CRE Market Stable According to Feds [News] | Liberty SBF Bridge Loan RatesApril 27, 2015
In its recent report on current economic conditions, the Federal Reserve said activity in the CRE market “remained stable to expanding across many Districts.” The Beige Book, an anecdotal report on economic conditions collected by the Federal Reserve’s Districts and published eight times a year, showed that CRE loan demand was strong in Atlanta and Dallas and was stable in Philadelphia and Kansas City. Demand for commercial and industrial loans grew slightly in St. Louis and Kansas City, while exhibiting stronger growth in New York, Philadelphia, Cleveland, and Chicago. Demand for commercial properties in the city of Boston continued to be fuelled by foreign institutional investors. Chicago also reported that leasing of industrial buildings, office and retail space all increased. The report goes into further details about market conditions in individual Districts.
A new report showed that the “two broadest measures of U.S. commercial property pricing, the value-weighted and the equal-weighted U.S. Composite Indices, gained 1.5% and 1.4%, respectively, in February,” according to CoStar’s Commercial Repeat Sale Indices report. This continues a broad recovery across all property types that reflects “solid occupier demand as well as widening investor interest in smaller properties outside the largest U.S. metros.”
Hotel property transactions and pricing are expected to continue on their present upward trend, according to an article in Globe St. “Record sums are being routinely paid in many US metropolitan areas for desirable lodging assets driven in some measure by low interest rates that have prevailed since the mid 2000s,” the article states. Investment demand is high from private and institutional capital throughout the country targeting hotel properties on both coasts as well as major cities in the Midwest. Buyers and sellers of hotels are taking advantage of strong demand and pricing to re-shape their portfolios. Sellers have been motivated by a wide variety of strategies including “monetizing on rising values to bake in gains, de-lever balance sheets, and recycling capital to fund new investments.”
Retail sales saw their biggest boost in a year, according to an article on Bisnow. Last month, retailers saw sales rise a surging 0.9% in the U.S. That was the biggest jump in 12 months and put aside any fears that a slow first quarter would continue for retailers across the country. Also, the commerce department report revised February’s figures to a 0.5% rather than a 0.6% decline. This news “increased the odds of an interest rate hike later this year”
Rick Sharga, EVP of Auction.com, commented on the trend in urban retail spaces driven by Millennials moving into cities, in an interview on Globe St. These retail units are being plucked up by investors and Sharga said, “We’re probably seeing people take advantage of prices on retail assets not rising as quickly as in some other sectors and extremely favorable cap rates for entering the market now. Also, investors are cherry-picking prime locations or types of businesses likely to be more successful in today’s economy, like food, entertainment office, and even residential opportunities in what had been strictly retail in the past. We’re seeing the conversion of retail into other, more profitable uses.”
Further support of the trend came from a recent Walk Score Commercial Property Price Indices (CPPI) report released by Real Capital Analytics (RCA), a research firm. The report supports the generally accepted idea that CRE in “walkable” locations… get premium pricing from tenants and real estate investors,” according to a story in National Real Estate Investor. They parsed the data and showed that “prices for assets in walkable Central Business Districts (CBDs) rose 125 percent over the past 10 years, while prices for assets in walkable suburban locations rose 43 percent (the increase for less pedestrian-friendly suburban sites was about half of that for the same period).”