Top 10 U.S. retirement destinations

Tampa, FloridaEver dream of what you’ll do in retirement, and where you’ll want — or need — to live?

WalletHub’s recent study of the 150 largest U.S. cities indicates the best and worst places to retire in 2015, with rankings determined by a series of 24 metrics across four categories: affordability, activities, quality of life and healthcare. (Click here for a related post.)

It is no surprise, then, that four cities in Florida rank among the top 10 best cities for retirement, while two cities in Arizona make the cut. Topping the list is Tampa, Fla., which has an excellent affordability ranking for retirees. Interestingly, Tampa’s also among the nation’s top cities for home price increases, which stands at 11.7 percent against the U.S. average of 7.4 percent, according to one of JLL’s Aug. 24 Charts of the Week.

Here are the 10 best U.S. cities for retirement:

  1. Tampa, Fla.
  2. Scottsdale, Ariz.
  3. Boise, Idaho
  4. Cape Coral, Fla.
  5. Orlando, Fla.
  6. Sioux Falls, S.D.
  7. Baton Rouge, La.
  8. Port St. Lucie, Fla.
  9. Overland Park, Kan.
  10. Peoria, Ariz.

And here are the 10 worst U.S. cities for retirement:

  1. Newark, N.J.
  2. Jersey City, N.J.
  3. Providence, R.I.
  4. Aurora, Ill.
  5. New York City
  6. Yonkers, N.Y.
  7. Chicago
  8. Boston
  9. Worcester, Mass.
  10. Detroit

Data from the Employee Benefit Research Institute indicates more U.S. workers are feeling financially capable of retiring, according to the institute’s 2015 Retirement Confidence Survey, with 22 percent of workers feeling very confident and 36 being somewhat confident they have enough money to retire comfortably. This is an increase over 2014 survey figures, and even more so over 2009 to 2013, when worker confidence was at record lows.

Confidence in retirement affordability has a number of factors — such as the ability to pay for basic expenses, medical expenses and long-term care — and those, too, have improved in the 2015 survey.

With the Dow Jones Industrial Average’s recent wild ride on news of China’s economic policy changes and stock market drops, the focus for many institutional investors is not on whether they can truly afford to retire, but on how to handle underfunded liabilities for future retirees.

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Jennifer-Molloy91x119Jennifer Molloy is editor of Institutional Real Estate Asia Pacific.

Apartment rents are up, but can it last?

Typical San Francisco Neighborhood, California

It’s a good time to be an investor in apartments.

Rents are up strongly in markets across the country, according to Zumper, an apartment search service, but especially in the San Francisco Bay Area, where a hot tech market is pumping up the apartment market.

Zumper’s August 2015 Rent Report finds the highest asking rent in the country is in San Francisco, where the median one-bedroom apartment is offered for $3,500 per month — a 12.9 percent increase over the past year, and more than the median monthly rent in New York City ($3,100), Boston ($2,250), San Jose ($2,230) and Washington, D.C. ($2,150).

The incredibly hot San Francisco market is having knock-on effects on neighboring Oakland, which recorded the highest year-over-year jump at 20.0 percent for a one-bedroom unit ($1,980) and 26.3 percent for a two-bedroom unit ($2,400).

But these sharp increases — pushed up by an improved employment situation and rising wages, as well as a decline in the homeownership rate post–global financial crisis (as lenders tighten terms and would-be buyers remain leery of owning) — may be unsustainable over the long term, as these high rents are increasingly unaffordable.

According to a report from Zillow, renters making the median income in the United States would spend 30.2 percent of their income to rent a median-priced apartment in the second quarter (up from 29.5 percent in 2014). The least affordable metro area is Los Angeles, where it takes 48.9 percent of monthly income to rent, followed by San Francisco (46.7 percent), Miami (44.5 percent) and New York City (41.3 percent).

By contrast, low interest rates have made mortgages more affordable than ever, and buyers in the United States spent 15.1 percent of income on mortgage payments. (An exception is, once again, the very hot Bay Area market. Home buyers in San Jose spent 41.9 percent of income on housing, on par with the 41.5 percent spent by renters.)

Should investors in apartments be concerned about decreasing affordability? Will renters move back into homeownership?

And what happens to the San Francisco Bay Area’s apartment market if the tech industry moves into a slump?

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LorettawebfinalLoretta Clodfelter is editor of Institutional Real Estate Americas.

Consolidating power

Every year, Institutional Real Estate, Inc., teams up with Property Funds Research to survey real estate investment managers from around the globe for a Global Investment Managers report. We survey them on their assets under management, how many vehicles they have, where they invest most globally, and so forth.

