Financial Times Blog | Page 93 of 99 | Real Estate & Capital Markets News

Published June 18, 2018June 13, 2019 by Roger Staiger

19 June 2018 FT — Articles to Read

19 June 2018

List-Serve Comment (related to 18 June 2018 Question): Add: vision exams 1/year + teeth cleaning is recommended every 6 months, but most of us benefit from every 3 months even though insurance does not pay for the extras. To reduce the cost, you need teeth cleaning only, not dentist’s exam, in the extra months. Low level infections around the gums reduce stress on your heart.

CONGRATS ON SHEDDING THE EXTRA WEIGHT!

Question: According to MSN:Lifestyle, what are 13 things I wish someone had told me before I had a second baby?

Accounting – Pg. 7

– Goodwill is defined as the amount one company pays for another over and above the appraised value of the target’s assets, less any assumed liabilities

– …it represents “the conjectural future profits that an acquiring manager hopes to realize through an acquisition”

– Thanks to the long M&A boom and recent accounting changes, this “hope” value have become significant part of corporate balance sheets

– In the UK, companies used to amortize goodwill – meaning they took an annual charge against their profits, with a view of writing off the whole amount over a fixed period – generally about 20 years. But since 2005, they have been able to treat it as a permanent asset, only writing it down if it is deemed “impaired” by the company and its auditors. This is established by an annual impairment test

– First, there is the question of whether goodwill has much status as an asset. It cannot be sold and, in the event of bankruptcy, almost certainly has no value

– …it allows companies to overstate the success of deals because it does not factor in the amount laid out to achieve the additional sales and profits. That encourages managers to push through marginal or even wasteful combinations

– Bosses then produce business plans and cash flow forecasts for these units, from which they compute net present values, and thus test whether the underlying assets are worth more than the goodwill written up against them

– Not only does this process minimize the change of an impairment, it depends heavily on the willingness of auditors to challenge the numbers plucked out by management

– “of course, goodwill matters because it’s a measure of capital allocation”

– Under UK law, companies can only make distributions if they have sufficient “distributable reserves” – or accumulated and realized profits – to do so

– Paying dividends out of capital is illegal, as it can disadvantage other creditors, and can lead the directors to have to repay any illegitimate distributions they make

– Impairing goodwill means writing down the carry value of a subsidiary and hence reduces shareholders’ funds – and the distributable reserves the parent company has available

Distressed debt tempts investors in anticipation of the next downturn – Pg. 19

– A growing number of US hedge funds specializing in distressed debt are rising money in anticipation that the next economic downturn will punish companies that have borrowed record amounts since the financial crisis

– Distressed debt investors make money buying assets they believe have fallen too sharply in price, typically during periods of economic stress

– US corporate bond sales have run at more than $1tn annually since 2009, prompting warnings that such reliance on debt will help trigger the next downturn

Answer: (1) It’s actually easier than you think; (2) You will ‘wing’ it a lot more than you did with your first child; (3) Your firstborn might revert to baby behavior to get attention; (4) delivery hurts like hell the second time; (5) Doing ‘all the right things’ seems less important; (6) The baby book still won’t get done; (7) Breastfeeding issues do not magically disappear; (8) You will be OK with your kids eating the food in the car; (9) Even in your worst moments, you will still love being a parent; (10) You need your family and extended family more than ever; (11) Time with your partner becomes more important; (12) Kids forgive and forget; (13) Siblings can love each other fiercely and it’s a beautiful thing

Published June 18, 2018June 13, 2019 by Roger Staiger

18 June 2018 FT — Articles to Read

18 June 2018

Question: According to MSN, why will you age better than your parents?

