR, a firm that tracks hotel data. The WSJ wrote that Marriott estimates a costs savings of $250 million annually from the merger. The Bethesda, Md., lodging company is betting that its large size will allow it to negotiate better terms with online travel agents like Expedia Inc. and to convince more travelers to book directly on its website.

Starwood stated in April last year that it was exploring strategic alternatives, a move that opened the door for a sale. Marriott and Starwood announced their plans to merge in November, but an unsolicited offer from China’s Anbang Insurance Group Co. earlier this year sparked a tense bidding war. That contest ended in March, when Anbang abruptly withdrew its $14 billion offer with little explanation.

So how will the latest merger affect customer loyalty programs? Marriott stated that it plans to continue operating both programs at least through the next two years, before eventually phasing out SPG. “Obviously there’s a lot of work to do as it relates to combining the loyalty programs,” said Stephanie Linnartz, Marriott’s Executive Vice President and Global Chief Commercial Officer, in an interview with Travel + Leisure. “But the great thing for consumers is that right out of the gate, they will be able to link their accounts and match their status from day one.”

“We’ve got an ability to offer just that much more choice. A choice in locations, a choice in the kind of hotel, a choice in the amount a customer needs to spend,” Marriott CEO Arne Sorenson told The Associated Press in an interview. “We may have been a little too optimistic about how fast we could get this thing closed,” Sorenson stated.

 

Investing In Commercial Real Estate With REITs

 

Homebuilding stock, Lennar Corporation (NYSE:LEN) continues to come out as a winner from the rise of home sales. Lennar Corporation total value of inflow transactions on upticks was $0.74 million, whereas, the total value of outflow trades on downticks was $0.27 million. The total value of the trades done on upticks was $0.54 million. The company has adjusted earnings of $1.21 per share which increased 13 percent year over year driven by joint venture, improved SG&A leverage and other revenue.

According to Reit.com, REITs outperformed the S&P 500 with a cumulative total return of nearly 80 percent while the Fed raised its interest rate target in 2004-2006. “If the overall economy continues to expand, generating job growth and robust consumer spending, the key take-away for real estate investment is that the demand for commercial real estate and the resulting growth of rents could support REIT valuations even through periods of volatile markets.”

Last November, United States home sales were 4.3 percent higher. As homebuilding stocks came out as winners, the improved home sales numbers to were thank for. Just last year, the Commerce Department announced that the sales increased 4.3 percent to a seasonally adjusted annual rate of 490,000 units. October’s sales pace was revised, lowered to 470,000 units from the previously reported 495,000 units.

With the global financial crisis, disruptive change had been brought out with the bursting of the housing bubble, which, as a result, has been through transformation in itself whereby homeownership is pulling back from the approximately 70 percent of households seen at the extreme of the bubble to 63.4 percent in the second quarter of 2015, according to PWC’s 2015 Real Estate Report.

America’s real estate market is filled with many niches, with significant diversity participants in asset types. For investors, it is imperative to keep an eye out for specific trends and conditions which may shape the equity and debt participants in the real estate capital markets for 2016 and beyond.

Lennar Corporation is a real estate company. The Company is a homebuilder, a provider of real estate-related financial services, a commercial real estate investment, investment management and finance company. It operates under Homebuilding Operations, Lennar Financial Services, Rialto and Lennar Multifamily segments. It has grouped its homebuilding activities into five segments: Homebuilding East, Homebuilding Central, Homebuilding West, Homebuilding Southeast Florida and Homebuilding Houston.

Its homebuilding operations include the construction and sale of single-family attached and detached homes. Lennar Financial Services offers residential mortgage loan products to buyers of their homes and others. The Rialto segment is a commercial real estate investment, investment management and finance company. The Lennar Multifamily segment focuses on developing a portfolio of multifamily rental properties in select United States markets. It operates under brand name Lennar.

Why The Next 24 Months Look “Doggone” Good For Real Estate

 

“You can never forget about cycles, but the next 24 months look doggone good for real estate” according to PWC’s latest commercial real estate emerging trends report for 2016. “For real estate, 2016 will see investors, developers, lenders, users, and service firms relying upon intense and sophisticated coordination of both their offensive and defensive game plans. In an ever more competitive environment, with well-capitalized players crowding the field, disciplined attention to strategy and to execution is critical to success.”

 

Here is a look at some of the top trends and highlights for 2016:

 

18-Hour Cities

2.0 Last year, Emerging Trends identified the rise of the 18-hour city. This year, the real estate industry is expressing growing confidence in the potential investment returns in these markets. We are finding a tangible desire to place a rising share of investment capital in attractive markets outside the 24-hour gateway cities.

Next Stop: the Suburbs . . . What Is a Suburb?

“The suburbs are a long way from dead,” said one interviewee emphatically. Another industry veteran counseled, “There are only about ten dynamic downtowns in the county; the rest of the areas, people are in the suburbs.” As prices have risen in the core gateway markets, it is apparent that a fresh look at suburban opportunities is gaining favor.

Parking for Change

Should we be phasing out parking lots and parking structures even before the widespread adoption of the autonomous vehicle (a.k.a., the driverless car)? Miles traveled by car for those people 34 years old or younger are down 23 percent. The American Automobile Association reports that the percentage of high school seniors with driver’s licenses declined from 85 percent to 73 percent between 1996 and 2010, with federal data suggesting that the decline has continued since 2010. The new Yankee Stadium, built in 2008, provided 9,000 parking slots for its 50,000 seating capacity. But that has turned out to be too many, since most fans come by mass transit, and the parking structure is left at just 43 percent occupancy

Infrastructure: Network It! Brand It!

