Real News‎ > ‎2014‎ > ‎February 2014‎ > ‎

12th February 2014

Singapore Real Estate

Property stocks lead losses since Fed 'taper' talk

But analysts say it's still not time yet to enter the market

Source: Business Times / Top Stories

Property stocks, the Jardine group and two Thailand stocks are among the top 50 companies by market capitalisation here which have performed the worst since quantitative easing (QE) "taper" talk by the US Federal Reserve began last May, figures compiled for BT by the Singapore Exchange (SGX) show.

The table alongside shows the price and total performance of stocks from May 22, 2013 - the last market peak when the benchmark Straits Times Index (STI) closed at 3,454 points - and Feb 3, 2014, when the STI sank below the key psychological support of 3,000, marking a more than 13 per cent decline from its peak.

On May 22 last year, markets were spooked when former chairman Ben Bernanke said the Fed could begin to slow down, or taper, its massive bond- buying stimulus programme. Fears of rising interest rates caused outflows from emerging markets, a theme that is persisting with the Fed continuing to taper its bond purchases.

Stocks which have fallen the most are property counters with assets in China, "right smack in two concerns recently", CIMB research head Kenneth Ng told The Business Times.

-By Cai HaoXiang

TDSR tweak a lifeline for stretched owners: analysts

Property cooling measures to stay, reversal unlikely until 2015

Source: Business Times / Top Stories

This week's tweak in the total debt servicing ratio (TDSR) framework is targeted at a small group of stressed households that are struggling to get mortgage refinancing, analysts said in reports yesterday.

They were referring to the move on Monday by the Monetary Authority of Singapore (MAS) to exempt owner-occupiers from the TDSR cap of 60 per cent - specifically those looking to refinance the homes they bought before TDSR took effect last June 29.

The cap mandates that a borrower's monthly instalments for all debt-servicing - including mortgage payments - must not cross 60 per cent of his gross monthly income.

Analysts commented that the revision to the rule, designed to prevent people from over-extending themselves, may suggest that the group of "fringe households" - those with a debt-servicing ratio (DSR) of 40-60 per cent - may be larger than earlier anticipated.

However, they say that in light of the small numbers affected, the tweak hardly foreshadows a rollback of property cooling measures. Instead, they expect the measures to stay, with some predicting a reversal only next year.

The exemption also applies to investment property loans, though the borrowers must go through with refinancing by June 30, 2017, and commit to a debt-reduction plan at the point of refinancing.

Last year, the MAS said that 5-10 per cent of borrowers here risk being over-leveraged - defined as having a DSR of more than 60 per cent - and that this proportion could rise to between 10 and 15 per cent if mortgage rates edge up three percentage points.

HSBC analyst Pratik Ray said in a report: "Refinance holds will be problematic if the TDSR framework is applied - and an increase in interest rates or loan margins would increase their repayment burden, resulting in possible forced sales."

Citi analyst Adrian Chua said in a note that stretched borrowers have been held to ransom by lenders in the post-TDSR period.

Credit Suisse analysts Yvonne Voon and Anand Swaminathan, concurring, wrote in a report: "Post-TDSR, banks raised their spreads, taking the view that the borrower would have no choice but to stay with the current bank", given that refinancing could mean a breach of TDSR.

Credit Suisse estimates that 40 per cent of property-owners qualify for the TDSR exemption, which took effect immediately on Monday. However, under 20 per cent of them are actually hit, because, given the low interest rates in the last three years, most of them would have already refinanced their loans.

Mortgage rates typically have a lower spread to the Singapore interbank offered rate (Sibor) in the first two or three years, but jump from the fourth year, noted Citi economist Kit Wei Zheng in a report. This has prompted borrowers to undertake refinancing in the third year to enjoy "teaser" rates again.

He questioned whether there was a larger proportion of borrowers deep in debt than earlier envisioned. The MAS had said this year that one in five borrowers (20 per cent) has a DSR of 40-60 per cent.

Mr Kit believes the proportion to be higher; as much as 25-30 per cent of existing borrowers may already have a DSR of more than 40 per cent at the current low interest rates, he said.

"Even if household balance sheet data suggests more cash than debt on aggregate, the new exemption may hint at a skewed distribution of debt."

As a whole, analysts predict that regulators would create a cushion for a "soft-deleveraging". Since short-term interest rates are still low, any "meaningful policy reversal" would come only late next year, HSBC said.

Looking at the impact on banks, Credit Suisse analysts said that the TDSR tweak should boost refinancing volumes - which has historically made up a third of the new-loan market - but may also hit the banks' margins.

