Commercial Real Estate Finance

Archive for the ‘REITs’ Category

There’s an ongoing competition among urban multifamily developers to create the most upscale, desirable residential properties in their market. In cities throughout the country, especially those with active central business districts and growing populations, they’re constantly one-upping each other to see whose ground-up or converted residential property has the best exterior, nicest amenities, most elite brand, and wealthiest clientele.

In the last few months, developers have announced or broken ground on a number of high-end residential projects in the Northeast. Here in Philadelphia, a joint venture is converting a historical landmark at 16th and Walnut Street into a 206-unit luxury multifamily building with a private deck, media rooms, yoga studio, pet grooming service, quartz countertops, etc. The project is being branded “ICON,” which sounds about right…

Across the river in University City, Brandywine Realty Trust and Campus Crest Communities are building an upscale student housing high-rise with a rooftop swimming pool, 24-hour fitness center, and “hotel-like amenities.” That’s right, hotel-like amenities in a student housing tower.

In Manhattan, meanwhile, developers have announced a luxury residential project at 432 Park Avenue. When completed, it will be the third tallest building in Manhattan (and the tallest residential property this side of Dubai).

Whenever I hear about these projects, my first thought is always, Sweet! But then the bleeding-heart populist in me thinks, But what about those of us who aren’t ultra-wealthy? 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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Mensch of the Week:

Pennsylvania Real Estate Investment Trust

PREIT (NYSE: PEI), a retail and shopping mall investor not far from Llenrock’s offices in Philadelphia, has a good understanding of the opportunities and unique challenges of their sector. Malls, community centers, and other retail assets comprise an enormous segment of America’s commercial real estate inventory, and there are plenty of attractive core and value-add investment opportunities within this market. But retail (like so many other asset classes) has been the victim of overbuilding–not to mention dampened consumer confidence, big-name bankruptcies, and competition from the mighty Internet.

Yes, there are still revenue-producing malls full of high-end tenants and wealthy clientele, and fully leased community shopping centers anchored by Internet-proof businesses like grocery stores, gyms, and popular eateries. But to find the gems in the retail sector, one must sift though a lot of fairly mediocre inventory.

For a major retail REIT, navigating and growing in this challenging sector requires a big-picture strategy and some very selective investments. PREIT seems to have both. In the last few months, the REIT has pared down its non-core assets, selling off properties like Orlando Fashion Square Mall, Paxton Towne Centre and the Phillipsburg Mall, all of these sales part of the company’s ”previously-announced plan to improve the quality of its portfolio by selling certain non-core assets” (according to various related press releases). Read the rest of this entry »

Forbes will publish a list of anything these days.

Still, I thought this was an interesting one: America’s Most Trustworthy Companies. The list includes both mid-cap and large-cap corporations in a wide array of industries. What is more, points out REIT.com, this list includes some of America’s largest real estate investment trusts. From an article published this month on NAREIT’s REIT.com, here are the Top 9 Most Trustworthy REITs in the U.S.:

• Essex Property Trust
• Kimco Realty Corp.
• Realty Income Corp.
• American Campus Communities
• Brandywine Realty Trust
• BRE Properties
• Government Properties Income Trust
• Highwoods Properties
• Post Properties

These are in no particular order, although it’s worth noting the first three REITs were included in Forbes’ “large-cap” section, the other six in the “mid-cap” category. Read the rest of this entry »

Who’s up for some graphs? Ryan Severino, Senior Economist at Reis, discusses conditions in the capital markets at the close of 2012, as well as expected CRE trends in 2013. Graphs aplenty!

 * Read the rest of this entry »

Look on the bright side. Even though the Great Recession led to enormous bankruptcies, high unemployment, depressed asset values, an epidemic of foreclosures, the imminent threat of total financial collapse, and general misery–it  wasn’t all bad.

I could have phrased that better.

What I mean to say is it made things affordable again. If you were looking to buy real estate at a great bargain, 2009 was the time. Of course, no one was spending money in 2009.

After the economy went berserk,  a few people jumped into commercial real estate investment–where there were any opportunities to be found–and profited greatly. Many U.S. CRE markets and asset types have rebounded much faster than other industries, and this success is beginning to make this “alternative” investment sector a top choice for many. Just look at REITs–giant firms becoming even larger thanks to a constant stream of new investment capital.

