Monthly Archives: December 2013

Trending: Big Idea for 2014: Banking Goes Virtual

Big Idea for 2014: Banking Goes Virtual

December 10, 2013                                                                                                  

“Banking is essential. Banks are not.” — Bill Gates

In my quaint little New Jersey town, the eponymous Maplewood Bank & Trust once literally provided the pillars of the local community. Near the center of the main commercial thoroughfare, the building’s Corinthian columns rise toward a facade where the institution’s name is carved in stone.

That’s all that is left of the bank, however. As the financial landscape shifted, it long ago went the way of thousands of other defunct small banks.

Change is nothing new to banking, but it is likely to come faster and with more fury than ever in the coming months and years. That’s because money, like the written word, is ideally suited to existing and traveling in electronic form. Now, the digitization of dollars is giving birth to a giant wave of innovation. Here’s one impressive piece of evidence: mobile banking transactions grew 50% in the past year alone.

“Banking in the future will be something you do – not some place you go,” American Banker columnist Jon Matonis wrote recently.

For many, it already is. Never before have customers had so many choices of where to lend, borrow, store and transmit money. These days you can even hold your wealth in a form of tender that’s untethered to a government or physical form.

Bitcoin, the digital currency, is making inroads and creating big-time buzz. Its rise leaves bankers in a quandary. They can help foster a fast-growing market that’s making their regulatory overseers queasy or stick to the sidelines as Silicon Valley startups, retailers and others blow past them.

The story’s the same in many other quarters. Outfits like Lending Club are cutting banks out of the credit market (a sliver of it, anyway) by providing lenders and borrowers with a virtual marketplace in which to meet.

In the payments world, startups like PayPal, Square and Stripe have grabbed the initiative, enabling customers to zap money from point A to point B without ever thinking of a bank.

When it comes to storing money, Google and other nontraditional payments players are pressing ahead with digital wallets, which are already in use by 11% of online consumers. Elsewhere, disruptors like Green Dot and Bluebird, the American Express-WalMart joint venture, offer prepaid cards that act as checking accounts without the traditional baggage of paper checks, statements and tellers.

All this tumult will cost full-service banks in the neighborhood of 35% of their market over the next seven years, figures the consulting firm Accenture. Translation: if Accenture’s crystal ball is clear, banks will lose more than one-third of their business in less than a decade.

“Digitally oriented disruptors that are far more agile and innovative” and are the likely winners, Accenture says.

For incumbent banks, there are rays of sunshine. As the cornerstone of the nation’s payments network, they still have a built-in edge. For institutions that grab the initiative, it could lead to new business, like using their secure networks to become the keepers of digital credentials and other data–a role that’s already emerging in Canada.

Change also offers a chance to rethink their giant branch investments, from a place where paper passes back and forth to one where live people add value in ways that that digital zeros and ones can’t.

Banks won’t go away. Neither will bricks and mortar. But ten years from now, today’s brick-and-mortar banks, and digital banking services, will look like quaint vestiges of a bygone era.

Neil Weinberg is the editor-in-chief of American Banker. The views expressed are his own

MAJOR Impact to the growth and continued viability of Tampa Bay “New vision for Tampa International Airport Cleared for Takeoff”

TAMPA — Tampa International Airport is poised to undergo its most radical changes and extensive construction since the main terminal opened in 1971.

Joe Lopano CEO, unveiled the future of Tampa International Airport on Thursday.

The new $2.5 billion master plan does more than just expand and modernize the 42-year-old airport for the coming years and decades.

It’s also a new flight plan for the way TIA will do business.

“The old paradigm for the airport was that the airlines will grow, we’ll just sit back and keep the bathrooms clean,” Lopano said. “Times have changed. It will never go back to what it was before.

“Now airports are seen as big business. It’s a new paradigm.”

The airport’s governing board, the Hillsborough County Aviation Authority, unanimously approved that new paradigm.

The new master plan sets the stage for three phases of construction and expansion by 2041, Lopano said.

The consultants who drafted the new master plan focused on the immediate and long-term needs of an airport showing its age in a plan that can be built in phases.

Change will come quickly. The first phase is set for completion in fall 2017.

“This is not a plan five years on the shelf,” Lopano said. “This is a plan of action that starts today.”

The first phase is the decongestion phase, as the airport tries to reduce traffic and parking congestion and free space in the main terminal for the next phases.

