thehousingbubble@gmail.com
Blog

That Window Of Time When The Russians And Chinese Were Buying With Flight Capital Are Gone, Just Completely Gone

A report from Bisnow. “Experts have been estimating the likelihood of a commercial real estate bubble for years now. As recently as a year ago, experts in sectors like multifamily denied that bubble-like conditions existed, or at least downplayed the likelihood. Now analysts are changing their tune. Warnings about a commercial real estate price bubble have been increasingly common this year.”

“Former Federal Reserve Chair Janet Yellen said so before leaving office, her successor has hinted at it, and Goldman Sachs and Wells Fargo, among others, have broached the subject as well. The upshot is that valuations keep appreciating and investors keep betting that rents can go higher to pay for it. Nonbanks have been facilitating those bets by stepping up their CRE lending in recent years, even as banks started behaving more cautiously in the sector, Bloomberg reports.”

“Some banks have loosened their lending standards this year for CRE loans, the better to compete with alternative lenders, the Federal Reserve reports. That means that despite higher interest rates, the money is still flowing to pay for ever-higher-priced CRE deals.”

From Crain’s New York Business. “Extell Development Co. launched sales at its newest Billionaires Row tower today. The firm is hoping to rake in more than $4 billion selling 179 units at Central Park Tower, though market dynamics suggest that moving the building’s bigger, pricier units will be a tall order.”

“More homes are on the market for longer, and fewer are being sold, according to data from Miller Samuel. And the pricier the apartment, the more dramatic the slowdown—in part because the supply of foreign buyers looking to park money in Manhattan real estate has dwindled.”

“‘You had that window of time when the Russians and Chinese were buying with flight capital that are gone, just completely gone,’ Andrew Gerringer of new development brokerage the Marketing Directors said, noting that developers along West 57th Street such as Extell could find themselves in trouble.”

From Mansion Global on New York. “The Manhattan townhouse market has logged its second strong week in a row, according to the latest Olshan Report. Buyers signed contracts for five townhouses in the week ending Sunday, adding up to 11 such transactions in the past two weeks. In total, there were 23 contracts signed for luxury homes—both apartments and townhouses priced over $4 million—in the week ending Sunday.”

“Sellers have had to discount their houses by substantial amounts to get a deal done. On average, a townhouse sold in the past two weeks has gotten a 19% price cut from when it first hit the market.”

From National Real Estate Investor. “Visit any urban center in a major U.S. city and you’ll see a similar view: cranes dotting the landscape and billboards advertising units in the latest luxury apartment projects. Has the focus on high-end units gotten out of hand?”

“New research from RentCafe found that luxury rental properties had accounted for 79 percent of all apartment construction in the U.S. And in the 2018 that number has grown to a whopping 87 percent. In many cities, a full 100 percent of projects completed in the first half of the year were upscale units.”

“According to RentCafe: ‘The most active metros in the high-end apartment segment last year were neither New York nor L.A. Metro St. Louis has built nothing but high-end apartments in 2017. Supported by local tax breaks, the urban rehabilitation of St. Louis is driven by luxury developments in an attempt to attract new residents. The luxury market is also thriving in Las Vegas metro — where 100 percent of the apartments built in 2017 were luxury.'”

“‘But in terms of scale, nowhere is the luxury segment flourishing more than in Texas. Giant real estate hubs Dallas-Fort Worth and Houston metro take the third and fourth spots, with 98 percent and 97 percent respectively being high-end projects in 2017. Both urban and suburban areas of Baltimore, Cincinnati, Boston, Kansas City, and Atlanta have exceeded 90 percent high-end apartments of new deliveries.'”

From Sparefoot. “Does the overall decline in self-storage rental rates in the U.S. signal an industrywide slump? Well, not quite. On the heels of roughly six to eight years of double-digit rent growth, rental rates are beginning to normalize, said Adam Schlosser, senior director of Marcus & Millichap’s National Self-Storage Group.”

“In many markets, rent growth either has narrowed to single digits or has headed into negative territory, he noted. While rental rates have fallen over the last year in oversupplied markets — such as 4.7 percent in Austin, TX and 6.6 percent in Dallas-Fort Worth, TX, according to Yardi— they’ve risen in other places.”

