November 15, 2017

Saudi Arabia, OPEC, and Russia: The Conflicts of $60 Crude Prices.

Posted in Keith Knutsson, Real Estate tagged at 2:04 am by Keith Knutsson

The new political risk from Saudi Arabia that arose from the Crown Prince Mohammed bin Salman detaining several prominent business people within the country, including officials and princes, results in uncertainty for oil investors. Given that Saudi Arabia is the world’s second-largest crude producer and the biggest exporter, oil prices are heavily affected by political developments. Until the smoke clears, the market will continue to put a risk premium on the oil prices.

Crude moved past $60 per barrel for the first time in two years due to these developments, and at $70 a barrel the US shale supply would soar; rising oil prices allow shale companies to increase operations. The Energy Information Administration expects mean U.S. lower-48 oil production to ramp up by 620,000 barrels / day in 2018. That estimate will be adjusted upwards if oil prices continue upward. With these numbers in mind, Saudi Arabia is facing challenges on the supply side of the oil market and is unlikely to make big shifts in policy. Current ministers will moderately attempt to curb production by almost two million barrels a day throughout 2018 as producers target drawdown inventories and bolstering prices.

Within these dynamics Russia seems reluctant to let prices rise far, suggesting that at $60 a barrel enhances the possibility of it ditching the output agreement. The oil minister mentioned that OPEC and its partners still have five months to decide whether to extend the agreement and that an extension is dependent on market conditions.

Keith Knutsson of Integrale Advisors commented, “The rising oil prices are certainly an interesting development in the Saudi Aramco IPO; the president has already suggested a New York listing for the 2018 IPO of the state’s energy giant.”

Advertisements

August 25, 2017

BRICS: A Now Disappointing Reality Overshadows Exuberance.

Posted in Keith Knutsson, Real Estate tagged , , at 1:58 am by Keith Knutsson

The BRICS (an economic grouping of Brazil, Russia, India, China, South Africa) were regarded as the leading opportunities for financial investment and symbolized a shift away from the traditional affluent countries. While enormous growth has taken place, the present outlook has dimmed the light for these countries to dominate worldwide trade.

Brazil played a vital role in the enthusiasm behind the BRICS when the country secured the rights to host he football world cup and the Olympic Games. Additionally, Brazil’s democracy brought some comfort to the success of the BRIC acronym, showing virtues of western style capitalism. The outlook took a twist as the country finds itself in a recession through wasteful spending, and political instability. With the country’s top corporations (e.g. Petrobas) and political figures engulfed in scandals, Brazil is far away from the financial utopia it was once envisioned as.

Russia’s opportunities laid in reform to become a major, market led, economic power. While economic fortunes did initially improve under the leadership of Vladimir Putin, these gains have since stagnated. The average Russian has become poorer over the years. The lack of diversification in its markets leave Russia dependent upon the oil and gas industries for political and economic power while system-wide corruption fiddles with the overall efficiency of the country. Without widespread reform, Russia will not be able to shake its problems.

India has been developing rapidly since its independence in 1947, but the performance in key areas has slowed. The substantial population leads the government to cater for the basic needs of many individuals. Underwhelming performance on financial and economic predictions of­ India’s economy and standard of living have left it with large debt at large interest rates and with a bad credit rating. Tax revenues are being used to pay debt instead of investing in key sectors. Meanwhile many state-owned-enterprises struggle and others have already gone defunct, leaving India in an uncomfortable position. ­

China is the world’s second largest economy and the world’s most populous country. Unprecedented growth pushed expectations for China to lead the world in terms of GDP within the century. The slow down experienced in China and the government’s push to try and maintain high levels of growth is demonstrating itself as an increasingly uphill struggle. Policy making has growth-focus and Chinese money has been flooding into any global investment opportunities that are open to it, from real estate to government bonds to infrastructure projects.

South Africa has dropped into recession over two consecutive quarters in 2017. The country has several concerning issues moving forward: a lack of trust from investors further compounded by recent downgrades from the ratings agencies. Allegations of corruption and a chronically bad unemployment rate leaves the country in bad shape. Commodity prices are currently dictating the progress while the manufacturing, technology and services sectors lack in development.

