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Borrowers are finding that getting a foot in the door at community banks and smaller regional banks is no easy task in a sector where relationships are more important than ever.

Big regional banks that have been actively lending on commercial real estate loans in recent years are showing signs of slowing down as they near their caps or develop heavy concentrations in certain property types or regions. That slowdown is funneling more business towards smaller local and community banks.

“There are some banks in our valley that have pushed their loan-to-deposit ratios close to 100 percent,” says Kent Nelson, executive vice president with Brighton Bank in Salt Lake City, Utah. That capacity is creating new opportunities for the $150 million Brighton Bank. The bank financed about $40 million in construction and permanent loans in 2016 and has not seen much slowing in 2017.

Salt Lake City has been experiencing a very active real estate market over the past few years, which is fueling demand for capital. “The Salt Lake market has really become a hot bed for real estate investors all over the country,” says Nelson. For example, Brighton Bank is currently looking at a loan application for the purchase of a self-storage facility from a buyer from Colorado, and the bank has also approved the loan for a California investor to acquire a nearly $1-million development site for an office-warehouse project.

“We can tell that their buckets are full, because they are moving credits out,” adds Dickey Campbell, regional loan president with Texas First Bank, a $1 billion bank with 22 locations south and east of Houston. Texas First Bank is active in the commercial real estate loan market with typical loan sizes between $1 million and $3 million. Some regional banks are not doing new loans on certain property types, and they are also not renewing balloon mortgages when they come due as they deal with their own regulatory caps. “We are seeing more of those credits trying to come to us,” says Campbell.

Slow and steady growth

Community banks do have an appetite for commercial real estate loans. However, strategies vary on how aggressive they are willing to be to grow that business. Some banks have become more aggressive. “We have noticed that there is some slacking off in using prudent underwriting procedures, which shows that some banks have a short memory,” says Campbell.

Texas First Bank has a sizable real estate loan portfolio at $340 million out of a total loan portfolio of $540 million. However, the bank has been maintaining a very slow and deliberate growth pace, in line with its conservative approach to real estate lending.

Part of that caution is due to the new regulatory environment, including new requirements for high volatility commercial real estate (HVCRE) loans. “We are keeping a very close eye on our HVCRE loans,” says Campbell. The bank generates a monthly report to its board on HVCRE loans that are in the portfolio and also those that have been approved, but not yet closed.

Brighton Bank has tried to maintain careful and strict underwriting procedures and is stress-testing all of its credits. Given the rising interest rate, the bank wants to make sure projects would still get to debt service capacity of at least a 1.25 to 1.3 even with higher rates, notes Nelson. “We’re being cautious really in all sectors, because the market has been hot for a while,” he says.

That being said, there are still plenty of projects that Brighton Bank is willing to finance across all property types. For example, the bank recently funded an $800,000 construction-to-permanent loan to a local investment group that bought an older infill industrial property in downtown Salt Lake City that the borrower plans to renovate and upgrade.

Relationships trump transactions

Community banks have stepped up to supply capital for an active group of investors and developers looking for loans under $10 million. Although some community banks have lower maximum loan sizes, often between $3 million and $5 million depending on the size of the bank, they are also working together to do bigger loans. Brighton Bank, for example, has a lending limit of $3 million per loan, but it also participates with other community banks on deals of up to $6 million.

However, borrowers are finding that getting a foot in the door at community banks and smaller regional banks is no easy task in a sector where relationships are more important than ever. “If a borrower comes to us and wants to be transactional, that is going to be a hard new deal for us to do,” says Jason Ruppert, senior vice president of commercial real estate at Bremer Bank in Minneapolis. Borrowers that are willing to bring something more to the table to build a relationship, such as bringing deposits and using other banking services, get a much warmer reception, he adds.

Bremer Bank is an $11 billion bank that serves customers in Minnesota, North Dakota and Wisconsin. The bank has pulled back a little after a very active year in 2016. In the Twin Cities region alone the bank did $425 million in real estate loans last year, which is much higher than a typical year of about $250 million.

Lending activity increased due the active multifamily development market in the Twin Cities. “We grew really fast last year. So just to make sure we are still doing the kind of deals we want, with the people we want, we may be slowing down a little bit. But that is not because we’re not interested,” Ruppert says. Bremer Bank is capable of making loans from $ 1 million to $30 million, although the typical loan size is about $9 million.

