The Net Lease Retail Market Is Showing a Shift, with Higher Cap Rates and More Listings

Cap rates for net lease retail properties have finally pushed upward.

The average retail cap rate for net lease properties during the second quarter of 2018 reached 6.2 percent, an increase of 10 basis points from first quarter, according to Second Quarter National Net Lease Report from the Boulder Group, a national net lease commercial real estate firm. The last time the rate increased that much was in the second quarter of 2011.

In addition, the Boulder Group reports that the number of retail properties listed has increased, as sellers look to sell assets before cap rates increase further. The number rose by more than 13.6 percent, to 4,216 properties nationally.

Investment sales volume in the single-tenant retail category was just shy of $3.2 billion in the first quarter of 2018, according to the Stan Johnson Co., a brokerage firm specializing in the single-tenant net lease sector. (The firm’s second quarter report is due out later this month.)

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The Seven Top Markets for Garden-Style Apartment Construction

In 2018, less than 30 percent of the apartments scheduled to open are garden-style apartments, according to RealPage Inc.

On a national level, there continues to be a huge demand for apartments that an average worker can afford. But developers today don’t build that many inexpensive garden-style apartments relative to the need for them.

That’s partly because many developers are most interested in urban locations, where expensive land often requires them to build more lucrative mid-rise and high-rise buildings.

“Developers are not building in the ‘burbs nearly as much this cycle. If and when attention returns to the suburbs, garden [apartments] will likely resurge,” says Andrew Rybczynski, senior consultant at research firm the CoStar Group.

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Strong First Half for the Multifamily Market

The first half of the year for the multifamily market was strong, with rents rising $12 in June, to the highest amount of $1,405 for the year. This marks a 20-basis-point increase over the past month. Despite consistent supply growth and the lack of affordability in several major markets, rents increased by $29 in quarter two, up 2.1 percent for the quarter and 2.6 percent for the first half.

The quarterly increase marks the highest since rents grew 2.3 percent in the second quarter of 2015. As for the first half, that record was beaten in 2016 with a rise of 2.9 percent. There were some doubts in the health of the market, which came from it being in the middle of a four-year period that had 1.2 million units coming online, resulting in a cool-off period for some high performing metros. The other concern was affordability, which has highly effected growth in larger metros such as New York and San Francisco.

According to Yardi Matrix’s monthly survey of 121 markets, rents increased 2.9 percent year-over-year. In terms of metro performance, Orlando once again led the pack, with a 7.4 percent rent increase. Rounding out the top four were Las Vegas with 6.5 percent, the Inland Empire rising 5.6 percent and Phoenix increasing 5 percent.

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What Attracts Investors to the Southeast

Boston-based West Shore LLC has built a $750 million multifamily portfolio in the two years that have passed since the company was founded. Most of its properties are in southeastern markets, but West Shore is considering expansion to other areas as well as consolidating its presence in states with favorable tax conditions. Lee Rosenthal, president of the company, discusses the organization’s investment strategy and what modern renters look for in a community.

How do you see the U.S. multifamily market today? What are the main trends in the business?

Rosenthal: The multifamily market is thriving across the country. A strong economy, continued revitalization of mid-sized cities and their surrounding close-in suburbs, as well as the ongoing growth and demographic trends in all of our markets indicate a continued upswing. In mid-sized cities that have growing high-skills jobs and employment, we are seeing great opportunities to provide the kind of rental housing that attracts and serves these workers.

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Best Ways to Attract Millennial Renters

Real estate investors, developers and property owners in major cities throughout the country have the ongoing challenge of attracting the next generation entering the “real world” and leaving their hometowns behind. Millennials—or those aged 22 to 37 in 2018—recently surpassed baby boomers as the largest generation in America. Accounting for such a large portion of the U.S. population makes millennial spending habits of extreme interest to everyone from retailers to real estate agents. For those in the real estate business it’s imperative to continue to adjust to trends that are attracting this younger demographic. In a city like Philadelphia, which from 2005 to 2016 experienced a 41 percent increase in millennials moving into the city, property owners and brokers must adjust and rebrand their properties accordingly to drive interest.

