Archive for January, 2012

Two Major CRE Orgs Name New Leaders

Wednesday, January 25th, 2012

Two of the largest trade associations in the commercial real estate industry are getting some high-powered new leadership in the New Year.

The powerful International Council for Shopping Centers (ICSC) has tapped Brad Hutensky as the organization’s next chairman for the 2012-2013 term. He is expected to be installed at the ICSC’s annual RECon conference in May in Las Vegas. 

Hutensky, 49, is president and principal of Hutensky Capital Partners and one of ICSC’s most active volunteers. He is a past member of ICSC’s Board of Trustees and has devoted himself to a diverse range of activities within the association since joining in 1988.

“Brad brings a very deep understanding of ICSC to the association, with his years of volunteer leadership positions, at a time when ICSC is striving to do more for its members and an industry in recovery,” said ICSC President and CEO Michael P. Kercheval. “He combines this with a broad knowledge of retail real estate and capital markets and is thus particularly ideally suited to serve as ICSC’s worldwide chairman at this time.”

The apartment industry also is getting some new leadership experience in the form of Thomas Bozzuto, a veteran of the apartment industry, who was named chairman of the National Multihousing Council (NMHC) on January 18.

In his full-time day job, Bozzuto is Chairman and Chief Executive Officer of The Bozzuto Group, to serve a two-year term as the Council’s Chairman. Headquartered in the Washington, D.C. area, The Bozzuto Group is a diversified residential real estate company that provides a broad range of real estate services throughout the Mid-Atlantic and Northeast.

As NMHC Chairman, Bozzuto will lead an NMHC agenda focusing on such priorities as advocating for a balanced housing policy – one which acknowledges the important role rental housing plays in meeting the needs of America’s workforce – and enhancing access to affordable debt. In addition, he plans to continue successful initiatives to build connections among NMHC members and within the apartment industry.

“Through changing demographics and savvy consumer choices, we’re seeing a seismic shift in the demand for apartment living,” said Bozzuto. “My main priority over the next two years will focus on creating an environment on Capitol Hill and in the capital markets that will ensure we can meet the country’s need for millions of apartments over the next decade.”

