Distressed NNN Lease Market Continues Retreat

NNN Lease Market 

DC Commercial Real Estate has The Fourth-Lowest Level Overall of Distressed Assets 

While the volume of distressed commercial real estate properties is significant, so is the looming volume of stressed property. These properties have characteristics of concern in the short term — maturing loans, bankrupt tenants, under-performance, financially troubled owners or other significant obstacles that could potentially lead to distress in the future.

Washington and Baltimore

Of the 10 markets we track, the Washington area has the fourth-lowest level overall of distressed assets (excluding stressed) at $1.6 billion, while Baltimore has the lowest, at $430 million. Stressed assets are much higher in Washington, at $3.7 billion, third-highest among the 10 surveyed cities. Distressed real estate per capita is $289 per person for the Washington area, which is fourth-lowest among the 10 markets, while Baltimore has $157 per capita, which is the second-lowest of the 10 cities surveyed.

Opportunities to snap up distressed assets in the region have been limited. Washington’s assets have largely been held by strong, institutional ownership, and have benefited from the region’s steady economic performance and employment growth.

Mike Donnelly is a senior associate at Delta Associates. Staff at Delta Associates contributed to this article. For more information, please visit www.deltaassociates.com.

Retail Condo Building Sales in the Washington area Surged to $4.7 Billion

NNN Lease Market 

Mixed-use Urban Projects Have Drawn Retailers and Investors in DC

Apartment and condo building sales in the Washington area surged to $4.7 billion in 2011, a $1.1 billion increase from 2010 and a sign that investors’ efforts to buy into D.C.’s surging demand for rentals in particular is on the rise, according to newly released data from CBRE GroupInc. Multifamily sales for the year surged from $3.54 billion in 2010, according to CBRE. 

The brokerage’s District-based Multi-Housing Investment Properties team reported its own sales volume increased to $1.8 billion, up from $1.4 billion in 2010. Properties near Metro stations tended to command the strongest sale prices and rental rates increased more in the District than in its outlying suburbs, the brokerage said. www.bizjournals

Retail condominiums become popular with investors , expect to see a lot more retail condos coming to market within the next two to five years, because there are so many mixed-used developments under way nationally.

Deals are coming on the market in D.C. that will be over a $1,000 a square foot.” Retail condos will compete for single-tenant property deals. Instead of buying a Starbucks drive-through in a tertiary market, now you have a choice to buy a Starbucks retail condo, where there are a million people in a five-mile radius. www.icsc.org

 An increase in mixed use residential condominiums brought about by population movement toward the urban core  and  a pause in expansion by national retailers has contributed to the wide-ranging demand for NNN urban properties.  Coming on the heels of the recession and the ensuing across-the-board hike in cap rates, this move to dense, high traffic urban locations signals where investors want to be over the next decade. Recently identified as a top niche investment trend by the Urban Land Institute (ULI), mixed-use urban projects have drawn retailers and investors to this asset type even in the current market cycle.  Driven by a desire to spend less time in traffic, live in a smaller footprint and work and play within an urban atmosphere, aging boomers are leaving the edge and making their way back to the city. www.calkain.com

Multifamily Market is Surging

NNN Lease Market News

 Multifamily Properties is Surging




Demand for multi-family properties one of the best-performing sectors of the commercial real estate market in recent years,is surging, due to a lack of inventory in the pipeline in combination with the lowest home-ownership rates in more than a decade, Bloomberg News reported.

Investors’ desire for multi-family properties has allowed lenders to recover an average of 75 percent of the value of defaulted mortgages tied to multifamily housing the highest recovery rate among all commercial property types, Bloomberg said. Some buyers are even paying full price for distressed properties, forgoing the foreclosure procedure entirely, in an effort to snap up the assets before other buyers.

Last year, residential rental properties were one of the most sought-after property types, with sales totaling $54 billion by one measure, up more than 50% from the prior year, according to Real Capital Analytics. Average apartment prices per unit, about $102,000 nationally, are near peak levels.

www.Bloomberg .com

Net Leases Hit Record High 2011 Market

NNN Lease Market 


“Low interest rates, economic uncertainty and volatile equity markets will keep the single- tenant net-lease market one of the hottest CRE markets in 2012,” the report noted. “There is certainly a lot of money out there,” Randolph Mason, CCIM, SIOR and a partner with Commercial Realty Specialists, told Commercial Property Executive. “Depending on the tenant mix, (net leases) are absolutely a safe investment because of the lack of volatility.”

Cap rates for the sector continue to compress. According to data firm Real Capital Analytics Inc., average cap rates for single-tenant assets dropped from 7.7 percent at the beginning of 2011 to 7.5 by the third quarter. Comparatively, the average cap rate in 2010 was 7.9 percent. The Boulder Group, a research firm specializing in net-lease transactions, found a similar trend. A fourth-quarter report by the firm found that “the national single-tenant net-lease market transaction volume should remain active due to the stability and financing availability of this asset class.” Additionally, a majority of the firm’s clients are expecting 2012 transaction volume to increase between 5 and 14 percent from 2011 levels—with core assets from investment-grade tenants remaining in the highest demand. www.cpexecutive.com

IMPORTANT RECENT NET LEASES TRENDS

High credit tenants such as McDonalds, Walgreens, Wal-Mart, CVS, and most national banks have historically traded at lower cap rates and 2011 saw that trend continue. The security of their leases routinely demands lower cap rates. This is an important moderator on the net lease market. Though cap rates for lower credit tenants may oscillate highly depending on the economic climate, high credit tenants are usually assured a layer of protection. Though their cap rates will change to reflect the market, they will be insulated by their inherent security. Read full report here. 

www.calkain.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

Residential Building Construction Up

NYC residential building construction up

Residential building construction rose in 2011 by 33 percent across the five boroughs, according to a New York Building Congress analysis of U.S. Census data released today.

The city’s Department of Buildings issued permits for 8,936 new residential units in 997 buildings in 2011, up from 6,727 units in 1,074 buildings in 2010. This is still appreciably below the 2008 peak, when permits for 33,911 units in 2,434 buildings were issued, the report says.

http://therealdeal.com/