Singapore Real Estate Gross rental yields in uptick for first-half 2014 But this may change, with supply of condo units coming Source: Business Times / Property [SINGAPORE] With the recent resale prices of private condos falling at a faster clip than rents, gross rental yields picked up in the first half of this year in all regions across Singapore, after having slid since 2009. Going by Urban Redevelopment Authority (URA) data compiled by STProperty, the recovery was led by suburban areas, especially the north-east. Market watchers say that this rebound is likely to be a blip, as the leasing market is softening and vacancy rates are on the rise.
They reckon that, with buyers of private homes being more driven by the prospects of capital appreciation than by gross yields, the slight improvement in yields is unlikely to influence their buying decisions. -By Lynette Khoo Leng Beng's elder son buys Jervois Rd GCB for S$18.8m Source: Business Times Sherman Kwek, chief investment officer of City Developments, has picked up a Good Class Bungalow for S$18.8 million. This works out to about S$1,247 per square foot on freehold land area of about 15,073 square feet. Sitting on an elevated, triangular-shaped site near the confluence of Jervois Road and Tanglin Road, the two-storey bungalow is said to have six en suite bedrooms and a small swimming pool. The total built-up area is around 7,600 sq ft.
OCBC eyeing new home loan customers via video contest Top five winners to get interest-free first year or S$1,000 of vouchers if they don't take a loan Source: Business Times / Top Stories [SINGAPORE] The home loan market may be pretty dismal but that seems to have got the creative juices going at OCBC Bank. The bank has launched a video contest to offer the lowest home loan rates in town, though it's for August only. Home sales have been languishing amid the tough financing rules rolled out since June last year. At OCBC, new home loan applications have fallen around 40 per cent year on year, said Lynnice Ng, OCBC spokeswoman. So, the name of the game is not to just sell loans to buyers of new homes but refinancing, that is, win over a customer from another bank and also entice those with a HDB loan. Seizing on the nation's celebratory mood for the upcoming National Day party, OCBC is inviting customers to submit a video on what home means to them. Those who join will be offered a low interest rate of 0.49 for the first year which is fixed. The year two and three rates are currently 1.49 per cent and 1.69 per cent, respectively, translating to an effective interest rate of 1.22 per cent for the first three years. The National Day special applies only to variable rate packages, which are based on its board rate that is currently 4.5 per cent. And the top five winners will get an interest-free rate first year, or S$1,000 of grocery vouchers if they are not eligible for a home loan or if they are not interested in a home loan. To increase winning chances, participants can share the URL of their videos and get friends and family to "like" their submissions. Said Phang Lah Hwa, OCBC's head of secured lending: "We are delighted to roll out a series of activities which celebrate the enduring values that we share as Singaporeans, values that have stood us in good stead in the past and give us confidence for an even brighter future." She added: "As a bank, we want to help customers own a comfortable dream home or help with interest savings on their existing home loans. To celebrate Singapore's 49th National Day, we are availing the best home loan packages for the month of August." OCBC's rivals have their own National Day promotions. DBS is giving savers a National Day special. "We launched the POSB National Day promotion where customers can top up their savings accounts by S$1,000 to S$10,000 by the end of this month, said Lui Su Kian, DBS head of deposits and secured lending. "They can then enjoy an attractive interest rate of 1.5 per cent if they maintain their total top-up amounts till Nov 30. Within two short days of the launch of the promotion, we have seen more than 1,500 customers taking up the offer." United Overseas Bank said that its best-selling home loan package carries an effective rate of 2 per cent over five years. Customers also have the flexibility to make partial repayments at no additional cost, said a UOB spokeswoman. "This is a key feature for a floating rate package which can mitigate customers' concern on rising cost of funds." Observers say that borrowers should realise that variable packages which entice with "super honeymoon rates" may backfire when interest rates rise. And some are expecting that interest rates may rise earlier than expected since the rebound in the US economy has begun gaining momentum. Increasingly popular are fixed rate home loans. DBS offers a fixed rate package of 2.18 per cent for five years, which was increased from 1.88 per cent from last November. OCBC's latest video contest promotion is "not material" - more to raise its "noise" level rather than a serious effort to grab market share. "It's more marketing than market grabbing," said Anand Swaminathan, Credit Suisse analyst.
The banks will try to maintain their margins; they want to make some noise but not be too successful, he said. He noted that DBS quickly raised its popular five-year fixed rate deal to 2.18 per cent when the 1.88 per cent package sold well. -By Siow Li Sen OCBC launches National Day home loan offer Source: Straits Times / Money OCBC BANK has launched a home loan promotion to celebrate Singapore's 49th birthday. The bank is offering property buyers a variable rate package that starts at 0.49 per cent in the first year. According to indicative rates set out by the bank, this increases to 1.49 per cent in the second year, 1.69 per cent in the third, 2.65 per cent in the fourth and 3.75 per cent for the following years. Effectively, if these rates do not change, the customer would be paying an average rate of 2 per cent a year for the first five years. This is lower than many other home loans on the market, but United Overseas Bank says its most popular floating package also offers an effective average rate of 2 per cent a year for the first five years, with a two-year lock-in period. DBS has a fixed-rate five-year package with an annual rate of 2.18 per cent. OCBC's promotion also includes a package pegged to the Singapore Interbank Offered Rate (Sibor) that starts at the three-month Sibor rate plus 0.49 per cent. This increases gradually every year and from the fourth year onwards the customer will pay the three-month Sibor rate plus 1.25 per cent. The catch, however, is that customers keen on taking up OCBC's promotional offer will first have to submit a video on what "home" means to them at www.ocbc.com/homeis by Aug 24. The public will be invited to vote on their favourite videos. The participants who submit the five best videos among the 49 most popular ones will be selected to enjoy an interest-free rate for the first year, or receive $1,000 worth of grocery vouchers if they are not eligible for a home loan. The promotion is available only for homebuyers with completed properties in Singapore and for home loans that are new to OCBC, regardless of whether it is to part-finance the purchase of a completed property or refinancing of a home loan from another financial institution or the HDB.
The minimum loan size is $200,000 for private properties and $100,000 for HDB homes. -By Yasmine Yahya
http://www.straitstimes.com/premium/money/story/ocbc-launches-national-day-home-loan-offer-20140807 MOM punishes 174 companies for workplace safety violations Source: Business Times / Singapore THE Ministry of Manpower (MOM) has taken action against 174 companies for 353 workplace safety violations uncovered during a month-long Workplace Safety and Health (WSH) enforcement operation earlier this year. Surprise inspections were carried out at 250 worksites in high-risk sectors, including the construction and marine industries. Among these worksites, 60 were issued with fines ranging from S$1,000 to S$13,000 per inspection, leading to a total of 108 fines being meted out.