Keith Knutsson of Integrale Advisors stated, “investors are naturally eager to find additional opportunities in untapped regions, but it’s important to focus on a market’s fundamentals before putting exuberant prices on its developments.”

 

 

 

August 19, 2017

REIT Sector Performance

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , at 2:09 am by Keith Knutsson

On September 19th, 2016, the S&P Dow Jones indices put the shares of real-estate investment trusts into their own stock-market sector, thus creating the S&P 500 REIT. 

Since the sector began trading it has returned, with dividends reinvested, a total of 1.9%. The S&P 500 has returned 15.4% over the same period. In the year prior to the sector’s creation, S&P REIT’s beat the broader index by 5.9 percentage points.

The drawback of REIT’s is that they’re focused domestically at a time where economies outside the U.S., such as emerging markets have been picking up. In addition, the rising rate environment makes their dividend yields less attractive and an influx of new properties threaten to cut into firms’ ability to raise rent prices.

“The real estate industry had been pursuing its own market sector for years, and performance had been so good that the index making agreed to split them off from banks” said Keith Knutsson of Integrale Advisors.

The reluctance of real estate investment trusts to develop large projects has kept supply of commercial real estate under control, extending the sector’s recovery. During the recession of 2008, excessive development activity weakened REITs’ credit profiles, but they have been picking up since, with large growth spurred in 2014.

Within the REIT segments, office and retail REITs have seen much slower growth in construction compared with those that focus on residential and warehouse development. Project volumes from office REITs have been stifled due to slow employment growth in businesses that take up office leases.

Furthermore, there has been significantly more development in the multifamily and industrial real-estate sectors. In the residential segment, analysts are predicting that supply growth is currently exceeding and will continue to exceed demand in certain parts of the country.

July 18, 2017

The Inevitable Blockchain Integration

Posted in Keith Knutsson, Real Estate tagged , , at 1:51 am by Keith Knutsson

What is blockchain? To give some background, the term is being heard more and more around the financial realms. The most notable application of it is through the cryptocurrency, Bitcoin, which is only one of 700 different applications for the technology. Blockchain is a type of decentralized database that supports and provides a constantly expanding inventory of records, known as termed blocks, which cannot be adjusted or altered. Each block of information contains a timestamp and link to a previous produced block in the blockchain. This type of creation operates as a public ledger for all transactions, allowing users to connect to the network, report new transactions and verify transactions. Blockchain offers a better way to appropriately identify the worth and value of a something by tracking the history of transactions and where and what that item has been traded for.

 Many still do not understand the magnitude of which blockchain technology can be implemented in our daily lives. Specifically, in the commercial real estate (CRE) industry the impact could be vast. Information concerning market comparisons, buyers, sellers, reporting, title work, and vendor work for individual properties. The benefits include immense time savings, limitation of waste and transparency. According to Cushman & Wakefield, once “adopted by the CRE industry, blockchain technology will make leasing, buying, and selling, of property much more informed, fluid and efficient.”

Upon the digitation of real estate contracts, each commercial property will have its own unique “digital signature” with details of rental performance. Transaction time will be completed in a matter of seconds rather than days, weeks, or months. After concluding a deal, the payment process between tenants and landlords would be more easily facilitated. Imagine trading property similar to buying ‘stocks with blockchain,’ properties in bustling markets could trade hands many times in a single week, depending on investors strategies.  

 A great example of blockchain eliminating problems of the “old” is through property titles that are usually susceptible to fraud and costively administrative and labor fees, by having publicly-accessible ledgers.

 This evolution of real estate is being explored in other countries, such as, in Sweden, the government land registry, testing land title transfers on blockchain. “We could also begin to see this technology implemented in cross-border transactions,” says Keith Knutsson of Integrale Advisors.

June 29, 2017

The Capital Continues to Flow

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , at 1:42 am by Keith Knutsson

The world economy has been surprising many macro investors in the real estate market. First quarter reports begin to reveal political drama is impacting markets closely resembled in Q3 and Q4 of 2016. The outcomes of the Dutch and United States elections were surprises that have positively impacted global capital markets with renewed animal spirits to start of the fiscal year.

