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See below for news about Paramount Property Company and our markets.

Market Indicators were recently covered in BisNow.

Indicators that the economy is headed for a recession are piling up. One indicator, that has been consistently positive since the last recession in 2007, inverted on Friday. The spread between the 10-year and three-month treasury yields went negative. The inversion of this curve has been the harbinger of a recession in the US on a reliable basis since World War II.

The yield on the long-term Treasury bonds continued its year-long decline, reflecting a dearth of optimism in the markets long-term health against the Federal Reserve’s short-term monetary policy. Reports caution that correlation does not necessarily equal causation, as pre-recession investment sentiments will send investors flocking toward safer bonds could cause the inversion, rather than the other way around.

After over a year of interest rate hikes in response to economic strength, the Fed indicated that it does not plan to raise rates any further this year. For some time now, the commercial real estate investment market has been white hot, especially for multi-family and especially from institutional-size investors with the scale to choose between entire sectors of the global economy and influence those sectors. Even as multi-family and industrial are considered safe-holds in the impending downturn, the competition for those assets is to change the fundamentals of those deals. The eventual severity of the recession could determine at what point the price tags cease to be worth it.

Read the full article here.

New Design Approaches was recently covered by BisNow.

Certain Bay Area projects have the potential to reshape their communities, bringing in needed spaces and services. The Moscone Center in San Francisco completed its $551M expansion in January. There was more 500k SF added, made up of exhibition space, new meeting rooms and expanded lobbies. The project, which targeted LEED Platinum certification, makes Moscone Center one of the most sustainable major convention centers in North America. The new project incorpoates solar panels, energy-efficient lights and on-site wastewater treatment for greywater and storm runoff.

The new proposed Oakland A’s Ballpark, originally a jewelbox design, would be built at the Port of Oakland’s Howard Terminal at the waterfront. The site seeks to include cafes, shops, coworking, gyms and homes. Though the design has changed slightly, to a more circular stadium, it still makes use of a tree-lined promenade that forms a public park around the upper level of the stadium. Part of the plans for the staium include a new visoin for the Oakland Coliseum site in East Oakland that includes a central park, an amphiteater and turning Oracle Arena into an events center.

California Pacific Medical Center is building a new campus on Van Ness in San Francisco. The new 11-story hospital from Sutter Health, schedules to open in March, brings not only a new structure to the San Francisco skyline, but also seismic technology that is new to North America. The project uses 119 viscous wall dampers to absorb strong movement and reduce overall stress onn the building during an earthquake. The 274-bed hospital is designed to not only ride out a large earthquake with minimal damage, but to stay open and provide critical services in an emergency situation.

Agrihood in Santa Clara was a recently approved affordable housing project, that will combine urban livng with farm life. The mixed income property on 5.8 acres will have 361 apartments, with 181 below market rate and on a 1.7 acre farm. The onsite farm will provide local food and outdoor recreational and educational resources to residents and the surrounding community.

Read the full story here.

Impact of Opportunity Zones was recently covered by Barrons.

Investors who want to make a positive social and environmental impact while earning a financial return would seem naturally drawn to investing in “opportunity zones,” low income-areas throughout the US designated by governors in each state as in need of economic development. Regulatory language outlining practices for investing in these 8,700 zones offers no assurance to investors or community members that funds investing in these economically distressed areas will have that kind of impact.

The US Impact Investing Alliance and the Beeck Center for Social Impact and Innovation at Georgetown University announced a voluntary reporting framework that offers best practices for fund managers and investors. Opportunity zones are a “once in a generation opportunity to drive very needed capital into distressed communities.” People investing in opportunity zones are getting considerable tax advantages. The problem for investors who want to grab these tax savings is that many of the guidelines for investing in QOZ funds are unclear.

The US Treasury is expected to issue further clarity on a range of issues via a series of regulations over this year and next. At a minimum, the alliance wants QOZ funds to be required to provide basic QOZ funds and market-level data, including the number of assets raised and where they’re being deployed. The purpose of opportunity zone legislation was to stimulate market-based activity in low-income, high-poverty areas, and to sustain that activity with incentives for long-term investment in communities that otherwise would have been ignored.

A robust effort on the part of philanthropists and other private sector actors is an effort to ensure that the communities served by QOZ funds achieve real results. The Rockefeller and Kresge Foundations are seeking to support fund managers who can demonstrate their intent to “ensure positive outcomes” in the designated communities with grant capital. The Beeck Center is creating an opportunity zone council of potential investors committed to adopting the voluntary reporting framework.

Read the full article here.

2019 Commercial Real Estate Trends was recently covered by Bisnow. Recent research has generated 18 major trends in commercial real estate that are expected to be at the forefront of the industry in 2019.