The ministry also issued Stop-Work Orders (SWOs) to the occupiers of four worksites with severe WSH lapses. The occupiers of the worksites are expected to fully rectify the unsafe conditions. -By Vivien Shiao Real Estate Companies' Brief Singapore Reits' winning streak appears to have faded But earnings up on improved operating profits and revaluation gains Source: Business Times / Companies THE impact of slower development sales hit home for CapitaLand this year, with its second quarter ended June 30 results registering a drop in revenue. Having substantially sold down residential units in its launched projects, it still has some 500 launched but unsold units in Singapore and some 2,000 such units in China. Also in its pipeline are close to 392 more residential units in Singapore and over 7,500 units in China that are ready for launch this year. But group chief executive Lim Ming Yan noted that the rebalancing of the group portfolio since one and a half years ago has yielded results - 75 per cent of total group assets now resides in investment properties and 25 per cent in residential properties.
"This will help to mitigate the residential market headwinds faced in Singapore and China," Mr Lim said at the group's Q2 results briefing. -By Lynette Khoo http://www.businesstimes.com.sg/premium/companies/others/capitaland-q2-sales-slide-20140806 Heeton's Q2 earnings down 29.8% Source: Business Times / Companies PROPERTY developer Heeton Holdings recorded a 29.8 per cent fall in net profit for the second quarter ended June 30 to S$4.44 million, as the rise in cost outpaced that of revenue. Revenue jumped more than three times to S$22.8 million from US$6.1 million, while costs were up more than five times at S$17.6 million. Figures from the year-ago quarter were restated. http://www.businesstimes.com.sg/premium/companies/others/company-briefs-20140807 CapitaLand Source: Business Times / Singapore Markets Aug 6 close: S$3.37 OCBC Investment Research, Aug 6
CAPITALAND's Q2 2014 profit after tax and minority interests (Patmi) increased 14.5 per cent y-o-y to S$438.7 million, mostly due to improved operating profits, higher revaluation gains from investment properties and write-back of impairments. Year-to-date, Patmi cumulates to S$621.5 million, which we judge to be broadly within expectations. http://www.businesstimes.com.sg/premium/singapore-markets/others/brokers-take-20140807 CapitaMall Trust unit issues S$300m notes Source: Business Times Capitamall Trust (CMT) said yesterday that wholly owned subsidiary CMT MTN Pte Ltd has issued S$300 million worth of fixed rate notes to institutional and sophisticated investors. The notes, which will pay an interest at the rate of 3.48 per cent per annum, will mature on Aug 6, 2024. The proceeds will be used to refinance the existing borrowings of the CMT Group. The notes have been issued under the group's S$2.5 billion multi-currency medium-term note programme.
http://www.businesstimes.com.sg/premium/companies/others/company-briefs-20140807 ERA and friends dance their way to new Singapore record Source: Business Times / Singapore ERA Realty, the largest real estate company here, was in a patriotic mood on Tuesday ahead of National Day this weekend, as it made it into the Singapore Book of Records for the largest mass cane dance. About 1,200 of its employees, guests and industry partners came together for the performance, which ended with the participants standing in formation to form the Singapore flag with red and white umbrellas and the reciting of the national pledge. The event - themed "GenERAtion Superstar" - combined the annual ERA Career Advancement Day (the company's awards ceremony for its Top 100 achievers) with National Day festivities. New ERA initiatives such as the enhanced i-ERA application and ERA consumer guides were unveiled.
CEO Jack Chua said the event venue, Toa Payoh Stadium, reminded him of the good old times. He said: "It was fantastic to be able to let our hair down and mingle with our industry friends and partners. We really showed community spirit and brought out the nostalgic warmth of National Day celebrations." Global Economy & Global Real Estate Malaysia facing a towering problem There is anxiety over a building glut in Kuala Lumpur and Iskandar Source: Business Times / Property A SINGLE constant racket sounds across Peninsular Malaysia from the pile-drivers and jackhammers being wielded by workers who are building townships, apartments, malls, and ever-larger towers from Penang to Johor Bahru. A building glut is becoming a serious concern. Property tycoon Chua Ma Yu, who made his money from banking in the 1990s and then moved on to property, said: "I've never seen such excessive building in the Klang Valley and Johor. It's never been like this before. There is going to be a substantial surplus."
He is being understated. -By S Jayasankaran in Kuala Lumpur http://www.businesstimes.com.sg/specials/property/malaysia-facing-towering-problem-20140807 Malaysia Builders Hit by Tax Amid Worst Slump Since 1998 Source: Bloomberg / News UEM Sunrise Bhd. (UEMS), Malaysia’s biggest developer by market value, said it faces lower profit margins from a new tax and may delay some projects amid the nation’s steepest slump in property sales since the 1998 recession. The company’s costs will rise as a 6 percent goods and services tax starting in April 2015 boosts prices of building materials that can’t be passed on for some projects, Izzaddin Idris, an executive director at the Kuala Lumpur-based firm, said in an e-mail interview on Aug. 3. UEM is “revisiting” some of its planned developments as the current slowdown might last for another year, he said. Malaysian property companies are grappling with higher costs in an industry already reeling from central bank curbs on lending last year and the first interest-rate increase in more than three years in July. Property transactions in 2013 sank the most since the aftermath of the 1997 Asian financial crisis, while home prices in the first quarter rose at the slowest pace since 2010. The tax impact will “be reflected in UEM’s future results,” said Izzaddin. “We can expect a slight decline in margins with rising cost pressures.” Prime Minister Najib Razak’s government introduced the goods and services tax to broaden its revenue base after running a fiscal deficit since 1998. Fitch Ratings cut its Malaysia outlook to negative in July last year, citing concern over deteriorating public finances. Levy ImpactUEM, which reported a 71 percent drop in first-quarter net income, has declined 13 percent in Kuala Lumpur trading this year. That compares with the benchmark FTSE Bursa Malaysia KLCI Index which is unchanged. UEM slid 1.4 percent at the close today, the most in two weeks, while the KLCI lost 0.1 percent. The levy is also weighing on UEM’s competitors. SP Setia Bhd. (SPSB) said in June it made provisions for rising taxes that resulted in a drop in second-quarter earnings. Sunway Bhd. (SWB) estimates a 3 percent impact to its profit margin in the worst case where it can’t pass on any of the tax to buyers, the company said by e-mail. Sunway shares slid 0.3 percent. Profits in the Bursa Malaysia Property Index will drop 12 percent in the next 12 months, versus a 4.9 percent gain for the KLCI Index, data compiled by Bloomberg show. “We are definitely cautious,” Thomas Yong, the chief executive officer of Fortress Capital Asset Management Sdn., which oversees 1 billion ringgit ($311 million), said by phone from Kuala Lumpur, referring to developers. “We have property stock holdings in China and Singapore. We sold out of Malaysian property equities quite a while back.” Stocks ReboundThe industry gauge’s 22 percent advance from its February low suggests investors anticipate a rebound in demand, Mak Hoy Ken, an analyst at AmSecurities Sdn. in Kuala Lumpur, said by phone. UEM’s price-to-book ratio of 1.5 compares with 2.3 for the FTSE Bursa Malaysia KLCI Index, data compiled by Bloomberg show. Government efforts to cool the market will help Malaysia avoid a property bubble, and favorable demographics, rising urbanization and low unemployment will help sustain demand, Edwin Siow and Chris Oh, Kuala Lumpur-based analysts at UBS AG, said in a May report. While residential property is exempted from GST, the increase in input costs tied to the levy can’t be claimed by developers, said Izzaddin. “Most contractors or suppliers that are tendering for projects are already factoring in potential cost increases pursuant to the GST.” Lower DemandProperty transactions might see a short-term increase as buyers rush to complete deals before the GST, though sales will probably slow again after the tax is implemented, he said. The government started imposing stricter lending standards on banks from 2010 to cool the property market. In July last year, Malaysia’s central bank shortened the maximum length on mortgages to help curb household indebtedness that has risen by an annual average 12 percent in the past five years. From January this year, policy makers stopped developers from absorbing some interest payments on loans and raised the capital gains tax to 30 percent on homes sold within five years. Property transactions dropped 11 percent in 2013, according to the National Property Information Centre, the most since a 32 percent slump in 1998, when Malaysia had its first recession in 13 years. The Malaysian House Price Index rose 8 percent in the first three months of 2014, the slowest growth since the third quarter of 2010. Developers offered 6,339 new units in the first quarter, a drop of almost 50 percent compared with the previous quarter. Only 30 percent of the units were sold. “The property market is cyclical in nature,” Izzaddin said. “We strive to be more nimble and are developing a new consciousness among all employees” to keep costs low, he said. -By Choong En Han China developers sit tight as land prices stay high Source: Business Times / Property [HONG KONG] Chinese property developers wary of poor sales amid the country's industry downturn are giving expensive government land auctions the cold shoulder, with plots in the capital going unsold for the first time since April 2011. The poor reception highlights the persistent mismatch in price expectations between developers and local governments. Cash-tight developers are seeking lower prices while local authorities are refusing to budge because land sales account for the bulk of their revenues.
