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In a move seen by many as one friend loaning another some money to help them through troubled times and garner favours, Google has paid $1.1 billion to smartphone manufacturer HTC to expand their Smartphone business. HTC, once a major player in the market have visibly struggled in the face of huge growth by competitors such as Apple, Samsung and more recently, Huawei.

The injection of cash is believed to be focused on the development of Google’s Pixel range of smartphones currently developed by HTC with the Californian company acquiring the team who develop the hardware and securing a non-exclusive licence on HTC’s intellectual property.

Google Focus on Hardware

The deal is further proof that Google are investing heavily in the hardware market to ensure a strong future for Android and its own status within the smartphone hardware market.  "We think this is a very important step for Google in our hardware efforts," Rick Osterloh, Google's senior vice president of hardware, said. "We've been focusing on building our core capabilities. But with this agreement, we're taking a very large leap forward."

The move is an attempt to prevent Google from being left out of the loop in the smartphone industry as current Android devices can easily be adapted to bypass Google's services altogether. It appears that Google are attempting to take a leaf out of Apple’s book by ensuring smooth rollouts of their mobile operating system, such as the recent IOS 11 update, combined with a boost to their own Pixel handsets. Pixel arrived with great fanfare, but has not yet made significant in-roads to displacing either Apple or Samsung. In purchasing the HTC team who have developed it, Google are clearly hoping that will change.

Google will retain some caution however, given that they have attempted to enter the market before with their 2011 purchase of Motorola Mobility for $12.5 billion. That move was both disastrous and relatively short-lived with Google off-loading the business for just $3 billion in 2014.

The deal is yet to be ratified by the regulatory bodies, but caught many industry experts by surprise with the majority believing the deal would constitute a full takeover. Rumours were so abundant that Google purchasing HTC outright was imminent that the Taiwanese stock market suspended trading on HTC on Tuesday.

The move comes with several risks for the Californian tech giant, with the major one being the possibility of alienating Samsung who currently run Android on their popular range of smartphones. But what is clear is that the big winner from this deal is HTC, the struggling Taiwanese company who have now not only strengthened ties with an important ally, but crucially have acquired a much-needed cash injection which will allow them to concentrate on the further development of smartphones and also on their Virtual Reality headset, Vive, which is not only favoured by Google, but is also outselling the Facebook owned Oculus Rift by almost double.

What is certain is that this deal will be watched closely by several hardware developers wary of Google’s manoeuvres in a very lucrative market and the potential for added competition.

photo credit: Karlis Dambrans

Latest figures release show that a fall in income receipts from foreigners have pushed the US deficit up to 2.6%, bringing it back towards the levels of 2008, but well short of the 2005 high of 6.3%.

According to the Department of Commerce, the increase in the account deficit during the second quarter rose from $113.5 billion to $123.1 billion and pushed the figure up to a level equivalent to 2.6% of the US’s total economy when measured against the GDP. This reflects an increase from the first quarter of this year, where the deficit measured 2.4%. The news came as a surprise to many who had pencilled in a deficit figure of $110 billion for the months ending in June.

The increase is largely being attributed to a $5.2 billion decrease in receipts of secondary income from foreigners alongside a decline in government fines and penalties.

Import of goods and services increased by $11.8 billion by the end of June, however these figures accelerated more quickly than sales to overseas markets which were up $2.2 billion, benefitting from a weaker dollar and an upturn in global growth.

The current account is widely viewed as the most accurate measure of US trade because it includes goods and services in addition to payments and investments from the rest of the world to America.

The government will be keen to try and reduce this deficit, given it was a significant campaign pledge from the current administration who have repeatedly claimed that it is reducing the number of jobs for Americans, particularly in factories across the country.

The trend of bricks and mortar stores falling foul of the move towards online shopping struck once more yesterday as retail giant Toys 'R' Us filed for Chapter 11 bankruptcy in the US and Canada to protect itself from creditors while they attempt to re-organise the business.

Founded in the 1950s and once the dominant market leader for toy sales in the US and in other countries, Toys 'R' Us has struggled recently to combat the shift to online shopping and against larger retailers such as Amazon and Wal-Mart and to leverage their high debt.

The firm, which is owned by 3 private equity firms (KKR, Bain Capital and Vornado Realty Trust - who bought the business in 2005 for $6.6 billion), have stated that they have received offers of more than $3 billion from investors, which could help prop up the company in the run up to the busy Thanksgiving and Christmas trading periods.

The future of the business is still in doubt, and could lead to the closure of 1,600 stores and the loss of 64,000 jobs across both countries.

End of an era?

For many Toys 'R' Us closing would signal the end of an era. Since it opened in 1957, the toy store has become a favourite with children worldwide with their recognisable backwards ‘R’ and company mascot, Geoffrey the Giraffe. However, in truth, the stores have been struggling for years, as shoppers stayed at home and shopped online while Toys 'R' Us continued to invest in bricks and mortar stores, leaving themselves with an online shopping experience lagging behind their competitors.

The company has struggled to remain relevant in an era of Ipads and Android, where the click of a mouse can bring your favourite toy directly to your house. Unfortunately for the faltering retailer, that trend shows no signs of slowing down, in fact GlobalData Retail estimate that nearly 14% of all toy sales were made online, up from 6.5% just five years ago.

The new strategy to “bring our toy stores to life”, encouraging children to drag their parents in store to play with all the toys instigated by the new CEO has seemingly backfired leaving Toys 'R' Us with sales down a further 1.6% in 2016, despite the Toy industry reporting growth of 5%.

Online Shopping not the only problem

Although some of the struggles Toys 'R' Us are battling can be attributed to the shift to online shopping.  The company’s immediate problems stem from their large debt. Toys 'R' Us currently hold $5 billion of long-term debt on their balance sheet, which they aim to restructure, using the $3 billion offered by investors to preserve the future of the business, if they get the court approval they require.

As the news spread about the Toy giant's struggles last night, Chief Executive Dave Brandon sought to allay any fears and reassure everyone that the store's future was far from over:"Our objective is to work with our debt holders and other creditors to restructure the $5 billion of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business."

