Commercial Real Estate Finance

Archive for January, 2013

Logically, one would expect a commercial real estate opportunity only where there is capital waiting to support it. Office investors are flocking to San Francisco because there are newly-wealthy tech companies in need of space. Multifamily presents a strong opportunity in communities with an influx of recent college grads or young professionals. Developments, logic tells us, are only practical when there are tenants or buyers with cash in hand.

As a general rule, of course, this is true. But some investors and developers, particularly those focused on a niche asset type, sometimes find opportunity in the absence of available capital.

Take Picerne Military Housing, a developer and operator of apartment communities on military bases in the Midwest, South, and on the East Coast.  The firm, part of the Corvais Group, doesn’t build the sort of concrete-and-bunk-bed residence halls we associate with boot camp. In fact, Picerne’s projects wouldn’t look out of place in any suburban or urban neighborhood, and feature spacious bathrooms, kitchens, high-speed Internet, and (in the case of the project I’m about to discuss) free cable.

The U.S. military should mention that in its next advertising campaign. Read the rest of this entry »

With a title like that, how could this post not go viral?

In a follow-up to our Top 10 Best-Performing Property Types of 2013, here is a ranking of the Top CRE Property Types according to their “Projected Cap Rate Compression” in 2013:

(This ranking is drawn from data published by Integra Realty Resources in its Viewpoint 2013 report. All cap rate changes are for Class A properties.)

10. Airport Lodging (% of properties expected to see cap rate compression in 2013: 33.9%)

9. CBD office (35.0%)

8. Suburban Office (35.0%)

7. Neighborhood Retail (37.1%)

6. Suburban Lodging (38.3%) Read the rest of this entry »

Mensch:

Noun, informal. A decent, upright, mature and responsible person.

Schlemiel:

Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser.

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Mensches of the Week:

Josh Friedman, Jason Greenstein, Daniel Levine

Newmark Grubb Knight Frank

Today, we have not one but three different mensches. Still, altogether they have fewer last names than their company.

Josh Friedman, Jason Greenstein, and Daniel Levine were recently included in CoStar Group’s weekly People of Note feature, which describes noteworthy promotions in real estate firms throughout the country.

All three professionals have ascended to the level of Senior Managing Director in NGKF’s New York headquarters. Each has worked with the company for over a decade, long before “Grubb” joined its name. They are all licensed real estate salespeople and members of REBNY (Real Estate Board of New York).

The company, founded in 1929, is a large and well-respected part of the real estate services industry, and these three promotions suggest the firm has much more change ahead. Newmark Grubb Knight Frank, as it was recently renamed (clearly missing its calling as a law firm), was acquired in 2011 by BGC Partners (NASDAQ: BGCP), a multinational brokerage company specializing in various things, most of them far beyond my comprehension. Read the rest of this entry »

Back in October, the U.S. Postal Service announced its latest batch of price increases for both domestic and international mail, an honored tradition for the quasi-government agency. News that a normal stamp will cost one cent more isn’t catching anyone by surprise, but it signals an ever-present concern for real estate owners, developers, and tenants involved with retail.

According to the the Wetumpka Herald (my number one source for news and commentary from Wetumpka, Alabama),

The price increase announced by the U.S. Postal Service Oct. 11, 2012 will go into effect Jan. 27. Among the higher costs will be a 1-cent rise for a typical 1-ounce mail piece from 45 to 46 cents.

… In addition, the Postal Service will soon introduce a first-class mail global forever stamp which will allow customers to mail letters anywhere in the world for $1.10.

That last part is my favorite. For a mere $1.10, I can send a letter to the Philippines. That’s a bargain.

Federal subsidies aside, there’s no way an enterprise can offer such impressive service for so little money without putting pressure on its bottom line. While prices have so far increased incrementally, the USPS has resorted to some major cost-cutting (closing lots of post offices) and will no doubt continue to raise its rates.

My guess? Rates will soon grow at a much faster pace.

This is relevant to retail real estate because postal services–the USPS primarily, but also private services like UPS and FedEx–are fundamental to Internet retail. Sure, Amazon.com (NASDAQ: AMZN) doesn’t need a healthy mail delivery network to sell MP3s, but what about clothes, furniture, and electronics? Read the rest of this entry »

In our new “Three Questions” video feature, Llenrock’s Andrew Benioff discusses today’s real estate lending climate with Tim Proctor, Senior Vice President and Commercial Real Estate Market Director of TD Bank.

You can see Part II of this video on Llenrock’s new YouTube Channel!

Read the rest of this entry »

Once again, here’s a list of the biggest predictions for CRE in 2013, drawn from an article by Colliers International. Following up on Wednesday’s Top 10 List (Top 9, actually), here is a ranking of the Top 10 Commercial Real Estate Predictions for 2013, this time for western markets:

