Commercial real estate leasing patterns are showing steady but modest growth, according to the National Association of REALTORS® quarterly commercial real estate forecast.
Lawrence Yun, NAR chief economist, projects only modest changes in the coming year. “Jobs are the key driver for commercial real estate, and the accumulation of 7 million net new jobs from the low point a few years ago is steadily showing up as demand for leasing and purchases of properties,” he said. “But the difficulty of accessing loans remains a hindrance to a faster recovery.”
The gross domestic product rose from 2.5 percent in the second quarter to 2.9 percent in the third quarter. NAR’s recent Commercial Real Estate Quarterly Market Surveyshows leasing activity rose 2 percent in the third quarter from the second quarter, and higher sales levels than a year ago.
Yun said there have been some shifts in commercial purchases. “Investors have been looking for better yields, and have found good potential in smaller commercial properties, notably in secondary and tertiary markets,” he said. “Sales of commercial properties costing less than $2.5 million in the third quarter were 11 percent above a year ago, while prices for smaller properties were 4 percent above the third quarter of 2012.”
The economy is strengthening and a tapering of the Federal Reserve’s stimulus program is still on the horizon, Fed Chairman Ben Bernanke said this week in a speech for the National Economics Club.
Bernanke said that even as the Fed begins to retreat from its $85 billion-per-month bond-purchasing program — which has been helping to keep mortgage rates low — it would likely maintain the bulk of the campaign for several years to come. Bernanke again refused to directly address a timetable for the Fed’s tapering to begin, but some reports say that, based on other recent remarks by Fed officials, the tapering could come as soon as December.
The Federal Open Market Committee, which sets policy, “still expects that labor market conditions will continue to improve and that inflation will move toward the 2 percent objective over the medium term,” Bernanke said during the speech. “If these views are supported by incoming information, the F.O.M.C. will likely begin to moderate the pace of purchases.”
The minutes of the Federal Reserve’s policy meeting last month also hinted that a tapering of the Fed’s economic stimulus is coming soon, despite experts noting that “the housing sector slowed somewhat in recent months, and [budget cuts and tax increases] were restraining economic growth."
The bond-purchasing program has been helping to keep long-term interest rates low for borrowers in recent years. But interest rates have already started moving up since the Fed announced months ago that it was eyeing a timeframe to being tapering. Since this summer, 30-year fixed-rate mortgages have moved up almost a full percentage point, from around 3.5 percent to 4.35 percent, Freddie Mac reports.
Bernanke is expected to step down from his role as Fed chairman at the end of January. The Senate Banking Committee will be voting Thursday on the nomination of Janet L. Yellen, the current Fed vice chair, as Bernanke's replacement.
Source: “Citing Fed’s Efforts, Bernanke Says U.S. Economy Is Growing Stronger,” The New York Times (Nov. 19, 2013) and “Fed minutes point to tapering 'in coming months,’” USA Today (Nov. 20, 2013)
The Multifamily Production Index (MPI) released by the National Association of Home Builders (NAHB) reached 54 in the third quarter – seven points lower than a spike in the second quarter, but the seventh consecutive reading above 50.
The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market scaled so that any number over 50 indicates that more respondents report conditions are improving rather than getting worse.
The MPI provides a composite measure of three multifamily housing elements: construction of low-rent units, market-rate rental units and “for-sale” units, or condominiums. Although all three components fell from 2013 peaks in the second quarter, all remain above 50.
The MPI component tracking builder and developer perceptions of market-rate rental properties dipped three points to 64, but it has remained above 50 for 12 straight quarters. The components for low-rent and for-sale units declined from highs in the second quarter; both settled at 50.
“Multifamily developers remain positive about where the market is right now, despite the dip in the index,” says W. Dean Henry, CEO of Legacy Partners Residential in Foster City, Calif., and chairman of NAHB’s Multifamily Leadership Board. “There are challenges still facing the industry, such as availability of labor and rising cost of some building materials, but the demand for apartments and condos is strong enough for developers to proceed in most markets.”
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, dropped two points to 40, with lower numbers indicating fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011.
“The multifamily industry has recovered significantly from its trough in 2009 and is getting close to reaching equilibrium,” says NAHB Chief Economist David Crowe. “NAHB’s forecast calls for continued improvement through 2015, but at a decreasing rate.”
Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.
© 2013 Florida Realtors®
After several years of slow-moving growth the commercial real estate market is in a recovery mode as transaction volume increased 27 percent over a year ago and prices display solid gains, said National Association of Realtors® (NAR) Chief Economist Lawrence Yun during a commercial real estate forum at NAR’s recent convention.
While the overall commercial sector appears to be improving, Yun said this isn’t the case in all levels of the commercial market. “Realtors involved in commercial real estate have reported they’re still seeing little improvement,” said Yun. “Commercial members typically handle smaller transactions, properties under $1 million; this part of the market is moving incrementally. At the opposite end, expensive properties priced above $2 million are doing much better. What we’re seeing is two very distinct markets within the commercial sector.”
