The $1.3 trillion omnibus spending bill that was passed last week contained the first expansion of the Low Income Housing Tax Credit (LIHTC) program in more than 10 years. The measure increased HUD’s budget by more than 10% and increased the number of LIHTCs that are available by 12.5%, making a significant impact in states such as California and New York where tax credits are a limited resource. The expansion was particularly welcome as it will help offset the effects of the Tax Reform bill that passed last year.
More than 4,000 new apartments are forecast to hit the Los Angeles market this quarter, according to CoStar, as the first wave of as many as 30,000 in the next three years. Much of the construction is concentrated downtown, where it’s easier to build than in other parts of L.A., and almost all the new apartments will be at the higher end of the market. Signs of rent weakness are emerging as construction approaches peak, and L.A. landlords could be facing similar pains as as their counterparts in Manhattan, where a flood of supply has started to drive down rents.
Despite owners offering short-term leases and generous concessions in an effort to maintain high rent levels of previous years, Manhattan's retail slump continues with average asking rents for available ground floor spaces declining in 13 of the top 17 shopping corridors, when compared with fall 2016. According to the Real Estate Board of New York’s (REBNY) Fall 2017 Manhattan Retail Report, the retail leasing market is still in a corrective period as average asking rents recede and deal-making favors parties willing to be flexible with lease structure, uses, and asking rents amid rising demand for side street locations and pop-up stores.
After Amazon announced plans in September to build a second headquarters (HQ2) in an undetermined location, hundreds of local officials across North America have submitted proposals to try and win the $5 billion construction investment and 50,000 new jobs for their city. In an effort to lure Amazon, proposals boast potential tax breaks, local benefits and opportunities.
However, Moody’s Analytics metro area analysts ranked the largest metro areas using a data driven approach, and made the case for an individual city based on qualitative judgment. The analysts looked at five factors: business environment, human capital, cost, quality of life, and transportation. It then assigned a number to each city and a weight to each factor to come up with its list of 10 cities. An additional category, geography, was considered, but was not factored into the rankings. Moody's excluded Seattle, the site of Amazon's current headquarters, from consideration.
Below are Amazon's Top 10 Cities, according to Moody's Analytics:
In San Francisco, vacancy rose for the fourth consecutive quarter amid a surge of new supply, according to Cushman & Wakefield. A mixed-use development at 181 Fremont St. hasn’t announced any leases for its 432,000 square feet of office space, even though it is scheduled to open later this year. Asking rents in the Midtown Manhattan neighborhood of New York City, meanwhile, averaged $80.45 a square foot annually in the first quarter, compared with $81.16 at the end of the first quarter in 2016, according to CBRE Group Inc. The vacancy rate crept up to 11.9% from 11.6%. Overall, average asking office rents increased 1.8% between the first quarter of 2016 and 2017, the slowest annual rate of growth since 2011, according to Reis Inc.
Property tax bills for New York City commercial real estate owners have soared under Mayor Bill de Blasio, according to city data. While the tax rate for commercial properties increased slightly, the annual increase is driven largely by rising value assessments. The average tax bill, without abatements, is set to jump to $111,023 in fiscal 2017, which ends June 30, from $85,841 in fiscal 2013, the last full fiscal year former Mayor Michael Bloomberg was in office, the data show. In all, the average commercial property tax bill has jumped 29.3% since Mr. de Blasio’s tenure.
The hotel industry could be facing an uphill battle in 2017 as new supply may erode pricing power and hinder performance. Hoteliers are already seeing performance dip as supply meets and surpasses demand. In a Hotel News Now roundtable, hotel executives and market analysts provide perspective on supply growth and how it will affect the hotel industry going forward. Jan Freitag, SVP of lodging insights at STR (Hotel News Now’s parent company), says new supply will negatively impact occupancies, now more than ever since demand growth will slow. While it remains to be seen how hoteliers react to the new competition in their markets, Feitag expects continued pressure on pricing and limited (average daily rate) increases going forward. Some markets (such as New York City and Miami), however, are already observing pricing weakness and ADR declines.
Due to a considerable amount of availability amid Manhattan’s softening retail market, temporary stores, or Pop-Ups, are teaming up with landlords in an unexpected win-win scenario. Cautious retailers who are hesitant to open brick-and-mortar operations due to the rapid growth of on-line shopping get to test the waters in the elite shopping district with a shorter-term lease and often discounted rent. And rather than try to sell empty spaces, landlords can show off the energy and activity pop-ups bring to the space to prospective long-term tenants.
In an effort to keep up with e-commerce distribution demands, developers in New Jersey and Long Island are repurposing vacant suburban office buildings into warehouses. While this conversion seems backwards, as office space costs more to build and usually generates higher rents, the red-hot warehouse market driven by the rise of e-commerce has changed that. Though the numbers are small, several suburban office properties in or near New Jersey and Long Island industrial neighborhoods have been redeveloped as warehouses. Industrial values continue to rise, making the conversion worthwhile for developers.