• So-called “ICEE” industries (“Intellectual Capital, Energy and Education”) will remain essential to economic growth in many western nations. The technology industry, in particular, will continue to be a major driver of office real estate markets, though Colliers warns such companies often have less demand for office space than non-tech companies.
• Labor disputes will affect economic and trade activity, especially when it comes to international trade and the expansion of the Panama Canal.
• In the U.S., the CMBS market will continue its slow pace of recovery, while European investors will continue to shy away from this investment (which won’t be helped by the recent default of a $397 million-euro CMBS loan in Ireland).
• In Canada, the mining and energy industries in the nation’s western provinces (Alberta, Saskatchewan and British Columbia) will push CRE demand.
• Nations in Northern Europe will see far stronger economic growth than their southern neighbors. Property demand in Europe will increase later in the year, predicts Colliers.
• International real estate capital will continue its flow into London’s prized investment properties.
• Mexico’s economy will grow faster than the economies of the U.S. and Canada.
• That’s right. Mexico.
• The U.S. housing recovery will continue.
• The industrial real estate market will continue to heat up as international trade brings greater demand to U.S. ports. Read the rest of this entry »

Week in Review for January 19 – 25:

- In New York City, Sony Corporation of America (NYSE: SNE) sells its 827,686-SF Madison Avenue headquarters for $1.1 billion ($1,329/SF). The corporation acquired the property in 2001 for a mere $235.5 million. Easdil Secured advised Sony in the transaction, CoStar reports.

- In Washington, lawmakers agree to a temporary suspension of the federal government’s debt ceiling, averting potential defaults and a government shutdown. Lawmakers may face these risks all over again later in the year, reports the Washington Post.

- In Harrisburg, PA, Pennsylvania Real Estate Investment Trust (NYSE: PEI) sells the 463,000-SF Paxton Towne Centre to The Kroenke Group for $76.8 million ($166/SF). The power center is anchored by such major retailers as Bed Bath & Beyond, Weis Markets, and Kohls.  Other anchors include Target and Costco, which were not involved in the transaction.

- Ed Walter, CEO of Host Hotels and Resorts (NYSE: HST) and newly installed chairman of NAREIT, discusses the generally positive CRE fundamentals and lending market that will likely give REITs another year of active growth. Read the rest of this entry »

Take a look at our latest poll results! IPOs are a complex proposition, and it’s clear we’re not unanimous when it comes to which asset class offers the greatest potential for a public offering. Still, despite last year’s derailed Archstone IPO, multifamily is nonetheless leading the pack.

 See our previous polls here.

Executive Interview:

Ryan Severino

Senior Economist and Associate Director of Research

Reis, Inc.

@rseverino_reis

Ryan Severino is senior economist and associate director of research in the research and economics department at Reis, the team responsible for the firm’s market forecasting, valuation, and portfolio analytics services.

Prior to Reis, Ryan served as the Associate Director of Research at MetLife Real Estate Investments where he was responsible for macroeconomic and real estate market analysis, formulating portfolio strategy, and conducting deal reviews. Before joining MetLife, Ryan served as the Director of Investment Strategy and Market Research at Starwood Capital Group where he directed the entire research effort at the firm. Ryan has also held research positions at Prudential Real Estate Investors and UBS.

Additionally, Ryan currently serves as an Adjunct Professor of finance and economics at Columbia University and New York University teaching courses such as Urban Economics, Portfolio and Risk Management, and Macroeconomics. He also has experience in real state asset management, portfolio management, and acquisitions. Ryan’s original research has appeared in the Wharton Real Estate Review and The Real Estate Finance Journal. His assessments of market conditions have appeared in The Economist, The Wall Street Journal, The New York Times, and The Financial Times, and he has appeared on CNBC and BNN. 

Ryan holds a master’s degree from Columbia University, where he studied International  Finance and Economics, a bachelor’s degree from Georgetown University, where he studied Finance, Japanese, and Economics, and is a CFA Charterholder.

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Q: How did you get your start on the research side of real estate investment?

My real start began at Prudential Real Estate Investors. I had worked there in asset and portfolio management, but I have always been an academic person. I left Prudential to obtain my graduate degree and I returned to join their research department after I was finished with my graduate program. 

Q: As an economist, do you think the government’s perpetual gridlock, especially concerning taxes and fiscal policy, will affect commercial real estate? How?

The problem with gridlock is that in the absence of solutions, uncertainty prevails and this uncertainty tends to have a paralyzing impact on businesses. Until they know how the government is going to act, they choose to do very little, or nothing, even as the economy slowly recovers. Read the rest of this entry »

We’ve already shared CoStar Group’s and ULI’s Commercial Real Estate Predictions for 2013. Now it’s time to get a more international perspective, courtesy of research from Colliers International. We’ll divide the list between East and West. Let’s start with the eastern hemisphere in the first installment of  Colliers International’s Top 9 CRE Predictions for 2013:

• Price Inflation will further increase activity in already-bustling Asian real estate markets.
• Property Yields in Asia will diminish as a result of highly accessible financing, investor appetite, and limited supply.
  
• The Chinese Government’s restrictions on the growth of residential real estate prices will send more investors to opportunities in commercial real estate.
• Japan’s Economy will rebound
• In China, logistics facilities will see increased investor demand as companies expand their logistics operations. Further, Asian food and manufacturing firms will realize the need for greater operational oversight and bring increased local business to these facilities as well.
• India’s Economic Growth will exceed expectations.
• Still, Rental Rates among India’s commercial real estate, office properties in particular, will likely decrease due to high vacancy rates.
•  Australia’s Dollar will remain strong against the USD and Euro.
• Also in Australia, A-REITs will make a comeback. 

You can read Colliers International’s entire “21 Predictions…” article, including commentary, by clicking here (PDF). Read the rest of this entry »