Hotel Deals Hit 4-Year High in 2011

Sunday, January 22nd, 2012
Hotel property sales in the Americas reached a four-year high in 2011, as transaction volume swelled to $15.2 billion, a 24% increase over 2010 volume, according to Hotel Investment Outlook, a new research report from Chicago-based Jones Lang LaSalle Hotels.
Notwithstanding market volatility in the final months of 2011, hotel fundamentals continued to show resilience. While it is expected that the recovery will continue to be uneven, it is a recovery nonetheless. Americas hotel transaction volume in 2012 will at least match 2011 levels with an estimated $15 billion in transactions, as relatively healthy operating fundamentals and an abundance of equity capital continue to drive demand for acquisitions. The competitive landscape will shift to greater equilibrium between public and private equity capital sources, and debt markets are expected to become more liquid as the year progresses.
“Investors have been closely monitoring the state of the economy and its impact on the hotel investment market,” said Arthur Adler, Managing Director and CEO-Americas for Jones Lang LaSalle Hotels. “Despite the recent volatility, the Americas region will continue its positive momentum in 2012 and hotel operating performance is expected to improve, driven predominantly by increasing room rates.”
A new outlook report from Fitch Ratings backs up that assessment. According to Fitch, the lodging outlook is stable. Revenue per available room (RevPAR) growth will drop to 4-5% in 2012 and 2013, from 8% in 2011. Supply growth will be less than 1% annually through at least 2012-13, well below the historical average of 2%. “Hotel property-level operating performance should continue its solid improvement in 2012-2013 as a result of the favorable supply/demand outlook,” notes the report.
JLL Hotels is forecasting Americas hotel transactions will remain steady in 2012, propped up by healthy operating fundamentals and an abundance of equity capital
During 2012, considerable differences in the buyer audience will emerge as RETs pull back and private equity, institutional and off-shore sources re-emerge.
“The gates are opening for eager private equity and institutional buyers willing to take calculated risks in primary and secondary markets. REITs are likely to be less active buyers as their share prices are still well below the highs of the summer of 2011, although they may make a comeback in the second half,” Adler said. “We expect that quality hotels with positive current yield will be the best positioned assets for investment. Additionally, lenders, banks and special servicers will be more motivated to sell assets.”
In the United States, demand from offshore buyers remains active. Middle Eastern capital will selectively pursue opportunities, primarily in East Coast markets, while investors based in China and Southeast Asia will scour the West Coast for purchases. European investors are expected to remain quiet in 2012.
Adler added, “While the volume of foreign capital invested in the United States will not move the needle on a national basis, foreign investors will define the market in several gateway cities.”
Latin American investment fundamentals will be strong in 2012 as the economic growth rate in the major South American countries is expected to be double that of the United States over the next several years.
“Brazil continues to lead South America in terms of investment activity and large-scale development opportunities. Argentina, Colombia, Chile and Peru are also increasingly on the radar for domestic and intra-regional investors,” said Gregory Rumpel, Managing Director of Jones Lang LaSalle Hotels. “We expect the hotel transaction market in South America to slowly open up over the medium term, and the number of internationally branded hotels across all segments is poised to increase over the next several years.”
The positive momentum in the transactions market seen in 2011 is expected to continue in 2012 despite the overhang of volatility. Operating fundamentals are expected to remain strong in 2012 and the transactions market will be bolstered by acquisitive private equity funds. Adler noted, “Flexibility will be a key theme for 2012, and the ability to react to change quickly will feature as a success indicator.”
There are a few cautionary warning signs, however.
According to Paul Fiorilla with  Prudential Real Estate Investors, the hotel sector is in the beginning stages of a major shake-up that emanates from too much debt being placed on properties at the peak of the last cycle in 2006 and 2007.
While the same could be said about the entire market, the disruption in the hotel sector could be greater because lodging loans have (on average) worse credit characteristics than those of other property types. A large portion of hotel loans will need to be recapitalized, although the severity of the problem will depend on whether and how much hotel fundamentals keep improving.

Turning Point for Cali CRE in Late 2012

Sunday, January 22nd, 2012
If the results of the new Allen Matkins/UCLA Anderson California Commercial Real Estate Survey are any indication, recession-era pessimism has been replaced by two years of increasing optimism in the Golden State. And a turning point could come in late 2012.
The latest semi-annual release of the survey suggests a mood of optimism, despite the mixed economic signals of the past sixth months.
In an essay titled “California Office and Industrial Markets: A Recovery Begins,” UCLA Anderson Forecast Senior Economist Jerry Nickelsburg writes that despite events, such as the U.S. economy nearly stalling with sub-2% GDP growth and shaky confidence in the various stock markets, a cautious optimism is driven by steady employment gains in coastal California, “particularly in professional, technical and scientific services and health care, users of office space, in export-related sectors and manufacturing, and users of industrial space.”
The outlook for Southern California Office Markets highlights the Los Angeles and San Diego Sentiment Index with respect to dropping vacancy rates. In the Bay Area, San Francisco developer sentiment was unaffected by slower economic growth during the last two quarters of 2011. In the East Bay, sentiment remained optimistic though slightly less so with respect to rental rates.
Regarding industrial space, the Bay Area Panel is most optimistic with regard to Silicon Valley and least with respect to San Francisco.
The Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey and Index Research Project polled a panel of California real estate professionals in the office space and investment market, and asked a series of questions on various aspects of the commercial real estate market. It was initiated by Allen Matkins in 2006.
Allen Matkins, founded in 1977, is a California-based law firm with approximately 220 attorneys in four major metropolitan areas of California: Los Angeles, Orange County, San Francisco and San Diego.
UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state’s rebound since 1993. More recently, the forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001.
Check out the UCLA Anderson Forecast here.