The apartment sector continues to perform better than other sectors in commercial real estate with increasing prices and decreasing vacancy rates. Yun predicts the rental population will continue to rise over the next five years because of an increase in household formation.
The office market has also turned positive. Office vacancy rates are decreasing, and rents have recently turned the corner into positive territory. While companies are hiring more people, office space isn’t increasing. This might be due to employees sharing office space; however, Yun predicts the trend can’t continue. As hiring increases, net absorption will increase along with it.
The retail sector has had a modest increase in rents and slight decrease in vacancy rates. Yun says retail spending is determined by consumer confidence, which is in turn determined by housing prices. As housing prices increase, Yun predicts retail spending will improve.
Read more at Florida Realtors®
Instead of just phoning a local landlord, house renters in Florida may soon be dealing with call centers and centralized maintenance crews as Wall Street gets more involved in local home rentals.
In one of the surest signs that the home-rental business is going corporate, the area’s biggest new landlord has started bundling rent checks from tenants and selling them as securities on Wall Street.
The sale this month by Blackstone Group means that Wall Street investors are banking on tenants paying their rents on time. But it also indicates that instead of building a relationship with a local landlord, house renters may increasingly encounter corporations that will be less likely to accept a late payment.
Blackstone sold $479 million worth of bonds backed by its home-rental income. In addition to raising funds for Blackstone, the financing tool may bring uniform standards to a business long troubled by absentee landlords and delinquent tenants.
“We feel increased competition among landlords may improve market efficiency and potentially reduce tenant costs as institutions compete with small investors,” said Brian Grow, managing director of residential-mortgage-backed securities for Morningstar Credit Ratings LLC.
Some rental experts are skeptical about whether the home-rental business lends itself to that sort of consolidation, however.
“This is not like McDonald’s, where you buy a cheeseburger for 99 cents and it’s the same in Orlando or Sacramento,” said Scott Hampton, whose Orlando property-management company oversees 750 houses in Metro Orlando.
Blackstone and its home-rental affiliate, Invitation Homes, did not return calls seeking comment.
Blackstone’s bonds were backed by rents from more than 3,200 houses located primarily in Florida, California, Arizona and Georgia, the company said this week. The group owns about 40,000 homes across the United States, including 1,255 in the four-county Orlando market, according to a new report by the RealtyTrac research company.
Nationally, Orlando ranked 12th for investor purchases of residential property during the past 21/2 years. Equity funds, institutional buyers and other investors bought 16,501 properties, paying cash with almost every deal.
Miami was first in the country, with 39,970 investor-driven housing purchases, the RealtyTrac report showed.
Florida as a whole led the nation for investor home purchases from January 2011 through September, with 115,167 sales. With investors selling off only about a quarter of their newly acquired properties, the majority have become rental properties, according to the RealtyTrac report. Investment groups affiliated with Blackstone have held all but six of the homes they have purchased in the Orlando area since January 2011.
“They’re trying to manage huge portfolios of properties in widespread areas, and that’s difficult to do on a large scale. But they are on the waning side of their acquisitions,” said Scott Hampton, owner of Hampton & Hampton Leasing and Management Inc. “They have literally been buying everything they bid on – sight unseen. You can only do that for so long.”
Daren Blomquist, vice president of RealtyTrac, said selling securities backed by rents could be problematic for housing markets. Home prices, Blomquist noted, are likely to inflate in markets where growing pools of cash buyers drive up prices by competing to buy properties.
“The securitization piece is the most dangerous piece of this buy-to-rent trend in the short term because it means the investors have a potentially insatiable appetite for more properties and are willing to bid more to successfully acquire them, which can inflate home prices,” he said.
The good news for local housing markets, he added, is that investor owners must now be committed to keeping the rents rolling in and will be less likely to “flood the market” with properties to sell.
Trading house rents on Wall Street is a distant cousin of the better-known mortgage-backed securities, which helped cause the real-estate crash. In that case, lenders sold toxic home loans that often misrepresented homebuyers’ income and employment histories. In this case, the securities are backed by rents on houses that were sold in distress.
Harry Collison, president of the Real Estate Consortium Inc. of Winter Park, said homeowners should be concerned about what would happen if the big equity firms did decide to sell off. In that case, he said, regular homeowners trying to sell their houses would suddenly have to compete with a new “shadow inventory” of houses that have been renovated and repaired rather than with foreclosure houses that had often been stripped bare and vandalized.
Overall, though, he added, corporate ownership of rental homes is good for the local market because homeowner associations can depend on getting paid and renters can be assured they aren’t about to be evicted by a landlord who hasn’t paid the mortgage.
“I think bringing in professional owners and management will provide a better rental opportunity for the tenants who occupy these properties,” said Collison, who has managed some of the large investor/buyer groups purchasing residential property in Orlando. “They will be well-run and maintained and delivering services similar to competitors in the multifamily market.”
Copyright © 2013 The Orlando Sentinel
The market for suburban office space — which saw vacancy rates spike above 30 percent in some areas of the country a few years ago — appears to be making up for big losses during the recession.
