The number of middle class New Yorkers is up since the recession, helped by a broader definition, but they are increasingly under pressure from higher housing costs.
February 11, 2013 1:47 p.m.
There are some 1.9 million middle class New Yorkers, enough to comprise the fifth-largest city in the country, just ahead of Philadelphia, according to a new City Council report. That number has grown by 126,000 since 2001, reversing long-standing trends of “white flight” from the city to the suburbs—between 1989 and 2000, the city lost some 86,000 middle class families.
Still, getting by in New York has not gotten any easier for these families, particularly when it comes to housing, where costs have been skyrocketing.
“We need to make sure that the people who want to stay in our great city can afford to stay here,” said Council Speaker Christine Quinn, who released the report, The Middle Class Squeeze, in advance of her State of the City speech Monday afternoon. “We have no greater challenge or obligation to the families we represent than to tackle this problem head on and deliver results.”
The study is an update of one undertaken by the council in 1997. That report, entitled, Hollow in the Middle: The Rise and Fall of New York City’s Middle Class, found a decline dating back to 1989, in the number of New Yorkers with middle-class incomes. The study defines those in the middle class as a family of four earning between $66,400 and $199,200 annually.
One important difference between this study and the previous one is that while the lower limit of middle class has remained defined as 100% of the area’s median income (AMI), the upper limit has been defined upward from 200% of AMI to 300%, a shift that underscores how much more money it takes to be middle class in the city these days.
The report offers the example of “an experienced, single public school teacher earning $100,000.” This person would have fallen above the 200 AMI for a single individual, which is $93,000, technically making the teacher upper class. “It is hard to think of someone living on a school-teacher’s salary as upper income,” the report notes.
Meanwhile, housing costs have only been rising since 2001. The report finds that average rents are up 44% across the city (6.2% on an inflation adjusted basis) in the period, while the price to own a property has risen even more, up 47%. As a result, homeownership, long a badge of the middle class, fell to 51% in 2011, from 55% in 1999. And it is even harder to come by affordable housing depending on which borough one calls home—Manhattan has housing costs four-times the national average, the report notes, while Brooklyn is three-and-a-half times more expensive, and Queens two-and-a-half times more expensive.
As a result, Ms. Quinn is calling for new affordable housing measures in her State of the City address, in particular a program that will add 40,000 new units, the largest since the Mitchell-Lama program in the 1960s. She will also push to make as much of the city’s affordable housing stock permanently affordable, rather than allowing the affordability to expire over a period of decades.
“We will not allow middle class families to get priced out of the neighborhoods they helped build,” Ms. Quinn said during the speech. “We will keep New York City what it has always been – a place where opportunity is given, not just to those who can afford to buy it, but to those willing to work for it.”
Read more: http://www.crainsnewyork.com/article/20130211/REAL_ESTATE/130219995#ixzz2KiYMRrzB
Developers are building a $14 million retail building next to the Apollo Theater on 125th Street that will expand dining choices.
Published: February 5, 2013
The recession slowed commercial real estate development everywhere, but it was particularly hard on Harlem, which had only recently begun to attract national retailers after decades of disinvestment. A number of projects had to be shelved when the financial markets dried up.
Financing is still hard to come by in Harlem, but these days, 125th Street, the neighborhood’s main shopping street, is beginning to hum with activity. Two new developments are currently under construction, each featuring the kind of chain restaurant that was rare in the neighborhood not so long ago. A third project that will bring Upper Manhattan its first Whole Foods supermarket is also expected to get started later this year.
“Retailers are seeking new neighborhoods in Manhattan where they can achieve great revenue,” said Jared L. Epstein, a principal of Aurora Capital Associates, a New York development company that is the Adjmi family’s partner in a four-story 100,000-square-foot shopping center rising at the corner of 125th Street and Frederick Douglass Boulevard. “This is one of the last neighborhoods that has the density of foot traffic that can support their business model.”
Anchored by a 30,000-square-foot Designer Shoe Warehouse, the new development at 301 West 125th Street is directly opposite Harlem U.S.A., the pioneering retail and entertainment center that opened in 2000, giving the neighborhood its first movie theater in many years — now called the AMC Magic Johnson Theater Harlem 9 — as well as national retailers like a 35,000-square-foot Old Navy store.
The Adjmi development will include the city’s first Joe’s Crab Shack, as well as a health club under Equinox’s lower-priced Blink brand and a party supplies store. (Mr. Epstein declined to say how much his project would cost.)