Banks across the board are keeping a close eye on property types that might face greater risks due to increased supply, the maturing stage of the cycle or local economic factors. For example, Texas First Bank’s portfolio of hotel/motel loans is almost full and the bank is restricting loans in that category to borrowers where there is an existing relationship. “We don’t make a loan to a customer just to have a loan on the books,” says Campbell. “Our strategy is to loan to folks who will bank with us. So we put a very high priority on the relationship.”

Stubbornly low inventory in housing, particularly for more-affordable properties, has helped drive steady home-price gains.

(Bloomberg)—Sustained increases for home prices in 20 U.S. cities in April indicate the housing industry is juggling stable demand with a shortage of inventory, figures from S&P CoreLogic Case-Shiller showed Tuesday.

Highlights of Home Prices (April)

20-city property values index rose 5.7% y/y (est. 5.9%) National price gauge increased 5.5% y/y Seasonally adjusted 20-city index climbed 0.3% m/m (est. 0.5%)

Key Takeaways

Stubbornly low inventory in housing, particularly for more-affordable properties, has helped drive steady home-price gains. While rising property values are helping cushion homeowners’ balance sheets, they also are inhibiting lower-end buyers — especially first-timers — from getting a piece of the action, as wage gains haven’t kept pace. At the same time, industry demand remains healthy, with solid job gains and low mortgage rates supporting purchases.

Economist Views

“Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up,” David Blitzer, chairman of the S&P index committee, said in a statement. “The supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four-month supply.”

Other Details

All 20 cities in the index showed year-over-year gains, led by a 12.9 percent advance in Seattle and a 9.3 percent rise in Portland, Oregon After seasonal adjustment, Detroit had the biggest month-over-month increase at 1.8 percent, while Seattle had a 1.1 percent gain Home prices fell from the prior month in Cleveland, Boston, San Francisco, Washington, and Tampa, Florida

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net Vince Golle

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© 2017 Bloomberg L.P

Los Angeles’ new tallest building makes its debut, reports Los Angeles Times. Federal investigators are looking into a real estate deal put together by Jane Sanders, Bernie Sanders’ wife, according to the Associated Press. These are among today’s must reads from around the commercial real estate industry.

1. The Cities Creating the Most High-Wage Jobs“We decided to take a look at which metropolitan areas are gaining the most professional and business services jobs and the trends that are driving some to pull ahead while others fade. Our rankings look at employment in the sector over time— assessing short, medium and long-term job trends and adding in variables for persistence and momentum as well.” (Forbes)
2. A New Skyscraper for Los Angeles: Wilshire Grand Makes its Debut “Eight years ago, architect David Martin’s vision for Wilshire Grand Center was little more than a daydream in a sketchbook. Over time, that dream gave way to a 73-story skyscraper, the tallest building west of the Mississippi, and an impressive new addition to the Los Angeles skyline. Expectations for the building are high. Undoubtedly a new downtown landmark, the tower must find its place within the architecture of the city.” (Los Angeles Times)
3. High-Profile Deals Disguising Commercial Real Estate Market’s Anxiety “Manhattan’s office market could be headed for trouble despite today’s solid-seeming condition and euphoria over big chunks of space being gobbled up by marquee tenants at glamorous new towers. Commercial brokers with the jitters didn’t want their names used, but one we spoke to worried about a ‘lack of depth’ to the market beyond a handful of large-scale negotiations now going on.” (New York Post)
4. A New Real Estate Play for Income Investors “Risk-averse investors looking for income will soon have a new option to consider: ground leases. iStar Inc., a New York-based real-estate investment, financing and development firm, has spun off some of its ground leases into a separate real-estate investment trust called Safety, Income and Growth Inc. that is expected to raise $250 million from an initial public offering and concurrent private placement.” (Wall Street Journal, subscription required)
5. Feds Looking into Bernie Sanders’ Wife Over Real Estate Deal “Federal investigators are looking into the finances behind a real estate deal for a now-defunct college put together by the wife of U.S. Sen. Bernie Sanders, and she has hired a lawyer to look after her interests, a family spokesman confirmed on Monday. The complaint against Jane Sanders was filed in early 2016 by attorney Brady Toensing, who served as the Vermont campaign chairman for Donald Trump during his run for president as a Republican. In a separate complaint, Toensing alleged that Bernie Sanders’ senatorial office pressured a bank to approve the loan.” (Associated Press)
6. Here’s When and Where Lidl’s Next U.S. Grocery Stores Will Open “On July 13, Lidl will open new stores in Chesapeake, Virginia; Culpeper, Virginia; Havelock, North Carolina, and Wake Forest, North Carolina. The grocer also announced on Monday plans to open its fourth regional headquarters and distribution center, in Cartersville, Georgia. Lidl operates more than 10,000 grocery stores in 28 countries. The chain now poses a threat to U.S.-based grocers such as Kroger, Ingles and even Target, as well as a discount chain such as Aldi, because of Lidl’s ‘lowest possible prices’ promise.” (CNBC)
7. Downtown Dallas Landmark Projects Asking for More Time to Finish Construction“Developers of downtown Dallas’ two largest building redos are asking for more time to get the projects done. The companies renovating the historic Statler Hotel on Commerce Street and the former First National Bank tower on Elm Street are asking downtown’s tax increment finance district for another year to finish all construction on the projects. Work on the 61-year-old Statler Hotel was supposed to be complete by October under original terms of the tax increment financing grant agreement with the city that was approved in 2014.” (Dallas News)
8. Claire’s is a ‘Complete Train Wreck’ “After nearly six decades in American malls, Claire’s is facing an uphill battle to stay afloat. The retailer — which says it has pierced 94 million ears, more than any other company — has reported 11 consecutive quarters of declining sales and racked up more than $2 billion in debt, prompting speculation among analysts that it could be among the next to face big trouble.” (Washington Post)
9. Real Estate Firms Calls Houston Valuations ‘Spotty and Uneven’ in 2016 “The commercial real estate market is boosting some property values while deflating others. Houston-based real estate valuation firm Deal Sikes and Associates reported Monday that varying conditions across the city’s submarkets and property types have created uneven changes in commercial property value over the last year. The firm said 57 percent of commercial properties recently received notifications of value increases, 18 percent received decreases and 25 percent were unchanged.” (Chron)
10. Amazon Could Easily Own Whole Foods, Rite Aid and Express Scripts, This Top Analyst Says “Amazon.com Inc. may be plenty busy working to complete, and then digest, its $13.7 billion acquisition of Whole Foods Market, but anyone who has followed the company knows that it has ambitions to enter all facets of retail, and frankly all facets of people’s lives. With recent reports that the company its looking to break into the pharmacy space and uncertainty swirling around the merger of Walgreens Boot Alliance Inc. and Rite Aid Corp., one Wall Street firm suggests that Rite Aid, or even a pharmacy benefit manager could be next in the company’s crosshairs.” (The Street)