UDR in $1.3B JV with MetLife

Monday, January 16th, 2012
Denver-based UDR, Inc. (NYSE: UDR), an S&P 400 company and a leading multifamily REIT, has formed a new real estate joint venture with MetLife (UDR/MetLife II) wherein each party owns a 50% interest in a $1.3 billion portfolio of 12 operating communities including 2,528 apartment homes.
The 12 communities in the joint venture include seven from the Companies’ first joint venture with MetLife (UDR/MetLife I) formed on November 8, 2010, while the remaining five have been newly acquired by UDR/MetLife II. The newly acquired communities, collectively known as Columbus Square, are recently developed, high-rise apartment buildings located on the Upper West Side of Manhattan and were purchased for $630 million.
“We are pleased to be expanding our relationship with MetLife through the formation of a second joint venture that increases our ownership interests in high-quality apartment communities that were all acquired in off-market transactions,” said Tom Toomey, president and CEO of UDR. “These latest transactions speak to the success of the first UDR/MetLife joint venture and the opportunities available to us to further grow our partnership with MetLife in the future.”
“We’re excited about this new joint venture, which enables us to increase our investment in high-quality, multi-family properties in top-tier markets,” said Robert Merck, senior managing director and head of real estate investments for MetLife. “This joint venture is in line with MetLife’s commercial real estate investment strategy and also builds upon our strong relationship with UDR. We look forward to continuing to work closely with UDR’s experienced management team.”
With the closing of UDR/MetLife II, the company will own, have an ownership interest in or have under development nine communities with 2,626 homes in Manhattan, nine communities with 2,721 homes in the Boston metro area, and 14 communities with 2,720 homes in the Seattle metro area.
UDR also completed $275.4 million of asset dispositions in Q4 2011, selling nine communities with 2,331 homes. The sales brought full-year 2011 asset dispositions to $593.9 million. The communities were located in a variety of markets including the Eastern Shore of Maryland, Raleigh, the East Bay area of San Francisco, the Inland Empire, San Diego, Houston and San Antonio.
UDR/MetLife II Joint Venture – Financial Details
Debt Financing:
The acquisition of Columbus Square by UDR/MetLife II has been partially funded through a combination of 10-year fixed- and floating-rate debt totaling $302.3 million at an average rate of 3.8 percent from Fannie Mae. Approximately 88 percent of this amount is fixed at a rate of 3.9 percent. In addition, the new joint venture assumed $363 million of debt associated with the seven communities contributed from the UDR/MetLife I joint venture. In total, the debt associated with the UDR/MetLife II joint venture carries a weighted average interest rate of 4.2 percent and a term of 9 years.
Columbus Square – Additional Details
Four of the five towers that comprise Columbus Square are located just one block from Central Park, are within close proximity to multiple subway stops, and encompass Columbus Avenue between 97th Street and 100th Street. The fifth tower is on Amsterdam Avenue and 100th Street, one block west of the other four buildings. As 98th Street and 99th Street do not connect through Columbus Avenue, Columbus Square boasts a unique neighborhood-like feel.
UDR/MetLife I Joint Venture – Post Transaction Detail
With the closing of UDR/MetLife II, the original joint venture between the parties, UDR/MetLife I, now comprises 19 operating properties containing 3,930 homes as well as 10 vacant land parcels. Historical cost of the venture now stands at $1.8 billion and the Company’s weighted average ownership interest in the UDR/MetLife I operating assets is now 12.6 percent and 4.0 percent for the land parcels in the venture. Remaining debt for UDR/MetLife I totals $717.4 million, carries a weighted average interest rate of 4.2 percent and a term of 8 years.

This is Oklahoma City?!

Thursday, January 12th, 2012

OKC 2012 skylineYes friends, this is the new Oklahoma City. This downtown shot by Cooper Ross at Insight Visual Media really captures the essence of the transformation that has taken hold in a big way in Oklahoma’s capitol city.

Devon Energy’s new 50-story corporate headquarters is nearing completion, the Myriad Botanical Gardens next door has relaunched in fine fashion, and combined with the newly refurbished Chesapeake Energy Arena, home to OKC’s NBA Thunder, these properties are emblematic of the energy that has come back to the city center.

Thunder Up!