Still, DMG & Partners Securities said in a report that these exemptions are unlikely to stem the decline in new property transactions.

Recent bank-lending data has signalled weakness in the housing loan market. The net gain in value of all Sing-dollar denominated housing loans was 9.5 per cent in December last year, compared to a year ago, according to preliminary estimates by the MAS. This is poorer than the 15.9 per cent year-on-year growth at the end of 2012.

DMG & Partners remains "neutral" on the banking sector. Shares of DBS closed flat yesterday at $16.38; UOB was up 0.2 per cent at $19.87, and OCBC gained 0.3 per cent to end at $9.40.

Credit Suisse likes developers with more overseas and less residential exposure, such as CapitaLand and CapitaMalls Asia (CMA). Shares of CapitaLand rose 1.4 per cent to $2.88, and CMA gained 0.3 per cent to $1.745.

-By Jamie Lee

Riverbank @ Fernvale project takes in over 500 cheques

555-unit condo opens for booking this Friday

Source: Business Times / Singapore

UOL Development's newest condominium development appears to be drawing strong interest from buyers, going by the number of cheques it has received so far.

The Riverbank @ Fernvale project has collected more than 500 cheques since its showflats opened for preview last week.

The 555 residential units, which are open for booking this Friday, will be priced at an average of slightly above $1,000 per square foot (psf).

"We saw strong interest across all our unit types," said Anthony Wong, UOL's deputy general manager (marketing).

-By Lynette Khoo

Second Chance plans to sell bulk of Singapore properties

Source: Straits Times

Second Chance Properties is hoping to sell the bulk of its property holdings in Singapore as its management believes the real estate market here is slowing. The company has entered into an option deal to sell 45 properties, including commercial units at Sim Lim Square, City Plaza and Sunshine Plaza, for $175.4 million.

Real Estate Companies' Brief

Sim Lian and KSH Holdings post positive results

Source: Business Times / Companies

SIM LIAN Group's net pro-fit for the second quarter ended December rose 38 per cent, from $47.5 million to $65.8 million, even as revenue dipped 0.5 per cent from $208.3 million to $207.3 million.

The property development division contributed $156.9 million to the group's revenue compared with $170.1 million a year ago mainly due to reduced revenue contribution from Waterview, which was partly offset by increased revenue contribution from Parc Vera. The construction division contributed $42.1 million in revenue, an increase of 33 per cent.

For the six months ended December, net profit rose 10 per cent to $93.4 million while revenue dipped 10 per cent to $358.5 million.

Looking ahead, Sim Lian said it expects the operating environment for private residential property to become increasingly challenging.

-By Mindy Tan

Soilbuild bags $56m contract

Source: Business Times / Companies

SOILBUILD Construction Group's SB Procurement has been awarded a $56.6 million contract by XMH Holdings to construct a new seven-storey industrial building with ancillary office and facilities at Tuas Crescent. The project is expected to start this month and be completed by the second quarter of next year. It brings the group's latest order book to $406.4 million.

Saizen's inteirm DPU slips 1.5%

Source: Business Times / Companies

SAIZEN real estate investment trust has declared a distribution of 3.25 cents per unit for the six months ended Dec 31, 2013, down 1.5 per cent from the previous year. The distribution will be paid on March 21. For the period under review, the use of capital cash resources to offset loan principal repayment contributed to 1.19 cents out of the DPU of 3.25 cents.

Roxy-Pacific Holdings

We are surprised by news that Roxy-Pacific Holdings (Roxy) has successfully divested itself of part of its Hong Kong property for a reported gross profit of close to S$60 million, translating to about 4.9 Singapore cents of value generated within one month of the completion of the investment. Roxy is scheduled to announce its FY2013 results tomorrow, which we expect to be impressive because of lump-sum contribution from commercial project WiS@Changi.

Global Economy & Global Real Estate

GIC hikes stake in Indian developer

It buys 5.1m Phoenix Mills shares for 1.06b rupees

Source: Business Times / Top Stories

GIC is continuing with its foreign property investment spree.

Last week, it enlarged its stake in Bombay-listed property developer Phoenix Mills from 1.476 per cent to 5.023 per cent in an open market transaction worth 1.06 billion rupees (S$21.6 million).

This is the Singapore sovereign wealth fund's fifth foreign property investment in as many months, after sealing deals in Jakarta, Australia, London and New York City.

It also comes amid ramped-up efforts among companies here to diversify geographically to sidestep Singapore's restrictive property cooling measures.

