But enough of the respondents identified end of the cycle complacency as a risk, that the Counselors included it on its list. They wrote:

"Most CREs have weathered four or more recessions over the course of their careers and have seen (especially in the collapse of values 1989-1994 and again 2008-2011) how economic exuberance can deflate unexpectedly. Or how, more recently, signs of fragility emerged during the December 2018-January 2019 government shutdown. Even the solid numbers generated by GDP last year and in 2019's Q1 failed to protect the 800,000 Federal employees from needing to resort to food banks once a couple of paychecks were missed." The lesson these people concluded: while the edifice of the economy still seems impressive, its foundations may be shakier than generally presumed."

Comments by these respondents highlighted their sensitivity to past patterns, and to the unusual conditions on the economic and industry horizon for 2019/2020. "Nothing," one said, "will affect real estate more than the end of the cycle, which is fast approaching." From another: "Real estate demand is derived from the economy, and there are many signs the expansion is coming to an end, probably by 2020."

Watching the property markets specifically, a third observed, "The extended upcycle has encouraged increased speculative development in non-traditional product and even in multifamily in some markets. It may prove painful for late-stage projects." Another warned, "Lessons never seem to be learned. Market participants are once again lacking discipline."

There is also the potential for a truly disruptive surprise for those who believe that real estate "knows how to deal with cycles and can count on a return to growth after a short downturn." Neither the capital markets generally nor the real estate markets in particular seem prepared for a US economy that is likely to grow in the 2020s at a rate of only 40% to 50% of its 2012-2019 pace in terms of GDP and jobs increases, the Counselors said. "To the extent that both equities and real estate values are anticipating a 'normal' upturn after a recession, the readjustment of prices to expectations of much slower growth will make this "end of cycle" event even more painful, puncturing the complacency still widely felt in early 2019. —Erika Morphy

LOCAL MARKET TRENDS: Texas Continues as Millennial Magne

2017 Census data was recently analyzed to assess US Millennial migration patterns. Texas came in second behind Washington State and Dallas-Fort Worth ranked first of all the cities evaluated.

JLL's annual "Power of Millennial Money" study takes a look at nearly 50 of the largest US metro areas to see how household incomes of working Millennials in those markets stack up against one another when adjusted for cost of living. This analysis shows which markets provide a greater value for working Millennials. JLL's research team looked at markets the firm tracks for office stats and other markets with populations of around 1 million to give a fair representation of what's happening across the country.

The key reasons driving Millennial migration to DFW were job opportunities, affordable housing and quality of life. While job opportunities are critical, affordability directly impacts quality of life and an area's livability.

"DFW is attracting people from across the state and across the country, thanks in large part to the significant job increases driven by our state's pro-business fundamentals," says Harrison Burt, JLL associate. "North Texas is on the shortlist for companies looking to expand or relocate, and our organic corporate growth is unprecedented. Since 2010, Texas added over a million new residents, the majority of which now call DFW their home. In that timeframe, DFW has added over 900,000 new jobs. In my opinion, Texas, particularly North Texas, is where everyone wants to be."

Texas rises to the top due to the state's diverse economies that drive above-average incomes. For example, after adjusting for cost of living, Millennials living in Austin have up to a $9,400 advantage in spending power over the US average.

"Austin continues to raise the bar in our offering to Millennials considering relocating to the Capitol City," Travis Rogers, JLL senior associate, tells GlobeSt.com. "Austin is where robust economic opportunity intersects a spectrum of lifestyle choices that both younger and older generations have come to desire. Whether you prefer a suit and tie or shorts and flip flops, once you step out of the office and into the city, you'll feel welcomed in a place like none other. Maybe your passions are music, movies or relaxing on the banks of Barton Springs. Maybe your passions are sports, mountain biking or kayaking on Lady Bird Lake. Rest assured, no matter where your career or passions may lie, Austin has a place for you to grow and thrive."

Houston also offers employment opportunities across a broad range of industries including energy, healthcare, technology and others.

"In Houston, most Millennials are living their best lives," according to Lesa French, JLL vice president. "Our low unemployment and favorable cost of living coupled with a competitive business environment and thriving social scene make Houston appealing to young adults new to the workforce and looking to make their marks."

An even lower cost of living can be found in San Antonio, which also attracts Millennials to its city boundaries.

"San Antonio continues to attract Millennials through varying avenues: armed and medical services, in-migration from South Texas, as well as from states with a higher cost-of-living, university recruitment, and jobs related in the service and tourism industries," Robert Arzola, JLL vice president, tells GlobeSt.com. "Despite the modest job market for working Millennials in the city, the robust value of the Millennial salary and area-attractions keep them in San Antonio. An average salary of $70,000 for a Millennial in San Antonio feels like $80,000. Employers experience these benefits in a similar fashion as the national average salary for working Millennials is roughly $80,000, as compared to San Antonio's average salary for the same is $70,000."

That lower cost of living in Texas overall when compared to other major markets, along with increased employment opportunities, creates a magnet for Millennial households looking to grow careers and balance work with quality of life. —Lisa Brown 

BEHIND THE DEAL: The Details Behind a $73M Loan for Miami Opportunity Zone Project

Miami

An Opportunity Zone project in Miami's Overtown neighborhood made a $73.5 million leap forward with help from a trio of Bilzin Sumberg attorneys.

Partners Alexandra Lehson, Jay Sakalo and Jon Chassen in Miami secured the financing for the Soleste Grand Central apartment tower.

The financing came from two loans. Bank OZK, based in Little Rock, Arkansas, and formerly known as the Bank of the Ozarks, issued a $55.1 million mortgage. An additional $18 million mezzanine loan came from Columbus, Ohio-based Nationwide Life Insurance Co., a subsidiary of Nationwide Mutual Insurance Co.