Half a block to the east, the developers of Harlem U.S.A., Grid Properties and the Gotham Organization, are putting up a $14 million, three-story retail building at 269 West 125th Street, next to the Apollo Theater, which will include a Red Lobster restaurant, also new to the neighborhood.
In the early days of Harlem U.S.A.’s existence, shoppers and moviegoers had few places to eat within easy reach, but first local restaurants and then chain restaurants have provided more choices, said Grid’s president, Drew Greenwald. He said he expected to lease the shopping mall’s only current vacancy — an 11,000-square-foot space that was previously occupied by a bookstore and the Hip-Hop Culture Center — to a casual sit-down restaurant whose name he was not ready to disclose. “This corner is becoming a little bit of a food hub,” he said in an interview in his office at Harlem U.S.A.
The two new developments have more in common than seafood, however. Both are being financed by their developers.
“The capital markets are still circumspect across the board, and in Harlem, where things are almost always more difficult, that’s true as well,” said Kenneth J. Knuckles, chief executive of the Upper Manhattan Empowerment Zone, an economic development program.
Financing is also not expected to be a problem for a development intended for a large, weedy lot at the southwest corner of Lenox Avenue and 125th Street. The site was acquired several years ago by the retail specialist Jeff Sutton, who is planning a five-story glassy building that will include two creditworthy tenants: a 40,000-square-foot Whole Foods supermarket and a 75,000-square-foot Burlington Coat Factory. The site is opposite the Harlem Center, whose tenants include Marshall’s, Staples and other national retailers. But the Whole Foods lease came as a surprise to many people in Harlem. “It was a shock, because of the price point,” said Barbara Askins, president of the 125th Street Business Improvement District.
In 2010, one-quarter of the families in Central Harlem had incomes below the poverty level. But the neighborhood has been attracting more affluent residents, and many of them go out of their way to shop at Whole Foods, Ms. Askins said. And then there is the foot traffic: some 900,000 people walk along 125th Street each month, she said.
Chase Welles, an executive vice president at SCG Retail, an Atlanta company that represents the upscale supermarket chain, based in Austin, Tex., said that opening on 125th Street was not a tough call. “There’s real density there,” he said “The people meet the general Whole Foods demographic of income and education.”
Developers of other projects on 125th Street, however, have yet to pin down the financing they need to begin construction. Janus Partners, a company with a long track record in Harlem, and Monadnock Construction hope to start work this year on the redevelopment of the long-dormant Taystee Bakery complex. They were awarded development rights in 2011 after a previous plan involving the food market Citarella did not work out. The site was rezoned in November to permit a mixture of uses.
Jerry Salama, a principal at Janus, said the $100 million, 330,000-square-foot project, called Create@Harlem Green, hopes to attract the type of nonprofit, technology and creative industries that have been flocking to Midtown South, the office district between 42nd Street and Canal Street, in recent years. “Lots of leases are expiring in Midtown South, where rents have doubled since tenants first signed leases,” he said. “We want to be the alternative that is affordable.” Prospective tenants include the Harlem Brewery Company, which would move production there from Brewster, N.Y.; a biotechnology firm; some nonprofits — and, appropriately enough, a bakery. The site is close to where Columbia University is building its new Manhattanville campus.
“The proximity to the Columbia expansion makes this project more feasible and exciting,” said Blondel Pinnock, a senior vice president at the Harlem-based Carver Federal Savings Bank and the chairwoman of the 125th Street Business Improvement District.
Danforth Development Partners and Exact Capital say they also plan to break ground this year on the redevelopment of the Victoria Theater, a long-closed former vaudeville house just east of the Apollo Theater. Like several other projects in Harlem that have yet to materialize, the Victoria complex, which has been in the works since 2007, is challenging. It would include 229 rental apartments, half of them income-restricted; a 210-room Cambria Suites hotel with a ballroom; retail stores; and a cultural arts center with two theaters. Zoning regulations encourage developers to include cultural uses to give the street more character and prevent it from turning into a big-box strip.
Craig Livingston, a managing partner of Exact Capital, which joined the project in 2011, said lenders had been wary of committing to a new hotel in what was considered an untested market. The Cambria Suites would be only the second hotel built in Harlem since 1913, when the Hotel Teresa opened. The other new hotel is a 124-room Aloft, which lacks a restaurant and other amenities.
“You can’t point to 20 other successful hotels in Harlem, but the economics are there to support a new hotel in Harlem — definitely,” Mr. Livingston said. He cited the popularity of 125th Street as a tourist destination and the pricing advantages of being outside Midtown.