“The U.S. is losing the battle globally,” when it comes to infrastructure, complained one investment manager interviewed this year. “What is our problem?” The conventional approach to infrastructure improvement is utterly disheartening. The most recent (2013) American Society of Civil Engineers (ASCE) Infrastructure Report Card give the United States a grade of D+. At present, state-by-state updating is going on, and the results are not showing much improvement. Arizona rates a C, as does Georgia. ASCE scores Utah a bit better at C+, but Illinois, Iowa, and Virginia get only a C–. And none of these states is in the oldest region of the nation— the New England/Mid-Atlantic corridor—or the heart of the factory belt in Ohio and Michigan. The ASCE estimate of $3.6 trillion in infrastructure spending needed by 2020 seems way, way out of reach.

Is South Florida’s Commercial Real Estate Boom Still Strong?

 

Just last year, South Florida saw more than a dozen commercial real estate deals of more than $100 million dollars, according to the story by WLRN on commercial real estate this year. “ Billions of dollars of office buildings, condo buildings, shopping malls and warehouses were bought and sold throughout the region,” the article noted. The Sunshine Economy interviewed with three veteran players in commercial real estate this year. Here’s is a highlight on how they describe the market in 2016:

 

The Banker — Bank United Chairman and CEO John Kanas

We’ve seen the condominium construction boom continuing and beginning to spill over into some of the other commercial real estate areas — the office [market], retail, industrial and warehousing out near the airports, for instance.

2016 Forecast

There’s a lot written about the South Florida market slowing down. We have not seen any anecdotal evidence of that. I’m not saying that it’s not. It may be, but we don’t see it yet. There’s no evidence finding its way to us that would indicate that. What we’ve seen is that other sections of Florida are catching on. We’re doing very well in Tampa and Orlando and more recently established a footprint in Jacksonville.

Interest rates?

It is not a fait accompli that interest rates will continue to rise [in 2016]. They will continue to rise if this economy continues to be robust. But I believe that at any sign that this economy is faltering we could very well give up [the recent Federal Reserve rate hike] and possibly even go the other way. I don’t think people are making investment decisions around that issue right now. I think if we get to May or June and the Fed has moved two more times since now that will start to get into people’s decision-making.

Cautious confidence

I’ve been through four or five [real estate busts] since 1976 when I started running a bank. They’re all driven by the same thing: that is over exuberance, over zealousness and people forgetting that there’s two sides to this story [and] beginning to believe values can’t correct themselves. We see that in stocks and we see that in real estate;  we see that other assets. So we’re watchful. But what’s happening this time is there are a lot of a long-term bells that are already ringing. The regulators are cautiously advising banks to be careful about this. Economists are already starting to warn that straight up may not be forever. I view that positively because it’s a sobering experience.

Chinese interest

We are seeing a lot of money coming from China. We are seeing a lot of investors coming from China. We’re seeing Chinese developers. We’ve already seen Chinese developers in New York and Chinese banks also in New York. [More and more] they’re coming to Florida. We haven’t seen Chinese buyers. I think Chinese buyers will come. The main issue is the [lack of]  direct flights from China (to South Florida]. The moment that we have direct flights, I think we are going to see Chinese buyers.

*The Sunshine Economy

Grant Cardone Gives Advice On Smart Real Estate Investing

 

Real estate investor Grant Cardone says that you can’t control inflation (the Federal Reserve does that) and the government has doubled their debt since 2008. It’s now at $18.3 trillion and grows every day. Cardone contributed his thoughts in an article on Entrepreneur.com on investors having commercial real estate assets in their investment portfolio. Here are the eight reasons why he sees commercial real estate and investing income producing real estate is an excellent choice for protecting and growing your wealth:

1. Positive cash flow.

One of the biggest benefits to income producing real estate investments is that leases generally secure the assets. This provides a regular income stream that is significantly higher than the typical stock dividend yields.

2. Using leverage to multiply asset value.

Another important characteristic of commercial real estate investing is the ability to place debt on the asset, which is several times the original equity. This allows you to buy more assets with less money and significantly multiply asset value and increase equity as the loans are paid down.

3. Low-cost debt leveraged to multiply cash flow.

Placing “positive leverage” on an asset allows for investors to effectively increase positive cash flow from operations by borrowing money at a lower cost than the property pays out. For example, if a property generating a 6 prcent cash-on-cash return were to have debt placed on it at 4 percent, the investors would be paid 6 percent on the equity portion and approximately 2 percent on the money borrowed, thereby leveraging debt.

4. Hedge on inflation.

For each dollar that is created, there is a corresponding liability. Real estate investments have historically shown the highest correlation to inflation when compared to other asset classes, such as the S&P 500, 10-year Treasury notes and corporate bonds.

As countries around the world continue to print money to spur economic growth, it is important to recognize the benefits of owning income producing real estate as a hedge against inflation. Generally speaking, when inflation occurs, the price of real estate, particularly multi-tenant assets that have a high ratio of labor and replacement costs, will also rise.

5. Capitalize on the physical assets.

Income-producing real estate is one of the few investment classes that, as a hard asset, has meaningful value. The property’s land has value, as does the structure itself, and the income it produces has value to future investors. Income producing real estate investments do not have red and green days, as does the stock market.

6. Maximizing tax benefits.

The US Tax Code benefits real estate owners in a number of ways, including unlimited mortgage interest deductions and depreciation accelerations that can shield a portion of the positive cash flow generated and paid out to investors. At the time of sale, IRS allows investors a 1031 provision, allowing investors to exchange into a like-kind instrument and defer all taxable gains into the future. (See your tax advisor for full explanation.)