Whether this will prove enough to prevent Toys 'R' Us from becoming another high street casualty remains to be seen.

 

Tim Hilkhuijsen holds Degrees from Aims Community College in Greeley, Colorado as well as from Southern Illinois University and has 25 years of experience in the field of architecture. With a strong knowledge of both residential and commercial design, including construction methods and materials, Tim’s ability to see a project through, from conception to completion is unsurpassed, as he has been involved in architecture since 1989. His work can be seen throughout the United States such as, South Carolina, Colorado, Missouri, Texas, North Carolina, Utah, including the islands of St. Kitts and Antigua. Tim’s distinguished work has been published and can be found in various books and magazines for which he has received several “Prism” awards for outstanding designs, as well as a SARA award for exemplary graphic representation.

Having a spirited understanding of accrual management, Tim has owned, operated and directed several Architecture firms throughout his career, and is regarded to be one of the top sought after designers in the South Carolina low country. His primary goal has always been customer service and satisfaction and he prides himself to be “only as good as his last job”.

A member of the American Institute of Architects, the Royal Institute of British Architects, as well as the Society of American Registered Architects, Tim and his partner, Kevin Whalley, established Architecture Plus sc, llc in January of 2012. Architecture Plus sc, llc recently partnered with Aaron Ede in order to provide unparalleled services in a challenging market to their discriminating custom residential clients. Here he tells us more about the company’s beginnings, priority toward their clients and recent projects they’ve worked on.

 

How did the idea about Architecture + come about? How did the company develop into the company it is today?

Kevin Whalley and I struck out on our own back in 2012, when the economic landscape in the United States was a much different, scarier place than it is today. While we understood the risks of starting a business in the middle of the worst recession in recent memory, we also knew it was a chance for us to design and manage projects the way we wanted and the way we needed them to be managed.

We saw an opportunity to combine our 50 years of architecture experience in the Charleston, SC region and grow it together. The combination of our experience allows us to complement each other.

Another major factor in our company’s success is that we learned to be diverse. We’ve learned how to get into new markets and how to address and implement the creation of such new market services.

 

How has technology changed the architecture sector in recent years?

Technological advancements have made it easier to convey design ideas and executions to clients. Flat, two-dimensional drawings and renderings are no longer the only way to show the scope and scale of a project. Now, we as architects display our creations in three-dimensional graphic presentations that are much more photo-realistic and easier for our clients and their contractors to understand. These tools also enable us to work more closely with general contractors and their estimating departments. It helps them become more accurate during the bidding process and when they are on target with budget, it results into a satisfying reflection of our firm. Drawings are simply much more understandable to read and ideas are more easily conveyed. Not just to our clients, but also to the entire project team that is turning a vision into a reality.

 

Can you detail any current projects that Architecture + is working on? What are some of the key issues that you are facing in the process?

Some of our most recent projects include a Starbucks, a mixed-use facility, retail and office building, a restaurants and an industrial building. The biggest hurdle we are continuously challenged with is learning to work with local governments. Time equals money and having to go through the rigorous requirement of city review and submittal processes tends to add 6 months to our project timeline. We find that roughly 18 to 20% of a projects’ expense ends up being allocated towards governing regulations. So the challenge for us in the industry is how can we, as professionals of our industry, provide more affordable projects. Whether it’s a multi-family housing project or a commercial project. Average salaries simply do not run parallel to the average wage earner, so we must continue finding a solution, as this is just not a developer problem. It’s going to take work from multiple parties in our industry to band together in search of viable solutions. Finishes that were deemed as upgrades a decade ago, have now become expected standards today.

 

Website: http://architectureplusllc.com

 

 

 

 

 

 By Mihir Kapadia, CEO of Sun Global Investments

 

In November 2016, for most observers, a Donald Trump win was a slightly worrying possibility and a Hillary Clinton victory seemed to be the best route for economic continuity and stability.  But then the unexpected happened; Trump won the Presidential Election and the market rallied strongly from the next morning onwards.  

 This optimism continued as Trump’s inauguration approached, with markets anticipating the sweeping economic reforms promised by his campaign.  In the market, this was christened the ‘Trump Trade’, and over half a year since President Trump took office, some of the optimism seems to be showing signs of fading.

Markets were apprehensive mainly because Trump seemed to be an unknown political factor and a threat to the established order.  Some people feared a similar panic to the one that swept global markets in the aftermath of the BREXIT vote.

However, with hindsight, Trump’s ascent represented a great investment opportunity for investors. His economic policies emphasised large scale infrastructure investment, significant reforms and a large stimulus which is likely in aggregate to be positive for economic growth and activity.

Trump exhibited a more conciliatory tone towards Janet Yellen and the Federal Reserve, compared with the more hostile rhetoric of the campaign.  This emphasised continuity and stability and reassured the markets further.

The dollar surged to new heights and the situation seemed promising for investors who had hoped to see progress in the US economy by an administration that would not be mired in a political stalemate.  Trump achieved a Republican majority in both houses, a fact which in theory increased his chances of pushing through his legislative agenda.  Compared with the Obama administration which often faced a hostile and partisan Congress, the Trump administration seemed to represent a more decisive direction for the US economy with pro-growth policies and promises of tax cuts and deregulation.

These factors ensured some progress for the US dollar and for US assets.  However, some more troubling questions have arisen about the administration in more recent days.  It has been argued that campaign promises have not materialised, and in some cases, such as the President’s tough stance on China, these seem to have reversed altogether. In addition, the numerous scandals and controversy to have hit the White House since January have led to questions as to whether the Trump administration will be competent enough to deliver on their economic agenda.

One key event was the release of US first quarter GDP figures that showed the slowest growth in years.  Although it is still early days for the Trump administration, it was viewed by some as indicating the failure of the Trump administration to boost the economy. On this view, despite the promises of tax reform and infrastructure investment, few if any of Trump’s economic policies seem no closer to fruition than they did before the election. It is this which seems to have cooled investor optimism. However, this is not the complete picture - while the US dollar has declined in 2017, US Stocks (especially the NASDAQ) have powered away and are at new all-time highs at the time of writing.

