A report from Geek Wire. “Redfin’s revenue jumped 121% to $471 million, and its net loss widened to $27.9 million from $6.6 million a year earlier. Redfin CEO Glenn Kelman also addressed the dynamics prompting Redfin to focus on growth over profits. What was driving the bidding wars: The only trend that really made it possible was the fact that so many Californians were moving to Ohio with Monopoly money. … So even when prices double in Columbus, Ohio, somebody who’s used to paying a million dollars for a shack in L.A. says, ‘It looks good to me.’”
“When will Redfin be profitable? ‘What’s really hard about running a property technology company, whether it’s me or [Opendoor CEO] Eric Wu, or [Zillow Group CEO] Rich Barton, is that there’s just so much capital in the space. I think we’re all sitting there at the poker table wanting to take some chips back. But when all of us can borrow $500 million or a billion dollars with no coupon, where basically there’s no interest on some convertible debt, everybody’s just pouring a lot of money into the market, playing a winner-take-all game, or a winner-take-most game. And that just makes it really hard to squeeze a lot of profit out of the business. And it makes it really hard to do anything except to keep pushing more chips out to the middle of the table.’”
The Salt Lake Tribune in Utah. “Right now incoming USU students are frantically trying to find other housing options after the 800 Block apartment complex, which promised housing for 374 students this year, remains incomplete and is at least weeks and possibly months from being finished. A few weeks ago, Jake O’Neal and his daughter traveled from their home in Monument, Colo., to visit the Utah State University campus where she will start her freshman year at the end of this month.”
“They were surprised to discover the apartment complex where she planned to live a short walk to campus wasn’t finished. Not even close. ‘There was no work being done, and you could clearly tell the building wasn’t ready,’ O’Neal told me. ‘Nobody was in their office. Nobody was answering the phone.’”
From Tribune Live. “The Pennsylvania State System of Higher Education is taking steps to combine several of its individual universities into multi-campus institutions, sharing resources with the idea of reducing costs amid flagging enrollment. At the campuses in question, one thing the schools could have in great, unused quantities will be dorms.”
The New York Post. “Billionaires’ Row is a bust. Nearly half of luxury units across seven buildings in the uber-exclusive Midtown Manhattan stretch – where apartments have sold for more than $100 million — sit empty and dark, according to a study exclusively shared with The Post. That translates to 341 of the buildings’ cumulative 772 units, according to the study. The 772 units boast a combined value of just over $17 billion, with 39.7 percent of that sum — or $6.758 billion — tied up in unsold units, the study found.”
“Supply may have simply outpaced demand, said Serhant’s director of market intelligence, Garrett Derderian. ‘There is no question there is a glut of inventory, especially [among units valued] between $10 to $30 million, where most product on Billionaires’ Row is priced,’ said Derderian.”
From City Watch LA in California. “Even before the pandemic, conditions in L.A. were in decline. The crux of the problem lies at the juncture of expensive housing and low wages. Like Mumbai or Delhi, Los Angeles now has massive homeless encampments throughout the city, even increasingly in posh neighborhoods like Brentwood and throughout the middle-class strongholds of the San Fernando Valley.”
“Clearly, the downtown-focused densification strategy has not been an unqualified success. It seemed to work when it unleashed a torrent of real-estate speculation, much of it fueled from abroad. But the market never grew as expected, and in the interim many of the businesses that once thrived downtown—garment firms, jewelry businesses, low-end retail shops—were forced out. And the state and county pandemic lockdowns devastated their in-person shops that had predominated in what was once a hotbed of immigrant commerce.”
“Taking a walk around downtown Los Angeles or Garcetti’s old district in Hollywood, one can see what such speculation has done. In the place of a thriving, blue-collar, largely immigrant economy, one sees many luxury buildings with vacancies, often surrounded by homeless encampments. Estimates of vacancies for rental units range from almost 20 percent to 30 percent or more, and most of the luxury condominiums, both downtown and around the city, are close to half-owned by speculators and institutional investors. The investors who spurred the real estate inflation now seem to be looking to leave their luxury developments behind. Indeed, rumors recently surfaced that the massive three-high-rise Oceanwide Plaza project near Staples Center is up for sale, at bargain prices.”
The Globe and Mail in Canada. “H&R Real Estate Investment Trust is unloading its ownership in the Bow, Calgary’s signature office tower and once the pride of Encana Corp., in a multifaceted deal designed to decrease its exposure to the city’s troubled office market and slash its debt burden. H&R, which owns a mix of office, industrial, residential and retail properties, is selling the Bow along with an office complex in Mississauga to two parties.”
“Today, Calgary’s downtown office vacancy rate is 33 per cent, according to CBRE, and global energy giants have been selling their stakes in Canadian energy assets for years. While the REIT will be able to use the cash proceeds to repay debt, it had to sell the building at a roughly 8-per-cent capitalization rate. Much like bond yields, the higher the capitalization rate, the riskier the asset – and the lower the price. By way of comparison, residential apartment buildings in the Greater Toronto Area have been selling at capitalization rates of about 2 per cent over the past year.”
