Real Estate Daily News Buzz is designed to give news snippets to readers that our (yet to be award winning) editors thought you could use to start your day. They come from various business perspectives, real estate, government, the Fed, local news, and the stock markets to save you time. Here you will find the headlines and what the news buzz of the day will be.

The Dow Jones industrial average climbed 235.31 points, or 1.3 per cent, to 17,929.99. The Standard & Poor’s 500 gained 28.09 points, or 1.4 per cent, to 2,098.86. The Nasdaq composite added 63.43 points, or 1.3 per cent, to 4,842.67.

Benchmark U.S. crude fell $1.55, or 3.1 per cent, to close at $48.33 a barrel in New York. Brent crude, used to price international oils, slid 93 cents, or 1.8 per cent, to close at $49.68 a barrel in London. Wholesale gasoline fell 2 cents to $1.50 a gallon, while heating oil shed 5 cents to $1.48 a gallon. Natural gas rose 6 cents to $2.92 per 1,000 cubic feet.

Average US 30-year mortgage falls to 3.48 per cent — Long-term U.S. mortgage rates slid to new lows for the year this week amid market upheaval stoked by Britain’s vote to leave the European Union. Rates are at three-year lows at the height of the spring home buying season. Mortgage buyer Freddie Mac said Thursday the average 30-year fixed-rate mortgage fell to 3.48 per cent from 3.56 per cent last week. The benchmark rate is down sharply from 4.08 per cent a year ago, and close to its all-time low of 3.31 per cent in November 2012. The average for the 15-year fixed-rate mortgage declined to 2.78 per cent from 2.83 per cent last week.

7 Reasons Now is a Great Time to Invest in Real Estate “You work hard for your money, but does your money work hard for you? When you store your cash under your mattress (or in a bank if you aren’t a weirdo), it will produce next to nothing. However, when you put money into an investment, your dollars go to work for you. Yes, real estate is subject to timing; and there are times when real estate is not the wisest investment. However, I believe that right now might be the greatest time to buy real estate that we’ll see for another decade or longer.” (Entrepreneur)

Real Estate Industry Emerging as Foe of GOP Tax Plan “Real estate is the industry most critical of the House GOP tax reform plan in the early going. Tax reform involves a big bet: That all the businesses, families and groups that benefit from specific tax breaks would be willing to trade those breaks for lower rates and simpler taxes. House Republicans’ tax reform proposal recommends setting a top individual tax rate of 33 percent, and a business tax rate of 20 percent. But the trade-off is that the vast majority of existing deductions, credits and exclusions would be eliminated.” (Washington Examiner)

Hines REIT Approves $1.7 Billion Asset Liquidation Plan “Hines Real Estate Investment Trust Inc., one of three public non-listed REITs sponsored by Hines, approved a plan for liquidation and dissolution of the company. The plan, which is subject to stockholder approval, takes advantage of the current strong demand for high-quality assets by institutional buyers, and includes Hines REIT entering into a definitive agreement to sell seven West Coast office assets in a cash transaction for $1.162 billion to an affiliate of Blackstone Real Estate Partners VIII.” (CoStar News)

Cornerstone Real Estate to Buy Ares’ Commercial Lending Unit “Cornerstone Real Estate Advisers, an asset manager owned by Massachusetts Mutual Life Insurance Co., agreed to buy ACRE Capital Holdings LLC in a bet on multifamily loans. Cornerstone agreed to pay $93 million to purchase the Plano, Texas-based lender from Ares Commercial Real Estate Corp., the buyer said Wednesday in a statement. The deal will double Cornerstone’s multifamily loan portfolio to $10 billion and is expected to be completed as soon as next quarter, according to the statement.” (Bloomberg)

Today’s Renters Really Are Worse off Than Their Parents “It’s not just your imagination. It is a lot harder to afford an apartment today than it was for your parents’ generation. Sharp increases in rents along with stagnant incomes over the past five years have helped create a dire situation for many of the country’s renters. A new report shows how those trends have actually been playing out for more than five decades. Inflation-adjusted rents have risen by 64% since 1960, but real household incomes only increased by 18% during that same time period, according to an analysis of U.S. Census data.” (Wall Street Journal)

