The Death Of Retail Real Estate Continues: 77MM Sq.Ft Of Shopping Space Closed In 2018 Already

This report was originally published by Tyler Durden at Zero Hedge

Retail real estate carnage is going to continue this year with no signs of slowing up, as Bloomberg reported this morning that over 77 million square feet of retail real estate has closed this year and that 2018 will easily pass 2017’s record of 105 million square feet closed. The latest example was the fall of the once massive Toys ‘R’ Us name:

The fall of the Toys “R” Us chain, with more than 700 U.S. stores, shows how much retail real estate has changed in just the last decade. When KKR & Co., Bain Capital, and Vornado Realty Trust took over the company in 2005, the buyers justified the $7.5 billion price, in part, because of the supposedly valuable properties that came with the deal.

If there was ever to be any silver lining to the complete carnage in the retail real estate space, it was the argument that has been perpetuated over the last decade or so: despite retail stores closing, the real estate would eventually be worth something.

This argument was made by real estate investment trusts as well as activist investors and analysts who tried to put a positive spin on the death of brick and mortar retail. Now, with more space freeing up, the bid under former retail property is at ask of falling off as supply is starting to get far ahead of demand:

Real estate can put a floor under the value of a retailer and make it easier for the company to borrow. Maybe a particular store concept doesn’t work out as consumers’ tastes change, but in that case, investors can always sell the land and buildings to someone with a better plan. Long-term leases can be similarly valuable. But what if the problem isn’t that a particular store is out of fashion, but that consumers are just shopping less at brick-and-mortar retailers in general? As more storefronts empty, the valuation floor will look wobblier.

This pace of closings puts 2018 on pace to pass 2017’s record of 105 million square feet of retail space closed:

At last count, U.S. store closures announced this year reached a staggering 77 million square feet, according to data on national and regional chains compiled by CoStar Group Inc. That means retailers are well on their way to surpassing the record 105 million square feet announced for closure in all of 2017.

It doesn’t look like the pace of these closings is going to slow anytime soon, either:

And with shifts to internet shopping and retailer debt woes continuing, there’s no indication the shakeout will end anytime soon. “A huge amount of retail real estate in the U.S. is going to meet its demise,” says James Corl, managing director and head of real estate at private equity firm Siguler Guff & Co. Property owners will “try to re-let it as a gun range or a church—or it’s going to go back to being a cornfield.”

So goes one set of stores, as go others. Despite the fact that the U.S. still has some of the most square footage of shopping space per person, there isn’t enough being spent at these locations to make them worth it:

Even though retailers have been retreating for years, the country still has about 24 square feet of shopping space per person, many times more than any other developed nation, according to research firm Green Street Advisors. Consumers aren’t spending enough offline to support such a generous amount. Vacancies are headaches for landlords, of course, but they also have a mushrooming effect. People may steer clear of a mall that has lost an anchor tenant or has an abundance of “for lease” signs in smaller spaces. Deserted big-box stores, their facades naked and parking lots barren, can spread a sense of blight for blocks around. Who wants to open a business next to a place that’s gone out of business?

The article finishes by pointing out that companies like Amazon and Whole Foods have still seen success using a brick-and-mortar retail concept. It’s possible that the space is simply just downsizing and becoming more efficient instead of disappearing entirely. Regardless, there seems to be a long runway to go in terms of retail real estate freeing up over the next couple of years. The trend of internet versus department stores also remains anything but encouraging.

And the outlook, with overlevered companies and lack of a serious bid under property prices, continues to look grim. Retailers are not going to be able to refi or recapitalize in ways necessary to try and grab onto lifelines. As the sector continues to collapse it’s going to be harder and harder to try and engineer turnarounds – this could lead to a self fulfilling prophecy of accelerating turmoil and collapse for the industry:

But not every deserted retail property can be turned into a gym, theater, or boutique outlet of a tech company. That reality will weigh on any investor thinking about scooping up a struggling chain with real estate assets today—especially buyers in private equity, who borrow heavily to finance their deals. “Retailers cannot support large debt loads,” says Perry Mandarino, head of restructuring at B. Riley FBR, an investment bank that’s worked on retail liquidations. “Add to that the possibility of a decrease in the value of other collateral, such as real estate, and the successful execution of a retail-leveraged buyout may be almost impossible.”

Almost a year ago to the day, we reported on retail closing setting up to hit a scorching pace in 2017. The narrative for 2018 stays the same, only worse. In early 2017 we pointed out the astonishing fact that “Barely a quarter into 2017, year-to-date retail store closings had already surpassed those of 2008.”

We asked in early 2017 if Amazon was assured of becoming the world’s first trillion-dollar stock, perhaps hitting the milestone even before Apple? Here is how the two names have fared since then:

The race is on.

Others have given up waiting for a recovery that seems always out of reach and are settling into what appears to be the new normal – but regardless, 2018 is setting up to, once again, break new ground in misery for retail real estate.

Doug Duncan: Even US Government Economists Predict Trouble Ahead

This report was originally published by Adam Taggart at PeakProsperity.com

Doug Duncan is not your average beltway economist.

The chief economist for Fannie Mae is surprisingly outspoken about the troublesome outlook for the US economy. He’s worried about the rising cost of debt service as outstanding credit continues to mount at the same time interest rates are starting to ratchet higher, too.

He predicts the US will enter recession within a year, concurrent with a topping out of America’s real estate market. It wouldn’t surprise him to see the stock market falter, too, as central banks around the world begin a coordinated tightening of monetary policy and — similar to the thoughts recently expressed within our podcast with Axel Merk — Doug expects Jerome Powell to be much more reluctant to intervene in attempt to support asset prices. Having met personally with Powell, Doug thinks the Fed is now happy to see some of the air come out of the Everything Bubble (just not too much and not too fast) — a market change from past Fed administrations:

Our forecast definitely sees slowing economic activity, particularly in the second half of ’19. Part of it has to do with the length of the expansion. Just because an expansion is long doesn’t mean it’s going to end; but they all have eventually ended, and this one is getting pretty old. I think if it’s not the second longest, it’s getting to be the second longest that we’ve ever had shortly.