7. Asset value appreciation.

Over time, more and more inflation has made it into the economy, drastically reducing purchasing power. However, income producing real estate investments have historically provided excellent appreciation in value that meet and exceed other investment types. Properties historically increase in value as the net operating income of the property improves through rent increases and more effective management of the asset.

8. Feeling the pride of ownership.

The right property in the right location with the right tenants and ownership mindset can produce a tremendous pride of ownership factor that is highest among all asset classes. Homeownership is out of reach for most people. Imagine owning thousands of multi-family housing units instead?

*Entrepreneur.com

 

A CRE Macro Look At The United States…

 

Cushman & Wakefield’s latest Macro Report for 2016 highlights that the U.S. economy faced some very difficult headwinds in the first half of 2016, mostly coming from overseas. In particular, the report identified that the financial markets were rocked at various points this year by several factors including China’s decelerating economy, weakness in the emerging markets caused by a long-term slump in commodities, and more recently, Brexit. “Throughout all of these challenges, the U.S. economy has remained impressively resilient,” the study also noted. “The key demand drivers that support the property markets—consumer confidence, job growth, low interest rates and consumer spending— all remain firmly intact. The outlier, once again, is GDP. Real GDP grew by a meager 1.0 percent in the first half of the year, well below its potential growth rate which is commonly believed to be closer to 3 percent.”

Seven Years of Expansion Still Going Strong…

  • The U.S. economic expansion weathered the global shocks and remains on solid footing
  • Low oil prices, rising wages, and improved job security—consumers are well positioned to power growth
  • Brexit is proving to be a regional shock, so far, and may create additional tailwinds for the U.S. • Leasing fundamentals continue to tighten across most product types and geographies, rent growth is accelerating
  • Sales volume slowing to a more sustainable pace; pricing is holding up well
  • Returns moving lower, but still attractive compared to other asset classes

 

*Cushman & Wakefield

 

The firm also predicts in the report that business investment will improve and contribute positively to stronger economic growth in the second half of 2016 and more so in 2017. “Consumer spending will continue to power the broader economy. Personal consumption expenditures will grow by 2.5 percent in 2016 and 2.7 percent in 2017. Net exports will put pressure on overall growth as exports fall year-over-year in 2016 before rebounding by 1.1 percent in 2017 as global growth improves.”

 

Warehouse and distribution space will continue to benefit from empowered consumers and from the continued growth of eCommerce; at the same time, flex/R&D space will benefit from solid gains in high-tech employment sectors, notes Cushman & Wakefield. The report also sees manufacturing, which has faced headwinds from international pressures since mid-2014, to get some reprieve as industrial production, factory orders, and investment begin to turn the corner starting in the second half of 2016. “Warehouse/distribution space accounts for over 60 percent of industrial inventory, making consumer health more vital than ever to this supply chain-centric product. We anticipate spending on nondurable goods will increase by 2.5 percent this year before rising to 2.8 percent next year.”

 

JC Penney Moves Back Into Appliances; What Does It Mean For CRE?

 

There is still that old adage, “kitchens and baths sell homes,” which may be a bit trite, however it still resonates a truth in commercial real estate today. Homes are being transformed, democratized, and enhanced by green developments which improve the quality of life for consumers. Retailer J C Penney Company Inc (NYSE:JCP) announced it will be selling appliances once again after 30 years in efforts to attract female consumers. With an increase in millennials entering the real estate market and the rise of homeowners looking to invest in updating their homes, JCPenney will be introducing an assortment of major appliances in 22 pilot stores which began February 1 of this year.

The decision reinforces the Company’s decision to enter the appliance market. The National Kitchen & Bath Association (KNBA) reported that according to its 2016 Design Trends Survey, traditional style kitchens were still the most popular. JC Penney’s strategic framework in 2015 focused on opportunities in private brands, increasing revenue per customer, and omnichannel, all of which its re-introduction of appliance sales will be a key component.

“Our research shows that the female consumer is the key decision maker in the appliance purchase process. Recognizing that over 70 percent of our shoppers are women, we’re going to improve the way customers shop for appliances by building an emotional connection with the female shopper who already trusts JCPenney to furnish her home and wardrobe,” said Marvin Ellison, chief executive officer for JCPenney.

KNBA says that remodeling of American kitchens and baths represents a $31 billion annual industry, or 25 percent of the country’s remodeling budget. That’s 1.8 million kitchens and 2.5 million bathrooms that are remodeled in existing homes each year. New construction adds about 1.2 million kitchens and 2.8 million bathrooms a year.

According to the report, the rates of new home construction and renovation are anticipated to grow between 5-7 percent annually through 2019. • The non-residential new construction and remodeling market continues to outpace its residential counterpart in sheer dollar volume. However, the residential market is showing stronger year over year growth than the commercial sector, as well as the residential repair market. Year-over-year growth in the multifamily housing construction market is expected to be surpassed by single family construction in 2017 and continue through 2019.

The global smart home M2M market, which was at $19.5 billion in 2015, is set to grow to $96.5 billion by 2020, at a CAGR of nearly 35 percent, according to a recent study from global research firm Technavio. Security Systems News reported that the smart home M2M market in the Americas, valued at $10.1 billion in 2015, is expected to reach $41.3 billion by 2020, growing at a CAGR of 32.43 percent. “Presence of enhanced global connectivity (LTE) across the world is one of the major reasons driving the global smart home M2M market during the forecast period,” Technavio lead analyst Abhishek Sharma told Security Systems News. “As of January 2016, there were almost 480 LTE commercial and 116 LTE-A commercial networks globally to support higher data services requirement.”

