Archive for July, 2012

In CRE, Show Us the Data

Sunday, July 29th, 2012
 
The nay-saying headlines have been hard to miss since the beginning of the year:
“Will the Eurozone crisis cripple commercial real estate?”
“Commercial owners to face higher rates”
“Big start, shaky finish for commercial real estate”
 
By now it’s no secret that the global economy continues to be challenged, and major corporations are taking a wait-and-see attitude regarding expansion, many still preferring cost cutting. But what is the reality when it comes to these effects on commercial real estate?
 
In our best Jerry Maguire voice, we’re likely all saying, “Show us the data!” And now that we have a full half of 2012 tucked neatly away behind us, reports are emerging that paint a rather muddied picture of the commercial property markets, rather than an all-out cliffhanger.
 
For example, Prudential Real Estate Investors, one of the largest institutional players in commercial property, last week noted that investor demand for commercial real estate remains strong, and while core markets remain the top target, volume is rising in secondary markets as investors seek yield. Also, property values are still rising, though the rate of growth has slowed recently.
 
Probably the foremost report is generated by New York-based Real Capital Analytics, which tracks U.S. commercial property sales of $2 million and higher. According to RCA’s new mid-year report, sales in the first half of the year slowed from their initial pace earlier but are still remarkably on par with 2011.
 
Actually, despite the well-known macroeconomic challenges, sales of significant commercial properties totaled $57 billion in the second quarter of 2012, bringing volume for the first half of 2012 to $108.3 billion, a slight increase from a year earlier. Portfolio activity was a bright spot across most property types. In other words, commercial property sales in Q2 proved relatively resilient, prices held firm and cap rate compression continued, particularly in the apartment and retail sectors.
 
In fact, major metro markets are seeing the biggest drop in activity. According to RCA, rising volume in secondary and tertiary markets and a drop in the average deal size in the major metros is at least partial evidence that investors are broadening their investment horizons beyond core markets and trophy assets. Sales activity in most of the major metros is down or flat on a year-over-year basis tempered not by demand, but by the supply of available properties and fewer willing sellers.
 
Check out these RCA data points:
• Sales of significant commercial properties totaled $57.4 billion in Q2 2012, up over 10% from the prior quarter, but off 17% year over year, due to large scale M&A activity in Q2 2011. Excluding those entity transactions, Q2 2012 is up 6% year over year, still representing a slowing that can be largely attributed to the slowing of the macro economy and erosion of economic sentiment over the period. Prices held firm and cap rate compression in the apartment and retail sectors continued.
• For the first half of the 2012, sales across all property types totaled $108.8b involving 7,590 properties and both measures are remarkably similar to H1 2011. M&A activity recorded a year ago, volume in H1 2012 was up 17% year over year. Portfolio activity was a bright spot across most property types and totaled $23.2 billion, up 53% year over year (ex M&A). Sales of individual properties increased by 10%.
• Looming mortgage maturities continue to drive a considerable number of sales, but distressed sales have slowed somewhat and accounted for 12% of volume in H1 2012, down from 15% averaged throughout 2011. New inflows of distress remain material but are declining and so far this year lenders have reduced their troubled asset balances by $6.2 billion.
• Investment trends in the apartment sector continue to outperform all other properties, except sales of development sites, where the demand is largely driven by apartment developers. Sales of development sites totaled $4.9 billion in H1 2012, up 66% year over year with a doubling of the number of sites trading.
• Investment trends in the retail sector actually surpass those for apartments if the entity deals occurring a year ago are excluded giving retail a 49% year over year increase in volume and a 41% increase in the number of properties sold.
• Rising volume in secondary and tertiary markets in the office and retail sector and a drop in the average deal size in the major metros provide some evidence that investors are broadening their interest beyond core, trophy properties although the significant pricing premium for trophies persists.
• Sales activity in most of the major metros is down or flat on a year over year basis tempered not by demand, but by the supply of available properties and fewer willing sellers.
• Standout markets across all property types include already hot tech markets such as Seattle, San Jose and Austin, as well as some new markets that appear to be gaining favor such as Charlotte, Miami, Baltimore and Nashville.

In the News (July 23-27)

Saturday, July 28th, 2012
 
Check out these links to some of the new and noteworthy headline stories that are trending in the world of commercial real estate.
 
 
 
 
 
 
 
 

Apt Developers Snatching Up Sites

Sunday, July 22nd, 2012
 
It’s probably no coincidence that the percentage of American’s owning a single-family home reached its lowest point in 15 years in April, while at the same time, developers of apartment communities are buying up sites for new projects at a rate expected to reach new records this year.
 
A new report by New York-based Real Capital Analytics (RCA) points to a few major trends in the multifamily market that bear close watching:
 
• The market is heating up quickly with developers acquiring over $2 billion of significant multifamily development sites in the first half of 2012 – almost double the volume for all of last year and on track to reach peak levels soon.
 