The proposal by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner would attempt to foster competition in the secondary mortgage market.

(Bloomberg)—Two U.S. senators working on a bipartisan overhaul of Fannie Mae and Freddie Mac are seriously considering a plan that would break up the mortgage-finance giants, according to people with knowledge of the matter.

The proposal by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner would attempt to foster competition in the secondary mortgage market, where loans are packaged into bonds and sold off to investors, said the people.

Corker and Warner’s push to develop a plan marks Congress’ latest attempt to figure out what to do with Fannie and Freddie, an issue that has vexed lawmakers ever since the government took control of the companies in 2008 as the housing market cratered. The lawmakers’ plan is still being developed, and a Senate aide who asked not to be named cautioned that no decisions had been made on any issues.

The stakes of changing the housing-finance system are enormous. Fannie and Freddie underpin much of the mortgage market by buying loans from lenders, wrapping them into securities and providing guarantees in case borrowers default. Together, the companies back more than $4 trillion in securities.

One long-stated desire for some politicians on both sides of the aisle has been to end Fannie and Freddie’s duopoly, partly due to concerns that their size encourages taxpayer rescues if they run into trouble. After seizing the companies nine years ago, the government injected $187.5 billion into them.

To lower the barriers to entry, lawmakers and regulators have suggested letting private competitors use some of Fannie and Freddie’s infrastructure, such as the intellectual property the companies use to securitize mortgages or the data they rely on to determine whether one loan is riskier than another.

Corker and Warner started their work earlier this year, with their aides holding meetings with industry groups and former government officials to discuss ideas. The lawmakers are members of the Senate Banking Committee, which held a hearing on housing finance last month and has scheduled another for June 29. Banking Committee Chairman Mike Crapo and Sherrod Brown, the panel’s top Democrat, would likely take the lead on any housing-finance legislation with Corker and Warner’s input.

Among the ideas Corker and Warner have considered is splitting Fannie and Freddie’s single-family businesses from their multifamily businesses, which finance apartment rentals, said people familiar with their work. The single-family businesses could then be split again into even smaller companies, said the people who spoke on the condition of anonymity because the senators’ discussions are private.

‘Bipartisan Consensus’

Warner said last week at a Mortgage Bankers Association conference that he and Corker had found consensus on a number of issues, including developing a system that preserves the 30-year mortgage. He said that the senators had found a desire for more competition in the single-family business but that competition might not be as necessary in the companies’ multifamily business.