South Florida’s Hot For Commercial Real Estate Brokerages

 

In South Florida, larger firms have been pursuing boutique firms in the area as a result of its strong growth in the commercial real estate market. According to National Real Estate Investor, mergers and acquisitions in the brokerage sector continue to occur, but with a more focused aim, and are not forecast to reach the high water marks seen in previous years.

 

Pike Rowley, principal and managing director of Avison Young Florida recently spoke at a keynote panel of the Realtors Commercial Alliance Miami Super Conference at the Biltmore Hotel in Coral Gable and said they are targeting such small firms. “These small owners want to chase institutional work but don’t have the size to do it. Now, the window is open and the time is right.” Other firms also remain bullish on the industry and in South Florida’s CRE market.

 

Thomson Reuters indicated that on real estate mergers and acquisitions, encompassing both residential and commercial firms of all sizes, that there was significant year-to-date drop-off compared to last year. In 2015, 52 deals totaling $4.0 billion occurred. In 2014, 74 mergers and acquisitions took place, totaling about $2.4 billion. Mergers and acquisitions in the sector peaked in 2006, with approximately 37 deals valued at $8.7 billion, according to Thomson Reuters.

 

“There’s no question that the rate of large-scale M&A has slowed down. However, this doesn’t mean that the era of commercial real estate mergers is over,” says Solomon Poretsky, vice president of organizational development with commercial real estate services firm SVN International Corp. “A steady undercurrent of small-scale M&As is continuing to happen. Independent brokerages, successful practices operating under a residential flag and the like are all realizing that aligning with a strong national or global brand is in their best interest.”

 

According to Josh Harris, Ph.D., director of the Dr. P. Phillips Institute for Research and Education in Real Estate at the University of Central Florida. smaller family firms are on the radar of big brokerage players and these companies are willing to pay substantial amounts for the smaller brands. “There may not be much left to do for big combination deals, but we could see a full-out war to get smaller family firms,” Josh Harris stated.
“These buyouts are an exit strategy for those who have built up their local real estate firms and are getting up in age. As part of the deal they often get to remain on the payroll of the company that bought them in a manager role. In this field it is expensive to train from new, so this also gives the buying firm the benefit of hiring experienced talent.”

Retail Sector Expects “Modest” Outcome For Black Friday 2016

 

Industry insiders are predicting a much better performance this Black Friday compared to last year, however caution that doesn’t mean Black Friday 2016 will be one for the record books. Deloitte that total holiday sales will rise 3.6 to 4.0 percent year-over-year. Thomson Reuters indicated that its same-store sales index for September 2016 was expected to come in at -0.3 percent. This number is down from growth of 0.8 percent in September 2015.

 

“The holiday shopping season is one of the most competitive times of the year for retailers, but they also have a big opportunity to drive sales and acquire new customers,” said Dave Richards, global managing director, Accenture’s Retail practice. “The majority of retailers look for ways to extend the holiday season as late as possible, but can face challenges in delivering a physical product in time. Personalized promotions and pushing gift cards are a good way for retailers to continue momentum and stretch this success into the post-holiday season.”

 

Accenture’s latest survey of global shoppers revealed that a rising intensity that is forcing retailers to adapt more quickly to the shifting retail reality that defines the customer experience. According to the report, adaptability is the new hallmark of successful retail strategies, offering retailers a proactive way to meet the demands of consumers who are racing ahead to embrace an ever more connected and integrated shopping experience.

 

The National Real Estate Investor cites that that the regional mall REIT CBL & Associates has reported its malls will be closed for the holiday. A  spokesperson for Simon Property Group, the largest regional mall REIT in the country, said that “traditionally there are a handful of malls closed for Thanksgiving, but most of them will be open.”
Nearly 80 percent of shoppers with a mobile device will use it while shopping at stores this holiday season and 90 percent will research their intended purchases online before shopping at a store this year, according to ICSC. Consumers’ interest in a seamless holiday shopping experience across all shopping channels – online, in-store and mobile – is growing, especially when it comes to order fulfillment.

Chinese Market Expected To Grow In South Florida

 

More growth is expected for South Florida as Chinese investment in the United States real estate market is expected to reach $50B by 2025. According to the Real Deal, wealthy Chinese buyers have been buying so many homes in the United States that they are the top foreign country purchasing property in the United States – for the fourth year in a row. The article noted that home sales totaled more than $27 billion.

 

South Florida is really pushing for such buyers to its commercial real estate market. According to Daily Business Review, tapping into the Chinese market, home to the world’s second largest economy, has been a longstanding item on Miami’s real estate wish list. In the race to secure a Miami-China connection, local brokerage houses have deployed marketing trips abroad, hired Chinese-speaking agents and sought partnerships with China-based companies.

 

The Miami Association of Realtors is bullish about bringing Chinese buyers to South Florida, and now has a new partnership that it says will put Miami properties on the screens of thousands of prospective buyers. According to The Real Deal, the Miami Association of Realtors association partnered with Juwai, which it says is China’s Number 1 website for international property searches, according to a press release.
The allocation of household wealth in China looks a little like this: 46% bank deposits, 39% housing, and just 10-15% in financial assets, including stocks. Chinese investors tend to have a strong preference for putting their money in housing, coupled by a far weaker interest in other forms of investing, Forbes wrote in a recent article. According to China’s National Bureau of Statistics, 90% of families in the country own their own home, while Nomura estimates that roughly 21% of China’s urban households now own more than one house, with some cities supposedly boasting 200% home ownership rates.

