How does transaction velocity in 2021 compare to past years?
What's driving such aggressive investment activity?
How does sales volume vary by property type?
Friday, December 31, 2021
How Was Commercial Real Estate Sales Activity in 2021?
Thursday, December 30, 2021
CRE Is Outperforming Amid Rising Inflation
CRE prices have increased considerably this year, up 12.7% in Q3 compared to 2019.
Commercial real estate prices have increased measurably this year delivering positive results for investors, John Chang, Senior Vice President and National Director Research Services at Marcus & Millichap said in a recent video.
In the third quarter CRE sales are up 12.7% over 2019 and the preliminary data for the fourth quarter look promising, he pointed out.
While pundits and consumers are worried headline inflation has risen to 6.2% compared to 1.3% a year ago this month, Chang said in times like this when inflation pressure is elevated, CRE can outperform.
“Commercial real estate is a long investment,” he stressed.
Speaking to the strength of CRE currently, the Marcus & Millichap research leader said self-storage property transactions have surged by 56% in the third quarter of this year compared to the third quarter in 2019 with hospitality deals up 46% and industrial property transactions up 17.4% while apartment sales are up 15.4%.and retail up 7.9%
The only property transaction lagging is office, down 4.6% from 2019.
Industrial has been an investor darling throughout the pandemic, with prices increasing steadily among booming demand for space. More than $100 billion has been spent on industrial properties this year, according to Real Capital Analytics, and the asset class saw the fastest annual and monthly price upticks of all sectors at 18.9% in October from a year ago and 1.9% from September.
“Investors are purchasing these properties based on rising demand driven by e-commerce and supply chain disruptions,” said Chang. “But even though industrial absorption is at a record level, so is construction, and new development could ultimately bypass demand.”
Wednesday, December 29, 2021
The U.S. Apartment Market Continues to Tighten
Florida Rents Are Soaring
Across the nation’s 150 largest metros, 104 of them managed to eke out at least a little monthly rent growth during November. The nation’s four strongest monthly rent increases registered in Naples, Cape Coral, North Port/Sarasota and West Palm Beach. Monthly price bumps also proved substantial in Gainesville, Lakeland and Miami. Turning to annual price shifts in the 50 largest metros, West Palm Beach, Tampa and Phoenix were on top, posting growth of 26% to 28%.
The slowest growth rates as of November were increases of about 2% in small Youngstown, OH and Champaign/Urbana, IL. The top 50 metro with the slowest growth was Minneapolis/St. Paul, where pricing climbed 4.1% during the year-ending in November.
Tuesday, December 28, 2021
December Rent Payments at 77%
In its most recent survey, the National Multifamily Housing Council (NMHC)’s Rent Payment Tracker found significantly more than three in four apartment households paid rent in full or part by early this month. The survey of 11.8 million units of professionally managed apartment properties across the country revealed 77.1 percent made a full or partial payment by December 6. The figure represents a 1.7 percentage point increase from the share who paid rent through December 6 of last year, and compares with the 83.2 percent that paid rent through December 6 as of two years ago.
“This concluding release for the NMHC Rent Payment Tracker continues a relatively stable pattern that we’ve observed since early in the pandemic, namely, apartment residents in professionally managed communities have continued to meet their housing obligations,” Caitlin Walter, NMHC vice president for research, told Multi-Housing News.
“Because of the swift efforts by property owners to support their residents early in the pandemic, significant government funds and, more recently, federal rental assistance, apartment residents continue to pay their rent,” she added.
Payment behavior
The data in studies in the Rent Payment Tracker encompasses a broad array of market-rate rental properties across the U.S., which can vary by size, type and average rental price. The metric furnishes insight into the changes in resident rent payment behavior over the course of each month, and, as the dataset ages, between months. Intended to serve as an indicator of resident financial challenges, the tracker also is intended to monitor recovery, including government stimulus and subsidies’ effectiveness.
The December 2021 Rent Payment Tracker data is the last to be released under the NMHC Rent Payment Tracker. Full-month December rent payment numbers will be posted on the NMHC Rent Payment webpage in January 2022.
Monday, December 27, 2021
Rising Lumber Prices Are Back With a Vengeance
An expected détente of predictable pricing for planning purposes went elsewhere.