-By Lee MeiXian

Commonwealth Bank Profit Up 14% on Impairments Fall, Housing

Source: Bloomberg / Luxury

Commonwealth Bank of Australia, the nation’s biggest lender, reported a 14 percent increase in first-half profit to a record on lower bad-debt charges and growth in home lending.

Cash profit, which excludes one-time items, rose to A$4.27 billion ($3.85 billion) in the six months ended Dec. 31 from A$3.75 billion a year earlier, the Sydney-based lender said in a statement. That beat the A$4.17 billion median estimate of nine analysts surveyed by Bloomberg. The bank set aside A$457 million for bad debts, 26 percent less than a year earlier.

CBA, which writes one in every four mortgages in the country, is gaining from a revival in home loans and a drop in funding costs. Outstanding mortgages in Australia climbed 5.4 percent in the year to December, the fastest pace in two years, data from the Reserve Bank of Australia show.

“The housing market is strong and CBA is a relative outperformer, giving it revenue and earnings momentum,” Mark Nathan, managing partner at Sydney-based Arnhem Investment Management, which controls about $3.8 billion, said by phone.

“The benign bad-debts environment means well for the entire banking sector,” Nathan said. “Having said that, a lot of the good news is factored into CBA’s shares (CBA) and the banking sector is overvalued. We are slightly underweight the Australian banks.”

Shares Higher

Shares of CBA, which touched a record A$79.88 on Nov. 8, rose 0.4 percent to A$76.20 at the close of trading in Sydney. They advanced 25 percent last year, outpacing a 15 percent increase in the benchmark S&P/ASX 200 (AS51) index.

Australia’s largest banks are trading at the most expensive levels since before the global financial crisis. The lenders trade at an average of 2.1 times the net value of their assets, the highest since 2007 and a 79 percent premium over the MSCI World Bank Index, data compiled by Bloomberg show.

The bank’s statutory net profit for the first half climbed 16 percent to A$4.21 billion, it said today. It will pay an interim dividend of A$1.83, up 12 percent from a year earlier and higher than a A$1.80 median estimate of analysts surveyed.

“The signs are that profitability in the Australian major bank sector will be strong by international standards during calendar 2014,” Standard & Poor’s credit analyst Gavin Gunning said in a report today.

Home Loans

Retail banking profit grew 10 percent from a year earlier to A$1.67 billion and institutional banking and markets profit climbed 13 percent, the bank said. Wealth management profit rose 19 percent.

Home loans grew 7 percent in Australia to give the bank a market share of 25.3 percent, while loans to businesses expanded only 3 percent from a year earlier, the bank said.

“There is little real evidence of a meaningful increase in investment in the rest of the non-resource sector of the Australian economy, other than in housing,” Chief Executive Officer Ian Narev said in today’s statement.

Bad-debt charges as a percentage of average gross loans dropped 6 basis points to 16 basis points, the lowest since the six months ended June 2007, filings by the bank show.

Net interest margin, a measure of lending profitability, contracted 3 basis points from the previous half to 2.14 percent due to continued funding and liquidity pressure, today’s report showed. Competition for deposits remained strong, eroding margins, the bank said.

Deposits grew A$40 billion and made up 63 percent of CBA’s total funding as of Dec. 31, the same proportion as six months earlier, the bank said. Australian banks are increasing deposits to ensure compliance with global liquidity rules that begin in 2015. The bank raised A$17 billion through bonds, it said.

Capital Ratio

Core Tier 1 capital, a measure of the bank’s ability to absorb losses, increased to 8.5 percent at the end of December from 7.8 percent on Sept. 30, under the Australian Prudential Regulation Authority’s measures.

Australia & New Zealand Banking Group Ltd. reported yesterday first-quarter cash profit climbed 13 percent from a year earlier on lower bad-debt charges. National Australia Bank Ltd. releases its quarterly results on Feb. 21. Westpac Banking Corp. doesn’t update investors on its quarterly performance. At CBA, the fiscal year ends in June, compared with September for its main competitors.

-By Narayanan Somasundaram

Billionaire Zell Joins CommonWealth REIT Dissident Slate

Source: Bloomberg / News

Billionaire investor Sam Zell has joined a slate of nominees by investors seeking to overthrow the board of CommonWealth (CWH) REIT, the U.S. office landlord being targeted by claims of mismanagement and conflicts of interest.

Zell and David Helfand, co-president of Zell’s Equity Group Investments, will join the proposed slate of directors to be nominated at a special meeting of CommonWealth shareholders if the current board is removed, according to a statement today from investors Corvex Management LP and Related Cos.

