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Triple Net Lease Buyers Are Willing to Pay Premiums for New Assets
 
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StreetSmartREI   August 23, 2017   77   0   0   0   0   0
A growing number of 1031 exchange buyers are paying a premium to buy newly constructed triple net lease retail and restaurant locations. But some of those investors may be in for a rude awakening when it comes time to calculate returns on an exit strategy. The sweet spot for 1031 investors has typically been assets priced below $6 million, and demand is pushing prices higher and cap rates lower in that segment of the market. Buyers have an especially big appetite for newly constructed assets with long-term leases and high credit tenants. For example, a newly constructed Walgreen’s in Valley Stream, N.Y. with 24 years left on its lease term sold in May for $14 million or $1,055 per sq. ft. and a cap rate of 5.3 percent. “Cap rates are the lowest that I have ever seen, especially the demand for newly developed product,” says Jason Maier, a senior director at the Stan Johnson Co., a brokerage that focuses on net least transactions, in New York City. During 2016 and early 2017, transaction volume in the sector slowed due to uncertainty surrounding the presidential election. Sales activity came roaring back in the second quarter, and cap rates have since compressed by 25 to 50 basis points for newly constructed properties, he adds. Given the current pricing, the question is what will those returns be for investors when it comes time to sell or refinance properties? “That is really a big problem and an ongoing conversation that we have all the...
10 Must Reads for the CRE Industry Today (August 22, 2017) | National Real Estate Investor
 
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StreetSmartREI   August 22, 2017   93   0   0   0   0   0
10 Must Reads for the CRE Industry Today (August 21, 2017) Aug 21, 2017 10 Must Reads for the CRE Industry Today (August 18, 2017) Aug 18, 2017 10 Must Reads for the CRE Industry Today (August 17, 2017) Aug 17, 2017 10 Must Reads for the CRE Industry Today (August 16, 2017) Aug 16, 2017
A Close Look at Urban Core Apartment Market Performances | National Real Estate Investor
 
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StreetSmartREI   August 22, 2017   113   0   0   0   0   0
The U.S. apartment completion volume across the country’s 100 largest metros has accelerated to more than 80,000 units per quarter in 2017, up from around 60,000 units a quarter in the previous couple years. That aggressive new supply tally is creating a more competitive leasing environment[1] for top-of-the-market product, especially in urban core settings where so many communities are coming on the market within blocks of each other. Digging deeper into the story, urban core results obviously vary quite a bit from one spot to another due to factors that range from how many new apartments are being built to how many jobs are being added. Measuring health in terms of annual rent growth for new resident leases, results range all the way from spectacular—a 7 percent rent escalation in downtown Seattle—to dismal—a 5 percent rent loss in downtown Houston. The Stars Among the country’s especially active building centers, Seattle now ranks as the leader for urban core apartment performance by a huge margin. Annual rent growth is running at 7.2 percent in the heart of downtown, and similar pricing momentum exists in adjacent urbanized zones like South Lake Union, Queen Anne and Capitol Hill. So far in this economic cycle, urban Seattle has managed to digest some 19,600 units of new supply, and the downtown job base continues to expand very rapidly. Ongoing construction in the urban core tallies about 10,400 units, further putting absorption capacity to the test. Even with this new supply likely to slow urban...
Mnuchin Hints at Keeping Carried Interest Break for Some Firms
 
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StreetSmartREI   August 21, 2017   121   0   0   0   0   0
(Bloomberg)—U.S. Treasury Secretary Steven Mnuchin said Monday that President Donald Trump may keep the carried interest tax break for firms that create jobs, while eliminating it for hedge fund managers. “We will close the loophole for hedge funds in carried interest,” Mnuchin said at an event in Louisville, Kentucky, where he appeared alongside Senate Majority Leader Mitch McConnell. “What we are focused on is there are many other types of funds that do create jobs and we want to make sure we don’t discourage investment.” The so-called carried interest loophole enables investment-fund managers to pay a tax rate as low as 20 percent -- roughly half the top rate for ordinary income -- on much of their income. Trump highlighted the carried-interest tax break during his populist presidential campaign, labeling some hedge fund managers as “paper pushers” who are “getting away with murder.” The White House referred questions about Mnuchin’s remarks to the Treasury Department, where a spokesman didn’t immediately respond to a request for comment. McConnell said Monday the carried-interest tax break would be considered during tax negotiations among congressional and White House officials. He added that aside from tax incentives for charitable giving and home-mortgage interest, “there’s no point doing tax reform unless we look at all these preferences.” Carried interest is the portion of a fund’s profit -- usually a 20 percent share -- that’s paid to private-equity managers, venture capitalists, hedge fund managers and certain real estate investors. Currently, tax authorities treat that...
10 Must Reads for the CRE Industry Today (August 21, 2017) | National Real Estate Investor
 
