Senior Housing Investment Outlook: $2.8 B in sales, stable activity ahead

Senior Housing Investment Outlook: $2.8 B in sales, stable activity ahead

May 1, 2019

The senior housing sector is redefining itself, following several years of robust sales and construction activity. According to a new Real Capital Markets Report, activity slowed in early 2019, but investors are confident in the long term outlook.

RCM’s report incorporates the sentiments of investors across the U.S., as well as statistics from Real Capital Analytics (RCA) and the National Investment Council for Seniors Housing & Care (NIC). The report notes that U.S. investment sales in this sector totaled $2.8 billion in the first two months of 2019, down from $3.0 billion in the same period in 2018. There were $15.2 billion in sales in 2018. Sixty-six percent of investors and other real estate professionals interviewed for the report believe that activity in 2019 will be comparable to the total sales for 2018.

As noted in Senior Living News, investors are looking at operational issues, including focusing on strong operational partners. Given the challenges with shrinking profits and shortages of skilled labor, a strong operating partner is a must. Investors also are looking at the long-term view of this sector.

“Perspective is an important attribute for all commercial real estate investors, including those focused on the senior housing sector,” said Tina Lichens, Chief Operating Officer, RCM. “The sector as we know it today is vastly different from five years ago and rapidly changing. There remains considerable demand and capital in the market, yet investors need to look at the long-term as the market redefines its new normal.”

RCM Senior Housing Outlook

Highlights of the RCM Senior Housing Snapshot are:

  • The investor profile has shifted—with private investors leading the way, followed by institutional investors.
  • Construction activity has slowed—Newly constructed senior housing units declined by 14.8 percent from 2017 to 2018, according to NIC; experts consider this a needed slowdown to reach supply/demand equilibrium.
  • Strong operating partners a must—Over 61 percent of investors agree that a strong operating partner is important due to the challenges finding skilled labor, and managing costs and shrinking profits.
  • Long-term view is key—experts remain bullish on senior housing, but say that investors should look at the long-term, as they work through an oversupply of new construction in many markets.
What’s Trending in Commercial Real Estate?

What’s Trending in Commercial Real Estate?

April 17, 2019

From U.S. port activity to foreign investment and multifamily investment, here’s a roundup of recent commercial real estate news:

New Jersey Industrial Market Update

Port activity continues to drive the New Jersey industrial market, which is seeing consistent demand, rising rental rates and record low vacancy rates. This success is tied to the market’s prime East Coast location, which is ideal for e-commerce, light manufacturing and other distribution businesses. Here’s a New Jersey industrial market recap looking at current activity and the importance of the market’s port, air cargo, and major transportation network — from Avison Young’s Matt Turse.

Midwest Market Update: Industrial Activity Moves into Wisconsin

Industrial development continues to push into Wisconsin, with Amazon leading the way. After completing a 1.5 million-square-foot fulfillment center in Kenosha, the ecommerce powerhouse broke ground on a 2.5 million-square-foot fulfillment center in suburban Milwaukee. This movement isn’t a surprise, given the economic benefits to locating in Wisconsin versus Illinois. For more on the Wisconsin growth, including the capital markets perspective from Avison Young’s Erik Foster, click here.

 

Foreign Investors Choose Industrial Versus Multifamily

Foreign investors continue to focus on the industrial sector, which edged out multifamily as the asset class of choice. This commercial real estate survey by the Association of Foreign Real Estate Professionals (AFIRE) shows 79% of those surveyed wanting to increase exposure in the industrial sector, compared with 71% who picked multifamily. The top global cities for investment stability included New York, coming in first, followed by Tokyo, Paris, Boston, Singapore and Los Angeles.

Industrial Real Estate Update

Industrial Real Estate Update

March 8, 2019

Industrial Real Estate Still Strong Following HQ2 Decision

Charlotte, Houston, and Salt Lake City may have been cut from the short list of HQ2 locations by Amazon, but they are still performing strong from the industrial real estate side — and are on Amazon’s watchful eye. Amazon has invested in 800,000-square-foot distribution centers in Houston and Salt Lake City, and all three markets continue to attract attention from investors, according to a recent Forbes article.

Ecommerce, Cold Storage and Institutions Dominate Industrial

REITs could outperform expectations this year in several asset classes, including industrial, according to Globe Street.  Continued demand for e-commerce space,  attractive pricing in cold storage, and continued attention from institutional investors could lower cap rates and keep conditions favorable for landlords.

The market has also been tough on senior housing, due to above-average supply added to the market in recent years. The construction pipeline is moderating, however. This sector does farce ongoing  pressures from higher labor costs.