Deborah C. Wright, the chief executive of Carver Federal, said some developments on 125th Street had probably been harder to achieve because officials had imposed requirements to foster job growth — like including a hotel. But she expressed confidence that all the projects would eventually get done. “We may have over-engineered the protection so it’s taking a little longer than we like, but it’s going to happen,” said Ms. Wright, who first began working on Harlem development in the 1980s. “It’s zigging and zagging, and not following a straight line, but it’s inevitable that sites will get developed and complete the circle that began 30 years ago.”
This article has been revised to reflect the following correction:
Correction: February 7, 2013
An article in the Square Feet pages on Wednesday about new commercial development in Harlem misstated the relationship between Aurora Capital Associates and the Adjmi family in a project on 125th Street and Frederick Douglass Boulevard. They are equal partners. Aurora is not the minority partner.
A version of this article appeared in print on February 6, 2013, on page B10 of the New York edition with the headline: Harlem’s 125th Street Attracts Big Retailers.
The bursting of the housing bubble plunged the economy into a recession from which it has yet to fully recover. But economists say this could finally be the year that housing lifts us out of the doldrums. Just over half of economists surveyed by CNNMoney identified a housing recovery as the primary driver of economic growth this year. The rest were split fairly evenly between consumer spending, increased domestic energy production and stimulus from the Federal Reserve as major growth drivers. “Homebuilding activity will likely remain the strongest growing component of the economy in 2013,” said Keith Hembre, chief economist of Nuveen Asset Management. “After several years of excess supply, demand and supply conditions are now in much better balance.” Home sales rebounded to the strongest level in five years in 2012, as home building bounced back to levels not seen since early in the recession. Near record low rates, rising home prices and a drop in foreclosures have combined to bring buyers back to the market. The economists surveyed also forecast that there will be just under 1 million housing starts this year — roughly matching the 28% rise in home building in 2012. Moody’s Analytics is forecasting much stronger growth — a 50% rise both this year and next year, which it estimates will create more than 1 million new jobs. “There’s a lot of pent-up demand for housing, and very little supply,” said Celia Chen, housing economist for Moody’s Analytics. “As demand continues to improve, home builders have nothing to sell. They’ll have to build.” She said that growth in building will mean adding not just constructi! on jobs, but also manufacturing jobs building the appliances and furniture needed in the new homes, which in turn drives overall consumption higher. And economists say the tight supply and renewed demand for housing should lead to higher home values — about a 3.7% increase according to the survey. “One of the most significant indirect effects from the housing recovery is the ‘wealth effect’ on consumers due to the recovery in home prices,” said Joseph LaVorgna, chief U.S. economist of Deutsche Bank, who said better home values can affect both consumer psychology on spending as well as their actual finances. “Even small moves in home prices can have large effects on consumption, because housing comprises such a significant share of household assets,” he said. Source: CNN/Money
Remodeling sentiment rose to the highest level in five years, according to the National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) for the fourth quarter of 2011. The RMI increased to 46.6 in the fourth quarter from 41.7 in the third quarter. In the fourth quarter, the RMI component measuring current market conditions rose to 48.4 from 43.0 in the previous quarter. The RMI component measuring future indicators of remodeling business was also positive, increasing to 44.8 from 40.4 in the previous quarter. An RMI below 50 indicates that more remodelers report market activity is lower (compared to the prior quarter) than report it is higher. The overall RMI averages ratings of current remodeling activity with indicators of future activity. “As more consumers remain in their homes rather than move in this economy, remodelers benefited from a gradual increase in home improvement activity, taking us to a five-year high,” said NAHB Remodelers Chairman Bob Peterson, CGR, CAPS, CGP, a remodeler from Ft. Collins, Colo. “2011 ended on a strong note for the remodeling industry.” Current market conditions improved significantly in all four regions over the third quarter of 2011.! The RMI reported higher market activity in two important categories: major additions 52.3 (from 45.2) and minor additions 50.1 (from 45.7). Future market indicators in each region also experienced gains from the previous quarter. Two of the indices reported a level over 50: calls for bids at 50.7 (from 45.4) and appointments for proposals at 50.1 (from 43.3), while work committed for the next three months only rose to 31.5 (from 29.9). “With several key components above 50, the latest RMI provides reason for guarded optimism going forward,” said NAHB Chief Economist David Crowe. “The residential remodeling market has been improving gradually, mirroring the trend in other segments of the housing market. We expect a modest growth in remodeling activity to continue throughout 2013.” Source: NAHB
