Nearly every day, we hear news of a new high-end apartment complex being built in a major metropolitan area. But new construction with lots of amenities is not what every renter is looking for, says David Schwartz, CEO and co-chairman of Waterton. His investment firm has spent much of the last few years looking for Class B and Class C value-add apartment properties, and renovating them for middle-income renters seeking affordable housing.
Industry experts see more of this from private investors on the horizon.
One current project for Waterton is the Vida Hollywood, a 25-year-old apartment complex in Hollywood, California. The company is renovating its 345 units, but rents in the building will still remain about $800 less than they would be at a Class-A building in the same area.
Barbara Byrne Denham, an economist with New York City research firm Reis, Inc., urges redevelopers not to interfere with Class B and Class C apartment buildings that are already fully occupied. In areas with high job growth and salaries to match, the existing renters might pay the higher prices to live in the renovated building. But in areas where people are just staying stable in their careers, the tenants looking for affordable housing might move out.
What should they do instead? And, what are investors chasing? Click here for more.
Nordstrom is struggling, and e-commerce (and perhaps shipping costs) might be partly to blame. That’s according to a recent Bloomberg.com story by Shelly Banjo.
The luxury retailer has seen the price of its shares plummet over the past year and missed its fourth-quarter earnings estimates last month. CFO Mike Koppel talked about Nordstrom’s rough stretch with Bloomberg.com, giving some insight into some of the issues retailers face as they split their focus between brick-and-mortar stores and selling products online.
E-commerce isn’t going away. Nordstrom expects that 30 percent of its sales will come online by 2020, compared to just 8 percent in 2010. But retailers don’t have as good a handle on the e-commerce model as they would like.
Brick-and-mortar stores might seem increasingly old fashioned, but retailers knew how to plan for that model. You build your store. You train your staff. Once you paid off those initial overhead costs, the profits flow in–ideally!
Selling online brings the benefit of low overhead (less of a need for labor and physical stores). But the more retailers like Nordstrom sell online, the more they have to spend to collect and ship the goods to customers. It all adds up!
Nordstrom is trying to catch up to e-commerce competitors like Amazon. But it’s finding that e-commerce isn’t always as profitable a business as physical stores. Nordstrom – and other retailers – will need to figure out the model soon.
Origin Investments and Randolph Street Realty Capital hit it big for investors this week with the $35 million sale of Lux24, a 73-unit condominium project they repositioned after the condo meltdown.
The JV purchased the project out of bankruptcy in 2013, after its original developers ran into financial troubles. With a $19 million total investment, the team converted the property at 24 S. Morgan into a rental building, tapping into the hot downtown apartment market and the West Loop’s revitalization.
As reported in Crain’s, the team invested about $2.3 million to finish construction, reconfigure unfinished units, and move the fitness center. They also bought back a few condos that had been sold and leased up the ground floor retail space.
This project shows:
- Buying right is important, but creatively repackaging an asset can help create tremendous value
- Timing is everything and a great location doesn’t hurt
- The West Loop/Fulton Market just keeps on going
It’s a good time to be in the Atlanta commercial real estate market. Research shows the southeastern hub enjoyed a prosperous 2015, with strong industrial and office absorption figures pushing vacancy rates in those sectors down to levels not seen since the turn of the century.
Clearly the Atlanta market is gaining momentum. Here are a few Atlanta-focused stories and trends worth tracking:
- Another good year for industrial: Atlanta’s industrial market performed particularly well in 2015, absorbing the third-most square footage in the United States. That’s according to research from Colliers International, which also found that the industrial vacancy rate dropped to its lowest point since the first quarter of 2001.
- The office sector’s perfect storm: The mix of high absorption activity with minimal deliveries helped Atlanta achieve its best office market results since 2000 last year. Colliers found that Atlanta’s office absorption totaled 4.8 million square feet, the highest annual total in 15 years.
- Benefits of build-to-suit: Atlanta, with its strong industrial market, is one of the cities that has seen a rise in build-to-suit projects in recent years. With more tenants seeking new technologies and specialized buildings, this isn’t a trend that’s likely to go away anytime soon. (Story via GlobeSt)
- The future of cars: What would Atlanta look like if there were cars, but no drivers? That was the subject of a recent program called “Evolving Transportation and the Future of Commercial Real Estate” hosted by the Urban Land Institute. Industry experts debated the potential impact of this technology, looking at how it might change variables like parking for current (and future) developments. (Story via Curbed)
Cross-border investors target industrial properties in 2015. (Photo via GlobeSt)
Cross-border investors seized a larger share of the U.S. market in 2015, continuing a buyer spree that has fueled the market for several years.
