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Mogul Minute 10/05/2016
October 5 | 2016

Here at RealtyMogul.com, we keep our finger on the pulse of all things real estate, from finance to technology and everything in between. We make a point of sharing interesting articles and think pieces among RealtyMogul.com staff to help our team stay abreast of the market, and ahead of the curve.

So we thought, why not share some of these insights with you, our partners?

Got A Minute? Here’s some recommended reading with key points from the content:

What Markets Outside the Core Offer the Best ROI? (Globe St)

  • According to USAA, “every major property sector has eclipsed peaks of 2007.” Investors are now looking at secondary and tertiary markets and here are some industry leaders thoughts:
    • Steve Pumper, executive managing partner of Transwestern’s Capital Markets and Asset Strategies Group, advises to focus on industries that will be successful over the next five to 10 years. “Investors need to consider if they’re in a secondary or tertiary market that’s heavily tied to a declining industry or a heavily cyclical industry or if it’s one with good healthcare, tech, educational systems, energy—the types of industries and fundamentals that have a solid workforce, quality of life, etc.”
    • ULI noted that San Antonio, Dallas, Houston, San Diego, Phoenix and Denver have become increasingly attractive alternative investments as core pricing has climbed. According to Andrew Nelson, chief economist at Colliers International, “There has been much more moderate cap rate compression in these areas (18-hour cities) than in traditional gateway cities, providing the opportunity for greater yields to those priced out of core markets. As the economy has demonstrated stability and interest rates remain near historic lows, investors flushed with cash have shown an increased tolerance for risk, and grown more comfortable in secondary, tertiary and suburban markets.”
    • Finally, Ella Shaw Neyland, president of Steadfast REIT, believes people should evolve in the way they look at markets. “Markets have always been viewed based on the size of their MSA, so larger cities were considered primary. But today, markets are being viewed by the rate that jobs are being created since employment is a major driver of demand for apartments.” Neyland specifically points to Austin where it “was once considered a secondary market, but by all the important metrics to a successful apartment community, it’s ground zero.”

US Rents Dropped on a Monthly Basis for the First Time Since Last Year (Bisnow)

  • According to the most recent Yardi Matrix report, US multifamily rents have declined on a monthly basis for the first time in nearly a year. The drop was not substantial but it continues a larger trend of moderating rents as supply among Class A properties has ticked up.
  • Despite the small drop in monthly rents, occupancy rates are at a recent high and rent growth on a year-over-year basis is still 4.7% nationwide.

Apartment Demand Still Exceeds Supply (Globe St)

  • RealPage Inc. is reporting that multifamily occupancies have reached a 16-year high as of the end of the third quarter with an occupancy rate of 96.5%. This is just 30 basis points short of the all-time record of 96.8% that was set during the year 2000.
  • According to Greg Willett, chief economist with RealPage. “While an upturn in high-end deliveries is yielding more product availability in select spots, most new projects are moving quickly through the initial lease-up process.”
  • The article also mentions several cities with the highest levels of construction activity (ranked in order of % of current inventory): Nashville, Dallas, Charlotte, Austin

Office Developers Size Up Suburban Markets for Spec Development (Costar)

  • A good read from Costar on the current state of construction in the office sector. “Overall U.S. office supply addition has been muted throughout the recovery. Despite pockets of strong building in Silicon Valley, San Francisco, New York, Seattle, Dallas and a few other top markets, total projects under construction currently make up just 1.5% of U.S. office inventory, well below historical trends, with just 36% of metros seeing more new office space entering inventory than their long-term averages.”
  • It is interesting to compare construction levels to the multifamily sector where 79% of metros are seeing construction levels above their historical trends.
  • Office construction has been concentrated in the CBD and downtown districts with 38% of the pie while suburban office development has been falling recently.  

E-Commerce: How Supply Chains Are Catering to Online Demand (Bisnow)

  • An interview with Chris Caton, Prologis’ head of research, in which he give some color on e-commerce demand drivers.
    • “Companies are increasingly favoring locations within or adjacent to major population centers to save on transportation costs and reduce delivery times. . . Today, logistics real estate users seem to be more price inelastic—willing to pay premium rents for premium locations and facilities.”
    • Ultimately, the competition for being as close to the customer is critical in online retail. While rents for infill logistics facilities can be twice or more than facilities in more distant locations, they are still a discount to infill office and retail rents in prime areas.

Developer buys sprawling LA Times plant near Arts District for $120M (Curbed)

  • The Harridge Development Group just purchased the Tribune Company owned printing plant located just south of the Arts District. The Group paid $120M for the 26-acre property.
  • Seven acres are ready for development right away while the Tribune Company still holds leases on four of the buildings on the site until 2023. Plans for the site are currently undecided, though residential has reportedly been ruled out. 

 

Tim Ednoff Headshot
Written by , Associate - Commercial Equity at RealtyMogul.com

Tim evaluates investment opportunities as well as performs due diligence and writes content for various equity and debt transactions. Outside of the office, Tim is an avid sneaker collector, a passionate health and fitness advocate, and a dedicated podcast enthusiast.

 
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