Apple Opening Mini-Stores in Targets

Sunday, January 8th, 2012
In its quest to reach even more consumers in smaller metro markets, Apple is ready to open new mini-stores within Targets in the near future, according to, a leading website that closely monitors the company’s activities.
Apple will start slowly with the new strategy, only opening 25 stores initially. Target currently operates 1,752 stores across the U.S. This pace pales in comparison to Apple’s launch of large stand-alone stores. Currently there are 359 Apple stores around the globe, with 245 of them located in the U.S.
Apple operates mini-stores inside 600 Best Buys but has steadily built a strong relationship with Target, the nation’s second-largest retailer. Target became the only retailer outside of Apple or Best Buy to sell the iPad starting in October 2010.

Global Hotel Sales to Top $30B in 2012

Sunday, January 8th, 2012
Investment sales of hotels around the globe should hold steady at around $30 billion in 2012, equaling the volume of deals transacted in 2011, according to Jones Lang LaSalle Hotels (JLLH).
Global hotel investment volumes surged in the first half of 2011, with REITs leading the way and signs of debt market revival encouraging activity. JLLH confirmed that economic uncertainty returned in the second half of the year causing momentum to falter, although deals continued, especially in the United States, reaching the firm’s forecasted $30 billion worldwide, an increase of 13% over 2010 volume.
Last year, Jones Lang LaSalle Hotels provided sale, purchase and financing advice on $4.1 billion worth of transactions globally.
“So far, the dislocation in the financial markets has not impacted underlying trading fundamentals,” said Arthur de Haast, chairman of Jones Lang LaSalle Hotels. “This has reassured investors to a certain degree and has underscored the attractiveness of high quality, income producing hotel real estate as an asset class. Constraint will be driven by illiquid markets and the shrinking balance sheet capacity of international banks to lend significant sources of new money. Still, the market will be flush with equity capital that will come into play.”
“Private equity players increased investment activity in the second half of 2011, and we expect them to remain ambitious in 2012. With significant buying power and risk tolerance in a volatile environment, they are in position to achieve opportunistic returns,” said de Haast. “Notwithstanding, deficient debt markets and limited availability of attractive acquisition opportunities will likely hamper higher levels of activity. Still, these players will selectively acquire assets in secondary locations, as well as distressed portfolios and non-performing loans.”
Joining the buyer mix are sovereign wealth funds and private high net worth individuals who will take a long-term view and make strategic acquisitions globally. Public companies, notably REITs, are expected to focus on existing stable acquisitions rather than new ones, consequently diluting the buyer pool.
According to JLLH, this year’s most active sellers are likely to be bank-induced, as a result of debt maturities and consequent refinancing challenges. In addition to the influx of assets expected to come to market, a significant amount of note sales are anticipated as well. Private equity firms and institutional investors are also expected to liquidate some previous acquisitions, either to divest select non-core assets or to return capital to investors as funds reach maturity.
In the United Kingdom, the U.S. and Ireland, institutions with significant real estate exposure have started taking action by means of placing stressed assets into the market, although activity has yet to start in Spain and Japan. Borrowers in Spain have more control over administration processes, as opposed to the U.K. and Ireland, creating reduced certainty for the banks and stemming greater levels of workout activity. Lenders in Japan are still reluctant to realize losses on hotel loans, which is causing delays in sales transactions.
“We expect that portfolio deals will dominate in several of these markets as banks, whenever they have a large portfolio, prefer to look for a portfolio solution to exit as opposed to selling assets individually,” said de Haast.
Emerging markets remain the global growth engine, greatly driven by rising domestic demand. Fundamentals continue to point to further growth in 2012. Although growth in China and India is slowing both have good momentum, activity is building in Central and Eastern Europe, notably Poland, Russia’s activity jumped up, and South America continues to excite investors, with Brazil as the region’s growth engine.
“Flexibility is a key theme for 2012, and the ability to react to change quickly will feature as a success indicator. Unexpected events, such as political unrest and natural disasters seem to have become “the new normal” and success will be predicated by investors and operators who can calculate risk and adapt the quickest,” said de Haast.