Research from Real Capital Analytics’ latest U.S. Capital Trends Report found that deal volume for cross-border investors rose 123 percent from 2014 to 2015. That gave that class of investors a 16 percent share of the deal activity in the market.
RCA found that cross-border investors targeted properties in both gateway cities and secondary markets. JLL reported similar findings in its latest U.S. Investment Outlook report. According to JLL, foreign investment in the U.S. broke a seven-year-old record high by more than $30 billion.
As Steve Collins, international director and president of JLL Capital Markets—Americas, told GlobeSt, “While we’re seeing volatility and uncertainty in parts of the financial markets, the relative strength of economic and leasing fundamentals continues to position the United States as an attractive, healthy and transparent market for cross-border investment.”
GlobeSt has a close look at the reports from Real Capital Analytics and JLL.
Other highlights from RCA’s report include:
- Overseas buyers dominated U.S. industrial assets, purchasing more than any other group.
- Institutional/fund capital sources represented 35 percent of apartment, office and hotel portfolios in 2015.
- Digging deeper, those buyers accounted for 43 percent of apartment portfolio sales, a leap up from 24 percent in 2014.
- Public investors fell back in the past year as volume dropped five percent.
90 North Real Estate Partners made big news this week with its purchase of the Saint-Gobain North American headquarters in suburban Philadelphia. The $123 million purchase was made with investment partner Arzan Wealth.
The move continued a strategy 90 North has favored since it opened its Chicago-based North American headquarters in 2014: Target safe, long-term investments in strong office markets. More often than not, that strategy has led 90 North to focus its attention on the suburbs.
90 North is now in suburban Philadelphia, and its growing U.S. portfolio also includes the following properties:
- A 351,425-SF, Class A office building in Deer Park, Illinois, leased long-term to Continental Automotive Systems, Inc.
- A 175,155-SF, Class A office building in Denver that houses the FBI headquarters for Colorado and Wyoming
- The 67-acre Lenovo Enterprise Campus in the Research Triangle Park, Raleigh, North Carolina. The two-building, 450,000 SF complex is fully leased long-term to Lenovo’s Global Server division
The Reserve at Deer Park, purchased by 90 North in 2014
All three properties have strong tenants that will allow 90 North to safely weather any economic downturn. The Saint-Gobain property had the added bonus of a strong international tenant that had recently signed a long term lease and spent millions renovating their complex– very good signs for any investor.
As Daniel Cooper, partner and head of North America for 90 North, told GlobeSt.com this week, “The point we’re trying to make is that the suburbs are not dead.”
When it comes to shopping, U.S. consumers aren’t being swayed by snow, nor rain, nor … well, you get the idea.
The month of January brought bad weather for much of the country. But that didn’t stop consumers from heading to brick-and-mortar stores or online retailers in droves. The fact that overall retail sales grew in January is remarkable considering the volatility in global markets and overseas economies. The rise in retail sales is in line with other indicators of growing economic strength.
Still, it’s a small sample size, right? Well, last month actually stands as part of a greater trend. Total retail sales jumped 3.4 percent over the 12 months that ended Jan. 31, according to research by Marcus & Millichap.
There are two factors most responsible for the growth:
- The price of gas is low enough that consumers find themselves with more money to spend.
- Consumers have proven themselves willing to spend that money.
Spending in categories like food and drink (as well as more frivolous pursuits) is up across the board over the last 12 months. Further evidence of consumer confidence comes in the form of a rise in sales on larger, long-lasting items. Building materials and furniture sales rose over the past 12 months. Marcus & Millichap projects U.S. retail vacancy to drop 30 basis points to 5.9 percent in 2016.
It appears consumers are taking advantage of stable employment outlook and loosening up a bit. That’s great news for retail sales.
The Wall Street Journal has the latest on Open Slate client 90 North Real Estate Partners and its $123M acquisition near Philadelphia. Based in the UK, 90 North is known for its deep understanding of the global investment market and focus on stability and long-term value.