“We are fully supportive of Corvex and Related’s efforts to maximize value at CommonWealth for all shareholders,” Zell, chairman of apartment landlord Equity Residential, said in the statement. “We see an attractive opportunity at CommonWealth uniquely suited to our expertise in leading public real estate companies and in turning around underperforming assets.”

An entity affiliated with Zell and Helfand will have an option to acquire as many as 4 million CommonWealth shares, according to the statement. They aren’t stockholders currently. Zell and Helfand are willing to serve as chairman and chief executive officer, respectively, of the Newton, Massachusetts-based REIT, Corvex and Related said.

Corvex and Related, which have a combined stake of 9.6 percent in CommonWealth, have been seeking to oust the office landlord’s board since last year, arguing that the ownership of an external management firm, REIT Management & Research LLC, by CommonWealth President Adam Portnoy and his father Barry, a company founder, has led to conflicts of interest and underperformance at the REIT. Both Portnoys sit on the board and are owners of the external management company.

‘Hammering Nails’

The latest move is “a masterful stroke of genius on behalf of the Corvex and Related team, systematically hammering nails into the Portnoy coffin,” John Guinee, an analyst at Stifel Nicolaus & Co. who has a hold rating on CommonWealth shares, said in a telephone interview. “We continue to expect the stock to go up as investors perceive a solid victory for Corvex and Related.”

CommonWealth rose 2.8 percent to $26.39 today. The shares have gained 54 percent in the past year.

Zell, 72, nicknamed “the grave dancer” for buying distressed properties left for dead in the 1990s, sold his Equity Office Properties Trust in 2007 for $39 billion as the commercial real estate market was peaking. Zell is chairman of four public companies, including REITs Equity Residential (EQR), based in Chicago, and Equity Lifestyle (ELS), an owner of manufactured-home communities.

Board Removal

CommonWealth yesterday set Feb. 18 as the record date for shareholders entitled to vote to remove the board. Corvex and Related said today that record date was “conditional” and that it plans to submit its own record-date request by Feb. 16.

CommonWealth has denied Corvex and Related’s claims of conflicts of interest and has said it is focusing on buying office buildings in U.S. downtowns and selling suburban properties to boost shareholder value.

The REIT in September announced changes to improve its corporate governance after conversations with investors who said they wanted RMR’s financial incentives to be more aligned with shareholders. The changes to the management agreement were made in December, according to CommonWealth.

“We are thrilled to be joined by Sam Zell, whose chairmanship of other REITs has unquestionably maximized value for shareholders,” Keith Meister of Corvex and Jeff Blau of Related said in the statement. “We believe that once CommonWealth shareholders are given a choice between the Portnoys and their record of value destruction and Sam Zell’s record of value creation for shareholders, the choice is clear.”

A message left for Tim Bonang, CommonWealth’s director of investor relations, wasn’t immediately returned.

-By Brian Louis

Home Prices Rose in Fewer U.S. Markets in Fourth Quarter

Source: Bloomberg / Personal Finance

Prices for single-family homes rose in 73 percent of U.S. cities in the fourth quarter, fewer than in the previous three months, as surging values in the past two years started to reduce affordability.

The median transaction price for an existing home climbed from a year earlier in 119 of 164 metropolitan areas measured, the National Association of Realtors said in a report today. In the third quarter, 88 percent of markets had increases.

While tight inventories and improving employment are bolstering the housing recovery, home-price gains are poised to decelerate as an increase in mortgage rates from record lows cuts into affordability. Values have been rising faster than incomes, particularly in the West, the Realtors group said.

“The housing market is still on a recovery path and that recovery is not done,” Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York, said in an interview before today’s release. “At the same time, the pace of those increases should slow.”

The nationwide median price for an existing single-family home rose 10.1 percent in the fourth quarter from a year earlier to $196,900, the Realtors group said. The gain was 12.5 percent in the third quarter.

Biggest Jumps

The best-performing areas were Atlanta and Sacramento, California, where prices jumped 33 percent and 30 percent, respectively. They were followed by Las Vegas and Riverside, California, with more than 26 percent gains.

The areas with the biggest declines included Elmira, New York, where prices fell 12 percent from a year earlier. Following was the Champaign-Urbana area of Illinois, with an 11 percent drop.

About 26 percent of areas had double-digit gains in prices, down from 33 percent in the third quarter. Areas that had price declines after increases in the previous three months include Cleveland; Spokane, Washington;Newark, New Jersey; and El Paso, Texas.

