Posts Tagged ‘PriceWaterhouse Coopers’
An important story on trade
Alexis Crow, who leads the geopolitical investing practice at Price Waterhouse Coopers, has a stunningly important article on trade in today’s Washington Post. I recommend you read it here. In short, Trump’s trade war misses a very important point — the U.S. economy has matured from manufactured goods to services, and actually runs a net surplus of such services to the rest of the world.
As she notes, “Providing services is the heartbeat of America’s new economic growth, including IT and communications services, logistics, warehousing, leisure, hospitality, health care, business and legal services.“. She goes on to note that wealth created by America’s trading partners — China, Japan, etc. — translates into purchase of American services, including travel, media, IT, logistics, and entertainment. By 2026, fully 81% of American jobs will be in such service areas, and our trade surplus in these areas is already nearly $300 Billion per year.
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PWC’s Emerging Trends in Real Estate for 2016
Ever since PWC acquired Peter Korpacz’s excellent quarterly commercial real estate survey, they have really leveraged that theme into a great regular read. Along with my subscription, their annual Emerging Trends just landed in my in-box, and it’s a really excellent read. (To access a copy, just click on the link above.) The report is a must-read for anyone in real estate, particularly in the investment or finance side. I’ll skip to two of the summaries — one they call “expected best bets” as well as the capital market summary, to give you a flavor of their report.
Expected Best Bets — PWC recommends, “Go to the secondary markets”. They note that gateway markets have pricing problems, while the “18-hour cities” are “…emerging as great relative value propositions.” They particularly cite Austin, Portland, Nashville, and Charlotte.
PWC also discusses “middle-income multifamily housing,” and notes the solid business opportunities providing creative answers for what they call the “excluded middle” households. PWC also encourages planners to re-think parking needs, in light of the changing demands of “live/work/play downtowns.”
On the securities side, PWC notes that many REITs are priced well below net asset value, providing an interesting arbitrage opportunity in 2016.
Capital Markets — PWC opens by noting, “In many ways, it appears that worldwide capital accumulation has rebounded fully from the global financial crisis. The recovery of capital around the globe has been extremely uneven. And the sorting-out process has favored the United States and the real estate industry, affecting prices, yields, and risk management for all participants in the market.”
Whew…. I’m usually loathe to quote so much from another’s work, but I simply could not have said that any better. PWC quotes one of their survey respondents, a Wall Street investment advisor, who says, “There is going to be a long wayve of continued capital allocation toward our business….”
Survey respondents largely were split on short-term inflation, with about 40% predicting modest increases and 60% looking for stability at current rates. However, when they look down the road 5 years, 80% of respondents look for modest increases in inflation. Coupled with that, over 60% of respondents think both short term interest rates and mortgage rates in specific will rise next year, and nearly 80% think such rises will occur over the next 5 years. Intriguingly, a small but significant minority — about 20%, believe rates will rise substantially over the next 5 years. Almost no one believes rates will fall, either in the short-term or the long-term.
To sum up the capital markets view, PWC says the general spirit of the industry is positive, albeit with an eye toward risk. Many are calling for a “long top” to this recovery, but many are also taking defensive postures by shortening investment horizons, paying more attention to the income component of total return rather than the capital appreciation component, and moving down the leverage scale.
As always, I would stress that I am citing a 3rd party source here, and nothing in this review should be construed as investment advise. That said, PWC’s Emerging Trends is an excellent read, and I highly recommend it.
Korpacz Survey
The quarterly PriceWaterhouse Cooper’s real estate survey is now known as the PWC Real Estate Investor Survey. However, those of us who have used and trusted it for so many years will always think of it as the Korpacz Survey, named after its founder Peter Korpacz, MAI, and former active member of the Real Estate Counseling Group of America. The latest issue (4th Quarter, 2012) just hit my desk, and as always, it’s a great snap-shot into the current thinking of real estate investors in the U.S.
The headline pretty much says it all, “Buying beyond core remains tricky.” The principle problem is the protracted recovery. Investors are still attracted to core assets for the yield, but are skittish on anything not bought for income. Particularly favored are community shopping centers with grocery anchors, apartments, offices in tech centers, and port-oriented industrial.
However, a growing number of investors are looking at secondary markets, but expecting returns that are a “multiple of core deals.” Part of the challenge here is bank underwriting standards, which can really hinge on the finer points of a deal.
Among investment sub-sectors, cap rates have declined across the board this past quarter, with the exception of warehouse (+4) and flex/R&D (+3). The most notable decline was in the net lease sub-sector (-54 points). Apartments continue to “lead” with the lowest overall cap rate of 5.8% (down another 18 basis points from the previous survey).
Not withstanding my comments about the the survey’s founder, Susan Smith, the Director of Real Estate Business Advisory Services at PwC, does a great job putting this survey together every quarter. The quality and quantity of information continues to grow, and its usefulness to real estate decision makers cannot be over-stressed. For more information, or to subscribe to the survey, visit pwc.com.
From a small northwestern observatory... 