Sale Leaseback Transaction Volume Rises 8.3%

Sale Leaseback Transaction Volume Rises 8.3%

Dollar volume of sale leaseback deals rose 8.3% to $5.1 billion in the second quarter over the first, while the transaction count remained in line with 165 versus 173 in comparing the same two quarters, according to SLB Capital Advisors.

Two significant transactions helped spur the dollar volume in the second quarter: Realty Income’s acquisition of EG America’s convenience store portfolio for $1.5 billion and Benderson Development Company’s acquisition of Kiewit’s corporate offices for $500 million. But most deals continue at lower numbers or in the $2.5 million to $25 million range.

Specific sectors fared differently and are worth noting. Industrial property transactions decreased from historical levels and represented only 39% of all transactions for the quarter. In contrast, retail, which many observers have worried about, represented an uptick and increased to its highest contribution level since the pandemic. 

 

 

Pricing trends. Sale leaseback cap rates have moved up 100 to 200 basis points from two years ago in 2021. The cap rate increase has been more pronounced in non-core markets for smaller credits with lower quality facilities. The impact has been less pronounced in core markets for higher quality facilities with stronger credits. Financing headwinds and inflation have been the two primary drivers, which have resulted in a risk-off environment for most buyers. Because the cost of capital has increased in the last 18 to 24 months, sale leaseback cap rates remain well inside company weighted average cost of capital or WACCs.

M&A arbitrage opportunity. In the second quarter, average purchase price multiples dropped across all deal sizes. While the M&A valuations have declined, this provides increasingly attractive sale leaseback value arbitrage across various industry sectors driven by the delta between business and real estate multiples. Attractive arbitrage opportunities are prevalent for the most part across many middle-market sub-sectors.

North American M&A activity. Deal value fell in the second quarter for a total of those closed or announced at a combined value of $467 billion. But the report said it should not be viewed as a dead market, just below the average pre-pandemic first half levels. The key reasons for less M&A activity are a risk-off financing environment and a mismatch between seller and buyer valuation expectations. Yet, corporate buyers who have strong balance sheets and sizable platforms are likely to benefit in this climate. 

 

Net lease REIT snapshot. Net lease REITs reported $5.4 billion in acquisitions for the second quarter, a rebound from the first when they were $3.1 billion. The reason is attributed to REITs taking a good share of acquisition volume. The net lease REITs reported $2.8 billion of equity offerings in the second quarter, up from $1.6 billion in the first quarter. 

By region. The South led in sale-leaseback activity by deal count, comprising 40% of all transactions. The Northeast led in dollar volume with $1.6 billion. In comparing dollar volume, the West closely followed the Northeast with $1.4 billion, then the South came in with $1.3 billion. Last place went to the Midwest with $0.8 billion. When looking at last year’s results, the West experienced the biggest decline in activity, dropping from $7.4 billion to $1.4 billion. The markets that face the most challenges are tertiary rather than core markets. But the good news is that sale leaseback pricing continues to be attractive across all geographic areas for those with strong credit and who are experienced operators, the report said

 

Source: Sale Leaseback Transaction Volume Rises 8.3%

https://www.creconsult.net/market-trends/sale-leaseback-transaction-volume-rises-8-3/

1120 E Ogden Ave

New Listing | Retail-Office For Sale Naperville IL
eXp Commercial is pleased to present to market 1120 E Ogden Avenue, a highly visible 10,860 square foot retail-office property on 1.26 acres in desirable affluent Naperville, Illinois, along the I-88 E-W corridor approximately 28 miles west of Chicago. The property is currently owner-occupied and will be fully vacated shortly after closing, with the seller seeking approximately 60 days of post-closing possession. Flexible B3 zoning allows for a number of retail and office uses, ideal for an investor, owner-user, or redevelopment of the property.
Listing Broker: Randolph Taylor | rtaylor@creconsult.net

https://www.creconsult.net/retail-office-for-sale-1120-e-ogden-ave-naperville-il-60563/

