Archive for National News

Aug
22

Demand for Student Housing Assets About to Increase

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college housingInvestors have already acquired a tremendous volume of student housing properties this year, but the busy buying season for student housing is just getting started.

“It’s frothy and it’s active,” says Dorothy Jackman, managing director of student housing services for real estate services firm Colliers International.

The bidding for student housing properties seems likely to get more intense. Investors usually trade the most student housing properties in the fall, after the results of the fall leasing season are in. This year, early results look very good: occupancy rates are on track to meet or even exceed the high levels set last year as the market easily absorbs the new student housing beds that get delivered.

Investors in student housing have been very busy during this spring and early summer. They bought $8.4 billion in student housing properties over the 12 months ending in the second quarter, according to data from New York City-based research firm Real Capital Analytics (RCA). That’s a sizeable increase from $5.4 million the year before. But the big surprise is that most of those sales happened after January 1. As of August, investors bought $5.7 billion in student housing properties in 2016, up from $3.7 billion over the same period in 2015.

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Aug
22

So, What is the White House Worth?

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White-House-For-Sale1600 Pennsylvania Avenue is not the average starter home.

President Barack Obama and his family will be moving out of the White House in a few months. But as far as we know, they aren’t looking to sell. Of course, it’s not in any president’s power to actually sell the White House, and it’s unimaginable that the historic home will ever be sold.

But what if it did? How much would 1600 Pennsylvania Avenue fetch on the market?

Barrons wanted to find out, and Ann Gray, of the Los Angeles–based Gray Real Estate Advisors, estimates that $90 million would be a fair price for the president’s residence. The ballpark figure came after the realtor incorporated factors such as the cost of construction ($232,000 in the 1790s, or about $100 million today), potential rental operating income from the home’s 16 bedrooms ($5 million a year), and the market price for comparable properties (Donald Trump’s 17-acre Mar-a-Lago Club in Palm Beach is valued at $100 million).

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Aug
19

Homeownership Rate Hits 51-Year Low

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July16Mkt_6-1The homeownership rate in the United States tumbled to a five-decade low during the second quarter of 2016, according to data released by the Census Bureau on July 28. At 62.9%, the homeownership rate is exactly where it was in the first quarter of 1965 when “The Sound of Music” was on cinema screens and “Downtown” by Petula Clark was at the top of the charts.

After peaking at 69.2% in the fourth quarter of 2004, the percentage of households owning homes took a nosedive in the face of the worst recession since the Great Depression and unfavorable demographics. The extent of the drop-off in the homeownership rate cannot be over-dramatized.

Between 1965 (when the Census Bureau first began to collect this data) and the deep recession of the early 1980s, the rate grew at a slow and steady rate, peaking at 65.8%. After a 15-year interlude, the number of homeowner households exploded during the mid- to late 1990s, thanks to an assortment of political and economic factors that made homeownership a particularly attractive form of housing tenure.

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Aug
05

Increased Office Density Causing Parking Problems

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Parking-Lot-FullAs companies squeeze more employees into less office space – in an effort to increase efficiency and productivity — landlords are facing a dilemma: How can they accommodate increased parking demands? And, what happens if a space becomes unleasable because of inadequate parking?

This quandary is especially true in suburban markets not served well by mass transit where employees are dependent on cars. These buildings’ parking lots are becoming clogged, and landlords are looking for creative solutions.

What’s driving the space reduction? In addition to cost savings, today’s employee work habits are spurring the downsizing of office space. Collaborative, flexible workspaces are replacing big, private offices and fancy conference rooms.

“It’s been an easy transition because, just as companies are trying to get more efficient and save money, millennials are more open to the idea of less hierarchy in real estate,” Christian Beaudoin, director of corporate research for JLL in Chicago, told Hightower in an interview. “So those two trends have combined at the same time — companies trying to save money and millennials entering the workforce, who value compensation and freedom and flexibility more than they do a big office.”

