- The Search for Yield, Part 2: Refinancing Commercial Real Estate “Ten years ago, you could not open your daily financial periodical without being bombarded with articles about the subprime loan crisis. However, quietly in the background, commercial mortgage backed securities (CMBS) were being issued at a record pace, with loan to value ratios over 100 percent. In 2005, approximately $169 billion of CMBS loans were issued. Two years later, this number reached $230 billion. Today, analysts are predicting just $50 billion in CMBS issuance for 2016 – far less than the nearly $90 billion in loans due for refinancing this year and over $100 billion in 2017. Many of the commercial loans were issued at 10 year terms, and the so-called “wall of maturities” has arrived. As a result, there are many opportunities for accredited investors to access private credit funds that seek to close the funding gap created by the supply and demand dislocation in commercial credit markets. Traditional debt providers such as large banking institutions are limited in the capacity to refinance commercial debt due to regulations requiring lower LTV ratios and a continued aversion to the asset class from the Great Recession. Private Fund managers are stepping in to originate financing solutions for borrowers that are unable to secure funding. In many cases, high performing commercial properties with strong cash flow are unable to refinance with a traditional lender and private fund managers are able to get exposure to high yielding assets with reasonable risk exposure. In other instances, commercial borrowers that are currently 'under water' on their loan have decided to forgo property enhancements and any other capital investment aimed at increasing rental income.” (Equities.com)
- Starwood CEO: 'I'm bullish' on real estate “With home prices on the rise, international companies breaking into the U.S. travel space and the election almost over, Starwood Capital Group Chairman and CEO Barry Sternlicht said Monday that he is bullish about the future of the real estate market. Sternlicht said that his company's broad reach across the real estate space — with hotels, apartments and malls in the United States and abroad — enables him to view the market on a broader scale. ‘I think you can see acceleration in spending, incomes are rising,’ Sternlicht said. ‘I'm seeing that real estate markets, in general, have never been better in the United States.’ He told CNBC's ‘Squawk Box’ that rising prices of apartments and single-family homes were major contributors to the real estate market's success. Sternlicht said some of the more major U.S. markets were buckling, taking a backseat to more up-and-coming cities like Seattle.” (CNBC)
- Health Care REITs Cutting Back on Skilled-Nursing Holdings “Two of the top three health care real estate investment trusts (REITs) have spun off their struggling skilled-nursing investments into separate REITs. Ventas spun off its skilled-nursing portfolio into Care Capital Properties in August 2015, and HCP recently finalized its spinoff, Quality Care Properties (QCP); QCP shares will be distributed to shareholders at the end of this month. Another REIT cutting back is Sabra Health Care REIT, which is selling 29 skilled-nursing facilities (SNFs) and outpatient recovery centers in order to reduce exposure. Ventas reported that spinning off its 355 skilled-nursing holdings allowed it to achieve stronger growth, a more stable cash flow, and a greater portion of income from private-pay assets in its portfolio. Skilled-nursing facilities have been underperforming due to the changes in medical billing practices implied by the Affordable Care Act (ACA); new payment models, lower reimbursement rates, and shorter patient stays to name a few. Additionally, exposure to Medicare Advantage has greatly increased since 2013. Since these changes are tied to the ACA , experts say that the skilled-nursing facility sector will continue to face these revenue challenges for an indefinite period of time. Consequently, some investors are hesitating to put their money in health care REITs, which has forced these REITs to cut back on underperforming skilled-nursing holdings.” (Urban Land Magazine)
- Survey Shows Commercial Real Estate Markets Continuing to Firm “Commercial real estate markets are expected to continue to firm in the next three years, albeit possibly not as robustly as during the past three, according to a recent survey of industry economists. The consensus outlook of 51 economists and analysts from leading real estate organizations, conducted by the Urban Land Institute (ULI) Center for Capital Markets and Real Estate, anticipates that vacancy rates will remain low and may move lower, supporting further gains in both rents and property prices. The apartment vacancy rate is expected to be stable near its recent historical lows, while vacancy rates in the office, industrial and retail sectors are projected to edge down. The survey does show some slowing, though, with commercial real estate transaction volume expected to decline about 21 percent from its post-recession high of $545 billion in 2015 to $428 billion in 2018.” (REIT.com)
- How does an election affect the real estate market? “As commercial real estate brokers, every four years we experience an odd phenomenon where the market first slows, and then crawls, and then stops … and then jumps and starts, all inexplicably, until we realize it’s a presidential election year, and people are just plain scared. As scary as the upcoming election may be, how does it fit into forecasting the future market? There are some preconceived notions about presidents from one party having a better track record on the economy than the other. But in fact, that’s not the case: employment growth has varied by president and no party can claim it’s better at growing jobs. In these studies, analysts looked at total employment as a gauge of how well the economy was managed. The reality is if one party does prefer a smaller government, it’s not evident in employment trends. Although three of the earlier Democratic presidents (Kennedy, Johnson and Carter) added considerably to the government labor pool, the last two Democratic presidents (Clinton and Obama) shed government jobs, even as the economy expanded at a healthy pace. Likewise, federal government jobs grew considerably under Reagan, but shrank during the Bush 1 administration. So what does this mean for the U.S. and Washington, D.C. market outlook? What does it mean for northern Nevada real estate values? Virtually nothing. What matters are numbers like those released in NAIOP’s (National Assoc. of Industrial & Office Properties) September Sentiment Index, which does show the commercial real estate market does appear to be slowing a bit.” (Northern Nevada Business Weekly)