On Monday, of the four lots sold by the Beijing government, two went to state-backed Greenland Group at the reserve price. The rest were sold to local developers at lower-than-expected prices. -From Hong Kong, China Swiss property market inching closer to bubble, says UBS Source: Business Times / Property [ZURICH] Risks to the Swiss real estate market rose "marginally" in the second quarter as growth in home prices and mortgages outpaced that of income. The UBS Swiss Real Estate Bubble Index in April-June rose to 1.24 points from 1.22 points, according to a UBS AG statement on Tuesday. A reading above 2 indicates a bubble. "Risks for the Swiss economy have thus remained virtually constant at a high level for four quarters," Matthias Holzhey and Claudio Saputelli at UBS in Zurich said.
The expansive monetary policy of the Swiss National Bank (SNB) has kept down the cost of taking out a mortgage, leading to a strong rise in residential property prices. Mortgage growth exceeded that of the economy in the past year. At its June policy review, the Zurich-based SNB urged banks to allot credit prudently. -From Zurich, Switzerland M-Reits unfazed by quarter-point rate hike AllianceDBS says that's because their loans are mostly fixed-rate Source: Business Times / Property MALAYSIAN Reits remain a sound defensive choice for investors as they are expected to yield steady returns, with the recent 25 basis point interest rate hike seen as having little impact because the bulk of their loans are fixed. Examples include Axis, a commercial and office/industrial Reit, and CapitaMalls Malaysia Trust (CMMT) where 70 per cent of loans carry fixed borrowing rates. Consequently, the quarter-point increase in the overnight policy rate in July that bumped the key lending rate to 3.25 per cent should have minimal impact on the Reits' earnings, AllianceDBS Research said. Office Reit Quill Capita Trust (QCT) is further ahead - a hefty 95 per cent of its loans are pegged at a fixed rate. A similar rate hike might be looming but economists are divided as to whether the central bank would implement the move before the year is out or give borrowers a reprieve before bumping up lending rates in the first half of 2015.
But at half-time, M-Reits have performed to expectations; their earnings amounting to slightly below 50 per cent of FY14 forecasts. -By Pauline Ng in Kuala Lumpur http://www.businesstimes.com.sg/specials/property/m-reits-unfazed-quarter-point-rate-hike-20140807 Demand from China to stay strong: Aussie realty It expects new home sales to hit A$1.5b from A$900m Source: Business Times / Property [SYDNEY] Ausin Group (Finance) Pty, which offers property and mortgage broking in Australia to Chinese buyers, expects to sell two-thirds more homes and to double the amount of loans it arranges as demand from the mainland surges. The company forecasts A$1.5 billion (S$1.7 billion) in sales of new residential properties in the year ending June 30, compared with A$900 million over the previous 12 months, managing director Joseph Zaja said on Tuesday. The value of mortgages the company arranges through Australian banks is expected to climb to A$500 million in the 2015 calendar year, he said.
Ausin is benefiting from surging demand from China, where the housing market is faltering. Chinese purchasers overtook Americans to become the biggest buyers of real estate in Australia in the 12 months through June 2013, ploughing A$5.9 billion into commercial and residential property, a 42 per cent increase from the previous 12 months. -From Sydney, Australia http://www.businesstimes.com.sg/specials/property/demand-china-stay-strong-aussie-realty-20140807 China and housing loans in focus at banks' Q2 results Source: Business Times / Top Stories [SINGAPORE] Concerns over China and mortgage loans took centre stage for the three local banks, as the lenders took great pains to pick through the details of their loans. The banking trio beat market expectations, with OCBC capping the second- quarter results season for the lenders on Tuesday. UOB, the first of the three to report its earnings, recorded a lift in non-performing loans (NPL) from some housing loans in Singapore. This came from some weakness in payments from an isolated set of borrowers who had bought high-end properties for investment. UOB's NPL ratio was, however, 1.2 per cent, unchanged from a year ago.