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StreetSmartREI   August 21, 2017   117   0   0   0   0   0
10 Must Reads for the CRE Industry Today (August 18, 2017) Aug 18, 2017 10 Must Reads for the CRE Industry Today (August 17, 2017) Aug 17, 2017 10 Must Reads for the CRE Industry Today (August 16, 2017) Aug 16, 2017 10 Must Reads for the CRE Industry Today (August 15, 2017) Aug 15, 2017
What Will Be the Impact of the Invitation Homes/Starwood Merger?
 
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StreetSmartREI   August 21, 2017   97   0   0   0   0   0
As Invitation Homes and Starwood Waypoint Homes announced an agreement to merge recently, the single-family home rental (SFR) industry is contemplating how the emergence of a giant new entity will impact the sector. Once the merger is complete, the combined company would own and manage about 82,000 SFR properties around the country. The merger “shows that the single-family home rental market is strong, vibrant and deep,” says Diane Tomb, executive director of the National Rental Home Council, an industry advocacy group. “We have proven this is a sustainable business model, capable of producing strong operating margins and financial results while providing exceptional customer service,” says a spokesperson for Starwood Waypoint. “Now that scale has been achieved and operating results have stabilized, growth through this merger is a natural next step.” Institutional SFR owners are currently making far fewer acquisitions than they did a few years ago. Instead, they appear focused on improving operations and selling off underperforming assets. Now, it seems like mergers and acquisitions are also on the table. The merger leaves only a few giant companies in the business of owning and managing SFR assets, including a few potential acquisition targets. “Prominent rental platforms still in the market include Progress Residential, a private owner of roughly 20,000 properties, and Tricon American Homes, a unit of Tricon Capital Group Inc.” according to an analysis by Standard & Poor’s. Tricon holds more than 16,000 properties. Room to grow, eventually The vast majority of rental houses...
Manhattan Gets $20,000-a-Month Homes for New Breed of Seniors
 
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StreetSmartREI   August 21, 2017   106   0   0   0   0   0
(Bloomberg)—Manhattan is about to become a testing ground for what could be the next luxury real estate boom. Well, maybe mini-boom, considering the rather narrow target group: frail urban seniors with fat bank accounts. Developers are spending hundreds of millions on high-end assisted-living apartment projects, one on the Upper East Side and one in Midtown, and aiming for more in the area and across the U.S. The bet is that there are sufficient numbers of the affluent and aging in big cities who won’t want to leave their neighborhoods, even as they suffer cognitive decline. It is, of course, a rather small group of any age or mental ability that can handle the monthly rents these kinds of places will command. They’ll start at $12,000 at the complex that Maplewood Senior Living and Omega Healthcare Investors Inc. are putting up on Second Avenue and 93rd Street. Some will top more than $20,000 at the building Welltower Inc. and Hines are about to break ground for on the corner of 56th Street and Lexington Avenue. They’ll boast the usual luxury frills like uniformed doormen and lush landscaped gardens. But they’ll also incorporate special features for the elderly and memory impaired, such as sharply contrasting wall colors in bathrooms to help those with poor eyesight identify fixtures and hallway lighting designed to encourage sleep at night. “The risk is that you’d be the anti-Field of Dreams -- you build it and they don’t come,” said Michael Knott, managing director at Green...
The Fed's Timidity Helps No One at This Point: Komal Sri-Kumar
 
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StreetSmartREI   August 18, 2017   130   0   0   0   0   0
(Bloomberg Prophets)—The U.S. Federal Reserve believes it faces a dilemma. Despite more than quintupling its balance sheet from about $800 billion in September 2008 to $4.5 trillion in an effort to stimulate the economy, growth continues to be subpar. A federal funds rate at near zero up until December 2015 did little to encourage consumers to borrow and spend. And although the surge in equity prices boosted consumer wealth, it didn’t lead to increased spending, higher incomes or “a virtuous circle (to) further support economic expansion,” as former Fed Chairman Ben Bernanke wrote in a Washington Post op-ed article in November 2010. Hand-wringing at the Fed got more intense last week as inflation numbers for July showed that the target of 2 percent annual inflation hasn’t been attained despite years of easy monetary policy. The consumer price index in July rose only 0.1 percent from the prior month, well below consensus expectations. Even more distressing to the central bankers, the monthly inflation rate measured by the producer price index was negative, which could be transmitted to consumer prices in coming months. It isn’t surprising that, in a speech this month Federal Reserve Bank of Minneapolis President Neel Kashkari likened his colleagues’ concern about accelerating inflation to a “ghost story.” Why haven’t wages surged and inflation picked up despite the economy being in the ninth year of economic recovery, and the unemployment rate matching a 16-year low of 4.3 percent? Are the low inflation rates in recent months just a transitory factor resulting from...
Trump Is Said to Abandon Plan for Council on Infrastructure | National Real Estate Investor
 