The tax bill was viewed differently by different parties, but the capital markets initially took that — plus the $300 billion agreement to get past the expiration of government funding plus the budget agreement — they took all those things as inflationary. The tax bill itself has a lot of temporary provisions – some of them don’t expire for up to seven years – but some start expiring as soon as three years out. Like, on occasions, take actions today which they see having benefits up until that time of the expiration of those terms, plus the spending component – the $300 billion – also will likely take place in the next four quarters. That suggests that the second half of ’19 we may well see the impulse from those things starting to fade. And that will be happening at the same time as the Fed, if it does what it says its going to do, will be continuing its tightening(…)

So,what keeps me up at night? Well, I don’t like the idea that we have a debt to GDP ratio of 100 percent. I don’t think we’re Japan because we have a more entrepreneurial economy, not a mercantilist economy, but that doesn’t mean that debt doesn’t reduce your flexibility. It definitely reduces your flexibility, so it raises risks from that perspective.

The trade negotiations, obviously, are of a concern. Milton Freeman said a good free trade agreement can be written on one page. NAFTA was two thousand pages. It would be silly to suggest Trump doesn’t have a point that there’s not something in that two thousand pages that didn’t work against American interests. On the other hand, if you’re going to throw $150 billion of tariffs at the second largest economy in the world, you should expect a reaction. Those who read the history books and the Smoot Hawley tariffs and the Depression and have some understanding of the relationship between the two of those have to be a bit nervous. The Fed, I’m sure, is looking at that.

And the domestic economy, the thing that probably troubles me more than anything else is the decline in new business formation. It’s been underway for thirty years. I’ve got staff that are working just trying to understand that. There’s a couple reasons why I worry about that. I just make a comment about ours being an entrepreneurial economy which means it is ‘dynamic’ – people don’t care if the average income is higher than theirs if theirs is the median. If they expect that there’s an opportunity for them to grow and gain one of those high incomes, then they’re OK. But if they lose that hope, that leads us to some different possible political economy outcomes which I don’t view as particularly optimal.

But from a self-interested perspective — remember that we’re in the housing and new business formation space – it used to be the case that a when small business would start, it couldn’t afford to pay the same wage rate as a large business did because it didn’t have the scale or the output or that kind of thing. But what the worker who got the lower wage job also got was training on how to get to work on time, how to work a full day. They would pick up some skills and some behaviors that worked broadly in the employment market. Over time they would move up, and most of them would eventually get to the middle class and buy a house. That’s breaking down.

If that engine of growth for people has been cut off, then we could be facing a permanent underclass which carries a whole different set of connotations for a society which, to me, is pretty troubling.

Click the play button below to listen to Chris’ interview with Doug Duncan (45m:19s).

To read the transcript of this podcast, please click here.

How Much Income You Need To Afford the Average Home In Every State

This report was originally published by Tyler Durden at Zero Hedge

The housing market has not only recovered its pre-recession levels, but some observers are actually starting to worry about yet another housing bubble. Housing prices are on the rise, thanks in large part to extremely tight inventory, so it’s worth asking:  are potential home buyers getting priced out of the market? The answer depends on where they live and how much money they make.

HowMuch.net collected average home prices for every state from Zillow which we then plugged into a mortgage calculator to figure out monthly payments. Remember, mortgage payments consist of both the principal and the interest for the loan. The interest rate we used varied from 4 to 5% in each state, depending on the market. The lower the interest rate, the lower the monthly payment. To keep things simple, we assumed buyers could contribute a 10% down payment. Another thing to keep in mind is that financial advisors commonly recommend the total cost of housing take up no more than 30% of gross income (the amount before taxes, retirement savings, etc.). Using this rule as our benchmark, we calculated the minimum salary required to afford the average home in each state.

Source: HowMuch.net

Top Five Places Where You Need the Highest Salaries to Afford the Average Home

1. Hawaii: $153,520 for a house worth $610,000

2. Washington, DC: $138,440 for a house worth $549,000

3. California: $120,120 for a house worth $499,900

4. Massachusetts: $101,320 for a house worth $419,900

5. Colorado: $100,200 for a house worth $415,000

Top Five Places Where You Need the Lowest Salaries to Afford the Average Home

1. West Virginia: $38,320 for a house worth $149,500

2. Ohio: $38,400 for a house worth $149,900

3. Michigan: $40,800 for a house worth $160,000

4. Arkansas: $41,040 for a house worth $161,000

5. Missouri: $42,200 for a house worth $165,900

Our map creates a quick snapshot of housing affordability across the United States. There are several pockets in which only the upper middle class and above can afford to own even the average home, most notably across the West and in the Northeast. There are only two states west of the Mississippi River where a worker with an annual salary under $40,000 can afford a mid-level home:  Missouri and Oklahoma. Colorado stands out as the only landlocked state requiring a significant amount of income ($100,200), thanks in large part to the housing market around Denver.

Homes tend to be more affordable in the eastern half of the country, with a notable pocket of “green” (less expensive) states located in the upper Midwest. The North is generally more affordable than the South and the typical home is significantly easier to buy in places like Michigan or Ohio than in Louisiana or Arkansas.  Additionally, our map indicates that workers can more easily afford homes in the East than in the West, which is surprising given how much more land is available out West. It is important to note that there are certainly deep pockets of poverty in all of these places, which suggests that our map obscures the inequality behind averages.