That phase started in December, when the airport banned curbside idling in the arrival lanes. Doing so could extend the life of the terminal’s curbs and roads by another 20 years.

TIA will also build a consolidated rental car facility, or ConRAC, along the southern edge of its property, near the economy parking garage and airport post office. A new automated people mover will link passengers to the main terminal and the new rental facility 1.3 miles away.

The facility will serve two functions: moving the rental car counters and cars from the main terminal frees space for future expansion and opens up the parking garage. It will free 1,200 long-term garage parking spaces and get 8,500 rental cars off the road a day. Then the airport will build out the four corners of the third-floor transfer level, adding 50,319 square feet.

Lopano has called the new 2.3 million square foot facility an “airtropolis” — a hub the airport could commercially develop with restaurant and retail space, car rental counters and a parking garage, maybe even a new airport hotel. The nearby mall, International Plaza, is 1.2 million square feet.

Projected cost of this phase: $841 million. It should be done by fall 2017.

• • •

The second phase sets the stage for the third: demolishing the Tampa Airport Marriott and the control tower to expand the terminal and build a new international airside.

Projected demolition cost: $452 million. It should come down between 2018-2023.

In phase three, the terminal would be expanded north at three levels: The ground floor would be a new international curbside; the second floor would hold customs and immigration; the third transfer floor would be a security area for an expanded Airside C and a new Airside D. The artist’s rendering envisions a glass structure overlooking the new airside and new control tower.

This is the future of Tampa,” Lopano said.

Two new automated-people movers would stretch north from the expanded terminal. One would link to the brand-new Airside D, which would be built in the northwest corner of the main terminal alongside an expanded Airside C.

Construction of this last phase would take place between 2020-2028, but not until Tampa International has the number of international passengers and flights needed to justify it.

Third phase projected cost: $1.2 billion. By that time, consultants estimate the airport will be handling 34.7 million passengers annually.

• • •

Lopano also talked about plans to expand the airport beyond the airport itself, connecting it to whatever mass transit systems emerge in the bay area.

TIA hopes to connect the new automated people mover to the proposed Westshore Multimodal Center that state planners hope to one day build in the Westshore Business District along Interstate 275.

The Florida Department of Transportation has decided such a hub must be built to accommodate future transportation systems — and the airport wants to be a part of that.

In the end, Lopano sees a transformed airport serving a transformed area.

“We need a new way to think in Tampa, to grow this business,” he said, “and we’re going to do that.”

Market Analysis: “A Stronger Asset” from CCIM Institute

New sources of capital and increased demand have strengthened the commercial real estate market.
by William Hughes

The current economic landscape has assembled an array of factors to structurally change real estate investment standards. The intertwining of the U.S. and global economies, deeper integration of liability and equity markets, and the accelerated adoption of real estate investment trusts and commercial mortgage-backed securities as major components of the sector have all contributed to this evolution. Furthermore, increased access to a variety of capital sources, combined with a multitude of real estate investment vehicles, has resulted in real estate investment earning its place as a mainstream asset class.

For today’s real estate investor, advanced facts and figures, deeper liquidity, and a range of broad investment opportunities that reach beyond merely primary metros have all allowed the further mitigation of risk. As supply cycles continue their two-decade trend of stabilization, the sector remains less volatile as a whole. Convergence of these influences has refined the foundation for attractive real estate cost positioning, resulting generally in falling capitalization rates over the last 20 years.

Cap Rate Movement

Typically, cap rates are inclined to stay range-bound during economic inflection points, with a usual variance of between 100 and 130 basis points. Whereas the length and severity of the the 2009 Great Recession and the 2001 Recession were markedly different, the recovery trends of cap rate performance proved surprisingly similar.

During the peak of the financial crisis, cap rates expanded from 6.9 percent to 8.1 percent between 2007 and 2009 before making a remarkably accelerated recovery, especially given the depth of the recession, according to figures from Real Capital Analytics, CoStar, and Marcus & Millichap Research Services. While the annualized yield on the 10-year Treasury declined 280 basis points to 1.8 percent between 2002 and 2012, the mean annualized cap rate for all property types dropped 150 basis points. Since the end of 2012, the 10-year yield has abruptly expanded 100 basis points to 2.9 percent as of September 2013. In evaluation, the mean cap rate proved more steady, edging down only about 10 basis points to 7.2 percent. While a delayed effect is still a possibility, forecasting the potential magnitude requires deeper analysis.