During the campaign Trump criticised the Fed for its policy of keeping interest rates low. Whilst Trump’s opinion on interest rates has varied, he has argued for a lower dollar which many see to be somewhat inconsistent with lower interest rates. Whilst the Fed has raised interest rates once this year, with officials indicating that two or three more interest rate increases were on the way, recent events have seen interest rates on hold and the likelihood of more rises this year is again under question.

Many controversies have pervaded Trump’s time in office; this did not seem to affect markets much until a flare-up of the James Comey – FBI issue which eventually rattled the stock markets and the US dollar. This soon evolved into a larger ongoing investigation into the administration’s links with Russia.

Foreign policy has also proven fraught with uncertainty, with the latest economic sanctions on Russia straining relations with the allies in the EU. Both US and European businesses have expressed concerns over the prospect of being penalised by the very same sanctions aimed at punishing Russia, due to the amount of partnerships and contributions involved. For investors, some of the allure of Trump during his time in office would appear to have faded for the time being.

However, Trump’s time in office has seen a very different story unfold within emerging markets, with its biggest loser being Mexico. The key effect was Trump’s controversial policy for a border wall between USA and Mexico for tackling illegal immigration.

Upon Trump’s victory the Mexican Peso crashed to record lows, with more details of the President’s plan hurting the emerging market’s economy – and relations with the US, further.  The threat to use remittances as a tool to fund the wall, amongst other ideas, also served to threaten other Central American economies.

However over half a year since Trump’s inauguration the markets tell a very different story. The Mexican peso has become one of the world’s best performing emerging market currencies, rallying to a 14-month high since January after Trump took office. After the volatility seen at the beginning of the year, the peso has seen far more positive movement over the first seven months of Trump’s presidency. This positive sentiment has boosted other risky assets including Emerging Market Assets.

In conclusion, the Trump Presidency presented an opportunity for a resurgent US economy with comparisons made early with President Reagan’s time in office. Half a year later, Trump’s presidency has proven to be tumultuous, subverting expectations for some and confirming them for others. Although US stocks and emerging markets have gained strength, global risks for investors have also risen under the turbulent Trump administration. If this is taken as a sign of things to come, it is likely that investors will see more volatility over the next 4 years.

 

As part of our Thought Leader features, this month Finance Monthly had the privilege to interview José R. Sánchez, the President and CEO of Chicago-based Norwegian American Hospital (“NAH”), a 200-bed safety net hospital. Here he sheds some light on his role to create and meet the vision of Norwegian American Hospital, recent changes in the American healthcare system and how he balances between the need for profitability and the needs of the hospital’s patients.

 

Tell us a bit about your career path prior to joining Norwegian American Hospital? What brought you to your current position?

I began my career in the healthcare field in the city of New York back in 1979, working in various hospitals until 2010. I joined the New York City Health and Hospitals Corporation in 1996 as head of one of the public healthcare hospitals. I was promoted to Senior Vice President of the largest healthcare network in the public healthcare system and was also CEO of Lincoln Hospital. My responsibility was to lead the business operations and integration of the network, which was comprised of three acute care hospitals (two of them were level-one trauma centers), and 24 clinics in East Harlem, Central Harlem, and the South Bronx in New York City. In 2010 NAH was in search of an executive CEO to turn around the failing hospital that was just about to close, as a result of poor financial performance, low quality, a poor reputation, declining volumes and a lack of an infrastructure to support the hospital’s growth.

 

How has your role impacted the hospital in the past 6 years?

In 2010 I outlined a vision for the recovery of the hospital and restored financial stability, quality improvement, physician engagement, community engagement and investment in technology to improve electronic medical records. Since that time, the hospital has been able to close in the black for the last 5 years. Our quality has improved significantly and we have been awarded and recognized nationally for our quality journey and accomplishments. We have grown every business line and we have improved and aligned with the vision of the organization and the integrity of the overall community, as well as full implementation of electronic medical records. Currently every service we offer is online.

 

What were the goals that you arrived with back in 2010? 6 years later, would you say that you have managed to achieve them?

We have been able to achieve the original outlined vision of 2010 and surpassed and excelled in each one of those areas. Today, Norwegian American Hospital is considered at the top of the safety net hospitals across the state in financial status, quality metrics and operational efficiency.

 

What are Norwegian American’s ethics towards its patients?

NAH is fully dedicated to improving the health status of every resident in the Humboldt Park Community on the West side of the city of Chicago. Patients are put at the centre of our universe and we always aim at providing the best care possible through identifying evidence-based best practices.  Decisions are made on what is best for our patients and resources allocation is focused on community needs.

 

How have you managed to balance between the need for profitability and the needs of your patients?

As a not-for-profit organization, it is a pretty difficult balance between profitability and patient needs. It is clear that our mission to provide care to every patient, regardless of ability to pay, needs to be balanced within the existing hospital resources. Safety net hospitals in the State of Illinois depend primarily on Medicaid patients and State subsidies. To balance the budget that will be required to provide the care that is needed for patients in poor communities. To frame the question, there are 40 safety net hospitals in the State and they comprise 19% of all hospitals. Those hospitals collectively provide $375 million in community benefit and also provide approximately 40% of services to individuals with substance abuse and mental illness. Part of our effort to balance profitability and patient need is to take a very strong advocacy role to ensure services are delivered to those patients in our community. We at NAH treat patients with the worst health conditions in the State, requiring significant resources. Our objective is to ensure the greatest operational efficiency to meet patient needs.

 

Could you tell us a bit about any recent changes in the American healthcare system, both in terms of regulation and funding? How have they impacted NAH?

