The Property Market Begins to Show Signs of a Turnaround.

NNN Lease Market News

Japan commercial real estate market begins to show signs of a turnaround

Angelo Gordon & Co., a New York- based manager with $24 billion in assets, is seeking to boost Japan property investments amid signs of a recovery, after acquiring about $650 million of commercial real estate in the country the past two years.

Angelo Gordon is seeking bargains in Japan as the property market begins to show signs of a turnaround. Office buildings in Tokyo provided a 3.4 percent total return, including rental income and capital value, in 2011, after a 0.5 percent gain a year earlier, based on data compiled by RREEF, a property investment arm of Deutsche Bank AG. Before that, the market had three straight years of decline, the data showed.

Total return for properties in the U.K. rose to as high as 15 percent in 2010 and fell by half last year, while properties in the U.S. climbed for two straight years after posting two annual losses, based on data compiled by RREEF.

“Compared to major markets like New York and London, core asset prices in Tokyo have not appreciated very much,” Tanaka said. “We think there is upside potential as fundamentals improve.”

Angelo Gordon was founded in 1988 by Chief Executive Officer John Angelo and Chief Investment Officer Michael Gordon. Angelo Gordon began investing in commercial real estate in 1993 and has acquired more than $13 billion of properties, according to the company.

www.bloomberg.com

NNN Lease Market One of the Hottest Deals

NNN Lease Market News

The market for urban retail properties has witnessed a sharp resurgence in the past couple months. In-fact, we are seeing cap rates and prices that are reminiscent of the markets heyday back in 2005-2007. There is such a strong demand for these properties that they are routinely receiving multiple offers. This trend is being fueled by a number of factors such as inherently strong real estate quality, low interest rates, and a surplus of investors willing to deploy capital.

It is no secret that a great deal of the net lease market’s recent success is due to the security it offers investors. Net lease properties offer investors reliable income streams with little to no active management. These qualities are only enhanced in the context of urban condos. Unlike properties located in tertiary markets, urban retail can depend on higher foot traffic and a greater intrinsic value. This serves to add an extra layer of security to the investment – should a tenant leave it will not be hard to replace them.

Investors know this and are actively seeking these properties. Low interest rates coupled with a surplus of capital (that had previously been sitting on the sidelines) have led to a perfect storm of rising prices and falling cap rates. Likewise, many sellers are reluctant to sell because they would face the same problem in redeploying their capital. As demand continues to gain momentum it is likely investors will dig even deeper for tenant and location, resulting in downward pressure on cap rates.

http://www.globest.com/blogs

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 Cap Rates Market Report

NNN Lease Market News

NNN cap rates declined by five basis points to just over 7.2% in the first quarter on average

The report covers trends in the macro economy with an eye on how these impact the net lease space.

It has found that the fit-and-start nature of the recovery has reinforced the appeal of net lease assets especially those with long term, high quality tenants. In addition, the sector is grappling by a lack of supply. The result of these multiple trends, not surprisingly, is that cap rates are low and getting lower. Namely, net lease cap rates declined by five basis points to just over 7.2% in the first quarter on average.

These rates, of course, fluctuate based on geography and tenant type. California and the Northeast, for example, claim the lowest cap rates.

The report also notes there is stronger investor demand for bank branches, pharmacies, and the best-performing fast food chains. Bank branches registered average cap rates of 6.1% in Q1, for example--100 basis points lower than the 7.1% average cap rate for pharmacies.

Investors, however, can be counted on to show a high degree of sophistication in their acquisitions not only across classes of tenants but specific tenants, as well. Sam Chandan, president and chief economist of Chandan Economics, tells GlobeSt.com. “Some pharmacy and bank branches are trading at sharply lower cap rates than their peers, even after controlling for variation in property quality and time to lease maturity.” For these most coveted assets, he says, debt yields are lower, as well, meaning that lenders perceive many of the same differences as relates to credit risk.

The most aggressive cap rates Jonathan Hipp, CEO ofCalkain, says he has seen has been in the mid 4s for “McDonald’s-type credit.”  Expect compression to continue, he tells GlobeSt.com. “Given where Treasuries are headed, people are looking for yield. Also, there is so much buyer interest in this product now we have gotten to the point where we almost don’t need new buyers. What we would like to have is more products.”

Not that the demand-supply imbalance will give investors pause, Hipp adds. “With everything going on, from the uncertain employment picture to the European debt crisis, at end of day people are still cautious on the economy. With the right combination of credit, location and length of lease it is a great time to be a seller in the net lease market.”

Or even a buyer, he says—but with a caveat. In this environment, current buyers should beware that an eventual exit strategy could happen in a period of higher interest rates and a diminishing flight to quality.

Source: GlobeSt.com

Gaylord to Convert to REIT

Gaylord Entertainment Co., GET -2.48% owner of four massive conference resorts, will sell its brand and management operations toMarriott International Inc. MAR -2.62% for $210 million and convert its property holdings to a real-estate investment trust.