This year’s survey showed the amount of capital flowing to the asset class has continued to increase year-over-year, as reflected by the growth in aggregate total assets under management as reported by the 208 firms in the Global Investment Managers 2015 survey. Last year’s survey saw the 2013 total grow by 10 percent over that of 2012, and the total has risen an additional 16 percent this year, growing from the 2013 total of $2.14 trillion to $2.48 trillion in 2014.

Similar to years past, the survey shows a strong concentration of assets held by the industry’s largest firms. The top 10 firms in the survey collectively manage $822.5 billion of assets, or 33 percent of the total.

The top 10 overall rankings have remained relatively stable for the past couple of years, with every single one of the firms listed having increased their AUM in 2014. Most of the firms in the overall top 10 also hold that position on the list of top 10 managers based on North America assets.

For more trends and a more in-depth look into the report, click here. There is also a version that tracks assets in euros, available here.

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DenisewebfinalDenise DeChaine is special projects editor and video production specialist with Institutional Real Estate, Inc.

A pent-up housing demand that numbers in the billions

Currently, there are 1 billion squatters on the planet, an astounding one in six people. These are people living in quarters as crude as huts made of sticks and dried mud.

Projections indicate there will be 2 billion squatters (one in four members of the global population) by 2030, and come 2050 the number of squatters will rise to 3 billion, more than one in three earthlings.

You will find these squatters in their biggest concentrations in places such as Kibera, Nairobi; Sanjay Gandhi National Park in Mumbai, India; Hosinia near Rio de Janeiro, Brazil; and Sultanbelyi in Istanbul, Turkey.

Yet journalist Robert Neuwirth, author of Shadow Cities, has researched these squatter cities and find them to be “thriving centers of ingenuity and innovation.” Indeed, they are the cities of the future, according to Neuwirth, who takes on a tour of these areas in this Ted Talk.

Neuwirth should know. He spent two years living in some of the aforementioned squatter villages and found these massive slums to be surprisingly orderly and lawful and teeming with commerce. These small bits of commerce add up to around $10 trillion annually.

Indeed, some of the great cities of today were once squatter slums that enriched themselves over time and transformed themselves into First World cities. Paris was once a squatter’s slum. Today, it is one of the world’s most heralded and visited cities.

Over time even slums develop, especially with the introduction of infrastructure, which is followed by real estate development. While projections, based on current trend lines, suggest a tripling of the number of squatters over the next 35 years, that figure presumably does not account for the economic locomotive that is thundering through the developing world and elevating record numbers of people out of poverty.

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MikeCfinalwebMike Consol is editor of Real Assets Adviser.

Notes from the I3 conference and Editorial Advisory Board meeting

The conversations and discussions at this year’s Editorial Advisory Board meeting for Institutional Investing in Infrastructure and the I3 Infrastructure Strategies conference had a different focus and feel from the past few years. The agendas of both events are created with the input of our advisory boards. Our conference advisory board sets the agenda through a series of conference call discussions, and, in the case of the board meeting, we send out a “Food for Thought” survey and ask each member to tell us which issues and subjects they would like to discuss. Below are several key takeaways from this year’s discussions.