Neither DBS nor OCBC had such stresses in their mortgage-loan portfolio. A separate check by The Business Times showed that for the three banks, property loans in Singapore taken up for owner-occupied homes make up between 77 and 85 per cent of their total home-loan portfolio; the remaining loans are for properties meant for investment. -By Jamie Lee China Home Glut May Worsen as Developers Avoid Price Drop Source: Bloomberg / Luxury The biggest immediate risk facing China’s economy is about to get worse. A reluctance among some developers to sell units at prices lower than they could fetch just months ago threatens to cause a swelling in unsold properties. The worsening glut would extend a slide in construction that’s already put a drag on the world’s second-largest economy, and counter policy makers’ efforts to stimulate the real-estate industry with loosened rules. In Nanjing, eastern China, nine housing projects originally planned for sale in the first half of 2014 were held for later this year, consulting firm Everyday Network Co. says. The number of homes added to the market in July in 21 major cities dropped 25 percent from June, according to Centaline Group, parent of China’s biggest real-estate brokerage. “The completed apartments will be in the marketplace sooner or later, and potential buyers will continue to expect prices to fall,” said Hua Changchun, China economist at Nomura Holdings Inc. in Hong Kong. “The property-market weakness hasn’t changed, despite the policy adjustments.” July economic data due over the next week, starting with tomorrow’s trade numbers, will give a sense of how well growth is holding up after accelerating to 7.5 percent in the second quarter from a year earlier. The statistics bureau releases inflation figures Aug. 9, followed by industrial production, fixed-asset investment and retail sales on Aug. 13. Credit MeasureThe central bank reports lending and money-supply figures by the middle of August. China’s broadest measure of new credit rose in June to the highest level for the month since 2009, underscoring the role of debt in supporting expansion. Home-price data for cities are due from the statistics bureau on Aug. 18, after June prices fell from the previous month in 55 of 70 cities tracked by the government. China’s home sales slumped 9.2 percent in the first half of this year from a year earlier, following a full-year 26.6 percent increase in 2013, while new-property construction plunged 16.4 percent. Developers are responding with sales delays and discounts as well as incentives including no-down-payment purchases and buyback guarantees. Developers’ sales delays in the first half were “very widespread” because prospects were poor given weak demand and tight credit conditions, said Donald Yu, a Shenzhen-based analyst at Guotai Junan Securities Co. “Will the increased supply lead to declines in prices in the second half? That for sure will happen.” Unsold HomesThe inventory of unsold new homes in 20 large cities jumped to an average of more than 23 months of sales in June, according to Shenzhen World Union Properties Consultancy Inc. data compiled by Bloomberg News. The floor space of unsold new apartments nationwide on June 30 surged 25 percent from a year earlier, government data show. “Should future demand for property be met increasingly from running down these inventories rather than from new supply, construction activity would also slow significantly,” Moody’s Investors Service said in a report last week. Developers seeking to sell yet-to-be-completed homes in China must apply for local government approval first. In July, the companies gained permits to sell about 7 percent less housing space than they received in June, according to data on 40 cities compiled by Centaline. On Sidelines“Developers have been unable to build up adequate client interest as buyers are still waiting on the sidelines,” said Zhang Haiqing, Shanghai-based research director at Centaline. “They’re also worried that excessive price adjustments may reinforce the wait-and-see mood, and therefore they’re choosing to put out small amounts to test market demand.” Developers are normally required to begin selling within two weeks of obtaining pre-sale permits, Zhang said. The average new-home price in 100 cities tracked by SouFun Holdings Ltd., owner of a real-estate website, fell 0.8 percent in July from June, the third consecutive month of declines. Twenty-eight Chinese cities have eased home-purchase curbs through Aug. 4, according to SouFun. The loosening hasn’t boosted sales, as mortgage restrictions from the central government remain in place and buyers are still hesitant, data provider China Real Estate Information Corp. said last week. “All of these will be helpful in mitigating near-term pain, but the combined impact will be unlikely to reverse the downtrend,” Societe Generale SA economists, led by Yao Wei in Paris, wrote in a report yesterday. “Recent trends appear to indicate precisely how concerned local governments are about the current pace of deterioration of the property sector and how grim the outlook seems.” ‘Worst Times’Construction is slowing and inventories of unsold homes will keep rising without an increase in sales, Standard Chartered Plc said in a report yesterday, citing its quarterly survey conducted in June and July of 30 developers, most of which are small and unlisted. “Our survey suggests that the worst times for China’s real-estate sector are still ahead,” economists Lan Shen and Stephen Green wrote. Shimao Property Holdings Ltd. (813), a Hong Kong-based developer, delayed sales in the first half in cities with high inventories including Ningbo and Hangzhou due to weak demand and cut prices for some homes, said Tammy Tam, a spokeswoman. The company also brought forward sales at higher prices in some cities including Nanjing, Tam said. The average price at Shimao’s Junwangshu project rose to 17,500 yuan ($2,850) per square meter in July, from 17,100 yuan in June, according to Sohu.com Inc.’s real estate portal. Cash FlowSome developers are deciding to offer only a portion of homes built instead of entire projects. In central Wuhan, developers since April have typically offered less than 70 percent of homes in projects with pre-sale approvals, while some companies in Shanghai are selling homes in small batches, according to Centaline. The delays mean lower cash-flow for developers. Smaller ones face “massive” debt-repayment pressures, as cash and equivalents at 137 mainland China-listed real estate companies, excluding four of the largest, were sufficient to cover just 74 percent of their short-term liabilities in the first quarter, according to Shenzhen World Union. That’s less than half the average ratio of the other four, including China Vanke Co. (2202) Greentown China Holdings Ltd. (3900), a developer based in the eastern city of Hangzhou, said this week that first-half profit probably fell more than 65 percent from a year earlier, due in part to “relatively lower gross profit margin” on property sales. Its shares have dropped 16 percent this week in Hong Kong and Moody’s lowered its outlook for the company’s credit rating to stable. Stocks GaugeA gauge of property stocks in the Shanghai Composite Index fell 0.6 percent at 2:12 p.m. local time, headed for the third straight daily decline. “Property investment will remain the biggest macroeconomic risk in the second half,” even as a deceleration in investment is less severe than in the first half, said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “It’s a quite natural response from property developers to delay sales and land purchases amid a weak market, and this may affect investment activity in the future.” -By Bloomberg / News Blackstone's Hilton LBO hits sweet spot Franchising deals, cost cuts help hotel group reduce debt by more than 40% Source: Business Times / Property [NEW YORK] Blackstone Group's Hilton Worldwide Holdings is emerging as one of the few bright spots from the leveraged-buyout (LBO) boom as the hotelier claws its way out of junk by reducing debt. While some of the biggest LBOs before the financial crisis such as Energy Future Holdings and Caesars Entertainment foundered under the weight of debt used to fund the deals, Hilton is winning over creditors. By cutting costs and boosting revenue with franchising agreements outside the United States, Hilton has pared its long-term debt by more than 40 per cent to US$12.2 billion since Blackstone bought the 95-year-old company in 2007.
Yields on Hilton's US$1.5 billion of bonds due in 2021 have fallen more than half a percentage point since they were issued in September. -From New York, US http://www.businesstimes.com.sg/specials/property/blackstones-hilton-lbo-hits-sweet-spot-20140807 Self-storage trusts are the hottest Reits in US Investors pouring into asset class in the search for yield Source: Business Times / Property [SEATTLE] Kelsey Smith is a single mother who works as a waitress in Midvale, Utah, and lives with a roommate in a small apartment in the Sugar House neighbourhood of Salt Lake City. Ms Smith, 26, pays US$500 a month for daycare for her three-year-old, which makes it hard to get by on a waitress's pay. She says she's had to move to cheaper lodgings six or seven times. Rather than drag all her belongings with her, Ms Smith rents a three-metre-by-five-metre self-storage unit, for which she pays US$80 a month - as much as two shifts' worth of wages and tips. The unit contains furniture and other items she's accumulated over the years - "just the things you'd need if you had a home", she says. "People don't want to let go." Millions of Americans are like Kelsey Smith. They've got furniture and old photos, children's toys and bric-a-brac that they're loath to give up, yet they can't find a place for it in their homes, garages or apartments.