After the speech, Warner told reporters that the senators had ideas to create more single-family competition that were “definitive” but wouldn’t elaborate on what those ideas are. In an email, Warner spokesman Kevin Hall said, “one concept we are exploring includes how to promote competition in the single family market and maintain broad access to credit by removing barriers to entry.”

Corker, in a statement, said “there continues to be strong, bipartisan consensus in Congress that we must act to reform our nation’s housing finance system and protect taxpayers from future economic downturns.” He added that a broad range of senators have been involved in discussions.

Breaking up Fannie and Freddie would face logistical hurdles. In the past, business separations in other industries have sometimes fallen along regional lines, but that might not work for mortgage companies whose viability depends on a broad geographic footprint. Other issues a bill might have to address include how to split up employees, intellectual property and what would happen to the guarantees the companies issue on mortgage-backed securities during any transition.

Bigger Priorities

Corker and Warner’s legislative push also faces other uncertainties. While the banking committee is focused on Fannie and Freddie, the broader Senate is backed up on bigger priorities, such as health care and tax policy. Treasury Secretary Steven Mnuchin has said that Fannie and Freddie will be a focus during the second half of the year.

Compass Point Research & Trading policy analyst Isaac Boltansky recently wrote that he believed there is only a 10 percent chance of lawmakers passing housing-finance legislation before 2019, down from a probability of 30 percent he predicted earlier.

There’s also no guarantee that Corker, Warner and the other senators can build a broad enough coalition. Some affordable housing advocates fear that any legislation that could pass muster with the House GOP will curtail access to home ownership for low and moderate-income borrowers. Some small lender groups, on the other hand, fear the push for more competition will result in large banks taking more control of the secondary mortgage market.

To contact the reporter on this story: Joe Light in Washington at jlight8@bloomberg.net To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net Alexis Leondis

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© 2017 Bloomberg L.P

As the U.S. economy improves, some renters may finally turn to homeownership, provided they qualify for home loans.

Rental apartments may soon have more competition from for-sale houses, according to a new report from the Joint Center for Housing Studies of Harvard University.

“The national housing market is finally returning to normal,” according the Joint Center’s State of the Nation’s Housing report from 2017.

The apartment sector has benefitted from millions of renters in demographic groups that have, in the past, often bought houses for themselves instead of renting apartments. As the U.S. economy improves, some of these renters may finally turn to homeownership, provided they qualify for home loans. That will be especially prevalent in housing markets where homes are relatively affordable.

“We do expect loss of renters to purchase to edge up a bit in metros with comparatively affordable for-sale product, mainly areas in Texas and parts of the Southeast like Atlanta and the Carolinas,” says Greg Willett, chief economist for RealPage, Inc., which owns apartment firm MPF Research.

The homeownership rate is likely to rise

Since 2005, the number of renter households has grown by nearly 10 million. That includes several types of households that traditionally prefer homeownership, according to the Joint Center.

The increase in the number of homeowners in 2016 was the largest since 2006. Early indications are that home buying activity continued to gain traction in 2017, according to the Joint Center.

So far, the number of rental households is growing even more quickly than the number of homeowner households. That means the homeownership rate continues to sink lower.

“Although the homeownership rate did edge down again in 2016, the decline was the smallest in years,” says Daniel McCue, a senior research associate at the Center. “We may be finding the bottom.”

According to Jay Hiemenz, president and COO of Alliance Residential Company, a privately-held multifamily owner, demographic forces and the low homeownership rate has been helping to bolster the rental market so far.

The number of renter households is still growing, but not as quickly as in prior years, increasing by another 600,000 in 2016. Homeownership is beginning to claim closer to its normal share of new households. In addition, many younger renters are approaching the age when Americans have traditionally moved into for-sale housing. “The fact that the oldest Millennials are in their mid-30s now points to the potential for more movement to home purchase,” says Willet.

Developers are also starting to build more single-family homes. For the first time since 2005, single-family construction drove the overall growth in housing starts in 2016. Single-family starts increased 9.4 percent year-over-year to 781,600 units. Meanwhile, multifamily starts edged down from to 393,000 in 2016 from 397,000 in 2015.

Competition from homeownership will still be limited

Homeownership is not going to drain the life from the apartment sector, however. That’s because in top housing markets, it’s difficult to find lots where developers can build new homes. That keeps the price of single-family housing high in many core markets.

On average, 45 percent of renters in the nation’s metro areas could afford the monthly payments on a median-priced home in their market area, according to the Joint Center. But in several high-cost metros of the Pacific Coast, Florida and the Northeast, that share is under 25 percent.