The Realtors group’s affordability index -- a gauge of median prices, family incomes and mortgage rates -- fell to 175.8 in 2013 from a record high 196.6 in 2012. A measure of 100 means that the median-income household has enough income to qualify for a median-priced existing home. The higher the index, the stronger the household purchasing power.

Equity Gains

“The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending,” Lawrence Yun, chief economist of the Realtors group, said in the report. “At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”

The most expensive housing market in the fourth quarter was San Jose, California, where the median single-family price was $775,000. It was followed by San Francisco; Honolulu; Anaheim-Santa Ana in California; and San Diego. The lowest-cost metropolitan area was Toledo, Ohio, with a median single-family price of $80,500, followed by Rockford, Illinois; Cumberland, Maryland; and Elmira, New York.

-By Prashant Gopal

Portugal Property Buyers Reappear as Economy Mends, Cushman Says

Source: Bloomberg / News

Property investors are returning to Portugal, bolstered by signs of an economic recovery and the approaching end of the country’s bailout program, according to broker Cushman & Wakefield Inc.

Spending on commercial real estate tripled to 322 million euros ($440 million) in 2013 compared with a year earlier, Eric van Leuven, managing partner at Cushman & Wakefield in Portugal, said at a press conference in Lisbon today. Home sales in Lisbon increased 40 percent in the first nine months of 2013 from the whole of 2012.

“There is more interest and a greater willingness to invest in real estate in Portugal,” van Leuven said. “There were a lot of people hiding their money under the mattress, waiting for an opportunity.”

Last year’s total remains low compared with the boom that preceded the financial crisis. Investment in Portuguese commercial real estate was more than 1 billion euros in 2007 and has averaged 600 million euros a year over the past decade, according to Cushman.

The southern European country’s economy may expand more than 1 percent in 2014 after coming out of the worst recession in at least 25 years in the second quarter of 2013, Economy Minister Antonio Pires de Lima said last month.

Signs that that economy is recovering have played a major role in terms of attracting investors back to the property market, van Leuven said. He said he’s “optimistic” for 2014 because investment in the property market has continued to increase this year.

Portugal is trying to regain full access to debt markets as the 78 billion-euro rescue program, put in place in 2011 by the European Union and the International Monetary Fund, approaches its end in May.

-By Henrique Almeida

Manhattan’s Big Banks Resist Lure of New Office Towers

Source: Bloomberg / Personal Finance

As Manhattan developers plan millions of square feet of office towers featuring the most modern amenities, some of their biggest potential tenants have decided they’re better off staying in their current homes.

Five of the six largest New York leases since the end of 2012 have been renewals, according to data from brokerage Newmark Grubb Knight Frank. Credit Suisse Group AG (CS), Citigroup Inc. (C) and UBS AG (UBSN) -- the types of large financial companies that traditionally have made up the core of the city’s office market -- opted to stay put after considering moves to new skyscrapers.

“Major financial institutions are not expanding dramatically,” said Joseph Harbert, eastern region president of Colliers International, a commercial-property brokerage with offices in Manhattan. “If you’re going to lease up a new building, you’re going to have to do it with other tenants.”

The renewals highlight the challenge faced by developers seeking tenants for the technologically advanced towers planned at Manhattan’sWorld Trade Center site and far west side. Financial companies are scaling back space needs or seeking to reduce costs, while many of the technology and media firms that have been the market’s most avid office consumers over the last three years have largely chosen older buildings.

Manhattan has more than 25 million square feet (2.3 million square meters) of new office space either just completed, under construction or ready to start, according to Newmark data. Another 6.3 million square feet of offices are in the planning stages.

Rezoning Proposal

At the same time, the Real Estate Board of New York, the trade organization for the city’s commercial landlords, is pushing for a revival of former Mayor Michael Bloomberg’s aborted attempt to rezone the office districts surrounding Grand Central Terminal to replace old and obsolete towers.

The group cited a study by the city’s Independent Budget Office issued in September that projected that the city needs about 52 million square feet of new office space between now and 2040 to accommodate expected job growth and space that could be lost to conversions and demolitions. The former mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

It’s an “open question” whether there will be enough appetite for new offices to fill that amount of space, Harbert said. REBNY President Steven Spinola argues that the 2013 data represent current market realities that could reverse abruptly. The average Manhattan office building is more than 70 years old, according to REBNY.

“The pendulum goes back and forth,” Spinola said in a telephone interview. “I think financial institutions are going to get back into expansion mode and will be looking for the kind of space we’re talking about.”