As recently as October, lumber prices seemed to be moving to a new sustainable norm. It seemed as though prices in the $500 to $600 range per thousand board feet might become the new normal for the next year or so.
Or so it seemed … until the middle of November, when prices again began to rise. Yesterday closed at $979.30.
“The factors that caused the rise in lumber prices earlier in the year are still at play today,” Chip Setzer, director of trading and growth at commodities platform Mickey, tells GlobeSt.com. “Weather continues to be a driving factor for both supply and demand. We’ve seen unseasonably warmer temperatures across the US which has allowed construction to continue well into the start of winter. This has allowed the demand for building materials to remain strong. Also worth noting is that interest rates remain low, which is continuing to fuel housing demands.” Canada has also seen ongoing bad weather conditions, including major flooding affecting highway systems, that delayed and even stopped many lumber shipments into the U.S.
Prices “may continue to rise to above $1,000, which was last seen in Spring 2021,” Ross Price, director of finance at Mickey, tells GlobeSt.com. “This has been driven by a combination of strong construction activity, limited supply due to labor shortages, flooding in Canada, and an announcement by the US government that it would double tariffs on Canada’s lumber.”
The tariffs had been about 9%, but just before Thanksgiving, the U.S. decided to double duties to 17.9% on Canadian softwood lumber. Softwood is the material used in such applications as framing and concrete forms.
“As a result, the cost of home prices is expected to increase, which will continue to cause issues to homebuilders,” Price continues. “At some point, demand for new housing should subside which will lower the demand for lumber and prices could potentially fall.”
The housing market’s growth has shown recent signs of slowing, although the S&P CoreLogic Case-Shiller Index has still been above the 2006 through 2019 average.
“Traditionally in Q4 we see a large push for orders to be filled prior to the holidays,” Alex Meyers, Mickey’s director of operations, says. “In export markets to Asia for example, manufacturers and distributors will take larger than normal inventory positions to ensure sufficient levels of stock are arriving prior to and after lunar new year, which typically grinds the market to a halt for 3-4 weeks.” Given existing low availability of materials and ongoing supply chain problems, “demand far outweighs available supply and prices trend up as a result.”
Call it a lump of coal in the stocking of development and construction.
Sunday, December 26, 2021
Just Closed Victorian Apartments 152 Unit Multifamily Property Montgomery IL
Just Closed!
Montgomery, IL, December 15th, 2021 – Marcus & Millichap (NYSE: MMI), a leading commercial real estate brokerage firm specializing in investment sales, financing, research and advisory services, announced today the sale of Victorian Apartments, a 152-unit multifamily property located in Montgomery, IL, according to Steven D. Weinstock, regional manager and first vice president of the firm’s Chicago Oak Brook office. The asset sold for $13,500,000.
The offering was an exclusive listing of Marcus & Millichap and both Buyer and Seller were represented by Randolph Taylor, Senior Associate, and an investment specialist in the National Multi Housing Division in Marcus & Millichap’s Chicago Oak Brook office.
The property is located at 834 Victoria Drive in Montgomery, Illinois approximately 40 miles southwest of downtown Chicago. Victorian Apartments consists of 32 large studios, 72 one-bedrooms, and 48 two-bedroom apartment homes.
# # #
About Marcus & Millichap (NYSE: MMI)
With over 2,000 investment sales and financing professionals located throughout the United States and Canada, Marcus & Millichap is a leading specialist in commercial real estate investment sales, financing, research and advisory services. Founded in 1971, the firm closed 8.954 transactions in 2021 with a value of approximately $43.4 billion. Marcus & Millichap has perfected a powerful system for marketing properties that combines investment specialization, local market expertise, the industry’s most comprehensive research, state-of-the-art technology, and relationships with the largest pool of qualified investors.
how Can We Help You?
Are you looking to Buy, Sell or Finance/Refinance Multifamily Property?
Saturday, December 25, 2021
Inflation Fears and Commercial Real Estate
While the U.S. economy has produced its highest growth in decades, much of the economy-related attention is focused on inflation, which not coincidentally is also running at its hottest level since the 1980s. Are the worries justified, especially for real estate?
Qualms about inflation are typically couched in terms of whether it will spiral out of control and prompt the Federal Reserve to act to reduce growth that leads to a recession. That scenario is based on the experience of the last sustained bout of inflation in the 1970s and early 1980s, but there are important differences between the economy of that era and today that are likely to mitigate the likelihood of “stagflation.”
