This is the week of Nov. 21, 2016. Here are last week's top New York commercial real estate stories:
ECONOMISTS SAY TRUMP PRESIDENCY LIKELY TO BOOST GDP, START TRADE WARS
Starting off with the biggest news since our last episode, for all of you out there who have been living under a rock, Donald Trump is the President-elect of the United States of America. And while it’s too early to tell exactly what this means for the country and its CRE industry, there’s been a mixed bag of impacts felt thus far…
The Wall Street Journal reported last week that economists expect Trump will aim to reduce taxes and invest in infrastructure to stimulate the economy. On average, economists increased growth estimates for the US economy to 2.2% next year up from 1.5% over the past 12 months. Experts also forecast inflation to hit 2.2% next year and 2.4% by 2018, which if correct would be the first stretch of sustained inflation over 2% since before the Great Recession. At the same time, 43% of economists cited the potential for a trade war as the biggest risk to the economy.
WHAT A TRUMP PRESIDENCY MIGHT MEAN FOR REAL ESTATE TAXES, FOREIGN INVESTMENT
Honing in on the impact of a Trump presidency on the real estate industry: While it’s tempting to think that electing a real estate mogul as President is fantastic news for the commercial real estate sector, Trump's rhetoric regarding real estate taxes has been a bit conflicted.
The President-elect has claimed he would jack up taxes on carried interest, the income on lower-taxed capital gains, and this could slow down deal flow, according to Bloomberg.
Yet at the same time Trump has proposed lowering the tax rate for business partnerships, which could include property fund managers, from 23.8% to 15%. While that tax decrease would certainly benefit real estate players, Trump’s tough talk on foreign trade could scare away the foreign investment that has proven critical for real estate. Last year foreigners invested a record of almost $100B into US commercial properties, and the last thing the industry needs is for that river of cash to run dry.
EXPERTS SAY TRUMP’S ELECTION WON’T DERAIL THE EXPECTED DECEMBER RATE HIKE
But how will the election results impact the expected impending interest rate hike from the Federal Reserve?
Well, Federal Reserve Bank of St. Louis President James Bullard says the election of Donald Trump isn’t going to derail the Fed’s expected interest rate increase next month.
Bullard says there isn’t enough volatility in markets to justify pushing back December’s rate hike, and his comments come as Fed officials increasingly close ranks to defend their independence from political influence, Bloomberg reports. Investors currently forecast an 82% chance of a quarter percentage point hike to short-term interest rates at the Fed’s December meeting.
It should be noted that, during his campaign, Trump had accused the Fed of keeping rates low to help President Obama, and Hillary Clinton by association. But the President-elect has not commented on the Fed since his victory.
TRUMP TOWER SECURITY IS WREAKING HAVOC ON FIFTH AVENUE LUXURY RETAILERS
OK, so we’ve covered the larger economy, the real estate industry and interest rates. But what sort of impact has the election had locally on New York City?
Fifth Avenue retailers aren’t happy with President-elect Donald Trump, but not for any reason you might be thinking. The increased security at Trump’s NYC home has reportedly restricted pedestrian traffic and caused sales to drop throughout the area. The day after the election, for example, sales plunged as Trump Tower turned into a fortress, CBS News reports.
While sales came back somewhat by the end of the week, retailers still weren’t thrilled about low traffic, especially with rents exceeding $3k/SF. The tower's surrounded by police officers, federal agents and even a checkpoint for those going into the tower. There are also metal barriers on both sides of Fifth Avenue. All of 56th Street is blocked off. There’s also the matter of protesters. Ten thousand marched outside the tower on Wednesday and more demonstrations are expected. Authorities have promised to “make some adjustments” to help improve window shopping.
US RETAIL SALES ROSE BRISKLY IN OCTOBER
Speaking of retail, the WSJ reported that retail sales—measuring spending at restaurants, clothiers, online stores and other shops—rose 0.8% in October from the prior month, according to a report from the Commerce Department last Tuesday. Sales grew 1% in September, revised figures showed, up from a previously reported 0.6% increase. Those gains marked the best two-month stretch of sales in at least two years.
Stephen Stanley, chief economist at Amherst Pierpont, said in a note to clients, “The consumer is in very good shape and is poised to continue to lead the economy forward based on rising wages, low unemployment and clean balance sheets.” Consumer spending accounts for more than two-thirds of economic output in the US, and Americans’ willingness to shell out more is a big factor behind the economy’s rebound in recent months.
The latest spurt in consumer spending could signal new momentum heading into 2017.The holiday shopping season is the most crucial part of the year for many retailers’ profit margins, and some companies, including Macy’s Inc and Kohl’s Corp, have reported improving sales trends and optimism for the holidays. Unseasonably warm weather also likely boosted retail traffic in October.
RETAIL CMBS LOSSES DROP, WHILE DELINQUENCIES UP IN OCTOBER
While retail activity has been up the last two months, retailers continue to face headwinds and turbulent times, as evidenced by big-box retailers that continue to shutter stores and downsize their real estate as consumers continue to gravitate online. In its Retail Sector Snapshot for November, Trepp research reported the following three statistics:
- Retail losses and dispositions in October dropped to $2.2B. That’s about half of September’s total, according to Trepp, and loss severity for the past six months continued its downward trajectory, dropping to 45% in October.
- CMBS retail delinquency in October rose to 6.03%, while the overall CMBS delinquency rate rose to 4.98%. Compared to other major property types, retail loans averaged 37.3% in loss severity, the second-highest average.
- Looking ahead, loans for 160 retail properties totaling $3.1B are slated to mature next month—this accounts for roughly 41.5% of November’s total maturing balance, including CMBS, single-asset and large loans.
CUOMO, REBNY ALREADY ARGUING OVER THE NEW 421-a
Finally this week, only one day after agreeing to revive the 421-a abatement, Gov. Andrew Cuomo’s office and REBNY began squabbling over the deal’s meaning.
The quarrel started when REBNY said the new 421-a’s exemption would apply to every eligible project in the city, as opposed to the specific areas reported earlier: 300 rental units or more south of 96th Street in Manhattan, and Queens and Brooklyn’s Community Boards 1 and 2 within one mile of the nearest waterfront bulkhead. The group also said the exemption would apply to those who didn’t meet the wage requirements, and that the longer affordability period would be a city benefit in exchange for the exemption.
An official in Cuomo’s office, however, told Crain’s that those who didn’t meet the requirements would receive a tax break under a different timeline. If the benefit were applied citywide and without the wage requirement, the official continued, developers would get an additional decade of tax exemption at the cost of the taxpayers. The state legislature, which still needs to approve the law, is expected to take up the issue in January.