Tech Tenants

The tenant mix has shifted more to technology, advertising, media and information firms that tend to take smaller blocks of space. Such “creative” companies represented 24 percent of the leasing market last year, about the same share as financial services, according to brokerage Cushman & Wakefield Inc. In 2005, financials made up 29 percent of the market, while the creative industry was only 17 percent. Law firms have fallen to 8 percent of the market from 11 percent.

In the latest example of a bank making cuts, London-based Barclays Plc (BARC) said today it would eliminate as many as 12,000 jobs. The firm has offices in New York.

Of the 344 leases last year by financial companies -- including banks, hedge funds and private-equity firms -- only 20 were for more than 50,000 square feet, according to Cushman.

‘Vast Majority’

The “vast majority” of tenants seeking 250,000 square feet or more -- enough to anchor a new skyscraper -- have chosen to remain in their existing locations, Isaac Zion, co-chief investment officer for SL Green Realty Corp. (SLG), said at an investor presentation in December. The trend is likely to continue, he said in a phone interview.

“When you relocate, you’ve got to spend all that capital at once,” said Zion, whose company is Manhattan’s biggest owner of office buildings. “If you stay where you are, you can manage that over a long period of time. You can stage it better to spread out that risk. Once you move, you have to do it at once. Then what if your business changes? What if things evolve?”

SL Green, which has 14 office buildings within five blocks of Grand Central, favors the rezoning of the area and is planning a 65-story new tower immediately west of the train station. Many companies are opting to stay put because of a shortage of new construction in East Midtown, a “prime location” for office tenants, Chief Executive Officer Marc Holliday said in an e-mail.

Manhattan West

Last month, Zurich-based Credit Suisse said it intends to remain at 11 Madison Ave., a 1931 tower once used as a setting by Woody Allen for the movie “Radio Days,” for its U.S. headquarters. The second-largest Swiss bank came close to a deal to anchor a skyscraper at Brookfield Office Properties Inc.’s Manhattan West, according to brokers at Cushman & Wakefield Inc., which represented the developer.

Brookfield is planning 4 million square feet of new offices at its Manhattan West project, part of an effort to transform the now largely industrial area west of Pennsylvania Station into a new commercial district. The area also is where Related Cos. is building Hudson Yards, a 17.4-million-square foot development built largely over a 26-acre (11-hectare) train yard. About 10 million square feet will be offices.

Matthew Cherry, a Brookfield spokesman, declined to comment, as did Marcy Frank, a Credit Suisse spokeswoman.

Credit Suisse’s decision came about four weeks after Citigroup extended its 2.6 million-square-foot lease at SL Green’s 388-390 Greenwich St., in Tribeca, last year’s biggest New York office lease. The bank is poised to leave its headquarters at 399 Park Ave., according to landlord Boston Properties Inc.

Tower Rejections

Citigroup, the third-biggest U.S. bank, had weighed anchoring the proposed 2 World Trade Center tower in lower Manhattan, according to two people with knowledge of the negotiations, who asked not to be named because the process was private. It also rejected a move to the Hudson Yards project earlier in its decisionmaking process.

Shannon Bell, a Citigroup spokeswoman, declined to comment on its space decisions, as did Dara McQuillan, a spokesman for Silverstein Properties Inc., which controls 2 World Trade’s development rights.

In December 2012, UBS renewed its lease for about 860,000 square feet at 1285 Avenue of the Americas, an office tower near Rockefeller Center. Switzerland’s largest bank had been in negotiations to lease offices from Silverstein at the trade center site before withdrawing from talks in 2011, according to people with knowledge of the matter.

Reworking Space

Credit Suisse and Citigroup intend to rework and upgrade their properties. Credit Suisse plans to move to the less-expensive lower floors of 11 Madison, and spend the next four years renovating those offices, according to a statement to employees by Rob Shafir, the bank’s chief executive officer for the Americas. It expects to save close to $700 million over the life of the lease.

As a general rule, moving into new space is cheaper in the long run than retrofitting old offices, said Richard Bernstein, a New York-based executive vice chairman at brokerage Cassidy Turley. New space is more energy efficient and conducive to open layouts that allow more people to fit into less space, he said.

Prior to the financial crisis, major banks were seeking top-of-the-line offices. In 2007, JPMorgan Chase & Co. (JPM) proposed a 42-story tower just south of the World Trade Center site which would have had six trading floors jutting out over a church.