Both loans are for 42 months. The mortgage has a floating interest rate, and the mezzanine financing has a fixed interest rate, Sakalo said.

The 18-story, 360-unit Soleste project, which will have retail and offices, will rise on 1.3 acres, a short walk from the Virgin MiamiCentral train station. The tower will be completed in summer 2021 at 218 NW Eighth St. south of the historic Greater Bethel AME Church and east of Interstate 95.

PTM Partners LLC, a development company founded last year to focus on Opportunity Zones and with offices in Miami and New York, and Estate Investments Group, a prolific South Miami-based developer of apartments in Miami-Dade County, are working on Soleste Grand Central.

The project exemplifies three of the biggest trends in real estate, namely the healthy multifamily market driven by high demand, the construction of new projects near mass transit and the appetite for Opportunity Zone, or OZ, investment.

"It took a really good deal and made it an even better deal because of the long-term tax benefits for the investors," Lehson said of the Opportunity Zone aspect. "It's a win for the investors because of the tax benefits. It's a win for the community because it provides something that's missing."

One of the things missing in Miami is affordable rentals with a growing population and prohibitive barriers to entry for first-time home buyers.

At Soleste Grand Central, 40 will be priced below market rate and the other 320 will be market rate.

Affordable housing in Miami is "a real need that needs to be addressed," Lehson said.

The affordable units will be allocated based on income levels. Ten units will be designated for households making no more than 80% of the area median income, 15 for households making no more than 100% and the remaining 15 for households making no more than 120%, according to Scott Meyer, PTM chief investment officer.

The area median income in Miami-Dade County is $54,900, which means that households making no more than $65,880 would qualify for the reserved units. Ten will be designated for households making up to $43,920 and 15 for those making up to $54,900. The 40 units will be composed of up to 15 studios, 14 one-bedroom units and at least 11 two-bedroom apartments, Meyer said.

Rent estimates for the affordable and market-rate units haven't been made available.

The Opportunity Zone location is a benefit for investors as well as the Overtown community as the project is expected to spur economic growth and job creation, Lehson added.

Soleste Grand Central will cost about $100 million to build, leaving the balance not covered by the two loans open to OZ funding.

PTM and Estate Investments in February bought the site for $9.7 million through an OZ fund. "The way the OZ funds are structured, it doesn't eliminate the need to put debt on the property. There is still debt, mortgage and mezzanine debt here for construction purposes," Sakalo said. "The difference between the debt that's being placed on the project and the balance that needs to be contributed for completing the construction, that's where the OZ funds have come in in this transaction."—Lidia Dinkova

Exec  Watch

Avison Young has made five key finance and strategy appointments that will further the company's global expansion plans. The appointments include the promotions of two Avison Young finance executives and the hiring of three outside professionals to newly-created positions. They are Tom Morande, Ricardo Jenkins, Robert Dunlop, Ashwini Sawhney and Steve Cresswell.

SECTOR WATCH: Is Retail Still Considered Core Real Estate?

Jonathan D. Miller

  It's no news that retail real estate is in a downward spiral. It started slowly 10 to 15 years ago as timed constrained shoppers were getting tired of getting stuck in traffic and reduced their mall trips. E-commerce accelerated the trend. Efforts at trying to make mall shopping more experiential have fallen flat.

And stuffing brand stores into high-street urban locations has run its course too—rents are dropping along the most coveted shopping strips in the country. We're at the top of the economic cycle and the retail real estate tailspin is savaging NCREIF performance—the core index delivered only a 1% return in the second quarter. So what happens in a recession when chain stores inevitably retrench further? The number of closings could be unprecedented.

All the ongoing disintermediation raises a crucial question. Can institutions still consider bricks-and-mortar retail investments core real estate? Or have shopping centers turned into a much too volatile, high-credit risk component unable to reliably support income-producing strategies with tenants vulnerable to going belly up or reducing their footprints at any time in the economic cycle. Even the once-seemingly impregnable fortress malls catch a whiff of the unimaginable—losing brand names, cutting rents, shrinking store formats, looking for non-traditional tenants. In the 1960s, who thought Woolworths Five and Dime would ever disappear? Now anchor department stores—whose ranks have been shrinking for several decades–really look like dinosaurs and even once seemingly insulated luxury purveyors, the province of the one percent, go bankrupt. At strip centers local and regional grocers have been eviscerated by Wal-Mart, Target and Trader Joes, among other national behemoths. And in cities, do we really need any more corner drug stores or Starbucks?

The rationales for owning retail properties have been capsized in the rising tide of red ink. Markets need less of it and rents need to recalibrate down. The shakeout will pick up pace in the inevitable economic downturn and may continue afterwards as online shopping becomes even more easy and accepted.

Once true-believers are in full retreat. Big institutional players can't look like they are panicking for fear of creating a fire sale, but they want out. "We're strategically selling" translates into let's try to dispose of as much as we can as quickly as possible before it gets worse. But the reality is most players know they are going to get caught with some real stinkers and writedowns will be increasing as buyers grow scarce especially in the face of the economic storm clouds. Everyone is looking at alternative uses—medical office, apartments, warehouses—whatever will help cushion against big losses.

Under the circumstances, many retail properties will become value plays—buy at very low prices and reposition into something you can sell off in an economic upturn. And that something may not be retail at all. The idea of owning a 20 to 30 percent component of retail properties in an institutional core fund has been blown up whether we all realize it yet or not.

Those days are over. Like the Five and Dime.

The views expressed here are the author's own and not those of ALM's real estate media group.