Banks Take It Slow
continue their slow deleveraging act for at least another year, according to Emerging Trends in Real Estate 2013, holding troubled
assets while waiting for values to inch up. “As long as loans are current,
lenders are better off to extend than sell loans at discounts, foreclose and
recognize losses when markets have further room to improve, or refinance at
lower rates,” says the Urban Land Institute/PwC report.
— Hotel transactions totaled about $8 billion in August and
should close out 2012 in the $12 billion to $14 billion range, down from 2011’s
$20 billion volume, according to STR Analytics, which attributes the decline to
fewer REIT deals. However, hotel investors are feeling more comfortable, says
STR director Steve Hennis: “They don’t see as much risk as in 2009.”
Industrial — Demand for class A industrial space
continues to drive lease rates up in some markets as well as fuel new
construction, mostly at the expense of older buildings, CBRE reports. New
construction totaled 11.2 msf in 2Q12, with pockets of spec building occurring
in Northern Virginia, Indianapolis, Inland Empire and Orange County, Calif.,
Salt Lake City, and Atlanta.
Multifamily — Apartment demand “will continue to
outstrip supply for the next couple of years at least,” says Mark Obrinsky,
chief economist of the National Multi-Housing Conference. “We’re still 100,000
starts a year away from meeting demand — or maybe more.” The situation is not
helped by tight financing: NMHC’s quarterly survey indicates that acquisition
and construction financing are restricted to top-tier markets.
Office — CBRE economist Arthur Jones recommends
Houston and Pittsburgh as strong targets for non-core market office
acquisitions. The reason? Both cities have recovered in terms of employment and
effective rent for secondary markets. “For investors looking to clear an IRR
hurdle on the order of 8 percent, these are among the markets that can provide
that sort of return,” he says.
Retail — The number of retail chief financial
officers forecasting a continued economic turnaround nearly tripled this year when
compared to 2011, according to a BDO retail survey of CFOs: 32 percent see
better days ahead, compared with 11 percent last year. In addition, CFOs
forecast a 4.5 percent increase in total retail sales for 2012.
As of 3Q12, the industrial sector
has added as much space as it shed during the recession, according to Cassidy
Turley’s 3Q analysis. Users have leased 166 msf of industrial space in the last
21 months, equal to 900 buildings, according to the U.S. Industrial Trends Report. In the 3Q12 alone, 27.5 msf was
absorbed, bringing national vacancy to 9.0 percent. While industrial sales
overall were down for 1H12, single-property sales were up 20 percent, along
with sales prices. The lack of new supply — warehouse development is 67 percent
below peak — and a net demand for 80 msf to 100 msf in 2013 should push rents
upward in the new year.
Easing Round 3: Good News?
“This action bolsters the mortgage market, and although credit
requirements are a hurdle, the Fed has removed much of the near-term interest
rate risk, creating more certainty for lenders and borrowers. The commercial
sector stands to benefit as well. Increased liquidity will aid in the
restructuring of maturing and problematic loans and drive capital into real
— Hessam Nadji, managing director, research services,
Marcus & Millichap