Back in 2010, the Affordable Care Act was passed as legislature in this country, as a landmark legislation to reform the traditional healthcare delivery system in the United States. The objective was to expand coverage to all Americans and to reduce cost and improve quality. During the last 7 years of implementation of the Affordable Care Act, we have seen a significant positive trend in coverage, where more than 20 million Americans have been able to secure health care coverage. In addition, the objective of reducing cost has never been obtained as a result of many individuals who entered the market with insurance coverage, who presented conditions worse than predicted. Therefore, the cost of healthcare in our country has increased. For example, premiums of health coverage have continued to escalate. As a result, the high utilizer of services has increased and insurance plans have passed on the cost to consumers through higher premiums and higher deductibles for services. The impact of the Affordable Care Act has created a positive impact for NAH since its implementation. Before the legislation, our self-pay, no pay percentage of patients was about 15%. Today we are somewhere between 5 and 7%. Therefore, it has improved our bottom line.

 

What would you say differentiates Norwegian American from other healthcare providers?

NAH has been able to transform to the expectations of market trends in operational efficiency, technology implementation, cost reduction and quality improvement.

 

What lies ahead of you and NAH?

It is totally unpredictable what lies ahead for safety net hospitals and any other healthcare system in the United States at this time. We know that the current President outlined a health plan called the American Healthcare Act to repeal and replace the Affordable Care Act. Although that proposed legislation was rejected by the House of Representatives, the future of healthcare is still unpredictable. The Secretary of Health of the United States has tremendous authority and influence to change and modify policies that will have an impact on healthcare for the rest of the country. Any changes at the federal level would have impact in our State and therefore, at NAH we know that our on-going goal is to continue to reduce cost across the board. It is difficult to reduce cost when a significant number of hospitals in the country are operating in a deficit and in very small margins. Norwegian is one of these institutions operating in very small margins and any negative impact will have devastating results in the operations of the hospital.

 

 

As a licensed financial advisor at First Command Financial Services, Theresa M. Mayes is focused primarily on the needs and unique financial concerns of military members and their families. While serving as an Army medic at Tripler Army Medical Center, she earned a Bachelor of Science degree in Psychology from Chaminade University. She later earned a Master of Business Administration degree from Walden University. In 2013, she joined First Command, attracted by the opportunity to put her skills and experience to work in making a positive contribution to the military community. Here she talks to Finance Monthly about financial planning, the financial services sector is Georgia, USA and the challenges that US financial advisors have been faced with recently.

 

As a professional with a wealth of experience in the sector, what is the current state of the financial services marketplace in Georgia?

Georgia has a booming business economy. According to Site Selection Magazine, it has been the number one state for business, four years in a row. This, of course, brings both an influx of workers and a need for financial planners. The number of FinTech companies across the state is growing; not just in Atlanta, but in Savannah, Macon, Columbus and Athens, too. This is definitely changing the way advisors and wealth managers are conducting business. There is definitely a need for younger talent and a focus on growth and retention.

 

What would you say are the specific challenges of assisting clients with financial planning?

At First Command, we believe that one of the most important contributors to a healthy financial life is behavior. And sometimes helping clients understand that and stop bad habits can be challenging.  On top of that, we have to constantly evolve our practice to match the industry’s technological advancements and changing regulations.

 

What are the most important aspects that need to be ironed out in order to achieve satisfactory result and a well-organized financial plan for your clients?

The golden rule of financial planning is to know your client. By actively listening to clients, you’ll gain a much better understanding not only of their current circumstances, but also of their risk temperament and how committed they are to doing  what is necessary to reach their goals. Having that knowledge puts you in a better position to recommend products that are appropriate for their unique needs and objectives.

 

What are the particular challenges that financial advisors in the US have been facing over the past year in relation to changes in what customers expect in terms of products and services?

Some clients have fast-food expectations: they want it their way and they want it fast. But taking the kind of cookie-cutter approach that calls for is not generally in their best interest.  As professionals, our job is take the time to fully understand each client’s circumstances, temperament and goals before making specific recommendations. Another challenge these days is the abundance of sometimes conflicting, not always accurate information that is available online. I may be biased, but I can’t help but think that there’s a benefit to having a personal financial coach who is willing to sit down with you, listen to what you’re saying (and not saying), answer your questions and explain their recommendations. And I’m not sure a robo advisor is capable of doing all of that.

 

Can you tell Finance Monthly about your involvement in the community and its impact?

I am currently involved in the Leadership Columbus Class of 2016 – 2017, and it has been an extremely rewarding experience. I’ve been able to meet a lot of great people and learn more about the community than I would have otherwise. I’m also a sustaining member of the Junior League of Columbus and have coached long jump and sprint with a local youth track and field team. It’s been a pleasure to watch all the young athletes grow up and compete in their class state championship meet.

 

 

Written by Mihir Kapadia, CEO and Founder of Sun Global Investments

Over the last month, there has been strong optimism on US stocks due to Donald Trump’s infrastructure plans and spending proposals, or what is termed the “Trump trade” pushing up the prices in the markets and the financial sectors. To some extent, this is business as usual as Republican presidents are often greeted with a stock market rally. This generally lasts about 6 weeks before a re-assessment is usually made.

In purely economic terms, there are two broad strands to Donald Trump’s policies. On the domestic front, he is focused on government policies and regulations which pose as obstacles to business, including high taxes. His policies are to generally move towards a more deregulatory environment and remove certain rules which are considered impediments to business, according to his campaign. He is also expected to overhaul the tax system with motives to both simplify the system and overall reduce taxes. This is a positive development for business and for securities (both Debt and Equity) issued by companies. This is also a leading explanation for why the stock markets in the US have been cynically rising since November 8th when Trump’s victory was confirmed.

On the external front, the general economic policy stance has been nationalistic and protectionist. The new administration had advocated a lot of such policies during the campaign. These included promising action against countries such as Japan and China (and later Germany), which were accused of being currency manipulators and were allegedly using a deliberately low value of the currency to boost their exports. Trump promised higher tariffs and taxes against countries and companies which are found to be offending on these matters.

The President believes the only way the US can drive inward investments is by discouraging importers with higher tariffs, in an effort to tip the scales which are currently in favour of countries such as China. These comments also reflect the President’s aversion towards the cheap Chinese goods and services which are flooding the US consumer market, and largely undercutting US businesses – something he promised to tackle as part of his election manifesto.

