Assisted Living is Up But Is New Construction Slowing?

According to a story published this week by NREI on a new National Investment Center report, assisted living is seeing positive trends, which is helping stabilize some minor backward trends in independent living. AL facilities in the 31 largest MSAs saw absorption of about 40 basis points, while IL dropped about 40 basis points.

Most interesting is that the article says the pipeline for new construction is slowing and that a number of new facilities expected to open this year have been delayed. The primary culprit - financing. This is exactly what we've seen as well. There is significant pent up demand for new facilities, but finding money to get them off the ground is challenging. The typical senior care lenders, e.g., HUD, Fannie, etc., are not putting new construction high on their list, if at all. Even if they will look at them, it could take up to a year to get a deal approved. Traditional banks might do a deal, but need a well-capitalized borrower who will guaranty the debt with effectively full recourse.

As an alternative, we have had success assisting clients through alternate financing structures, primarily a sale-leaseback. There is significant capital ready to get these deals done, albeit at a higher cost of capital than traditional financing. But most clients are willing to swallow the higher cost to get these facilities on line. The upside is too big to wait for the debt markets to return.

As the senior market continues to stabilize and absorption trends up, our guess is that  the construction pipeline is going to grow. Contrary to the article's premise, we don't think the construction pipeline is slowing - we think it's growing but with a bottleneck in the way hindering getting the deals actually done. Expect to see an explosion of new construction once the debt markets really do come back.

Real Estate Fund Returns

The interest for real estate fund is disappearing. The current representative poll of "TNS" on behalf "Robeco Germany" among 350 investment advisers shows that sales of real estate fund is currently declining. In the 3rd Quarterly assess only 48 percent of the sales consultant position to be positive - that is nine percent less than in the previous quarter.

The economy is recovering in Germany. In October, corrected-known economic institutes, the forecast for gross domestic growth in 2010 was clearly up.
The positive outlook for property funds do not apply, however: Your paragraph is to date. Attesting to the latest survey of "Robeco" under 350 investment advisers:
Assessed in the previous quarter 57 percent of respondents still on the market for real estate funds as well, are now only 48 percent - almost a tenth less.
The view forward is obscured. For the next six months expect 38 percent increases in unit sales of the consultants. That's 4 percent from the previous quarter.
"Trust in the property fund last through the settlement of individual funds suffered greatly," says Kai Röhrl, Head of Third Party Distribution of "Robeco". "Sometimes in error, for we are not real estate funds be lumped all. Generally, investors, business, the result of economic data brightened again strengthened to equity funds. Particularly the emerging markets continue to score points with a positive outlook. "

Mutual funds: paragraphs back, expectations remain positive

The sale of mutual funds in the 3rd judge Quarter, 27 percent of the consultants as well. They are 8 percent less than in the 2nd Quarter. By contrast, the expectation of good sales. More than a third of respondents - 37 percent - credit for the next six months with good sales figures. This is an increase of 2 percent compared with the previous quarter.

Equity funds: Paragraphs pull slightly, expectations little changed

The paragraphs in equity funds have increased slightly. Compared to the previous quarter sales position to assess the 3 per cent more consultants to be positive. That's 16 percent of all respondents. Few consultants have their positive sales expectations compared to 2 Quarterly change (-1%). Sun expects at least half of the surveyed consultants (45%) for the next half-year with increasing sales.

Bond funds: paragraphs and prospects virtually unchanged

Compared to the 2nd Quarter, the sales situation and the expectation with respect to pension funds has remained virtually unchanged. With a drop of 1 percent report 16 percent of respondents good sales figures. The number of consultants, the increase in sales for the next six months expect to remain, 13 percent of unchanged (+ / -0%). The current survey results confirm the slight upward trend in pension funds.

Money market funds: sales situation further act, expectations of positive

After the depression in the 2nd Quarter is sales of money market funds continue to behave. Only 14 percent of the consultants to assess the sales situation in money market funds as well. This is only 1 percent more than in the previous quarter. Although the advisers remain cautious for money market funds. But now believe at least 9 percent of the investment adviser - and 2 percent more than in the 2nd Quarter - from increasing sales in the next six months.