Starwood Capital Group CEO says, “I’m bullish” on real estate

 

Home prices are presently on the rise. With the election finally coming to a close soon, international companies are seeking to make their mark in the United States travel sector. Starwood Capital Group Chairman and CEO Barry Sternlicht said this month that he is bullish about the future of the real estate market. Sternlicht stated to CNBC that his company’s broad reach across the real estate space — with hotels, apartments and malls in the United States and abroad — enables him to view the market on a broader scale.

“I think you can see acceleration in spending, incomes are rising,” Sternlicht said. “I’m seeing that real estate markets, in general, have never been better in the United States. On CNBC’s “Squawk Box” Sternlicht had also stated that the rising prices of apartments and single-family homes were major contributors to the real estate market’s success. He also said on the interview that some of the more major U.S. markets were buckling, taking a backseat to more up-and-coming cities like Seattle.

“We are seeing flashing yellow lights on affordability. People who are currently renting and want to convert into ownership — major difficulty,” said Lawrence Yun, chief economist of the NAR. “Home prices are rising way too fast compared to people’s income and wage growth.”

“There are more cranes in Seattle downtown than any city in the country, more than San Francisco and New York combined,” Sternlicht stated. Markets in cities such as Nashville, Portland, Atlanta and Denver are also seeing significant growth.

“The tight supply of homes on the market continues to constrain sales, while low mortgage rates and job growth help fuel healthy demand. This results in a pressure cooker effect, and the market’s traditional pressure release valve — new home construction — isn’t helping much, given that new home sales are running more than 40 percent below historically normal levels,” wrote Andrew LePage, research analyst at CoreLogic.

In response to Blackstone’s deal with Chinese travel conglomerate HN, Sternlicht replied, “I think for many of these Chinese lifestyle companies and travel companies, this is diversification, this is a currency hedge in case they continue to have to lower the currencies against the dollar because of the slowing growth at home,” Sternlicht said. The sheer number of Chinese customers who travel make deals like Blackstone’s reasonable, if not attractive, for Chinese companies, he said.

“I think the economy might surprise us,” Sternlicht also said in the interview. “Post the election, I think you might see companies take a more aggressive stance on spending their capital, building their plants and hiring, and the wages are going up.”

The “Ultra Wealthy” Continue To Buy Up The Real Estate Market

 

A “softening” luxury real estate market and global political uncertainty is clearly apparent, however it is still a buyer’s market for the ultra-wealthy, according to a recent survey. “High end homes prices are clearly losing altitude all around the country,” CNBC reported. In partnership with the YouGov Affluent Perspective, Luxury Portfolio International surveyed the top echelon of consumers across 12 countries, finding that the majority of those consumers were “cautious but optimistic” in the face of an uncertain and often turbulent world economy.

Those with a networth of over $50 million or more, have swelled. According to Research from Credit Suisse, more than 123,000 individuals are listed in this category. This accounted for a “whopping” 53 percent jump in just five years. CNBC reported that most of them reside in North America, where the rate of growth among the super-rich is double that of Asia and significantly faster than Europe’s.

Although high-end real estate has softened — sales of homes priced above $1 million have tumbled recently, according to recent National Association of Realtors (NAR) figures — high-net worth individuals “feel good about their lives, are confident about their decisions and have a very strong intent to purchase real estate,” the report’s authors wrote. The YouGov survey also found that 25 percent of the wealthy were looking to purchase new property over the next three years, with 18 percent looking to sell.

Outside the U.S., the mood was far more confident: 45 percent of wealthy buyers are looking to purchase real estate with only 23 percent looking to sell, the data showed. The report also showed that “nearly 1 in 4 of the Global Top 1 percent plans to make a real estate purchase in the next three years, with almost as many considering selling as well.”

The YouGov survey is consistent with what Philip White, president and CEO of Sotheby’s International Realty Affiliates, told CNBC in an interview last month. He said high-end real estate was “sort of a mixed bag, and obviously there is some slowing,” but some locations were faring better than others.

Philip White, president and CEO of Sotheby’s International Realty Affiliates, told CNBC in a recent interview. “Some markets are seeing a slowdown in the high end but some aren’t,” White said, whose company cranked out $80 billion in U.S. sales volume in 2015. “It is sort of a mixed bag and obviously there is some slowing,” he said, even as he cautioned that ultra-high end sales were a much smaller slice of overall real estate turnover in the U.S.

Meeting The Demographic Challenge In The Urban World

 

One of the most powerful forces transforming the world economy today is demographic change. In a recent McKinsey & Company report, global population growth was indicated to slow and urbanize plateaus in many regions, the outlook for cities and their growth changes profoundly.

“Cities, which have powered the world economy for decades, are now facing a significant demographic challenge to their growth,” the report indicated. How they respond to the pressures will be critical for the health of the global economy in the years ahead. The MGI findings include:

Population growth has been the crucial driver of cities’ growth. In a sample of 943 global cities with more than 500,000 inhabitants in their metropolitan regions, 58 percent of GDP growth between 2000 and 2012 came from expanding population.

Rising per capita income, which also includes the scale benefits to local economies from growing population, contributed the other 42 percent. ƒNow cities are exposed to a double demographic shift—markedly so in developed, and increasingly so in developing, regions.

First, global population growth is slowing due to declining fertility rates and an aging world. Second, the pace of rural-to-urban migration is waning in many regions. ƒAs a result, population declined in 6 percent of the world’s largest cities—most of them in developed economies—between 2000 and 2015.

From 2015 to 2025, we expect population to decline in 17 percent of large cities in developed regions and in 8 percent of all the world’s large cities. ƒ The impact of the double demographic shift on cities promises to be uneven. Cities’ growth prospects will reflect very different demographic footprints and dynamics shaped by their local birthrates and death rates, net domestic migration, and net international migration. MGI compared three developed regions to understand the implications.

