K.C. Conway, Chief Economist with CCIM and Director of the Alabama Center for Real Estate, appears on America’s Commercial Real Estate Show with host Michael to discuss his opinions and thoughts regarding tariffs, the economic cycle, and how they may or may not impact the commercial real estate market. He discusses the devastating effect the last major trade wars, effectuated via the Smoot-Hawley Tariff Act of 1930, had on the economy. He doesn’t believe the tariffs are negative for commercial real estate. He believes the tariffs will likely accelerate some retailer bankruptcies in situations where they can’t pass along higher costs due to tariffs. With regard to construction costs, he submits that hurricane related rebuilding is the bigger issue bringing higher costs. He believes the biggest risk to the economy in the near term is the failure to pass the new NAFTA agreement, the USMCA. He also worries about an acceleration of retailer failures and the like due to tariffs. He notes a lot of positive things happening in the economy, nonetheless.
Video: FinTech Company aXpire’s CEO Gary Markham Discusses its Choice of Downtown Miami for its HQ
Gary R Markham, CEO of aXpire Fund Solutions, a FinTech/FundTech application solutions provider to hedge funds and a wide range of asset managers and administrators, discusses its choice of downtown Miami for its headquarters. He notes that Miami provides access to lots of talent, particularly with the amount of migration into Miami. In this Miami Downtown Development Authority published video, he refers to Miami as being to him like a smaller version of Singapore.
Video: Watch Dorian’s Cone of Uncertainty Evolve as it Moved Near Florida
In this quick clip sure to be fascinating for all in the Miami area, whether owners of commercial property or not, one is able to watch the probability cone, aka the cone of uncertainty, for Hurricane Dorian change over time as the storm progressed through the Atlantic. For those of us that lived through it, oh-yeah-there-I-thought-we-were-going-to-get-it moments are sure to be recalled. Fortunately, the storm ended up missing MIami entirely, seemingly now destined for landfall or at least a land nick in the area of South Carolina. As for us here in Miami; whew!
The map in motion in this post tracks the progress of Dorian as well as the evolution of its probability cone, aka cone of uncertainty, as it passes Florida and moves through the Atlantic
The approach of Hurricane Dorian got the commercial real estate world talking. Articles came out as it approached, such as As Hurricane Dorian barrels toward South Florida, developers and builders prepare by TRD. Once it has passed, articles become more reflecrtive, such as TRD’s Hurricane Dorian spared South Florida but will still cost developers and contractors and Bisnow’s Close Call: Hurricane Dorian Passes, But Is CRE Ready For The Next Storm? All in all, it would seem a close call from such a powerful storm go the attention of Miami commercial real estate investors, and is likely to bring changes. What those changes will be is anybody’s guess.
Video: Seacoast Commerce Bank Senior VP Melanie Brown Discusses Financing for Real Estate
Melanie Brown, Senior VP at Seacoast Commerce Bank, joins America’s Commercial Real Estate Show in Studio One to discuss how to best utilize SBA loans for real estate properties. She discusses how SBA financing in some cases can allow for 90% financing, thus offering more leverage. She also notes that the amortization periods tend to be longer, thus lowering debt service payments and perhaps allowing more buying power as debt service is less per dollar of purchase, and no balloon payments for some types of SBA loans. Also discussed at length is how special use properties common to small businesses are tailor made for SBA financing. Being prepared for the process is noted as important for borrowers, noting that SBA financing gets a bad rap for time to approval when in reality much of the time is due to borrowers not supplying necessary documents on a timely basis.
Chart: USA’s Leading Economic Indicators Decline, but Remain Better than Others
Best house in a bad neighborhood.
(via @CreditSuisse) pic.twitter.com/W82CA7qJlD
— Carl Quintanilla (@carlquintanilla) September 3, 2019
As can be seen in the chart in this “best house in a bad neighborhood” tweet by Carl Quintanilla, the leading economic indicators for the United States have declined significantly, of late registering below 100. However, as indicated by the humorous comment accompanying it, it is not the worst, with Europe’s leading economic indicators having declined significantly more and ahead of that of the United States. Hope for the best, to be sure, but grab the rails.
Video: Tower Capital Founder Adam Finkel Provides Commercial Property Financing Update
Adam Finkel, Principal and Co-Founder of Phoenix based Tower Capital, joins America’s Commercial Real Estate Show to discuss how interest rates, underwriting, and lender sentiment are affecting the commercial real estate market. The brief rise in rates, quickly followed by the recent drop, is discussed as relief for borrowers just as increases were anticipated. The conversation moves on to underwriting, which Finkel describes as relatively unchanged. He comments that multifamily and industrial remain the darlings of the commercial real estate market, while retail is a sector of which lenders remain wary. How appraisals are coming in, an interesting question, is discussed, with appraisals for cash out refinancing having more issues than that for purchases.
Charts: U.S. Net Exports as a Percent of GDP, then by Trading Partner (as a Percent of GDP)
Above is a chart from the Federal Reserve Bank of St. Louis of the net-exports-to-GDP ratio for the United States. Notably, it has been negative since the late 1970s, and for the last decade or two has been considerably less so that its most negative dip in 2005 or so.
