Even, as Chief Executive Jim McCaughan says, considering the "well-known refinancing issue" hiding around the corner, he feels the yields "are attractive" for brick and mortar investments and that "it's about time for commercial real estate." We couldn't agree more! Unfortunately, we're not seeing the deals at the opportunistic pricing everyone expected. Global Investors has even published a "why you should by CRE" paper meant for non-US investors. It has nice information, but fundamentally relies on under priced assets being available. While there are buying opportunities, we have yet to see the kind of value-added deals everyone assumed would be on the market by now. Sellers just haven't been playing ball unless someone takes their ball and gives it away. That just isn't happening to create real velocity. But we like Mr. MCaughan's enthusiasm and recommendation to start buying.
Large CRE Funds - Whose Got the Money?
Within the large CRE investment funds, there are basically three types: public REITs, registered but untraded REITs - the so-called private REITs, and private equity funds. We have seen for some time the ability of private REITs to amass capital. For example, a large private REIT we know focused on medical acquisitions has consistently raised $2-$3 million a day and another focused on retail is raising $3-$4 million a day. Contrast this with private equity firms, who have had their relative struggles raising money in this environment.
Two years ago, there seemed to be a prediction on private REITs as well - this article from Global Real Estate Monitor in April 2008 predicted substantial growth in private REITs. Of course, there's always exceptions to the rule, as Inland's recent inability to raise substantial cash demonstrates (they raised just $67 million from August 2009 through March 2010).
But it seems the time may be ripe to tap the public markets. According to CoStar, "there have been more than 90 filings by REITs since March 1 announcing more than $10 billion in new fund raising activity and seeking to raise more than $50 billion." This filing activity was highlighted by the largest secondary offering ever, which was done by Macerich Co., raising $1.23 billion in a filing that closed in early April.
So who has the money? Everyone, it seems. Even at a relatively slow fundraising pace, the PE firms still raised nearly $10 billion last quarter. So capital will be, and is being, deployed into the CRE market. Now we just have to wait for the flood gates to open on bad CMBS loans.
Two years ago, there seemed to be a prediction on private REITs as well - this article from Global Real Estate Monitor in April 2008 predicted substantial growth in private REITs. Of course, there's always exceptions to the rule, as Inland's recent inability to raise substantial cash demonstrates (they raised just $67 million from August 2009 through March 2010).
But it seems the time may be ripe to tap the public markets. According to CoStar, "there have been more than 90 filings by REITs since March 1 announcing more than $10 billion in new fund raising activity and seeking to raise more than $50 billion." This filing activity was highlighted by the largest secondary offering ever, which was done by Macerich Co., raising $1.23 billion in a filing that closed in early April.
So who has the money? Everyone, it seems. Even at a relatively slow fundraising pace, the PE firms still raised nearly $10 billion last quarter. So capital will be, and is being, deployed into the CRE market. Now we just have to wait for the flood gates to open on bad CMBS loans.
Too Late.
I just watched the afternoon edition of Bloomberg. Now the “experts” are saying that not only has the market bottomed but it has now come back to high price levels. One of them gave an example of a big $160M deal in New York that just sold for a 3 CAP.
Funny was one of the experts said what everyone has been thinking: “where are those 9 CAP deals we have all been waiting for?” and the best comment I think I heard was “the smart money is done waiting and is now buying and selling”.
So it seems to me that the investors waiting for the desperate deals never really found them and we are heading back to regular business as usual. Since I can’t seem to get the hang of golf I am glad to hear this and I look forward to a busy rest of the year.
New License Law
So I took the required 3-hour “Transition Course” this morning with great anticipation that the confusions about broker, agent, designated broker, etc. would finally be abolished with the new labels that become effective under the new license law that kicks in July 1. I now sadly report that it will be more confusing than ever, despite the valiant effort of the attorney who did a really good job presenting the new laws today. I cannot even bring myself to tell you what the new definitions are as it will leave you wondering why.
