Real Estate Conference in the Dark

NNN Lease Market News

The lights went out during the National Association of Real Estate Investment Trusts annual REIT Week conference at the Hilton hotel in Midtown Manhattan. New York City police said that a transformer in the basement of the hotel experienced problems Wednesday afternoon, leading to partial power loss at the building. An electrician suffered a minor burn to his finger, police said.

Although there wasn’t an evacuation, many guests and workers crowded in the lobby and in front of the hotel where fire trucks and police vehicles were parked. But these  real-estate executives and experts didn’t let a building problem disrupt their discussions about, well, how to make buildings more profitable.

The afternoon presentations continued on the second floor with auxiliary lighting. The outage even provided fodder for some of the speakers. “This is a memorable moment,” joked Harvard economist Kenneth Rogoff who was giving the keynote speech at the conference’s luncheon in the Grand Ballroom when the outage occurred.

NNN Lease Market Recovery Hindered by Tight Lending

NNN Lease Market News

NAR Reports U.S. Commercial Real Estate Recovery Hindered by Tight Lending

Based on the National Association of Realtors' (NAR) annual Commercial Real Estate 2012 Lending Survey, U.S. commercial real estate markets showed signs of recovery in 2011; commercial lending standards have tightened in the past year for small businesses and scuttled a major portion of contracted transactions for smaller properties.
Lawrence Yun, NAR chief economist, said there is a significant split in commercial lending depending on value.  "This is very much a tale of two markets.  There have been notable improvements in capital for large commercial transactions valued at $2.5 million or higher, but there remain significant challenges for small business," he said.
NAR's Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR. The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations - CCIM Institute, Institute of Real Estate Management, Realtors Land Institute, Society of Industrial and Office Realtors®, and Counselors of Real Estate.


http://www.worldpropertychannel.com

Nontraded REITs are Being Valued

NNN Lease Market News

Chief Executive Terry Roussel said in a shareholder letter last month that the value of the stock had to be reduced based on falling values of the industrial parks the REIT purchased at the height of the market. 

Financial advisers have touted the prospect of profiting from real estate without the volatility of publicly traded REITs. They also have pointed to steady dividend payments of up to 7%, according to some financial advisers, investors and marketing material.

Until recently, most of these REITs performed as advertised. Dividend payments continued, and quarterly statements showed that the values of the REIT shares mostly stayed steady from the prices at which they were originally sold, even as the downturn clobbered the public REIT market.

But unlike publicly traded stocks, whose values are set in the marketplace, valuation methods for nontraded REITs have varied widely.

Given that many nontraded REITs were established six or seven years ago, they will need to get properties in line with current market values when they sell the assets or take the companies public.

The average returns for all equity REITs, as well as all individual REIT sectors, were collected

from the official website of the National Association of Real Estate Investment Trusts (NAREIT),

the worldwide representative voice for REITs and publicly traded real estate companies with an

interest in U.S. real estate and capital markets.

http://online.wsj.com

US Commercial Property Market are Showing Signs of Improvement

NNN Lease Market 

The fundamentals of the US commercial property market are showing signs of improvement, with vacancy rates expected to drop over the coming year. According to the National Association of Realtor s’(NAR's) quarterly commercial real estate forecast, a strengthening across all sectors of the market is anticipated. Two-thirds of the professionals questioned stated they believe there will be an improvement during the first quarter of 2012, while rental increases are also on the cards. NAR chief economist Lawrence Yun commented: "Sustained job creation is benefiting commercial real estate sectors by increasing the demand for space. Vacancy rates are steadily falling."

A decline in the empty space available in the office, industrial, retail and multifamily housing sectors is predicted between the first three months of this year and the same period in 2013, with vacancy rates in the retail industry likely to fall the most - dropping from 11.9 per cent at present to 11 per cent in a year's time. Meanwhile, it is the multifamily housing market that has lowest vacancy rate, currently standing at 4.7 per cent. The NAR noted this makes it a "landlord's market, with demand justifying higher rents". Mr. Yun observed that apartments are likely to be a lucrative real estate investment going forward. "Leasing is on the rise and rents are showing signs of strengthening, especially in the apartment market where rents are rising the fastest," he asserted.

