Real Estate Investment Expected to Surge in 2020

Real Estate Investment Expected to Surge in 2020

February 2020

Where is commercial real estate investment headed toward mid-year? The 2020 RCM LightBox Investor Sentiment Report points to a potential surge of activity, followed by a pause ahead of the U.S. election. Report participants noted the intersection of strong market fundamentals, ample investor capital, the potential for increasing headwinds generated by a slowing economy, and other factors driving activity.

“I think in the first half of the year, capital will rush to put money to work ahead of the election and before the Fed changes its mind on interest rates,” says K.C. Conway, MAI, CRE, CCIM Chief Economist and Director of Research & Corporate Engagement, Alabama Center of Real Estate (ACRE).“The wind is at your back for the first six months.”

The report, which incorporated views from investors, brokers, lenders and economists, noted that nearly 70 percent of participants believe investment activity levels in 2020 will be the same or higher than in 2019. Almost 80 percent believe sale prices in 2020 will be the same or higher than in 2019.

“We’ve reached a point in this current cycle, where optimism and discipline continue to prevail and drive investment activity, but not necessarily for everyone,” says Tina Lichens, COO, RCM LightBox. “Investors expressing a more cautionary tone aren’t completely pulling back but instead are adapting their investment profile and looking at different markets and risk profiles.”

Phoenix Leads for Multifamily

The hottest sectors continue to be multifamily and industrial, which have each had significant investment levels in recent years. Among the strongest U.S. multifamily markets are Phoenix and Orlando, (with Austin close behind), where there continue to be strong opportunities for rent growth.

“Phoenix may be the hottest multifamily market in the country,” adds Brian McAuliffePresident, CBRE | Capital Markets. “It is the market that on various levels is outperforming almost any other across the country. Investment and development activity is strong there; rent growth is occurring at a rate of approximately 8 percent annually.”

In markets like Phoenix there has been strong cap rate compression. Two years ago, multifamily assets in Phoenix were trading at an approximate 5% cap rate, moving to a 4% cap rate today. Comparatively, in Austin, cap rates over the last two years have remained at about 4.5%, according to the report.

See the 2020 RCM LightBox Investor Sentiment Report for details on:

  • How investors, developers and lenders are shifting strategies
  • What landlords are looking for to better evaluate tenant stability
  • The top threats to CRE investment
Chicago Real Estate Developers: Tax Uncertainty Pushes Diversification

Chicago Real Estate Developers: Tax Uncertainty Pushes Diversification

Chicago Developers Branch Out, Diversify

January 2020

Sterling Bay, Magellan, CA Ventures, and other real estate developers and investors have been big names in Chicago for decades. But now, as property taxes are increasing, they’re finding that it’s harder to finance new buildings locally, according to a recent Chicago Tribune article on commercial real estate development. So they’re branching out into other cities in the Midwest and across the country.

Among the growth markets cited are Denver, L.A., Nashville, Austin and Atlanta.

These Chicago real estate developers have reimagined entire neighborhoods including the Fulton Market District, Lincoln Yards, and Lakeshore East. While they still see great potential in the city, these developers feel a growing uncertainty over increasing property taxes, city and state pension obligations, and policy changes like affordable housing requirements and TIF reform. This has led to a sharp decline in investment sales from $12 billion in 2018 to $3.9 billion in the first three quarters of 2019, and a harder environment for financing developments.

Chicago Real Estate Developers Expand Markets

Because of this more difficult financing, Chicago real estate developers are looking farther afield for the next big neighborhood. Miami’s Wynwood District, Dallas’s Deep Elum, Milwaukee, Minneapolis, and Los Angeles have all been on the radars of Chicago companies looking to diversify. Many of Chicago’s recently transformed former industrial neighborhoods could be just as profitably replicated in other cities, the developers say, and sometimes at a lower price.