It is no secret that the US is facing a trade deficit, but any protectionist measures could easily backfire and could initiate retaliatory actions against the US, especially from China. It would also adversely affect the US, sending its currency spiralling down, push up inflation and potentially destabilise global markets. This will also discourage foreign investors from investing in US assets which would be quite against US’s interests.

If Trump goes ahead with his electoral promises of creating infrastructure and investment boost, it should boost investor confidence; push the US treasury bonds and likely the dollar upwards, something he seems to be less wary of, especially since the currency value is too high for international comfort, while others such as the Yuan seem overvalued. These comments sparked concerns that the new President may engage against the long-standing US policies. To tackle trade deficit, he needs a weaker dollar; and if he can put flesh to the bones on his promised economic policies, he is going to make the dollar stronger. It’s a forked road, and if he will choose the path less trodden is a question yet to be addressed. Then again, for Trump, it’s always been the path less trodden which brought him to the White House in the first place.

For countries like Mexico and some others, he has threatened strict controls on immigration, and the movement of capital from the US into these countries. For example, he has criticised US companies which make investments in Mexico, which has already led to companies reconsidering strategy and reassessing their yearly business plans.

As for the emerging markets, they may be enticed to look beyond the USA for investments under the current climate. China and Japan suffer from severe overcapacity where in existing investments are not generating sufficient returns. A trade war is not exactly the best of international developments that would make one invest in China. The uncertainty created by the Trump-machine has generated poor visibility and until this lifts off, it is hard to assess the way of flows. The trade policy outlook of Mr Trump is definitely a risk factor and in addition to the hawkish Federal Reserve and commodity prices, could be perilous for emerging market investments. However, it should be noted that investors are always seeking performance, even though non-economic drivers appear to be leading – at the end of the day the performance is what truly matters. Looking at emerging markets we can say that India, Brazil, Indonesia are stabilizing, growth-focused economies – this is a narrative investors can buy into.

It is also possible that Emerging Markets such as South Asia or Africa may benefit from investment inflows. Similarly, Russia and Iran may also see inflows but only if issues relating to sanctions are resolved. Nevertheless, the political actions such as travel bans and free movement restrictions will also tend to have some impact on the business front. Companies which face the brunt may lobby or protest to make amends. So far, the optimism in emerging markets has been immense, lest any of Trump’s emerging market-unfriendly campaign proposals make it onto the policy agenda, emerging markets would certainly suffer.

It remains to be seen how much of the protectionist and anti-mercantilist campaign promises will be translated into real policies. So far, the new President’s stance towards China and Japan has been more conciliatory than the campaign rhetoric might have led one to expect. In the case of Japan, Prime Minister Abe is reported to have emphasised the number of Japanese companies which have created manufacturing jobs in the USA. This could be the rationale for Trump’s policy – threaten countries and companies unless they can show a track record of investing and manufacturing in the USA. It can also be effective as Ford has boosted its manufacturing investment in the USA and moved against expanding in Mexico.

There is definitely some hard work ahead.

John Mackris, MAI, MRICS is an Executive Director within the Valuation & Advisory (V&A) group of Cushman & Wakefield Inc., a full-service worldwide real estate company with over 43,000 employees. Cushman & Wakefield’s V&A group provides advice on real estate equity and debt decisions to clients on a worldwide scale and comprises 1,670 professionals located in more than 130 offices in 30 countries worldwide. The group’s capabilities span valuation and advisory services relating to acquisition, disposition, financing, litigation, and financial reporting, and 18 practice groups deliver real estate strategies and solutions to clients with unique operational, technical and business requirements. Mr. Mackris is also a Midwest Region Leader within C&W’s Retail Industry specialty group.

 

How would you currently describe the US real estate appraisal industry and what shifts do you expect throughout 2017?

The US real estate industry has been evolving at an accelerating pace over recent years due to advancing technology and better equipped professionals. Access to an extensive level of market information at the appraiser’s finger tips combined with more sophisticated software to analyse this information has resulted in much more credible and supportable valuations. While the number of US-based appraisers has declined by about 2.5 percent per year over the last decade, the number of appraisals has increased, as appraisers have become more efficient. Over the next five to 10 years, this trend of fewer appraisers is anticipated to continue due to retirements, fewer new people entering the appraisal profession, economic factors, and increasing government regulation. The question is whether the rate of appraiser efficiency can continue; if not, expect appraisal fees and turnaround times to rise.

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Specific to 2017, appraisers will need to be cognizant of the Trump administration’s new tax and deregulation policies, and how they will impact various types of real estate in different geographic locations. Most investors are anticipating lower corporate and personal income taxes, but potentially higher border import taxes. The implications of tax policy combined with deregulation will potentially have a varied approach across the US real estate market. Real estate in import-oriented areas might suffer, while areas with heavy manufacturing geared to domestic consumption will benefit. Overall, most economists are anticipating strong economic growth compared to the Obama years, where GDP growth hovered in the 1.0 to 2.0 percent range.  If GDP growth reaches the 3.0 to 4.0 percent level, appraisers can anticipate significant changes in almost all property types, with new development and adaptive re-use becoming an increasing part of the assignment log. Strong economic growth, however, will also bring interest rate hikes from the Fed, which would push borrowing costs upwards and change investor purchasing assumptions. The key for appraisers in 2017, and more so than in years past, will be constant market research and understanding the factors that are driving each transaction.

 

What would you say are the biggest challenges facing real estate appraisal companies in the US?

There are many challenges facing appraisal companies, such as finding and retaining good employees, or staying compliant with an ever-growing barrage of governmental regulations, but these are not new to the industry. What has changed over the last decade is the need to incorporate more technology into the process and balance this against an overreliance on technology.  Appraisal has often been described as a combination of science and art, with “art” being a synonym for common sense and experience.  While the next generation of appraisers, or “millennials,” bring a strong technical skillset to the field, the key for this generation will be whether they can transition back to the basics of primary research.  In laymen terms, this means picking up the phone and talking to market participants rather than simply searching on Google. With an ever-aging base of appraisers, this transition will be critical to good quality valuations in the years to come.