Staying Competitive

The city’s investment banks, including Lehman Brothers Holdings Inc. and Merrill Lynch & Co., were scouring the city for sites with state-of-the-art trading space and other amenities, in an effort to keep competitive with Goldman Sachs Group Inc., whose Hudson riverfront headquarters was under construction at the time.

In the financial meltdown that followed, Merrill was sold and Lehman went bankrupt. JPMorgan wound up acquiring the near-bankrupt Bear Stearns Cos. in March 2008, inheriting its headquarters tower at 383 Madison Ave. as part of the deal. JPMorgan’s base at 270 Park Ave. and two other properties it leases in the area are 1960s-vintage buildings on Park Avenue north of Grand Central in the heart of the area Bloomberg administration and REBNY executives said was threatened with obsolescence.

In the aftermath of the crisis, financial companies have made office decisions “based on the options that were available to them, based on the financial conditions of the country and the world, as well as their own business plan or model,” said REBNY’s Spinola.

Providing Options

“There are some wonderful 50-year-old, 80-year-old buildings, many of them landmarks, and we ought to do everything to preserve them,” he said. “But that doesn’t mean we don’t want to have a continued supply of new efficient space being developed so people have such options.”

New towers have attracted some high-profile companies from outside the financial industry, the latest being Time Warner Inc., which last month sold its headquarters offices at Time Warner Center to Related and agreed to anchor a 2.6 million-square-foot tower at Hudson Yards. The media company intends to own rather than lease about 1 million square feet of space. Coach Inc., the largest U.S. luxury-handbag maker, also is going to Hudson Yards, agreeing last year to buy 750,000 square feet at the first tower under construction.

GroupM, a unit of London-based advertising firm WPP Plc, in December took a 20-year lease on 516,000 square feet at 3 World Trade Center, anchoring Silverstein’s planned 2.5 million-square-foot skyscraper. Silverstein is also the developer of 4 World Trade Center, which opened late last year and is only 55 percent leased, entirely to government tenants.

Midtown South

Many name-brand technology companies, such as Google Inc., Twitter Inc., Facebook Inc. and EBay Inc., have chosen to move their New York operations into vintage buildings in the area roughly between 30th and Canal streets known as midtown south, rather than to new construction.

Midtown south is “the center of New York’s technology universe,” Jonathan Mazur, Newmark Grubb’s capital markets research director, wrote in a report last week.

Other large companies that have chosen to stay in their offices in recent years after considering moves include media company Viacom Inc. and the law firms Simpson Thacher & Bartlett LLP and Davis Polk & Wardwell LLP, according to a list compiled by SL Green.

With large financial companies staying out of the market for new towers, at least for now, landlords are going to have to offer “significant concessions,” said Bernstein of Cassidy Turley.

“Rents will hold up,” he said. “But in order to realize the kind of absorption they need, until we see signs of more growth, I think they’re going to have to take that kind of strategy.”

-By David M. Levitt

German Home Prices Seen Slowing in 2014 as Construction Surges

Source: Bloomberg / Luxury

German home prices and rents will rise at a slower pace in 2014 than last year as housing construction starts catching up with demand.

Rents and home prices will probably gain about 3 percent in 2014, after increasing more than 3 percent last year, a panel of real estate advisers said in its annual report to the German government today.

“Fortunately, the number of building permits has risen further,” the panel said in the report. “But in view of falling vacancies, rising demand” and economic growth, prices and rents will continue to rise, it added.

Germany is undergoing a building boom as a growing population and low borrowing costs fuel demand. Urban areas in particular are getting bigger as young people move to areas where jobs are easier to find. Construction growth is alleviating housing shortages in cities like Berlin, Frankfurt and Munich.

Immigration is also on the rise, helping to boost Germany’s population to about 80.8 million at the end of 2013, from 80.5 million a year earlier, the Federal Statistics Office said last month.

Since 2005, when the German housing boom began, apartment prices have gained about 49 percent in Munich and 41 percent in Berlin, the panel said in the report.

Rent Regulations

The German government’s attempt to curb rent increases by tightening regulations may backfire by discouraging construction in large cities, the panel said. The government in November proposed tenant protections including a law that would bar landlords from charging 10 percent more than the neighborhood average.

“The political framework is stoking uncertainty,” the group said. “Especially central locations are the target of market intervention, which could push construction to the peripheries.”

Munich had the highest rise in rents last year at 6.9 percent, followed by Berlin’s 6.6 percent increase. Munich homes also saw the biggest price jump, 12 percent, followed by Berlin at 8.5 percent.