Regardless of the definitions and their clarity or lack thereof, there seems to be some sanity towards the way apartment buildings are operated (which I think may be in large part due to the lobbying efforts of the RHA). In any case, the story remains the same: hire a good person, regardless of designation or label, and your outcome will be good.
Regardless of the definitions and their clarity or lack thereof, there seems to be some sanity towards the way apartment buildings are operated (which I think may be in large part due to the lobbying efforts of the RHA). In any case, the story remains the same: hire a good person, regardless of designation or label, and your outcome will be good.
Huntington Center - New Toledo Arena Renamed
The Toledo Blade reported Huntington Bank will pay $2.1 for the naming rights for six years for what was the Lucas County Arena, a $105 million facility that has only been open for 6 months. It will now be called Huntington Center. As lending continues to thaw and banks continue to clean up their balance sheets, it's interesting to see larger advertising splashes like this being made.
Fed Beige Book - "Further Signs of Strengthening"
The Fed published the Beige Book yesterday, which discussed signs of improvement nationally. Here are some highlights from the main summary regarding Cleveland/Fourth District:
- Consumer Spending - Cleveland reported recent sales strengthened and noted that retailers expect sales to improve during the upcoming months
- Manufacturing - Cleveland reported positive results in metals and fabrication, and increased auto or auto component production
- Banking - Most banks in Cleveland reported weak consumer loan demand, although a few contacts saw a slight increase due to seasonal factors. Not surprisingly, Cleveland saw flat business loan volume and tighter lending standards for commercial mortgages.
- Commercial real estate - Activity was slow across the nation, but Cleveland saw some development in the energy and industrial segments
- Employment - Cleveland reported strong demand for temporary workers. A pickup in employment was noted in the manufacturing sector, with little change in staffing for retail, energy, transportation and banking.
- Consumer Spending - Cleveland reported recent sales strengthened and noted that retailers expect sales to improve during the upcoming months
- Manufacturing - Cleveland reported positive results in metals and fabrication, and increased auto or auto component production
- Banking - Most banks in Cleveland reported weak consumer loan demand, although a few contacts saw a slight increase due to seasonal factors. Not surprisingly, Cleveland saw flat business loan volume and tighter lending standards for commercial mortgages.
- Commercial real estate - Activity was slow across the nation, but Cleveland saw some development in the energy and industrial segments
- Employment - Cleveland reported strong demand for temporary workers. A pickup in employment was noted in the manufacturing sector, with little change in staffing for retail, energy, transportation and banking.
Apartment Acqusition Shows Distressed and Multi-Family Interest
Equity Residential purchased a 559-unit complex in Washington, DC, reported on by Globsest.com, for $167 million. For a complex that's totally vacant, nearly $300,000 per unit seems a tad rich, but Equity Residential must feel they will stablize it fairly quickly. Good luck.
University Circle Development Secures Initial Financing
Photo courtsey of The Plain Dealer from cleveland.com
Bank REO Sale Closed
McQuaid Commercial Real Estate has closed the sale of a lender owned property on North Capitol Hill for $1,300,000.
Natalia Beran of McQuaid Commercial who represented the seller, Golf Savings Bank, said “while the seller initially thought that they only had land for sale, a product not highly desirable in today’s market, we were able to convince them that the property would sell for much more if positioned as an existing income property with below market leases and fortunately for us all the seller allowed us to proceed with marketing accordingly”.
The property was an assemblage of buildings leased to commercial tenants and the sale price equaled an 11.7 GRM and a CAP rate of 5.99%, a reflection of the below market rents and the superior location.
Previously under pre-development, the property had been managed with all short term leases in anticipation of vacating the property for redevelopment. Due to the change in market conditions the property was marketed as a long term investment with below market rents and a buyer was secured within a few weeks of going to the market. The local buyer intends to retain the existing tenants and offer them all long term lease agreements.
MCQUAID Commercial Real Estate is located at 400 Roy street in lower Queen Anne. It is an open concept, boutique-style firm offering advising services and focuses on superior client representation.
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