The best takeaway from our map is that housing remains affordable in large swaths of the country, even though there will always be places like California and New York where there is simply too much demand for the available inventory. Thankfully, that doesn’t mean that buying a home is suddenly out of reach for average Americans in Ohio or Mississippi, for example.

Source: HowMuch.net

Is This Why The Status Quo Disdains Bitcoin? - The "Wrong People Are Getting Rich"

Authored by Charles Hugh Smith via OfTwoMinds blog,

The wrong people--rebels, outsiders, nerds and techies-- got on the cryptocurrency boat while their insider/rentier "betters" blew it and are now raging bitterly onshore.

The psychology of money, wealth and speculative manias is endlessly fascinating. Most of what"s written on these subjects focus on the process of building wealth as if it were a quasi-science rather than a psychologically driven process. Only speculative manias attract a psychology-based analysis, usually characterized as some variant of the madness of the herd running off the cliff en masse.

But money and wealth are nothing but more sedate reflections of the same dynamics that drive speculative manias. Much has been written about cognitive biases and thinking fast and slow, but these explorations do not exhaust the psychology underpinning money, wealth and speculative manias.

Few things have unleashed the Monster Id of wealth and money quite like bitcoin and the cryptocurrencies. Compare the speculative manias of the dot-com era (1995 - 2000) and the housing bubble (2002 - 2007) with the crypto-mania: in the first two manias, the status quo embraced the mania as rational and justified: the Internet would continue growing for decades, housing never goes down, etc.

But the status quo has not embraced cryptocurrencies with the same ardor--why? Instead of endless justifications for valuations, the status quo is filled with reports that 97% of all economists view bitcoin as a bubble, and endless articles decrying the bitcoin bubble as a fools game that will deservedly burst, and soon.

Why did the status quo embrace irrationally exuberant bubbles in the 1990s and 2000s, but views the exuberance of cryptocurrencies with disdain? I think this is a fruitful topic to explore, largely because nobody seems to be asking this question.

Here are my suppositions:

1. The status quo reviles cryptocurrencies because the wrong people are getting rich.

2. The status quo reviles cryptocurrencies because the usual insiders (Wall Street and its politico leeches) didn"t get on board early, and they"re deeply offended that they missed the boat.

3. Until the advent of bitcoin futures trading, the usual insiders had no means to skim profits from the exuberance.

To me, these dynamics go a long way in explaining the 97% of the status quo"s visible loathing of bitcoin and the cryptocurrencies.

In other words: why embrace some manias but not all manias? Answer: some manias make the usual insiders filthy rich, others don"t. The dot-com mania generated billions of dollars in profits for Wall Street and the rest of the financier-politico leeches (i.e. the rentier class) via IPOs (initial public offerings), insider deals and vast fees generated by trading the mania with other peoples" money.

The housing bubble generated billions of dollars in profits for Wall Street via the issuance of mortgage-backed securities (MBS), CDOs and other exotic financial instruments based on mortgages and related securities, and realtors (and the rest of the housing industry) banked billions in commissions, fees and other skims.

In both cases, Average Joe and Jane reckoned the manias were their ticket to untold wealth. A relative few Average Joes and Janes did strike it rich, usually by being early employees of companies that went public, and a few others managed the impossible, i.e. buying low and selling high and then exiting the casino with their winnings.

But the vast majority of the Average Joes and Janes were fodder for the chipping machines of Wall Street and the FIRE (finance, insurance, real estate) insiders and elites. Far more people lost money in the period between 1997 and 2003 than won big and kept their winnings. Millions of people gambled on the housing bubble expanding forever and lost everything.

Now compare that to the cryptocurrency mania: Wall Street and the rest of the financier-politico leeches (the rentier class) have virtually no insider skims in the cryptocurrencies--is it any wonder they hate bitcoin with a passion that correlates to their inability to rake in billions of low-risk fees from the mania?

The psychology of FOMO (fear of missing out) is well known; the indignation of those who didn"t get on board before the ship sailed is less well noted. The financier/rentier class has a very high opinion of its own moxie and intelligence, and the fact that they missed the boat entirely on bitcoin et al. is like a knife of wounded pride plunged directly into their greedy hearts.

Those who can see past their own wounded pride are busy investing in blockchain applications and cryptocurrency funds, while those who cannot let go of their wounded pride are raging daily against the bitcoin bubble, and praying nightly to their evil gods for its collapse, to prove themselves right after all.

Every day that bitcoin doesn"t crash to zero is a day of pain for those whose pride was wounded by missing the cryptocurrency boat.

Even worse--if that"s possible for those whose greed is insatiable--the wrong people have gotten rich--techies, nerds, outsiders, rebels, etc.

It"s as if the crypto-rabble rebels just blew up the Financial Empire"s Death Star and got away with it.

Interestingly, few balk when privileged insiders mint fortunes for doing essentially nothing but exploiting their privileges. The corporate media heaps fatuous praise on insiders who reap billions of dollars from others" labor and ideas via IPOs, leveraged buyouts, etc. because of course these rentiers are our bosses and overlords.

It"s dangerous for a mere peasant in the Corporate-State Feudal System (i.e. the status quo) to speak truth to power against the Financial Aristocracy that issues the paychecks.

You can bet that if a Wall Street insider had bought bitcoin in size for $100 each, said insider would be justifying today"s valuations and arguing for higher valuations ahead, just as he/she did in the dot-com and housing manias.

So it all boils down to this: the wrong people--rebels, outsiders, nerds and techies-- got on the cryptocurrency boat while their insider/rentier "betters" blew it and are now raging bitterly onshore, not just resentful but indignant that this mania didn"t enrich insiders like it should have.

So sorry about your Death Star. I guess this doesn"t bode well for your bonus and promotion in the Imperial hierarchy.