In any event, whether high inflation is a problem for commercial real estate is another question. A recent study by Greg MacKinnon, research director of the Pension Real Estate Association, found that commercial real estate performance has been good during periods of high inflation and that returns are much more closely correlated to growth than inflation. “The lesson for today’s real estate investors trying to interpret what the macroeconomic environment means for real estate is that overall economic strength is much more important than whether inflation may rise or fall going forward,” the paper said. Or as MacKinnon put it in a recent webinar: “If the economy is doing well, real estate will do well, no matter what happens with inflation. Inflation is not critical in itself for commercial real estate.”GDP, Inflation Highest in Decades
U.S. GDP is projected to top 5.0 percent for the year, the first time it would reach that level since 1984 when it was 7.2 percent. Inflation growth reached 6.8 percent year-over-year in November, the fastest rate since January 1982, and has been above 5 percent for the last six months.Growth is good for the economy, and inflation is also considered a positive—up to a certain point. The Federal Reserve sets monetary policy to balance full employment and an optimal level of inflation, which is set at a 2 percent long-term average. Even though the 2 percent number is somewhat arbitrary, given the impact of inflation in the past it is proper to ask whether the current level will persist and inflict longer-term damage on the economy.
The spikes in growth and inflation have been caused by a culmination of events started by the pandemic, the unprecedented halt to parts of the economy, and the extraordinary amount of monetary and fiscal stimulus provided by the federal government. Consumer balance sheets have been boosted by roughly $2.7 trillion of additional savings and government stimulus during the lockdown. As cities eased lockdowns in the spring, the combination of pent-up spending, supply chain disruptions, wage increases, and higher energy and commodity prices prompted inflation to soar. While few expect inflation to recede to the Fed’s target level soon, the prognosis and severity are debated. Optimists say that inflation will gradually ease. In this view, the impact of the stimulus is abating, while energy prices will level off or decline. Meanwhile, the supply chain disruptions are receding, and consumer spending will normalize as the pent-up spending runs its course. Finally, wage growth will moderate as people who left the labor force during the pandemic return and ease the shortage of workers, especially for service jobs. “In our view, hand-wringing about inflation is both justified and reaching the end of its critical period,” Wells Fargo Bank senior economist Tim Quinlan said during the webinar last week. “While we do (forecast) above-trend growth in inflation for each of the next couple of years, we see the headline rate of inflation coming down perhaps as soon as late in the first quarter (of 2022), certainly by the middle of next year.” Others say inflation may not be so quick to recede. One reason is the rapid growth in housing costs—reflected in the 13.7 percent growth in U.S. multifamily asking rents year-over-year through November, according to Yardi Matrix—which comprise nearly one-third of the CPI. Because of the way housing costs are calculated in the CPI, it can take six months or more to show up in government consumer price index data, which means the rise in housing costs might impact CPI in the coming months. To be sure, though, the increase in asking rents only affects vacant units that are released, and rent increases are much smaller for tenants that rollover an existing lease. It’s also far from clear that the “Great Resignation” is about to reverse—and even if it does, whether that would slow wage gains. Some workers have decided to retire permanently, while others have concerns about health and safety, and still, others must care for children or the elderly. Another inflation concern is additional federal stimulus, which includes the newly passed $1 trillion infrastructure package and a second $1.5 trillion package that is being negotiated in Congress. That leads some to contend that even if growth recedes to the 4 percent range in 2022, inflation may remain at unhealthy levels. “It’s hard to see the growth of that kind without (high) inflation,” former Treasury Secretary Larry Summers said during a recent interview. Federal Reserve chairman Jerome Powell and other Biden administration officials downplayed the potential of long-term inflation for most of the year, dubbing it “transitory.” However, more recently they stopped using that word, and they are now talking about unwinding the Fed’s $9 trillion balance sheet. While Federal Reserve executives are not commenting on raising the fed funds rate, most observers expect rates to increase starting in 2022 (earlier than previously expected).Are ‘70s Comparisons Overblown?