Rents were up for the third consecutive year in 2012 and are forecasted to rise again this year, according to MPF Research. Apartment rents increased 3 percent in 2012, a slower pace than in 2011 where rents rose 4.8 percent. The historical norm for the past two decades in rental increases is 2.5 percent per year. According to MPF, many property owners weren’t as aggressive in asking for higher rents in 2012 as they were in recent years. “Many on the operations side of the apartment industry have focused on sustaining their very tight occupancy levels during a period when job growth and new household formation have been fairly sluggish at the same time that renter movement has begun to inch up from the unusually low levels experienced in the previous few years,” says Greg Willet, MPF Research vice president. Source: Realty Times
The Markets. Rates continued to trend upward in the past week. Freddie Mac announced that for the week ending January 31, 30-year fixed rates rose from 3.42% to 3.53%. The average for 15-year loans increased to 2.81%. Adjustable rates also rose, with the average for one-year adjustables rising at 2.59% and five-year adjustables increasing to 2.70%. A year ago 30-year fixed rates were at 3.87%. Attributed to Frank Nothaft, Vice President and Chief Economist, Freddie Mac, “Rates on home loans continued to trend upwards this week amid a growing economy led in part by the recovering housing market. For instance, new home sales totaled 367,000 in 2012, the most in three years and reflected the first annual increase in seven years. Pending home sales in 2012 averaged its highest reading since 2006. And the S&P/Case-Shiller® 20-city composite house price index rose 5.5 percent over the 12-months ending in November 2012, the largest annual growth since August 2006. All of these factors helped residential fixed investment to add nearly 0.4 percentage points to real GDP growth in the fourth quarter alone.” Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
Current Indices For Adjustable Rate Mortgages
Updated February 1, 2013
|Daily Value||Monthly Value|
|6-month Treasury Security||0.12%||0.12%|
|1-year Treasury Security||0.15%||0.16%|
|3-year Treasury Security||0.42%||0.35%|
|5-year Treasury Security||0.88%||0.70%|
|10-year Treasury Security||2.02%||1.72%|
|12-month LIBOR||0.849% (Dec)|
|12-month MTA||0.175% (Dec)|
|11th District Cost of Funds||1.071% (Dec)|
February 3, 2013 5:59 a.m
A plan to rezone a large swath of midtown east to allow a new generation of super-skyscrapers could cost the city dearly unless the plan can be delayed, according to critics of the project who cite threats to the redevelopment of the Hudson Yards area west of Penn Station.
The city is counting on new development around the rail yards to generate hundreds of millions of dollars in taxes and fees to pay part of the cost of extending the No. 7 subway line to the area.
City Councilman Dan Garodnick, whose district encompasses midtown east, raised his concerns last week at a breakfast panel hosted by Crain’s. He said that more time should be taken to weigh the potential impact of the midtown east rezoning on West Side subway financing. He also suggested that the starting date for the rezoning could be delayed from the current target of 2017 to allow a commercial district to take shape in the Hudson Yards area.
“I would ordinarily let the market decide where commercial development takes place on its own time frame, but the city is on the hook here,” Mr. Garodnick said.
To help pay for the extension of the No. 7 subway line to the West Side rail yards, the city devised a mechanism in which real estate tax revenue from new development and proceeds from the sale of local air rights would service the billions of dollars in debt needed to build the extension.
The recession, however, forced many developers to delay or even cancel their projects, curtailing their payments to the city. According to a recent study by the city’s Independent Budget Office, $170 million in taxes and air rights were collected in the Hudson Yards area from 2006 to 2012. That was $113 million—nearly 40%—less than the city’s initial projections.
The money was used to pay a portion of the $517.5 million in interest payments due on the bonds through 2012. Because the revenue fell short of expectations, the city, which has guaranteed repayment of the debt, had to pay more to make up the difference. In total, the gap-filling effort cost the city $137 million during the six-year period.<!– $r("(\s*?|\r*?)(<ul|<bl|<ol||block>|ol>|ble>)(\s*?|\r*?)
The city’s liability is only growing. Interest payments on the debt have risen this year by more than $20 million, to more than $150 million, requiring the city to set aside more funds to keep the bonds from defaulting. According to the IBO, the city put up $155.6 million in advance to service the bonds in 2013 and 2014.
Meanwhile, work has begun on only one major office tower west of Penn Station, a 2 million-square-foot-plus skyscraper to be anchored by high-end handbag maker Coach.
Mr. Garodnick and other critics fret that the rezoning in midtown could shift the focus of development back toward Manhattan’s core just when construction on the West Side is still struggling to achieve critical mass.
“The city has said they won’t compete, but are we really certain about that?” asked Raju Mann, an executive at the Municipal Art Society, which has criticized aspects of the midtown east rezoning push, including its impact on potential landmark buildings in the central business district. “Can anyone guarantee that five years is long enough to get Hudson Yards started and that the city won’t have to keep plugging these holes in the financing for another nine or 10 years?”