 

 Do you foresee the need for legislative change in the near future, if so why?

 Yes, there is a strong need for legislative change in the near future. The appraisal process has become more costly, more complicated, and less productive due to out-dated regulations. The federal regulatory structure for real estate appraisals (FIRREA) has not changed since 1989. As a result, appraisers have to deal with a layering effect of rules and regulations that discourages new people from entering the field, while also decreasing appraiser profitability. As an example, the industry has seen several new, time-consuming regulations pertaining to the role many senior appraisers conduct as a supervisor-appraiser to a trainee-appraiser. In discussing these new regulations with my peers, many have elected to drop plans they had for new hiring as they felt the time, cost, and effort of staying compliant were not worth the benefits afforded by the new hire. The Appraisal Institute is fighting to reduce the number of regulations, but it will take time to reverse the increased regulatory trend over the last decade.

 

In your opinion, what would be the best approach to modernize the US appraisal regulatory structure?

 Often times, appraisers work in multiple states. This is common among appraisers who reside near their state border, and appraisers that specialize in unique property types, in which their expertise is in demand across a wider geographic area. As an appraiser based in Chicago, I often complete assignments in the nearby states of Wisconsin and Indiana. And as a specialist in retail shopping centers, I cover a territory which comprises the entire Midwest region of the US consisting of nine states. Needless to say, completing each state’s licensing regulations can be time consuming.  What makes this process frustrating, however, is that these states all have slightly different requirements for education, reporting, application dates, and regulatory fees.  While they all share the same goal of ensuring the integrity and professionalism of appraisers within their states, their varied regulations add unnecessary burdens on industry professionals.  A simple solution would be if each state could outsource its regulation to a single interagency firm and provide a multi-state license. Or, at a bare minimum, each state should try and synchronize its regulations with the neighbouring states.

 

In your role, what are the main challenges you encounter and how do you work alongside your clients to overcome these?

An appraisal assignment contains many steps in a process, with the finished product comprising the final appraisal report. The first step is gathering property-specific information, such as rent rolls, leases, operating statements, etc. Gathering this information from the property contact as soon as the assignment is engaged is critical to an on-time delivery, as often times it may take the property contact several days to gather and deliver these items. Once delivered, the appraiser can then commence his or her analysis. The initial receipt of this information can often open up a need for additional items, which can then add pressure to the promised delivery date.  Over the years, I have found that effective communication with my clients regarding the nuances of the property and what property-specific information is needed can effectively eliminate the need for deadline extensions. Some clients have realized that they can facilitate the process by informing their borrowers of what items will be needed prior to appraiser engagement, which can eliminate days of waiting.

 

Looking at the work of your peers, and in your past experience, how would you say the role of a real estate appraiser has changed over the past 20 years?

Surprisingly, the role of appraisers over the past 20 years has stayed the same more than it has changed.  The market still looks to appraisers for the insight, expertise, knowledge, and unbiased view of market value.  While technology has changed the process of appraising, the appraisers’ role, fortunately, has not changed.  If appraisers are true to their mission, they can offer market participants an impartial view a property’s value, and the state of the micro- and macro-market in which it is situated.  In an environment often tainted by varied interests, nothing can be more valuable than a real professional’s unbiased opinion.

 

 

 

 

Turning our attention to real estate appraisal, we interviewed Robert Nord – an expert in appraisal and mortgage loan origination of income-producing properties in Northern and Southern California, the Western United States, and in Canada and Latin America.

Prior to working for his own firm, California True Values, Robert was employed as principal with Arthur & Young in San Francisco Office and Regional Chief Appraiser for First Interstate Mortgage Company, California Federal Savings and New York life in the San Francisco Offices.

 

As a professional with 30 years’ experience in appraisal - looking at the work of your peers, and in your past experience, how would you say the role of a real estate appraiser has changed over the past decade?

Since 1989, the Appraisal Standards Board adopted the Uniform Standards of Professional

Appraisal Practice (USPAP).  Thus, the role of the appraiser has been to standardize in the reporting of their results.  But the ultimate results have been the same, to provide the client with answers in a clear and concise reconcilable manner.

 

Over the past 30 years, what would you say have been the three most impacting turning points for the US’ real estate market?

 

I think that the most significant turning points happen approximately every ten years or so. These are the supply and demand issues that are coincidental with the capital markets. That is when supply of new space grows and the demand for the space grows as well. Remember when short-term shot up to 13 percent and long-term increased to about 10 percent about 35 years ago, well, the inverse is going to happen shortly. As excess supply, has work itself off the market, interest rates will increase. Long-term government bond yields have trended downward to about 2.5 to 3 percent from over 8.5 percent the last 35 years. And overall capitalization rate will go up from 4.5 to 6.0 percent to 7.5 percent to 9.0 percent over the next 10 years. After all, I can’t imagine a negative return on bond yields, and what it would mean for real estate appraisals? Can you? So, I see rents going higher and capitalization rates both increasing with Donald J. Trump as President over the next four years or so. When were overall capitalization rates at 5 percent? 60-years ago? So, you can see how the cycles have influenced our work from the recessionary 1979-82, 1989-94 and the 2007-10 periods. During the 1980s, 95 percent of my work was for lenders. But it changed to 95 percent non-lenders in the 1990s. So, you can see that cases involving values can grow beyond lending.

Over the years, which would you say have been your most successful and rewarding projects, and why?

In the 1980s, my work included the 30-story 583-unit high rise luxury residential condominium project in Emeryville, California.  In the 1990s, it was the Chevron World Headquarters in San Ramon for ad valorem taxation and the 300-acre Lockheed Skunk Works, a EPA super fund site of contaminated soil located in Burbank, California.  A bit further north in Saugus was the Rye Canyon facility which had an earthquake fault running through the middle of the site.  In 2000, another site included a Class 1 landfill site in Covina.  Another site appraised, a gold mine, on the behalf of EPA located in Plumas County with values going back thirty years to 1980.  Where do you find land sales?  Fortunately, a local assessor in Auburn had a personal printout for 1980.  A fortunate occurrence for sure!