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Aug
04

Self-Storage Cap Rate Compression Slows

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self-storage3The self-storage sector’s appeal seems to defy convention. Self-storage assets lack the architectural themes and fine details that produce trophy properties in the office and retail sectors. No gleaming lobbies or guest amenities like the hotel sector. Yet investors have recognized other virtues in the self-storage asset class and driven cap rates down by 275 basis points in recent years, a pace of almost five basis points per quarter, according to a recent assessment from real estate services firm CBRE.

Now, however, cap rate compression in the sector is slowing down. After the close of the first quarter of 2016, the average cap rate on transactions was 5.70 percent, a change of four basis points. True enough, the drop in cap rates has slowed, but rates are still moving in a direction that is benefitting investors and owners.

“People love storage,” says Chris Sonne, executive vice president and national self-storage valuation group leader in CBRE’s valuation and advisory services division. “While there wasn’t a lot of activity in any sector in terms of transaction volume, when you compare that to declines in other asset classes, like office, self-storage was impacted the least.”

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Jul
26

Property Sales Take Hits, Keep Punching

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RCA_Logo_highresThe topline figure for the first half of 2016 shows a 16% year-over-year decline in the volume of significant US commercial property sales, Real Capital Analytics says in its latest US Capital Trends report. Yet RCA cites “healthier trends” behind the headline.

“The commercial property investment market weathered three significant shocks” in the year’s first half, but has rebounded with “an upward trend in prices and ongoing investor interest,” according to the USCT report. The series of shocks began with turbulence in the financial markets early in the year, continued through an 18% Y-O-Y volume decline in property sales during the first quarter and concluded with the unexpected results of the UK referendum on leaving the European Union.

“The market has weathered these shocks with pricing largely intact,” according to RCA, which says the headline decline in H1 deal volume to $219.2 billion is “a little misleading.” In fact, RCA attributes much of the decline in deal activity to a limited number of portfolio and entity-level deals in the year’s first half, a trend that RCA says is in keeping with less investor demand for risk investments.

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Jul
18

Self-Storage Sector Maintains Steady Growth

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grand oaks self storageThe self-storage industry is one that has not garnered much investor attention, but may start to, judging by the numbers. Vacancy rates continued to decline in the first quarter and rents climbed at a healthy rate.

The self-storage industry, like all property sectors, has a number of idiosyncrasies, including unit type. Most self-storage facilities rent units of many different sizes, from 5 ft. by 5 ft. to 10 ft. x 20 ft. and everything in between. Statistics are collected for five standard unit-size categories, and because every building has a different combination of unit types, rents are generally reported for the mid-sized category of 10 ft. x 10 ft. in order to ensure an apples-to-apples comparison for buildings, sub-markets and metros.

Moreover, most properties rent units that are climate-controlled, as well as those that are not. Accordingly, rents for climate-controlled units are higher than non-climate controlled units. These rents are reported separately, but they are not aggregated or averaged as the statistics on the physical space (net absorption, construction and vacancy rates) are.

Another idiosyncrasy is the seasonality of self-storage leasing. The chart below shows the steady decline in the national vacancy rate, but the quarterly statistics also clearly show how regularly vacancies decline in the second quarter of every year before climbing in the third and fourth quarters and holding steady in the first. Much of the drop is due to student turnover at the end of the school year. Also, the spring and early summer months are periods that see the highest volume of households moving. The vacancy rate for the first quarter of 2016, at 11.0 percent, is higher than that for the second quarter of 2015, but lower than every other first quarter over the last four years. The same data shows that occupancy has grown by 11.0 percent since the first quarter of 2012.

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Jul
14

U.S. Industrial Space Market Maintains Record Pace

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warehouseCushman & Wakefield announced Monday that U.S. industrial markets absorbed a record-setting 70.1 million square feet (msf) of space in the second quarter of 2016, up 6.0 percent from the same period a year ago, and propelled year-to-date absorption to 132.2 msf. Strikingly, 38 U.S. markets saw over 1 msf of absorption during the second quarter with 11 markets witnessing over 2 msf of quarterly net occupancy growth. This marked 25 consecutive quarters of net occupancy gains for the industrial sector with the current quarter’s absorption reaching a new cyclical high.

The national industrial vacancy rate continued to decline in the second quarter, falling by 30 basis points (bps) from the prior quarter and 80 bps from the prior year to 5.8 percent. Industrial vacancy is currently tracking at the lowest level of the past 30 years and is a full 270 bps below the 10-year historical average.