- Trump Hotels Reveals New Brand Name “Trump Hotels recently revealed the official name and concept details for its new hotel brand, Scion. The name means “descendant of a notable family” and it is a multi-faceted lifestyle brand developed in response to the boom in social clubs and the “we” economy. The Trump Org. originally announced its plans for a new hotel brand in June, as CPE reported. Scion is designed to connect and engage guests and others with a strong sense of community. The brand will deliver locally relevant experiences to those looking for a sense of connection during their travels, as well as when they return home. The audience for the new concept is the segment of travelers desiring to interact with others in energized social spaces…The brand is expected to develop in city and resort locations that have a sense of place and personality.” (Commercial Property Executive)
- Construction spending in city to soar to $128B in next three years: report “Construction spending in New York City is expected to soar to $127.5 billion over the next three years, signaling that the building boom of the past few years still has legs. In its latest report, the New York Building Congress predicts that spending will hit $43.1 billion in 2016, a 26 percent increase from 2015’s $34.4 billion. The organization’s latest forecast falls in line with its earlier predication in 2015 that spending was on track to cross the $40 billion threshold in 2016 — for the first time in the city’s history. The building boom is expected to continue in 2017, when construction spending is projected to reach $42.1 billion and then $42.3 billion in 2018. When adjusted for inflation, 2016’s estimated spending represents a 47 percent increase from the city’s last building boom in 2007. Non-residential construction is driving much of the spending, with $17 billion projected in 2016. That’s a 27 percent increase from last year, according to the report.” (The Real Deal)
- Coretrust Buys Controlling Interest in Iconic Philadelphia Tower “Coretrust Capital Partners LLC, through its investment fund Coretrust Value Fund I, has purchased the controlling interests in multiple Two Liberty Place ownership entities. The seller was Cousins Properties, a partnership advised and led by Parkway Properties Inc. of Orlando. Parkway began looking to exit the property last year. Designed by Helmut Jahn of Murphy/Jahn Architects, the high-rise is an iconic feature on the Philadelphia skyline, totaling 1.2 million square feet across 58 floors. The property is part of the Liberty Place, a 3 million-square-foot complex that includes the 61-story One Liberty Place office tower, The Shops at Liberty Place, an enclosed mall totaling 145,000 square feet of fashion and consumer retail space, and a 294-key Westin Hotel. Completed in 1990, Two Liberty is the third-tallest skyscraper in Philadelphia. The tower was originally constructed as the headquarters for Cigna, which now occupies approximately one third of the office space in the building. Tenants at the property have access to an array of amenities, including a full-service café, conference facility and professionally managed fitness center. According to Yardi Matrix, the building also incorporates 122 privately owned condominium residences and 13,000 square feet of retail space.” (Commercial Property Executive)
- Miami ranks fourth for Asian investment among US markets: CBRE “Good news for Miami real estate players hungry for Asian capital. A report from commercial brokerage CBRE shows more than half a billion dollars worth of Asian cash flowed into Miami real estate during this year’s first six months, making it the country’s fourth-most popular destination for investments from across the Pacific. According to the report, Asian investors spent $665 million on real estate in Miami during the first half of this year, marking a massive jump in volume from the $34 million during the same time period in 2015. The flow of capital from Asian countries, especially China, has reached record levels in the past year as investors seek to hedge themselves against risk in their domestic marks. In particular, the depreciation of China’s yuan makes investing in U.S. real estate a comparatively safe bet, according to the report. The numbers are there to prove it: by CBRE’s count, Asian investors snapped up $14 billion worth of U.S. real estate assets during 2016’s first half, representing about 52 percent of all outbound investment for the region. In the U.S., New York enjoyed the most activity with $4.02 billion in investments, followed by San Francisco with $1.4 billion and Chicago with $1.34 billion.” (The Real Deal Miami)
- City Councilman wants to scale down Frank Gehry’s Sunset Strip project “Under pressure from residents in his district, Los Angeles City Councilman David Ryu says he will not vote for the Frank Gehry’s big Sunset Strip project unless it’s scaled down. In a letter to fellow council member Jose Huizar, Ryu says the Planning Commission approved the project in July without ‘meaningfully addressing the single most important community concern: height.’ Huizar is the president of the city’s Planning and Land Use Committee, which is scheduled to vote tomorrow on a number of appeals filed against Gehry’s project after it was approved by the Planning Commission. Gehry is designing the project for developer Townscape Partners, which wants to construct five new buildings—with housing, a new bank, a public plaza, restaurant, and bank—on the eastern edge of the Sunset Strip, between Havenhurst and Crescent Heights.” (Los Angeles Curbed)
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