That's been a huge boon for Kenneth Woolley and Spencer Kirk. They're the chairman and chief executive officer, respectively, of Extra Space Storage Inc, the best-performing of four publicly listed self-storage companies, all organised as real estate investment trusts. -From Seattle, US http://www.businesstimes.com.sg/specials/property/self-storage-trusts-are-hottest-reits-us-20140807 Start-up uses Web to help towns market their property Publicly owned real estate for sale put up in online database with essential info Source: Business Times / Property [NEW YORK] Two public policy graduates at the Kennedy School at Harvard University are trying to build a business of helping municipalities with a task at which they're notoriously deficient: managing and marketing their real estate portfolios. Called OpportunitySpace, the start-up works with municipal governments to put their publicly owned real estate holdings in a public online database. Specifics about each property, such as square footage, assessed value and delinquent taxes, are linked to its address. The parcels are mapped geographically. The developers, Cristina Garmendia and Alexander Kapur, say their 2013 master's thesis spawned the business, which is nearing the end of its incubation phase at the Harvard Innovation Lab. The mission of OpportunitySpace, they say, is threefold.
A public database can help governments better leverage what has often been "a lazy asset", Mr Kapur said. It can give developers an easy way to find upfront information about available properties, and it can provide transparency in publicly owned buildings and land, thus generating more creative thinking around development possibilities. -From New York,US US real estate website Zillow's Q2 sales rise 68% to US$78.7m Portal bidding for rival Trulia beats analyst estimates Source: Business Times / Property [NEW YORK] Zillow Inc, the real estate website that's acquiring smaller rival Trulia Inc for US$3.5 billion, reported second-quarter sales that topped analysts' estimates as traffic increased and more agents used its home listing service. Sales rose 68 per cent to a record US$78.7 million, from US$46.9 million a year earlier, Zillow said on Tuesday in a statement. That compared with analysts' average prediction of US$76.6 million, according to data compiled by Bloomberg. The Seattle-based company, the biggest US website for real estate agents and prospective home buyers, also raised its annual sales forecast as advertising and listing revenue surges.
The all-stock deal for Trulia, unveiled last week, is part of chief executive officer Spencer Rascoff's goal of creating a family of Web brands under the Zillow name that could span sales to rentals to mortgages. -From New York, US Foreigners Expanding Australian Property Options, Invesco Says Source: Bloomberg / News Foreign investors, who traditionally focus on Sydney and Melbourne office buildings, are turning to properties in other cities amid rising competition for assets, according to Invesco Ltd. Global pension and sovereign wealth funds are increasingly investing in malls and warehouses in Brisbane and Perth, said Ian Schilling, head of Australian real estate at the Atlanta-based asset manager. That follows a drop of about 50 basis points in capitalization rates for premium office towers as competition from foreign and local investors climbs, he said. “Over the last couple of years, the weight of capital focused on quality Australian opportunities has increased,” Schilling said. “A lot of clients tend to focus on major office markets in gateway cities, but we see that being diversified as they become comfortable looking at other markets.” A building’s capitalization rate is a measure of its investment yield, which falls as prices rise. A basis point is 0.01 percentage point. About A$8.6 billion ($8 billion) of office properties changed hands in the first half of 2014, compared with A$13.1 billion for all of 2013, preliminary figures from Jones Lang LaSalle Inc.show. There were some A$11.5 billion of sales across all commercial properties, matching the pace of 2013 when a record A$23.8 billion were sold, according to the July report. New Benchmarks“There remain large investors looking to deploy large amounts of capital into core products,” Rob Sewell, the broker’s head of office investments said in the report. Sales this year “will result in new pricing benchmarks.” Invesco’s Australian property unit invested almost A$750 million in four deals last year, and now manages A$850 million, accounting for 15 percent of Asia-Pacific holdings, Schilling said. The company, which entered Australia in late 2012, expects a similar volume of transactions this year, he said. While competition has driven down capitalization rates, they remain at “attractive spreads to the borrowing rate,” Schilling said. “So the return on equity is still appealing.” After an investment in a Melbourne residential development by closely held Grocon Pty, Invesco is seeking similar opportunities this year, Schilling said. “There’s a big boom in residential development at the moment,” he said. “A number of developers want investment to help their funding gap and that’s where we can step in.” Home prices across Australian state and territory capitals rose 10.2 percent in July from a year earlier, according to the RP Data-Rismark Home Value Index. Pension FundsInvesco has also invested about A$500 million in U.S. and European properties on behalf of Australian pension funds over the past 18 months, Schilling said. That will continue to increase, he said, declining to quantify the growth. “Australia represents about 2 percent of the global commercial real estate investment market, but is the fourth-largest source of investment capital globally,” he said, adding the country is set to move into third place as government-mandated employer contributions to pensions rise to 12 percent of salaries by 2019 from 9.5 percent. Australian pension funds realize that “with that growth and the relatively small size of the Australian market, they will need to look offshore.” Invesco manages about $53 billion of real estate globally. -By Nichola Saminather Irish Ready to Quiz Bankers Amid Concern That Bubble Back Source: Bloomberg / Luxury Ireland’s banking inquiry could help avoid a repeat of western Europe’s worst real-estate crash as house prices surge again, according to the chairman of a parliamentary probe into the country’s financial meltdown. Prime Minister Enda Kenny set up the 11-member inquiry to uncover the “full truth” about the banking crisis which drove the country into an international bailout in 2010. The group, which began private meetings in June, will start public hearings next year, with a final report due by November 2015. “Two years ago, people may have questioned the relevance, saying a bubble like the one we’ve gone through would never happen again,” Ciaran Lynch, 50, a lawmaker with the Labour Party, junior partner in the ruling coalition, said in an interview. “Maybe they’re less sure now.” House prices in Ireland are rising at a faster pace than in the bubble years. During the boom, climbing prices sparked a surge in building and lending, which ended in a 64 billion-euro ($85.5 billion) state bailout of the financial system. Government policy, reckless lending and poor regulation lay behind the bubble, according to three earlier government-commissioned reports. “The main difference is that this time round, the personalities, parties and agencies referred to in the previous reports will be giving their first-hand account of what happened in a public arena,” said Lynch. “For many, it will be their first public comments on what happened.” Terms of ReferenceThe inquiry has yet to set out its terms of reference, which will help decide the scope of the investigation and the witnesses to be called. The probe’s success “will be determined by how deeply it dives into the banks,” said Stephen Kinsella, economics lecturer at the University of Limerick. “It really needs to get in senior middle management types who were actually making decisions as well as delving into the culture of credit committees.” The inquiry is unfolding as prices rise again. Home prices across the country gained an annual 12.5 percent in June, driven by a 24 percent surge in Dublin values, according to the country’s statistics office. Dublin-based bookmaker Paddy Power Plc said today