Winning over the skeptics, including Mr. Garodnick, will be crucial to the Bloomberg administration’s hopes of gaining approval for the rezoning, which it has identified as key to maintaining the city’s long-term competitiveness as a global business center. <!– $r("(\s*?|\r*?)(<ul|<bl|<ol||block>|ol>|ble>)(\s*?|\r*?)
At the Crain’s gathering last week, Deputy Mayor for Economic Development Bob Steel, a chief architect of the rezoning plan, gave no hint of ceding any ground on the midtown east effort before the mayor’s term ends Dec. 31.
“Mayor Bloomberg has told us every single day that … we’re going to run to the finish line and finish our responsibilities,” Mr. Steel said.<!– $r("(\s*?|\r*?)(<ul|<bl|<ol||block>|ol>|ble>)(\s*?|\r*?)
A version of this article appears in the February 4, 2013, print issue of Crain’s New York Business as “East vs. west battle brews”.
By Margaret Collins, John Gittelsohn & Heather Perlberg – Feb 4, 2013 10:21 AM ET
JPMorgan Chase & Co. (JPM) is giving its wealthiest clients the chance to invest in the single-family rental market after other investments linked to the U.S. housing recovery jumped in value.
JPMorgan Entices Millionaires to Become Landlords
PulteGroup Inc., the largest homebuilder by market value, was the biggest gainer on the Standard & Poor’s 500 Index last year, rising 188 percent, helping an index of 11 builders more than double since the end of 2011, and raising concern among analysts including Michael Widner of Stifel Nicolaus & Co. that growth is already priced in.
PulteGroup Inc., the largest homebuilder by market value, was the biggest gainer on the Standard & Poor’s 500 Index last year, rising 188 percent, helping an index of 11 builders more than double since the end of 2011, and raising concern among analysts including Michael Widner of Stifel Nicolaus & Co. that growth is already priced in. Photographer: Daniel Acker/Bloomberg
The firm’s unit that caters to individuals and families with more than $5 million, put client money in a partnership that bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California, said David Lyon, a managing director and investment specialist at J.P. Morgan Private Bank. Investors can expect returns of as much as 8 percent annually from rental income as well as part of the profits when the homes are sold, he said.
The bank’s wealthy clients are joining a growing number of private-equity firms and individuals buying rental homes in the regions hardest hit by the U.S. housing crash. Blackstone Group LP (BX) has spent $2.7 billion, and said last month it accelerated purchases as home prices rise faster than anticipated. Even after home values in November gained by the most in six years, investors are wagering on rental properties as an alternative to housing-related stocks and mortgage debt that’s already soared.
“The traditional places people might look — homebuilder stocks and appliance makers — probably aren’t the best places for new investments,” said John Buckingham, chief investment officer at Al Frank Asset Management in Aliso Viejo, California, which oversees about $4.5 billion. “They’ve had fantastic runs.”
PulteGroup Inc., the largest homebuilder by market value, was the biggest gainer on the Standard & Poor’s 500 Index last year, rising 188 percent, helping an index of 11 builders more than double since the end of 2011, and raising concern among analysts including Michael Widner of Stifel Nicolaus & Co. that growth is already priced in.
The investments rallied as the housing recovery strengthened through 2012 with the Federal Reserve pushing mortgage rates to record lows, and as institutional investors increased their purchases of foreclosed homes. Home prices in 20 U.S. cities rose 5.5 percent in November from a year earlier, the most in more than six years, an S&P/Case-Shiller index of property values showed last month.
New York-based JPMorgan, whose private bank oversees $877 billion, started pooling investments from its clients in mid- 2012 into a partnership to purchase distressed properties, betting that prices will rise over the next several years and provide investors with income from renters along the way, said Lyon. The firm uses a third-party manager to find homes, buy and manage them, he said, declining to name the firm.
The goal is to sell the houses within three to four years in one of three ways: through an initial public offering of a real estate investment trust, a sale to an existing REIT or to an institutional buyer such as a pension fund, Lyon, who’s based in San Francisco, said. Clients will receive a share of any price appreciation depending on the size of their investment.
The strategy is similar to institutional buyers including Blackstone, the world’s largest buyout firm, Thomas Barrack’s Colony Capital LLC, and Oaktree Capital Group LLC. (OAK) They’re aiming to profit from low prices on distressed properties, often those in foreclosure and sold at auction — and the demand for rentals from people who don’t want to own a home or can’t qualify for a mortgage.