Some real estate developers are hoping that structural changes at the state and local level will resolve the escalation of property taxes and pension obligations. But with capital still flowing in to the city, the slowdown in investment and development might be an inevitable part of the commercial real estate cycle.

Phoenix Tops in Multifamily Investment

Phoenix Tops in Multifamily Investment

Phoenix remains a top market for multifamily investment.

January 2020

Multifamily investment remains strong across the United States according to Yardi Matrix’s Multifamily National Report. The research, through November 2019, showing the sixth consecutive year with at least 250,000 units absorbed. The 320,000 multifamily units absorbed in 2019 rented for an average of 3.1% more year-over-year, showing the continuing strong demand for apartments as job growth continues,

The Southwest and West are leading the way for multifamily investment fundamentals, with many metro areas exhibiting nearly double the national average of multifamily rent growth. Apartment units in Phoenix are renting for 7.5% more than last year, while Las Vegas and Sacramento are up 6.0% and 5.3% respectively. Southeastern cities are also showing strong performances with Raleigh and Charlotte both experiencing 4.6% rent growth and Nashville growing by 4.5%. Midwestern cities, including Indianapolis, the Twin Cities, and Kansas City are also performing above the national average.

Multifamily Investment: Rents Stable

The Chicago multifamily market is stable yet lags behind Phoenix and other markets.

Both multifamily rent growth and absorption are down slightly from the previous quarter, and rents are down an average of $3 from the previous quarter. However, with some seasonal changes impacting multifamily markets, this is a typical pattern for multifamily and shouldn’t adversely impact multifamily investment. The Pacific Northwest seems to be affected the most by these seasonal changes. Yardi experts expect rents to grow again in 2020.

In the longer term, multifamily rents have grown nearly $100 on average over the last two years, from $1,375 in November 2017 to $1,473 in November 2019. These numbers could continue to grow depending on what level and quality of new product is delivered throughout 2020.

Markets leading the way for year-over-year rent growth include:

  • Phoenix
  • Las Vegas
  • Sacramento
  • Inland Empire
  • Raleigh

For more on multifamily investment, check out this Commercial Property Executive article.

Real Capital Markets-SIOR Report: Industrial Strong, With Headwinds

Real Capital Markets-SIOR Report: Industrial Strong, With Headwinds

December 2019

U.S. industrial investment is expected to continue at a steady pace into 2020, although headwinds created by tariffs and a slowing economy are beginning to gain steam, according to a new RCM-SIOR Industrial Investor Sentiment Report.

Investors are shifting strategies, however, to find safe havens against any market slowdown. Some industrial investors are adjusting their portfolios toward land-constrained markets that provide the potential for higher rent growth.

Among those strong industrial markets are:

  • Seattle
  • Miami
  • Northern New Jersey
  • Southern California

Other investors are moving back to core markets to minimize risk or are focusing on secondary markets where further cap rate compression is more likely, according to the report.

“Investors are projecting a steady flow of industrial activity in the U.S. for the foreseeable future, given the strong fundamentals and the stability this sector offers,” says Steve Shanahan, Executive Managing Director, RCM, a part of LightBox. “Investors are keenly aware of the potential for an economic slowdown but are focused on the long-term horizon and taking the steps necessary to protect their investments.”

The RCM-SIOR Report aggregated insights and perspectives from industrial market experts—investors, developers and brokers—across the country in compiling the report. The report shows that industry experts are thinking more strategically about their investments and decisions but are not pulling back from the industrial sector.

Among the recent stories on this report include:

GlobeSt.com looks at the bright side of the trade turbulence.

The Blackstone Group Buys GLP

The Blackstone Group Buys GLP

Fall 2019

The Blackstone Group buys GLP: A Look at Big Industrial Buys

Just when you thought the industrial real estate buying spree had hits its peak, another big deal closes. The recent high water mark was closed by The Blackstone Group in its acquisition of GLP’s US warehouse portfolio. Click here for more.

