The run-up in U.S. real estate prices could potentially amplify any future economic downturn, a Federal Reserve official said on Tuesday, urging regulators globally to consider tools beyond interest rates that could help cool the sector. A sharp downturn in U.S. residential and commercial property prices in 2007 and 2008 rocked banks that were highly leveraged in the sector, sparking the global financial crisis and deep recession. With the economic recovery now well under way, bank holdings of commercial and apartment mortgages rose 9 percent and 12 percent, respectively, in the past year.
Categories: Real Property
The war between local governments and Texas lawmakers rages on after the Senate approved a controversial reform plan aimed at curbing rising property tax rates and ballooning tax bills on Tuesday. By an 18-12 vote, mostly along party lines, the Republican-controlled Senate approved Senate Bill 2, which would mandate an automatic election to allow taxpayers to decide any rate hike of more than 5 percent. Under existing state law, 8 percent is the maximum allowed before taxpayers can petition for a rollback election. Supporters say it’s necessary to slow steadily-rising property taxes, while opponents argue it will impair cities, counties and school districts' ability to pay for key services.
Rents for Class A office space in Miami are high, at $50 or more per square foot, and will continue rising as the market tightens, a panel of real estate experts said at a Bisnow conference Thursday. Despite the city’s increasing traffic problems, the panelists said they expect sustainable demand growth for Miami commercial properties in the future, since the city is an appealing location and a gateway to Latin America. “The market is tightening up,” said Angelo Bianco, managing partner at Crocker Partners told attendees. “Developers are getting better rates and lower concessions.” At the same time, he added, “Capital markets seem to be taking a break and people are more cautious. Deals are taking longer to close.”
By Stephen Cox
Consultant, Atlanta, GA
Throughout the year, the Institute for Professionals in Taxation (IPT) hosts luncheon groups across the country, providing an opportunity for local members of the Institute to gather and discuss taxation topics of mutual interest or concern. As an IPT member, I recently attended an Atlanta luncheon in which the Chief Appraisers from Fulton, Cobb, and Gwinnett counties spoke on various property tax related matters in Georgia.
Detailed below are my thoughts on some of the more notable pieces of information discussed at the luncheon and how it relates to Georgia commercial property taxpayers:
Property tax reform has been a major priority this legislative session for Texas, but a political showdown is taking place between state and local governments over new legislation meant to curb rising property tax rates and ballooning tax bills. Senate Bill 2 would lower the property tax rollback rate for governmental entities from 8 percent to 4 percent, meaning an election would be triggered any time an entity’s property tax revenue increased by 4 percent over the previous year. Lawmakers argue SB 2 would make taxing entities more transparent and accountable to the public, while taxing authorities view the bill as a dangerous precedent and warn that local services would suffer from the restricted funding.
Change is coming even as the commercial real estate market flourishes in the current post-recession boom, Christopher Lee, president and CEO of Los Angeles-based commercial real estate consultancy CEL & Associates, said at the NAIOP Minnesota event this week. Lee predicts a 2018 end to the current commercial real estate cycle and major industry shifts based in part on “generational” factors, including millennials eschewing homeownership, younger workers spending less time in the office, and manufacturing productivity increases fueled by automation and robots. “This is a great time to be in real estate, but you’ve got to be on your game,” Lee said. “We’re in the seventh inning. Our cycle is about to end.”
Continued growth in e-commerce has driven industrial vacancy to an all-time low, declining by 70 basis points from a year ago to an aggregate nationwide vacancy of 5.6 percent in the fourth quarter of 2016, according to the year-end industrial market report from real estate services firm JLL. JLL researcher Aaron Ahlburn says that the former record low vacancy was in 2000, when the rate dipped to a 7.0-8.0 percent range as a result of market expansion coming out of the dot.com bubble. Increasing competition for industrial space has caused rental rates to hit record highs, breaking the $5 per sq. ft. triple-net barrier for the first time, Ahlburn notes, and has set off a building boom.
The Houston office market has been struggling for several years now thanks in large part to a prolonged slump in oil prices causing companies to shrink their footprints. This lead to a glut of available sublease space and the energy hub's highest vacancy rates in 20 years. Houston continues to lead major Texas markets in its volume of sublease office space on the market, according to a report from Newmark Grubb Knight Frank. Houston ended 2016 with 11.5 million square feet of available sublease space. Dallas finished the year with 5 million square feet of sublease space, and Austin with a mere 1.6 million square feet, according to the report. That's despite the fact that Houston's overall Class A and Class B office inventory is smaller than Dallas' market. Excluding Class C office space, Houston's total office market is 188 million square feet, while Dallas' is 215 million square feet. Austin's office market is 53 million square feet.
As many shopping centers continue to suffer nationwide, conventional wisdom says that there is an over-supply of malls and the only way to survive is to cater to wealthy shoppers and/or reinvent the space completely. However, a small crowd of operators is dismissing this notion and believes there are plenty of revitalization opportunities in “small town America." While strategies vary and not every struggling mall is a good candidate for a refresh, these operators target distressed properties in places with no other enclosed shopping center within 50 to 100 miles. Such older properties have some inherent advantages. People still come to malls to participate in the social aspect of shopping—especially in suburban or exurban places with few large gathering places, and these older properties were often built as the surrounding community was sprouting and have ideal locations.
Apartment rents are growing most quickly in working-class, suburban submarkets that apartment developers have avoided. “With a handful of exceptions, the neighborhoods posting the strongest rent growth don’t have much ongoing construction,” says Greg Willett, chief economist for Real Page and MPF Research. The suburban areas are often working-class areas with older, less-expensive housing and limited supply.
In contrast, rents are growing much more slowly in the heavily-supplied urban, core markets where the rents are already high. “The high-income tenants in these areas can consider home ownership, and can play off the amply new product one against the other for the best deals,” says John Affleck, international economist for CoStar Group. Those cities – along with towns hurt by low energy prices—are now home to the submarkets with the slowest rent growth.“ The bottom performers are really concentrated in a handful of metros, in this case Houston, San Francisco and New York,” says Willett.