Real estate has continued to thrive with transactional volumes of $136 billion in the first quarter, 16% better than the Q1 2007 average. However, these numbers are slightly down from the performance of the Q1 of 2016. A decline in activity in the Americas has been offset by increases in Asia-Pacific and Europe, Middle-East, and Africa (EMEA).

Unpredictability still surrounds the long-term effects of BREXIT, nevertheless investors have been opportunistic enough bringing the United Kingdom’s transactional volumes to similar levels seen in 2015, in British Pounds. Despite early conclusions drawn about BREXIT, London has regained its rank as the most traded city, reclaiming its number one spot from two years ago. Foreign investors sought opportunity in British capital, recording the biggest cross-border transaction of the first quarter to date. The prominent ‘Cheesegrater’ building in London was a $1.3 billion office deal, ranking among the top ten transactions ever recorded. Steady demand for German portfolios also contributed to record high activity. Other notable performers in the European Union (EU) were the Czech Republic, Spain, Netherlands, and France all contributing to surpassing last year’s level. These countries contributed to a year-over-year (y-o-y) growth in volume at $53 billion. Keith Knutsson expounds upon this growth, claiming “the effects of the decade-old financial crises have finally settled and the European Central Bank’s loose monetary policy is taking effect, encouraging households and companies to borrow money and spend more.”

In the Asia-Pacific realm, Singapore and China proved to be superior in activity compared to the declines observed in Hong Kong, South Korea, and Australia. Japan, after being surpassed last year as the top market performer for its region, achieved its best quarter since 2015. Japan attained quarter-over-quarter 38% above its Q1 2016. This has been attributed to a large influx in its logistic and office sectors and is expected to continue into 2018, as the office sector continues to dominate for its 17th consecutive quarter.

The Americas suffered a 12% decline in transactional volumes, being the biggest shock to macro investors. Mexico’s volumes reached nearly $1 billion in volume while Brazil experienced its busiest quarter in two years. Vancouver, Canada set the pace in Canadian markets with major transactions doubling its national volume.

To help quantify the market share for transactional volumes of Q1 2017 locations, there are ten major players considered around the world:

USA – 46% UK – 14% Germany – 10% Japan – 10% Canada – 5%
China – 4% France – 3% Spain – 3% Sweden – 3% Hong Kong – 3%

Demand for real estate is set to stay strong throughout the rest of this fiscal year. According to Jones Lang LaSalle (JLL), an investment management company specializing in real estate, claims “sustained compression of prime yields may be coming to an end.” In most major markets these yields remain unchanged, despite double digit drops in Sydney, Milan, and Frankfurt. Their recommendation to investors is to stay focused on income growth over capital appreciation, rather than the anticipation of rising interest rates.

The largest portfolios to date are industrial and hotel, each with 11% growth. Industrial looks promising in growth with a large European portfolio planned to close in Q3 or Q4 of this year. Looking forward, political agendas that shape public policy will be more predictable as new-elects settle into their positions.

June 24, 2017

Cleaner energy, smarter solutions, and responsible investment

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate, Uncategorized tagged , , at 2:33 am by Keith Knutsson

“Renewable energy is starting to play a major role in decarbonizing our economy” said Keith Knutsson of Integrale Advisors.

Green Investment is gaining traction as shareholders pressure companies to move away from traditional fossil fuel industries and into companies aiming to reduce the global environmental impact. In most regions of the world, renewable energy is considered to be more cost effective than traditional coal. Solar prices have dropped by more than 60% since 2009 and the trend is expected to continue, opening the industry to a broader consumer base. The cost of large scale solar installation will drop by a further 25% by 2025, according to the International Energy Agency.

Renewable energy produces lower emissions than traditional energy sources and can help organizations achieve their environmental and emissions targets. If a company is willing to go in the direction of clean energy, there is typically additional financial support provided by local and state governments.  Some of the most popular forms of renewable energy include solar, wind, biomass, and geothermal heat. Solar energy is the most popular due to its low installation costs, low maintenance, and good return on investment. Here are some things to look for when considering renewable energy sources:

Suitability

When installing solar panels, one must assess the condition of the roof, structural conditions, site alignment, and electrical configuration. For wind turbines, weather conditions at the site, zoning requirements, and the availability of land for development must be considered.