As certain markets transition from “recovery mode” to “growth mode,” however, the availability of inexpensive opportunities with strong  potential for yield is dwindling. We see this in lowering cap rates (especially for multifamily) and the swelling price of shares in publicly traded REITs. In the U.S, many CRE opportunities are preferable for the risk-averse, those seeking stability over returns.

But where does one go when looking for yield? Michael Hudgins, a strategist for JP Morgan (NYSE: JPM), recommends foreign REIT investment. Mr. Hudgins tells Barron’s, Read the rest of this entry »

Week in Review for March 9 – 15:

- Writing for The Atlantic Cities, Eric Jaffe discusses the cultural, demographic, and economic conditions reshaping American communities and real estate–and potentially diminishing the role of the suburb.

-  Three Philadelphia brokers form a new boutique brokerage firm, Rittenhouse Realty Advisors, which will focus on sales and advisory services in the multifamily sector. Two of the firm’s founders are former members of Marcus & Millichap.

- Los Angeles REIT Kilroy Realty Corp. (NYSE: KRC) resumes its redevelopment of Columbia Square in Hollywood, reports the Wall Street Journal. The REIT acquired the enormous office building last year for $65 million and plans to convert the property into a mixed-use building, including residential, office, and retail spaces.

- Also on the West Coast, investment groups from China and Singapore commit greater amounts of capital to trophy properties in San Francisco, reports CoStar Group.

-  In Buckhead, Georgia, Tishman Speyer returns the distressed One Alliance Center to special servicer Orix Capital. The 22-story office tower was constructed at the height of the real estate boom, but fell into distress in 2010 and has suffered from high vacancy ever since. Read the rest of this entry »

Last fall, in one of our Executive Interviews, real estate attorney Jerry Kline discussed how members of the real estate community are prone to overreaction. Regardless of market, asset class, or real estate cycle, this industry (as a whole) tends to go overboard in its investments and developments. Mr. Kline explains,

Real estate suffers from what I might call the “Three Bears” phenomenon, i.e.,  market reactions tend to be disproportionate to the conditions that cause them, so nothing is ever “just right.”

Prior to the 08/09 financial crisis, office, retail, and especially single-family residential were areas of substantial expansion. Thanks to the market’s overall confidence and availability of financing, projects were springing up all over the country–until the recession left them in distress, unfinished, or canceled before a shovel even hit the ground.

While the market may be bearish toward those assets most associated with the recently burst bubble–single-family, in particular–this isn’t to say the real estate industry has learned its lesson–at least, not the more general lesson. The tendency toward over-development/over-investment has simply shifted to other product types.

I had a professor in college who always said, Humans are chronic underestimators. In this case, we seem to be underestimating the likelihood of a shift in fundamentals.

Consider multifamily. Obviously, this asset class has outperformed its peers in the wake of the recession, and continues to stand out as CRE’s most valued property type. Though multifamily demand began to level out last year as sentiment toward the single-family market improved, it remains a major target for investors. In the near term, the abundance of multifamily developments is a very good thing. In Philadelphia, Natalie Kostelni writes, Read the rest of this entry »

Llenrock Group’s Andrew Benioff sits down with Howard Sipzner, Executive Vice President and CFO of Brandywine Realty Trust (NYSE: BDN). They discuss current fundamentals, the evolution of the office REIT, and Brandywine’s recent foray into residential real estate. See more of Llenrock’s interviews on our YouTube channel!

  Read the rest of this entry »

Week in Review for February 23 – March 1:

 - The Securities and Exchange Commission announces a May 14th roundtable to discuss possible reforms for the credit-rating industry, which many argue lacks transparency and accuracy. Credit-rating agencies, especially Moody’s, S&P, and Fitch (collectively known as the Big Three) have an enormous influence over the commercial real estate investment and lending markets.

-  The Greater Philadelphia market gained 2.9 million SF of new industrial real estate in the fourth quarter of 2012, reports CoStar Group. This includes a new distribution facility for Dollar General (NYSE: DG). The figure shows a slight increase over the previous quarter’s total of new inventory.

- The U.S. Senate confirms Jack Lew as the new Treasury secretary, replacing outgoing secretary Tim Geithner. Mr. Lew is a former executive with Citigroup (NYSE: C).

- The announced merger of big-box office supply retailers OfficeMax and Office Depot signals potential changes for retail real estate, reports CoStar.  Read the rest of this entry »

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