Kevin Thorpe, Cushman & Wakefield’s chief economist, says that despite a series of shocks to the U.S. economy this year and heightened uncertainty emanating from Europe, economic fundamentals remain mostly solid.

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Jul
06

US Hotels Can Expect a Cloudy Forecast for 2017

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cloudy hotelHotel revenue growth has slowed significantly in 2016, and sources said they expect that to continue through 2017 as occupancy flatlines.

But even if performance might not be as positive as it has been, hoteliers shouldn’t start banking on a recession, sources said.

“I don’t think we’re in for a totally systemwide panic like we’re in a recession,” said Paul Breslin, managing director for Horwath HTL. “I don’t think this is that kind of cycle. I think we’re in a downward trend or softening of a strong cycle. The fundamentals are still strong.”

Bobby Bowers, SVP of operations for STR, Hotel News Now’s parent company, said the industry is likely headed for an extended period of slow but steady growth in large part because there were no wild swings following the 2009 recession.

“2009 (revenue per available room) was down 17%, which was far and away the biggest drop we’ve ever tracked,” Bowers said. “And we haven’t really had a huge growth spurt since then. It makes you kind of think that if you had this big decline and you didn’t really have any huge gains in terms of snap back, then we’re probably in for an extended run of growth around 2% to 4%, which is not great but it’s not negative.”

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Jun
29

Booming Foreign Investment Could Shield SC from Brexit Economic Fallout

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USA UKEven with the economic uncertainty following the United Kingdom’s decision in a referendum last Thursday to leave the European Union, Europe’s loss could be South Carolina’s gain in the long term.

Although the U.K. is the state’s fifth-largest trading partner, with $2.8 billion in goods exported there last year, according to the S.C. Commerce Department, the recent boom of foreign investment is likely to absorb any short-term economic shock. And as the U.K. extricates itself from the 27 remaining members of the EU, South Carolina is well-positioned to benefit later on, both from renegotiated trade deals and as a stable place to invest.

“The thing about South Carolina is that there is a lot of momentum from significant investment, from foreign and domestic companies,” said David Cuda, the director of corporate solutions at the South Carolina office of global commercial real estate firm Colliers International.

German automaker BMW announced a billion-dollar investment in its Upstate plant in March, and Volvo selected South Carolina for its first American factory last year, investing $500 million in a facility in Berkeley County.

“These investments don’t just stop,” Cuda said. “I think it’s a good thing, because this momentum could help us carry through whatever ripples come out of this.”

The fact that South Carolina’s primary exports are agricultural products, aircraft, automobiles and automotive parts, particularly tires, could be an advantage.

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Jun
28

Average Apartment Unit Size Falls to 10-year Low

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tiny-apartmentDevelopers continue to add modern multifamily units to cities across the Midwest. And these new units? They’re getting smaller.

According to RENTCafe, the average size of apartment units completed in 2016 has fallen to 934 square feet. That’s the smallest average size for new-construction apartment units since 2006, when the average size stood at 1,015 square feet. Overall, the average size of all U.S. apartment units is 889 square feet, according to RENTCafe.

However, there is one Midwest city in which new apartment units tend to be larger, Omaha. Omaha ranked ninth on RENTCafe’s list of cities with the biggest new-construction apartment units. The average size of a new studio in Omaha is 477 square feet, while a one-bedroom comes with an average of 758 square feet of living space. RENTCafe.com found that the average new-construction two-bedroom unit in Omaha boasts 1,090 square feet of living space.

The city with the largest newly built apartments was Atlanta, with two-bedroom units here averaging 1,125 square feet of living space.

And the city with the smallest average apartment units? That would be Tucson, Arizona.

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Jun
14

U.S. Retail Sales Point to Strong Domestic Demand

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Businessman Holding Money BagU.S. retail sales rose strongly in May as Americans bought automobiles and a range of other goods, even as they paid more for gasoline, suggesting that economic growth was gaining steam despite a sharp slowdown in job creation.