“It’s hard to find a private-equity firm on the planet that doesn’t have a strategy in this space,” Gary Beasley, chief executive officer at Waypoint Homes, said last week at the American Securitization Forum’s annual conference in Las Vegas. The Oakland, California-based company has bought homes in California, Arizona, Illinois and Georgia.
Since the 2008 financial crisis, lenders have required higher credit scores and larger down payments to qualify for mortgages. Borrowers whose loans for purchases closed in 2012 had an average credit score of 740, according to data compiled by real estate data service CoreLogic Inc., up from 716 in 2006. That’s contributed to a decline in the U.S. home ownership rate to 65.4 percent at the end of 2012 from a peak of 69.2 percent in June 2004, the Commerce Department reported.
The number of renter-occupied residences increased an estimated 1.1 million last year while the number of owner- occupied households fell by 106,000, according to a Commerce Department report.
Buying single-family homes to rent in some locations has become more attractive to bond investors in the past year as mortgage-backed securities without the backing of the U.S. government have become more expensive, said Sandeep Bordia, head of residential and commercial credit strategy at Barclays Plc.
“If you look at some of the really beaten down areas — Miami, Orlando, Vegas, Tampa — we do think the return on that asset, if you just buy a home, collect the rent and do whatever you need to do on the cost side, you’re getting a return of somewhere between 6 percent and 8 percent,” Bordia said. Non- agency mortgage-backed securities are generally yielding 4 percent to 6 percent, he said.
The “sweet spot” in many areas would be homes prices between $100,000 and $150,000, Bordia and other analysts wrote in a Feb. 1 report. While smaller homes can provide the highest gross rental yields, there are fixed costs and the risk of higher tenant delinquencies, they wrote.
Even as the housing market probably will do well across the nation, areas where property prices already are high such as San Diego, Los Angeles, Denver and San Francisco, will see lower rental yields, of 4 percent to 5 percent, Bordia said.
Jumping into the single-family home market now carries the risk that it’s already getting crowded, and the bargains in the best locations are dwindling, said Craig Pastolove, a managing director at New York-based Morgan Stanley. (MS)
“There’s a lot of capital out there that is chasing these investments,” so there may be price inflation, Pastolove said.
While buying single-family homes to rent is among “the smarter ways to invest going forward,” Pastolove advises wealthy clients to buy the properties to rent themselves if they are able. Morgan Stanley isn’t purchasing homes or managing them; instead it’s making loans to high-net-worth customers at rates lower than a typical mortgage, and using their investment portfolios as collateral. That provides people the capital to purchase investment properties, he said.
Investors also shouldn’t write off companies directly tied to real estate, said Rex Macey, chief investment officer at Wilmington Trust, a unit of M&T Bank Corp. (MTB) Housing is so intertwined with the economy that many companies directly or indirectly involved will benefit from a continued rebound.
“This is a tide that is going to lift a lot of boats,” Macey said.
Since Goldman Sachs Group Inc. (GS) wrote in a Nov. 28 report that housing gains may be priced into the market for equities most tied to housing construction, homebuilders have rallied 15 percent. The S&P Supercomposite Homebuilding index fell 0.3 percent today at 10:20 a.m. in New York. PulteGroup fell 0.6 percent to $20.22.
Mark Kiesel, portfolio manager for Pacific Investment Management Co. also said housing-related investments will continue to do well as Americans seek to buy homes.
“If they don’t own a house it is time to buy,” said Kiesel, who sold his home in 2006 before the market crashed and then bought last year in Newport Beach, California, where the investment firm is based.
Pimco’s Investment Grade Corporate Bond Fund (PIGIX) returned 15 percent, compared with 9.4 percent for the Barclays U.S. Credit index last year, because of its emphasis on housing-related investments, he said.
As investors look for ways to benefit from an improving housing market, bank stocks are an “inexpensive” opportunity because many of their loans are backed by U.S. real estate, said Brett Nelson, a managing director in the investment strategy group of Goldman Sachs’s private-wealth-management unit.
“Their fortunes are directly tied to the trajectory of the U.S. real estate market,” Nelson said. He uses State Street Corp.’s SPDR S&P Bank ETF, an exchange traded fund tied to bank stocks that’s gained 8.5 percent this year.
While 2012 saw the first stage of a housing rebound, prices are still 15 percent below their 2007 peak, according to the Federal Housing Finance Agency. Spending on residential construction also increased at a 15.3 percent rate in the fourth quarter and climbed 11.9 percent last year, the most in two decades.