White House under fire over financial watchdog nomination – Pg. 2

– Donald Trump plans to nominate a little-known White House official to head a financial watchdog meant to protect consumers in the latest sign of his administration embracing low-profile approach to tackling bank regulation

– The CFPB was created by the Dodd-Frank reforms after the 2008 financial crisis and was reviled by bankers and Republicans, who blamed it for stifling the financial sector

– Mr Mulvaney has made big strides in styming some of the CFPB’s former work, temporarily freezing new regulations and reviewing proposed rules, including those on payday lenders

Argentina finance minister defends bailout – Pg. 4

– Argentina’s Treasury and finance minister insisted that the government would meet tough new targets for lowering the fiscal deficit next year, as he defended the country’s decision to seek a $50bn bailout from the IMF

– Mr Dujovne pointed to innovative clauses in the deal proposed by Argentina that would allow the government to increase spending on social programmes and relax deficit targets, if necessary, which the fund “welcomed warmly”

– Such socially sensitive terms contrast with past IMF programmes, not least the fund’s last standby arrangement with Argentina that ended with 2001-02 financial crisis that had grievous consequences and tarnished the multilateral lender’s reputation

Insurance – Pg. 7

– …after over a decade of crisis AIG is a shadow of its former self, having sold off large chunks of its business

– …in January it spent $5.6bn on its first purchase in a decade, with a hint of more deals to come, and has used the past 12 months…to recruit a new management team and shake up the way it operates

– The insurer has been under sustained pressure for most of the past 15 yeasr. It lurched from Eliot Spitzer’s accounting investigation that resulted in a $1.6bn settlement in 2006 to needing a $185bn government rescue two years ago later just to survive at the height of the financial crisis

– It has repaid the taxpayer bailout, partly via asset sales. At its peak, the insurer was worth $240bn and had a triple A credit rating. It is now worth about a fifth of that and Fitch rates it A-, six notches lower

– Regulators restricted the company’s growth because they deemed it a “systemically important” financial institution. But last autumn, as part of the Trump administration’s deregulatory agenda, it rescinded AIG’s “too big to fail” status

– Part of the reason for the share price fall may be the scaling back of share buybacks, but there are more fundamental problems. AIG has long avoided the kinds of financial products, such as credit default swaps, that turned toxic in 2008 and led to its bailout. Today, it is the traditional property and casualty insurance business, which accounts for almost two-thirds of revenues, that is the group’s big anxiety

– …AIG has struggled to generate a profit from business insurance in the US. It covers a wide range of commercial risks, from workplace injury claims to clean-up costs from environmental damage…

– Problematic policies sold by AIG, such as professional liability and workers’ compensation, are known in industry jargon as “long-tail”, leaving the insurer on the hook for potential liabilities years into the future

Meet Canada’s business school trailblazers – Pg. 11

– Isabelle Bajeux-Besnainou of McGill University says englightened maternity and paternity rules have helped women forge senior careers in Canada (Prof Note: I took a class with Isabelle at GWU. Huge loss for the school!)

Answer: (1) More exercise (Prof Note: I am down 20lbs and feeling great. Still obese by U.S. government standards but pushing forward under my own power! J); (2) Better joint replacement; (3) A new attitude toward growing older (Prof Note: I will absolutely tell you that my 40s are better than my 30s which were better than my 20s); (4) Improved cartilage solutions; (5) More plant-based food; (6) Greater understanding of which foods are bad for us (Prof Note: Probably could have done without the gelato last night!); (7) More effective exercise; (8) Making cells young again; (9) Greater understanding of inflammation; (10) More sharing of health data; (11) 3d printing; (12) Tissue engineering; (13) Falling smoking rates; (14) Greater awareness of environmental factors; (15) Fitness trackers; (16) Digital pathology; (17) Greater focus on keeping minds sharper; (18) More interest in healthy foods; (19) Better food production and labeling; (20) HPV vaccination; (21) More cancer-fighting vaccines; (22) Better hygiene; (23) Improved dental hygiene; (24) Smart phone apps; (25) More socializing later in life; (26) Socializing online; (27) Better blood pressure control; (28) The sequencing of the human genome; (29) Genetic screening; (30) Gene editing and therapy; (31) Targeted cancer therapies; (32) Newer antibiotics; (33) New stroke treatment tool; (34) Clearer ultrasounds; (35) Greater use of meditation; (36) More minimally invasive surgery; (37) Robotic surgery; (38) Natural orifice surgery; (39) Telesurgery; (40) Telehealth; (41) More research on gut bacteria; (42) Better understanding of the role of stress (Prof Note: I actively work to reduce my stress); (43) Wearable health sensors; (44) More personal tech innovation; (45) New ideas about ‘nursing’ homes; (46) More senior living options; (47) More volunteering, more health benefits; (48) Greater understanding of social determinants of health; (49) Recognizing the importance of mental health as we age; (50) Big Data

Published June 18, 2018November 5, 2020 by Roger Staiger

Real Estate As An Investment: An Overview

Market Memo

For those new to P(Gain) we are not trying to convince you to invest in real assets, if your visiting our site, your likely already working within the field. Rather it is to provide what we see as context and more tellingly, our perspective of what we think are important characteristics about the asset class and characteristics about real assets within a broader portfolio.

