November 18 – November 24, 2016

Chinese mainland real estate companies pricing out local developers in Hong Kong.

Happy Thanksgiving everyone and thanks for reading.

Headlines

CoStar – Hines REIT Sells Tallest Building In Sacramento for $175.5 Million 11/17. Hines bought the 30-story tower in May 2007 for $224 million – it would appear that some landlords are concerned about rising interest rates and potential valuation implications.
FT – China braced for impact of property slowdown 11/19. “The slowdown is essentially policy-driven. If the government finds they have slowed the market too aggressively, they have the ability to bring the market up again.” But isn’t that concerning that policy is driving the property market up and/or down instead of say…fundamentals.

Special Reports / Opinion Pieces

FT – Harsh truths about fake news for Facebook, Google and Twitter – Richard Waters, Matthew Garrahan, and Tim Bradshaw 11/21
- “Google and Facebook have resisted describing themselves as media companies or publishers that are responsible for the content they distribute.”
- “‘These companies are in digital denial,’ says Robert Thomson, chief executive of News Corp. ‘Of course they are publishers and being a publisher comes with the responsibility to protect and project the provenance of news. The great papers have grappled with that sacred burden over decades and centuries, and you can’t absolve yourself from that burden or the costs of compliance by saying, ‘We are a technology company”.”
Washington Post – George Takei: They interned my family. Don’t let them do it to Muslims. – George Takei 11/18
- “The United States apologized for locking up Japanese Americans. Have we learned nothing?”

Briefs

Esther Fung of the Wall Street Journal highlighted that some property landlords are making deals with Uber and Lyft to allow for or make up for parking shortages.
- “Ride services such as Uber and Lyft, along with the promise of driverless cars, represent the ‘single biggest game-changer for real estate’ over the next several decades, said Dave Bragg, an analyst at real-estate research firm Green Street Advisors.”
- “In all, Green Street estimates parking needs will be cut in half over the next 30 years amid an anticipated decline in vehicle ownership, eliminating the need for 75 billion square feet of parking space.”
- “Green Street expects mass adoption to begin around 2030 and to be completed 15 years later. Uber already has suggested its entire fleet would be driverless by 2030.”
- Are the Uber drivers savvy to this?

Graphics

FT – Italian 10-year bonds on course for worst month since 2012 – Mehreen Khan 11/17

NYT – As American as Apple Pie? The Rural Vote’s Disproportionate Slice of Power – Emily Badger 11/20

Visual Capitalist – How Much Government Debt Rests Upon Your Shoulders – Jeff Desjardins 11/23

Featured

*Note: bold emphasis is mine, italic sections are from the articles.

Mainland money distorting Hong Kong land prices, tycoon warns. Ben Bland. Financial Times. 24 Nov. 2016.

An interesting thing when local developers are priced out of a market by aggressive and seemingly foolhardy outsiders. What’s noteworthy is who is making the statement and how much development property sites are now going for in Hong Kong – despite its troubles.

“Lui Che-woo this month lost out in an auction for a Hong Kong site that was acquired by a subsidiary of HNA, the acquisitive (Chinese) mainland conglomerate, at double the price paid for a similar site in 2014.”

Lui Chee-woo is head of Galaxy Entertainment and happens to be worth $11bn according to Forbes. HNA is a Chinese conglomerate with business lines that include aviation (Hainan Airlines), real estate, financial services, etc. HNA also recently acquired a 25% stake in Hilton Worldwide from Blackstone for about $6.5bn in October.

“The site went for about HK$13,500 (USD $1,740) per square foot – similar to the going rate for completed apartments nearby.”

That’s per buildable square foot folks…add another $1,000 psf in direct construction costs (probably around that amount to attain a finish level worthy of these price points), plus another $1,000+ psf or so in soft costs (you’ll need brand name architects to be consistent with the message), financing, and profit, and you’re at around $4,000+psf. Not unheard of in this market, but consider the comps at around 50% of this…

“Mainland developers acquired 44% of the residential land sold by the Hong Kong government last year, up from just 7% in 2012, according to calculations by Spacious, a property listings website. In the year to date, mainland companies have bought 39% of the land auctioned.”

Bottom line, different folks/companies have different return metrics and objectives…

Other Interesting Articles

Bloomberg Businessweek

Beijing Wants One Union to Rule Them All
Macri Crashes Against Reality in Bid to Open Argentina’s Economy
- Bottom line, as a policy maker do you maintain policies that coddle the few (if you don’t their pain will be very visible and vocal) at the expense of the many (who generally don’t notice the added cost)j?

The Economist

A Wealth of Common Sense – How Bad Could Bond Market Losses Get? 11/20

Economist – You may be higher up the global wealth pyramid than you think 11/23

FT – China’s hairy crab scandal reveals depth of pollution crisis 11/17

FT – Jared Kushner, favored son-in-law of Donald Trump 11/18

FT – Blackstone looks to sell $2.3bn Japan property portfolio to Anbang 11/21

FT – Honeymoon is over for new Saudi leader as reform pain kicks in 11/22

NYT – Donald Trump’s Son-in-Law, Jared Kushner, Tests Legal Path to White House Job 11/17

NYT – Quit Social Media. Your Career May Depend on It. 11/19

NYT – Italy’s Banks Are in a Slow-Motion Crisis. And Europe May Pay. 11/19

NYT – Dallas Stares Down a Texas-Size Threat of Bankruptcy 11/20

NYT – Gender Colors Outrage Over Scandal Involving South Korea’s President 11/21