Since the beginning of 2012, suburban markets have accounted for 87 percent of office demand, according to data from CoStar Group. Many of these markets are in “premier” locations where technology and energy-related companies are driving the growth in demand. This follows a time period when the trend was many companies abandoning the suburbs in favor of consolidated buildings near public transit in urban areas.
Some of the suburban office markets driving the recovery include the Waltham-Watertown area in Boston; Northwest Austin; Bellevue, Wash., near Seattle; and Katy Freeway West in Houston, CoStar reports.
"Similar to the [second quarter], we’ve had increasing momentum in suburban office leasing," says Denny Oklak, chairman and CEO of Duke Realty. "The suburban office sector has continued to show more positive trends."
Much of the buzz in recent years has been about office demand shifting from suburban to downtown markets. However, “that’s not necessarily happening in spades,” says Walter Page, director of office research for CoStar.
“Suburban office absorption tends to perform well during economic booms and recovery periods, while [downtown] properties tend to perform better during downturns as companies take advantage of lower rental rates to secure space closer to the urban core,” CoStar Group notes.
Source: “Once Left for Dead, Suburban Office Making a Comeback,” CoStar Group (Nov. 11, 2013)
Wayne Bergman is a coach with the business coaching firm ActionCoach. He has 25 years of military and oil industry leadership experience.
Q: What are some of the biggest issues when a small-business owner wants to pass the business to his or her children?
A: The owner will not live forever, but the business can. There is nothing more important than planning the future success of the business and the family. The owner must be prepared for an honest and realistic conversation with the family about his vision and goals for the succession and the legacy of the business.
The successor(s) must have the resources and skills needed to sustain the success of the business. Set a target date and prepare the leadership team to be ready. The owner must be ready to step away. Select an internal successor who has the willingness to do what is needed.
The new management team must be ready. The successor has been trained and ready to be a successful leader. Transferring the owner’s knowledge takes planning, time and mentoring.
Q: How about third-party aid?
A: Develop a team of advisers to include: a CPA (financials, tax planning, valuation/appraisal); attorney (business transfer, tax laws, estate); business coach (owner accountability, leadership and team development, process and systems, increase business value); financial adviser (retirement, wealth and estate plans); and insurance adviser.
Q: What’s the best-case scenario, and what’s the worst when it doesn’t work out?
Best scenario: The succession process aligns key players, inside and outside the operation, and agrees to sustain growth and implement the intention and vision of the owner. The next generation is innovative and acts as a cohesive ownership team to grow the business.
Worst scenario No. 1: The owner is unable to transfer ownership to the family prior to death. The transfer is complex and takes longer than expected, so if the owner is incapacitated or dies, potential disruption or failure is a serious risk.
Worst scenario No. 2: The business self-destructs due to family conflict. There are no clear criteria for managing the business.
Copyright © 2013 USA TODAY
The U.S. real estate recovery is set to continue into 2014, as investors increasingly look beyond some traditionally popular markets for higher yields in secondary markets, according to Emerging Trends in Real Estate 2014, co-published by PwC US and the Urban Land Institute (ULI).
As opportunities in core markets become harder to find and the best assets more expensive, investors will look to secondary markets for higher returns. The report suggests that 2014 may be the year for many investors who have focused on large established markets such as Boston, Chicago, Los Angeles, New York City, San Francisco and Washington to expand their focus, given the steady pace of improvement in market fundamentals in secondary markets.
Respondents were particularly positive about the prospects for equity capital from foreign investors, institutional investors and private equity funds, as well as debt from insurance companies, mezzanine lenders, and issuers of commercial mortgage-backed securities.
Read more at Florida Realtors®
Effective Oct. 1, small businesses seeking loans of $150,000 or less can do so without paying loan fees, according to Jeanne Hulit, acting administrator of the U.S. Small Business Administration (SBA).
“This is good news for a number of reasons,” Hulit said when she made the announcement. She says new startups and entrepreneurs in underserved communities tend to be served by lower-dollar loans, including women, minorities, veterans and others. “In fact, according to the Urban Institute, SBA loans are 3 to 5 times more likely to go to women and minority-owned businesses than conventional loans,” she says.
Hulit cited a number of SBA programs that have expanded recently:
- Microlending. SBA supported more than $49 million in lending to more than 4,600 small businesses in fiscal year (FY) 2013, which ended Oct. 1, 2013. Since President Obama took office, SBA has supported more than $126 billion in lending to more than 260,000 small businesses and entrepreneurs, including $30 billion in loans in FY 2011, in FY 2012, and $29 billion in 2013.
- Smaller dollar loan programs. Hulit says these have been “streamlined and simplified.” SBA reduced paperwork for its Small Loan Advantage (SLA) program, designed to expand access to its 7(a) product for loans under $350,000.” She claims a more than 300 percent increase in SLA loans and 700 percent increase in the number of lenders using the program.
© 2013 Florida Realtors®
