As retail investment properties demonstrate strong underlying fundamentals, some investors are awaiting a return to stability, according to the Jones Lang LaSalle Retail Investment Sales Mid-Year Outlook for 2008.
Jones Lang LaSalle anticipates the level of transactions will be off substantially from their historic highs last year, says Jim Koury, managing director of Retail Investment Sales at Jones Lang LaSalle, a real estate money management and services firm in Chicago. He noted that during the last two years , the best properties were selling at historically low cap rates — 5.5 percent to 6 percent — but now have reached 6.75 percent to 7.25 percent. That's still near a 20 year high, he notes. “This isn't a normal market, but it's not a dead one either.”
Koury says the bulk of transactions are taking place this year primarily among institutional buyers and REITs, who he notes are in the best position to come up with equity to place into a transaction, which today is anywhere from 35 percent to 45 percent. “They're flush with cash, even though a lot of REIT stock prices have been adversely affected in the past year.” The majority of them, he says, remain well capitalized.
The faltering subprime mortgage market is having an impact on retail investment sales. During the past three years, the substantial supply of cheap debt afforded various types of private sector buyers an opportunity to enter the market and purchase property at “pretty aggressive pricing.”