The 320K SF, two-building campus includes office and research and development space. 90 North and a unit of Arzan Financial Group of Kuwait bought the 65-acre campus in Malvern, PA, outside Philadelphia. Dan Cooper, head of North America for 90 North, had this to say about their strategy for buying the Saint-Gobain corporate HQ:
“We look for assets that can weather any industry or market cycle” — As global investors, 90 North looks at properties in the US and abroad and is drawn by assets that have the security of strong tenancy and the stability that the US market affords. “At the end of the day, we need to know that the asset will perform well and can weather any cycle or market downturn,” Cooper says. “When you have a tenant that has committed millions of dollars into renovating a building and then signs a long term lease, that’s what helps us sleep at night.”
“It is a validation that suburban marketplaces remain extremely viable — The Saint-Gobain campus is 30 minutes outside of Philadelphia and is a sizable campus within a submarket known as the High Tech Corridor. With immediate access to the entire area—including downtown Philadelphia, the submarket is home to numerous innovative technology, medical, and pharmaceutical firms as well as excellent schools and residential neighborhoods.
“This type of scenario is playing out in many cities across the country,” Cooper says. “We saw it in Raleigh when we purchased the Lenovo Campus last year and we see it in cities such as Austin, Denver, Chicago, Atlanta and Dallas.”
Check out the Wall Street Journal story here.
If you pay any attention to the global economy, you know January wasn’t a ton of fun.
But still, it was just one month. Can it really say anything about the future of the commercial real estate market in the United States? Bisnow.com got the opinions of six top economists, and as you might expect, those opinions vary.
Stockbrokers struggled through the worst January since 2009 this year.
Some cautioned against paying too much attention to the market (and the resulting bluster from politicians and cable news). Others predicted pain in the short-term but economic success in the long-term. The general feeling seemed to be: “Be patient, we’ve seen this before.”
Here are the highlights:
- Robert Bach, director of research – Americas for Newmark Grubb Knight Frank: Bach confessed some angst, but told Bisnow, “If the economy muddles through, so will commercial real estate.”
- Ray Torto, Harvard lecturer and former global chief economist at CBRE: Torto predicts a positive long-term outlook for CRE and pins the blame for short-term struggles on factors like low oil prices and China’s drooping stock market. “Hope is not a tactic to pursue right now,” he told Bisnow. “Implement careful planning and executions.”
- George Ratiu, director of quantitative and commercial research for the National Association of Realtors: Have no fear; the CRE market has seen this before (and recently, too). “Looking at the post-recession recovery, we’ve had other periods of volatility … which had minimal impact on CRE performance,” Ratiu told Bisnow.
- Jack G. Kern, director – research and publications for Yardi: Kern says CRE is naturally affected by global stock markets, but doesn’t see an issue as long as proper precautions are taken. “Properties bought based on solid underwriting and reasonable fundamentals will continue to do fine,” he told Bisnow. “Those acquired without recognizing the risks properly will be back on the market soon enough.”
- Victor Calanog, chief economist at Reis: Calanog isn’t expecting 2016 to mimic last year. “Property fundamentals rocked 2015, but we expect 2016 to be a bit rockier,” he told Bisnow.
With January (thankfully) in the rearview mirror, this CRE topic will be worth monitoring as we wait to see if the global economy improves.
The year 2015 is one that multifamily investors will remember fondly.
Higher-than-expected demand helped absorb most of the rental supply, keeping vacancy rates low. Meanwhile, rent continued to rise in many markets. Experts are split as to what investors should expect from multifamily in 2016. But Freddie Mac struck a cautiously optimistic tone in its newest Multifamily Outlook 2016 report.
Freddie Mac based its outlook on continued economic growth and the following key drivers:
- Strength in the job market
- Reduced affordability of owning a home
So, more people have jobs, and fewer people can afford to own homes. That makes renting an attractive option, especially in metropolitan markets.
Freddie Mac is cautiously optimistic about the multifamily market.
Freddie Mac does expect growth rates to moderate in 2016, but not as much as the more dire projections indicate. Relatively low vacancy rates in most markets will contribute to rent growth in the year ahead.
You might ask why Freddie Mac is being cautious. Well, it admits that turmoil in the financial markets is a cause for some concern. Still, it’s not nearly enough for Freddie Mac to be scared of the multifamily market anytime soon.
Read more about Freddie Mac’s multifamily outlook from Multi-Housing News.