• Prices for development sites suitable for multifamily development are approaching or have already exceeded past peak levels in a few markets but have just started to rebound in most other markets nationally. Prices have averaged $66,000 per buildable unit over the past 18 months, down from $100,000 reached at the peak but up significantly from $36,000 at the nadir of the market in 2009.
 
• Multifamily land has fully rebounded in only a small number of areas where the initial development wave has been concentrated. In Manhattan, San Francisco, Seattle, and Raleigh price averages have already rebounded past peak pricing. Moreover, in San Francisco, Seattle, and Raleigh transaction activity over the past 18 months is greater than during the entire 2005-2007 peak period.
 
• While developers may have undertaken marginal sites at the peak, at this point in the cycle they are generally focused on core locations, a trend that has inflated recent price averages to some degree. Pulling down the price averages are distressed sales, although these have moderated somewhat and account for about 15% of recent transactions. Worth noting: outstanding distress of all development sites currently exceeds $8 billion which could temper commercial land prices for quite a while as it is liquidated.
 
• Multifamily development is most heated in the Major Metros with land prices above peak levels in Manhattan and San Francisco and close to peak levels in the DC and Boston Metros. Multifamily developers have acquired more development sites in San Francisco and Boston over the past 18 months than during the three year period between 2005 and 2007.
 
• Since the financial crisis, the Major Metros have been the focus of investors and commanded
premium prices across all property types including multifamily development sites. However, the apartment development wave is spreading beyond the Major Metros with Seattle and Raleigh the initial standouts.
 
• Miami is the most recent market to see multifamily development rebound. The quick turnaround in rental values combined with South American demand for condos has led to a doubling in the average price per unit developers are willing to pay. However, just to the north, Broward and Palm Beach are starting to see an increase in land deals but prices remain depressed.
 
• The rebound in land prices remains selective. Positive trends in Miami have yet to influence the rest of Florida. While Raleigh is a standout, land prices in other Southeastern cities such as Charlotte, Nashville and Atlanta have improved slightly and remain close to recession lows.
 
• The most active buyers of multifamily development sites includes several REITs and marks the return of some of the merchant builders.

In the News (July 16-20)

Saturday, July 21st, 2012
 
Check out these links to some of the new and noteworthy headline stories that are trending in the world of commercial real estate.
 
 
 
 
 
 
 
 

When CalPERS Moves, the Industry Notices

Sunday, July 15th, 2012
 
It’s no secret that the pension fund industry moves in lock step at times, an almost herd mentality, when it comes to real estate investing. There are a few clear leaders at the front of the pack, and their movements are considered a bellwether for the future.
 
That’s why the recent moves by CalPERS are so significant. When America’s largest public pension plan, with $228 billion in total assets under management, makes a move, and makes it very publicly, that’s something that rightfully draws attention. After all, CalPERS has more than $18 billion invested in global real estate, which is about 8% of its total investment portfolio.
 
Read the rest of my new column on Globest.com.
 

In the News (July 9-13)

Saturday, July 14th, 2012
 
Check out these links to some of the new and noteworthy headline stories that are trending in the world of commercial real estate.
 
 
 
 
 
 
 
 

Europe’s Tallest Opens to Mixed Reviews

Sunday, July 8th, 2012
With the Wimbledon tennis championships winding down and the Summer Olympics heating up, all eyes have been fixating on happenings across the pond.
In the world of commercial real estate, the biggest talking point of late is the opening of The Shard, a $2.4 billion, 1,016-foot-high mixed-use tower, now Europe’s tallest. Designed by noted architect Renzo Piano, it gets its name due to its resemblance to a shard of glass.
What makes the opening even more significant is the continued focus on its owner, the state of Qatar. The Qataris have been on a bit of a buying spree of late, having just purchased four of Starwood’s top hotels in France for nearly $1 billion. Qatar Holding, a subsidiary of Qatar’s huge sovereign wealth fund the Qatar Investment Authority, also announced last week that it is creating a new luxury hotel chain built around the Harrods brand, which it purchased from the Al-Fayed family in 2010.
Recently Qatar Holding CEO Ahmad Mohamed Al-Sayed said he viewed the Eurozone crisis as an opportunity to make further investments. The Qatari royal family also is interested in owning the famous Italian fashion house Valentino.
Meanwhile, its CRE fashion statement officially opened with a mega laser light show on July 5. Counted in attendance were none other than the Duke of York and the mayor of London, Boris Johnson. Tickets have just gone on sale for visitors to The View, the tower’s observation deck, which opens on February 1, 2013.
Of course, what would any opening be without its critics and its fans. Here is a royal sampling of the reviews for The Shard:London Telegraph blog

In the News (July 2-6)

Saturday, July 7th, 2012
 
Check out these links to some of the new and noteworthy headline stories that are trending in the world of commercial real estate.