  • This year environment, social and governance, or ESG, issues were discussed more in depth than in past years. That being said, infrastructure investing is always focused on these issues by default because they are integral to any infrastructure asset, whether it is the redevelopment of an airport that will impact marshlands or noise in nearby neighborhoods, or a toll road that serves thousands of commuters who will have an opinion about new fees or the condition of the roads and voice those with local officials.
  • The discussions of ESG issues coincided with conversations about political and regulatory risks, and one key takeaway is that broad generalizations about countries and markets and their political and regulatory risks are ill-advised. Investors need to look at markets individually on a case-by-case basis — just because it is OECD versus non-OECD does not mean the former has less risk than the latter, editorial board members commented. For example, is Turkey (OECD) or Singapore (non-OECD) a true “OECD market”?
  • Another indication that the current infrastructure investment cycle is changing or maturing is the concern among investors and investment managers over meeting expected returns. A majority (65 percent) of I3 conference goers indicated competition for deals is the single biggest challenge to earning a competitive return. Concern about rising interest rates (19 percent) was a distant second place in the quest to achieve a good return on infrastructure investments.
  • Many I3 attendees agreed with panelists that investors perceive the core infrastructure markets as overpriced, and returns are close to the equivalent of a 10-year bond — 7 percent is the new 8 percent in 2015.
  • The flip side of the reality of increased competition for buyers of infrastructure assets, as an investment manager panelist noted, is that sellers are in a prime position to dispose of assets at a good price and harvest a strong return, especially with large marquee assets in auction transactions. “We love to sell into the core market,” the panelist noted. “Execution matters. If [a buyer will] pay 10 percent more than you should, that is leaving value on the table.”
  • Yet another sign of the maturity of the current investment cycle — as well as the infrastructure market itself — is the growth of secondary markets. Panelists noted the secondary market is still nascent, but it is growing, and they speculated the 2005–2007 vintage-year funds could soon be the next secondary market sellers.
  • Investors who want to make co-investments need to plan and think through the process before an opportunity presents itself  — by that time, it is too late to take their time and review the opportunity. The process moves fast and decisions must be made in real time with a lot of information arriving in a short period of time. Investors must set up their investment team, investment committee and board of trustees to execute a co-investment long before the opportunity is in front of them for review.
  • Value in today’s infrastructure markets can be found in smaller U.S. power assets — valued-added, not core investments — because there are fewer bidders in the market compared to many core markets.
  • Listed corporate buyers are active in deal markets; their balance sheets are strong, and they are aggressive.
  • Direct investors with long-term investment horizons and few or no short-term cash calls also are competitive in today’s markets — they can bear higher prices because their hold periods are long, and they do not have short-term cash needs that require selling assets on short notice.
  • Like never before, governments are focused on developing a pipeline of investable infrastructure assets that private investors can access — P3 will become a more widely accepted model by governments all over the world.

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DrewWebsiteDrew Campbell is senior editor of Institutional Investing in Infrastructure.

Up and down like a yo-yo

It is well known that pension scheme valuations are not an exact science.

Often the best you can hope for is that the valuation will give you a broad indication of the health and wealth of the assets in the fund, the extent and duration of the liabilities, the gap between the assets and the liabilities — either positive or negative; in surplus or in deficit — and the measures that are deemed necessary to meet any shortfall.

There are different kinds of valuations, for different purposes. Actuarial valuations are the ones that matter most to members and beneficiaries, as these are the ones that count — that result in the amount of retirement income that you will eventually receive being higher or lower. Accounting valuations are the ones that matter to finance directors and stock market analysts, as they are the ones that indicate to investors what a company might need to do to meet the various regulatory requirements and to present a “nice” image to the market.

We all know that stock markets can be volatile. Stock prices can change thousands of times during a trading day, but buyers and sellers know what price they get and what the reward and damage will be. With accounting valuations you know what the “snapshot” values are for the assets and the liabilities, but you won’t know what that means for your pension or for the prospect of your sponsoring employer being able to meet the pension promise.

Ideally, the assets should be greater than the liabilities, but these days that is unlikely. As an example, recent figures from Mercer’s monthly Pensions Risk Survey show the extent of the aggregate accounting deficit for the defined benefit pension schemes of the United Kingdom’s 350 largest listed companies. This increased from £81 billion ($126 billion) at the end of June to £95 billion ($148 billion) at the end of July, a rise in the month of 17 percent; a deterioration that was largely due to a relatively small reduction in corporate bond yields.

Ali Tayyebi, senior partner in Mercer’s retirement business, comments that a relatively small reduction in yields available on long-dated corporate bonds means that the deficit increased quite substantially over the month:

“It is particularly concerning that deficits have now edged very close to the last monthly high, as seen at the end of January 2015, despite corporate bond yields being nearly 65 basis points higher than they were at that time.”

Asset values in the Mercer survey at the end of July were £633 billion ($987 billion) and liability values were £728 billion ($1.13 trillion), so the shortfall was the stated £95 billion — or 13 percent; Mercer estimates that its survey data relates to half of all U.K. pension scheme liabilities. To emphasize how volatile funded status levels can be and how quickly the story can change from one month to the next, one month earlier Mercer’s survey had reported an improvement in funded status (to a deficit of £81 billion at the end of June, from £93 billion one month earlier) and a 4 percent reduction in liabilities. It’s a yo-yo ride; up one month, down the next.

Le Roy van Zyl, principal in Mercer’s Financial Strategy Group, adds:

“Despite the threat of a potential Grexit, the ongoing market issues really relate to the unfolding economic situation in China and the timing of the US monetary tightening. For pension schemes, being prepared for both optimistic and pessimistic market scenarios remains key.”

That sentiment — be ready — will apply to pension schemes all over the world.