Since there is consensus that inflation will remain above-trend through 2023 or later, the debate is centered around how bad that is for the economy and whether it sets off a spiral of negative events. Inflation has been very low for a long time, so a short period of running hot isn’t likely to do any permanent damage. But rising wages and materials costs could prompt companies to raise prices to maintain profits, and if consumers feel pressure and lose confidence, they could stop spending. If inflation does spiral, it could prompt the Federal Reserve to raise rates sharply and throw the economy into a recession, which happened during the last period of sustained inflation in the 1970s and 1980s. To fight inflation, former Federal Reserve chairman Paul Volker increased the federal funds as high as 19 percent in 1981, prompting two recessions. There are good reasons to think that the 1970s comparisons are overblown. For one thing, price hikes today remain well below levels in the 1970s and ‘80s, when inflation reached as high as 14.8 percent in 1980. Another dissimilarity is that the economy has generally been strong for years, with interest rates and unemployment steadily declining over the past decade (other than the pandemic). The 1970s inflation had multiple drivers, but the main one was the sharp spike in oil and gas prices set off by the 1973 oil embargo by Saudi Arabia and allied Arab nations, which blocked oil exports to the U.S. and set off years of gasoline shortages. Domestic oil production has grown dramatically, and the U.S. is not at the mercy of foreign producers as it was in the 1970s.What’s more, the U.S. economy is more diverse and resilient than it was in the period leading up to stagflation. The technology industry, which today is the most vibrant sector of the economy and has companies with the largest employment growth and market capitalizations, was barely a glimmer in the 1970s. For all those reasons, the comparisons with inflation in the past seem overblown.
Is CRE a Hedge Against Inflation?
Commercial real estate is commonly believed to serve as a hedge against inflation because rents and values tend to rise in an inflationary environment. This simplistic formulation, however, doesn’t consider other negative impacts of inflation on the economy. To test the theory about inflation, the PREA study looked at total returns of properties in the NCREIF Property Index, which comprises core properties owned by institutional managers. The study calculated returns between 1978 and 2020 through periods of low, medium, and high GDP and inflation growth. The study found that returns were the highest in periods of high growth and low inflation, but that growth was a much more relevant factor for performance than inflation. NPI returns averaged 9.3 percent during periods of high inflation, 10.1 percent during periods of medium inflation and 7.2 percent during periods of low inflation, the PREA study found. NPI returns averaged 12.6 percent during periods of high GDP growth, 9.9 percent during periods of medium growth, and only 4.3 percent during periods of low growth. By property sector, apartments and offices performed better than retail and industrial during inflationary periods. To some extent the results illustrate the inflation hedge maxim about commercial real estate. A good portion of the return comes from income returns, which represent growth in rent and are consistent over time in the stable properties that dominate the NPI index. Appreciation returns are somewhat more complicated, as they are based on the 10-year Treasury rate plus a risk premium that represents investors’ confidence levels.The strength of commercial real estate returns during periods of high inflation might best be explained by the fact that investors will pay higher prices (or lower acquisition yields/capitalization rates relative to Treasury rates) when they feel confident about future rents increasing. As the PREA study put it: “The effect of inflation on property is complicated, depending on how (net operating income) reacts and on how that NOI is valued by the market (i.e., cap rates).”
Still Much to Be Learned
There remains much to be learned about the impact of inflation on the economy and commercial real estate. One reason is that there are so many variables to performance. Another is that periods of high inflation have been relatively rare. The last such period was long ago when the economy and macroeconomic policy were different, so some of the lessons from that period may be less relevant today.The evidence seems to indicate that high inflation over time is a lesser problem for commercial real estate than low growth. Even so, it is appropriate that policymakers adjust policy sooner rather than later to prevent negative impact on consumer and business confidence. And the real estate industry should not be sanguine about the potential for havoc that inflation could create and plan accordingly.
Subscribe to:
Posts (Atom)
-
🚨 Auction Alert 🚨 I’m excited to announce that a prime 17.25-acre residential development property at 150 Harbor Club Dr, Hobart, IN, is g...
-
Just Listed: Golf Sumac Medical Offices | Des Plaines IL Price: $3,900,000 SF: 35,245 Stories: 3 Occupancy: 82.3% Cap Rate: 9.63% * Stabiliz...
-
🚨 Auction Alert 🚨 I’m excited to announce that a prime 17.25-acre residential development property at 150 Harbor Club Dr, Hobart, IN, is g...