Grand Prairie 2nd

NEW LISTING: 4,408 SF Medical-Dental | Dallas-Fort Worth Market
eXp Commercial is pleased to present to the market a fully built-out, free-standing 4,408-square-foot medical/dental office building in Grand Prairie, Texas, centrally located 22 miles southwest of downtown Dallas and 26 miles southeast of downtown Fort Worth. Though the current use is for a dental office, the property is zoned PD267A (commercial development), allowing for a variety of medical and dental uses. The property is owner-occupied and will be vacated at closing, providing an ideal opportunity for another dental practice or any number of medical office users to utilize the property for their practice or an investor who works with medical office tenants to take advantage of an investment opportunity.
Listing Brokers:
Tyson Grona | tyson@tysongronagroup.com | 936.444.3635
Randolph Taylor | rtaylor@creconsult.net | 630.474.6441
https://properties.expcommercial.com/1253332-sale

Expenses for Apartment Owners Continue to Outpace Rents

Expenses for Apartment Owners Continue to Outpace Rents

There was an 8.6% spike in expenses in Q2.

Operational costs for apartment companies grew by 8.6 percent on average year-over-year in the second quarter of 2023, according to a new report from Marcus & Millichap.

Effective rents rose at nearly twice the pace of expenses during the yearlong period ending in June 2022, but those trends inverted over the following 12 months due to “persistent inflationary pressures,” the report said.

Expense growth began to taper after peaking at the end of last year. 

Nonetheless, this is all adding up to higher debt costs, coupled with rapid insurance hikes, leading to stalled project proposals and delays at build sites. 

“Some developers may shorten hold times upon completion to tap cash after unexpected cost adjustments strained budgets,” the report said.

The cost hikes in the past year were most visible in turnover, marketing, and especially insurance costs, with each rising by more than 10 percent year-over-year.

Also factoring negatively to their bottom lines were rising costs in administrative, taxes, management, and payroll, which each grew more than 7 percent. 

Last month, GlobeSt.com reported that operating expenses on average had risen 28%.

In some worst cases, property owners and developers in Florida are bracing for potential insurance increases of more than 200 percent.

Indeed, ballooning insurance rates have been the primary catalyst for expense growth, increasing by 33 percent year-over-year on average in Q2 2023.

Nowhere is this worse than in natural disaster-prone metros, which command costlier insurance premiums, and yet, continue to attract renters and homeowners.

The six major Florida metros each saw insurance costs rise at a faster pace than the national mean over the past 12 months. Insurance rates per unit in these Florida markets exceeded the overall US metric by $35 to $175 on average in Q2 this year, according to the report.

Other locations with notable insurance hikes over the past year include Kansas City, Oakland, Orange County, and Phoenix. Midwest and select Sun Belt markets enjoy lower premiums. 

Marcus & Millichap reported that insurance costs per unit rose by less than 10 percent year-over-year on average in just five major US markets as of Q2 2023, including Columbus, Detroit, Milwaukee, Pittsburgh, and St. Louis.

Other metros such as Charlotte, Las Vegas, Raleigh, and Reno, meanwhile, had relatively mild adjustments and remained among the 10 lowest major markets for insurance costs per unit. Some developers and investors may shift their attention to these locations, according to the report.

 

Source: Expenses for Apartment Owners Continue to Outpace Rents

https://www.creconsult.net/market-trends/expenses-for-apartment-owners-continue-to-outpace-rents/

Here’s Why Deals Will Increase in Q4

Here’s Why Deals Will Increase in Q4

There is more certainty around valuations from both buyer and seller.

There is less buyer/seller disconnect in the marketplace as the frequency of interest rate hikes and the size of those hikes have decreased, according to Marcus & Millichap.

Buyers and sellers are beginning to better understand the value of the real estate, John Sebree, Senior Vice President, Multifamily Housing Division, Marcus & Millichap, said in a recent news video.

 

“Buyers and sellers are getting much closer to the middle ground or that common place where they can agree on the value,” he said.

“And as a result, combined with the amount of fundamental activity that we’ve seen increase over the past 90 days, we are looking at the fourth quarter and feeling pretty confident that the amount of transaction velocity and the number of closings we’re going to see in the marketplace will increase substantially.”