it has started taking bets on Ireland’s housing market, offering odds of 9 to 4 on annual house price growth of between 15 percent and 19.9 percent at the end of 2015. That means a 4 euro winning wager would return a 9 euro profit. Home prices remain 43 percent below their 2007 peak and Irish mortgage lending is running at less than 10 percent of the 2006 record of 40 billion euros. ‘Credit Fueled’“The type of bubble which is credit fueled and is horrifically damaging, as we’ve had in the past is obviously not what we’re talking about here,” Allied Irish Banks Plc (ALBK)’s Chief Financial Officer Mark Bourke said in a phone interview on July 30. “There are fairly severe bottlenecks in supply which have nothing to do with the banking industry.” About 8,300 homes were constructed in 2013, according to state records. On average, about 30,000 houses a year have been built since the 1970s. At the peak of the market, developers were building about 93,000 homes a year. Undervalued HousesIrish house prices are now undervalued, having “overcorrected” since 2007, and recent rises don’t constitute another bubble, Kieran McQuinn, an associate research professor with the Economic and Social Research Institute in Dublin, wrote in a report today. Still, bubbles can emerge if banks ease lending conditions after a “sustained” period of value increases, he said. “This underscores the need to monitor consistently and analyze the level of credit in the housing market,” he said, adding that regulatory actions to control the market as credit becomes more freely available will be important. Lynch said the inquiry won’t encroach on upcoming court trials stemming from the crisis, with any relevant material passed on to prosecutors. Two former Anglo Irish Bank Corp. executives last week received community services sentences for aiding an illegal loans-for-shares scheme in 2008. Courted ControversyEven before starting work, the inquiry has courted controversy. Independent lawmaker Stephen Donnelly quit the inquiry in June, saying the government engineered the process to make sure it had a majority on the committee. Fianna Fail, which held power during the boom, has also raised concerns about politics interfering with the probe. The final report will be published months before a general election is due to be held. Lynch said he can use his authority to remove members that venture beyond the inquiry’s remit. “I’ve called on all committee members to leave their club jerseys on the door on the way in,” Lynch said. -By Joe Brennan BofA Said to Near Mortgage Deal for Up to $17 Billion Source: Bloomberg / Personal Finance Bank of America Corp. is nearing a $16 billion to $17 billion record settlement with the U.S. Justice Department to end probes into sales of mortgage-backed bonds that fueled the financial crisis, according to a person familiar with the matter. Under the proposed terms, the bank would pay about $9 billion in cash and the rest in consumer relief to settle federal and state claims, according to the person, who asked not to be named because the negotiations are private. Details of the proposed accord, such as the relief and a statement of facts, are still being negotiated, the person said. The outlines of the deal were reached last week after a phone call between Attorney General Eric Holder and Bank of America Chief Executive Officer Brian T. Moynihan, the person said. During the July 30 call, Holder said that the government was ready to file a lawsuit in New Jersey if the bank didn’t offer an amount closer to the department’s demand of about $17 billion, according to the person. Bank of America separately said yesterday it’s raising its quarterly dividend to 5 cents a share, while dropping a plan to buy back stock, after winning Federal Reserve approval of its proposal for managing capital. The dividend increase, the first in seven years, had been postponed earlier this year while the company fixed errors in its initial plan submitted to the Fed. Punished HardestLawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, and Brian Fallon, a Justice Department spokesman, declined to comment on the mortgage settlement. Bank officials met with Associate Attorney General Tony West yesterday at the Justice Department to work on the settlement, the person said. The Wall Street Journal reported the proposal earlier yesterday. The agreement, if finalized, would cement Bank of America’s status as the firm punished hardest for faulty mortgage practices. It would eclipse Citigroup Inc.’s $7 billion settlement in July and JPMorgan Chase & Co.’s $13 billion deal in November. At the time, the Justice Department labeled JPMorgan's accord “the largest settlement with a single entity in American history.” Bank of America’s settlement also comes on top of its $9.5 billion deal in March to resolve related Federal Housing Finance Agency claims. The current talks center on faulty loans that Bank of America, now the second-largest U.S. lender, inherited from Countrywide Financial Corp. and Merrill Lynch & Co., which it purchased in 2008 at the apex of the financial crisis. Stalled NegotiationsBank of America and firms it acquired issued about $965 billion in mortgage backed securities between 2004 and 2008. Almost three-fourths of those came from Countrywide, according to a person with knowledge of the volumes. About $245 billion in securities have defaulted or become delinquent, though Bank of America only accounted for 4 percent of those, the person said. Talks between the government and Bank of America began in March and stalled three months later when the company balked at a $17 billion demand, people with knowledge of the matter said at the time. The bank had proposed about $13 billion, which included at least $5 billion in consumer relief. Negotiations resumed after Citigroup’s settlement on July 14. Prosecutors also demanded that Bank of America pay more of the penalty in cash instead of other remedies, such as mortgage writedowns and consumer relief, one of the people said. -By Tom Schoenberg http://www.bloomberg.com/news/2014-08-06/bofa-said-to-near-mortgage-deal-for-up-to-17-billion.html Self-Storage Magnates Cash In on the Surge in Real Estate Source: Bloomberg / Personal Finance Kelsey Smith is a single mother who works as a waitress in Midvale, Utah, and lives with a roommate in a small apartment in the Sugar House neighborhood of Salt Lake City. Smith, 26, pays $500 a month for daycare for her 3-year-old, which makes it hard to get by on a waitress’s pay. She says she’s had to move to cheaper lodgings six or seven times. Rather than drag all her belongings with her, Smith rents a 10-foot-by-15-foot (3-meter-by-5-meter) self-storage unit, for which she pays $80 a month -- as much as two shifts’ worth of wages and tips. The unit contains furniture and other items she’s accumulated over the years -- “just the things you’d need if you had a home,” she says. “People don’t want to let go.” Millions of Americans are like Kelsey Smith, Bloomberg Markets magazine will report in its September issue. They’ve got furniture and old photos, children’s toys and bric-a-brac that they’re loath to give up, yet they can’t find a place for it in their homes, garages or apartments. That’s been a huge boon for Kenneth Woolley and Spencer Kirk. They’re the chairman and chief executive officer, respectively, of Extra Space Storage Inc. (EXR), the best-performing of four publicly listed self-storage companies, all organized as real estate investment trusts. REITs -- agglomerations of property that sell like stocks - - are booming. Investors are pouring into the asset class as they search for alternatives to a frothy equities market and low-yielding bonds. Bloomberg indexes for hotel, shopping-center and apartment REITs have returned more than 12 percent this year as of Aug. 4, compared with 4 percent for the Standard & Poor’s 500 Index. Tax AdvantageREITs are attractive to investors because they pay no taxes if they distribute all of their income to shareholders, which gives them relatively high dividend yields. The hottest REITs are the self-storage trusts, according to Bloomberg Markets’ second annual ranking of alternative investments. Three out of the top five of the REITs in the 141-company Bloomberg REIT Index for the three-year period ended on March 31 are self-storage companies, excluding firms with less than $100 million in market value.