Property Rights

Properties in commercial business districts have building tenancy restrictions and lease agreements, sometimes restricting structural or cosmetic change. Furthermore, tenants who wish to install onsite renewable energy may not be able to do this due to their current lease arrangements with their landlords.

Financing

There is currently a multitude of financing options available for renewable energy projects. By switching to renewable energy, a company may benefit from a range of tax incentives, grants, and positive public relations.

June 15, 2017

The Future of Travel is Changing the Real Estate Market

Posted in Keith Knutsson, Real Estate tagged , , , at 7:41 pm by Keith Knutsson

The world of travel is rapidly changing.  However, as we head towards the future, the way that we travel will undergo a further wave of change. As mobile phone capabilities are being increased, new technology makes traveling easier and more frequent. The future of travel will be revolutionized by technologies and applications that allow us to experience new destinations in new ways.

Modern technological advancements are especially prevalent in smartphones. Travel Apps are now allowing users to listen to audio when on a walk in a new location. The audio includes historical information, accounts from locals, and recommendations on where to dine. However, these “tour apps” are not alone in revolutionizing the travel industry.

The emergence of the vacation rental industry and its success provides insight on the future of travel. Companies such as “Airbnb” are offering travelers alternatives to hotels, at a much lower price. Other companies specializing in vacation rentals include but are not limited to; Tripping.com, FlipKey, HomeAway, VRBO, and HouseTrip.

“More and more people are making investments into properties that could be used as vacation rentals” said Keith Knutsson of Integrale Advisors. More competition in the industry is great for consumers, providing more freedom to choose which properties and price fits best. Here is a look at a few companies that are revolutionizing the vacation rental industry;

·       Tripping.com

Founded in 2009, Tripping.com is a leading search engine for vacation rentals with over eight million properties in 150,000 destinations. The company was the first vacation rental website to feature online booking. Tripping.com collaborates with other companies in the industry, allowing information to be shared across websites.

·       FlipKey

FlipKey provides clients domestic and international properties, with approximately 300,000 listings in over 160 countries. The company offers the ability to browse listings based on certain parameters such as cost, number of rooms, luxury, and amenities.

·       HomeAway

HomeAway has been dominating the vacation rental industry for many years now. The company continues to top the list of Google searches for most popular rental sites. It is also the parent company to other successful vacation rental sites such as VRBO and VacationRentals.com. HomeAway property owners can make upwards of $50,000 annually per listing.

The vacation rental industry has been growing faster than ever before. Approximately one fifth of U.S. Lodging market revenue is now coming from vacation rentals. People are beginning to focus real estate investment into properties with the potential to generate profits from travelers and getaway-seekers. The following benefits both owners and consumers by creating an environment where supply and demand for rental properties is happily met.

June 12, 2017

Integrale Advisors’ Keith Knutsson Looks at Who are the Disruptors?

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , at 1:51 am by Keith Knutsson

In an age when consumers go online to order groceries, download music and book plane tickets, it’s no surprise they do the same at the start of their house hunt.

That’s the route Julia, 30, and her husband took when planning their move from Atlanta to Manhattan last summer. Knowing they wanted a two to three-bedroom home with a doorman, washer/dryer and gym in the building, they plugged their needs into several real estate search engines and explored from afar. Once they got a feel for what was available and their move-out date became more of a reality, they contacted a real estate agent.

  “Because we had not found the right fit, we asked him to step in and show us some things we may not have seen, or that were coming on the market soon and we wouldn’t have seen online,” Julia said.

This is not news to agents, who say clients often do extensive homework online before seeing physical properties. “You have a much more well-informed buyer,” said KJ Kohlmyer, an agent with Zephyr Real Estate in San Francisco and member of the National Association of Realtors®. “People do a lot of research.” In fact, 89 percent of prospective homebuyers use a mobile search engine at the beginning of their research, and throughout the process, according to a National Association of Realtors® study.