America’s Richest Real Estate Family Doesn’t Want You to Know Who They Are “Once New York’s biggest landlord, Sol Goldman’s legacy lives on. You can see it in the city’s skyline (particularly over on Madison Avenue between 37th and 84th streets, large parts of which his heirs still own). Or go downtown to the courtroom and dig through thousands of pages of legal documents detailing the bitter battle between his wife, Lillian, and their four children over Sol’s estate after his 1987 death.” (Forbes)

Where to Invest Now? How About Multifamily Real Estate? “With all that’s going on in the world from Brexit to Zika, U.S. investors may want to consider keeping their money at home in multi-family real estate projects. But not necessarily in publicly traded real estate investment trusts. ‘Buying real estate is better done on a direct basis,’ said Eric Jones, chief investment officer of Dome Equities. ‘Public REITs are too correlated to the public market and interest rates in particular.’” (The Street)

Related Seals Deal for $6.5B Cali Project “A $6.5 billion, 9.7 million-square-foot mixed-use development proposed by Related Cos.—the largest private project in California’s Silicon Valley history—has received unanimous approval from the Santa Clara City Council after three years of planning. The megaproject is expected to earn LEED certification and be constructed in multiple phases spaced out over 30 years, with some of the later phases—including office campuses—built to market demands.” (Commercial Property Executive)

2 Brooklyn Blocks to Become 1-Million-Square-Foot Development “ODA New York is remaking the Bushwick neighborhood of Brooklyn—two blocks of it, at least. The New York–based architecture firm, along with local developer All Year Management, has begun work on its largest project to date on the former site of Brooklyn’s Rheingold Brewery. The Bushwick II will be built over two city blocks and will bring 1 million square feet of apartment units, retail, and community park space to the neighborhood.” (Multifamily Executive)

Cereal Giant Opening Café in Heart of Manhattan “Kellogg’s is in a New York state of mind. Times Square to be more specific. On July 4, Kellogg’s will open Kellogg’s NYC, its first-ever permanent café, at 1600 Broadway. The café will serve dishes featuring Kellogg’s cereals available with an array of unique ingredients, including pistachios, lemon zest, thyme, and green tea powder to name a few. Customers can also customize their dishes by choosing from dozens of toppings. Also on the menu: ice cream topped with various cereals.” (Chain Store Age)

Self-driving car driver killed in Florida collision, a first — The first U.S. self-driving car fatality took place in May when the driver of a Tesla S sports car using the vehicle’s “autopilot” automated driving system died in a collision with a truck in Florida, federal officials said Thursday. The government is investigating the design and performance of Tesla’s system. Preliminary reports indicate the crash occurred when a tractor-trailer rig made a left turn in front of the Tesla. Tesla said “extremely rare circumstances” led to the collision and said the accident led to the first known death in over 130 million miles of autopilot operation.

By: Douglas Richardson, Office / Medical Leasing Specialist
with Tucson Realty & Trust

Most of us love life in the ‘Ol Pueblo’, though likely not because it’s a dynamic center of commerce, and not even because the prospect for much improvement is on the horizon.  I love it because we don’t have tower cranes on every corner, we don’t have multi-lane freeways crisscrossing town, and we don’t have the feel and look of so many mid-size cities.  Which is not to say that a little bit of that wouldn’t be a refreshing change of pace.  I travel back to Seattle frequently, and the sky is dotted with tower cranes, and when you’re there it seems there is more going on in a city block than there is in all of Pima County, and that’s okay because we have a different quality of life.  But still……

The health of our office market is wholly dependent on many factors, not the least of which is employment and job growth, and job growth is wholly dependent upon an improving economy and/or population growth.  The unemployment rate in the U.S. stands at 4.7 percent.  It’s a questionable 5.6 percent here in Tucson because it doesn’t take into account the underemployed.  We added 10,400 jobs last year (that’s roughly 3 percent growth, so that’s positive).  Population growth continues to inch up ever slowly.  It is also dependent upon the health of the stock market (after a terrible start to the year, the S&P is up 1.92 percent for the year, but down 1.27 percent year over year).  The Federal Reserve Board just postponed another interest rate hike, hinting at continued economic weakness across the country, and less than stellar payroll growth.  Another factor is the relative health of the residential housing market (there was an 11 percent increase in home closings year over year, median prices are up 4 percent year over year, and the percentage of distressed home sales is down from 13 percent of sales in 2015  to just 10 percent of sales in 2016 year to date).  For a change of pace, it now appears to be a seller’s market for homes priced up to $350,000, though still a buyer’s market for homes over that price point.  You add all those various components together, and to me it totals a great big ho hum.

