Category: Commercial

Commercial and multifamily originations surge in Q3

Strong market expected to continue into 2020

Commercial and multifamily originations surged in the third quarter, the latest Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations from the Mortgage Bankers Association stated.

Commercial and multifamily originations rose 24% from the third quarter of 2018 and 9% from the second quarter in the third quarter this year, the survey states.

“Low interest rates are supporting strong levels of commercial and multifamily borrowing and lending,” said Jamie Woodwell, MBA vice president for commercial real estate research. “Through the third quarter, every major capital source is lending at a pace above last year’s level. Loans backed by multifamily and industrial properties, and made for life companies and Fannie Mae and Freddie Mac, are all running at a record pace.”

And what’s more, this pace is expected to continue even into 2020.

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The U.S. Commercial Real Estate Market Remains Strong Despite Global Economic Concerns

Many savvy investors thought the markets reached its cycle peak a few years ago. That turned out not to be the case.

Ten years since the economic expansion started after the Great Recession, commercial real estate remains strong. Many real estate professionals and investors expected markets, including real estate, to contract sooner, entering hyper-supply.

At the 2015 CCIM Institute’s annual conference Sam Zell, the founder and chairman of Equity International, discussed the sale of his multifamily portfolio with more than 23,000 apartments to Starwood Capital Group for $5.4 billion. He believed that it was an opportune time to sell his portfolio; and, many real estate professionals believed that he had sold at the top of the market, based strongly on his foresight in 2007 to sell his office portfolio before the market crashed. Obviously, taking profits off the table is a win, but were there more profits to realize? Since then, multifamily properties have continued their run, driving prices even higher and squeezing cap rates even more.

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Making Their Mark: The Growing Influence of High-Net-Worth Investors in Large-Scale Commercial Real Estate

Non-billionaire HNW investors are increasingly competing on large-scale commercial assets.

Not so long ago, the vision of high-net-worth (HNW) investors in commercial properties entailed doctors and lawyers passing the hat at the country club in an effort to buy an eight-unit apartment complex in town or the retail strip across the street from church. In recent years, however, this image has been washed away in a veritable flood of HNW capital propelled by increased sophistication and growing incentives.

Billionaires have long been a fixture in this landscape. For instance, the late Paul Allen’s Vulcan Real Estate has led the redevelopment of Seattle’s South Lake Union neighborhood with billions of dollars invested in 37 construction projects. These homegrown ultra-rich are complemented in U.S. commercial real estate acquisitions by the investments of sheiks from the Middle East, Chinese billionaires and other uber-wealthy foreign nationals. However, these family offices are essentially institutions themselves.

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Eight Common Mistakes HNW Investors Make When Buying Commercial Properties

From trying to close deals on their own to focusing too much on returns, HNW investors should try to steer clear from these costly missteps.

Money mistakes are a fact of life. In a survey by consumer comparison website Finder.com, 78 percent of Americans confessed to making at least one financial gaffe.

Such mistakes typically carry greater consequences for high-net-worth (HNW) investors, though. One slip-up in a commercial real estate deal could easily cost millions of dollars.

To help HNW investors avoid expensive blunders, we’ve compiled a list of eight common mistakes they make in commercial real estate, along with strategies for sidestepping those errors.

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Total Return Growth for All Commercial Property Types Will Slow to 5.7 Percent in 2019, PREA Survey Forecasts

PREA’s latest survey forecasts moderating returns on commercial real estate properties.

The results of the latest consensus forecast survey from the Pension Real Estate Association (PREA) show that respondents expect total unlevered return growth on commercial real estate assets traded at the institutional level to moderate in 2019. Respondents expect that total returns on all commercial property types, as represented by the NCREIF Property Index (NPI), will average 5.7 percent next year vs. 7.1 percent in 2018 and will decline to 4.4 percent in 2020.

Return growth will decline the most for industrial properties, with an expected average return of 8.2 percent compared to 12.4 percent this year. By 2020, survey respondents expect returns on industrial acquisitions to slow to 5.7 percent, PREA reports.

Retail properties, on the other hand, will likely experience slightly higher returns in 2019, at 4.3 percent, indicating a 10-basis-point increase from 2018, in survey respondents’ estimate. By 2010, however, respondents forecast returns on retail acquisitions to average 3.8 percent.

The declines will likely come from slowing appreciation in asset values, as returns from income are expected to remain fairly stable from 2018 through 2010, moving by at most 20 basis points for all four core property types covered by the survey. However, survey respondents forecast that both office and retail properties will experience negative return appreciation by 2020—by 0.7 percent and 1.0 percent respectively.

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Opportunity Zones, Marijuana-Related Properties and Retail Assets Among Best CRE Bets for HNW Investors in 2019

Wealth management experts and CRE professionals discuss the types of properties HNW investors should pursue in the coming year.

As high-net-worth (HNW) investors zone in on commercial real estate opportunities for 2019, Opportunity Zones, multifamily, marijuana, retail and industrial are emerging as some of the key areas to watch.

Real estate investments made next year by HNW investors should be weighed against rising interest rates and the prolonged economic expansion, according to Doug Brien, co-founder and CEO of Oakland, Calif.-based Mynd Property Management, which specializes in multifamily assets.

“For deals to make sense, investors will need to make sure cap rates remain high enough to balance out rising interest rates,” Brien says. “In my opinion, a long-time horizon should be incorporated into any investor’s strategy if they’re acquiring properties at such a late stage in this rising interest rate environment.”

Ross Yustein, chairman of the real estate department at New York City law firm Kleinberg Kaplan Wolff & Cohen PC, echoes the cautious approach espoused by Brien.

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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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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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How Mixed-Use Design Is Stealing the Show

As more renters seek communities with that live-work-play feel, mixed-use is offering investors and developers a chance to showcase their new apartments while adding to the economic growth of the neighborhood. Founded in 2004, The Domain Cos. has been a major player in the mixed-use sector, amassing more than $1 billion in development and providing sustainable units for mixed-income residents across markets from New York City to Louisiana. Multi-Housing News spoke with principal Matthew Schwartz about the firm’s expanding geographic portfolio, the appeal of mixed-use and what the future holds for the company.

What is your approach to development?

Schwartz: The first step is identifying communities where we see opportunity to invest and grow over time. We are looking to identify indicators of growth potential that may have been overlooked by the market. With each individual project, we look to develop a best-in-class asset, whether that’s in special-needs housing or high-end hospitality. Further, we want to know that we can operate that asset to maintain that position. As a result, we are constantly looking to innovate and identify opportunities to create a meaningful leap in value with our products and operations. Our projects typically include elements like brownfields, historic structures, complex entitlements or other opportunities to add or unlock additional value. Finally, we are looking to create communities that are sustainable and grow in value over time. This means finding the right mix of housing, retail and services to make a community thrive. These elements often require complex financing strategies or multi-layered public-private partnerships that create opportunities for added value.

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Commercial Real Estate Deal Volume Up, But Headwinds Are Blowing

(Bloomberg)—The value of U.S. commercial-property deals rose 6.7 percent in the first quarter from a year earlier, but higher interest rates and softer demand for office and retail real estate will weigh on the market in quarters to come, Ten-X Commercial said.

“Heavy supply is looming in the apartment, hotel and industrial sectors, while technological innovation is crimping demand for both office and retail space,” the real estate transaction platform said in a report that looks at data going back more than a decade. Volume for the quarter, which reached $107 billion, was down 14 percent from the previous three months — though companies often rush to close deals before year-end, making for a big fourth period.

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