Throughout the Great Recession, the Federal Reserve has held the federal funds rate to nearly zero while infusing huge volumes of capital into the financial markets. The expanded period of monetary easing and the absence of government-supported distress sales have boosted the national mortgage market. This paved the way for cap rates and real estate values to bounce back far more quickly than in previous recessions and well ahead of an actual operating recovery. The exception to this trend occurred in multifamily properties, which recovered even faster than the other sectors.

Whereas tough credit underwriting continues to be an obstacle for potential borrowers, the Federal Reserve’s accommodative policies aimed at reducing near-term interest rate risk have aided in the refinancing and restructuring of maturing and difficult loans. This has resulted in more capital entering real estate as a comparatively sound alternative to reduced yield bonds and volatile equity markets.

A Hybrid Investment

Since the market bottomed in 2009-10, commercial real estate investors have favored the greater certainty of top-tier markets and properties with proven cash flows, despite their generally lower yields; this focus on prime markets limited meaningful price recovery to coastal and urban core markets, until investor interest began to spread a year-and-a-half ago. With most gateway primary markets having substantially recovered, occupancy and rent growth momentum has expanded to late-recovery secondary and tertiary metros. These areas may garner higher yields and offer room for net operating income gains, but they also carry higher risk. Many of these areas face relatively higher overdevelopment threats, less consistent demand, and more shallow liquidity, all of which could affect investor exit strategies. Reflecting these trends, the maturing primary markets have faced slowing cap rate compression and even rate upticks. Conversely, cap rates in secondary markets have tightened, supported by stronger operational momentum and sales volume. Naturally, investor risk will depend in part upon a market’s position along the arc of the real estate cycle and the investment time horizon.

The hybrid nature of commercial real estate makes it a compelling investment option, with a bond-like cash flow component even during economic downturns, as well as an appreciation component that often acts as a hedge against inflation, considering that property owners benefit from increasing rents and property values when inflation rises. In addition, many long-term leases contain consumer price index rent increases, while shorter-term leases allow investors to quickly adjust to market rates.

Rising Interest Rates

A period of falling cap rates helps elevate returns via appreciation. Rising interest rates — reflecting stronger economic activity — generally exert upward pressure on cap rates, requiring an increased emphasis on income growth to offset slower appreciation and higher financing cost. However, healed and expanding credit markets, strong global investor demand for U.S. real estate, and continued recovery in property fundamentals will help counterbalance the magnitude of rising rates, and lend support to property values. Having already absorbed a significant increase in interest rates, further cap rate changes should tie less to speculation regarding Fed policy and correlate more with measurable economic performance.

Debt and equity markets should remain stable for the foreseeable future. However, the environment is not without risk, and near-term volatility should be expected. The pending appointment of a new Federal Reserve chief, looming debt ceiling discussions, geopolitical tensions in the Middle East, and the effects of sequestration and declines in federal spending will hamper economic growth.

In addition, changes in monetary policy always present a risk to the economy. In this light, the Fed has demonstrated considerable dexterity, and should gradually exit qualitative easing in an orderly manner by slowly decreasing bond purchases and letting some securities mature. The Federal Open Market Committee has issued interest rate guidance, stating that the federal funds will remain range-bound between 0 to .25 percent at least until mid-2015, underscoring that monetary tightening would begin only after an economic and employment recovery has been well established. The Fed also noted that the tightening process would occur at a more gradual pace than historical precedent. 

Surely, higher interest rates will impact investors across the board. As financing costs rise, so will investors’ required returns. At a minimum, increased financing costs will decay some of the cap rate arbitrage of buying into secondary and tertiary markets, or value-add and opportunistic assets. However, the stride of occupancy and lease growth is likely to exceed that of primary markets and core assets for the midterm outlook. Demand for all commercial real estate, sustained by the reinforcing economy, remains solid, and supply risks are negligible for most property types. As a result, performance profits and other components will considerably counteract the effect of rising interesting rates, at least for the near term.  William Hughes

Amazon Unveils Flying Delivery Drones – This Will Be The Beginning of Changes to Distribution on Many Levels

TMC-The Mahr Company Shares: This is the beginning of a Major Shift which will have a tremendous impact in the future relative to Wholesale and Retail Distribution, Warehousing, and land and locations for same.