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StreetSmartREI   August 18, 2017   123   0   0   0   0   0
(Bloomberg)—President Donald Trump will not move forward with a planned Advisory Council on Infrastructure, a person familiar with the matter said Thursday. The infrastructure council, which was still being formed, would have advised Trump on his plan to spend as much as $1 trillion upgrading roads, bridges and other public works. Its cancellation follows Trump’s announcement Wednesday that he was disbanding two other business advisory panels. Corporate chief executive officers this week had started to quit both the American Manufacturing Council and the Strategic and Policy Forum in protest over Trump’s remarks that appeared to confer legitimacy on white supremacists following a violent rally Aug. 12 in Charlottesville, Virginia. Trump had tapped New York developers Richard LeFrak and Steven Roth, whom he described as friends, to lead the infrastructure panel, which he established by an executive order on July 19. But he had not announced any formal appointments to it. Through a spokeswoman, LeFrak declined to comment. Roth didn’t respond to a request for comment. The council, which was supposed to have no more than 15 members representing real estate, finance, labor and other sectors, was designed to study and make recommendations to the president regarding the funding, support and delivery of infrastructure projects. Trump reignited controversy about his response to the violence in Charlottesville during a press conference on Tuesday that was supposed to be about his infrastructure plans. He signed an executive order this week that’s intended to accelerate the review and permitting...
Chinese Pullback Won't Dent Real Estate Prices, Brookfield Says
 
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StreetSmartREI   August 18, 2017   153   0   0   0   0   0
(Bloomberg)—Commercial real estate prices, hovering at record highs in the U.S. following a six-year boom, are sustainable even as Chinese regulators tighten restrictions on overseas investment, according to Brookfield Property Partners LP. There is enough capital pouring into real estate from multiple regions -- including Europe and the Middle East -- to counter any potential slowdown in Chinese investment, Brookfield Property Chief Executive Officer Brian Kingston said in a Bloomberg Television interview. While Asian buyers are often part of the equation, a global shift from low-yield fixed-income holdings to real estate will drive property values for the foreseeable future, he said. “There was a lot of headlines around how much capital was coming out of Asia,” said Kingston, a senior managing partner at Brookfield Asset Management Inc., the parent company of Brookfield Property. “The reality is it’s broad-based. It comes from a lot of places.” Price growth for U.S. commercial buildings such as office towers and apartment buildings has leveled off over the past year, according to research firm Green Street Advisors LLC, and a growing disconnect between buyers and sellers is putting a damper on new deals. In Manhattan, one of the biggest beneficiaries of a foreign-capital influx in recent years, transaction volume plunged 39 percent to $18 billion in the first half from a year earlier, according to the Real Estate Board of New York, a trade organization. Still, there have been a handful of blockbuster transactions. In March, Chinese conglomerate HNA Group Co. agreed to buy...
10 Must Reads for the CRE Industry Today (August 18, 2017) | National Real Estate Investor
 
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StreetSmartREI   August 18, 2017   119   0   0   0   0   0
10 Must Reads for the CRE Industry Today (August 17, 2017) Aug 17, 2017 10 Must Reads for the CRE Industry Today (August 16, 2017) Aug 16, 2017 10 Must Reads for the CRE Industry Today (August 15, 2017) Aug 15, 2017 10 Must Reads for the CRE Industry Today (August 14, 2017) Aug 14, 2017
In Primark, Experts See a Bright New Star for Mall Landlords | National Real Estate Investor
 