Saturated Real Estate Market Being Flooded

NNN Lease Market


The 2001 recession was relatively mild in comparison to past recessions and depressions
that the United States economy experienced. The main factors that contributed to this
short downturn, were the tech bubble burst, the terrorist attacks on the World Trade Center
and a series of very much publicized accounting scandals, such as that of Enron. The real
estate market was only slightly affected by this recession. Cap rates increased slightly while
many investors shied away from the volatile stock markets and decided to put more money
into real estate and especially the attractively liquid REIT market which proved to be a
quick and easy way to hedge risk.
Despite the NBER officially declaring June 2009 as the end of the 2007 recession, the data
shows that GDP has not reached average quarterly growth level of 3.28%
until the first quarter of 2010 and even showed a declining trend starting after the first half of 2010.
In comparison, the year over year growth did not reach the median until mid-2010.


Researchers agree that the recent recession was caused by "the collapse of the housing market
and the resulting sub-prime mortgage crisis that led to bank failures in the US and Europe."
Businesses had a difficult time obtaining credit for real estate acquisitions, refinancing, or new
developments. Record high oil prices are also quoted as a reason for the worldwide economic
downturn. The impact of this international recession could be seen in the stock, as well as the
real estate markets.


 As the liquidity crisis forced many businesses to sell part of their real estate
portfolios, the situation worsened due to the already saturated real estate market being flooded
with many more properties that had to be foreclosed or sold at sometimes half their prior values.

The commercial real estate market, as well as most other financial sectors, has been vastly

affected by the 2007 recession. Even though the recession was officially declared to be over, cap

rates and other economic measurements did not recover until many months after June 2009.

Demand for commercial real estate and GDP growth over the past decade have not been highly

correlated. Despite a relatively stable growth in the United States’ gross domestic product,

commercial real estate transaction volume skyrocketed until mid-2007 and then began to steeply

decline, indicating that investors put too much trust in the unsustainably increasing prices of real

estate. 

A valuable lesson than can be learned from this, is for investors to have a realistic outlook

on the future of their investments. Real estate is not, as it is commonly thought of, a “safe bet”.

However, it is one of the most stable and profitable investments one can make relative to S&P

500 stocks, which lost over 56% of their value in the 2007 market crash and only recovered 63%

of that loss over a course of almost three years.

www.calkain.com

CPPIB Eyes Real Estate Deals

TORONTO (Reuters) - Canada Pension Plan Investment Board, fresh from striking its biggest real estate deal ever, is weighing three or four other acquisitions as it looks to scoop up undervalued assets in a tumultuous global property market.

CPPIB struck three major real estate investments in the last month. It is part of a joint venture that agreed a $4.8 billion deal to buy a U.S. regional mall portfolio from Australia's Westfield Group (WDC.AX: Quote). CPPIB paid $1.8 billion for its stake, its biggest bet ever on real estate.

Also this week CPPIB said it would join forces with one of Britain's top commercial property companies, Land Securities Group (LAND.L: Quote), to develop land in Victoria Circle in London's West End.

Eadie wouldn't give specifics about any deals in the pipeline except to say he was keeping busy.

Hotel Investment Returns Tend to be Higher This Year

 The Occupancy Rate was 71% for the Highest-Priced Segment of the Hotel Market from January through November 2011

Private-equity firms will help drive an increase in hotel transactions this year in smaller U.S. cities, where investment returns tend to be higher than in large markets, according to Jones Lang LaSalle Hotels.