More recently, I was involved with a marijuana cultivation facility where I appraised a proposed 170,000-square-foot campus on a 10-acre site in Desert Hot Springs.  And to date, no construction has occurred on any such facilities.  But there is a plenitude of proposed projects in the open vast desert, which will mushroom from the valley floor.  The cannabis will be pampered by air-conditioning and watered in its cultivation area with 13-foot clearance, while the native vegetation sweat to survive in 115-degree plus, summertime heat.  This cannabis, which will be grown for human medicinal purposes will contain five times the THC.  And since there are no facilities built to date, where are the comparable sale faculties?

 

 

The next game changer that Finance Monthly spoke with is Pat O’Connor who has been a leader in the real estate data business since 1988. He has expanded the real estate data business from a two-page monthly newsletter on Houston apartment trends into a national database for both commercial and residential real estate.

 

What inspired you to start Enriched Data?

The data quality from existing national data providers simply did not have either the breadth or depth of quality required for us or other real estate professionals we met. A second factor was the existing commercial real estate data sources had either limited or inaccurate contact data for the owners. In many cases, the owner contact data was simply the name of an entity. Many real estate professionals need to be able to contact the owners of real estate to transact business. It is incredibly time consuming to start with the name of an entity and have to research to find the name of the owner. The need for accurate owner contact data is a recurring theme we have heard from real estate professionals. They do not want to spend their time researching phone numbers on the internet; they want to spend their time doing deals.

 

What solutions does Enriched Data provide? 

 Enriched Data helps companies to increase their revenue by 30 to 100% through a focused effort that includes excellent data, intelligent marketing and real estate professionals. Our efforts are currently focused on mortgage bankers and real estate investment sales professionals. We expect our clientele to expand to include real estate leasing and management professionals, as well as vendors to the real estate industry. Our core purpose is to increase our clients’ revenue.

 

How are you accommodating small and large companies?

We serve hundreds of clients, including seven of the ten largest real estate service providers in the USA. We also serve one man companies. Our data is accurate and vast enough to supply the big companies. For those same reasons, we help to make the smaller companies more efficient and able to compete with their larger competitors. Our customer service team is pleased to work with companies regardless of size.

 

What are your biggest pitfalls and how have you overcome them?

Accurate real estate data has been the greatest challenge. We have built proprietary software to facilitate the research process and built in validation criteria to identify anomalies. Training researchers has been a key step in the process. When we started, researchers were only finding email addresses for about 15% of the property owners. They are now finding email addresses, Linked-In accounts and company websites for about 70% of the real estate owners. Quality control is also a vital part of the process. We call the phone numbers to verify their accuracy.

 

What do you see as the most important challenges that Enriched Data faces? What specific strategies are you implementing to overcome them? 

 The most important challenges facing Enriched Data are understanding what specific information clients want and how they want it delivered. While it is helpful to meet with clients and prospective clients to discuss their plans and needs, the extreme pace of change in information technology and marketing generates a dilemma where many people don’t really know what they want. In many cases, real estate professionals are attempting to generate sales, whether in building sales, loans, leasing, or as vendors to buildings. The changes in digital marketing and psychographics have not been inculcated by the leadership of many real estate organizations. Having raw real estate data can move you part way to maximizing sales. However, knowing how to use the data effectively is essential. In many cases we are working with clients to help them develop a marketing and sales strategy, and then introducing them to the marketing professionals who can best use real estate data.

 

How can someone use your data for predictive analytics?

We have a large number of predictive analytics for clients. The simplest for commercial mortgage bankers is providing them with information on maturity dates for loans with large prepayment penalties. Slightly less direct is providing mortgage bankers with information on buildings with construction loans that are prime for long-term debt. The analytics are more complicated for single family. The first step is to understand the target market. The second step is to evaluate people who have used the product, for example, a home equity loan. If the client does not have such clients, it is possible to identify them from the public records. The next step is to use psychographics to identify the types of people who are the most likely to purchase. The next step is to identify a universe of possible borrowers. For example, if the product is home equity loans, you identify property with the requisite amount of equity. The final step is to overlay the psychographics over the universe of possible borrowers to identify those most likely to purchase. Psychographics can often identify people who are four to ten times more likely to purchase.

 

You have been CEO of Enriched Data since March 2015. What have been or are your priorities in your role?

There have been three priorities. The first priority has been meeting with clients to understand their needs, how they use data and their data requirements which are not being met. Second, we have been building a research team and electronic research tools to facilitate research of real estate sales and mortgages. The third priority has been acquiring tax rolls for 97% of the United States and deeds and deeds of trust to cover the same area. The raw base real estate data from tax rolls, deeds and deeds of trust is merged and then enhanced with detailed contact information on the owners, lenders, and borrowers.

 

What have you most enjoyed about operating within the sector over the past decade?

Working with clients to understand their needs and then working to fulfill those needs as information technology is changing, has been fascinating. Being part of the generation that has moved real estate from hard copy books to the Internet has been gratifying. It has also been a pleasure to integrate expertise in IT, real estate data and determining how to locate and integrate multiple sources of data. While the term big data is often used, we are spending more and more time seeking and integrating additional fields of data to enrich the data and provide clients with the data they need.

 

What are the main drivers for the development of the real estate industry in the US in the near future?

There are at least three important trends affecting real estate in the US. Retailers are seeing more and more retail spending moving to the Internet. We will continue to see entire categories of retail businesses, such as movie rentals and book stores that are largely replaced by internet sales. There are trends in office space use however they are not as clear. There are factors tending to reduce the amount of space a company needs, departments working from home. For example, many appraisal firms are sharply shrinking their office space requirements by having team members work from home. The other trend in office is for micro spaces with companies such as WeWork providing office space options from as low as $45 per month. There are a number of competing companies and is likely to be consolidation in the micro-office market. Finally, the number of households living in apartments has been increasing due to: 1) higher home prices, 2) reluctance to commit to a mortgage and a fixed location, and 3) people are waiting longer to get married and have children.

