Northeast Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Northeast United States.
Issue link: https://northeastrealestatebusiness.epubxp.com/i/632700
30 • January/February 2016 • Northeast Real Estate Business www.REBusinessOnline.com AXIOM CAPITAL COMMERCIAL REAL ESTATE FINANCE & ADVISORY RECENT TRANSACTIONS ChuCk Cronin 518-472-4000 axiom@axiom-capital.com Andrew kleinberg 973-707-2358 ajk@axiom-capital.com MiChAel S. del VeCChio 518-472-4000 mdv@axiom-capital.com $11,500,000 Permanent Mortgage 102 Unit Apartment Community Brookfeld, CT $24,000,000 Leasehold Mortgage Retail Portfolio 27 Stores, 11 States $17,400,000 Permanent Mortgage 179,909 SF Grocery Anchored Plaza Saratoga Springs, NY $38,000,000 Permanent Mortgage 8.9 Million Cu. Ft. Cold Storage Facility Chicago, IL Although the MBA dialed back its total origination projections from 7 percent growth in 2015 to 6 percent this year, debt capital from traditional sources and equity options for well- located investment plays should con- tinue to be strong. "The multifamily market, particu- larly the affordable sector, will be ex- tremely competitive as the agencies, Freddie Mac and Fannie Mae, look to fnance as much of this category as they can, which makes acquisitions of these properties a preferred buy in 2016," adds Ross. Lenders that offered extended in- terest-only periods continued to win deals in 2015, according to Casey. He notes that bank scrutiny of cash ver- sus equity in the deal will be more of a factor in 2016 and that construction loan pricing will not be as forgiving this year as it was in 2013 and 2014. Casey expects cap rates and debt yield to hold steady in the next 12 months. Large private equity investment funds, non-U.S. equity investors and public pension funds view commercial real estate as a core asset class "and a good relative value investment," says PNC's Reid. While investors increasingly are looking to secondary and tertiary mar- kets for attractive yields, they may encounter more constrained capital availability, pricing and terms. That's especially true of investments with less equity sponsorship or more specu- lative growth projections. Location, Loan, Location Secondary markets are second to none in upside potential — extend one's geographical range to extend yields. Reid points to "up-and-coming 18-hour cities and growth markets," such as Dallas, Raleigh, Nashville, Charlotte, Atlanta and Portland, Ore. Emerging Trends in Real Estate 2016, a report jointly produced by the Urban Land Institute and PwC, ranked all of those cities in their top 11 markets to watch, including Dallas (1), Charlotte (3) and Atlanta (5) in the top fve. "Many of the secondary cities were slower to experience growth com- ing out of the recession, but have not experienced the big increase in costs, which are challenging in such markets as New York and San Francisco," says Reid. "In cities attracting population, busi- ness and jobs, there are good opportu- nities to invest and lend," she adds. "For example, while apartment prop- erties have experienced a tremendous increase in supply, in most markets there is still robust unmet demand for affordable and workforce housing. As millennials enter the workforce, the demand will be even greater." Casey agrees with Ross and Reid that properties with affordable compo- nents will provide excellent opportu- nities in 2016. He adds that retail may be the next candidate to follow in the multifamily sector's footsteps by reno- vating and repositioning properties to accommodate demographic demands by submarket. "Volatility means opportunity. Old- er, suburban offce space is getting re- margined or revalued base on poten- tial new uses and therefore presents an opportunity to hit the reset button in terms of basis and yield," says Casey, who maintains that opportunities to buy below replacement cost are plenti- ful in that space. "Investor demand for high yield may lead capital to this segment. Investors will be talking around their conference tables about the replacement cost of an asset that would essentially not be re- built today," explains Casey. Capital availability overall for of- fce investment will be "more scarce" this year with the exception of CBD or transit-oriented development, adds Casey. Ross describes the commercial real estate lending scene as robust for nearly all of the major real estate as- set classes. Although primary markets have certainly heated up, there are still opportunities for private capital and institutional funds searching for yield, both for well-leased properties and value-add plays. Investor Flight to Safety One man's loss is another man's gain. "Conversely, or perversely, bad news can be good news for commer- cial estate debt," says Willis at Bell- wether. "Should we continue to ex- perience negative, global events next year — a commodity rut, over-supply of oil, geopolitical events — demand for U.S. Treasuries as a safe-haven in- vestment could increase, which could result in lower yields." Furthermore, should there be contin- ued stock market concerns, "real estate loans will continue to be an attractive investment, providing investors with a reliable income stream," adds Willis. On the other hand, if domestic and global economies strengthen, demand for U.S. Treasuries could fall, which would drive yields higher, putting up- ward pressure on the cost of capital for real estate investments. But better economic performance means more jobs, which means more demand for real estate. That's a con- stant variable, shall we say, in a year seemingly destined to be full of vola- tility. There are unknowns in any cycle, but the Fed's decision to fnally raise short-term rates has at least brought more clarity to the capital-intensive commercial real estate industry. n ACQUISITION ~ RECAPITALIZATION ~ EQUITY SBA ~ USDA ~ CMBS LaSalle AMO Capital Markets of Chicago Three First National Plaza Suite 1700 70 West Madison Street, Chicago Illinois 60602 800-517-5204 • 312-399-7436 LaSalle Nova Global Markets NYC Midtown New York 1745 Broadway Suite 1700 17th Floor, New York City NY 10019 800-316-5684 • 212-519-8643