“While public real estate investment trusts have been focused on major markets, private equity has been looking at secondary markets,” where hotel income is greater relative to property prices, said Arthur Adler, managing director and chief executive officer for the Americas at the firm, part of Jones Lang LaSalle Inc. (JLL) “The reluctance to invest in secondary markets is melting.”Minneapolis; St. Louis; Nashville, Tennessee; and Charlotte, North Carolina are among cities attractive to lodging investors because they lure travelers and have healthy business climates, Adler said in an interview.

http://www.bloomberg.com/news

A New Storm's for Office Market

 Mushrooming in Office Markets Throughout The Country

Penn Mutual Towers, an office complex across the street from Independence Hall in Philadelphia, has seen its vacancy rise and income fall after one big tenant left and another renewed its lease for 15% less than it had been paying. Its creditors are foreclosing on the property, according to data company Trepp LLC.

Similar problems are mushrooming in office markets throughout the country, foreshadowing a new wave of real-estate trouble. While the housing market was at the heart of the most recent real-estate crisis, office buildings—the center of past meltdowns—until now haven't been a major source of concern. 

Rents in most markets are still well below what they were in 2007, with the drop in some areas as much as 26%, according to data firm Reis Inc. Because of the weak market, landlords with empty space or expiring leases also have to spend large amounts on incentives to attract tenants, like free rent and interior work.

To be sure, office vacancy rates have slowly improved in some markets as companies added jobs, and owners will benefit even more if the economy gains steam. Also, values of office property have increased in New York, Washington, Boston and other major cities, easing the stress on some properties.

For example, in New York, values of some office buildings are approaching boom-era highs, especially properties that are mostly occupied by credit-worthy tenants on long term leases. But six out of seven New York City's sub markets all have effective rents-which includes landlord incentives—down 15% or more since end-2007, according to Reis.




http://online.wsj.com

NNN Investment Market 8 Percent Returns

NNN Lease Market News

REITs yield 8 percent returns

Real estate investment trusts that invest outside of the four major categories of office, retail, residential and industrial property have been especially successful, according to the New York Times.

REITs have outperformed other investment areas in general, but those pouring money into cell phone towers, cold storage warehouses, or transportation and energy infrastructure have thrived. The Dow Jones U.S. Specialty REIT index has returned 7.94 percent compared to the 3.32 percent returns posted by the overall REIT index. 


Investors are buying commercial property as they search for higher yields than they may find on other assets, including some fixed-income securities. Buyers have flocked to high-quality real estate, such as office towers in major coastal cities, amid increasing tenant demand.

Good News For Real Estate Market In 2012

NNN Lease Market News

Good News For Real Estate Prices In 2012

A study released by Deloitte Real Estate Services says the U.S. commercial real estate market “appears to be on a gradual but uneven path to recovery with increased capital availability, transactions and improved fundamentals.” However, “a potential pause in recovery momentum” exists due to the European Debt Crisis, continued high unemployment rates in the U.S. and the high rate of maturing debt levels.

The Associated General Contractors of America released a study that says private construction spending increased for the first three quarters of 2011, but investments in the public sector continue to rapidly decline.

The National Association of Realtors reports pent up demand exists “from buyers who normally would have entered the market in recent years,” and that homeowner default rates now are lower than at any time in history.

For now, a 30-year fixed-rate mortgage remains at less than 4 percent, but a forecast by New York based investment banking firm Keefe, Bruyette and Woods, Inc. says the rate of 10-year treasury bonds should rise in 2012 because the Federal Reserve will not purchase enough mortgage backed securities “to keep mortgage rates from rising to 4.7 percent by the fourth quarter of 2012.”

What does all of this information mean? According to BusinessWeek, “…even the worst hit markets will begin to see improvement (in) 2012.”

NNN Market Loan Prices Rise in October

NNN Lease Market News

Commercial Real Estate Loan Prices Rise in October

In October, DebtX priced 52,806 CRE loans with a $628.4 billion aggregate principal balance. These loans, which collateralize 647 US CMBS trusts, each received a DXMark(R), a price based on 10 years of data from billions of dollars in loan sales executed by DebtX, the largest marketplace for loan sales. Access to individual DXMark prices is available through the BLOOMBERG PROFESSIONAL(R) Service. Type DXMKfor more information.

