Commercial investment real estate: Opportunity in smaller markets

by Bill Small, Aspen Daily News Columnist

Sunday, March 24, 2013

Commercial investment real estate has made a comeback since the depths of the Great Recession in 2009. But as more and more investors come back into the market, returns are dropping precipitously in the major real estate markets around the country. The primary and gateway markets consisting of large cities such as New York, Washington, Chicago, Boston, Los Angeles and San Francisco, and secondary cities such as Denver, Houston and Atlanta, are starting to see capitalization rates on acquisitions and overall returns again decline to historically low levels not seen since just before the recession started in 2007 and 2008. These low returns are being driven by a combination of historically low interest rates and demand from well capitalized investors looking for good buys.

The risk is that interest rates are very likely to trend higher in the next few years, pushing up yields and investment real estate capitalization rates. Mortgage interest rates are typically priced off the 10-year U.S. Treasury bond rate. The current 10-year U.S. Treasury bond rate is 2.1 percent versus the long-term average yield for the 10-year bond of 6.64 percent. At some point interest rates will return to the average and capitalization rates will increase as well. As capitalization rates increase, the value of an investment property will decline. For example, a 100 basis point (i.e. 1 percent) increase in the market capitalization rate from 6.5 percent to 7.5 percent would result in a 13.3 percent decline in a property’s value, if all else stays the same. Read more…

Commercial real estate markets in the US showing gradual improvements says NAR

Courtesy of PropertyWire.com

Most of the major commercial real estate sectors in the United States show gradually improving fundamentals, according to the latest property forecast report from the National Association of Realtors.

They are easily absorbing the relatively small amount of new space that is coming online, with a full recovery already in the multifamily market, it says, as market slowly build momentum.

Job creation is the key to increasing demand in the commercial real estate sectors, according to Lawrence Yun, NAR chief economist. ‘The economy is expected to grow 2.5% next year, and with modest job creation, assuming there is no fiscal cliff, the demand for commercial space will gradually rise. The greatest friction that remains is a tight credit environment, notably for smaller properties,’ he explained. Read more at PropertyWire.com

Real Estate Forecast 2013-2014: Commercial Properties – Forbes

By Bill Conerly, Contributor

Commercial real estate will improve marginally in 2013. New construction activity will inch upward, operating income will be a little better, and property values will level off. Later, in 2014 or 2015, operating income and prices will both rise, triggering increased construction.

The recession clobbered occupancy of office, industrial and retail space, which pulled rents down. Landlords suffered from lower revenues. In the slow recovery, new construction dwindled to nearly nothing. Current need for additional square footage was nil, and those developers who wanted to build for future demand found that lenders were hesitant to take much risk.

The current situation is that leases are dribbling in, generating small increases in occupied square footage. The current pace of construction is not only lower than in the boom, but well below historic averages. We know that given even middling economic growth, we’ll eventually need to build at a much stronger pace. However, the high vacancy rates that are a legacy of the recession will limit new construction through 2013 at least.

Read More…

Commercial and residential real estate are directly connected

By Curt Arthur, statesmanjournal.com

Curt Arthor, Guest Writer

There is no question of the direct correlation between the health of the commercial real estate market and that of the residential market, including the number of foreclosures we see in the Mid-Willamette Valley each year.

Salem, like many other markets across the United States, has been stung by companies closing their operations in our market. Commercial vacancy rates have soared as we experienced closures from big box retailers such as Circuit City or Wickes Furniture, office building users like Holiday Retirement or industrial companies like Deluxe Ice Cream. The loss of these jobs weakens the housing market and negatively impacts the purchasing power of our local communities as the average household income plummets.

As household income plummets, the amount of foreclosure notices rise with residents unable to meet their expenses. Read more…

New Commercial Real Estate Investment Podcast from Steelhead Capital with Dan Fasulo

Steelhead Capital announces the publication of the current issue of the Capital Synergies podcast. This 30 minute interview offers timely insights into the trends and opportunities for commercial real estate investors in today’s market.

San Francisco, CA (PRWEB) September 29, 2012

Peter Slaugh of Steelhead Capital hosts this insightful podcast with commercial real estate expert Dan Fasulo of Real Capital Analytics. Highlights include discussion of current market trends, the uncertainty that has plagued commercial financing, and the impact of Europe investments along with discussion of the upcoming election as it relates to investor confidence in the months ahead.