*  *  *

I"m offering my new book Money and Work Unchained at a 10% discount ($8.95 for the Kindle ebook and $18 for the print edition) through December, after which the price goes up to retail ($9.95 and $20). Read the first section for free in PDF format. If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

1,000s Of "Micro-Homes" Sprout Up All Over Bay Area To House The Growing Homeless Population

Roughly one year ago we shared the plans of a billionaire real estate developer in San Francisco who wanted to build communities for the homeless in Bay Area neighborhoods using stackable steel shipping containers (see: San Fran Billionaire Luanches Plan To House Homeless In Shipping Containers).  Not surprisingly, the efforts were met with some resistance from the liberal elites of Santa Clara who, despite their vocal support of any number of federal subsidy programs for low-income families, would prefer that those low-income families, and their subsidies, stay far away from their posh, suburban, "safe places."

Alas, as the San Francisco Chronicle points out today, like it or not, the boom in "micro-houses" is just getting started in the Bay Area with nearly 1,000 tiny homes, with less than 200 square feet of living space, currently being planned in San Francisco, San Jose, Richmond, Berkeley, Oakland and Santa Rosa.

Planners say that’s just the beginning. “We’re very excited about micro-homes,” said Lavonna Martin, director of Contra Costa County’s homeless programs. “They could be a big help. They have a lot of promise, and our county is happy to be on the cutting edge of this one. We’re ready.”

 

Contra Costa has a $750,000 federal homelessness grant to pay for 50 stackable micro-units of supportive housing, and Richmond Mayor Tom Butt would like to see them in his city. Developer Patrick Kennedy brought a prototype of his MicroPad unit to Richmond in November, and county and city leaders say they are leaning toward choosing it.

 

“They’re very fine, and they make a nice-looking building,” Butt said. “They’d be good for anybody looking for housing.”

The beauty of the tiny units is that they can be built in a fraction of the time it takes to construct typical affordable housing, and at a sliver of the cost, which means a lot of homeless folks can be housed quickly.

The homes have also caught on in San Jose where the City Council just approved $2.4 million to build a village of 40 units to help house the homeless.  Of course, just like in Santa Clara, San Jose residents are lashing out at city officials over plans that they say will only serve to increase neighborhood crime.

San Jose resident Sue Halloway told the council she was afraid putting the village near residences would increase “neighborhood crime, neighborhood blight (and) poor sanitation,” and predicted that it would be “a magnet for more homeless.”

 

City Councilman Raul Peralez said he understands such concerns, but that “there are no facts surrounding these tiny homes and whatever blight or crime they might bring, because we haven’t done them yet.”

 

“I tell people you really have two options,” said Peralez, who said he wants the village in his downtown district. “You can allow the homeless to live on the streets, or you can provide not only shelter but services in a confined area — with security. In my mind, that’s a way better option for managing this community in an organized way.”

So, what do the stackable units look like?  As seen in the video below, prototypes from one manufacturer, MicroPad, come complete with full bathrooms and kitchens and have up to 160-180 square feet of living space...

“These micro-homes may seem small at 160 to 180 square feet, but they’re actually pretty spacious when you’re in them,” she said. “And they go up very fast.”

 

Kennedy’s MicroPads have showers, beds and kitchens. Individually they resemble shipping containers, but once they’re bolted together with siding and utilities, they look like a regular building.

...which is more or less considered a mansion by struggling New York artist standards...

Is Amazon Killing NYC Retailers Or Is The "Rent Just Too Damn High?"

A few weeks ago, the office of Council Member Helen Rosenthal of New York"s 6th District published the results of a business survey conducted on the Upper West Side that showed, among other things, that some 12% of retail store fronts lay vacant. 

Of the 1,332 storefronts that we surveyed, we identified 1,170 active businesses -- 88%.

 

Twelve percent of storefronts (161) were unoccupied. Please note that "unoccupied" includes recently closed businesses, as well as new spaces that were not yet leased.

 

Of the major commercial streets, Broadway and Amsterdam Avenue had the highest percentage of empty storefronts. Broadway had the largest number of empty storefronts (57), followed by Amsterdam Avenue (44) and Columbus Avenue (32).

What"s worse, the survey results revealed that retail vacancies in certain areas of the Upper West Side have nearly doubled over the past 10 years.

Of course, the fact that bricks-and-mortar retailers are struggling is hardly a new phenomenon...here are just a couple of our recent posts on the topic:

• A Look At America"s Retail Apocalypse In Charts


• 2017 Will Be The Worst Year For US Retail In History


• Toys "R" Us Shocker: Bankrupt Toy Retailer To Close Up To 200 Stores Amid Collapsing Sales

The question is whether New York City retailers, who have direct access to the wealthiest, and most densely populated, shoppers in the world, are simply succumbing to the "Amazon Effect" like the rest of the country or whether Manhattan landlords are contributing to their own demise by continuously hiking rents while ignoring softening demand in hopes that it goes away?  According to Rosenthal"s office, the "blissful ignorance of landlords" theory should not be underestimated.

There are many reasons why businesses open and close in our community — major rent increases being a central one. A recent report from the office of State Senator Brad Hoylman cites two separate studies, one estimating that the average commercial rent in Manhattan increased by 34% from 2004 to 2014; and another showing that rents jumped by 42% in Manhattan from 2012 to 2015.

 

Our office is also aware of instances where building owners have plans to re-develop their properties and are not interested in renting to commercial tenants in the short term.

 

An added challenge throughout our city is the fact that a significant number of family-owned businesses do not have a successor ready to take over when the owner is ready to retire. Earlier this year, the New York City Public Advocate released a policy brief which reported that an estimated 3,700 businesses across the state close each year due to an owner"s retirement --leading to the loss of over 13,000 jobs annually.