Online house hunting is just one of the myriad forces shaping today’s housing market. Technological advances have encouraged the growth of apps and websites that equip consumers with more information. And social and economic changes are driving a desire for urban living, walkability and housing that accommodates a quick commute to work.

 Though today’s house hunters are well-informed, a real estate professional can help them navigate the process more easily than they would on their own, Kohlmyer said. “A good agent can bring everything to the table,” he said. “There can be Byzantine-like local aspects that are not widely known.”

 Today’s homebuyers value “experiences over things,” said Jonathan Miller, president and chief executive of Miller Samuel, a real estate appraiser and consulting firm. “They are in love with the new urbanism trend that has been in place since the financial crisis began. Urban living, walkability and close-knit communities define the experience many in this generation aspire to be part of.”

 Homebuyers today are seeking both urban conveniences and a sense of community—but price pressures and a desire for more living space are motivating them to look outside cities for this holistic living experience. Home prices in the Boston metro area have increased from $389,000 to $421,000 in two years. It’s a similar story in Denver, where prices jumped from $310,000 to $384,000.

 “Beginning in 2015, we began to observe a flight to the suburbs in urban markets as this generation grew impatient with falling affordability,” Miller said. “Renters are becoming first-time buyers, and trade-up buyers are being drawn to the suburbs.”

 These complex dynamics are driving changes to suburban enclaves that were once entirely dominated by automobiles and set apart from downtown areas and the workplace. Many suburbs are reducing auto dependence by introducing retail and office spaces into residential neighborhoods; rerouting traffic patterns; constructing sidewalks and trails; and incorporating more public transit options.

 Suburbs are increasingly offering conveniences and the sense of community that goes with having retail outlets and restaurants nearby. A National Association of Realtors® survey found that 58 percent of respondents favor walkable, mixed-use neighborhoods over those that require more driving between home, work and recreation.

 New, multi-use, pedestrian-friendly communities are popping up in places like Waverly in Charlotte, N.C., which offers 400 apartments and 150 single-family and townhomes anchored by a 40,000 square-foot grocery store and a 250,000 square-foot retail complex.

 Retrofitted older suburbs are also being transformed. Mashpee Commons in Massachusetts is a mixed-use, walkable community that was built on the site of a former shopping center.

 Sonia, 31, and her husband decided to buy a home outside New York City last year. Since they both worked in Manhattan, they were looking for areas that were easily accessible, and a town that was walkable. They settled in picturesque Pound Ridge, minutes from Stamford, CT.

 “We were looking for towns that had an upstate feel but were easily accessible to New York City,” she said.

It’s clear that financial necessity and love of urban conveniences are driving millennials to the suburbs. “This generation is redefining the traditional suburban housing market,” Miller said. “And they are just getting started. Pent-up demand will likely be unleashed on the suburbs over the coming years.”

May 23, 2017

The Gig Economy is Changing the Corporate Landscape

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , , , at 2:14 am by Keith Knutsson

According to a survey, 85% of people are dissatisfied with their jobs (Cushman and Wakefield, 2017). “Flexibility is the driving force today for choosing a dream workplace” said Keith Knutsson of Integrale Advisors. Free communication channels and globalized networks, have allowed for the fast growing “Gig Economy,” which consists of 20-30% of the working population worldwide.

The term “Gig workers” refers to consultants, contractors, or temp workers. The following professions are changing the corporate landscape. Nowadays, companies can easily hire non-permanent employees (temps) on an as needed basis. These “independent workers” are enjoying a balance of freedom, flexibility, and work life. However, there are some consequences. Gig workers lack healthcare benefits and job security.  Nevertheless, it is predicted that 40% of the global workforce will be independent contractors and ‘solopreneurs’ by 2020.

The impact of the gig economy will have a direct effect on workplace of the future. Globalization of work, global trade, and technology shifts have contributed to the rising gig economy.

Reasons for workers to choose independent work:

  • Ability to turn down projects if uninterested.
  • Freedom to choose type of work.
  • Flexibility; when and where to work.
  • Versatility; working on multiple projects for different clients.

Reasons for companies to hire independent workers:

  • Lower office space costs.
  • Reduced cost of healthcare and benefits.
  • Ability to bring in skilled workers/expertise when needed.
  • Scalability; ability to hire workers when necessary.

