United States




·      What will driverless cars do to CRE?

·        How long does it take to sell a home in New York City? ALSO: More people think renting is a better deal than buying

·        Are apprenticeships the answer? The Department of Labor says there are 6.1 million jobs that employers can’t fill because they can’t find enough skilled workers.

·        Flattest U.S. yield curve since 2007 may just keep flattening

·        WeWork transaction to reduce Hudson’s Bay debt by C$ 1.6B. Is Macy’s up next?

·        Which hedge funds now have $50B AUM?

·        • New Jersey’s plans for wind farms


·        NAFTA clouds rate outlook for BoC


·        Battle heats up for London clearing business post-Brexit

·        Wordsmithing: A taper for the ECB?


         1) The Fastest Growing Jobs Over the Next 10 Years (BLS)

In short: The BLS released its forecast for the fastest growing jobs over the next decade this morning, and not surprisingly, the list is dominated by very low-wage jobs and very high-wage jobs. Advice to parents: teach your kids to code. The report has some interesting data…including the fact that in 10 years, the largest fraction of the labor force will be aged 55+! Also, don’t bank on a buoyant rebound for labor productivity: the BLS projects that it will grow 1.6 percent annually from 2016 to 2026: faster than the 1.2 percent annual growth from 2006 to 2016, but slower than the 2.8 percent annual increase from 1996 to 2006.



2) Backlog in EB-5 Immigration Program Creates Cash Hoard for Property Developers (WSJ) In short: The popularity of the program in China means delays of up to 10 years—so what are developers who no longer need investors’ cash to do? Redeploy! ALSO: Click here for a primer on EB-5.

A backlog in the controversial EB-5 immigration program, which enables foreigners who invest in the U.S. to get green cards, is making billions of dollars of new money available for investments in real estate and other businesses. The backlog is primarily in China, where the EB-5 program has become so popular that applicants can face delays of more than 10 years from the time they make their investment of at least $500,000 to the time they get their visa. The U.S. government limits the number of EB-5 visas to 10,000 a year, and per-country cutoffs can get imposed on countries like China where the application rate is high.

This had created a problem for applicants: 10 years is such a long time that some U.S. developers want to repay the investors’ money before visas are issued. But doing do would disqualify the EB-5 application. The solution—which was spelled out by the U.S. Citizenship and Immigration Services in a June policy memo—is a process known as redeployment. Essentially, the government said, EB-5 applications remain in good standing if the repaid money is reinvested in an active business and remains “at-risk.”

More than $16.6 billion is expected to become available for redeployment between now and 2020, according to NES Financial, of San Jose, Calif., one of the leading providers of EB-5 servicing and administration. Investment companies have begun to position themselves to take advantage of billions of dollars now available for reinvestment. For example, in July, a venture of Greystone & Co., NES and Capital United LLC created a way for EB-5 money to be redeployed into a fund of real-estate bridge loans originated by Greystone. The fund hopes to have raised $100 million by the end of next year, according to Allison Berman, the head of Greystone’s EB-5 business. Other U.S. investment companies are expected to follow Greystone’s lead and try to tap into the redeploying funds. “People can find uses for billions of dollars,” said H. Ronald Klasko, an immigration lawyer based in Philadelphia.

The EB-5 program was created in 1990 and has been popular among U.S. real-estate developers, who have flocked to it as a source of low-cost financing. The program requires investments of at least $500,000 to create at least 10 jobs, making it appealing to city and state economic development agencies as well. But EB-5 also has been criticized for favoring wealthy immigrants and for channeling most of the funds to upscale neighborhoods rather than the economically disadvantaged and rural areas for which the program was intended. Some developers and middlemen who have raised money through the program also have been alleged to be involved in fraudulent schemes aimed at taking advantage of applicants.

Now the redeployment of funds has raised new concerns about the EB-5 program, which is facing reauthorization by Congress. For example, the June policy manual “appears to allow” developers to invest redeployed funds in projects that don’t get as much vetting as the original EB-5 project, according to Gary Friedland, a scholar-in-residence at New York University who has written about the program. “The investors may unwittingly end up with their money being invested in a much riskier venture than they anticipated,” he said. More than 4,400 petitions for EB-5 status were filed in the third quarter of fiscal year 2017, which ended in June, according to Invest In the USA, a trade association. The number of pending petitions was up 11% from the second quarter to over 24,600, the group said.

Greystone, a large real estate lending and advisory firm, got into the EB-5 business in 2015 to help developers obtain low-cost capital. The firm has raised $25 million through the program for an apartment building under development on 126th Street in Manhattan and is raising $57.5 million for a similar project in Astoria, Queens. Ms. Berman said the Greystone venture decided to invest the redeployment funds in bridge loans backed by “performing, stabilized property” because such investments are relatively low risk compared with new developments. The funds are also more liquid than they would be if they were reinvested in new construction, she said.

There is no job-creation requirement on the redeployed funds. But the necessary jobs have been created after the original EB-5 investments are made, Ms. Berman pointed out. “Each investor already has created at least those 10 jobs,” she said.