“‘If you think about it like a stock portfolio, you’re almost safer betting on Detroit today than you are, say, San Francisco, because at this point in the business cycle, there’s likely to be more volatility in real estate prices in San Francisco than there will be in Detroit,’ said David Dent, senior real estate market analyst at Yardi.”

“Schlosser emphasized that although sophisticated revenue management can’t stop rent growth from softening in supply-hampered markets such as Denver, CO, and Nashville, TN, investors and developers still might find opportunities in micro-markets — standard three- to five-mile trade areas — within those regions. Moreover, experts said, the new-supply crunch should subside over the next couple of years.”

“‘We have to understand that we cannot continue to push rates at 10 percent a year — the consumer will just be priced out of the market,’ Schlosser said.”

Related Posts
This Post Has 30 Comments

  1. ‘Visit any urban center in a major U.S. city and you’ll see a similar view: cranes dotting the landscape and billboards advertising units in the latest luxury apartment projects’

    But, we aren’t building anything. Shortage?

    ‘If you think about it like a stock portfolio, you’re almost safer betting on Detroit today than you are, say, San Francisco, because at this point in the business cycle, there’s likely to be more volatility in real estate prices in San Francisco than there will be in Detroit’

    How the mighty have fallen.

  3. ‘You had that window of time when the Russians and Chinese were buying with flight capital that are gone, just completely gone’

    February 8, 2017

    From Bisnow on New York. “New York City is still the No. 1 destination for foreign capital in the world, according to this year’s AFIRE rankings, but it is no longer an environment in which foreign money — particularly from China — will buy anything in the market at any price. This year, China has clamped down on outbound foreign investment, and firms caught flouting the new laws will be punished harshly, China First Capital CEO Peter Fuhrman said. While most New Yorkers in commercial real estate are aware of the capital slowdown, Fuhrman said they are probably not taking it seriously enough.”

    “‘I have the perception that the full weight and severity of these capital controls hadn’t been fully felt here,’ Fuhrman said. ‘It’d be fair to say that the Chinese central government dropped a financial bomb on its businesses.’”

    “One of the Chinese government’s chief concerns when instituting the investment restrictions, Fuhrman said, is over outbound investors getting fleeced while paying record-breaking prices. ‘A concern of Chinese regulators is their investors have been really bad buyers,’ Fuhrman said. ‘This can sadly be seen more and more in the larger real estate deals they have done. What they are extremely concerned about is just about every acquisition the Chinese have made, is they have overpaid severely and foolishly, and that has spurred a loss of a lot of Chinese sovereign wealth.’”

    http://thehousingbubbleblog.com/?p=9989

    1. This is the second time I’ve heard this called a window. But a few years back, this was a new permanent asset class. New paradigm thinking is common in bubbles. And even thought you can see it blow up in major cities all over the world, the media still won’t call it what it is.

      1. “And even thought you can see it blow up in major cities all over the world, the media still won’t call it what it is.”

        I’m willing to bet there are plenty of FB’s among the MSM.

        1. +1. Good point. We hear about dozens of multimillionaire Hollywood types and pro athletes being sucked into flipping mansions, so of course the same would be true of the media darlings. And believe me, they have millions too. From Celebrity Net Worth:

          Bret Baier: $16 million
          George Stephanopolis: $35 million
          Rachel Maddow: $20 million
          Judy Woodruff: $3 million (PBS don’t pay much)
          Andrea Mitchell: $5 million (and hubby Greenspan at $20 million)
          Chuck Todd: $2 million (seriously? He should be worth 10x that)
          Brian Williams: $40 million
          Tom Brokaw: $80 million
          Bob Woodward: $15 million
          Chris Wallace: $4 million
          Charlie Rose: $40 million
          Matt Lauer: $80 million (but he’ll need to pay $20 M to his wife and he failed to get a $30 M severance when he was sacked.)

          Yup, I bet these paragons of society lost money on a house or two.

          1. Thank you! Great list. I was just wondering on the other post (with the CNN/Charlie Rose producer) how much these media types can be worth.

