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the BRIEFING: December 2013

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The Briefing is a monthly piece by Transwestern that discusses the national economy, capital markets and real estate outlook at a glance. It is an aggregation by Tom McNearney, Transwestern's chief …

The Briefing is a monthly piece by Transwestern that discusses the national economy, capital markets and real estate outlook at a glance. It is an aggregation by Tom McNearney, Transwestern's chief investment officer, of other articles and reports.


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  • 1. the BRIEFING THE NATIONAL ECONOMY AT A GLANCE DECEMBER 2013 www.transwestern.net
  • 2. THE ECONOMY Despite uncertainties, it’s business as usual in the U.S. Federal officials are debating plans to wind down the $85 bn per month bond-buying stimulus. ƒƒ 3Q GDP growth revised to 3.6% ƒƒ Household debt increased $127 bn in 3Q to $11.28 trn, signaling consumers are borrowing more again ƒƒ November retail sales up 0.7% ƒƒ Despite improving balance sheets: ƒƒ WalMart reported third straight quarter of poor U.S. sales ƒƒ Kohl’s also reported weak sales DISRUPTIVE TECHNOLOGIES? 84.1M $11B Tablet sales, eclipsing PC sales by 1M in 4Q13 Estimated value from Twitter IPO on sale of 70 million shares $22K 24/7 Cost of Baxter, new manufacturing robot that performs many repetitive tasks Baxter works around the clock and is essentially a $3.00 per hour unskilled worker ƒƒ Black Friday was a disappointment Follow us | @Transwestern www.transwestern.net
  • 3. GLOBAL OUTLOOK A more favorable global economic outlook is coming into focus as the Eurozone shows first improvements in unemployment, and Japan’s outlook is on the rise. ƒƒ Eurozone welcomes positive news on unemployment and inflation ƒƒ Unemployment down for the first time since Sept. 2011 record high of 12.2% to 12.1% in October ƒƒ Inflation in EU rose to 0.9% from 0.7% in October, but still some fears of deflation ƒƒ Due to sharp fall in inflation in October, EU central bank cut its main interest rate to a record low of 0.25% ƒƒ India’s stock market climbed to record territory ƒƒ Brazil sold $4.25 bn of debt – the largest dollar-denominated offering on record Follow us | @Transwestern www.transwestern.net
  • 4. GLOBAL OUTLOOK, cont. ƒƒ Greece staying afloat ƒƒ Moody’s upgraded Greece’s credit rating two notches from C to Caa3 ƒƒ On course to balance its budget before interest payments this year ƒƒ Rescue lenders have kept Greece afloat since it lost market access in 2010 with $327 bn in bailout programs from Eurozone and IMF ƒƒ Austerity and bailout plan have been harsh, with unemployment surging past 27% and expected to wipe out 25% of Greece’s GDP ƒƒ China on the rise ƒƒ 3Q GDP rose 7.8% compared to 1Q increase of 7.7% and 2Q increase of 7.5% ƒƒ Hong Kong banks sold $1.8 bn of stock www.transwestern.net Follow us | @Transwestern
  • 5. CAPITAL MARKETS Wall Street continues as normal despite concerns over when the Fed might withdraw some of its $85 bn per month bond-buying stimulus. ƒƒ Capital markets have completely recovered from the mid-summer panic over tapering ƒƒ Banks have eased lending policies for commercial and industrial (CI) loans and experienced little change in demand for such loans over the past three months ƒƒ All domestic banks that eased CI lending policies cited increased competition for such loans as an important reason having done so ƒƒ Domestic and foreign institutions also reported having eased standards and experienced increased demand for commercial real estate (CRE) loans Follow us | @Transwestern www.transwestern.net
  • 6. COMMERCIAL REAL ESTATE Impact of interest rate spike and threat of tapering was short-lived, as both CRE debt and equity markets have rebounded nicely. ƒƒ The impact of rising rates on cap rates has thus far been minimal ƒƒ October RCA report concludes: ƒƒ October’s total commercial property sales hit $31.8 bn, 14% more than Oct. 2012 ƒƒ YTD through Oct. 2013 = $272.1 bn, 26% more than same period prior year ƒƒ Property prices continued to accelerate (with the exception of apartments) ƒƒ National composite Moody’s/RCA CPPI was up 4.9% in 3Q and 13.6% over the past year Follow us | @Transwestern www.transwestern.net
  • 7. COMMERCIAL REAL ESTATE, cont. Pricing and volume statistics indicate a rotation by investors to higher-yielding property types, such as retail and hotels. ƒƒ Sales of significant office in October totaled $9.7 bn, registering a 35% increase YOY ƒƒ RCA reports flat cap rates while the Moody’s/RCA CPPI indicates office prices nationally were up 5.8% in 3Q ƒƒ Industrial sales reached $5.1 bn in October, second highest monthly total in 2013 ƒƒ Warehouse cap rates have remained relatively stable throughout the year at an average of 7.5%, while flex cap rates have jumped approximately 50 bps to almost 8.0% ƒƒ Retail property sales have actually declined 35% YOY with October sales of $3.7 bn in large measure due to a shortage of portfolio sales ƒƒ Retail prices are up 9% in 3Q and 24% over the past year with cap rates falling approximately 25 bps for both malls and strip centers www.transwestern.net Follow us | @Transwestern
  • 8. COMMERCIAL REAL ESTATE, cont. ƒƒ Apartment sales totaled $10 bn in October, a 67% increase YOY ƒƒ Garden apartment cap rates on average declined to approximately 6.25% while mid/ high-rise cap rates rose slightly to 5.4% ƒƒ For Class A projects covered by NCREIF, cap rates have actually tightened by 20 bps during the run up in a 10-year Treasury rates ƒƒ 2013 CMBS issuance expected to approach $90 bn – up 80% from 2012 ƒƒ $72.6 bn of offerings already completed ƒƒ 15 more transactions totaling $14.9 bn are scheduled to price by year-end, bringing the total to $87.5 bn ƒƒ CMBS delinquencies continued to dip to 6.32% at the end of October, down from 8.29% a year earlier ƒƒ Long-awaited massive Hilton CMBS entered the market – $3.5 bn backed by 23 properties owned by Blackstone and coincides with the IPO of the hotel chain, initially priced at $20 per share, a $8.5 bn profit for Blackstone www.transwestern.net Follow us | @Transwestern
  • 9. DOWNLOAD THE FULL REPORT: the BRIEFING THE NATIONAL ECONOMY AT A GLANCE the BRIEFING is an aggregation by Tom McNearney, Transwestern chief investment officer, of other articles and reports. Tom leads Transwestern’s capital market efforts for development and investment nationwide. Tom also serves on the firm’s investment committee and board of directors, and he directs the execution and expansion of the firm’s principal investment activities across the country. DISCLAIMER Copyright © 2013 Transwestern. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein. www.transwestern.net

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