DebtX's CMBS loan pricing analysis is part of DXMarket Datasm, a subscription service that provides loan buyers with insight about transactions at www.debtx.com . DXMarket Datasm is available to registered DebtX buyers and includes six components: Non-Performing Loan Sale Prices, Bank Watch, Secondary Loan Market Commentary, CMBS Loan Collateral Prices, Secondary Loan Market Liquidity and CRE  Capital Markets Observations.  http://www.marketwatch.com/


Over the last 12 months high quality assets have been in strong demand;drugs store such “Walgreens” being the perfect example. As a result of this strong demand, cap rates for high quality assets have been driven down to the low/mid 6% range. Investors are now looking for higher returns. Washington D.C., New York, Boston, Chicago, Dallas, L.A and San Francisco are all popular locations for acquiring net leased assets and urban infill locations with good demographics are highly sought after. www.calkain.com

New York Real Estate Market is Shrinking

NNN Lease Market News

Manhattan Luxury-Home Supply Dwindles

Jason Haber, who runs a New York real estate brokerage firm, is struggling to find apartments to show a client who’s in the market for a Manhattan home priced around $8 million. “That’s not something you would do if the market was flush with high-end inventory,” said Haber, co-founder and chief executive officer of Rubicon. “That’s a sign of the times. This is a ready, willing and able buyer and we can’t find the product for him.
There were 832 homes on the market with asking prices of at least $5 million last month, compared with 862 in October 2010, 917 in 2009 and 909 in 2008, StreetEasy data show. In October 2007, near the real estate market’s peak, there were 588 listings.
Prices haven’t returned to peak levels. The third-quarter median price in the top 10 percent of the market was $4.17 million, down 16 percent from the high of $4.99 million in the first three months of 2008, according to Miller.


http://www.bloomberg.com/news

European Banks Will Sell More (NNN) Distressed Commercial Properties

NNN Lease Market News

Europe Is Seen as Ripe Market for Distressed Property Loan Sales by Banks

European banks will be forced to sell more distressed commercial property loans in the coming year, as more borrowers default, said panelists at the Bloomberg Commercial Real Estate Summit.

The U.S. commercial real estate market slowed in the third quarter as the sputtering economy and a pullback in debt financing limited deals. A total of $49.8 billion of commercial property changed hands in the period, down from $58.5 billion in the previous three months, according to Real Capital Analytics Inc. in New York. The 15 percent decline is the second-biggest since the first quarter of 2009, the real estate research firm’s data show.

Dune Real Estate Partners LP expects investment opportunities in the U.S. next year, said CEO Daniel Neidich. Most investors are focusing on major coastal cities such as New York, Washington and San Francisco, according to Leslie Wohlman Himmel, managing partner at Himmel & Meringoff Properties, a New York investment firm that owns and operates more than 2 million square feet (186,000 square meters) of office and retail space.

http://www.bloomberg.com/news

Net Lease Grocery Stores are a Major Player in the NNN Market

NNN Lease Market News

 Location is Central to a Grocer's Success

Net lease grocery stores are a major player in the NNN market. Their focus on staple products and central locations are the definition of a stable asset. While other retailers with large foot prints couldn't weather the recession (Circuit City) net lease grocery stores made it through relatively unscathed.

Like all real estate, location is central to a grocer’s success. However, unlike other sectors such as office or traditional retail, there it not a strong temptation to overbuild. Grocery stores inhabit a very stable area of the consumer’s basket. A recession may force customers to cut back on casual dining and weekend shopping but milk and bread will still be bought.

For these reasons cap rates for grocery stores have recently compressed at a faster rate than the rest of the net lease market. Investors are demanding stable, recession proof assets and grocery stores fit this bill perfectly.

Read the full report here.

NNN Commercial Real Estate Properties Prices Up !!!

NNN Lease Market News


NNN Commercial Real Estate Prices in U.S. Increased 5% in July


U.S. commercial real estate prices rose for a third straight month in July as deals for smaller properties led a rebound that may stall as the economy slows, according to Moody’s Investors Service.