This involved 179 million square feet of urban logistics assets, for $18.7 billion, breaking the record as the largest private commercial real estate transaction globally. Blackstone’s focus on logistics is directly correlated to the growth in e-commerce, a coveted sector that is projected to see at least 10 percent annual growth.

The Blackstone Group is one of the largest real estate private equity firms in the world today with $157 billion of investor capital under management.

What does this acquisition mean for the industrial real estate market? The CoStar Group, a leading commercial real estate research and analytics firm, gives a closer look at the deal, including the properties involved.

Industrial Real Estate: Prologis to Acquire Liberty Property Trust for $126 billion

In another mammoth industrial acquisition, Prologis has plans to buy Liberty Property Trust for $12.6 billion, securing a bigger presence in Lehigh Valley, Chicago, Houston, Central PA, New Jersey and Southern California. Click here for more.

The board of directors of each company unanimously approved the transaction.

According to Prologis, the industrial real estate acquisition comprises:

  • 107 msf logistics operating portfolio; 87 percent overlap with key markets
  • 5.1 msf of logistics development in progress
  • 1,684 acres of land for future logistics development with build-out potential of 19.7 msf
  • 4.9 msf of an office operating and development portfolio
Multifamily Investment: Foreign Investment Keeps Going

Multifamily Investment: Foreign Investment Keeps Going

October 2019

Foreign Investors Drive Multifamily

In Chicago skyscraper race, multifamily is outpacing office, as Millennials flock to the urban environment.

Foreign investors continue to focus on the multifamily investment, despite a pull back in other asset classes, according to a Real Capital Analytics report. Foreign investors spent $16.1 billion on U.S. apartments over the last 12 months, end in Q2 2019, with Canadian buyers as the most active

Industry experts note that this activity is being driven by the low volatility seen in this sector and the continued movement toward renting versus home-buying in the U.S.

As ongoing demand for apartments has reduced vacancy in many markets, investors keep moving in. They also are attracted to the diverse rental stream from a variety of tenants, an environment that is viewed as less volatile than a single tenant office building, for example.

As noted by National Real Estate Investor, cross-border multifamily sales volume rose 10 percent, year-over-year, to $16.1 billion

Foreign Investors want Class A Assets

Foreign investors were focusing on bigger deals with more expensive, Class A assets. The average sale during the past 12 months, ending with Q2 2019, was $43 million per community. The average cap rate was 5.3%.

The low down on Grocery Store Cap Rates

Looking for more commercial real estate industry intel? Click here for more from RCA on the wide spread of cap rates among grocery store brands.

DLA Piper Forecast: CRE Strong, Opportunity Zones Still Hot

DLA Piper Forecast: CRE Strong, Opportunity Zones Still Hot

Commercial Real Estate News Update

September 2019

DLA Piper Survey: Strong CRE Outlook, Opportunity Zones are Strong

Commercial real estate executives are feeling positive about the industry’s future, according to DLA Piper’s annual State of the Market Survey. The survey shows that 50% of executives have a bullish outlook on the market, while 38% are taking a neutral position and just 12% feel bearish. Respondents noted that Opportunity Zones and ecommerce should drive investment in the coming years, while coworking may dwindle and property technologies could have less impact in coming years. Read more in Commercial Property Executive.

More on the DLA Piper Summit

DLA Piper’s real estate forum, in its 15th year, gathered intel from many of the industry’s key companies. Executives from Blackstone, Brookfield, USAA Real Estate, Ventas, The Cohen Group, Hines, Wells Fargo, Goldman Sachs and others met in Chicago to discuss a variety of topics, from interest rates and policy to proptech and industry outlooks. Here are the key comments of note:

Wells Fargo — the $3.5 billion mortgage business is seeing delinquencies at an all-time low at 1 percent. This compares to a 9 percent delinquency at the peak of the great financial crisis.