Brazil Soars in Global CRE Investment

Monday, January 2nd, 2012
Foreign investors in commercial real estate affirm that the U.S. remains the country offering the most stable and secure option for their investment dollars, but a new study says that “improved property fundamentals” and the “repeal of FIRPTA” would have the strongest impact on their decisions to grow their investments in U.S. real estate.
This factoid is one of many results from the 20th annual survey taken among the members of the Association of Foreign Investors in Real Estate (AFIRE). Founded in 1988, AFIRE currently has nearly 200 members representing 21 countries.
While 60% of survey respondents say they plan to increase their investment in U.S. real estate in 2012, that number is down from 72% in 2011.
Although the U.S. is still regarded as providing the best opportunity for capital appreciation, its first-place score shrank from 64.7% in last year’s survey to 42.2% this year, with Brazil closing the gap in second place with 18.6% of the votes.
Survey respondents hold more than $874 billion of real estate globally, including $338 billion in the U.S. The survey was conducted in the fourth quarter of 2011 by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.
“Foreign real estate investors have made clear there is considerable pent-up demand for U.S. real estate awaiting better real estate fundamentals and relief from FIRPTA regulations,” said James A. Fetgatter, chief executive officer of AFIRE. “If the investing environment improves, the U.S. is poised to return to its ‘safe haven’ status.”
Brazil and Sao Paulo Emerge Globally
Brazil and its largest city, Sao Paulo, have emerged among the global leaders in this year’s survey. Brazil jumps 14.2 percentage points, from fourth place in last year’s survey, to be named the second best country for capital appreciation, pushing China into third position. With the U.S., these countries received approximately 70% of the vote on this question; the remaining 30% was spread across 13 countries on five continents. Sao Paulo rose from 26th place to be named investors’ fourth global city for real estate investment dollars in 2012.
“Cross-border investors still regard North America and Europe as being the most stable and secure markets,” added Barbara Knoflach, chief executive officer, SEB Asset Management AG, and AFIRE’s newly elected chairwoman. “But with foreign investors having a diminished confidence in the recovery, interest is broadening and emerging markets are attracting more notice.”
Global Snapshot
Top Global Cities for Foreign Investment 2012
1. New York (#1 last year)
2. London (#3 last year)
3. Washington, DC (#2 last year)
4. Sao Paulo (#26 last year)
5. San Francisco (#10 last year)
Top Countries for Stability and Security 2012
The U.S. retains its perennial top position receiving four times as many votes as second-place Brazil, a much larger spread than last year when the U.S. received barely twice as many votes as second place Germany. A steep decline in votes for Germany moves Canada into second position. All European countries except Switzerland fall in the ranking.
1. U.S. (Perennially #1)
2. Canada (#3 last year)
3. Germany (#2 last year)
4. Australia (#5 last year)
5. UK (#4 last year)
Top Countries for Capital Appreciation 2012
The U.S. continues to rank first in terms of potential for real estate capital appreciation, but with a declining margin. The margin separating first and second place countries this year is 23.8 percentage points, the smallest margin since 2008 at the height of the recent economic crisis.
1. U.S. (Perennially #1)
2. Brazil (#4 last year)
3. China (#2 last year)
Top Emerging Markets 2012
AFIRE survey respondents identified 25 emerging countries, up from 18 last year, being considered for investment in 2012. Appearing for the first time in the ranking are Columbia (#10 tied), Hungary (#12 tied), and Qatar (#17 tied).
1. Brazil (#1 last year)
2. China (#2 last year)
3. Turkey (#7 last year)
4. India (#3 last year)
5. Vietnam (#4 last year)
U.S. Snapshot
Top U.S. Cities for Foreign Investment 2012
For the second year, New York has been named investors’ number one U.S. city for their real estate investment dollars:
1. New York (#1 last year)
2. Washington (#2 last year)
3. San Francisco (#4 last year)
4. Boston (#3 last year)
5. Los Angeles (#5 last year)
Top U.S. Property Types for Investment in 2012
For the fourth consecutive year and by a significant margin, multifamily remains the favorite property type:
1. Multifamily (#1 last year)
2. Industrial (#5 last year)
3. Office (#4 last year)
4. Retail (#2 last year)
5. Hotel (#3 last year)