Demand had increased for real estate outside of major cities such as New York before a recent slowdown in CMBS lending. The CMBS slump may hurt demand for non-distressed building sales of less than $10 million in metro areas outside U.S. cities where real estate is most sought after, Tad Philipp, director of commercial real estate research at Moody’s, said in a telephone interview. These deals accounted for 60 percent of July repeat sales, Moody’s said.
“The CMBS market largely is a main source of financing for the middle market,” Philipp said.
A gain in commercial-property values may be held back by buyers making more conservative estimates for rent increases and leasing amid slow job growth, according to the report.
“Price increases in the near term are likely to be earned the old-fashioned way, by rent growth, rather than through higher leverage or financial engineering,” Moody’s said.
Green Street Advisors Inc., a real estate research company in Newport Beach, California, reported commercial property values rose 1 percent in August from the previous month and advanced 18 percent from a year earlier.

http://www.bloomberg.com/news

What NNN Investors Really Really Want

NNN Lease Market News

Grocery Shopping Centers Lure Buyers as $200 Million U.S. Venture Formed

Phillips Edison-ARC Shopping Center REIT Inc., a Cincinnati-based company that isn’t listed on an exchange, will contribute $52 million to the partnership, and clients of CBRE Investors will put in $50 million, the REIT said today in a statement. They will borrow about $102 million for U.S. deals.
Retail centers with supermarkets are attracting investors because of the perceived safety of properties that consumers have to visit for necessities in a slow-growing economy. Sales of such real estate in the first half of the year exceeded the total for all of 2010, according to research company Real Capital Analytics Inc.
About $5.58 billion of grocery centers were sold this year through the second quarter, 22 percent more than the $4.57 billion in all of 2010, according to New York-based Real Capital. The 2011 total is the highest since 2007, the peak of the commercial real estate market.
Supermarket-anchored centers haven’t been immune to the economic slowdown. Vacancy rates have risen as local retailers, such as dry cleaners and restaurants, have gone out of business. Reduced access to capital has prevented other stores from taking up their space.

http://www.bloomberg.com/news

The Phenomenon of the NNN Investments

NNN Lease Market

 Calkain Reston office, says retail transactions make up the bulk of NNN investments..

NNN Investments, the phenomenon that allows a landlord to defer all of the owners’ traditional responsibilities to a tenant, has taken over as an investment of choice for both private investors and institutional buyers. By having all management/maintenance, taxes and insurance, (hence the three (3) nets) taken away from a landlord’s daily tasks and given directly to the tenant to handle, allows for the most passive form of real estate investment for a sole owner in today’s market. Most NNN invstment assets fall into a few categories; office, industrial or retail buildings.

 Retail transactions make up the bulk of NNN investments. The drug store on the corner, restaurants along the busy street and bank branches in front of the new supermarket are all some of the most popular investments. But exactly what is one purchasing when the decision is made to become a passive real estate investor? With NNN investement properties, three considerations, in this specific order, must be analyzed before an investment is procured; the intrinsic value of the real estate, the tenant’s credit and the lease terms. First, the real estate or the location of the property. We cannot forget that we are still investing in real estate. The cliché adage of "location, location, location" does not go away just because there is income attached to a property. Even large, public companies go out of business. We've seen many examples in recent years. Therefore, we have to understand the value of the property without a tenant and the feasibility of attaining a new tenant if the current rent-payer decides to leave at any point. Next, the actual tenant that is in place for a particular property may dictate the value of that property.