In the contemporary investment environment, Real Estate is considered an alternative investment for institutional investors and is often compared against equities, fixed income assets and cash holdings. Unfortunately, for many individual and passive investors their attention remains on more liquid markets with the memories of the 2007 financial crisis remaining vibrant. For context, As of June 2018, the IRA is 44 years old, the 401(K) has been in existence for 37 years and the Roth variations of either are coming up on their 21st birthday. Although the fundamentals of these programs are sound, their high exposure to financial assets as well as their lack of operational history provides adequate justification for the greater inclusion of real assets within one’s personal and institutional holdings.

Real Estate is an idiosyncratic investment. It maintains unique characteristics that influence its risky premium for both systemic and unsystemic factors but despite this, it has served as the largest source of wealth generation and distribution throughout history. In 2018, for many individuals and institutions this lesson has largely been forgotten or replaced with the innovation of new financial products believed to either maximize return or minimize risk within more liquid markets. Despite this, traditional equity and debt investments within this Real Asset maintain qualities that warrant their inclusion within contemporary investment portfolios and provide significant and distinct alternatives to financial assets.

Real Estate up until several decades ago maintained a dominant position in most institutional portfolios. With the exception of the individual’s working within this very broad field, this fact is often forgotten with many individuals and institutions maintaining investments with lower barriers to entry regardless of the time horizon of their holding period. Real Estate has adjusted to this liquidity preference with widespread availability of Master Limited Partnerships, REITs, Closed End RE Mutual Funds and MBSs products Real Estate’s derivative products have become quite freely traded within liquid markets. However, this does come at a cost, often with characteristics and correlations that more closely confirm to equities and fixed income than their underlying asset. Characteristics that remain unique to direct equity and debt positions within Real Estate Properties and Projects include their potential to offer absolute returns, hedge against inflation, diversify the risk & return spectrum of traditional investments, provide cash flows as well as their potential to provide income tax advantages. Although contrasting investments may provide some of these benefits, these aggregated characteristics demand precise planning and expertise in order to maximize their return while minimizing downside portfolio risk.

Oppose to investments in stocks or mutual which often track their returns relative to an index or benchmark, ownership in private real estate ignores beta risk and offers investors and their portfolios the opportunity to track the performance of their investment in absolute returns. Absolute returns take into account an investments price appreciation, the depreciation of the asset and all subsequent cash inflows and outflows throughout the investments time horizon.

Real Estate provides hedges against inflation, which has remained below the Federal Reserves targeted rate of 2% since its establishment however, the point remains relevant in the event of forecasted inflation hikes as well as unexpected inflation hikes in the future. With inflation historically following non-linear patterns of growth, maintaining real assets with the ability to adjust to it’s corresponding increases provides a hedge its risk particularly in relation to traditional investments such as stocks and bonds which become discounted at greater inflation and interest rates.

Furthermore, real estate provides diversification with traditional investment with correlations across RE asset classes differing at times substantially from those of equity and bond indexes. The correlations are often increased substantially, if utilized with exchange traded derivatives or indexes, which capture liquidity preferences of investors operating within these markets. However, the underlying asset and its idiosyncratic features often offer a greater ability to mitigate systemic risk with traditional assets and derivatives of high liquidity.

Perhaps one of the most important characteristics of real estate investment is the tax benefits associated with its private ownership. Real Estate ownership in U.S. markets offers tax benefits for rental properties, apartments, and shopping centers, industrial, commercial and even vacant land through both depreciation as well as deductibility on debt interests. Subsequently, real estate sets itself apart from the direct ownership of stocks and bonds, which are subject to capital gains but fail to benefit from maintaining a depreciable basis.

