Food Industry News® September 2014
Page 23
Midyear Commercial Real Estate Review
A key trend that is affecting the Commercial Real Estate (CRE) market is global cash seeking U.S. backed assets. Trophy properties are being competitively bid up with foreign capital specifically from China, Canada, and Australia. Institutional investors, real estate investment trust (REIT), and private equity will favor the major markets. Tertiary markets will offer smaller investors good value and fewer competitors as they are under the radar. Many markets are reporting a return to prior peaks. The 2014 deal flow will likely average upward, but pricing more volatile. Expect to see strong transactional activity at the local level as investment boomers cash out. Financing As commercial real estate cap rates for income producing properties continue to compress and on balance sheets, commercial mortgage backed security (CMBS) lenders remain committed to tight spreads and higher leverage. The current state of the market is the healthiest it has been in the past four years. Most importantly, commercial banks have aggressively returned to the market place, forcing agency and CMBS lenders to loosen underwriting guidelines to stay competitive. 2014 also saw a significant growth in the increasingly competitive bridge loan sector with most CMBS and agency
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lenders offering rates and terms not significantly wider than conventional pricing. Small balance and institutional buyers have readily accessible, aggressively priced short and long term capital that helps retain strong yields even during this recent appreciation in property prices. With the generally anticipated change to the central bank borrowing rate starting in 2015, the second half of 2014 should see substantial growth. In addition to the current environment, it’s an ideal time to acquire properties while leverage, interest rates, loan terms remain stable and very attractive. Alternative Real Estate Plays Auctions for luxury homes are becoming an ever increasing avenue to facilitate a sale. Properties that have not moved through traditional marketing have benefited from auctions. Buyers are engaged and committed through the process and sellers know that they will have a set day
and price for the sale. Manufactured Housing Communities (MHC) are offering investors some of the most attractive risk-adjusted cash yields available. MHC differentiates from apartment investments by two characteristics. MHC are residential subdivisions; though the owner owns the land and property infrastructure and typically only leases the land to homeowners. Another advantage for the owner is the high cost to a tenant for switching communities. An average MHC park tends to trade a 1-3 cap rate higher than comparable multi-family assets. The driving force behind MHC investments is the lack of zoning that will allow new parks to be developed and the ever increasing demand for quality affordable housing.
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Jonathan Tuttle is an associate advisor at Sperry Van Ness Chicago, which recently won Firm of the Year out of 180 in the country. Jonathan has been quoted by major media outlets for real estate information including the Wall Street Journal and Huffington Post. More recently Jonathan was chosen by Crain’s Chicago Business as one of their favorite best dressed Chicagoans.
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