Also, many banks are still hesitant to make new home loans. Among other factors, the future of U.S. homeownership depends on broadening the access to mortgage financing, which remains restricted “primarily to those with pristine credit,” according to the Joint Center.

Unlike other retail landlords that have come under pressure as consumers shop more online, Store focuses on what it calls service properties: preschool facilities, health clubs, dine-in movie theaters and pet-care sites.

(Bloomberg)—Warren Buffett is betting that some types of brick-and-mortar real estate will hold up better than others in the age of Amazon.

His Berkshire Hathaway Inc. took a 9.8 percent stake in  Store Capital Corp., sending shares of the real estate investment trust surging Monday. Unlike other retail landlords that have come under pressure as consumers shop more online, Store focuses on what it calls service properties: preschool facilities, health clubs, dine-in movie theaters and pet-care sites. Less than a fifth of its portfolio is invested in traditional retail — and even those it calls “internet resistant,” including furniture stores, hobby and craft centers, and hunting, fishing and camping shops.

“Store doesn’t compete on the beaten path,” said Haendel St. Juste, an analyst at Mizuho Securities USA Inc. “They are targeting more experiential retail, trying to provide a buffer against risk.”

Retail REITs have taken a beating from investors as Amazon.com Inc. and other online sellers make it easier for consumers to buy clothing, toys and other items from their computers or smartphones and not have to step foot into a physical store. Buffett, for his part, has long expressed confidence in property investments to generate income for extended periods of time, and to provide a cushion should the dollar lose value. He has said such bets, whether in buildings or agricultural land, are often safer than gold or bonds.

“Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment,” Buffett wrote in a letter to shareholders in 2012. Farms, real estate and businesses such as Coca-Cola Co. “meet that double-barreled test.”

Single Tenant

As an owner of single-tenant buildings, Store manages its properties differently than many retail landlords. Tenants cover the costs of operating the real estate, including taxes, maintenance and insurance. Scottsdale, Arizona-based Store essentially acts as a finance company for middle-market tenants without access to affordable capital, St. Juste said.

“They get mom-and-pops’ capital on much better terms by monetizing their real estate,” he said.

Store Capital issued 18.6 million shares to Buffett’s company in a private placement at $20.25 apiece, the REIT said Monday in a statement. That compares with Friday’s closing price of $20.77. The $377 million investment by Berkshire follows a deal last week in which it agreed to prop up Canada’s Home Capital Group Inc. by providing a credit line and committing to take an equity stake.

“Berkshire Hathaway’s investment solidly positions Store for continued growth,” Christopher Volk, the REIT’s chief executive officer, said in the statement. “An investment in our company from one of history’s most admired investors represents a vote of confidence.”

Shares Jump

Store Capital had dropped 16 percent this year through Friday. It jumped as much as 11 percent on Monday, its biggest gain since the company’s 2014 initial public offering. Home Capital had plunged even more before Berkshire agreed to step in. Then the Toronto-based lender jumped 27 percent the day after the deal was announced.

Buffett has other bets on commercial real estate. Berkshire and Leucadia National Corp. are joint owners of Berkadia Commercial Mortgage LLC, a provider of banking and sales services to the property industry.

The billionaire has also personally invested in REITs. After Sears Holdings Corp. spun off some of its properties into an entity called Seritage Growth Properties, he took an 8 percent stake in the trust. The deal followed an investment, in 2000, in Aegis Realty Inc., which at the time owned shopping centers and other properties in 15 U.S. states.

To contact the reporters on this story: Sarah Mulholland in New York at smulholland3@bloomberg.net; Noah Buhayar in Seattle at nbuhayar@bloomberg.net To contact the editors responsible for this story: Daniel Taub at dtaub@bloomberg.net ;Dan Kraut at dkraut2@bloomberg.net Kara Wetzel

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© 2017 Bloomberg L.P

New York tops the list of cities for the highest rents on flexible office space, reports the Wall Street Journal. CNBC looks into the new trends in hotel design. These are among today’s must reads from around the commercial real estate industry.