Real Capital Analytics is a research and consulting firm, headquartered in New York, with offices in San Jose, California; London, England, and Singapore. RCA’s core business is tracking the sale and recapitalization of every significant commercial property, both in the United States and around the world. Read more…

Download the podcast

What’s New in Commercial Real Estate; Turlock CA and the surrounding areas

By Howard Hartvickson, REALTOR®

Northern California Commercial Real Estate News, Turlock and surrounding communities1. Blue Diamond is currently building a state-of-the-art facility on the west side of Turlock, bringing with it hundreds of new seasonal and permanent jobs.

2. The Olive Garden restaurant is opening in the Monte Vista Crossing in Turlock on North Tegner… more jobs and good food.

3. The City of Patterson is fast becoming a major industrial center. Located on the I-5 corridor, large suppliers can deliver to the major metro areas to the east and south. Amazon is bringing 1000+ jobs to compliment the large existing distribution center. 800 acres are being proposed for annexation to the industrial area. All of this adds up to jobs and a demand for housing.

4. Hilmar Cheese is building an administrative office on the south side of August Avenue as they continue to grow and provide good paying jobs for the area.

5. The old Long’s building on Geer Rd. is being transformed in Fallas Discounts Store.

4.

Balancing Act: Lack of New Commercial Space Overcomes Softening Demand

By Mark Heschmeyer
Commercial real estate demand softened during the first quarter of 2012, but not enough to throw absorption off its pace of eight straight quarters of gains. The numbers were aided by little if any meaningful new construction coming online, resulting in declining vacancy rates. Although rising energy prices and fiscal debt issues for both domestic and foreign governments remain as clouds on the horizon, the U.S. commercial real estate market remained firmly in recovery mode.

Courtesy of Lee Whistler, Realtor for Century 21 M&M Clovis

ULI: Consensus of Economists Sees Promising CRE Outlook Through 2014

CMBS, Investment Transaction Volume Likely To Jump Sharply As Economy Gains Steam

By Randyl Drummer
March 28, 2012: Even among the stream of positive real estate surveys and forecasts recently, the one issued this week by the Urban Land Institute (ULI) stands out. Expressing the consensus views of 38 leading real estate economists and analysts from across the U.S., ULI reported commercial real estate market conditions and the overall economy is expected to see broad improvement over at least the next two years as the recovery cycle kicks into overdrive and shifts into growth mode.

In other key highlights. the ULI forecast expects CRE transaction volume to increase by nearly 50% over the next three years, while issuance of commercial mortgage-backed securities (CMBS) is expected to more than double. Institutional real estate and real estate investment trusts (REITs) are expected to provide returns ranging from 8.5% to 11% annually through 2014.

Courtesy of Lee Whistler, Realtor for Century 21 M&M Clovis

Consensus of Economists Sees Promising CRE Outlook Through 2014

CMBS, Investment Transaction Volume Likely To Jump Sharply As Economy Gains Steam
By Randyl Drummer
March 28, 2012

Even among the stream of positive real estate surveys and forecasts recently, the one issued this week by the Urban Land Institute (ULI) stands out. Expressing the consensus views of 38 leading real estate economists and analysts from across the U.S., ULI reported commercial real estate market conditions and the overall economy is expected to see broad improvement over at least the next two years as the recovery cycle kicks into overdrive and shifts into growth mode.

In other key highlights. the ULI forecast expects CRE transaction volume to increase by nearly 50% over the next three years, while issuance of commercial mortgage-backed securities (CMBS) is expected to more than double. Institutional real estate and real estate investment trusts (REITs) are expected to provide returns ranging from 8.5% to 11% annually through 2014.

Courtesy of Lee Whistler, Realtor for Century 21 M&M Clovis

Investors See Good Prognosis for Health-Care Real Estate Despite Market Uncertainty

Developers Will Increasingly Need to Partner With Well-Capitalized Players to Get Projects Built
By Randyl Drummer

March 14, 2012
The health care industry and its real estate providers are literally caught between two eras as the 2012 elections and a key U.S. Supreme Court decision that will determine the future of health-care reform play out against the backdrop of a strengthening, yet far from robust, economic recovery.

Courtesy of Lee Whistler, Realtor for Century 21 M&M Clovis