Kroger Plans Industrial Distribution Centers in Florida, Mid-Atlantic

Grocery store chain Kroger plans to build two new distribution centers in Florida and the Mid Atlantic because of the demand from ecommerce customers who are looking for grocery delivery, says a recent article in the Dayton Daily News. These will be in addition to the 20 fulfillment centers, or “sheds” that the chain will invest in to speed up deliveries through the use of technology and robotics.

 

Top Trends Shaping Food Related Industrial Space

Feb. 20, 2019

Avison Young Report: Online Grocery, Cold Storage, among Top 5 Trends Shaping Food Related Industrial Space

The expanding market for food that is fresh, organic, or packaged for convenience continues to drive demand for industrial space. This is particularly true in the Midwest, where the central location bodes well for the processing and distribution of grains, dairy and meats that tie into the food sector.

While the food industry is thriving, there remains a shortage of cold storage space in many markets. According to a Q1 2019 report from Avison Young’s National Food Services Group, the demand for cold storage far outweighs availability in many markets, including New Jersey, New York, and Los Angeles.

“We continue to see a shortage of efficient and modern cold storage facilities in most markets across the U.S., as the industry tries to catch up to the rapid growth in demand for fresh and organic foods and online grocery delivery,” says Todd Heine, an Avison Young Principal and leader of the Chicago-based National Food Services Group. “Cold storage facilities are more costly to build, due to the specialization of the required infrastructure and limited ‘in-fill’ last mile land scarcity.”

As the industry grapples with this shortage, developers are taking advantage of new technologies to be able to build high capacity and highly efficient cold storage facilities on smaller sites, says Heine.

According to the report, an estimated 4 to 8 percent of the 888.6 msf of industrial space added in the U.S. since 2016 supports the food industry with warehouse, distribution, fulfillment and related uses.

Top 5 Food Industry Trends

According to the report, the Top 5 trends to watch are:

  1. Online grocery— Avison Young’s Food Services Group expects to see continued growth in processing and distribution, which will impact industrial space utilization.
  2. Cold storage— Increased demand but limited supply, particularly in primary distribution markets. Development challenges (cost, availability of land) are impacting the market’s ability to add new space.
  3. Last mile— will continue to expand to meet demands from growing online grocery and fresh food sectors. Expect to see increased competition for space near large population bases.
  4. Expanding use of automation— as companies look to improve efficiencies, particularly in light of the shortage of labor
  5. Food safety will be a bigger focus— as companies look closely at where food is sources and how the facility can support food safety and specialized
Google Makes $13 Billion Real Estate Play

Google Makes $13 Billion Real Estate Play

Feb. 18, 2019

Google’s commercial real estate expansion continues, with plans to invest an additional $13 billion in data centers and offices throughout the U.S. in 2019, according to Globe Street.

While the tech giant has been a force in many real estate markets across the country, this announcement carries significant impact across many markets. Here’s a breakdown of the economic benefits to the various markets. Google will be:

  • Adding tens of thousands of new employees
  • Generating 10,000+ construction jobs
  • Moving Wisconsin operations to a larger office
  • Doubling the Virginia workforce
  • Adding offices in Georgia, Texas, the Boston area, Los Angeles, and Washington state, among others

This comes on top of Google’s previously announced 1.7 MSF Hudson Square office expansion in lower Manhattan.

A Look at Google’s Real Estate Needs

While much of this activity involves moving into newly built or existing space, there also are redevelopment plans in the works, according to Bisnow. The company’s footprint in New York City, for example, is mainly repurposed manufacturing space on Manhattan’s West Side, which included its $2.4 billion purchase of Chelsea Market last year.

And, a big shift involves Google’s expansion in the data center sector, with centers planned in Nevada, Texas, Nebraska and Ohio. Here’s a quick rundown by region:
Read more

Chicago Industrial Market Surges in 2018

Chicago Industrial Market Surges in 2018

Feb. 8, 2018

As Q1 2019 gets into full swing, here’s a look at how 2018 fared and what’s ahead in the industrial, office and retail sectors.

Chicago’s Industrial Market to Expand by 18 MSF

While Chicago’s office and retail sectors declined in 2018 compared with 2017, the industrial sector showed solid growth in leasing and construction, according to Avison Young’s Annual Review and 2019 Forecast. The Chicago industrial market should see 18 million square feet of new space added in the next 12 months, including many speculative buildings. This, combined with continually decreasing vacancy rates, shows investor confidence in Chicago’s industrial markets, especially infill submarkets such as O’Hare and I-88.