Ms. Berman says the fund targets a 4% return after fees. Redeployment is good for the U.S. economy because it is keeping the EB-5 money “in commerce for longer than initially anticipated.” EB-5 currently is a front-burner issue in Congress because the most controversial part of the law is scheduled to be sunset on Dec. 8. Many members have called for an overhaul. A few want it to be eliminated. Without a consensus, Congress has been approving short-term extensions when similar deadlines have been hit. But some say the stars might actually line up this time around for an overhaul that would include an increase in the amount of the minimum investment, more investor protections and changes designed to earmark more of the funds for disadvantaged and rural areas, according to industry officials. “We think there is a realistic chance this time that something might actually get done,” Mr. Klasko said.

3) Commercial Property Transactions Dry Up as Sellers Hold Out for Better Prices (WSJ)

In short: Listed REITs have sold $47 billion in assets as of Oct. 23 this year compared with $71 billion in assets sold in 2016 as buyers and sellers are unable to find a middle ground on valuation. Sellers are holding out, but they may be sorry if the market turns, although this time, they won’t be undone by leverage. Also at issue for REITs: Where to redeploy the capital from their sales?/span>


Big U.S. real-estate companies have been selling assets at a slower pace this year, as the gap widens between their views on what their properties are worth and buyers’ willingness to pay high prices. After an eight-year bull run for commercial real estate, some investors have been anticipating a correction. But that hasn’t happened yet, and there is little consensus on how much longer the bull market has to run.

Buyers, facing tighter lending conditions and slower income growth, are expecting lower prices and bidding accordingly, but sellers, including publicly traded property owners, are holding out for better deals. Listed real-estate investment trusts have sold $46.7 billion in assets as of Oct. 23 this year compared with $71 billion in assets sold in all of 2016, according to data from Real Capital Analytics. Acquisitions, on the other hand, have been at a roughly similar pace at around $44.6 billion as of Oct. 23 this year compared with $47.9 billion in 2016. There have been fewer major transactions especially in the office and retail real-estate sector.

Strong growth in property rents in recent years has fueled deal making, as owners met their targeted yields earlier than expected and buyers were bullish on further appreciation. This year, by contrast, rent growth apart from the industrial sector has been subdued or flat, said Brian McAuliffe, president of institutional properties at real-estate consultancy firm CBRE Group . Unlike previous cycles, property owners aren’t overly leveraged and are still able to access the debt markets rather than be compelled to sell at unattractive prices. “Sellers are comfortable with the performance of the rental markets if they hold their properties,” said Mr. McAuliffe.

Mall REIT GGP Inc. in August said it would continue to lease its malls rather than sell them. That was a turnaround from May, when Chief Executive Sandeep Mathrani said it would explore “strategic alternatives,” including a sale of the Chicago-based company following frustration over the public market’s low valuation. “We felt there was a lot of meat on the bone that the board didn’t want to leave on the table,” said Mr. Mathrani during the second-quarter earnings call in early August. Shares of GGP fell 4.9% on that day and have yet to recover to levels seen during the May to July period.

A dearth in transactions of top-tier malls this year has made it difficult for analysts and investors to make more accurate calls about market conditions. “The extended period of inactivity is disquieting,” said real-estate research firm Green Street Advisors in a recent note. “Mall REITs should be more active in selling assets given the massive current discounts at which they trade relative to our net asset value estimates.”

Australian investment manager QIC’s recent acquisition of Forest City Realty Trust’s stake in 10 regional malls should have created some buzz since the assets sold at a capitalization rate, a measure of yield, of 5% to 6%. But the deal had been agreed upon some time ago and likely isn’t indicative of the current transaction environment, Green Street said.

For REITs, there is the added burden of making sure any sales proceeds can be deployed for other uses quickly, given their inability to hoard cash. These landlords are hesitant to sell in part because of the lack of attractive assets to buy as well as a general reluctance to do share buybacks. “The question is, where are they going to invest the capital?” said Alexander Goldfarb, managing director at Sandler O’Neill + Partners.

One exception would be New York City’s largest office landlord, SL Green Realty Corp., which has been active on the deals front this year. It sold 16 Court St. in Brooklyn in August and is currently in negotiations to sell its interest in the office building on 1515 Broadway. Alongside private investment manager RXR Realty, it also recently acquired a 49% stake in Worldwide Plaza, a Class A office building in Manhattan valued at $1.73 billion. But SL Green also spent roughly $102 million during the third quarter to buy back shares under its previously announced $1 billion share repurchase plan, a larger-than-expected repurchase for the quarter. The REIT has spent $350 million in share buybacks so far.

Some analysts warn the decline in transactions might actually be masking weaknesses in prices of commercial real estate. In New York City, Morgan Stanley Research found that while there is a deep pool of buyers for office buildings, there is a current valuation gap of around 10% or more between buyers and sellers, and the gap between winning bids and the next closest bidder is around 5% to 15%. “In our view, this isn’t particularly bullish even if it limits the extent of price declines,” said the investment bank in a recent note.


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Heidi Learner

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