 

Because the number of buyers is somewhat limited, they can do deals with little competition, according to Sebree.

“We also know there are a tremendous amount of funds on the sidelines waiting for the opportunity to jump back in, which will increase the competition for available assets,” he said.

There’s been substantial uncertainty on underwriting lately, such as in taxes, insurance, and utilities. But that has calmed down a bit lately, he said.

 

“Looking ahead, we know the number of properties that are going to be coming to market is going to increase,” according to Sebree. “We know that simply from our BOV activity and our conversations with owners. We also know, based on our conversations, that the number of buyers in the marketplace is increasing and will continue to increase.”

He said interest rates are one factor that must be monitored because of its uncertainty. 

“But overall, I’m very optimistic about what I see on the horizon,” Sebree said.

 

Source: Here’s Why Deals Will Increase in Q4

https://www.creconsult.net/market-trends/heres-why-deals-will-increase-in-q4/

Multifamily Market Updates November 2023

Multifamily Market Updates November 2023
eXp Commercial Multifamily Division: Chicago

Cooling Future Deliveries Set the Stage for a Rent Growth Comeback

Cooling Future Deliveries Set the Stage for a Rent Growth Comeback

CALABASAS, Calif.--(BUSINESS WIRE)--Institutional Property Advisors (IPA), a division of Marcus & Millichap (NYSE:MMI), published a new national report, Pullback in Multifamily Construction Starts.

“As access to development capital across the country diminishes and rent growth slows, multifamily starts are cooling,” stated Greg Willett, first vice president and national director, research services, IPA. “Among the 15 markets that account for over half of the nation’s ongoing apartment construction, building starts in the second quarter of 2023 totaled just under half the average volume recorded during the previous two years.”

Pullback in Multifamily Construction Starts research report provides investors with the latest apartment construction research and analysis, including key findings such as:

• The largest declines are in Texas, with second quarter 2023 project initiations in Houston, Austin and Dallas-Fort Worth at less than one-third the earlier volume. Slowdowns are also pronounced in Philadelphia, Denver, and Washington, D.C.
• Pullbacks in new construction that mirror the average for the 15 markets under study are in Los Angeles at 52%, Seattle at 51% and Atlanta at 50%.
• Markets where the pullback in construction is somewhat slower to materialize are in Florida and the Carolinas. Raleigh-Durham is the single location in the analysis where apartment construction starts in Q2 2023 remained in line with the volume recorded in early 2021 through early 2023.
• Given that the typical apartment property takes 18 to 24 months to complete, delivery volumes should begin to wane in early 2025 and then drop notably during the last half of the year.

“Rent growth is likely to regain momentum as early as spring 2024, when the normal seasonal upturn in leasing velocity should coincide with obvious signs that today’s new supply excess is temporary,” added John Sebree, senior vice president and national director of the firm’s Multi Housing Division. “Price increases should prove robust during 2025.”

Just over one million apartment units are now under construction across the U.S. However, building is not booming everywhere. About half the total construction pipeline is in 15 markets, where a slowdown in local starts will impact overall statistics. Most of the primary building centers are in the Sun Belt, but there’s also notable activity in Washington, D.C., Los Angeles, Seattle and Philadelphia.

Apartment construction starts in the 15-market core building locations skidded to 30,800 units in the second quarter of 2023. That start volume is off 52 percent from the quarterly norm of 64,200 that was sustained for nine quarters from early 2021 through early 2023. Absolute peak quarterly starts totaled 81,500 units from April through June 2022.

Given that the typical apartment community takes 18 to 24 months to complete, delivery volumes should begin to wane in early 2025 and then drop notably during the last half of the year. Rent growth seems likely to regain momentum as early as spring 2024, when the normal seasonal upturn in leasing velocity should coincide with obvious signs that today’s new supply excess is temporary. Price increases should then prove robust during 2025.

https://www.creconsult.net/market-trends/institutional-property-advisors-releases-national-multifamily-construction-report/