The Housing Bubble

A weekend topic on various manias starting with Physicians News. “The Maryland Proton Treatment Center chose ‘Survivor’ as the theme for its grand opening in 2016. But behind the scenes, the $200 million center’s own survival was less than certain. Insurers were hesitating to cover procedures at the Baltimore facility, affiliated with the University of Maryland Medical Center. The private investors who developed the machine had badly overestimated the number of patients it could attract. Bankers would soon be owed repayment of a $170 million loan. Only two years after it opened, the center is enduring a painful restructuring with investors poised for huge losses. It has never made money, although it has ample cash to finance operations, said Jason Pappas, its acting CEO since November. Last year it lost more than $1 million, he said.”

“For years, health systems rushed enthusiastically into expensive medical technologies such as proton beam centers, robotic surgery devices and laser scalpels — potential cash cows in the one economic sector that was reliably growing. Developers got easy financing to purchase the latest multimillion-dollar machine, confident of generous reimbursement. There are now 27 proton beam units in the U.S., up from about half a dozen a decade ago. More than 20 more are either under construction or in development.”

“If the dot-com bubble and the housing bubble marked previous decades, something of a medical-equipment bubble may be showing itself now. And proton beam machines could become the first casualty. ‘The biggest problem these guys have is extra capacity. They don’t have enough patients to fill the rooms’ at many proton centers, said Dr. Peter Johnstone, who was CEO of a proton facility at Indiana University before it closed in 2014. ‘In any industry that’s really an emerging industry, you often have people who enter the business with over-exuberant expectations,’ said Scott Warwick, executive director of the National Association for Proton Therapy.”

From AZ Big Media. “The medical office space market slowed during the first three months of 2018. Rents fell, vacancy rose and sales of medical office properties fell off a bit. Vacancy in medical office buildings rose 10 basis points during the first quarter to 14.4 percent. The rate remains approximately 100 basis points lower year over year in both on-campus and off-campus medical properties. First quarter posted negative net absorption of approximately 11,500 square feet.”

“Sales of medical office properties slowed during the first quarter. Prices for medical condos fell slightly in the start of 2018 with a median price of $176 per square foot in first quarter. Sales of traditional, non-condo buildings dropped by 40 percent from the end of 2017. The median price for traditional buildings also fell to $136 per square foot, down from $157 per square foot in 2017.”

From The Real Deal. “The hotel market — which for years has struggled with dropping revenues and oversupply — is finally showing some signs of promise. Average revenue declined at a slower pace last year, and demand appears to be on the rise. The number of new hotel rooms slated to open in 2018 is 7,802 — the highest number seen since at least 2000, according to hospitality research firm STR. Anthony Rinaldi, head of the Secaucus, New Jersey-based Rinaldi Group — which raked in 977,079 square feet of new hotel work in 2017 — said he hasn’t seen a decrease in demand for the product.”

“‘I keep hearing that the market is oversaturated with hotels,’ he said. ‘I am reading about it, I am hearing about it, but I’m not seeing it.’”

From the Houston Chronicle. “When construction is completed by year’s end, the Proguard Self Storage facility near Memorial City will total nearly 270,000 square feet and boast 1,750 air-conditioned units. The Houston-based company operates five storage centers locally. Proguard’s massive storage facilities, some of the largest in Houston, exemplify a building boom in an oft-overlooked real estate sector overshadowed by trophy office towers, luxury apartments and gleaming hotels and hospitals. However, industry leaders are increasingly concerned that self-storage is becoming overbuilt in many parts of Houston.”

“Self-storage operators are slashing rents to prop up occupancy rates in an increasingly competitive market. Houston rents have dropped for a second straight year, falling 4.8 percent to 86 cents per square foot. Last year, rents plunged 7 percent, Marcus & Millichap reports. ‘There’s way too much storage being built in Houston right now,’ said Richard Loeb, a partner with San Antonio-based SurePoint Self Storage. ‘We’re killing the goose that laid the golden egg.’”

From The Telegraph. “The Australian owner of Homebase has sold the struggling DIY chain for £1 after a bungled attempt to rebrand it turned into one of the ‘most disastrous’ buy-outs of a British retailer. Wesfarmers will book a loss of between £200m and £230m on the sale to HMV owner Hilco Capital. Rob Scott, Wesfarmers managing director, admitted Homebase had been hampered by his company’s ‘poor execution’ after the takeover, compounded by a consumer slump that has swept the retail industry in recent months.”