“We believe that housing is still very much going to recover and that you’ve had a big rally already in housing- related equities,” said Pastolove of Morgan Stanley. “So it’s about looking for other opportunities while they still exist.”
To contact the reporters on this story: Margaret Collins in New York firstname.lastname@example.org; John Gittelsohn in Los Angeles at email@example.com; Heather Perlberg in New York at firstname.lastname@example.org.
Paul Davidson, USA TODAY7:29p.m. EST February 3, 2013
Last week’s economic reports delivered seemingly incongruous messages: The economy shrank in the fourth quarter for the first time since the recession, but job growth was more robust than initially estimated.
In fact, job growth the past two years was noticeably stronger than initial estimates, according to revised Labor Department figures released Friday, even while the economy has plodded along at a lackluster pace.
That makes forecasting job gains for 2013 especially tricky. Will the same pattern continue? Will the economy shift into a higher gear and catch up to the job market? Or will job growth lose steam without stronger economic gains?
The answer, of course, depends on which economist you ask. Still, several top economists expect stronger payroll gains to continue this year due to both an ongoing need to make up for excessive layoffs in the recession and an improving economy.
Another possibility is the weak economic growth will be revised up, more closely matching the job gains.
Last week initially brought the jarring news that the economy contracted at an annual rate of 0.1% in the fourth quarter, mostly because of temporary factors. Still, the economy has grown at a tepid pace of 1.5% to 2% each of the past two years.
Then, the Labor Department said that monthly job growth averaged 175,000 in 2011 and 181,000 in 2012. It previously estimated monthly gains of 153,000 each of those years.
“It suggests the economy has been creating jobs at a meaningfully faster clip,” says Mark Zandi, chief economist of Moody’s Analytics.
Typically, however, economic growth of over 3% is needed to create that many job additions, says Jim O’Sullivan, chief U.S. economist of High Frequency Economics.
This isn’t a typical recovery, however. Even modest economic growth is requiring strong hiring because employers cut more workers than necessary in the recession and were reluctant to hire early in the recovery. Instead, they worked existing employees harder.
“That can only go on so long” as employees become overtaxed, says Dean Maki, chief U.S. economist of Barclays Capital.
The trend can be seen in the growth of productivity, or output per labor hour. It rose 1.8% in 2010 as employers added an average of just 85,000 workers a month, squeezing more out of each employee. In 2011, productivity growth slowed to 0.6%, as hiring more than doubled.
Maki expects slow productivity growth again this year as employers continue to make up for too many recession-era layoffs. He forecasts modest economic growth of 2.1% amid federal budget cuts but healthy average monthly job gains of 183,000.
O’Sullivan doesn’t think such strong job growth can be sustained this year without a more robust economic expansion. Yet he says a stronger economy is likely as housing rebounds and rising stock and home values more than offset a payroll tax increase and federal cutbacks.
He expects the economy to grow close to 3% this year as employers add about 175,000 jobs a month.
Tom Gimbel, CEO of LaSalle Network, a Chicago staffing firm, says placements were up 30% last year. Companies, he said, boosted hiring as sales rose and concerns over the new health care law have faded.
A similar pattern is shaping up this year, he says, with placements up 80% vs. a year ago. “I think companies are cranking it out,” he says.
Real-Estate Developer Hopes to Mix It Up by Adding Office Space to Williamsburg Landmark Plans
By ELIOT BROWN And LAURA KUSISTO
Amid a sea of new apartments popping up in the Williamsburg section of Brooklyn, Jed Walentas has an alternative idea: office buildings.
Last October, Mr. Walentas’s company took control of one of the most valuable development sites in Brooklyn, the former Domino Sugar factory on the Williamsburg waterfront. Since then the company, Two Trees Management Co., has been figuring out what to do with the 11-acre site which has sweeping views of the East River and Manhattan.
Now his vision for the site is beginning to emerge, and it looks different from the all-residential plan that had been envisioned for the site earlier. Instead, Mr. Walentas wants to include in the complex enough office space for as many as 3,000 to 4,000 workers.
Mr. Walentas says he’s adding office space to his plan to make the development more vibrant than other large projects that have risen in recent decades. These projects, including some in Long Island City and other parts of Williamsburg, are sterile because they only have apartments, not a mix of uses, he says.
“They don’t make great urban places, they don’t integrate into the neighborhoods,” he says. “What we’re trying really, really hard to do here is to mix in enough commercial office space to give this neighborhood and this community a sense of that feeling of vitality.”
Mr. Walentas’s plans for office space and other changes would require approvals from the City Council and city agencies. The former industrial site was rezoned in 2010 to include 2,200 apartments, but no office space.