The sale is a result of a strategic review Gaylord started early this year in reaction to prodding from its largest shareholder, Texas billionaire Robert Rowling. Mr. Rowling's TRT Holdings Inc., which owns the Omni Hotels & Resorts chain, was among four bidders for all or parts of Gaylord before Gaylord opted for the plan unveiled Thursday. A spokeswoman for TRT declined to comment.

Gaylord owns massive resort convention centers with 1,400 to 2,900 rooms each, including the Gaylord Opryland in Nashville, the Gaylord National in National Harbor, Md., the Gaylord Texan in Grapevine, Texas, and the Gaylord Palms in Orlando, Fla. As part of the deal, announced Thursday, Marriott is getting 35-year contracts to manage each of Gaylord's resorts at a 2% base management fee.

Gaylord had been planning to develop a 1,500-room resort in Aurora, Colo. But the company is revisiting these plans because of its conversion to a REIT.  Read more http://online.wsj.com

Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate - shopping malls, for example - or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.

Read more: http://www.investopedia.com/terms/r/reit.asp#ixzz1wYCRq270

Net Leased Investment Sector Continued to Gain Momentum

NNN Lease Market News

The U.S. retail investment sales market staged a strong performance last year as property sales rose 32 percent from 2010 to nearly $61 billion.

Prices for power centers and neighborhood centers increased 9.1 and 7.2 percent, to $148 and $135 per square foot, respectively.

While the highly coveted single-tenant net-lease investment sector continued to gain momentum, shopping centers and other multi-tenant properties captured nearly 68 percent of total sales, for which cap rates compressed by 40 basis points.

How are single-tenant, net-leased investments different from multi-tenant buildings?

Multi-tenant buildings have more than one tenant, and as a result, owners and landlords must juggle multiple leases that begin and end at different times. These leases are rarely longer than seven years. That means that the building's financial performance is vulnerable to the ups and downs of the market.

Many net-lease investors have previously owned other types of real estate but are looking for an investment that requires less maintenance and supervision. For example, many apartment investors end up selling their high-maintenance properties and then reinvesting the sale proceeds in single-tenant, net-leased retail properties, as do many land owners who have previously never received any income or tax benefits from their property.

Who can invest in single-tenant, net-leased properties?

Net leased properties are appealing to a wide variety of buyers, from high net worth individuals to partnerships to large institutional investors like real estate investment trusts, life insurance companies and pension funds. Net leased properties also are very attractive to investors who need to do 1031 tax-deferred exchanges, or 1031 exchanges for short.

What are the benefits of investing in single-tenant, net-leased properties?

Many people consider single-tenant, net-leased properties as bond-like investments because of their stable, predictable returns. Because tenants commit to long-term leases, there's very little re-leasing risk. Moreover, single-tenant, net-leased investments can be tailored to an investor's risk-reward expectations by choosing tenants with different credit profiles. For example, some tenants are rated by national credit ratings agencies while other tenants have only their previous financial performance to recommend them.

When is the best time to invest in a single-tenant, net-lease property?

Net-leased properties are like all-weather tires. They are good investments in both good and bad economic times and in hot and cold real estate markets. Here's why: a single-tenant net lease is guaranteed by a long-term lease at pre-set rental rates. As an owner, you know exactly who will be a tenant in your building, how long that tenant will be there and exactly how much rent they will pay you. That means you will derive a steady income from your investment, regardless of how the economy or real estate market is performing.

Gateway investment markets New York, Northern New Jersey, Los Angeles, Chicago, Washington, D.C., South Florida and Boston dominated this investment activity.

Nontraded NNN Lease Investments REIT Will do a Better Job

NNN Lease Market News

Industry executives say these new nontraded REITswill do a better job of giving investors a way to invest in real estate without the volatility of exchange-traded REITs, which have assets of roughly $500 billion. Like existing nontraded REITs, the new ones are offering attractive initial dividends, such as American Realty Capital's nearly 7% distribution and Cole Real Estate's 5.5% distribution.

But these new structures haven't completely silenced critics, who point out that some fees remain high and investors might still face redemption problems.

Jim Sullivan, a managing director at REIT research firm Green Street Advisors, says investors are still better off investing in a publicly traded REIT. "They are more liquid, they are more transparent and the market tells you every day what they're worth," he says.

Traded REITs, like nontraded ones, are required to pay at least 90% of their taxable income in the form of dividends. But unlike nontraded REITs, traded REITs' values are set throughout the trading day, giving investors instant transparency.

Nontraded REITs first became popular a decade ago. The pitch: Long-term investors would hold them for seven to 10 years, during which time they would collect attractive dividends. Then the REITs would sell their properties or go public, returning to investors their principal plus any gains. The trade-off was that redemptions would be limited during the lives of the REITs.

But fees were high—as much as 11% in initial sales charges. And only 19 of about 90 have returned investors' principal over the years. http://online.wsj.com

“A dividend that high indicates the market doesn’t believe that dividend is sustainable.

Yields in the 20s and 30s (and higher) often reflect a view by the market that this

dividend is likely to be cut. When investors get jittery about a REIT’s ability to cover

its dividend, they tend to sell shares, which causes the yields to jump. Some REITs

have suspended their dividends, while others have either trimmed them or opted to

pay a portion of them in stock.”  BradThomas.