First Gains for CRE Price Index Since 2008

First Gains for CRE Price Index Since 2008

Posted by & filed under For Tenants, Landlords, News, Real Estate Investors, Uncategorized.

News: National

 

CoStar Group - Home

December 14, 2011

Original Article

Written by Randyl Drummer (rdrummer@costar.com)

CRE Price Index Sees First Year-Over-Year Gain Since 2008

Fewer Distressed Sales and Solid Investment Grade Deal Activity is Driving Sustained Pricing Rebound

CoStar’s monthly National Composite Index of commercial real estate prices increased 2.2% in October from the same period a year ago, the first year-over-year improvement since the economy took a sharp downward turn in 2008.
The solid recovery of investment-grade property prices and the continued decline in distressed sales volume spurred the growth in commercial property pricing, lifting the index to an impressive 1.8% gain in October from the previous month and continuing its upward trend.

The year-over-year and monthly increases in October reflected long-awaited positive momentum in the composite index, which has now achieved a steady 1.3% average monthly growth rate over the six-month period between May and October 2011, according to this month’s CoStar Commercial Repeat Sale
Index (CCRSI), based on 743 repeat sale transactions recorded in October and more than 100,000 repeat sale transactions since 1996.

Other highlights from this month’s CCRSI report include the following:

The General Commercial Index continued its steady move upward, increasing by 1.4% in October, the sixth consecutive month of rising prices since reversing the 32-month downward trajectory in general commercial property pricing that began in September 2008.

The Investment Grade Index gained a strong 3.4% in October from the previous month. After bottoming in late 2009, this index bumped along near the bottom around the same level for almost two years before beginning its recent climb in March 2011. Growth resumed in September following a brief pause in August, and CoStar analysts predicted sustained growth because it synchronizes with the price increase tracked by the General Commercial Index, an indication of an across-the-board recovery.

Stable fundamentals across most commercial property markets and product types, including improving occupancy, and softening downward pressure from distress sales, supported the solid performance of both the investment grade and general indices. The level of distress sales as a percentage of general commercial repeat sales fell from 33% in March 2011 to 24% in October 2011. For investment-grade properties, this ratio dropped even more steeply, from 53% to 28% in the same period.

CoStar’s Investment Grade Repeat Sales Index increased by 3.4% in October and is now 6.9% above the same period last year, and 31.1% below its peak in August 2007. Despite the monthly and year-over-year increases, the Composite Commercial Repeat Sales Index remains 31.5% below the August 2007 peak.

The General Grade Commercial Repeat Sales Index rose by 1.4% in October and is now 1.1% above the same period last year, and 32% below the peak.

October’s total of 743 sales pairs is on par with historical averages for transaction activity, according to the CCRSI December 2011 report. At the low point in the last downturn in January 2009, a total of 385 sale transactions were recorded.

Of the total sales pairs in October, 599 were general property sales and 144 were rated as investment grade. The sale-pair counts for both indices are likely to increase slightly in coming months as additional closings are recorded, CoStar analysts noted.

As the average transaction size increases, overall transaction volume continues to trend upward, increasing by 29.4% annually in October, while the average deal size increased by 23%.

Distress sales continued to decline from 35.4% of total repeat sales in March 2011 to 25.2% in October 2011. Although distress sales have gradually declined over the past seven months, the overall level is still high on an historical basis, suggesting that distress continues to be a significant factor of CRE pricing.

Also, by transaction count, General Grade sales pairs accounted for 80.6% of the total sales transactions, a ratio that has been stable over the past 12 months.


 

Copyright (c) 2011 CoStar Realty Information, Inc. All rights reserved.

 

CoStar Subscription Upgrade

Posted by & filed under Landlords, News, Real Estate Investors.

Douglas Commercial, LLC  recently upgraded their subscription to Costar, the commercial multiple listing system. They will now have access to tenants in all the buildings in Anne Arundel and Howard County with contacts and lease expiration dates. We will be able to send targeted email blasts relative to your listings. We should have this fully implemented in the next few weeks. Stay tuned for updates.

Cheap Money Fueling Net Lease Market

Posted by & filed under Uncategorized.