 

Commercial vacancies are an issue throughout Manhattan. The New York limes reported this summer that sections of Broadway in SoHo had vacancy rates as high as 20%.

But, as The Guardian points out, the key to understanding New York"s soaring retail vacancies might lie in the changing make-up of the city"s landlords.  Unlike prior decades in which more buildings were owned by mom-and-pop operations, today"s Manhattan landlords are more likely to be large institutional investors and/or hedge funds that are unwilling to drop rents to match retail conditions and are more eager to get a markup on their portfolio by leasing to a large, recognizable, luxury tenant.

“It’s not Amazon, it’s rent,” says Jeremiah Moss, author of the website and book Vanishing New York. “Over the decades, small businesses weathered the New York of the 70s with it near-bankruptcy and high crime. Businesses could survive the internet, but they need a reasonable rent to do that.”

 

“They are running small businesses out of the city and replacing them with chain stores and temporary luxury businesses,” says Moss.

 

In Vanishing New York, Moss writes of the toll the evisceration of distinct neighborhoods through real estate over-pricing has on the city. “It’s homogenizing and changing the character of the city,” he says. Even where landlords are offering competitive leases, they are often for two or five years, not the customary 10.

 

“We’re seeing more stores front emptying, and we’re seeing a lot of turnover where you see spaces fill temporarily and then empty. And it’s continuing to get worse,” he says.

New York retail property agent Robin Zendell also says it"s just too simple to blame Amazon. “When you see [that] every corner has a bank or a pharmacy, and there is a gym on the second floor, there’s a simple reason for that: people can’t afford the rent. Why did restaurants go to Brooklyn? Because it’s cool? No, because it was cheap, and [because] restaurateurs were sick of giving investors’ money away so they could pay thir rent.”

Of course, while "greedy" NY landlords are always a convenient scapegoat, we"re going to go out on a limb and suggest that a tripling of online sales as a percent of overall retail over the past 10 years may have something to do with Manhattan"s increasingly vacant store fronts...

Visualizing The Global Rush To Build Skyscrapers

As the creator of today’s visualization, Alberto Lucas López, points out, “the world’s tallest buildings have acted as barometers”.

Another way of putting it? Our biggest architectural accomplishments are highly visible symbols of what society values most, and those values have changed over time.

Today, the paramount belief system in many parts of the world is in capitalism, and there is no more potent marker of the economic might than fantastically tall commercial skyscrapers.

Today’s visualization is an effective way to take in the mind-bending scale of the newest generation of megatall buildings. It’s headlined by Jeddah Tower, a skyscraper currently under construction in Saudi Arabia that will smash the one kilometer mark when it’s completed in 2019.

Courtesy of: Visual Capitalist

CITIES ARE GROWING UP

In general, only very large cities have the resources to build and support extremely tall buildings.

With the explosion of urbanization around the world and developing economies asserting themselves in high profile ways, the stage is set for a global skyscraper boom.

In the last two years, 39 skyscrapers taller than 300m have been constructed, with five of the them eclipsing the height of the Empire State Building.

Global skyscraper construction has increased a whopping 402% since 2000.

HIGH-RISE HOT SPOTS

China

Nearly every sizeable Chinese city has skyscrapers under construction, and the numbers are staggering. Since 2012, China has added 38 skyscrapers over 300m (~1,000 ft) in height, and there are another 16 skyscrapers on the way in 2018.

In particular, the Pearl River Delta megaregion, which is anchored by Hong Kong, Shenzhen, and Guangzhou, has seen an astonishing commercial construction boom. Today, 20 of the 100 tallest buildings on earth are located in just this one urban megaregion of China.

China’s Top 10 Tallest Buildings

In total, 46 of the world’s 100 tallest skyscrapers are now located in China, and that number is sure to increase in coming years.

United Arab Emirates

Construction has been relentless in UAE for decades, and much of that development has been vertically-oriented. Today, Dubai is home to nearly 1,000 high-rise buildings, and there are 13 projects currently under construction that will hit or exceed the 300m mark.

UAE’s Top 10 Tallest Buildings

Russia

While the skylines of many European cities are conspicuously low-rise, an exception to that rule is in Moscow’s International Business Centre, where four 300m+ towers have been completed since 2012.

Russia’s Top 10 Tallest Buildings

WHAT ABOUT THE UNITED STATES?

In the early 20th century, the United States was the undisputed champion of skyscraper construction, but that has tapered off dramatically. In fact, only six commercial towers over 300m have been constructed in the last 20 years.

The exception may be the city that started it all: New York. There are currently 30 skyscrapers under construction in NYC, fueled in part by a red-hot luxury real estate market.

America’s Top 10 Tallest Buildings (Under Construction)

Philadelphia and San Francisco will soon have new additions to their skylines as Comcast and Saleforce complete their flagship construction projects. If current construction numbers are any indication, America’s love affair with the skyscraper may be reignited in urban centers across the country.

Who Feels the Tax Sting

Now that the massive new tax bill has passed, I thought I"d do a little experiment with a spreadsheet to see how a hypothetical Silicon Valley, California earner might be affected. I was sure his tax bill would be higher, but I am surprised at how much higher.I wouldn"t be surprised if some people decided not to stay in their homes since their tax bite is so substantial.

I will preface this by saying I"m not a tax expert, but I"ve got a pretty good understanding of taxes, and I put together a deliberately simplistic spreadsheet for this experiment. And while it may be simplistic, it still makes a powerful point, and the tiny amount of rounding error for an actual tax form won"t change the conclusion.

In this examination, I make the following assumptions:

• The individual earns a very handsome salary of $500,000


• He bought a $3 million house in Palo Alto (which is going to be a pretty decent but not opulent home). He has a $1 million mortgage at an interest rate of 4%.


