STIFEL: OFC ($29.15, Hold) - Baltimore Washington Corridor Market, Fort Meade, Cybersecurity. Hold.

FULL MODEL FULL REPORT   Baltimore Washington Corridor Market, Fort Meade, Cybersecurity. Hold.

After a number of conversations with local market participants, we are updating our bull/bear case points for Corporate Office Properties Trust, and updating our thoughts on Fort Meade and the Baltimore-Washington Corridor (BW Corridor) office market. Please reference our recent industry note entitled Conference Call 9/7/16 - Value Creation or Destruction and Lease Economics Analysis. SLIDES ATTACHED. Dial-in Info Below. for detail on leasing economics and value creation potential.

The Corporate Office Properties Trust bull case is: 1) core portfolio fundamentals continue the bounce off the 3Q15 bottom, 2) cybersecurity spending (government, military, corporate) is expected to aggressively increase, 3) defense contractor demand is expected to pick up, 4) the defense IT niche is unique and 5) dispositions are providing a source of capital for development.   OFC bear case: 1) leasing economics are weak, but middle of the pack for Office REITs, 2) while Fort Meade and the BW corridor is the epicenter for military cybersecurity, other government and corporate cybersecurity has more of a Northern Virginia presence, 3) smaller defense contractors appear to be in an expansion mode, while the larger defense contractors do not appear to be taking more space, 4) defense contractors and the federal government are both notoriously frugal when it comes to leasing space, 5) leasing of informed federal government build-to-suits at National Business Park and Westfield Park totaling 352k SF, may not generate lease revenue until mid 2018. A recent environmental impact report indicates that 2.9mm SF of new development on Fort Meade will be offset by 1.9mm SF of demolition. The timing is 5-10 years. This is in addition to 1) the recently completed 600k SF data center, 2) the 242k SF Joint Cyber Command HQ under construction, 3) the 148k SF Marine Corps Cyber Command about to commence, 4) an estimated $50mm spent annually on infrastructure. Fort Meade is the headquarters for the National Security Administration (NSA), Defense Information Systems Agency (DISA) and roughly 100 other federal government agencies. The federal government appears to have a preference for owning on Fort Meade or leasing 100% of a building at three primary off-base, but fenced and fully secure locations -- National Business Park, Annapolis Junction, Emerson Corporate Center. Interestingly, while the projects on base appear to be very costly, the off-base lease economics appear to be RFP driven and very thin. The 3.9mm SF National Business Park appears to have total availability of roughly 7%, plus the 7% availability in two OFC developments; 310 Sentinel and 540 NB Parkway.   Leasing statistics through 2Q16 for the BWI/Anne Arundel submarket (essentially east of Rte. 1). While absorption averaged 360k SF during 2006-2013, total absorption 2014-1H16 was 132k SF.   We think OFC is appropriately valued at 1) 7.0%/5.9%/5.0% implied NOI/cash flow/CF less G&A cap rates, 2) below our NAV cap rate range of 7.5%-8.0%, 3) 2017E FFO/FAD multiples of 13.9x/17.8x.   We are not adjusting our estimates at this time.

Middle East Investors Raise Bets on New York Real Estate: Chart

Middle Eastern investors stepped up purchases of U.S. commercial real estate, with New York City the top destination in both the country and the world for the 18 months through June. Economic growth and favorable exchange rates combined to make the U.S. appealing, particularly for sovereign-wealth funds, according to CBRE Group Inc. Among the $6.5 billion of New York deals was Qatar Investment Authority’s purchase of a stake in the Manhattan West development, and, following the period CBRE studied, the authority paid $622 million for 9.9 percent of the company that owns the Empire State Building.

SOURCE: BLOOMBERG

China's Love Affair with U.S. Real Estate Fades

U.S. real-estate sales to Chinese buyers fell for the first time since 2011. U.S. realtors say China's capital controls and currency depreciation are having an impact on potential buyers pulling the trigger. Bloomberg's Shery Ahn met with a young Chinese professional in New York to find out how the conditions are affecting her purchasing power. (Source: Bloomberg)

 

http://www.bloomberg.com/news/videos/2016-08-10/china-s-love-affair-with-u-s-real-estate-fades

Consultatio's Costantini bullish on Argentine real estate

Things are looking up for Argentina's high-end real estate sector after it struggled for years under former President Cristina Fernandez's unorthodox economic policies, industry leaders told Reuters this week. Eduardo Costantini has made a name for himself in recent decades with luxurious residential mega-projects, such as the massive Nordelta community north of Buenos Aires.

In an interview on Tuesday as part of a Reuters Summit on Argentina, Costantini…. VIEW ARTICLE

Argentine real estate and banking tycoon Eduardo Costantini poses in front of his museum in Buenos Aires, Argentina, August 9, 2016. Picture taken August 9, 2016. REUTERS/AGUSTIN MARCARIAN

Real estate sales, inventory down in 1st half

Inventory in the first six months of the year was the lowest since the market peak in 2007 and the third lowest in 25 years. FULL STORY

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Standard & Poor's New Real Estate Sector Is A Catalyst For REITs

On September 17, Standard and Poor’s will start a new Real Estate sector which will include all of the real estate investment trusts (REIT) that are currently classified in the Financial sector. Many institutional investors, mutual funds, and exchange traded funds are going to be required to move capital into this new sector when it becomes official. Sam Miklosko tells us what to expect and how we can take advantage of this situation..... FULL ARTICLE

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There Are All Kinds of Signs of a High-End Real Estate Slowdown

According to real-estate website StreetEasy, 12 of the condos in Manhattan currently listed at over $20 million have had their prices cut by 5 percent or more in recent months, while only 2 of them have seen any increase in their listing price. Among the cuts is a condo at 1 Central Park South. It's been on the market for more than 250 days, and is now on sale at $45.5 million, $6.45 million less than its price a few weeks ago.

That's just one of the indications that the market may be slowing down. Here are some others: 

FULL ARTICLE

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Aerial view of Lower Manhattan on Friday, June 19, 2015. Photographer: Craig Warga/Bloomberg

Welcome to the Closing Table!

Hello Fellow Real Estate Aficionados,

My name is Joseph Foley. I will be posting and hosting this website. The focus of this site is real estate investing on all dynamics: public or private of equity or debt. As a former broker - keyword 'former' - an investor, and developer, as well as having almost a decade of analytics and consulting on many different private and public investments, I am here to vomit my views of current and future real estate trends with other fund managers and real estate professionals. 

Many of these blogs and sites are just from the brokers point of view, which is transactional. They do not sit on the buy or sell side, which actually proves a thesis. You may call me the reformed broker, but that title goes to an old acquaintance Josh Brown. 

Anyway, I will promise you incite of not only my economic and real estate views and opinions on real estate, but also the opinions and views of top fund and firm managers domestically and internationally with the occasional start-up here and there. 

With that said, I will leave now to build content. 

Caio Bella!