1. New York City Tops List for Flexible Office Rates “New York City is the most expensive big city in the world to rent a desk, according to a new report about flexible office space. The city topped a list of the largest international central business centers for the cost of renting flexible office space, which usually offers shorter terms than a conventional lease and provides furnished space ready to use.” (Wall Street Journal, subscription required)
2. Communal, Cozy and Connected: Hotels of the Future Break New Ground “Business travelers beware: hotels are redesigning room layouts. It’s now 2017 — you work in coffee shops, your smartphone controls your home and car, and your business trips are short, two-day jaunts with a bit of leisure thrown in. Why can’t your hotel be the same way? New hotels seek to capitalize on that question. Out are the large but dark rooms, the voluminous dressers and utilitarian corner gyms, replaced by cozier rooms, bright common spaces, natural lighting and centerpiece gyms.” (CNBC)
3. Is Dallas’ Housing Market Cooling Off? “They are workers relocating from Southern California, following employers like Toyota and Jacobs Engineering. They are college graduates moving from the Midwest to start careers in what is, reportedly, the country’s best city in which to find work. They are highly skilled immigrants from India capitalizing on a demand for tech workers. They are people from the East Coast who are simply tired of schlepping through slush every winter. They keep coming to Dallas, waves and waves of them, all looking for places to live. Looking and buying and boosting prices.” (D Magazine)
4. Jared Kushner Got $285 Million Loan from Deutsche Bank Ahead of Election Day“Evidence of wider ties between Deutsche Bank (DB) and President Donald Trump’s family and businesses is emerging after a report that the German bank lent Trump’s son-in-law Jared Kushner $285 million ahead of the presidential election. Deutsche Bank finalized a $285 million loan to Kushner’s real estate company a month ahead of Election Day, The Washington Post reported late Sunday. Part of a refinancing package for property near Times Square in Manhattan, the deal was struck as Kushner was propelling the Trump campaign to the finish line and Deutsche Bank was settling fraud cases with federal and state authorities.” (The Street)
5. Buffett’s Berkshire Hathaway Just Became One of the Largest Shareholders in an Obscure Real Estate Firm “Warren Buffett’s Berkshire Hathaway is investing more money in the real estate business. Store Capital announced on Monday that Berkshire invested $377 million in the company, which represents a 9.8 percent stake in the real estate investment trust. The company issued 18.6 million shares of Store Capital shares in a private placement to a subsidiary of Berkshire Hathaway, National Indemnity Co., at $20.25 per share.” (CNBC)
6. Commercial, Multifamily Mortgage Originations in U.S. to Dip in 2017 “According to the Mortgage Bankers Association, commercial and multifamily mortgage originations in the U.S. will be down slightly in 2017, ending the year at $478 billion, a decrease of 3 percent from the 2016 volumes. Mortgage banker originations of just multifamily mortgages are forecast at $206 billion in 2017, with total multifamily lending at $245 billion.” (World Property Journal)
7. Hines Nabs Sacramento Office Tower in $120M Deal “Hines recently snapped up Park Tower, a trophy office property in Sacramento. The company purchased the asset from CIM Group in a transaction valued at, according to the Sacramento Business Journal, $120.5 million. The 25-story Park Tower, as Cameron Falconer, senior managing director with Hines, said in a prepared statement, is ‘a best-in-class office asset in a very desirable location.’” (Commercial Property Executive)
8. Staten Island Ferris Wheel Project is Spinning Out of Control “The giant Staten Island Ferris-wheel project is spinning out of control. The design team building the 630-foot-high New York Wheel on the borough’s north shore got into a bitter pay dispute with the developer — and walked off the job in late May. The developer then made desperate pleas to a federal judge to get the work started again, saying the revitalization of Staten Island’s waterfront was at stake.” (New York Post)
9. Is New York Real Estate Showing Symptoms of Distress? “For Hans Futterman, it was a dream defaulted. The developer assembled a vacant plot of land — formerly a Shell gas station and a parking lot — at Frederick Douglass Boulevard and West 122nd Street in Harlem over roughly four years, from 2011 to 2015. He then secured approvals to construct a 12-story, 127-unit residential building on the site, which offers 205,000 buildable square feet. But in June of last year, Futterman, who declined to comment for this story, defaulted on a $36 million loan from RWN Real Estate Partners, and five months later his development firm filed for Chapter 11 bankruptcy protection.” (The Real Deal)
10. NorthMarq Capital Buys SLC Mortgage Banking Firm “NorthMarq Capital has acquired Western Capital Realty Advisors, a leading commercial mortgage banking firm in Salt Lake City. The acquisition includes a $400 million loan servicing portfolio. John Bradshaw, Western Realty Capital’s founder, will join the company as managing director. Additionally, principals Nate Barnson, Larry Pinnock, and Dale Christiansen will come aboard NorthMarq as well as key employees Tara Jewkes and Tom Bradshaw.” (Commercial Property Executive)

In a Q&A with NREI, Robin Abrams delves into the rise of e-commerce, offers her take on the state of retail real estate and discusses the impending acquisition of Whole Foods.