• He pays property tax of 1.2%


• His state income tax rate comes in at 10% (California is actually 13.3%, but I"m making it a little lower to take into account lower income levels aren"t taxed as highly)


• His blended federal income tax rate is 30% (again, the actual highest rate is 37%, which is the new rate, reduced from 39.6%, but for this experiment, I"m moving it down quite a bit)

So here is the spreadsheet. I want to stress this is extremely simplified (hey, almost a tax return on a postcard!) but here we go:

In the left column, which is "pre-reform", this person has state income tax and property tax totaling $98,000, which he can used to offset income for the purposes of calculating federal income tax. In the right column, he is limited to $10,000. So suddenly he"s got an extra $88,000 in income which is taxed that wasn"t taxed before.

He"s already limited to deducting only the first $1 million of his mortgage, but even that drops down to $750,000 (we"re assuming his home purchase was after 12/15/2017, when the law changes).

So, in the end, his federal tax bill is $29,400 higher than it was. That isn"t small. That"s a nice new car. Or a year"s tuition at a private school. And it sure as hell isn"t tax "relief."

Now some of you who live in places with lower (or no) state income taxes or inexpensive real estate may be thinking, "Awww, fuck "em, those rich Californians." But this isn"t some scumbug Goldman Sachs managing director who is making tens of millions of dollars.

I also don"t have a personal ax to grind here. I bought my house so long ago, so cheaply, and I owe so little on it, that none of this applies to me personally. However, I think hardly any of those affected have any CLUE what is about to hit them. There is an enormous tidal wave heading toward huge masses of professionals in states like California, Washington, and New York that are about to have the rug pulled out from under their feet.

But, hey, what am I complaining about, with reassurances like this coming from the White House:

Oh, and since I"m in the Silicon Valley.......

Our poor hypothetical taxpayer has one more indignity to suffer: between (1) rising interest rates (2) the loss of deductibility in state income taxes (3) the reduction of deductibility in mortgage interest (4) the loss of deductibility in property taxes..............his house is going to sink in value as it dawns on people how badly they"ve been screwed. So on top of massively higher expenditures to pay federal taxes (after all, SOMEONE has to pay for Bob Corker"s tax cuts!), he"s making payments on a diminishing asset.

Congratulations, America. You"re not even sure what"s hit you yet.

Exodus Starts: Millennials Ditch City Life

The urban revival of America’s core inner cities has been a decades-long failed experiment, as deindustrialization coupled with failed liberal policies have created a growing problem of inequality and violent crime. Middle-class advancement was once localized in the core of America’s cities, but that is not so much the case today, as those areas are labeled a “barbell economy,” divided between highly-paid professionals and low-skill service workers.

Brookings Institution notes as early as the 1970s, middle-class income in the inner cities started to shrink more than anywhere else. Today, in most US inner cities, the cores are more unequal than their surrounding suburbs, noted geographer Daniel Herz.

As the failed American inner city experiment nears the latter stages before a collapsing point, a new report from Time could be the final nail in the coffin for some American inner cities, as the article suggests “cities have already reached ‘Peak Millennial’ as young people begin to leave.” 

According to the latest Census data, after years of growth, the population of millennials in Boston and Los Angeles have declined since 2015, as a mass exodus from city life starts to take shape. Other cities such as Chicago, New York, and Washington, D.C., are experiencing similar issues but not as severe while growth rates of millennials plateau.

Dowell Myers, professor of demography at the University of Southern California, called the peak of the millennial population in major U.S. cities back in 2015, with the largest birth group of the cohort turning 27 this year. To note, Myers could be a far better forecaster than Dennis Gartman, but we’ll leave that for another conversation.

Myers said at the critical age of 27 and above, that is the time when the millennial generation will participate in, what we call, ‘millennial flight’ to the suburbs. Such a trend could be the final nail in the coffin for some American inner cities, who were expecting the millennial generation to lead the charge in the revival process, as what we’ve learned from Myers– that may not be the case.

The Times explains how Myers coined the term— ‘peak millennial’. Interesting, the plateauing of millennial populations are occurring in East Coast cities, while the West Coast is still drawing in young people.

To see which cities have reached “peak millennial” — a term Myers coined —we analyzed a decade of Census data through 2016. We found that while tech hubs like San Francisco and Seattle are still drawing young people, large East Coast cities, like New York and D.C., are fast approaching peak millennial, with plateauing populations of those born between 1980 and 1996.

 

And then there are cities like Boston, which already appear to have reached their peak. Boston lost roughly 7,000 millennials in 2016, after a record high of 259,000 the previous year.

In the explanation of millennial flight from America’s inner cities, Jim Rooney, president of the Greater Boston Chamber of Commerce said, “they’re doing what every generation does — they get married, start a family and think about having a backyard and looking at school systems” in the suburbs.

While that is definitely true, and what we’ve mentioned above, millennials tend to live in core inner cities, where inequality and violent crime are sometimes out of control. Also, many millennials are becoming priced out of real estate in these areas, as wage stagnation is drowning many millennials into more and more debt, on top of their already ballooning balance sheet of liabilities. Think student loans….

In Boston, the millennial peak was confirmed in 2014 through 2015, as it appears it’s all downside from here. Rooney’s findings conclude millennials in the region are being priced out of homes with the median home in Boston around $561,000, according to Zillow.

In Chicago, the millennial plateau occurred in 2014 through 2015, hitting a high of 814,000 millennials in 2015 and falling by a few hundred in 2016. Jack Lavin, president of the area’s Chamber of Commerce said millennials are moving to the suburbs to start a family— ditching urban areas. Nevertheless, the article does not mention— the out of control homicides adding to the fear of city life.