    2. “One of the Chinese government’s chief concerns when instituting the investment restrictions, Fuhrman said, is over outbound investors getting fleeced while paying record-breaking prices. ‘A concern of Chinese regulators is their investors have been really bad buyers,’ Fuhrman said. ‘This can sadly be seen more and more in the larger real estate deals they have done. What they are extremely concerned about is just about every acquisition the Chinese have made, is they have overpaid severely and foolishly, and that has spurred a loss of a lot of Chinese sovereign wealth.’”

      I’m gonna call BS on this one. It’s the Chinese market that’s bubblicious. The Chinese government is afraid that an exodus out of China’s severely-overpriced assets into foreign markets will pop that bubble, leading to a crash in Chinese asset prices. During the Japanese bubble, huge amounts of capital went overseas in search of better prices. When Japanese asset prices started returning to earth, a good chunk of that capital returned to Japan only to sustain serious losses over the painful slow-motion crash that lasted well over a decade. It was the Japanese investors who left their overseas investments alone who made out like bandits.

  6. ““New research from RentCafe found that luxury rental properties had accounted for 79 percent of all apartment construction in the U.S. And in the 2018 that number has grown to a whopping 87 percent. In many cities, a full 100 percent of projects completed in the first half of the year were upscale units.”

    The shortage I see is affordable housing that the 99% want.

    1. And not even a full 1% of those suitable for families. All those units built to capture to elusive mythical millennial techbro who lives solely on $17 avocado toast and $7 glasses of artisan hard cider….

      1. Sounds like they’re going to get what they want which is affordable housing, irrespective of the intended buyer.

      2. Spiffy, hope you saw my post last night/this morning that I ported over some of the JT extension to the new blog format/code. Should auto-update for folks who have that enabled.

      3. Agreed, and according to my Gen “M” kids and their network, they want smaller, maintenance light, no HOA’s, low mortgage so that they can retire earlier than the rest of us. They don’t want to be saddled with debt and follow a movement to live well below their means – e.g. Mr Money Mustache, Early Retirement Extreme w/Jacob…We Houses that could pretty much last forever and are energy efficient. The builders, Crook Estate Agents are just not keeping up with his but the moment is growing fast and the kids we know are willing to wait as long as it takes to find/build, etc fair value that will last and help them have more money to invest wisely and have more…TIME.

  7. Interesting note regarding language now being communicated in some recent articles around the web. The never ending quest for sideways talk in RE articles is like this: recent downturns will likely precipitate a push back upwards in near future.

    Have seen this in a few recent articles from different sources. The evolution has gone from all positive to realtor double talk, to reluctant acknowledgement, to the now fashionable “rising market will return” bit. What could be next? The “low inventory” premise is pretty much dead now. Are these panic control measures? How about just acknowledging market forces at work.

    1. MW stuck in time warp. He will be back in the 60s soon wearing purple bell bottomed pants. Wait, my bad that was August of 2017 when he wore those pants, as was the the date of the article he is posting.

      1. current rate is 62.7. Rate in article is 62.9. A distinction without a difference.

        eat.crow.now.

        1. Not to the 660,000 or so that are presently working and would not be with the lower figure. Moreover this is after millions of more baby boomers have left the workforce since they are now retired. Trump is rowing against the current. Finally it ignores the reality that just a few days ago the Atlanta Fed estimated growth was 4 percent in the third quarter with most of the data available. We have a strong economy despite a weak housing sector. So drop some acid and tell us about housing prices. Seriously, there is no reason to continue to post an out of date number.

          1. Or the many pushed out by HB 1,2,3…I see it all the time and am FORCED to work along side of them all the time, chomping at the bit for our jobs but with 1/10th of the skill and no ability to problem solve on their own w/out someone singing off on every step of their work with is more productivity. That has also driven some of the bubble as they dig in their heals buying houses, planning on the perm residency at some point…biding their time until the US Corporate Greed pushes out the Americans.

  10. Weird how storage rents are falling at the same time as apartment rents, land and shack prices all over the country (and the globe). It’s almost as if all markets are NOT local.

Comments are closed.