From CTV News in Canada. “The Ottawa Real Estate Board is warning sellers that the multiple offer frenzy seen for buying homes during the spring is ‘no longer the norm.’ ‘Sellers will need to keep in mind that the multiple offer frenzy experienced previously is no longer the norm, and they may need to have more realistic expectations when positioning their homes and settling on a listing price with their realtors.’”
“The Ottawa Real Estate Board says the capital’s housing stock increased in July, with residential properties up 19 per cent from 2020. Debra Wright, president of the board, says the number of properties on the market in July was over the five-year average by approximately 114 units.”
The Australian Financial Review. “It’s the nail-biter that has investors watching on with a mixture of fascination and trepidation: will Beijing come to the rescue of giant debt-laden Chinese property developer, China Evergrande? It’s a question that has serious implications for Australian investors after the near-30 per cent slump in the price of iron ore since the May peak.”
“There are fears that a collapse of Evergrande – which would send tremors through the Chinese real estate market, making it more difficult and expensive for Chinese property developers to raise debt – would further reduce demand for iron ore, given that China’s construction industry accounts for more than half of the steel used in the country. And that, in turn, could spark a further steep fall in the price of Australia’s largest source of export revenue.”
“Investor jitters increased even further on Thursday after the release of a report by S&P Global Ratings which cut Evergrande’s credit rating – the second downgrade in as many weeks – because of the growing risk of non-payment of debt. ‘Evergrande’s liquidity position is eroding more quickly and by more than we previously expected,’ S&P analysts said. ‘The company’s non-payment risk is escalating, not only for the substantial public bond maturities in 2022, but also for its bank and trust loans and other debt liabilities over the next 12 months.’”
“The S&P report said disputes over contract payments at Evergrande were rising as contractors claimed the company had delayed payments. These contractors were applying for asset freezes as they aimed to resolve disputes in court, which could make banks even more reluctant to lend to the property giant. ‘The steadily increasing number of asset freezes signals strained liquidity,’ S&P said. ‘As news reports continue to be negative, the company could experience a considerable downward spiral, with lenders potentially further tightening their risk exposure to the company.’”
“The liquidity squeeze is occurring at a time when Evergrande faces hefty repayments. S&P estimates that the company has to settle more than 240 billion yuan ($50 billion) of bills and trade payables over the next 12 months, of which about 100 billion yuan is due this year. So far, Evergrande has been trying to ease its cash crunch and whittle down its debt by selling off assets. ‘In our view, substantial asset disposals now hold the key to the company’s repayment ability,’ the analysts wrote.”
“But some investors are concerned that Evergrande is running out of time to sell enough assets to meet its mountain of maturing debt.”
The Globe and Mail. “Investors should worry about China’s recent crackdown on many of its stock market superstars. They should worry even more about what the crackdown says about the country’s slowing growth. The rapid-fire moves by Chinese regulators and courts to brutally rein in the power of many of the country’s most innovative firms has rattled shareholders and spurred concern about Beijing’s shifting agenda.”
“But the simplest explanation rests on the idea that the crackdown is in large part a reaction to China’s slowing growth, a development that has prompted Beijing to reassert its control over the economy. ‘We are expecting a significant slowdown’ for the Chinese economy over the remainder of 2021, Mark Williams, chief Asia economist at Capital Economics, told a webinar this week.”
“The economy will barely grow during the second half of the year and may even shrink, Mr. Williams warned. The immediate cause will be reduced fiscal stimulus from Beijing and a new wave of coronavirus infections caused by the Delta variant, he predicted. But even after those issues fade, China is unlikely to return to its glory days, Mr. Williams added. He forecasts that growth will slump to around 2 per cent a year over the decade ahead.”
“Others have a similarly downbeat outlook. They pin a large part of the blame on an economic strategy that emphasizes infrastructure construction, property development, heavy industry and other forms of state-guided investment at the expense of a more market-oriented, consumer-focused approach. Rural poverty, in particular, remains a problem because of what Matthew Klein, publisher of The Overshoot newsletter on global economics, calls ‘the Chinese government’s long-standing preference for showy capital investments over the provision of public services.’”
“He argues the biggest gains from China’s top-down approach have already occurred. If so, the implications are disturbing: Economists once assumed Chinese living standards would one day come close to U.S. levels, following the pattern set by Japan, South Korea and Taiwan. That no longer seems such a safe bet.”
“On the eve of the pandemic, the average income in China was just under a quarter of the U.S. level, according to Mr. Klein. The convergence of Chinese living standards with those in the developed world ‘paused (or stopped?) around 2014,’ Mr. Klein wrote this week. ‘From this perspective, the right comparisons for China might be Brazil, Mexico and the Soviet Union, rather than Japan, South Korea or Taiwan.’”