In Los Angeles, the millennial peak was confirmed in 2015, which saw a decline of about 2,500 millennials in 2016. “It’s hard for millennials to achieve a middle-class lifestyle that they think they deserve”, said Myers. With that being said, millennials are moving out.

Bottomline: The ruling elite and their inner-city playground planners who were expecting the millennial generation to revive their decades-long failed experiment are about to come to harsh terms with the reality of a millennial exodus.

Canadian Billionaire, Wife, Found Dead In "Suspicious" Suicide

The billionaire founder of Canadian generic drug Apotex Inc, Barry Sherman, and his wife Honey, were found dead in their Toronto home on Friday under what police described as "suspicious" circumstances.

Honey and Barry Sherman

Police said they were investigating the mysterious deaths after responding to a midday medical call at the Sherman’s home in an affluent section of northeast Toronto. Two bodies covered in blankets were removed from the home and loaded into an unmarked van on Friday evening.

“The circumstances of their death appear suspicious and we are treating it that way,” said Constable David Hopkinson. Homicide detectives later told reporters gathered outside the home that there were no signs of forced entry, and no suspects were being sought as of this moment.

Const. David Hopkinson if Toronto Police said they are calling deaths of Honey and Barry Sherman suspicious pic.twitter.com/MJ577PeIdq

— Joe Warmington (@joe_warmington) December 15, 2017

The Shermans recently listed their home for sale for nearly C$7 million ($5.4 million). A real estate agent discovered the bodies in the basement while preparing for an open house, the Toronto Globe and Mail reported, citing a relative.

Their neighbors, who according to Reuters include business associates and some of Canada’s most powerful politicians said they were saddened by the deaths.

Deeply shocked to learn of the deaths of Honey and Barry Sherman, such remarkable people. Grappling with this terrible news.

— Bob Rae (@BobRae48) December 15, 2017

“Our condolences to their family & friends, and to everyone touched by their vision & spirit,” Prime Minister Justin Trudeau wrote on Twitter.

Sophie and I are saddened by news of the sudden passing of Barry and Honey Sherman. Our condolences to their family & friends, and to everyone touched by their vision & spirit.

— Justin Trudeau (@JustinTrudeau) December 16, 2017

Linda Frum, a member of the Canadian Senate, said she was "gutted by the loss" of the couple, two weeks after presenting a Senate medal "to one of the kindest and most beloved members of Canada"s Jewish community."

Ontario"s health minister, Eric Hoskins, described the couple in a tweet as "wonderful human beings, incredible philanthropists, great leaders in healthcare."

I am beyond words right now. My dear friends Barry and Honey Sherman have been found dead. Wonderful human beings, incredible philanthropists, great leaders in health care. A very, very sad day. Barry, Honey, rest in peace.

— Dr. Eric Hoskins (@DrEricHoskins) December 15, 2017

Toronto Mayor John Tory said in statement he was “shocked and heartbroken” to learn of the deaths, noting that the couple had made extensive contributions to the city.

“Toronto Police are investigating, and I hope that investigation will be able to provide answers for all of us who are mourning this tremendous loss,” Tory said.

Sherman, 75, founded privately-held Apotex in 1974, growing it into the world"s 7th largest drugmaker and the largest Canadian-owned pharmaceutical firm, with annual sales of more than C$2 billion and over 11,000 employees, by introducing large numbers of low-cost generic drugs that took market share from branded pharmaceuticals. He stepped down as chief executive in 2012 but remained executive chairman.

"All of us at Apotex are deeply shocked and saddened by this news and our thoughts and prayers are with the family at this time," the company said in a statement.

Barry Sherman was ranked 363 on Forbes richest people in the world list; the publication put his net worth at $3.7 billion. He ranked just above eBay billionaire Jeffrey Skoll, and was believed to be the 5th richest person in Canada. The couple was known for their philanthropy, giving tens of millions of dollars to hospitals, universities and Jewish organizations, CBC reported. “They were extremely successful in business, but also very, very giving people,” former Ontario Premier Bob Rae told CBC. “It’s going to be a very, very big loss.”

While there is no additional information on whether the suicide was foul play , in February the Globe and Mail reported that Lobbying Commissioner Karen Shepherd was investigating a complaint about a 2015 political fundraiser that Trudeau had attended.

This Map Shows Where Millennials Are Buying Houses (And For How Much)

Millennial homeownership rates are essential to understanding the housing market because they facilitate additional home sales for other people.

How does this work? As HowMuch.net explains, suppose you make an offer on a house. The current owner is also probably on the market, and he or she likely has a contingent offer on another house. This sets off a chain reaction throughout the economy. Millennial homeownership rates are therefore an easy way to judge the economic vitality of any given area.

That’s why HowMuch.net created this new map...

Source: HowMuch.net

Our viz takes millennial homeownership data from Abodo and maps it by metro area across the country. Abodo adopted the data from the U.S. Census Bureau, which regularly collects a variety of information about the population, including the age of homeowners, the estimated value of their homes, and how long it would take to accumulate a 20% down payment. Our numbers are from 2015. We then overlaid this information across metro areas with bubbles representing the portion of millennial homeowners in each market: the bigger the bubble, the more millennial homeowners there are. We also color-coded each bubble to represent the median value of their homes—dark red circles mean the homes are worth over $500k, and dark blue means under $200k. This gives you a quick snapshot of the overall economy and the housing market.

The first trend you can see on the map is a clustering of red circles on both the West Coast and along the Northeast.

The most expensive city in the country for millennials is San Jose, CA, where the average millennial buys a home worth $737,077. Seattle, WA in the Northwest is also relatively expensive at $342,769. These are population-dense areas with booming tech sectors. At the other end of the spectrum, you can see clusters of blue bubbles across the Midwest in old manufacturing cities like Detroit, MI ($148,404) and Cleveland, OH ($160,251). Memphis, TN is the cheapest place for millennials at $142,795. Southern states like Texas and Florida are also relatively affordable thanks in large part to their suburban sprawl, which Zillow predicts will expand next year.