 

What are Enriched Data’s goals moving forward? What does 2017 hold for the company?

Enriched Data’s goal is to have the best quality residential and commercial databases available, merged with the teams and technology to allow clients to effectively use data. We have forty software engineers, which is more than any of our clients to my knowledge. Providing both the data and the information technology and marketing resources to allow clients to effectively use data is our long-term goal. During 2017 we will be working on completing our inventory of accurate contact data for all real estate owners of any commercial property worth over $2 million across the US.

 

Following the result of the US Presidential Election, Finance Monthly reached to Dun & Bradstreet asking them to discuss the economic impact of the result.

 Dun & Bradstreet has held its Country Risk Rating for the US at DB2a following the election of Donald Trump as the next president. The company has also reaffirmed their near-term growth forecasts, as the fundamentals  of  the  US  economy  remain  strong  enough  to  absorb  the  increased  uncertainty triggered  by  the  election  result;  their  proprietary  micro-level  data  supports  their  forecast  that  the economy is on track to end 2016 with 1.6% growth.

 

DOMESTIC IMPLICATIONS

Expansionary  fiscal  policy  is  expected  to  take  centre  stage  under  the  new  president.  The  US economic expansion of the last few years has been characterised by an over-reliance on monetary policy,  and  we  have  been  arguing  for  a  more  active  fiscal  policy  boost  to  growth.  Infrastructure spending is likely to be one of the biggest and most visible elements of the new government’s fiscal policy. The Trump campaign had proposed an aggressive infrastructure plan in the lead-up to the election. We still need to see more details of how Trump proposes  to fund spending on the nation’s highways,  bridges  and  tunnels,  and  of  what  that  implies  for  the  longer-term  budget  deficit  and public debt  burden.  Nevertheless,  some  form  of  infrastructure  spending  is  a  certainty,  and  the construction vertical will benefit from that.

Tax  reform  will  also  be  high  on  the  new  government's  agenda;  the  extent  and  the  nature  of  the reforms, including implications for  the  Foreign Account Tax Compliance Act (FATCA)  are, again, uncertain at  this  point.  However,  it  is  almost  guaranteed  that  the  new  tax  policy  will  involve  a reduction in tax rates for both businesses and individuals to jumpstart spending.  This will also be one of the areas in which we expect to see extended discussions in Congress. Repealing  Obamacare,  or  the  Affordable  Care  Act  (ACA),  was  one  of  Trump’s  high-profile campaign promises.  Since  his  election,  however,  Trump  has  toned  down  his  opposition  to  this legislation, indicating that some parts of Obamacare are likely to survive. Once again, we need more details on which parts of the ACA will be removed and what sort of policies we can expect in their place.  A jump in the prices of healthcare stocks was one of the immediate reactions to the news  of Trump’s  victory,  as  investors  expect  less  regulation  for  health  insurers.  But other sections of the healthcare vertical, like medical devices, could see a negative impact.

Regulation, in general, is expected to wane under the new government.  This will be most significant for the financial services vertical, where a reduction in regulations is expected based on the Trump campaign’s opposition to the Dodd-Frank Act.  Parts of the Act are expected to be retained, while the government will try to dismantle the rest of the provisions.  More clarity is needed on the new rules  that  will  replace  the  discarded  provisions,  but  equity  prices  for  customers  in  the  financial services vertical are likely to see increases in the near term.

The key point to note is that most of the President-elect’s proposed and expected policy measures are designed to be reflationary, and work on the assumption that they will stimulate demand and inflation in the US economy.  Again, the devil is in the details, which will determine how successful these policies eventually are. We advise our customers to be cognizant of the variations in the data below the topline and to adjust their business strategy based on their specific exposure to certain verticals and how they may be impacted by potential policy shifts.

 

GLOBAL IMPLICATIONS

The Trump administration’s policies will also have significant implications for the global economy. The Trump campaign ran on an anti-globalisation stance, promising to redefine US trade relations with the rest of the world; as such, we expect a more restrictive trade policy under the new regime.

Campaign  promises  included  a  repeal  of  the  existing  North  American  Free-Trade  Agreement (NAFTA)  between  the  US,  Canada,  and  Mexico,  and  stiff  opposition  to  new  multilateral  trade agreements  like  the  Trans Pacific  Partnership  (TPP)  and  the  Transatlantic  Trade  and  Investment Partnership (T-TIP). We believe TPP and T-TIP will not go through, as both Congress and the new government will oppose them. The president will likely try to renegotiate the terms of NAFTA, and, if he is unsuccessful in obtaining greater concessions for US exporters, could invoke Article 2205 to leave  NAFTA;  the  president  does  not  require  Congressional  approval  to  do  so.  If the US leavesNAFTA, Canada and Mexico can still be part of it.

The  bigger  question  is  over  the  tone  of  US  trade  policy  in  the  next  few  years,  particularly with  China.  During  the  campaign  Trump  promised  to  impose  45%  tariffs  on  imports  from  China. However unfeasible such a course of action is in practice, a retaliatory increase in tariffs from China could turn into a trade war that would have adverse impacts on international trade flows and global growth.  Moreover,  US  companies  are  believed  to  have  invested  over  USD200bn  in  China  in the past  25  years,  potentially  making  US-owned  companies’  supply  chains  –  such  as  Apple’s  –vulnerable to the vagaries of a breakdown in the economic relationship.

Moreover,  note  that  the  global  impact  of  the  US  election  result  goes  far  beyond trade relations:  significant  geopolitical considerations include the new  government’s relations  with Iran, its policies towards  radical  Islamist  groups  such  as  Islamic  State,  and  its  involvement  in  NATO.  Finally, Trump’s success is likely to generate support for the populist leaders who have emerged recently in many European countries. This would reflect a strengthening of a shift towards a more protectionist world, with less support for free trade and globalisation.

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