The report suggests to sustain economic prosperity in the face of changing demographics, most cities need to sharpen their focus on citizens and raise productivity to boost incomes and be able to meet rising expectations with existing resources. “Many more cities are likely to design strategies to appeal to particular demographic groups as they compete with other urban areas to retain and attract citizens,” McKinsey Global Institute noted. “Cities will need to demonstrate flexibility in adapting to the demographic challenges that lie ahead, and focus on maintaining their dynamism and vibrancy to attract talented workers and successful businesses.”

Commercial Real Estate Still Continues To Firm

 

Reit.com recently took a look at the Urban Land consensus outlook in which it was indicated that commercial real estate still continues to firm. The “ULI Real Estate Consensus Forecast” is a semiannual survey of economists and analysts at the nation’s leading real estate organizations. The forecast findings include both near-term and longer-term projections for a wide variety of key economic and industry indicators, ranging from employment figures to housing starts to property sector performance.

The most recent survey was conducted in September, and involved 51 leading real estate economists/analysts from 37 organizations. Results were released on October 19 with a webinar and panel discussion featuring Gadi Kaufmann, Managing Director/CEO of RCLCO, Jim Clayton, Head of Investment Strategy & Analytics of Barings Real Estate Advisers, Eileen Marrinan, America’s Director of Research of Grosvenor, and Josh Scoville, Senior Managing Director of Hines.

“Commercial real estate markets are expected to continue to firm in the next three years, albeit possibly not as robustly as during the past three, according to a recent survey of industry economists,” Reit.com noted in its story. According to the survey, following six years of growth, commercial property transaction volume is expected to decline over the next three years to $428 billion in 2018, according to a new three-year economic forecast from the Urban Land Institute (ULI) Center for Capital Markets and Real Estate.

It was also indicated that while findings in the recent Consensus Forecast for October 2016 point to continued economic expansion over the next three years, it is expected to slow down in pace. Compared to six months ago, survey respondents have also reduced their expectations about interest rates, housing starts, and private real estate returns. Issuance of commercial mortgage-backed securities (CMBS), a key source of financing for commercial real estate which had grown consistently since 2009 to $101 billion in 2015, is expected to decline in 2016 to $70 billion before resuming growth in 2017 and reaching $90 billion in 2018. Additionally, compared to six months ago, forecasts for housing starts over the next three years are less optimistic. Single-family housing starts are projected to increase from 714,500 units in 2015 to 875,000 units in 2018, remaining below the 20-year annual average.

“The length of the current expansion may weigh on forecasters’ minds, as well as uncertainty about the upcoming presidential election and economic and political turmoil abroad,” said ULI leader and survey participant William Maher, director of North American strategy and research, LaSalle Investment Management. “U.S. real estate markets are intricately tied to the broader economy and capital markets, both of which are growing more slowly than earlier in the cycle.  It is no surprise that the real estate market is following suit.”

Pokemon Go and Augmented Reality Technology’s Impact On Commercial Real Estate

 

Pokemon Go is all the rage, so what does this popular game by Nintendo have to do with commercial real estate? Pokemon Go is a location-based augmented reality (AR) game. This year, a completely new impact coming from AR has hit the commercial real estate industry.

With a combination of augmented reality and virtual reality, a game like Pokemon Go has the abilities to trigger a new commercial real estate trend with driving engagement of potential consumers to actual locations. Pokemon Go’s app is a strong tool for businesses and retail. With this, it is likely that other areas in commercial real estate may also be able to benefit

The emerging technology area of AR is predicted to reach $80 billion market by 2025, according to the CBRE’s July report. “Augmented reality has the ability to merge the consumer’s current experience of online and in-store shopping. Both on their own have limitations, but blending them together gives the consumer a powerful in-store experience that could continue to sustain the bricks-and-mortar segment of retail,” stated Julie Whelan, head of occupier research for CBRE.

Whelan also expressed that, “Someday it is not beyond the realm of possibility to see sophisticated augmented reality used to replace window displays and store signage; perhaps even tailored to passing-by consumers.”

According to CBRE, “Real estate companies can also add elements of augmented reality to their marketing, bringing otherwise static flat brochures to life and creating a virtual pop-up book that allows the user to interact with the property through 3D images and simply click a virtual button to contact the company.” “Pokémon GO has doubled the value of Nintendo (which developed the game together with the Pokémon Company and Niantic) since it was released on July 6, adding $20 billion to the company’s market cap in less than a month, and has far outpaced other mobile-device games in terms of active users, retention rates and revenue.”

CBRE also indicated that “DHL and Ricoh recently carried out a successful augmented reality pilot in a warehouse in the Netherlands that proved successful in enhancing time efficiency and error reduction.” With AR usage growing, it is also likely data centers will be able to benefit.

“With this technology, an architect or designer can bring their vision to life and share it with consumers. The power that this will give to marketing of development and construction firms is immense,” Whelan stated.

There are still cautionary measures with Pokemon Go and this new technology. It has caused safety and security concerns that building owners and managers must consider, CBRE highlighted. “A common concern about Pokémon GO is physical security as the game may encourage players to trespass on private property, thus posing a risk not only to property and business owners that don’t welcome the general public, but to the players themselves.

A Closer Look At The Long-Term Of Commercial Real Estate

 

There is a current urge for commercial real estate investors to seek out yield, but yet they face challenges. However, as we look at the long-term outlook, commercial real estate investors are “feeling upbeat.” “Investors are facing a conundrum in today’s market: Low interest rates are making fixed-income products less attractive, while broader equities continue to be volatile amid weak global economic growth, ongoing geopolitical turmoil and depressed commodity prices,“ according to Forbes.