From the Associated Press. “Although interest in farmland by Wall Street investors and pension funds dates back at least to the late 1980s and early 1990s, the 2007 financial crisis reignited interest. Farmland investment looked stable in comparison to other real estate. ‘It’s certainly true there was new money that came into agriculture during the boom period between 2007 and say 2013,’ said Pat Westhoff, director of the Food and Agricultural Policy Research Institute at MU.”

“With low commodity prices and high rental rates in the last few years, fixed rents aren’t always easy to make. Rents have come down a bit in recent years, but not too much. ‘Most of the farmers across the Midwest are seeing three to four years of loss,’ said Wendong Zhang, an applied economist at the University of Iowa and researcher for Iowa’s farmland ownership survey. ‘They’re essentially burning through their working capital.’”

From the Bend Bulletin. “Recreational cannabis has been legal in Oregon for only two years, but the state produced enough last year to supply every adult resident with more than 5 ounces of legal marijuana. There were more than 1 million pounds in the supply chain. But growers think there’s a glut, and the mismatch between production and consumption of recreational marijuana has led to dropping wholesale prices, with some growers scaling back production or getting out of the market.”

“It’s these unknowns that made Joseph Stapleton decide to take a step back and seek only a retailer’s license from the OLCC rather than a retail license and a grower’s license. The number of people seeking licenses could be contributing to the glut, Stapleton said. ‘There are a lot of guys bailing this year,’ Stapleton said. ‘They’re not getting their price, and there’s too much product around.’”

From Undercurrent News. “Thai processors are currently suffering the worst slump in sales in the industry’s history, according to one of the country’s largest seafood suppliers. Satasap Viriyanantawanit, general manager at Siam Canadian Group, which is headquartered in Thai capital Bangkok, told Undercurrent News it’s no overstatement to say the current slump is the worst he’s seen faced by the industry in its 40 years.”

“‘I strongly suspect that most of the plants are suffering at least a 50% year-to-date sales drop compared with last year. It is the worst record in Thailand’s [shrimp industry] history,’ he said. Prices in India and Indonesia have fallen below those in Thailand, said Viriyanantawanit. Subsequently, US importers are opting to buy from those countries instead of Thailand, he said. He said a decline in raw material prices has left shrimp farmers in Thailand ’screaming’ about losses and urging processors to pay more, although a recent minimum price guarantee offered by exporters was rejected.’

“An industry source in Thailand who wished to be quoted unnamed reckons countries like India, not Thailand, are faring worse from the current price slump, because they are ‘new to the game.’ ‘They thought production had no limits,’ he said. ‘New leveraged investment is always at risk.’”

From ECNS. “Southern China’s Hainan Province has halted surging applications for horse racing businesses to prevent speculative investment and a market bubble. The island province has reportedly allowed horse racing as part of efforts to build China’s biggest pilot free-trade port. Sensing fresh opportunity, some companies have rushed to apply for business registrations. The China Securities Regulatory Commission has also urged listed companies to refrain from marketing hype when it comes to horse racing.”

“Developing horse racing is not an effort to legalize gambling so it’s necessary to prevent investment of a speculative nature, said an opinion piece on China Newsweek. In its development, Hainan has had setbacks including property bubbles, in 1988 and 2010 respectively, and car smuggling so authorities today need to learn lessons from the past according to the report. The opinion piece said Hainan also needs to be aware of speculative investment in property and horse racing.”

“Hainan’s new development can also advance regional economic integration and promote the 21st Century Maritime Silk Road, but any ideas of making huge fortunes overnight or hyping the horse-racing concept must be guarded against.”

From the New Zealand Herald. “Sleeping pods going for up to $200 a week inside an Auckland CBD apartment have been dismantled for violating a number of council bylaws. The pods drew controversy when they popped up on Trade Me in August last year, with eight ’state of the art’ Japanese-style sleeping capsules in one apartment stacked two high. But the Trade Me listing for the capsules, which had been seen more than 2000 times, was taken down within hours of being put up without explanation. Auckland Council this week confirmed the owner did not have resource consent to install the pods in the first place.”

“Housing affordability campaigner Hugh Pavletich said council had done the right thing in asking for the set-up to be dismantled. In a crazy housing market you see ‘crazy ideas emerge.’ ‘We’ll see all different variants like in Hong Kong where they’re living in pipes. But all we want to see happen is normal markets restored in New Zealand,’ he said. ‘That’s what the focus should be - supporting housing affordability so we don’t see this kind of nonsense.’”