Office and Retail Real Estate Moderates

The Avison Young report notes the employment picture was also bright last year, with employers in the Chicago metropolitan area adding more than 35,000 jobs year-over-year, according to this Bisnow story.

“Facebook, Google, Pinterest, Salesforce, Career Builder and Madison Capital have all recently announced major expansions in the CBD, which will increase local workforces as well as real estate footprints,” the report notes.

 

Q4 2018: Surge in Spec Industrial Construction in Chicago

In Q4 2018, Chicago’s speculative industrial development boom showed 19.5M SF under construction, according to research from Avison Young. That is a 59% year-over-year increase that is pushing development to new areas. This momentum has been seen for many quarters, as noted in this ULI Report.

“Many submarkets that are closer to the city have little to no space available for new buildings, so we’re continuing to see speculative development moving to outlying submarkets such as Southern Wisconsin,” Avison Young principal Chris Lydon tells Bisnow.

Chicago O’Hare Industrial Market Still Reigns

The O’Hare submarket had 4.9 MSF of new construction in Q4, increasing 50% from Q3. There is some concern about a few submarkets becoming overbuilt, however. The I-80 Corridor has the highest vacancy (12%) of any submarket, as it has seen 15.4 MSF of new construction during the past two years, with another 3.3 MSF underway.

Commercial Real Estate: What’s Trending Now?

Commercial Real Estate: What’s Trending Now?

Jan. 8, 2019

Opportunity Zone Activity, Medical Office and Multifamily are hot for 2019

As 2019 kicks into full swing, commercial real estate experts are out in force with activity and predictions. From a surge in Opportunity Zone activity to the sale of a major medical office portfolio and a new apartment building for Chicago’s West Loop neighborhood, here’s the latest CRE news:

Curbed.com reports that Opportunity Zones, created by the new federal tax overhaul, are starting to get a lot of attention from developers and investors looking to get tax benefits to invest in blighted neighborhoods. Check out this story for a look at how investors are getting in on Opportunity Zone opportunities.

Medical office portfolios remain a big draw for investors, as shown by Welltower’s $1.25 billion purchase of CNL Healthcare Properties’ 55 MOB portfolio. According to Bisnow, the deal is one of the largest for medical office buildings in recent years. The buildings total 3.3 msf in 16 states, including this Atlanta property, pictured. This strong outlook for medical office was also shown in this Avison Young Medical Office Report.

 

Changes for Net Lease Market

The net lease market is changing, according to a new report from The Boulder Group, featured in GlobeSt. Find out more on why the spread between asking and closed cap rates on fully leased buildings is growing. And, what does it mean for net leased properties moving forward?

The GlobeSt. story notes that there remain bargains, for those buyers willing to assume a certain amount of risk. This means taking on shorter lease terms or assets without investment grade tenants. According to The Boulder Group, sellers are adding more non-core assets to the market — one reason why cap rates should continue to rise. Interest rates are another factor.

 

More Chicago Multifamily Development

Another Chicago multi-family project has been approved in the West Loop, according to The Real Deal Chicago. How will this 166-unit, 10-story LG Development building at 1220 W. Jackson Blvd fit into the mix of multifamily developments? And, will affordable housing portion meet the needs of area residents?

REJournals 2019 Forecast Event is Jan. 8, 2019 in downtown Chicago. Look for discussion on Opportunity Zone activity, as well as office, retail, and industrial activity.

Forecast 2019 is Here

Chicago’s commercial real estate forecast remains positive for 2019, according to panelists from Illinois Real Estate Journal’s Commercial Real Estate Forecast Conference— the longest running event of its kind. The event attracts more than 900 commercial real estate and related professionals.

Check out the preview story– and check back for post-conference coverage.

 

 

Government Shutdown Looms Big for Commercial Real Estate

Government Shutdown Looms Big for Commercial Real Estate

January 4, 2019

Commercial Real Estate Braces for Government Shutdown

The government shutdown is now in full swing, looking to become the longest shutdown in U.S. history. The partial shutdown is impacting some 800,000 employees who oversee multifamily housing loans and office sector financing, among other areas, according to the New York Times. While essential jobs, such as law enforcement and mail delivery, are still open, the shutdown has affected these departments: Homeland Security, Justice, State Dept., Treasury Dept., the EPA, and NASA.