Extra Space is the top performer, with an annualized return of 36.7 percent for the three years and 27.9 percent for one year. The shares closed today at $52.02, up 23.47 percent year to date. Extra Space’s income from operations grew more than 20 percent year over year for the 14 quarters ended on June 30. The high returns are driven by robust demand for storage units, which are also used by small businesses to hold inventory. Rapid GrowthThe number of U.S. storage locations has swollen from 27,500 in 1998 to 52,000, housing an estimated 25 million units, according to the Self-Storage Almanac, published by MiniCo Insurance Agency LLC, which provides insurance to the industry. They brought in an estimated $24 billion in revenue last year, according to the Alexandria, Virginia–based Self-Storage Association. “People accumulate too much stuff,” says John Murphy, an analyst at Cohen & Steers Inc., a New York–based real estate investment firm that holds more than $52 billion of REITs and other securities, including a roughly 10 percent stake in Extra Space. Other storage investors include university endowments, pension plans and a host of investment firms, including Morgan Stanley, Prudential Real Estate Investors and Chicago-based Harrison Street Real Estate Capital LLC. Blackstone Group LP (BX) bid on a 43-property storage portfolio offered by Harrison last year, according to people familiar with the transaction. It lost to Glendale, California–based Public Storage, the biggest self-storage firm, which won the assets for $315 million. Carlyle InterestedCarlyle Group LP (CG) formed a partnership with William Warren Group of Santa Monica, California, in July to develop self-storage properties, according to a person familiar with the investment. “Self-storage has come out of obscurity,” says Extra Space CEO Kirk, 53. “It’s no longer the goofy real estate class. It’s the real estate class that during the recession did better than any other.” Storage returned 101 percent from the beginning of 2008 through 2011, outperforming all other REIT categories, according to data compiled by Bloomberg.
After a decade of expansion, Extra Space today operates 1,071 self-storage sites in 35 states, Washington and Puerto Rico. It owns about half of the properties outright and manages the rest as joint ventures or for other owners. At least 11 million Americans pack their spare possessions into storage units every year. It’s all about life-changing events, Kirk says: “birth, death, marriage, divorce, upsizing, downsizing.” Lava LampsIt’s also about how firmly Americans are attached to their belongings, according to a 2009 study of storage by Carnegie Mellon University, Harvard University and the University of Virginia. “We do not know if people store their lava lamps because parting with them is such sweet sorrow,” the researchers wrote in an article in the Journal of Experimental Social Psychology. “But we do know that they store them because they like them and that they like them because they’re theirs.” The good news for the big public companies -- Extra Space, Public Storage (PSA),CubeSmart (CUBE) and Sovran Self Storage Inc. (SSS) -- is that there’s a steady and growing stream of customers for their steel cubicles, even as storage developers run out of cheap land in urban and suburban areas. “There has been very little building since 2007, and as demand increases, rents go up,” says Extra Space Chairman Woolley, 68. Independent OwnersAt the same time, 83 percent of the existing self-storage properties are owned by local entrepreneurs, according to the Self-Storage Association, many of whom will sell if the price is right. That means the big public companies may have years of expansion ahead. Low overhead costs are what tempt the entrepreneurs who invest in storage. “You don’t have to paint walls and replace carpets when tenants move out,” says Jason Smith, a broker in Salt Lake City for Calabasas, California–based real estate firm Marcus & Millichap Inc. (MMI) “You just take a broom and sweep. The eviction laws are only 30 to 45 days, as opposed to six or nine months in an apartment, so you turn around and make money faster.” After years of double-digit gains, Extra Space’s highflying stock is no bargain. Three analysts have downgraded their recommendations on Extra Space since April. Slowing Growth“While fundamentals are solid in the self-storage sector, there are signs that we are reaching an inflection point and growth is set to slow,” wrote Omotayo Okusanya, an analyst at Jefferies & Co., in a May 8 report in which he downgraded both Extra Space and Public Storage to hold. Move-in rents at Public Storage locations open at least one year averaged $114 per month in the first quarter, down from move-out rents of $123, according to Okusanya. Investors who want to buy existing storage properties are stymied by high prices. “It’s a tough asset class to make work for us right now, but we’re actively looking,” says Liz Raun Schlesinger, a managing director and co-head of the self-storage group at W.P. Carey Inc., a New York–based REIT. “Properties have become pretty expensive.” The Extra Space site that charges the highest rent is a long way from Utah. It’s on West 143rd Street in New York’s Harlem neighborhood, where customers pay an average of $45 a square foot for their units on an annual basis. That’s slightly less than they would pay to rent a Manhattan apartment, which averaged $52.50 a square foot in June, according to real estate appraiser Miller Samuel Inc. Mind Blowing“For a concrete pad with three steel walls, a roll-up door and an incandescent bulb,” Kirk says with eyebrows raised. “It blows people’s minds.” Another highly profitable site is across the street from Co-op City in New York’s Bronx, the largest housing cooperative in the U.S., with about 50,000 residents. There are 500,000 people within a 3-mile (5-kilometer) radius of that location, Kirk says. “The median household income is pretty low, lower than $50,000, but because you have so many people in such a dense area with so many life-changing events, there’s unbelievable demand,” he says. Woolley founded Extra Space in 1977 and opened 28 properties during the next decade. In 1994, he sold all but three of them to Memphis, Tennessee–based Storage USA Inc. and concentrated on his larger real estate business, which included construction of 34 apartment projects with 13,000 units in the western U.S. and Canada. Woolley BioWoolley is a native of Los Angeles with a bachelor’s degree in physics from Brigham Young University and a master’s degree in business administration and a Ph.D. from Stanford University. He got serious about storage again in 1998. His first task, he says, was to recruit Spencer Kirk, whose management skills he admired, as a partner. Kirk had helped start a computer switch and modem maker called Megahertz Corp. in his 20s and had sold the company to USRobotics Corp. in 1995. A year and a half later, with his stake in the merged company worth $200 million, Kirk retired at the age of 36. Woolley knew Kirk because he had been on the board of Megahertz. Kirk, who grew up in Salt Lake City, initially resisted Woolley’s entreaties to join him at Extra Space on the grounds that the storage business, as he put it, was “seedy.” Mormon RootsWoolley says Kirk saw the potential only after Woolley took him on a tour of an attractive new Extra Space location in Sherman Oaks, California. He agreed to become a 50-50 partner. Together the pair -- both Mormons who suspended their careers to lead religious missions -- have turned Extra Space into a storage juggernaut. They took the company public in 2004, raising $300 million. In 2005, Extra Space acquired Storage USA in a joint venture with Prudential Real Estate, adding 458 properties to its 140. That made Extra Space the No. 2 self-storage landlord in the country, after Public Storage. The biggest challenge for storage operators is high turnover. Extra Space