Hedge Funds: paragraphs and prospects remain low

According to the survey quarter, the sales situation of hedge funds in the 3rd hardly improved. After all paragraphs valued just under 1 percent of the investment adviser as well. In the last quarter of the consultants had not drawn a positive conclusion. Also for the next six months, the consultants expect any major changes: The number of those paragraphs, the increased number is expected to remain unchanged at 1 percent (+ / - 0%).

The adviser sentiment index for mutual funds decreased slightly: Compared with the previous quarter, the index falls by 0.3 percent and now stands at 99.8 points.

Overlooking Opportunity

By Noah Klika, McQuaid Associate Broker

A pricing expectations gulch continues to exist in the Seattle multi-family market today that began almost two years ago. Sellers are reluctant to list and sell their property because they cannot get the 4% cap rates once offered to them a couple years back by condo converters and town home developers. Buyers continue to keep large amounts of cash or capital on the sidelines to pounce on the 8-10% cap rate trophy property underwritten properly in an A+ Seattle neighborhood that becomes available (supposedly). This disagreement over what buildings are worth has resulted in an extraordinary reduction in sales. The number of buildings sold year to date and now in the fourth quarter stands at 60 properties (5-75 unit properties or non-institutional grade for the purposes of this conversation). Compare this to an average of over 300 buildings sold annually from 2005-2007 or what many consider the peak of the market. Let us also look at the number of buildings sold after the last time a regional recession took place (dot com bust). Between 2000-2003 over 200 buildings on average sold during each of those years.

Despite an ever increasing amount of mixed or negative news revealed each day about the fragile economy and feeble pace of growth there exists a rare opportunity that benefits both sellers and buyers who are willing to participate in the market today. For buyers, interest rates for commercial loans have finally become commensurate with the ultra low rates available for residential real estate. We are working with buyers getting 4% or lower rates for commercial multi-family loans. For those who believe cap rates are still too low I feel you should consider this: When was the last time you were able to get positive leverage on A+ properties in the most coveted Seattle neighborhoods? And if so in many cases upwards of a 1.5-2% spread looking at cap rates of buildings we have recently sold or have in escrow currently. Not to mention the other corresponding metrics to determine your return on investment. Sellers, historically speaking and relative to other parts of the country currently whether it be a coastal urban market like San Francisco or New York or middle America, when has the opportunity to sell your property for a sub 6% cap rate become an unappealing opportunity?

I do not have a crystal ball to say whether the market will get better or worse. However, I did just read a report I always enjoy reading which is done annually by the Urban Land Institute and PricewaterhouseCooper ranking Seattle the sixth best metro in the country for commercial real estate investment with the spotlight on the multi-family sector. It even speaks about new development and construction for multi-family picking up, a leading indicator. Will better pricing opportunities exist moving forward for buyers or sellers?

My goal in writing this is to make both buyers and sellers think hard about their decisions to participate in the market today. All the negativity and uncertainty in the news can lead to flawed conclusions. Everything is easier in hindsight and the dynamics of the marker today benefit all parties involved.

For those who think the market is dead, we have had multiple offers in the pricing discussed above on multiple properties sold in the recent past or currently under contract. Sellers interested in an opinion of market value or buyers looking to find a great multi-family investment opportunity please feel free to call McQuaid Commercial Real Estate at (206) 270-8880 or visit our website at www.mcquaidre.com.

We look forward to helping you in any way we can.

Is the News Wrong?

The one constant about the news, both local and national. Nothing gives a reporter a larger gleam in their eye then reporting bad news. Throw in a celebrity and its going to be a great news cycle. A perfect example would be the recent news coverage of Paris Hilton. She was caught with drugs (allegedly) and thrown in jail. It was on the news constantly over the last week.

Another small blurb about the Las Vegas real estate market was thrown in. Las Vegas home sales are down compared to last year and new home sales are hitting rock bottom. But is it really bad news for everyone? Not if you are a home buyer of course. People are still moving to the Las Vegas valley and there are people looking for investment or vacation property too. Just because someone said it on television does not make it so. It is all about perspective.

If you are thinking about moving to the Las Vegas valley and have questions, feel free to drop me a line. Thanks for reading our Las Vegas real estate blog.