Plus, workers will have fewer dollars to spend in restaurants and other retail outlets, impacting those commercial real estate sectors. According to this Bisnow story, here’s a quick look at how the commercial real estate industry is seeing the impact:

Multifamily Housing: Enforcement and Oversight Slows

The Department of Housing and Urban Development is working with a limited staff, resulting in slower loan processing. This impacts new multifamily and related housing projects and enforcement of federal housing regulations. According to Bisnow, just 343 of HUD’s nearly 7,500 employees were expected to work full time during the shutdown.  The National Association of Realtors’ Chief Economist Lawrence Yun says, “Right now there’s a housing shortage for owner occupancy and rental, so if there’s a delay in approving some of the multifamily projects.”

The government shutdown is impacting:

  • Fair Housing and Equal Opportunity Office employees — just a fraction of whom were projected to work full time during a shutdown.
  • Internal Revenue Service forms processing, including some for housing loans. These have been suspended during the shutdown, according to NAR.

Office Sector: Loans are an Issue

Small businesses looking for loans will have a more difficult time because of the shutdown. This could affect the tech sector, startups and small retail businesses. The Small Business Administration said it will remain inactive due to a lack of funding, impacting loan processing and other functions.

Retail Spending to Slow but Restaurant Discounts Offered

Restaurant and retail store traffic is expected to slow, particularly in Washington, DC and other areas with large concentrations of federal workers. This trickle down to the local economy could be a significant strain for small businesses. According to the Washingtonian, many restaurants are adding special deals to help federal workers — and keep their foot traffic flowing during the government shutdown.

Steady Outlook for Commercial Real Estate, Says ULI

Steady Outlook for Commercial Real Estate, Says ULI

Oct. 2018

What’s ahead for the U.S. commercial real estate market? Steady as it goes, according to this ULI Real Estate Economic Forecast.

Economist expect the market to remain strong for the rest of 2018 and continue to grow until at least 2020.  With continued job and GDP growth, vacancy rates in most sectors will stay steady or continue to decrease and rents will continue to rise, but at a decreased rate. In the following sectors, vacancy rates will all remain well below their respective 20-year averages:

  • Multifamily
  • Industrial
  • Office

Multifamily Sector Remains Strong, Says ULI

Apartments, which have led the charge in real estate growth, will retain their low vacancy rates, edging up to 5.2% by 2020. Experts anticipate apartment rental rates will grow by 2.9% in 2018, heading to 2% by 2020.

Job growth will continue to fuel the expansion of real estate. Experts anticipate the creation of 2.4 million new jobs in 2018, 1.9 million new jobs in 2019, and 1 million in 2020.

Industrial Update

As the industrial sector continues its strong run, the ULI forecast shows a slight slowdown in rental rate growth over time. In the past five years, industrial warehouse rental rates have grown significantly above the long-term average. The outlook calls for increases of 3.9% in 2018, 3.3% in ‘19, and 2.4% in ‘20.

RCM Report: Multifamily Investment Still Strong

RCM Report: Multifamily Investment Still Strong

Sept. 2018

Strong Multifamily Investment Outlook for 2018-19

Real Capital Markets Report: Job growth and strong market fundaments propel multifamily

Strong market fundamentals, an abundance of capital, and an influx of investors continue to push the U.S. multifamily investment market, according to Real Capital Markets’ 2018 Multifamily Investor Sentiment Report.

As detailed in this Globe Street article, the majority of investors surveyed are looking to buy, with many finding a shortage of quality assets, particularly in the value add category. Experts interviewed by RCM noted that underlying fundamentals shaping rental demand continue to draw a wide range of investors into the multifamily sector, despite upward movement in interest rates.

“Based on the number of multifamily properties being brought to market, 2018 is a very solid year in California,” Steve Shanahan, executive managing director at Real Capital Markets, tells GlobeSt.com. “So far, the number of multifamily investment assets brought to market is up year over year, and we believe the activity will continue through the second half of 2018.”

Across the country, both job growth and home prices are high. Because of prohibitively priced homes and millennials’ continued focus on renting over buying, rents are rising to record levels, making apartment buildings a solid investment.

There is $250 billion or more  in capital currently allocated to multifamily investment across the country. For example:

  • National–there is significant capital ready to be deployed in this sector. “Closed end real estate funds have billions of dollars in callable capital—capital that has to be invested over the next three years,” said David Schwartz, CEO, Chairman, and Co-Founder of Waterton, a real estate investment and property management firm based in Chicago. “On top of that is a plethora of non-traded REITS, public REITS, private high net worth capital, foreign capital and other sources, each of which has some interest in multifamily investment. That’s what’s keeping these cap rates low.”
  • Phoenix— more than 1,000 older properties with 100 units or more are well-positioned for value-add redevelopment.
  • Dallas–pricing has risen dramatically from $35,000 to $45,000 per unit in a Class B building five years ago to $90,000 today, creating competition for higher end and value-add units across the MSA.

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