Other data on Tuesday hinted at a steady build-up of inflation pressures, with import prices recording their largest increase in just over four years in May as the drag from a strong dollar and lower oil prices fades.

“As has been the case in the prior two years, the modest first-quarter disappointment in consumer spending now appears to be a short-lived soft patch,” said Michael Feroli, an economist at JPMorgan in New York. “This number also lends credence to the idea that the big miss on May payrolls may have been sending an overly pessimistic signal on growth.”

The Commerce Department said retail sales increased 0.5 percent last month after surging by an unrevised 1.3 percent in April. The second straight month of gains boosted sales 2.5 percent from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales rose a solid 0.4 percent last month after an upwardly revised 1.0 percent increase in April.

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Jun
06

Rising E-Commerce Drives Industrial Demand

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ecommerce2Economic activity momentum dropped in the first quarter of 2016. Real gross domestic product (GDP) advanced at an annual rate of 0.5 percent, according to the Bureau of Economic Analysis’s first estimate. International trade felt the impact of the stronger dollar in the fourth quarter. The corporate outlook took a downward turn, with business investments dropping 5.9 percent on an annual basis in the first quarter. Businesses cut back investments in equipment and commercial real estate to the tune of 8.6 percent and 10.6 percent, respectively. With the dollar rising, international trade bore the brunt of a weakening economic environment. Exports declined by 2.6 percent, while imports moved sideways with a 0.2 percent annual rate of growth.

However, as more consumers shift to on-line purchases, distribution centers play a greater role in fulfilling orders, strengthening industrial demand. Retail e-commerce sales totaled $92.8 billion in the first quarter of the year, a 15.2 percent gain compared with the same quarter of the prior year, according to the Census Bureau. E-commerce sales represented 7.8 percent of total retail sales.

The first quarter employment landscape offered a few high points. Payrolls rose at a solid pace, adding 609,000 net new jobs. Average weekly earnings of private employees rose by 2.1 percent in the first quarter of this year, compared to one year earlier. With demand for industrial properties rising, transportation and warehousing employment gained 22,200 new positions, while wholesale trade employment rose by 24,700 jobs.

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Jun
02

Reis: Office Market Fundamentals Remain Sound

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office-space for leaseMuch has been said about the multifamily market driving home solid earnings over the past few years as millennials and others have eschewed the housing market, preferring to rent longer than in times past. Apartment-rent growth has been good to investors.

The assessment of the office market, on the other hand, has been less sanguine because demand has not grown in line with employment growth. By this stage in the last recovery, the quarterly rent-growth rate in the nation’s office market exceeded 2 percent. By contrast, in the current recovery, the quarterly rent-growth rate has barely topped 1 percent, which was in fourth-quarter 2014.

Yet we just crossed the 22nd straight quarter of rent growth in first-quarter 2016. This is remarkable. The last recovery cycle only lasted 17 quarters before rent growth turned negative.

The cumulative rate of growth in the current cycle is only 12.5 percent, much lower than the 24 percent cumulative growth rate of the previous cycle. This, however, has as much to do with how low rents had fallen prior to the last up-cycle (after the dotcom bust of the early 2000s), as compared to the tepid declines in 2008-10.

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May
27

Momentum in Wrong Direction for June Rate Hike?

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3d Illustration: Business and Finance. Raising interest rates inDespite last week’s media reports hinting at a June rate hike after the Federal Reserve’s May meeting, expect Janet Yellen and company to wait until March 2017 for an interest rate increase, according to Rajeev Dhawan of the Economic Forecasting Center at Georgia State University’s J. Mack Robinson College of Business.

“The Federal Open Market Committee dot charts are of interest to the press for their noise potential,” Dhawan wrote in his quarterly “Forecast of the Nation,” released (May 26). “These are submitted weeks in advance of the meeting and as such are purely opinions and not policy projections, resulting in confusion.”

Dhawan points to comments in the April FOMC that contradict the idea of a June rate hike.

“The FOMC said consumer sentiment was high, which is true, but it has been moderating since last fall,” Dhawan said. Combined with extreme volatility in the stock market and the political uncertainty surrounding the presidential primaries and upcoming elections, “the momentum indicator for confidence is not up, but down.”

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