It’s no surprise that homes are more expensive in California (think Silicon Valley) than the industrial heartland, but consider how homeownership rates change based on affordability. The red bubbles all tend to be smaller than the blue bubbles. This means that as homes get more expensive, millennials become increasingly unable to afford them. It’s not like there’s a surplus of ultra-rich millennials buying up all the houses in California and New York. Millennials are just as sensitive to high prices as everyone else.

Let’s break the map down into a top ten list of the urban areas with the highest rates of millennial homeownership, combined with the average price of their home. A full 42% of the millennials living in Minneapolis-St. Paul, MN own their own home, the highest rate in the country.

1. Minneapolis-St. Paul-Bloomington, MN-WI: 42.4% and $222,528

2. St. Louis, MO-IL: 40.2% and $167,791

3. Detroit-Warren-Dearborn, MI: 40.2% and $148,404

4. Louisville/Jefferson County, KY-IN: 38.5% and $158,974

5. Pittsburgh, PA: 37.5% and $152,731

6. Indianapolis-Carmel-Anderson, IN: 37.4% and $161,856

7. Kansas City, MO-KS: 37.1% and $170,254

8. Nashville-Davidson--Murfreesboro-Franklin, TN: 37.0% and $213,090

9. Oklahoma City, OK: 36.7% and $172,485

10. Baltimore-Columbia-Towson, MD: 36.3% and $272,805

Buying a home is often the biggest financial decision anybody makes, and that’s especially true for young people. And there’s a lot to consider when buying your first home, but one thing other than affordability to keep in mind is how many other millennials are in the same situation. If you’re a millennial looking to buy a home, and you want to live next to other young people, you just might have to move to the Midwest.

Vroom! Ferrari Plans To Double Production Shifts - On Track To Smash Earnings, Production Targets

On 2 November 2017, Ferrari NV, which was spun-off from Fiat Chryslerr, announced a 23% rise in adjusted EBITDA to 778 million euros (629 million euros) for the first nine months of 2017. The company increased its EBITDA target for the full year to 1 billion euros versus the previous estimate of more than 950 million. As Bloomberg notes.

The manufacturer raised its 2017 profit target last month as rollouts of limited-edition supercars, including the FXX K Evo racing model, help it achieve a long-held profit goal two years early.

If, like us, you were wondering what a Ferrari FXX K Evo looks like, here it is. It has a 6.3 litre V12 engine and an electric motors, generates 1,036 bhp with the motor providing an additional 187 bhp and is very fast (last time we checked Ferrari hadn’t released top speed or acceleration data).

In 2013, former Chairman, Luca Montezemolo, said that Ferrari would limit production to around 7,000 cars to defend the brand.

“My focus this year and in the years to come is not to grow volume but to increase the exclusivity of Ferrari,” di Montezemolo said. “This protects our margins and residual values for our customers.”

It didn"t last long. With Sergio Marchionne in control and the prospect of a listing on the NYSE, Ferrari outlined a plan to increase production to as many as 9,000 cars by 2019. Production is expected to reach 8,400 cars (including supercars) in 2017 and the target can be achieved a year early as Ferrari doubles the number of shifts at its manufacturing facilities. According to Bloomberg.

Ferrari NV, fabled for its fast cars on roads and race tracks, is packing some extra speed into its factories, too. The Italian supercar maker, spun off from Fiat Chrysler Automobiles NV in 2016, plans to boost production by doubling assembly shifts to two a day in 2018 as deliveries are on pace to reach its 9,000-vehicle target a year earlier than scheduled, according to people familiar with the matter, who asked not to be named as the matter isn’t public. A Ferrari spokesman declined to comment.

The increase is part of Chief Executive Officer Sergio Marchionne’s plan to boost profit by expanding Ferrari’s line-up while maintaining the exclusivity of its $200,000-and-up models. Marchionne, 65, will present the carmaker’s latest mid-term strategy early next year, his final one at the helm of the Italian iconic brand.

The Ferrari IPO in October 2015 priced at $52/share which was at the top end of the $48-52 range. The stock, which trades under the ticker RACE, has more than doubled to $106.9, valuing the company at $20.2 billion.

Bloomberg “helpfully” provides us with an explanation for the ramp in Ferrari production. 

Sales growth is being driven as the population of wealthy individuals surges. The number of millionaires worldwide surged 36 percent to 13.6 million people in the 10 years through 2016 and may rise another 37 percent in the following decade, according to the Wealth Report by real estate company Knight Frank. The number of billionaires increased 45 percent in the period, boosted by gains in the Asia-Pacific area.

Besides the global increase in wealth, the extension to the company’s product range will also have a positive impact on sales volumes during the next few years. For example, Marchionne commented that “We’re dead serious about this” when referring to the potential for manufacturing Ferrari’s first  ever SUV – termed a “Ferrari Utility Vehicle” or FUV. As Bloomberg explains.

The plan will include Ferrari’s first-ever sport utility vehicle as it targets annual sales exceeding a self-imposed 10,000-car limit that until now has enabled it to operate under less-stringent fuel-economy rules, people familiar with the matter said in August. Goals include doubling operating profit to about 2 billion euros ($2.35 billion) by 2022, they said.

For now, there is no threat to Ferrari’s prospects, nor its exclusivity. Waiting lists for most models exceed twelve months. Marchionne has said before that Ferrari can preserve its exclusivity as long as it always sells one car less than the market demand, echoing the words of founder, Enzo Ferrari.

If he was still alive, we question whether Enzo Ferrari would have realised that the biggest risk to his company is probably the bursting of the latest equity bubble.