What the ‘Amazonification’ of Whole Foods Means for Your Property Values

Amazon and Whole Foods together in one place? Sounds like a dream team for real estate developers—a dream that became reality on June 16, when Amazon announced it had bought the grocer.

Before the deal went down, Whole Foods’ stock had been hurting, at $33.06 per share. After the merger was announced, however, the price rose approximately 30%, to $41.99 a share.

Bisnow’s Julia Bunch reports on what the transaction means for multifamily owners:

Until the deal is closed, many landlords are in wait-and-see — but largely optimistic — mode.

[Morgan Development’s]

Pearl Midtown mixed-use development in Houston has a 264-unit apartment complex anchored by a 40K SF Whole Foods. Residents access the grocery store through a residential elevator that opens directly into the store.

“In today’s ever-changing environment, where convenience and technology are at the forefront, this partnership should only enhance the experience of our residents,” [Morgan] Vice President Philip Morgan said. Morgan said he is excited to see what changes will be implemented into Whole Foods’ stores.

Source: http://www.multifamilyexecutive.com/property-management/what-the-amazonification-of-whole-foods-means-for-your-property-values_c?utm_source=newsletter&utm_content=Brief&utm_medium=email&utm_campaign=AFT_072417%20(1)&he=

 

FED SHARES CONFIDENCE IN US ECONOMY, WHILE CMBS TRADING SPIKES

US equities went through an impressive rally in recent sessions after Fed Chairwoman Janet Yellen struck a dovish tone in her remarks addressing the agency’s plans for future planned rate hikes. In her testimony before Congress on Wednesday, Yellen expressed confidence in further growth of the US economy, but noted that the Fed remains flexible in adopting a more accommodative monetary policy should the recent weakness in inflation continue.

On a more positive note, Yellen emphasized strong job growth in the labor market, and divulged that the Fed was still on track to begin downsizing its balance sheet in the fall. Oil and bond prices rose on indications of greater demand after the Fed’s cautionary commentary, and the US dollar fell under additional pressure in light of a weak CPI reading for the month of June.

Investors monitoring the banking industry were focused on the first round of bank earnings released on Friday to glean more clarity on market direction. JP Morgan, Citigroup, and Wells Fargo all posted earnings numbers that beat expectations, but fell short on either trading revenue or sales for the second quarter. As a result, banking sell-offs took place across the board for the day.

In tune with the strong performance in the equity markets, CMBX spreads underwent some considerable tightening after Wednesday, particularly at the lower end of the credit curve. BBB- spreads for CMBX 6/8/9/10 each narrowed between 10 and 19 basis points in the past week, while those for series 7 moved in by around four basis points. There were some active CMBS trading sessions on Wednesday and Thursday due to the move in the interest rate market; several large blocks of LCF conduit bonds along with single-asset and short-term paper also helped bump up total bid list numbers. For the CMBS cash segment, spreads widened modestly up and down the stack.

According to a Commercial Mortgage Alert survey discussed in last Friday’s issue, market pros are expecting the rally in CMBS prices that began at the start of the risk retention era to taper off in the second half of the year. Based on a forecast from 18 participants in their semi-annual survey, prevailing spreads for new issue senior bonds are projected to remain roughly unchanged in the latter half of 2017 after significant tightening in the past six months. On the other hand, subordinate spreads for riskier bonds are predicted to eventually widen, especially if the stock market rally loses momentum and property values show more signs of stabilizing.

Earlier this week, Gymboree announced plans to close 350 stores as the brand explores restructuring options after filing for bankruptcy in June. There is minimal Gymboree exposure to CMBS. The California-based children’s clothing chain will continue to operate a retail portfolio of over 900 locations following the store closures.

CMBS Trading & CMBX Spreads

CMBS Swap Spreads

Legacy LCF Price and Swap Spread Movement 

Source: http://info.trepp.com/trepptalk/fed-shares-confidence-in-us-economy-while-cmbs-trading-spikes?utm_campaign=TreppTalk%20Subscription&utm_source=hs_email&utm_medium=email&utm_content=54304337&_hsenc=p2ANqtz-9BO4YTiXXDvZWq93BuC7EcHrosEL1R05zYInKjoxqspl8yPfVuNRD0AO4MMSMUmqg4ftk41kM0eRePaQE3s5H2eNZjmA&_hsmi=54304337

FORECASTING CECL LOSSES FOR CMBS

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Most banks are just starting to explore possible avenues of addressing FASB’s Current Expected Credit Loss (CECL) reserving model. The guidance so far has left much discretion in the banks’ hands when it comes to determining proper life-of-loan reserve calculation methods and models. Due to stress testing and heightened regulatory scrutiny, one of the more complex methods that most larger banks already have experience with is econometric modeling, namely Probability of Default (PD) and Loss Given Default (LGD) modeling.

Banks will most likely be expected to use similar modeling and forecasting techniques across the regulatory and accounting functions, and those that have built regulatory models will use some or all of that infrastructure to tackle CECL.

In order to get a sense of the magnitude of prospective CECL loss calculations, Trepp ran the entire CMBS loan universe through the Trepp Default Model for CECL. Despite the fact that they are not balance sheet loans, the aggregate results give a good idea as to how much a bank may need to reserve for loans in given risk cohorts (DSCR, LTV, vintage, state and region).

The portfolio includes all non-delinquent, single-property loans with at least one year of remaining term. Portfolio loans analyzed here are backed by the five major property types: industrial, lodging, multifamily, office, and retail. Finally, the loans only come from standard/public conduit, single-asset, and large loan CMBS deals. The portfolio excludes agency, mezz, short-term, single family rental, cell tower and other esoteric deal types.

Unsurprisingly, recent vintages perform better than older ones, partly due to adverse selection of what remains in older vintages and the higher liquidity underwriting environment of 2005, 2006, and 2007 loans that leads to higher PDs (all else equal).

CECL – ALLL% by Loan Vintage

Debt service coverage ratio (DSCR) and loan-to-value (LTV) ratio are two major drivers of loan performance, and may also be a way banks stratify their loans into broad risk cohorts for CECL disclosures. In general, loans with lower DSCR and higher LTV will have higher CECL ALLL forecasts.

CECL – ALLL% by DSCR

The question that will arise is whether these numbers are reasonable and supportable within the CECL framework. Trepp’s previous CECL research – Looking at Historical CRE Losses for CECL – shows that total losses for similar CMBS loans so far are well higher than the model output we used for this analysis. However, those losses came during a time which included historic collapses in real estate values and liquidity.

Source: http://info.trepp.com/trepptalk/forecasting-cecl-losses-for-cmbs?utm_campaign=TreppTalk%20Subscription&utm_source=hs_email&utm_medium=email&utm_content=54217594&_hsenc=p2ANqtz–aUxn_-KaNs3JkFximIy81gqLG5Zvzi2pL5Hw8M3r7u2d4t62hzj3i_nNaSa2beJWx7fhMjXeqyozKgc-MQQ9oLarbTg&_hsmi=54217594