Monthly Archives: June 2016

Brexit means trouble for Seattle-area tech, aerospace, but not commercial real estate

The decision by United Kingdom voters to exit the European Union was roiling financial markets Friday, with the Dow Jones Industrial Average and the Nasdaq indices down between 3 and 4 percent midday.

The historic vote could have huge implications for international investment of all kinds, but one expert says the Puget Sound region’s commercial real estate market likely won’t be dramatically affected by the so-called Brexit vote. The one real estate exception is the industrial market.

Gerard Mildner, director of Center for Real Estate at Portland State University said the direct impact of Brexit will mostly be felt by Britain and the EU and will probably have a minimal direct impact on the United States’ economy and commercial real estate.

International investments by overseas buyers in the greater Seattle area has been soaring. But unlike Chinese investors, who poured more than $1 billion into commercial real estate investments in the region in 2015, UK investors invested a mere fraction of that.

British investors bought nearly $40.2 million worth of commercial real estate in the Seattle region last year, according to Real Capital Analytics. That compares to nearly $1.1 billion by Chinese investors. In late 2014, the U.S. affiliate of St. Bride’s Manager, a global real estate investment manager headquartered in London, paid nearly $10.1 million for a downtown Seattle office building.

Peter Orser, interim director of the University of Washington’s Runstad Center for Real Estate Studies, said that it’s too early to tell what effect Brexit will have on the region’s commercial real estate market. The Brexit vote will have repercussions for the banking industry, which he said will have a latent effect on property markets.

Mildner said the risk is that other countries will copy Britain and impose trade barriers. The most exposed U.S. sectors will be export businesses, such as aerospace, agriculture and technology, and port-related industrial property and the financial industry.

Microsoft (Nasdaq: MSFT) stock was down more than 4 percent, and Boeing (NYSE: BA) was off 5 percent. Wheat prices dropped less than 1 percent. Stock of Prologis (NYSE: PLD), a global warehousing company with facilities in the Puget Sound region, was down nearly 4 percent.

Marc Stiles covers real estate for the Puget Sound Business Journal.

British Withdrawal Tests American Banks

Britain’s decision to leave the European Union is the event that American regulators and bankers have been preparing for since the 2008 financial crisis.

A day after American banks took a victory lap after demonstrating to regulators they could survive a hypothetical economic and market shock, as part of the Federal Reserve’s annual stress test, the real test came on Friday.

The market shocks will allow regulators to see whether all the capital American banks have been required to stockpile since the crisis is truly enough to weather real world chaos.

The fallout from Brexit, as the British withdrawal is commonly known, is also likely to show whether new financial regulations have stopped banks from taking risks on proprietary trading — or using their own money to make big investments on assets like currencies and corporate loans.

“The whole purpose of the stress test is to see whether they can withstand a severely adverse situation,’’ said Brian Kleinhanzl, a banking analyst at Keefe Bruyette & Woods in New York. “This qualifies as a severely adverse situation.”

It could take days or weeks before the resilience of the American banks to the fallout from the British vote becomes clear. And there is a chance that some nasty surprises could emerge even further down the road. A large hedge fund client, for example, could suffer from an outsize bet and default on its bank loans.

On Friday, share prices of large American banks fell, although not nearly as much as the stock prices of their European counterparts. Bank of America shares fell more than 5 percent, Citigroup was down more than 7 percent at one point, and JPMorgan Chase fell more than 4 percent earlier in the day.

Those are big movements, but nothing to suggest that investors in banks fear anything close to cataclysmic.

The biggest downside for the American banks is the likelihood that volatile stock and credit markets will cut into the lifeblood of their investment banking operations: trading revenue and the fees they charge to advise on mergers and acquisitions or initial public offerings.

Investment banking revenue had already proved to be fickle for the banks, even before the referendum. And analysts expect Britain’s exit from the European Union to dampen deals and trading activity globally for the foreseeable future.

Michael Corkery, The New York Times 6/24/2016

Chinese investment in Seattle real estate is ‘increasing dramatically’

Don’t expect the appetites of Chinese real estate investors for Seattle-area property to be sated anytime soon.

If anything, the desire among Chinese investors for real estate here is “increasing dramatically,” said West Coast real estate services company Kidder Mathews Executive Vice President Skip Whitney, who heads his company’s China Services division.

One reason is the lack of opportunities in the Bay Area. San Francisco has been “picked over,” Whitney said.

Kidder created the China Services division four years ago.

“We are now starting to reap the benefits, and it’s just going to get bigger. I’m not seeing anything that’s slowing us down,” said another Kidder executive, Brian Hatcher, who works in Bellevue.

Kidder Mathews is working with around eight Chinese groups looking to buy commercial real estate in the Puget Sound region, according to Whitney, who works out of Kidder’s San Francisco office. He said most of the shoppers are looking for development deals because they want to establish a platform to build projects, not just invest in real estate.

Chinese investors’ interest in the Puget Sound area is a relatively new phenomenon.

“Three years ago we couldn’t get anyone to look at Seattle. Now everyone wants to look at Seattle,” said Whitney.

Another Kidder broker, Holly Yang of the Bellevue office, added there’s “an unprecedented requirement for real estate investment opportunities here.”

Whitney said the Seattle region’s similarities with the Bay Area are helping drive investments. Tech companies are fueling both region’s economies, and this makes the Chinese feel “very comfortable” buying in the Puget Sound region.

 Chinese investment and development companies, especially state-owned enterprises, are trying to move money offshore to diversify their holdings in areas with opportunities for strong returns.

The investors are homing in on Seattle, which they now see as a first-tier global investment market. This perception was further raised last month when Seattle Mayor Ed Murray traveled to China for a trade mission. During that trip it was announced that China’s largest homebuilder plans to invest in a 43-story apartment tower planned for a site near the Space Needle.

Since then a Chinese company called Create World America has paid a total of just over $33.3 million for two development sites in Seattle, including one near Pike Place Market, where a condo tower is planned, and one in South Lake Union, where Create World hopes to start construction on an apartment high-rise this fall.

Marc Stiles covers real estate for the Puget Sound Business Journal.

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