 

Higher LTVs and Tax Plays Also Figure In; (Part 2 of a 4-Part Series)

By Mark Heschmeyer

Orignal Article Here

October 12, 2011

 

The availability of inexpensive money from a variety of capital sources, both large and small, has fueled the more than $29 billion of confirmed single-tenant investment sales year to date.

Continued uncertainty with the stock market, together with lower yields available from more traditional investments and the relatively poor performance of multi-tenant retail, investors have been turning to the more predictable cash flow and returns associated with net-lease property. Lenders and funds have responded accordingly.

“The ‘buy’ side is being driven by the non-traded public REITs that raise funds from individual investors through broker-dealer networks,” said Scott E. Tracy, founding principal Corporate Partners Capital Group in Los Angeles.

CoStar data backs up the track record of fundraising for non-traded private REITS and public REITs. In the past year, five funds alone have raised more than $4 billion.

W. P. Carey & Co. LLC $1.76 billion
Realty Income Corp. $664 million
American Realty Capital Partners $642 million
National Retail Properties Inc. $540 million
Medical Properties Trust $450 million

That kind of fundraising clout makes acquisition credit facilities available to such firms dirt-cheap. For example, Realty Income Corp.’s average borrowing rate on its acquisition credit facility as of June 30, 2011, was just 2%. National Retail Properties’ credit facility currently accrues interest at a rate of 1.73%.

Jonathan Wolfe and Jordan Shtulman, senior vice presidents with Grubb & Ellis Sale Leasebacks/Net Leased Properties Group in Chicago, explained that as interest rates have moved lower, the cost of financing has followed suit. In addition, lenders are putting an emphasis credit quality — all of which has driven increased investor demand for net leased properties with strong credit tenants.

And because the non-investment grade net leased assets are more challenging to finance, the buyer pool for these types of properties is smaller. This is particularly true when the assets are located in secondary, tertiary and rural markets, Wolfe and Shtulman explained.

Tracy of Corporate Partners Capital Group also said that, in addition to the cheap money, an active 1031 tax deferred exchange market has re-emerged that is fueling activity at the lower price points.

Cynthia Shelton, director, investment sales at Colliers International in Orlando, confirmed that interest from 1031 buyers for single-tenant properties is strong. “There is lots of interest in these properties as it’s a rush to safety and returns that are better than T-bills and mutual funds while not as risky as stocks. Many restaurant franchisees are also coming back to the market with sale leasebacks.”

“Individual investors are taking money out of other investments that are not getting the return that they can get in real estate,” she said. “Many institutions and individuals are paying cash and financing after the close. Some are getting 50% to 60% loan-to-values with 20- to 25-year amortizations and 5- to 10-year terms depending on the tenant and term of the lease.”

“The investment grade credit with long-term leases can still get 70% to 80% loan-to-values and have a positive spread between the low interest rates and the yield on the real estate,” she said. “Some are using lines of credit with plans to refinance later.”

David Zacharia, principal of DZ Realty in Las Vegas, is seeing money coming from another common source.

“High net worth individuals is another large player in today’s net lease market acquiring many corporately leased fast food, drug store, auto parts, and dollar store leases. Almost half of these buyers are estimated to be transacting within a 1031 exchange,” Zacharia said.

“For the smaller deals, like McDonald’s, it’s almost exclusively coming from private, high net worth investors and family trusts,” said David B. Chasin, executive vice president of Pegasus Investments in Los Angeles. “For the larger deals (portfolios and single assets greater than $15 million), we’re seeing strong appetite from the private REITs, overseas (particularly Europe and Asia) and syndication platforms.”

Larry Hausman, a senior broker with Marcus and Millichap of Louisville, KY, said people are increasingly becoming more afraid of inflation and no longer want to hang on to their cash.

“Many investors are taking advantage of historic low interest rates to buy quality assets. Thus, there has been increasing competition for high quality assets that can yield greater returns than bonds of the same credit rating,” Hausman said.

Phil Ryan, an associate with Lavista Associates Inc. in Norcross, GA, said there are several reasons why capital is flowing to single-tenant properties.

“Capital is coming from several sources: the private equity investor who needs income, the institutional investor who needs to stay in real estate but desires to reallocate its holdings to diversify risk and several private equity groups that are raising funds in the market promising adequate returns with low risk,” Ryan said.