  1. The opportunity zone craze is going to persist. As investors await finalized guidance from the Department of the Treasury and the IRS regarding the opportunity zone program, the hunt is on for assets and investment opportunities in these designated areas that present the strongest upside potential. There are more than $6 trillion in unrealized capital gains eligible to be deployed into opportunity zones.
  2. The industrial boom will continue thanks to high demand from e-commerce players, though a few headwinds may surface. Net absorption resulting from e-commerce growth is expected to average between 75M and 94M square feet and lack of new supply- industrial buildings and complex- has driven vacancy levels down to 4.3%, a historic low. We can fully expect that e-commerce will continue to drive the market next year. Research shows net absorption may taper off in 2019 due to new supply not keeping pace with robust demand levels.
  3. The Federal Reserve will gradually boost interest rates due to the strength of the economy. With robust job growth continuing to increase at a healthy clip and the unemployment steady at 3.7%, a 50 year low, federal officials hint that they will likely continue their course of action in 2019 to gradually boost short term interest rates to temper inflation and maintain a stable economy. The Fed boosted interest rates this year to a range of 2% to 2.25% and many expect central bankers to bump rates a few more times this year.
  4. Online retailers will continue to open brick and mortar stores, further validating that physical retail is far from dead. Research expects retailers to begin reinvesting in their physical footprints to achieve the perfect omnichannel shopping experience for consumers.
  5. Industry to continue reading the tea leaves to predict the next downturn. Everyone is on the lookout for signs of the next recession, as the economy nears its 10th year of expansion-its longest period of expansion ever. Though US economic growth and job gains were strong in 2018, some economists and analysts predict the economy will slow in 2019 due to short term interest rate bumps by the Federal Reserve and waning fiscal stimulus from federal tax cuts.
  6. Investor demand for US assets will keep transaction volume strong. Transaction volume through Q3 2018 was 11% above its level for the comparable period last year and is approaching the total closed in 2015- the peak sales year for this cycle.
  7. PropTech adoption will accelerate industry-wide. More real estate firms embracing the latest innovations to streamline work tasks and create a more paperless, transparent approach to sourcing deals, managing assets, analyzing data and closing transactions.
  8. Investment in value-add assets to help assuage US workforce housing availability and affordability concerns. Demand for available and affordable workforce housing options will remain a topic of interest in the multi-family sector, as expensive land and development costs make it increasingly difficult to build affordable housing from the ground up.
  9. Millennials to continue flocking to “Hipsturbias” and 18-hour suburban cities. More than 2.6 million Americans relocated from the city to the suburbs in the last 2 years. “Hipsturbias” or “Urban-burbs” have been used to classify these suburban markets with increased walkability and access to public transit that so resemble urban metros.
  10. Investors to favor industrial, multifamily, and retail assets in the new year. Retail is expected to attract interest from investors in 2019, particularly those assets ripe for redevelopment and upgrades.
  11. Investors to continue flocking to secondary, tertiary markets for yield. CRE investors are on the hunt for a solid risk-adjusted return, yet continue to bypass gateway markets to bet on assets in burgeoning secondary markets.
  12. The construction industry will continue grappling with high costs, labor shortage on a scale of 1-5 with 5 being of the greatest importance, construction costs ranked 4.59, with land costs and housing costs and availability following close behind at 4.14 and 4, respectively.
  13. The US office real estate markets will remain stable, though demand may slow. In its 2019 US Outlook Report, CBRE citied that office net absorption is expected to reach 37M SF in 2019, representing the sector’s 10th consecutive year of positive absorption. Should they continue to experience strong office using job growth in the new year, it could lead to strong absorption rates and renewed interest from investors.
  14. Retail bankruptcies are expected to slow and earnings to stabilize. Though a wave of retailers filed for bankruptcy and shuttered stores this year, the circumstances surrounding most store closures next year should be vastly different.
  15. Multi-story warehouses are nothing new in Europe and Asia, but the US is in the beginning stages of development for these types of facilities. Now that building costs are no longer as cheap and there is less available land than in the past. Although, the downside is that these multi-story facilities can present operational challenges for users.
  16. Grocery chains to move forward online and expand their online offerings with the help of tech. Due to a combination of technological advancement, investment on the part of retailers and consumer demand, that we’re going to see a pretty important shift next year in grocery going online and retailers offering more to consumers in that domain.
  17. Economic development teams across the country continue to feel the impact of Amazon’s HQ2 competition. The HQ2 search was to economic development what the census is to demographics.
  18. US hotel occupancy is expected to break records in 2019. Occupancy levels are expected to surge to 66.2% next year, the 10th consecutive year of growth. The increase will be driven by a 2.1% increase in demand to offset incoming supply.

 

Read the full article here.