At South Florida’s Development Outlook panel, commercial real estate developers are locally focused on tri-county region areas which have the potential for opportunities. “The kinds of things we buy now are more strategic,” Billionaire real estate mogul, Jeff Greene said on a panel in April at The Real Deal’s Broward Showcase and Forum at the Design Center of the Americas in Dania Beach. In West Palm Beach, Greene said the office market lacks new product. His project, One West Palm, designed by Fort-Brescia, will bring 340,000 square feet of Class A office space. “If a Class A tenant wants to come to West Palm Beach today, it’s just not possible,” he stated.

“People are desperately seeking yield and having a very difficult time finding it,” said Chris Ludeman, global president of Capital Markets at CBRE Group, a commercial real estate services and investment firm. The article also highlighted that Mr. Ludeman also forecasts returns in the commercial real estate sector will continue rising in the years ahead. At the same time, structural changes will lead to evolution in the office, retail, industrial and multifamily segments. These changes include a growing preference for renting over buying in the aftermath of the U.S. housing crisis (resulting in greater multifamily demand), and a rise in e-commerce sales that is reshaping the traditional retail and industrial space.

Ludeman also added that, “Commercial real estate continues to provide attractive risk-adjusted returns in a low-interest rate, low-return environment,” he said. “In most instances, you’re dealing with good corporate credit and longer-term leases in markets where new supply is limited, leading to more sustainable, predictable yield.”

“Given the recent volatility in global markets, many commercial real estate investors have become focused on the “usual suspects”—near-term cyclical drivers such as economic growth, borrowing costs, and supply and demand. In the second brief in our series, we go beyond these factors to highlight a number of “unusual suspects”—structural drivers affecting real estate around the world that will prove critical for long-term success.”

While near-term volatility is creating uncertainty across markets, commercial real estate continues to be an attractive asset class for global institutional investors, according to CBRE.

South Florida’s Commercial Markets Are Not Slowing Down

 

When commercial real estate investors look at investing in places like South Florida, you’ll be sure to notice that sense of untapped potential which constantly lingers in the air. South Florida’s commercial real estate markets have been in demand the past two years.

 

Collier’s latest research report has highlighted some Notable Deals in the area: Burlington Coat Factory signed a 50,000 SF anchor lease at the new River Landing project. Aldo Group, the Montreal-based shoe store company, purchased a retail building at 635-639 Lincoln Road for $35 million or a whopping $6,560 PSF in January 2016. Also, New York based JSRE Acquisitions paid $35 million for an entire retail block (21,358 SF of retail space) along Northwest Second Avenue in the popular Wynwood submarket.

 

Additionally, in Coral Gables, the $119 million Alhambra office complex has been brought to light for real estate professionals and investors. And in Miami, Lincoln Road’s retail assembly went for $370 million. The Miami-Dade area has been poised for even more growth to continue in 2016, with having 25 buildings presently under construction. The new construction will create over 2 million SF of new retail space in Miami-Dade. In Broward County, tremendous decline has been seen in vacancy rates and rent growth, having reached its peak since 2009, according to Collier’s. The report also indicated that in 2015, over 1,000,000 SF of new retail inventory was delivered to the market. Presently, 517,419 SF is under construction in the area, thanks to growing population, expanding tourism and job growth.
Collier’s also indicated that in Miami-Dade, 2016 started out with strong countywide rental rate growth; in particular Class A asking full service rental rates climbed to an estimated $40.21, up 1.5 percent quarter over quarter. Approximately 87 percent of the new development is located at the Brickell City Centre.

 

Notable Office Deals: The 23-story Courthouse Tower in Downtown Miami traded to New York-based Brickman for $27.5 million or $169 PSF. TA Realty sold Doral Costa office park for $74 million or $263 PSF to Miami-based Triarch Capital Group in March 2016. After signing a 110,506 SF lease in early January 2016, one of the nation’s top law firms, Akerman, moved into the 12-story Three Brickell City Centre tower as the primary anchor tenant. However, a trend of signed leases in the first quarter of 2016 have been notably smaller in size and the pace of total office leasing activity slowed thus significantly reducing absorption levels. There is also more sublease space on the market compared to recent periods.

Developers Opportunity Opens Up In Miami’s Hot Spot

When Stephan Gietl, principal of Mckafka Development based in Miami, and his business partner,  Fernando Levy Hara, purchased more than a half-acre close to Biscayne Bay back in 2012, they thought it was a good deal in Edgewater. At that time, the residential building had modest rates planned for $350 to $450 each month. The property is located by Intracoastal Waterway from Miami Beach.

As of Spring of that same year, the most successful luxury condominium developer in Miami, had announced that Related Group had plans to develop 2.15 acres of Edgewater’s bayfront property into luxury condominiums. The 40-story, 300-unit Icon Bay was located by Mckafka Development property site.

Related Group’s Jorge Pérez’s move back then had made Edgewater a Miami hot spot for commercial real estate developers overnight. Edgewater is a 1½-mile-long and four-block-wide piece of land that is situated right between the Venetian Causeway and Biscayne Boulevard. The area also borders Wynwood and the Design District.

“When we saw Related in there, we realized that the neighborhood is better than we thought,” Gietl said to Related. “All but 16 of the Crimson’s 90 units — from 850 to 1,250 square feet — have sold, for upwards of $650 per square foot. Meanwhile, at 460 NE 28th St., Icon Bay, with a completion set for sometime next year, is sold out — with prices as high as $800 per square foot.”