Other Real Estate considerations, which make them somewhat unique within the investment landscape and often serve as a barrier to entry for many investors, is the heterogeneity, illiquidity and lumpiness of commercial and residential real estate. Unlike a broad index, such as the S&P or the Dow Jones, Real Estate is very property specific with diverse characteristics unique to each asset. Direct ownership in Real Estate ensures that owners maintain a high degree of unsystemic risk in addition to systemic risk. Furthermore, illiquidity may effect reported returns as well as create additional risk depending upon the investors exit strategy in the asset. Lastly, investors are acquiring lumpy assets in the sense they cannot easily be bought or sold in the exact quantities and sizes market participants prefer. Subsequently, diversification and portfolio balancing across this asset class is challenging in relation to exchange-traded alternatives.

The advantages and disadvantages associated with direct ownership in investable real estate are broad and significant. As a result, appropriately underwriting and managing these assets requires expertise within the asset as well as the specific market the property is located within. Despite the potential intricacies, Real Estate has historically and will remain an institutional quality investment with a enduring requirement to minimizing downside risk in order to maximize both project and portfolio return through active management and planning.

Published June 16, 2018June 13, 2019 by Roger Staiger

16 June 2018 FT — Articles to Read

16 June 2018

Question: According to MSN, what is the most expensive hotel in Maryland?

Ex-Trump campaign chief Manafort jailed for alleged witness tampering – Pg. 1

The judge noted that her earlier instruction not to commit crimes while on bail was “printed in bold, all caps” (Prof Note: There is much to be said for a quiet, anonymous life)

Central banks correctly go their separate ways – Pg. 8

The Fed raised rates and signaled future increases, as expected; the ECB gave details of its impending exit from quantitative easing, while emphasizing that monetary policy would remain loose; the BoJ did nothing
Of the three, the BoJ had the easiest task, though not for pleasant reasons. Inflation in Japan continues heavily to undershoot its target; shoing that the tightening in the labour market is a long way from feeding through adequately into pricing power
The Fed, having clearly signaled a quarter-point rise in rates, duly delivered
….Jay Powell….was wise to try to dispel notions that he would take a more hawkish approach than Janet Yellen, his predecessor
The Fed needs to be alert to the possibility that its tightening will cause significant financial disruption, notably in emerging economies. But the wildest card is the possibility of an escalation of trade conflict among the big economies, driven by Donald Trump, the US president
…the most difficult decision was that the ECB, which faced the delicate task of preparing financial markets for its exit from quantitative easing
It seems quite likely that equilibrium long-term interest rates have fallen. Moreover, this already very old recovery could run out of steam, or be subject to adverse shocks, at any time. Still, consumers, investors and businesses should take some comfort that the central banks of the world’s biggest market economies have roughly the right analysis of where they are and how they might react in a downturn

Law firm’s near $200,000 offer kicks off US pay war – Pg. 10

US law firms have launched an expensive bidding war for young legal talent after New York-based Millbank Tweed Hadley & McCloy raised the salary it was offering first-year lawyers to $190,000, forcing their competitors to follow suit
…raised salaries for those just below partner level to $330,000, took effect this month
(Prof Note: Students are always surprised when I state that attorneys rates are negotiable. You can and should negotiate their fees. Also, track their time and negotiate the bills when they are received. I often use two law firms on my bigger issues and have each check the other’s invoices. REFUSE to pay for the $25 copy! REFUSE to pay for the 2 minute phone call confirming the meeting. Note the firm most likely rounded the 2 minute call to 6 minutes and then billed you.)

Halcyon days recede as ECB and Fed step back – Pg. 13

The withdrawal from fixed income was broad based as investors adapted to a world in which two key central banks were providing less support. European bond funds were particularly hit, losing $2.4bn, the biggest outflow in over a year. Emerging market bond funds suffered their eighth straight week of outflows, the longest negative streak since 2014
Pressure on emerging markets has been exacerbated by investors shifting cash from EM into the US, where rates are becoming more attractive. The returns on short-term 12-month Treasury bills – essentially the equivalent of cash – have climbed to a 10-year high of 2.3% thanks to the Fed’s tightening and a big increase in US government borrowing following tax reform

Answer: Four Seasons, Baltimore