For an industry that is meant to pride itself on its long-term approach to investment, though, this rollercoaster performance and the monthly reminders of the continuing fragility and volatility of pension schemes’ funded status must be unwelcome. Pension scheme valuations may be an inexact science, but, like engineers, scientists are meant to be able to work out what is wrong and fix it. A good engineer will tell you how much it will cost to fix the problem, but somebody has to find the money.

What has this got to do with real estate? With yields of around 4–6 percent generally available, the income from real estate is very useful for the payment of pensions to current beneficiaries.

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RichardFlemingRichard Fleming is editor of The Institutional Real Estate Letter – Europe.

Buy, buy, buy!

stone_mansion_carsThe U.S. economy continues to chug along. Standard economic metrics are showing solid gains. The Bureau of Economic Analysis recently reported that real GDP increased at an annual rate of 2.3 percent in the second quarter of 2015. The Labor Department reported the U.S. economy added 215,000 jobs in July, a respectable gain that helped the unemployment rate hold steady at 5.3 percent. And consumer spending, accounting for 70 percent of U.S. economic activity, expanded at an annual rate of 2.9 percent during the second quarter.

In addition to consumer spending, another encouraging sign has been the recent ramp-up in housing construction, which has nearly returned to pre-recessionary levels (although multifamily projects are fueling this growth). Other trends indicate that consumers are back on solid ground, and their improved outlook and spending are fueling the economy’s resurgence from the depths of the global financial crisis.

New car sales, for example, totaled 16.5 million last year. In 2010, the total was 11.6 million. And luxury car manufacturers such as BMW, Porsche, Mercedes-Benz and Audi all reported record sales in 2014.

The number of vacation properties purchased in the United States totaled more than 1.1 million in 2014, according to the National Association of Realtors. In 2010, the total was 469,000.

Household debt has fallen to its lowest level since mid-2006. And there are indications that income growth is picking up. All good signs that consumers will open their wallets and help the economy gain traction in the months ahead. Of course, when the Fed finally decides to bump up interest rates — whether it is in September, December or 2016 — everyone will be watching the effects on the equity markets and consumers.

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LarryFinalwebv2Larry Gray is editorial director of Institutional Real Estate, Inc.

Success can be found in unlikely places

Last week, the Arizona Cardinals announced Jen Welter would join the team’s preseason coaching staff, making her the first female coach in the NFL. Welter has been coaching and playing professional football for 14 years and was the first woman to play in a professional men’s league in a contact position, making her a more valuable coach than some of the NFL’s current coaching staff.

In a sport dominated by men, the Arizona Cardinals turned to an unlikely source in hopes of having a successful season this fall. The Cardinals did all right last year, going 11-5 during the regular season, but they only made it to one postseason game; maybe someone like Welter is exactly what they need to make it to Super Bowl 50.

How does this relate to real estate, you ask?

A recent report from CBRE Group shows that Midwest secondary markets are becoming more and more popular for development. The 11 cities included in the study — Cleveland, Cincinnati, Columbus, Detroit, Indianapolis, Kansas City, Louisville, Milwaukee, Minneapolis, Pittsburgh and St. Louis — have all experienced significant population growth during the past decade and as a result are seeing a strong demand for new development.

The data suggests it is not only millennials that are moving to urban centers, but recent empty nesters as well. This in-migration, combined with the generally lower cost of living, involved public leadership, various incentive programs, and vibrant and innovative urban cores, has made these Midwest secondary markets appealing to employers and employees.

In Pittsburgh, technology jobs represent about 5 percent of total employment, notably higher than other markets across the United States, and while the technology sector only makes up 3.4 percent of the total U.S. workforce, it accounted for the largest share of U.S. office leasing activity in 2013 (13.5 percent) and 2014 (19 percent). Indianapolis, Cleveland, Detroit, Pittsburgh and Minneapolis currently have more than $1 billion of new construction projects under way.

Perhaps, like the Arizona Cardinals, real estate investors will find success in these less frequently considered markets.

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ZoeWolff119x91Zoë Wolff is a reporter with Institutional Real Estate, Inc.

The dog days of summer

It seems as though everyone has taken some time off at one point or another this summer. Here are a few IREN headlines you may have missed while you were out of the office, so you can catch up on before the busy fall season starts:

Remember to sign up for our free newsfeeds to get daily original news and more coverage of the global real estate investment industry.

To view the most recent weekly wrap-up with IREN Friday, click here.

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AndreafinalwebAndrea Waitrovich is editor of IREN and web content editor of Institutional Real Estate, Inc.