Given the steady drumbeat of store closures around the country, retail real estate veteran Robin Abrams has made a big career move at an intriguing time.

On June 1, Abrams joined Manhattan-based commercial real estate firm Eastern Consolidated as vice chairman of retail and principal. Abrams previously served as vice chairman and principal of The Lansco Corp., the Manhattan-based commercial real estate firm where she’d worked since 1979. When Abrams hopped from Lansco to Eastern Consolidated, she brought along her three-member team of brokers.

At Lansco, Abrams cultivated leasing deals for companies including Citibank, The Children’s Place, Room & Board and Bang & Olufson, along with fashion brands like Bogner, Reiss, Penguin, Tracey Reese, Saint James and Gemelli Milano. Her tenure at the firm included landlord representation for several high-profile properties on Manhattan’s Fifth Avenue and Madison Avenue.

Abrams will be putting that expertise to use as she and others in retail real estate cope with the ongoing seismic shifts in the industry. Abrams notes that she and her husband exemplify the growing conundrum of how e-commerce and brick-and-mortar stores can both compete and coexist in today’s retail landscape.

“My husband is an online shopper. If he needs a screw for 5 cents, he will order it on Amazon. How they make money on guys like him, I don’t know,” she says. “But I am a brick-and-mortar shopper. I may look at things online to get ideas, but I will always ultimately want to go to the store to touch and see and feel before I buy.”

In a Q&A with NREI, Abrams delves into the rise of e-commerce, offers her take on the state of retail real estate and discusses the impending $13.7 billion acquisition of Whole Foods Market by Amazon. The Q&A has been edited for length, style and clarity.

NREI: Obviously, store closures have been in the news a lot lately. What’s your outlook for retail real estate?

Robin Abrams: I normally like to be optimistic, and I do believe that things go in cycles. The rents in many parts of the country became much too aggressive, and so, in part, we’re seeing a natural correction with softening of rents, which will lead to increased opportunity for some tenants who were priced out of the market.

I do think that as the world has changed and shopping patterns are modified, it becomes more and more difficult for retailers to compete if their product is not spot on, and that is why we’re seeing so many store closures.

We’re seeing retailers that have been around for many years that are not competitive, whose product is not fresh and original and constantly changing in order to compete. A lot of those retail companies have had ups and downs over the past couple of years, and they are now going through bankruptcies. That doesn’t mean that there aren’t new, exciting brands that are doing it right, that are able to compete and be successful in this environment.

And, by the way, many of them are combining e-commerce sales with brick-and-mortar, and the two go hand in hand and build a company’s overall sales and are complementary. Most sophisticated retailers understand that they’re going to be missing potential sales if they do not have a very strong e-commerce business in conjunction with standalone stores.

NREI: If you’re a retail landlord, how should you be positioning yourself or adjusting your plans in light of what’s happening in retail right now?

Robin Abrams: Smart landlords are doing a couple of things. Number one, they’re being more flexible and more creative in doing deals. They’re looking at all kinds of alternatives they might not have considered in what was a stronger retail market. They’re doing pop-ups or shorter-term deals. They’re offering tenants incentives or being creative in terms of how they structure deals to entice retailers to pull the trigger and open a retail store, while at the same time allowing the retailer to mitigate some of the risk that’s intrinsic in doing that.

Number two, landlords are looking at the overall deal terms, and adjusting the rents so they can be competitive and realistic in order for retailers to take advantage of their offerings.

NREI: How does that affect what you do on a daily basis?

Robin Abrams: I have to work twice as hard to make a deal and earn a commission. But I do think, in a good way, that there are lots of alternatives in terms of how we approach our business and how we are enabled to do deals in what has become a challenging retail environment.

NREI: If you’re a retail landlord, should you be worried about the Amazon-Whole Foods pairing? Should you be excited? What should your mindset be?

Robin Abrams: If you’re a landlord and you have space for a potential Whole Foods location, you should be very happy. If you’re a landlord and you have an existing competitor grocer in your space, you should be a little concerned.

NREI: What effect will the Amazon-Whole Foods deal have on grocery-anchored retail properties?

Robin Abrams: I think that the grocery model is potentially going to have to change in order to accommodate and compete with the Amazon-Whole Foods situation. More and more households are starting to order their dry grocery goods online. What was difficult for the grocers to be able to do was to service the fresh foods, and it was only the online-only grocers that did go ahead and set up distribution centers that could accommodate that. Now, you’ve got all of these other grocers that have brick-and-mortar stores and they may have to, in order to compete, offer some sort of online sales with home delivery.