-By Dalia Fahmy

Spain Homebuyer Bids Fell 23% Short of Asking Prices in 2013

Source: Bloomberg / Personal Finance

Offers to buy Spanish homes fell short of the asking prices by 23 percent on average last year, damping expectations that the nation’s residential values have reached bottom, according to

Bids were 22 percent less for homes in Madrid and 23 percent lower in Barcelona, according to the study published today by Idealista, Spain’s largest property website. Home prices rose for the first time since 2010 in the third quarter, official statistics showed.

“There is still a mismatch between asking prices and selling prices, for which there is no official data in Spain,” said Fernando Encinar, Idealista’s co-founder.

A pickup in foreign investment in Spanish real estate and a recovering economy are prompting sellers to refrain from lowering prices as they hold out for better offers. Home sales fell 16 percent in November from a year earlier and dropped 4.1 percent on a monthly basis, according to data released by the National Statistics Institute on Jan. 14.

That’s hindering a housing-market correction, according to Jose Garcia Montalvo, Professor of Economics at the University of Pompeu Fabra in Barcelona.

Some of the largest Spanish real estate deals have been done by New York-based Blackstone Group LP, which in July agreed to purchase 18 apartment blocks from the city of Madrid for 125.5 million euros ($171 million).Goldman Sachs Group Inc. (GS), based in New York, and Azora Capital SL in August agreed to pay about 20 percent above the asking price for 32 social-housing developments sold by the capital’s regional government.

Foreign Funds

“The investment we have seen from foreign funds in the past six months has made sellers -- who up until now were desperate to sell and were lowering prices -- too optimistic about the recovery of the housing market,” Montalvo said by phone. “Sellers are delaying sales and not dropping asking prices because they expect the market is going to recover.”

Home prices are falling more slowly than they should be and this is delaying a recovery, Montalvo said.

Investors spent 4.93 billion euros on property assets in Spain last year, more than double the 2.32 billion euros invested in 2012, as the economy came out of its second recession since 2008. The government forecasts that economic growth next year will be strong enough to create jobs, even as the International Monetary Fund predicts the unemployment rate won’t fall below 25 percent until 2018.

First Increase

Home prices rose 0.7 percent in the third quarter from the previous three months, the first increase since 2010, the National Statistics Institute said in December. Studies by the IESE Business School and property website Fotocasa showed that prices for existing homes rose 0.7 percent in July from June and 0.2 percent in January from December.

The data could give a “false sense” that prices, which have fallen more than 45 percent since their 2007 peak, have hit bottom, Encinar said.

Offers in the Spanish city of Lleida had the steepest discounts at an average of 33 percent. The smallest bid shortfalls were in Cuenca at 17.6 percent, according to the Idealista study, the first such report by the property website.

“Home prices haven’t bottomed out yet and I don’t know when they will,” Juan Fernandez Aceytuno, head of Sociedad de Tasacion, Spain’s home-appraisal organization, said at a Jan. 14 press conference in Madrid. “Nobody knows how many homes are up for sale in Spain or where they are situated.”

Further Declines

Aceytuno estimates prices will fall a further 5 percent or 6 percent in the first half as high unemployment and a drought in mortgage financing prevent Spaniards from buying homes.

Spain’s jobless rate was at 26.03 percent in the three months through December up from 25.98 percent in the previous quarter, the National Statistics Institute said on Jan. 23.

Fewer than 13,900 mortgages were granted in November, compared with about 129,000 at the September 2005 peak, according INE data. Prices have fallen by an average of 45.6 percent since their high point in 2007, according to Sociedad de Tasacion.

-By Sharon Smyth

Senior Housing Properties Buys Boston Medical Offices

Source: Bloomberg / News

Senior Housing Properties Trust (SNH) agreed to buy two 15-story medical-office buildings in downtown Boston’s Seaport District for about $1.13 billion.

The buildings comprise biomedical research facilities, corporate office space, a parking garage and retail space covering a total of 1.65 million square feet (153,300 square meters), the Newton, Massachusetts-based real estate investment trust said today in a statement.

The properties are 96 percent occupied by Vertex Pharmaceuticals Inc., a Cambridge-based company with a market value of about $19.2 billion. Vertex has 15 years remaining on its lease and is consolidating employees from 10 other area buildings into a new headquarters in the Seaport District buildings, according to the statement.

Senior Housing Properties Trust received a term-loan commitment for $800 million, according to the statement.

The REIT, with a market value of about $4.14 billion, owns independent- and assisted-living communities, medical-office buildings, nursing homes and wellness centers in the U.S.

-By Craig Giammona