Posts Tagged ‘multifamily’
Once again, we’re excited to feature a guest post from our friends at Integra Realty Resources! From their own commercial real estate blog, IRR on Real Estate, here is IRR Senior Analyst Robin Brady to discuss strategies to navigate the complex, post-recession real estate market. Many thanks to IRR and Robin Brady for the contribution!
Risky Business: 3 Pain Points for Commercial Real Estate Developers
Over the last couple years, the development market has returned to fundamentals. The wounds of the downturn are still fresh, and investors, developers, and banks are more cautious, putting their money behind only what looks like a sure thing. As a result, we’re seeing more tenant-driven development and less speculative development. For example, in the Boise area, we have seen two significant projects break ground in the last year: Eighth and Main (a high-rise office building) and Village at Meridian (a retail lifestyle center). Both projects were over 75 percent pre-leased prior to going vertical. We’re also seeing a lot of owner-user product being developed, such as automotive dealerships.
Speculative, capital-driven projects that don’t fit an existing market need are just one risk that developers should avoid. As more developers return to fundamentals, here are three ways projects can go wrong and how to avoid them.
1. Misreading the market. Never assume that there’s more demand for your proposal than there actually is or act as if the trends from the last couple years will last indefinitely. Pursue projects driven by a market need rather than one pushed forward by capital in search of a return. Before starting a project, know exactly what you’re going to build based on your target market. Know who the users (buyers or tenants) will be, what rent or price level they can pay, and what design features they want. Know your competition, not just vacancy rates but also how much new product is coming to market. And, while this might sound self-serving, do a market study to get a critical, objective look at your project’s potential absorption rates and rent levels to get a clear sense of the project’s feasibility. Read the rest of this entry »
You’re lucky it wasn’t a surplus of semicolons.
Let me start over.
In a couple recent posts, I’ve pointed to certain asset classes–hospitality, retail, office, and especially single-family–as ways to gauge the overall economic recovery. Since these sectors saw a sharp decline in the 2008-09 economic fiasco, their improvement, however gradual, signals an overall improvement in the country’s employment growth, consumer confidence, and lending markets. The frenzy of multifamily activity in recent years has been a positive side effect of the recession, but certainly not a sign of general economic recovery.
I can add one more asset type to the above list of crucial property types: condos.
Since the recession began, the term “multifamily” has typically been used as short-hand for “multifamily rentals.” The abundance of high-end condo developments left under-leased, vacant, or even unfinished has left this property type on the fringe of the CRE recovery and impossible to finance.
One sure sign of a strengthening local economy is an increase in multifamily buyers. Nashville, Tennessee is one of the metros enjoying an uptick in this generally challenging sector. Read the rest of this entry »
Even though multifamily has been the best-performing asset class since the recession hit, the multifamily sector has been hotter in some markets more than others. From Integra Realty Resources’ Viewpoint 2013, here is a ranking of the Top 10 Markets for Multifamily Deals!
(Rankings are based on volume of reported transactions in 2012)
4. Dallas 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 »
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 »
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.