Citigroup — While many reference the length of this economic cycle and question what inning we are in, Citigroup executives note that baseball is not limited to nine innings. As an aside, baseball fans can check out this MLB.com article for a recap of the many ways to slice and dice the longest baseball game, the longest double header, etc.

Goldman Sachs & Co — Their investment banking division noted that many studies point to loan-to-value improving ratios in CMBS’. As for Goldman Sachs, they are focused on markets they like, sponsors they like, with perhaps a slightly riskier loan to get to the right cost of capital.

Click here for more.

Industrial News: Shipping Costs and Blackstone Buys Big

Industrial News: Shipping Costs and Blackstone Buys Big

August 2019 News Update

What’s Happening in the Commercial Real Estate Sector?

Shipping Costs Rule the Day:

The cost of shipping goods via truck is coming down, making it more comparable to shipping by train, according to a recent savings index by the Journal of Commerce (JOC). As C-Suite executives focus on paring down transportation costs, this could have an impact on decisions to use intermodals versus trucking to increase efficiency. See this Connect Media story for more.

Dallas Development Boom Continues

A new development boom continues in Dallas as AllianceTexas developer Hillwood plans to build two new speculative industrial buildings in Fort Worth and Northlake. The 810,000 sf building and 460,000 sf building are part of a 2600-acre master-planned industrial park. There are no signs of slowing in this hot Southwest industrial market. See this Bisnow story for more.

Blackstone Group Buys Big in New York City

The Blackstone Group is negotiating the purchase of a portfolio of 11 buildings near JFK Airport from TA Realty, according to Crain’s New York. This follows news that Amazon is looking for millions of square feet of infill space to tap into last mile customers.

 

Amazon Expands in Atlanta

July 2019

Here’s a list of recent news around the country:

Amazon recently confirmed that it will open a new 700,000 square foot fulfillment center just outside of Atlanta in Gwinnett County. This shows the increasing popularity of the Atlanta industrial market, which is among the top 5 markets in the U.S. for new construction. Click for more on Amazon.

Blackstone affiliate Link Industrial Properties closed on its acquisition of an 8.8 acre site in Medley, FL. The property, on the far western edge of Miami-Dade County, should be idea for a new development to support demand in the tight Miami industrial market.  Link Industrial Properties was part of Gramercy Property Trust, which was purchased by Blackstone in 2018. Find out more from The Real Deal. 

Port Activity Continues to Dominate Industrial

Connection to major US ports continues to drive many investment deals, such as this one by CenterPoint Properties. The firm acquired a 3.5-acre rectilinear concert yard in Compton, CA. that offers proximity to major freeways as well as ports of Los Angeles and Long Beach. The yard’s shape and size allows high efficiency for storing equipment and using it to boost product throughput in the southern California industrial market.

Midwest Multifamily Rental Updates

Midwest Multifamily Rental Updates

July 2019

A look at the multifamily sector shows that apartment rents are still on the rise throughout the country, but two-bedroom apartments are gaining ground faster than one-bedroom apartments. A REJournals.com article on multifamily research by ABODO shows  that the median rent for a one-bedroom apartment in the U.S. stands at $1,082,  while the average two-bedroom in the U.S. will cost a renter $1,357 per month.  The cost of a two-bedroom has risen 6.6% since January, while the rent for a one-bedroom has increased 4.45% from  a year earlier.

The relatively modest rent changes can be attributed to a stable economy where inflation is tame and the Fed decided not to raise interest rates. This could translate to more home sales, keeping multifamily demand in check.

Across the Midwest, Cleveland was a big winner with one-bedroom rents climbing from $760 to $802 over the last month and two-bedrooms rising from $761 to $790.

Columbus saw a decrease in rent in one-bedroom apartments from $1,065 to $970, while Nashville saw drops in two-bedroom rents from $2,009 to $1,915.

Experts expect that rental prices will stay steady or increase slightly barring any major geo-political events in the near future.

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