Analyzing the effect on the corporate environment: 

Firms are redesigning their offices to provide fewer private offices and cubicles, and more open and collaborative space. There are two goals: 1) provide workplaces that facilitate collaboration and 2) decrease the firm’s overall rent expenses by providing less physical space per worker.

Companies have leased several million square feet of space in the past few years and that trend is expected to continue with the growth of the “gig” economy. This economy also impacts traditional corporate culture and the engagement of employees. When all employees are engaged, they are more likely to commit themselves to company goals and achieve higher levels of productions.

According to analysis by Cushman and Wakefield, “65% of today’s school students will be doing jobs that don’t exist yet.” In addition to millennials rejecting traditional employment and choosing to work independently, artificial intelligence and robotics will also be more prevalent in the future. Businesses that will be successful in the future will be those who encourage adapt well to change.

May 22, 2017

US retreat from global financial system

Posted in Integrale Advisors LLC, Keith Knutsson, Real Estate tagged , , , , at 3:47 am by Keith Knutsson

Borrowers now have access to the savings of the entire world if they can show lenders that they can make effective use of their money. It should also mean that lenders can search, on a global level for the opportunities that give them the best return for the risk with which they are most comfortable. The following should benefit both lenders and borrowers.

For borrowers, the cost of a capital loan should be lower than that on offer in smaller domestic markets. On the other hand, creditors’ returns should be far more attractive since they have more options for where to put their money to work. Since the global financial crises, there has been some negativity in the air. This negativity has greatly increased in recent months. Some regulators and financiers moved away from embracing globalization, further claiming that it led to the crisis. However, there is potential for a turnaround; especially if less developed nations and financial markets can improve the way they allocate capital.

Leading up to the crisis, capital inflows and outflows moved in obstructive ways. It transitioned from higher growth emerging markets to slower growth developed markets. Much of these flows went into US Treasuries to strengthen reserves in the aftermath of the 1997-1998 crises. Those capital flows to the US and to the dollar, the world’s reserve currency, meant that Americans could pay for larger properties with money that was cheaper than it once was. European banks continued to borrow those dollars in wholesale markets rather than relying on deposits to fund their own activities. This resulted in what international bankers are calling “the transatlantic banking glut”.

Globalization, all in all, meant poor capital allocation of debt and a huge accumulation of unsustainable debt. This resulted in a rolling crises as investors sought high returns in short-term securities, whether in emerging markets, the US, or Europe.

Central banks in developed nations responded to the crises by implementing easy monetary policies. Thus, triggering an artificial rise of asset prices, which led to an increase in capital outflows into emerging markets as yields were driven down at home. “The Fed should remember that when it makes monetary policy it should take into consideration the impact on the rest of the world,” stated Gao Xiqing, the former head of the Chinese sovereign wealth fund. A decline in globalization would result in a retreat from the dollar and from the US-centralized global financial system. The U.S. had advocated for policies regarding this that would in effect extend US control beyond its shores, especially as the new administration is attempting to limit terror financing and money laundering. The rules have become so burdensome for foreign banks that some have closed their US branches.

There is no better depiction of US policies putting a strain on the global economy than in recent Federal Reserve Board actions regarding “swap lines.” A swap line is another term for a temporary reciprocal currency arrangement between central banks. The central banks of two nations agree to keep a supply of each country’s currency available to trade to the other central bank at the going exchange rate. The Fed maintains lines with Japan, the Eurozone, the UK, Switzerland and Canada.

As the US steps back, we see an emergence of other developed nations are filling the role. China, the economic powerhouse, is taking a greater role on the global financial stage. The rest of the world is trying to circumvent the uncertainty of central bankers, US regulators, and politicians.

Although large companies will always have access to global markets, cross-border investment has become increasingly more difficult due to protectionist measures. As a result, this is expected to produce a smaller demand for capital intensive goods and services. If companies are forced to look domestically for funding, that could be a good thing if governments are more effective in making sure capital is properly allocated. However, there is currently little evidence this will be the case.

Submitted by Keith Knutsson

Next page