The inclusion of such commercial property would be pivotal for the Brooklyn neighborhood that’s been one of the most rapidly evolving corners of the city over the past decade, becoming a magnet for young workers in creative industries. A rash of building that followed a 2005 rezoning of the area has caused an outbreak of new luxury apartments on the sites of former warehouses and industrial space. Chic restaurants and boutiques have sprouted along the sidewalks.
Mr. Walentas’s Two Trees Management paid $185 million for the one-time sugar refinery that still was being used by Domino as recently as 2004. He says he plans to convert the signature weathered-brick building on the site into office space and include offices in at least one new building, for a total of 630,000 square feet.
Most of the rest of the site would be residential. Two Trees executives are still working on determining how many units to include.
Getting city approval for the change is by no means certain. The 2010 rezoning by the site’s prior owner, CPC Resources Inc., was contentious and community groups and elected officials are expected to review closely the plan for office space and other changes to the plan.
Councilman Stephen Levin, who is poised to play a key role, says he supports adding office space and reducing the residential footprint, but stopped short of endorsing the plan overall. “I’m supportive of mixed-use development all up and down the waterfront,” he says. “To me it seems pretty clear that what makes a vibrant neighborhood is the ability of folks that live there to also work there, or for folks that commute in to work there.”
The Walentas family made a fortune in Dumbo by converting former warehouses to apartments and offices. Mr. Walentas, 38, who is a habitually casual dresser, has mostly taken the reins from his father, David Walentas, and is overseeing the Domino project.
Mr. Walentas, who is hoping to duplicate his family’s Dumbo success in Williamsburg, says he doesn’t expect the addition of office space to pay off in the short term. Apartments could bring in as much as four times more income, at least at first, he says.
While that’s much cheaper than space in Manhattan, it isn’t clear whether it would be enough to attract tenants to a site that’s more than one half-mile from the nearest subway stop.
It would be an especially lengthy commute for residents in New Jersey and some neighborhoods in Brooklyn and Manhattan. “You’re drawing people largely from that community. Nobody really wants to go from Jersey to Manhattan and over to Williamsburg,” says Sean Black, a broker at Jones Lang LaSalle JLL -0.86%.
But long term, the mix of uses should create more value in a neighborhood that has very few office buildings. According to research service CoStar Group Inc., CSGP -2.24%there are just 10 office buildings larger than 20,000 square feet in the neighborhood, with a total of around 350,000 square feet.
Demand has been growing rapidly for more than two years for unconventional office space throughout the city. Technology startups and new media companies that eschew the higher costs of Midtown, as well as its more button-down character, have been flocking to neighborhoods like Midtown South. Dumbo has also been a major beneficiary of that trend, and Mr. Walentas is using it as the model for Williamsburg.
In one of Williamsburg’s few office properties, called the Yard, tenants include Indmusic, a YouTube music network that moved from Dumbo about one year ago. Brandon Martinez, Indmusic’s 29-year-old co-founder, says Williamsburg has a variety of restaurants and other retail like retro-record shops that makes the neighborhood appealing for young workers.
“We’re a Brooklyn company,” Mr. Martinez says. “We live here. We do everything in Brooklyn.”
Write to Eliot Brown at email@example.com
A version of this article appeared February 4, 2013, on page A18 in the U.S. edition of The Wall Street Journal, with the headline: Back to Work at Domino Factory.
A new cable offers a tidier way to power up gadgets in the car
THE FRONT SEATS of an automobile make for a cramped mobile office. But for most drivers, that’s what the space has become. The car’s cigarette-lighter receptacle may have humble origins, yet these days it powers just about every gadget that gets taken on the open road—smartphones and tablets, radar detectors and GPS units alike.
So it should come as no surprise when those few inches of space between each bucket seat turn into a jumbled mess of wires. Every device requires its own power cable, which somehow has a way of tangling and knotting itself when you aren’t looking.
For many juice-strapped motorists, the TYLT Band Car Charger is the answer to their prayers. Its flat, semirigid cord resists kinking (why aren’t all cables made this way?) and terminates in one of three connectors to accommodate most devices: a 30-pin model for older iPhones and iPads; micro-USB for just about all smartphones and dumbphones; and, next month, a Lightning version, for Apple’s latest generation of mobile gear.
The Band also has an open USB port for plugging in a second cord—even one that’s proprietary—to charge an additional device. The durable silicone unibody construction comes in four Technicolor shades and houses a 2.1 amp circuit, which is powerful enough to charge two smartphones or a voracious tablet. And when not in use, the Band is easy to curl up into a tidy coil. $40, tylt.com