Best Lodging Buys
Looking to buy a hotel? Then look in tertiary
markets for the best deals, says Jim Gray, vice president of CW Capital Asset
Management of Bethesda, Md., who was part of the “Buying and Selling Hotels
Today” panel at the Hunter Hotel Conference in Atlanta. “The larger cities are
going to appreciate faster, but the better buys are in tertiary markets,” he
said when asked to identify “winning markets.” One problem with hotel deals in
primary markets is competition from real estate investment trusts driving up
prices. “If the REITs are buying at 4 [percent] and 5 [percent] capitalization
rates in major markets, then that’s where you don’t want to be,” Gray said.
“You want to be in tertiary markets with higher caps.” Public hotel REITs have
purchased 47 percent of the hotels sold this year, up from 20 percent last
year, according to Real Capital Analytics.
Hospitality — A lack of new
supply — and competition — aided by an improving economy is fueling the lodging
sector recovery, which should be completed by 2013, with average daily rates
expected to surpass the 2008 high mark, according to PKF Hospitality Research.
Low supply will help propel ADRs even higher in 2014 and 2015.
Industrial — Demand for
industrial space is growing at a 1.7 percent annualized rate, which is on par
with historical averages, according to a National Association of Industrial and
Office Properties Research Foundation report. “The upward trend demonstrates
renewed confidence and increased activity in the industrial market,” said
Thomas J. Bisacquino, NAIOP president and CEO, citing the rise over the 4Q10
rate of 1.2 percent.
Multifamily — Calendar year
2010 was the second best year for multifamily leasing in the past 16 years,
with 267,700 units leased, topped only by 283,400 units leased in 2000,
according to the National Association of Home Builders.
Office — A clear sign that
office recovery is in gear: By 4Q10, 11 office markets registered YOY vacancy
drops and 29 of the 51 largest markets had vacancies lower than the previous
quarter, reports Maximus Advisors.
Retail — Tenants looking to
renegotiate with current landlords have missed the boat, according to
ChainLinks Retail Advisors. A better economy and a larger selection of active
tenants have greatly reduced the need for landlords to deal.
Office Occupancy Costs to
While average U.S. office
leasing costs fell about 6 percent nationwide last year, according to DTZ
Research, they are expected to rise about 2 percent annually for the next four
years. Globally occupancy costs will increase 2.5 percent per year, with the
Asia Pacific region seeing the highest yearly growth of 3.7 percent. The Indian
IT center of Bengaluru, currently 67th out of the top 100 markets, is forecast
to have the world’s highest increase between now and 2015: 9.8 percent per year.
“As lenders find it more
difficult to serve a narrow slice of the market in 2011, they’ll be forced to
broaden the range of deals that they’ll finance in order to put their money to
work, suggesting that there may be some hope for those who still struggle to
— The Real Estate
Roundtable Sentiment Survey, 1Q11
The success of Art Basel,
the world’s best-known art fair, in transforming Miami into a cultural
powerhouse is one example cited by a recent UrbanLand article on how the arts
contribute $166.2 billion every year in U.S. economic activity and generate 5.7
million jobs. While Art Basel has helped revitalize redevelopment of several
Miami neighborhoods, it also has inspired activity in other communities. For
example, in Naples, Fla., a former Albertsons grocery store was redeveloped
into the Naples International Pavilion, a host site for art and antique fairs.
Its first show generated between $10 million and $20 million in sales,
according to the event’s organizers.
"Looking ahead, the West
and the South are expected to lead employment gains over the next two years,
with Austin, Dallas, Houston, Phoenix, and Las Vegas expected to see the
strongest employment gains.”
— Jones Lang LaSalle, U.S.
Office Outlook 1Q2011
Looking for a tenant to
fill that big box at the local power center? Check out the Bellevue,
Wash.-based Savers, which operates a chain of for-profit thrift stores and
hopes to add 100 new locations in the next five years. The company upped its
store count to 270 recently by purchasing 18 Unique Thrift stores for about
$180 million. But it also is entering new markets, opening its first Chicago
area store in a vacant Circuit City and a second one this summer in a former
Linens ’n Things. “Due to the fallout of some of the big box guys—Circuit City,
CompUSA, Linens — that’s been an opportunity for us,” said Savers Real Estate
Director David Cree, in an Arkansas Business interview.
Think a thrift store won’t
fit in with your tenant mix? Think again. Savers says 70 percent of its
customers have some college education and average annual incomes in the $45,000
to $65,000 range. Savers sold $680 million in secondhand clothing last year and
plans to sell $1 billion this year.