has about 600,000 tenants at any given time. Every day, the company is in search of 40,000 new renters to replace the ones who, on average, move out each month, Kirk said. The CEO has applied his tech expertise to the task. When he joined Extra Space in 1998, self-storage “was incredibly sleepy,” Kirk said, with property owners keeping track of leasing and maintenance with pencil and paper and color-coded pushpins on wall maps. Kirk digitized Extra Space’s financial planning and logistics and invested heavily in online advertising. Google Connection“We’re spending $1 million a month with Google (GOOG),” Woolley says. Although about a third of Extra Space’s customers come directly from the Internet, almost half pick their storage company by driving around the neighborhood. For that reason, customer service is a high priority. Extra Space office staff are expected to make sales and convert as many customers as possible to credit card automatic payment, thereby prolonging their tenure. Employees are paid $10 to $30 an hour, and in some markets managers get on-site housing. “You might offer an apartment in New York, New Jersey, Miami or Dallas to hire a more qualified candidate,” Kirk says. “That’s very appealing to a lot of folks.” Extra Space taxes its long-term tenants for their loyalty. Rents are raised after five months and then every nine months after that. The company earns extra money by offering insurance on the items stored, starting at about $10 a month. Insurance Profits“We earn 80 percent margin on that,” Kirk says. Tenants are required to have insurance, which can be via an existing policy. Extra Space also sells company-branded items such as locks, packing tape and boxes. Kirk talks the language of Silicon Valley, describing his job as “evangelizing” the corporate culture, one of continuous improvement. “The best at getting better” is the motto on a company PowerPoint. Kirk holds a bachelor’s degree in finance and an MBA from the University of Utah. He was paid $2.3 million in 2013 in salary and bonus, according to the company’s annual financial statements. Kirk, a licensed pilot, sometimes flies himself to meetings around the country on executive jets leased from SpenAero LLC, a company he owns. Kirk and trusts controlled by his family own 3.2 percent of Extra Space, according to a company proxy statement, worth $192.6 million on Aug. 5. Woolley owns about 1 percent. Acquisitions CrucialTo keep its earnings rising, Extra Space needs to grow, and growth means acquisitions. Kirk has budgeted $500 million this year to buy storage properties; last year, it spent $586 million. Yet sellers aren’t easy to find. The secret is out: Storage is a cash cow. Stan Owens, a co-owner of Alta Storage in Sandy, Utah, says he rejected a $3.9 million offer from a developer for his 389-unit property. “Our cash flow is so good, plus my family works here, so they’d be out of a job,” says Owens, 71, who employs his son and two grandchildren. Utah real estate broker Smith says he got 11 offers for a site in West Valley City that he sold for $4.2 million to a California investor and five offers for one in Herriman that sold for $3.1 million. “More and more people are realizing that storage is not high risk,” Smith says. “It’s low risk, and it’s a great way to make money.” -By Hui-yong Yu Cantor to Buy Ranieri Distressed-Commercial-Loan Manager Source: Bloomberg / News A subsidiary of Cantor Fitzgerald LP agreed to buy a Ranieri Real Estate Partners LP commercial-mortgage business that’s led by onetime Deutsche Bank AG executives Jon Vaccaro and Eric Schwartz. Cantor Real Estate LP is acquiring RREP Recovery Partners Manager LLC, Cantor Fitzgerald said in a statement. RREP, a New York-based unit of the company headed by mortgage-bond pioneer Lew Ranieri, manages a $200 million fund that invests in distressed real estate loans. The terms of the purchase weren’t disclosed. The transaction brings two well-known real estate finance veterans into the Cantor fold while extending the firm’s reach into the “middle market” of commercial-property lending in the U.S., said Sheryl Lee, a spokeswoman for New York-based Cantor Fitzgerald. RREP’s average loan investment is $1 million, with the largest less than $20 million, she said. “RREP expands Cantor’s commercial real estate investment platform and opens up opportunities to bring additional sources of capital to the business, from clients that wouldn’t otherwise be a part of the firm,” Lee said in an e-mail. About half of the $200 million fund is invested, according to Vaccaro. Plans under discussion include the possible formation of a mortgage real estate investment trust, he said in an interview. There’s no timetable for creation of that company, he said. Mortgage REIT“Given the track record of this particular fund, one would expect that we could go out and raise additional capital,” Vaccaro said. “The most efficient capital today is probably a debt-focused REIT. There’s not that many of them in commercial real estate -- there’s a few -- and given all the real estate-related businesses that are affiliated to Cantor, it makes a lot of sense.” Vaccaro and Schwartz’s “transition to a larger-scale platform like Cantor’s is a natural evolution,” Ranieri said in the statement. “Both Jon and Eric have been good partners and friends, and we wish them continued success.” Before co-founding Ranieri Real Estate Partners in 2010, Vaccaro was global head of commercial real estate at Frankfurt-based Deutsche Bank, and Schwartz was co-head of commercial real estate in North America for the bank. Cantor Fitzgerald Chief Executive Officer Howard Lutnick moved the investment bank into real estate in 2009. The firm securitized $3.1 billion of mortgages the first half of the year, or 8 percent of the market, ranking it third, according to Commercial Mortgage Alert. -By David M. Levitt U.K. House Prices Rise at Fastest Pace Since 2006 Source: Bloomberg / Luxury U.K. house prices rose the fastest in almost eight years in the three months through July, as the strengthening economy and increasing confidence bolstered demand, according to Halifax. Values jumped 3.6 percent compared with the previous three months to an average 186,322 pounds ($314,195), the Lloyds Banking Group Plc mortgage unit said in a statement today. From June, prices rose 1.4 percent, compared with the 0.4 percent gain forecast by economists in a Bloomberg survey. While the data suggests the boom in British property is continuing, other survey indicate that the market is cooling after stricter lending rules took effect. Nationwide Building Society said last week that prices grew at the slowest pace since April, and Halifax said a growing number of people now think it’s the right time to sell. There is “uncertainty over the true state of the housing market,” said Howard Archer, an economist at Global Insight. It’s unclear whether the recent decline in housing activity will last or if it is “just a temporary development related to changing mortgage regulations,” he said. Prices were up 10.2 percent in the three months through July compared with the same period a year earlier, the biggest increase since September 2007, the Halifax report showed. “Demand continues to be supported by a continuing economic recovery, growth in employment, improving consumer confidence and low mortgage rates,” said Stephen Noakes, mortgages director at Halifax. In a sign of some weakness, new buyer enquiries continue to ease, Halifax said. At the same time, 57 percent of people said they think the next 12 months will be a good time to sell, the highest reading since the survey began in April 2011. The poll suggests a view among homeowners that prices may be peaking. Bank of England Deputy Governor Ben Broadbent told Bloomberg News last week that the “edge is coming off” the property market. It will keep its key rate at a record-low 0.5 percent tomorrow, according to a Bloomberg survey. -By Jillian Ward |