The difference between a high Standard & Poors (S&P) rated company as a tenant and a local "Mom and Pop" operator is usually vast. Meaning the probability that the S&P rated company defaulting on their lease is lower and therefore a landlord can be more assured of receiving their rent from that tenant for a longer period. Conversely, if the Mom and Pop operator had a couple of bad months, they could close indefinitely. Lastly, the terms of the lease are important to an investor. The most sought after leases are absolutely passive to the landlord where, in most cases, they receive a wire transfer from the tenant each month and never so much as receive a phone call about the property. There are many variations on NNN net leases , but those with the most passivity garner the lowest returns because there is little to no work involved for the landlord.

http://www.calkain.com/

The 5 Secondary Market for Real Estate Investor That Will Thrive in 2012

Dallas and Minneapolis Named Best Secondary Market for Real Estate Investors


Investors have been moving into secondary markets such as Dallas and Minneapolis amid growing confidence in the recovery and soaring prices that drove down yields on office buildings, shopping malls and apartments in prime cities including New York, San Francisco and Washington. Purchases of commercial properties in secondary markets had been increasing this year, extending a rebound that started in the big coastal areas.
Purchases of commercial properties in secondary markets had been increasing this year, extending a rebound that started in the big coastal areas. Building values and rental rates don’t appreciate as fast in secondary markets compared with land-constrained coastal markets because it is easier to construct new buildings.
The Federal Reserve said on Aug. 9 that it will maintain record-low interest rates at least through mid-2013 to boost growth that has been “considerably slower” than it forecast.
If the Fed is successful, prime and secondary commercial real estate markets should benefit.

http://www.blommbeg.com/

As of 2009, it was estimated that there are dozens of dedicated firms and institutional investors that engage in the purchase of private equity interests in the secondary market with upwards of $30 billion of capital available for such transactions.The market for secondary interests is still highly fragmented. Leading secondary investment firms with current dedicated secondary capital in excess of circa $3 billion include: AlpInvest Partners, AXA Private Equity, Coller Capital, HarbourVest Partners, Lexington Partners, Pantheon Ventures, Partners Group, Neuberger Berman, and Paul Capital.

Commercial Real Estate Investors are Optimistic U.S. Recovery Will Continue

NNN Lease Market News

Commercial real estate investors are optimistic that a U.S. industry recovery will continue even as the economy shows signs of slowing.
A lack of new supply and low interest rates are helping to drive investor interest in commercial properties. Capitalization rates, which decline when real estate prices increase, fell in 27 of 31 markets surveyed.
Office properties led cap-rate declines in the second quarter, the report showed. The average cap rate for office buildings in central business districts was 6.95 percent, down 1.2 percent from a year earlier. Cap rates, a measure of yield, are net income divided by the sales price
Buyers are pursuing deals as the market improves, and concern that that the economic recovery will falter has deterred “very few” investors from acquiring assets.
There will be “very few additions” to the commercial- property supply in the near term, which will help absorb existing space and drive up rents as tenant demand increases, according to the report. Lease rates remain below peak levels for most property types and increased in 25 of 31 markets surveyed.
The Northeast is the strongest office market, with nine out of 10 regions surveyed in recovery or expansion this year.
Two-thirds of investors view current market conditions as favorable to sellers, and all 81 multifamily markets surveyed are expected to be out of recession by the end of the year.

http://www.bloomberg.com/news

Willis Tower in Chicago Looking to Recapitalize or Sell The Property

NNN Lease Market News

The owners of the Willis Tower in Chicago, North America's tallest building, are looking to recapitalize or sell the property, in the latest sign of rising commercial-real-estate values in the country's top markets.
Office-building values have been rebounding strongly in markets like New York, Washington, D.C., and Chicago. Last summer, a Chicago office tower at 300 North LaSalle St. sold for $655 million, which came to about $500 a square foot, a record footage price for a Chicago office building. By comparison, the Willis Tower sold for about $244 a square foot in 2004.
Designed by the architectural firm Skidmore, Owings & Merrill for Sears, Roebuck & Company, the world’s largest retailer at the time, the 3.8 million RSF building is the preeminent office address in Chicago and one of the premier properties in the world. The Willis Tower provides an exceptional West Loop location, unparalleled views from all of the property’s highly efficient floors and unmatched prestige.

Sears Holdings Corporation (NASDAQ: SHLD) is the nation's fourth largest broadline retailer with over 4,000 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, consumer electronics and automotive repair and maintenance.


http://online.wsj.com/article