Gietl’s Crimson, located at 601 NE 27th St., is expected to be completed next year. When completed, more than 3,300 condo units will be offered. Much like the rest of South Florida, Edgewater is also attracting international clients. An anvil-shaped office building is also in proposal stages. An open-to-the-public museum with only two permanent displays of art by James Turrell and Richard Serra will be featured.

And that’s certainly not all. As new construction surges, more development is popping up in the area. A retail building on Biscayne Boulevard has recently hit the South Florida market for $6.75 million. Marcus & Millichap is listing the 2400 Biscayne Boulevard property which is an 11,516-foot building at the corner of Biscayne Boulevard and 24th Street sits on a 12,650-square-foot lot, built in 1965, according to Miami-Dade property records.

Edgewater sales have been an outstanding success. “What took 10 years at South of Fifth is taking five years at Edgewater,” stated broker Alicia Cervera, managing partner of Cervera Real Estate to Related Group. The new commercial, retail development and residential properties being developed is in strong demand.

Publix On The Move In South Florida

We all are familiar that Lakeland-based Publix Super Markets has a reputation of acquiring commercial real estate for investment purposes. Publix continues to be on the move in South Florida by crossing off yet another commercial real estate item on its list. This year, Publix purchased a commercial property for nearly 13 million on Miami Beach. Windsor Investments sold the 13,694-square-foot building located at 1845 Alton Road. The deal also assumed lease to Walgreens.

Meanwhile, plans to open the Publix supermarket in Islamorada remain held up due to court. The shopping location is expected to be completed and open to public by fall of 2017. Gadinsky Real Estate LLC, is the developer of the 18 acres site located between East Palm Drive and Southeast 1st Avenue.Florida City Mayor Otis Wallace stated last month that his constituents are “overwhelmingly in favor” of the proposal. “It will provide jobs, and Publix is a store grocery shoppers love,” Wallace said.

The supermarket planned is 45,000 square feet, located on more than eight acres,of land, and with 12,250 square feet remaining for shopping space. Publix’s plan also will include 302 parking spaces with access from U.S. 1 and East Palm Drive. The court litigation preventing Publix from building a 34,062-square-foot, 161-parking-space store at mile marker 83 on Upper Matecumbe Key is being sued due to block construction.

Publix also purchased a shopping center for $5 million this year. In March, Codina Partners announced that Publix would have the only supermarket located in the120-acre Downtown Doral Project. The project includes 2,840 residential units, 400,000 square feet of office, a charter school and more than 70 stores and restaurants. Publix is expected to begin construction in September and the project will be completed in December 2017.

Just last December, Publix shopping spree involved a $45 million purchase of Hillsboro Square in Deerfield Beach. The 138,572-square-foot center at the southeast corner of U.S. 1 and Hillsboro Boulevard was sold by DDRTC Hillsboro Square, an affiliate of Beachwood, Ohio-based shopping center developer DDR Corp. to Real Sub, a subsidiary of the Lakeland-based grocer.

Publix’s December deal includes the 126,042-square-foot shopping center at 150 S. Federal Highway, the 1,674-square-foot Starbucks building at 130 S. Federal Highway, the 9,792-square-foot SunTrust Bank branch/office at 110 S. Federal Highway, and a 1,064-square-foot retail building behind the Publix at 199 S.E. 12th Ave.

Additional local shopping centers in the Florida area which Publix has purchased include the $19 million acquisition of Sea Plum Town Center, the $12.5 million purchase of Pine Lake Plaza, the $24 million purchase for Crosstown Plaza, and the $35 million purchase of the Courtyard Shops at Wellington.

 

Big Money Deals Continue By Businesses and Foreign Buyers

In most cities in America, commercial real estate has been known to be one of the most valuable property investments. Recently, there has been a significant surge in Chinese nationals purchasing both commercial and residential real estate. Last year alone, the buying had taken their five-year investment total to more than $110bn, according to the study from the Asia Society and Rosen Consulting Group.

The consulting firm also reported that that total has helped the real estate market recover from the crash that began in 2006 and precipitated the 2008 economic crisis. And the figure for the second half of this decade is likely to double to $218bn, the study revealed. It just goes to prove how important businesses are to purchasing in commercial real estate. Cities today are even putting out offers such as deals and incentives to encourage businesses to purchase commercial real estate.

Commercial real estate values have also reached a low across many markets. With the economies overseas and strong dollar presently being challenged, this has taken a toll on the Miami area with real estate, tourism, and also retail which may experience downturn. In Miami-Dade, the unemployment rate fell flat in 2015 after it fell for years. Today, we have a buyer’s market for the real estate industry. Thanks to the rise in market saturation and foreclosures, buyers are able to find great values in commercial property.

However, businesses which may rely on foreigners spending money in South Florida, may not see a tremendous return on investment for 2016. According to a recent report by the International Monetary Fund, growth in Latin America and the Caribbean will be negative in 2016 — the first time the region has seen two straight years of losses since a disastrous debt crisis in 1982 and the subsequent “lost decade” of economic stagnation.

For commercial real estate, big money deals continue to roll in by businesses and foreign buyers. The entire block located on Lincoln Road was purchased for $370 million by a Spanish billionaire. In South Miami, a Maryland-based investment group also had purchased two local malls which were struggling. The firm purchased the commercial properties for $87.5 million on CocoWalk in Coconut Grove and $110 million on the Shops at Sunset Place in South Miami. Alan Kleber, managing director at brokerage JLL, stated, “Investors chase yields and because of what’s happening on the residential side, those yields are going to be in commercial.” Kleber said to the Miami Herald that increased commercial building could help pick up some, but not all, of the slack left behind by the residential downturn.