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StreetSmartREI   August 18, 2017   181   0   0   0   0   0
When Primark took over one floor in the former Sears anchor space at King of Prussia mall in November 2015, the retailer opened its doors just in time for Black Friday and that year’s holiday shopping season. That might have looked like a close call on the calendar, but the Primark store at King of Prussia quickly lived up to the potential of the rest of the chain. The chain also maintained its popular standing with shoppers at the Boston Downtown Crossing center, which opened in September 2015. For retail industry insiders, Primark has the retail savvy and sales prowess to live up to the excitement around its arrival in the U.S., sometimes dubbed the “Irish invasion.” “I think they can grow the footprint pretty fast,” says Jan Kniffen, CEO of J. Rogers Kniffen Worldwide Enterprises, an equity research and financial management consulting firm specializing in retail. “Primark is at the intersection of cheap, fast-fashion and department store retailing.” In terms of how fast, Kniffen says the brand can expand to 300 stores in the U.S., which offers huge potential for an inpouring of revenue from the retailer. Primark, which hails from Ireland and is owned by the U.K.-based Associated British Foods, has already opened eight of its 10 currently planned stores. “Once the model is perfected and Primark is happy with it, I don't see any reason [it] cannot build 40 or 50 of those stores a year,” Kniffen says. “I think the developers would love...
Sliding Fundamentals | National Real Estate Investor
 
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StreetSmartREI   August 18, 2017   150   0   0   0   0   0
The outlooks for both occupancy rates and rents eroded considerably in this year’s survey compared to the past two years. Overall, 46.0 percent anticipate no change in regional occupancies over the next 12 months, while 22.3 percent expect occupancy rates to increase. (The percentage of respondents expecting occupancy rates to fall jumped up from 15.9 percent in 2016 and 8.9 percent in 2015). In addition, 31.7 percent expect occupancy rates to rise, a marked decline from the 41.2 percent who expected occupancies to rise in 2016 and 55.3 percent who said so in 2015. Respondent views on the national retail market were similar. Overall, the number expecting occupancy rates to rise nationally came in at 34.8 percent—down from 41.0 percent in 2016 and 61.9 percent in 2015. In addition, 27.3 percent this year said they expected no change (compared with 35.2 percent in 2016 and 25.9 percent in 2015). And the percentage expecting occupancies to fall nationally jumped to 37.9 percent—up from 23.8 percent in 2016 and 12.1 percent in 2015. The vacancy rate at U.S. regional malls stood at 8.1 percent in the second quarter 2017, up from 7.9 percent in the first quarter, according to Reis. For neighborhood and community centers, the vacancy rate was 10.0 percent in the second quarter, up from 9.9 percent in the first quarter. Respondents were also bearish on the outlook for rents. Almost one-quarter of respondents in this year’s survey (24.2 percent) said they expect rents to fall in the next...
Retail Real Estate Trends 2017, Part 4: Capital Sources Shying Away
 
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StreetSmartREI   August 18, 2017   106   0   0   0   0   0
There is some sense in the market that both debt and equity capital is becoming less available for retail properties than 12 months ago. On the equity side, 31.7 percent of respondents answered that it is less available while 36.5 percent said debt was less available. A plurality (40.5 percent, equity; 38.4 percent debt), said the availability was unchanged. Only 18.1 percent said that equity is more widely available and just 14.5 percent responded that debt is more widely available. In terms of specific financing aspects, respondents, not surprisingly, expect interest rates to rise. Overall, 69.7 percent answered that they expected rates to go up compared with 30.0 percent that said they would stay flat and only 2.3 percent that said they would decrease. More than half of respondents (55.1 percent) also expect an increase in the so-called risk premium, the spread between the 10-year Treasury rates and retail cap rates. When it comes to loan-to-value (LTV) ratios and debt service coverage ratios, most respondents (55.4 percent and 53.2 percent, respectively) expect things to remain the same. Only 20.1 percent expect LTV ratios to rise and 24.4 percent expect them to fall. For debt service coverage ratios, nearly two-fifths of respondents (38.5 percent) expect an increase, while 8.4 percent expect them to decrease. Research Methodology: In July, NREI emailed commercial real estate professionals requesting participation in an online survey about retail real estate. Overall, the survey received 410 responses, half of whom identified as Owner/Partner/President/Chairman/CEO/CFO. In addition, 42 percent of...
Retail Real Estate Trends 2017 Investor
 
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StreetSmartREI   August 18, 2017   181   0   0   0   0   0
The relentless rise of online sales and mounting struggles of brick-and-mortar retailers are taking their toll on retail real estate. The results from NREI’s third retail real estate survey reveal that retail operators, investors and developers show a marked turn compared from the previous two years. Sentiments on the outlook for cap rates, occupancies and retail rents all turned bearish. And respondents see retail as having the dimmest outlook of any of the major property sectors. Register below to download a full PDF version of the Retail Real Estate Trends 2017 Report.    
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