The next Williamsburg

Relative affordability and a stable job market represent potential for significant growth in the Philadelphia real estate market. In fact, the city was named in a 2017 Trulia study as the best place in the country for young adults, for a variety of reasons. Philadelphia and New York City are less than 100 miles apart, but the real estate industry in each respective city seemed worlds away for many years. While prices in Manhattan remain predictably costly, and many young professionals continue to be willing to pay them, others see the benefits of settling down somewhere less expensive. Young professionals have taken note of Philadelphia’s relatively moderate pricing in comparison to other East Coast locations like New York, D.C. and Boston, and developers and property owners have worked to respond accordingly.

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Multifamily Investors Need to Get More Strategic About Value-Add Plays

Multifamily investors continue to be eager to purchase value-add apartment assets. The challenge is to find the right property.

“Many of the easy deals already have been done,” says Greg Willett, chief economist for Richardson, Texas-based RealPage Inc., a provider of property management software and services.

For several years, value-add investment has been a hot trend for apartment building buyers. Many older apartment properties have already been bought and at least partially renovated to earn more income. Also, more investors have become interested in renovating older apartment buildings, increasing the competition to buy these properties.

However, new construction and rising rents continue to create new opportunities to upgrade older assets. “The basic fundamentals that have made value-add multifamily an attractive investment thesis are still in place,” says Chuck Johanns, executive vice president in the multifamily division of JLL Capital Markets.

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7 Online Obstacles to Overcome in Multifamily

Remember the days when prospective apartment renters showed up at your doorstep, relying on a leasing consultant to guide them through the rental process? Maybe they did a bit of research ahead of time; maybe they didn’t. Often, they’d come with little knowledge of what to expect, leaving the bulk of that discovery for the on-site visit.

Not anymore.

For one, today’s renters are better informed and more impatient than ever, screening options and making decisions long before they contact a leasing consultant as the last step in the buying journey. They’re jumping from website to website, diligently taking in community info, floor plans, pricing, reviews, and so it goes.

In fact, potential renters are going through your website right now, making a series of decisions based on what they find and your online experience. If yours is a typical property management website, we can safely guess only one in a hundreds (if not thousands) of visitors will submit a form or give you a call, which brings us to what many multifamily property managers don’t realize: the massive number of leads left untouched and wasted on your website.

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Shopping struggles: These 11 retailers may not survive 2018

The retail apocalypse is entering its ninth year.

Many North American retailers were wiped out in the “retail apocalypse” which started in 2010. Amazon (NASDAQ:AMZN) and Walmart’s (NYSE:WMT) growth, the rise of fast fashion retailers, reserved spending habits after the Great Recession, and dying malls crushed countless retailers.

Some retailers survived the downturn by closing stores and expanding their e-commerce presence, but others weren’t as lucky. Let’s examine eleven retailers which could struggle to remain relevant this year.

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Mall Tenants Had an Out When Giants Like Macy’s Left. Now Landlords Bar the Door

The only thing more dangerous for America’s malls than a string of apparel-chain bankruptcies is when the trouble hits department stores.

Retailers like J.C. Penney Co. and Macy’s Inc. are considered “anchors” that keep malls humming and foot traffic flowing. They’re so important to the ecosystem that smaller tenants may refuse to set up shop without a promise that the anchors will stick around: Many leases include so-called co-tenancy clauses that let them cut and run or pay less if those key tenants depart.

Now, many landlords are pushing to eliminate or narrow the escape clauses in the wake of mass department-store closings. That means less flexibility for the remaining tenants.

“Most retailers based in a mall do live or die based on an anchor,” said Andy Graiser, co-president of A&G Realty Partners, a commercial real-estate adviser. “Certain retailers are going to have a risk if certain anchors go away.”

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Did You Know that Florida’s Population Could Increase to Nearly 26 Million by 2030?

At the highest estimate, Florida’s population is projected to increase by 6 million people for a total population of nearly 26 million by 2030. To put it in perspective, that’s larger than the current population of Australia. Florida can expect that two-thirds of the population growth will occur in just 15 of Florida’s 67 counties. Of the total growth, more than half will occur in just 10 counties.

This means that Florida’s high-population counties are expected to become even more densely populated in the future. While the growth could potentially create issues with congestion, water availability and increased need for schools and other public works, there are numerous opportunities for a booming real estate market, expansion of business and increased capital investment. The larger concentration can also provide more opportunities for transit solutions as the density grows in some areas of our state.

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