Economists have proposed various reasons for the persistence of the trade deficit. One involves sources of income the USA receives from abroad, essentially a differential in returns for overseas investments of American companies versus the returns of foreign investors in the USA (explained here) – one might call it the sucker’s differential – that allows the U.S. economy to consume in excess of what it produces.
Discourse today leads to the question of whether the trade deficit is driven mostly by the trade relationship with a particular country? The chart below, illustrating the composition of the deficit in trade in with the five largest U.S. trading partners of the United States, as seen in the figure below.
Note that the largest share of the trade deficit in the 1990s originated from trade with Japan, but since 2001 – no surprise here – China’s share in the trade deficit has been steadily growing. China’s entry to the World Trade Organization in late 2001 while Japan experienced stagnation of its economy surely contributed to this. In 2017, nearly two-thirds of the U.S. trade deficit came from trade with China. The trade deficit with China alone was 1.9 percent of GDP of the United States.
Whether a trade deficit is a good or bad thing we’ll leave for others to debate. Surely it is a political debate, as well, which can have affects on policy, in turn on the economy, then on commercial real estate. Thus, investors in commercial property would be well suited to watch this space.
Chart: Former Treasury Secretary Larry Summers Illustrates Lack of Ammo to Combat a Recession
There has been considerable discussion of late, and for that matter in recent years, of the Fed’s dwindling reserve of firepower to help mitigate the next recession. It has been a while, but surely one will come at some point. They always have. Former Treasury Secretary Larry Summers sums the situation up nicely with a recent tweet:
There is little room for interest rate cuts. In every US recession since the 1970s, the fed funds rate was cut >500bps. In most, the real rate fell >400bps below the neutral rate. Now, the max. feasible cut is 200-300bps, bringing the real rate only 150-250bps below neutral. 2/ pic.twitter.com/6QfiaVykU7
— Lawrence H. Summers (@LHSummers) August 22, 2019
Chart: Another Perspective on the Inverted Yield Curve
1/3 St. Louis #Fed: Does the recent flattening of the #yieldcurve portend #recession? Not necessarily. The flattening of the real yield curve may simply reflect the fact real consumption growth is not expected to accelerate or decelerate from present growth rate of about 1% y/y pic.twitter.com/Hvf7Phlcwq
— Don Curren (@dbcurren) August 20, 2019
This is an interesting and unique (versus pundits at large) perspective on the inverted yield curve provided by Don Curren. His Twitter feed states that he is an ex Wall Street Journal, Dow Jones, Reuters writer/editor on macro-economics, albeit mostly Canada related, and forex, and one of Canada’s Top Social Influencers on in Finance, Innovation, and Risk.
CCIM Economist KC Conway Provides Industrial Real Estate Update ~ Part 2 of 2
K.C. Conway, Chief Economist with CCIM and Director of the Alabama Center for Real Estate, joins America’s Commercial Real Estate Show host Michael in Studio One to discuss the industrial property market. In this second of two video segments, discussion includes whether the end of the cycle is approaching. Conway discusses the fundamentals of the market as they are, noting things as essentially steady, with strong consumers, solid job growth, etc. A big plus that he mentions for the commercial real estate markets is that overbuilding is not happening. He also discusses how 1 of 4 sovereign debt dollars are now at a negative yield, and how this is affecting the markets, with the Fed concerned about flows of capital into the US with it low but not negative yields. They also talk about rising construction costs and the potential impact on existing inventory. A big prediction herein is that retail sales, now 10% online, will go to 20% in the next few years, and then 30-40% thereafter. One has to wonder if he is low on this.
Also view part one of this interview.
Chart: How Many Recessions People Have Lived Through as Adults
Longest US economic expansion also means many adults have experienced one or no #recession
via @SoberLook @washingtonpost @jkempenerg pic.twitter.com/T8U5kV3Nku
— Gregory Daco (@GregDaco) August 19, 2019
RentCafe July Rent Report Shows Multifamily Rent Growth Slowing; Miami Shows Largest Increase in South Florida
National Average Rent in USA 2009-2019
The complete report can be viewed here. Some highlight relevant to Miami and South Florida overall include:
- The usual suspects open the list of the most expensive areas to rent in South Florida. In July, Fort Lauderdale rents have reached $1,948, and those in Miramar, $1,886.
- Davie is rapidly catching up, with rents averaging $1,829, boasting the largest year-over-year rent increase in Florida: $96 more compared to July last year. The month-over-month growth was $9, outpaced by only two other Florida cities.
- Pembroke Pines saw the second largest month-over-month cost increase in the state: $12, reaching average rents of $1,785.
- Miami rents experienced the largest increase compared to June: $13. Average rents here are now $1,729, having almost caught up to Coral Springs’ average of $1,731.
- West Palm Beach and Hollywood both have the same rental average price in July, $1,448, this is due to the first one’s cost decrease of $12 since June, while Hollywood rents added $1.
- Pompano Beach ($1,429) and Hialeah ($1,368) are still the places to go when in search of lower rents in Miami Metro. They have seen slow increases compared to June: $7 and $2, respectively.