There are many indicators that the national office market has peaked, but given Tucson’s historical roll as a lagging indicator of national events, we likely still have some improvement in store for us.  Locally, I would characterize the office market as still fairly lackluster overall, with some encouraging signs.  The most noteworthy is the continued reinvigoration of the downtown core, with a big assist from our young citizens who have decided it’s cool to be there.  The news from Caterpillar, which has been widely covered, and to a lesser degree Comcast and HomeGoods, are other bright spots.  There is still significant weakness in occupancy for many of Tucson’s older, less competitive buildings, and that includes a few of our mid-rise buildings that have yet to modernize.

On the other hand, medical office space continues its upward march.

Elsewhere, I would also say that the Tenant is still in the cat bird seat when negotiating a new or existing lease with the Landlord.  Smart building owners want to do everything in their power, and within reason, to keep those tenants, and sign up the new ones.  Conversely, there are a lot of office owners who would love nothing more than to sell and get out from under crippling property taxes and deteriorating structures, but have been waiting for improvements in property values, only to see them continue to slump in many cases.

On the flip, flip side, if you’re in the market to purchase something, these are still the salad days because values are still significantly depressed, interest rates are still at historical lows, and the tax laws remain favorable.

We continue to believe that the adjusted vacancy rate is right around 16 percent, which is higher than CoStar’s 12.4 percent published rate through the first quarter of 2016.  As for lease rates, we believe that we are between $14.00 and $15.00 for Class “C” space, $17.00 and $18.50 for Class “B”, and between $19.50 and $21.00 for Class “A”.  CoStar further tells us that there was net absorption of 172,875 square feet of office space for the first quarter, with a total of five (5) new buildings delivered to the market place, totaling 108,950 square feet.  There were no new office properties under construction at the end of the first quarter.

Far off shores (principally BREXIT), ongoing issues with the Chinese economy, and generally low growth worldwide will not provide much impetus for improvement here or nationally.  Furthermore, auto sales are down as is manufacturing inventories.  Nationally, real GDP growth is forecast to be 1.9 percent in 2016.  Many economists are concerned of a pending downturn.  We’ve been in a growth cycle the last seven years (some growth cycle), so historically the U.S. is due for a downturn.

I am personally crossing all available fingers and toes with the hope that our world and nation cooperate the rest of the year so that Tucson and Pima County can get back to the business of making this a place that baby boomers will want to retire to (no hurricanes for crying out loud), employers will want to flock to (because the cost of living is very reasonable compared to so many other population centers), and heat waves like the one we just experienced will be a long forgotten memory by the time this report lines some bird cage.

LARGEST LEASES BY AREA

1. 35,001 square feet, 97 E. Congress, Caterpillar
2. 23,810 square feet, 5055 E. Broadway, Arizona Community Physicians  3. 20,000 square feet, 250 E. Toole, Community Bridges

LARGEST SALES BY DOLLAR VOLUME

1. $4,600,000, 698 E Wetmore
2. $1,970,000, 3935 E Ft Lowell
3. $1,914,360, 3900 E Broadway

PHOENIX, AZ – SRS is pleased to announce the acquisition of Paradise Hills Shopping Center on behalf of their client Abington Emerson Investments. The 79,105-square-foot neighborhood center is located at the NWC of 32nd Street and Shea Boulevard, in the North 32nd revitalization district.

Paradise Hills has significant shop space upside potential and was purchased for $9.25 million ($117 PSF). As part of the acquisition, Abington Emerson plans to further redevelop the Ace Hardware anchored center.

“Abington Emerson is excited about the purchase of Paradise Hills,” said Brent Howard of Abington Emerson. “32nd Street is evolving, and with our redevelopment plans, we hope to make Paradise Hills the cornerstone of the 32nd Street corridor.”

Sean Thomas and Ed Beeh with SRS represented Abington Emerson in the transaction. Sanford Burstyn of Marcus & Millichap represented the seller.

Paradise Hills Shopping Center is located at the NWC of 32nd Street and Shea Boulevard in Phoenix. Tenants in the center include Ace Hardware, Youfit Health Club, Villa la Paws, A Second Look consignment, and local favorite 32 Shea Café.