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June 4, 2014
No QE? No Problem.
Planned Community Developers (PCD) is sponsoring the "State of the Market" next Thursday, June 12 (register here). PCD seeks to acquire well-located sites in Texas for new retail, office, residential, and mixed-use projects. Click here.
If you're nervous about the Fed ending quantitative easing, don't be. Delta Associates (Transwestern's research arm) EVP Sandy Paul tells us it's actually a good thing. (We should all be focusing our fear on the threat of robots, anyway.)
The Fed has been steadily decreasing its bond purchases, buying $10B less each month (it's down to $45B/month now, a little bit higher than our allowance in middle school), and it should be done with the program by the end of the year. Sandy (here on the field at MetLife Stadium, a big deal for the native New Yorker and big Giants fan) says investors and the stock market tend to get jittery any time the Fed changes policy, envisioning rising interest rates. But he tells us the Fed has been faithfully following the plan it laid out, which should make everyone more comfortable and increase certainty in the market.
Sandy says the end of quantitative easing is a reflection of the Fed's confidence that the economy can be self-sufficient. And new chair Janet Yellen has been keeping interest rates low—she plans to keep short-term rates between zero and 0.25% until unemployment falls further or inflation becomes problematic (at 2% over the last 12 months, so far so good). As long as job growth continues, Sandy believes the end of quantitative easing will lead to more real estate transactions nationwide, especially in the office sector. (That's where uncertainty has been killing some deals for the past few years.)
REITs Speak Up
W. P. Carey's unique-to-REITs model of owning an investment manager has its advantages, CEO Trevor Bond said at NAREIT's REITWeek this week. Trevor says it's a good way to grow revenue (it's 10% of W.P. Carey's) without issuing equity that dilutes value. The net lease investor used this method to raise $500M during the downturn when raising equity was harder but acquisition opps looked good. (They were raising equity before it was cool.) He says the funds help buffer against cash-flow bumps and smooth out earnings. This year, it's raised $800M (it's been snapping up properties in Houston for the last few years, so we're hoping to grab some of those funds too), and the company also uses its own balance sheet for acquisitions, especially for deals in which the cost of capital would be too high for a fund.
Prologis isn't afraid to contradict your econ prof (we tried to do that and ended up with a dunce cap)—CEO Hamid Moghadam says there's more to the decision to build than just supply and demand; don't forget rental rates. US industrial deliveries have grown from 20M SF in 2011 to 65M SF in 2013 and still fell dramatically short of last year's demand for225M SF, Hamid says. Next year, he expects, 110M SF of new inventory will be built, but that'll be half the anticipated demand of 200M SF. Rents in the Inland Empire, Dallas, and Houston are high enough to justify the construction that's happening there, Hamid says, but rents haven't bounced back enough elsewhere to justify construction, despite that demand. Prologis aims for $2.5B worth of development per year but is on pace for $2B now, owing to a slower than anticipated recovery in Europe and more sluggish than expected market in Mexico.
William Hebel Photography
The AEC industry hit the beach this past weekend for the 28th annual AIA Sandcastle Competition. Above, Matrix Design was awarded the Gold Bucket, recognizing its design “Enter the Dragon” as the year's best. (And you thought your game of paper football at the office was really "epic.")
Gensler won the Silver Shovel (second place) and best traditional sandcastle for its Very Merry Un-Birthday creation. The team had 40 people from Gensler and Harvey working throughout the rainy day—they used 30 cubic yards of sand and a mind-boggling 1,100 gallons of water (not counting rainwater that Mother Nature generously provided). After five hours of work, the sandcastle topped out at nine feet. Rounding out the top three was Dow Chemical, which earned the Bronze Shovel for its Super Sand Bros.
Seeberger & Associates and Henderson Engineers teamed up for this Sun of a Beach entry. You can see the sandcastle peeking out behind this stand-in sign that Seeberger painted. (Seeberger groupies Matt and Michael had fun posing here.) It was a year of extras—down the strip, Kirksey's Muppet Rushmore included a functioning muppet show stage built by its Michael La Nasa. (Grumpy muppets Statler and Waldorf entertained passersby all day.) That team won best signage and also took away first place in the Stars and Stripes category and fourth place overall.
Another beautiful sign, courtesy of FKP's Shannon Oliveria and Shelby Papp and friends Liz Conroy, Claire Conroy, and Kate Conroy.
What's the State of the Houston Market?
Office, multifamily, hotel, you name it… cranes are popping up daily, and prices are through the roof. But are the fundamentals still there, or are we getting ahead of ourselves? Find out at Bisnow's fifth annual State of the Market June 12, where expert panelists will look back on the challenges and successes of the past year and pull out their crystal balls. If you want to make smart investments and steer your clients right, you don't want to miss it. Register here.
We wish our car gave us frequent driver miles. We'd have racked up some awesome trips by now. Where is your car taking you these days? Tell Catie Dixon, firstname.lastname@example.org.