NREI: What will be the effect of the Amazon-Whole Foods deal on retail real estate?

Robin Abrams: From a perception point of view, the Amazon-Whole Foods situation just further drives home the fact that online sales and brick-and-mortar are synergistic — they support one another, — and that although online sales continue to grow and, in part, infringe on brick-and-mortar, there are still instances where brick-and-mortar is going to support and enable the online sale.

The Amazon-Whole Foods situation is a great example of that, because Amazon could not be in the fresh food business if not for the existing Whole Foods stores, which will provide them with a retail venue and, more importantly, distribution centers. From that point of view, it’s brilliant. It allows both companies to expand their business platforms and reach an audience that’s synergistic and is pretty much a shared customer base, and to increase their business overall.

Demand for hotel rooms is increasing throughout the rest of the country, in cities where there is not as much new construction, not just the top 25 markets.

Hotel developers now have to work harder to find attractive markets for new properties.

The hotel sector is performing, but it’s also experiencing the addition of thousands of new hotel rooms—nearly as many as were built during the last market peak. Developers planning new construction projects now have to struggle to find markets where strong demand for rooms has not already been matched by high volumes of new construction.

Some developers may be looking outside of the largest cities for the next opportunity. “The occupancy rates are increasing in the markets outside the top 25 hotel markets,” says Jan Freitag, senior vice president of lodging insights with research firm STR Global.

Construction boom continues for hotels

In June 2017, there were 191,000 new hotel rooms under construction nationwide. That’s up 16 percent compared to the same period a year ago. That rate of growth is not as fast as it has been in recent years, but the inventory is still growing.

Nearly half (47 percent) of all of the new hotels now under construction are being built in the 25 largest hotel markets, including New York City and Los Angeles. The inventory in these top markets increased 2.5 percent in just the first five months of 2017. These markets are also attracting a lot of guests to their hotel rooms—the number of room sold increased 2.4 percent in the first five months of 2017, according to STR.

“The growth in demand is basically on par with the supply of new room,” says Frietag.

That’s great news for developers who have already started construction, but at this stage in the cycle, it may not be the best time to start new projects, even if the outlook for hotels remains optimistic. “Our forward-looking indicators are trending higher, which suggests demand growth [for hotels] should once again turn higher,” says Wes Golladay, analyst for RBC Capital Markets.

At the same time, demand for hotel rooms is increasing throughout the rest of the country, in cities where there is not as much new construction, not just the top 25 markets. The number of hotel rooms sold grew 2.6 percent in these smaller markets, where the inventory only grew by 1.5 percent.

Some of these small markets may be benefiting for a short-term increase in demand, but a few may still present opportunities. For example, in Colorado Springs, Colo., the revenue per available room (revPAR) grew 16.6 percent in the first five months of 2017. But the inventory of rooms only grew by 1.7 percent over the same period. Colorado Springs has had consistent growth in demand in recent years. In Hawaii, revPAR grew 12.9 percent, but the inventory only grew by 0.8 percent.

Of course, smaller markets like these present their own challenges. They may be far away from the places most investors are familiar with. Also, it’s much easier for a few large projects to overwhelm a smaller market.

Buying existing hotels

Some investors are avoiding the challenge of new development entirely by buying existing hotels. “There’s no construction risk—you can step into an operating entity and start generating cash tomorrow,” says Freitag.

But buying property has its own challenges at this point in the cycle. Through the first half of the year, the capital markets have been deeply uncertain about the likely direction of federal policies.

The number of hotel properties bought and sold in the first five months of 2017 is down 14 percent compared to the year before. The year started very slowly, but has begun to recover, especially for sales of individual properties, according to Real Capital Analytics, a New York City-based research firm.

The suit centered on the constitutional prohibition against government taking of private property without just compensation.

(Bloomberg)—The U.S. Supreme Court dealt a blow to property-rights advocates, ruling against four siblings who said they were unconstitutionally barred from building on a Wisconsin riverfront lot.

The justices, voting 5-3, said a Wisconsin state court was right to throw out the family’s suit, which centered on the constitutional prohibition against government taking of private property without just compensation.

In rejecting the Murr family’s bid for compensation, the Wisconsin court pointed to an adjacent lot that is also owned by the family and already has a cabin on it. The family has owned the two lots on the St. Croix River since the 1960s.

A 1978 Supreme Court decision says courts should look at “the parcel as a whole” when considering whether land-use regulations are so severe they require compensation to the owner.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net To contact the editor responsible for this story: Greg Stohr at gstohr@bloomberg.net

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