Sunday, May 9, 2010

Capital Continues to Flood Markets but Few Attractive Investment Plays Surface, Says RECI

CHICAGO, IL - As capital continues to flooding the markets, few attractive investment opportunities surface, according to The Real Estate Capital Institute's monthly market overview.

While many investors see improving conditions for funding, preserving cash flow remains tantamount.

Evolving realty capital market trends include:

* Capital:  Both debt and equity are both back at levels well above 2009 lows. Yields are rapidly compressing and good quality projects capture substantial interest with 30 to 50 bidders not being unusual. Yet, unsecured funding for private developers still somewhat limited, while public funds have ample access. Projects in second-tier markets, or without cash flow, remain dormant.

* Funding  Sources: Banks will save deals with negative basis, if borrower is a solid and responsive sponsor willing to commit some level of additional liquidity. Otherwise, land and other non-cash flowing assets will be liquidated over the next few quarters. Also, newly recapitalized banks [no legacy issues] are starting to advertise debt for income properties. Meanwhile, life companies increase leverage to 70% or more and
multiple CMBS players are back in action.

* Fresh Faces: Foreign buyers, including Canadian, Asian and European buyers are bargain-hunting for properties as well as financial institutions.

* Yields: Lowest rates hover in the mid-5% range for long term debt; 4.5% for short-term. Core investments attract unleveraged returns in the higher-single range, while more entrepreneurial investors are trying for 15%
returns, but finding very limited buys in a crowded buyer universe. Buying mortgage notes emerges as a popular platform for distressed deals with higher yields, but many shy away from risks associated with potential title issues and prolonged court battles.

* New construction:  Need public backing for generating substantial equity. Also, institutional and multifamily uses are justifiable - retail, office and industrial only on a very selective basis. Ed[ucation], Fed and Med[ical] are the most attractive realty opportunities. Also, many believe it's the right time to look for entitled urban land as infill remains hard to find.

* Protecting Cash Flow: Tenants are very price sensitive and will sacrifice quality for substantial rent discounts. In fact, in many markets commercial-property values declined to levels not seen in nearly two

Jeanne Peck, (top right photo)  the Real Estate Capital Institute's director, cites "Like Humpty Dumpy, investors sit on piles of cash. These investors will either find profitable opportunities, or cushion any financials falls by paying down debt on existing holdings."

The Real Estate Capital Institute(r) is a volunteer-based research organization that tracks realty rates data for debt and equity yields. The Institute posts daily and historical benchmark rates including treasuries, bank prime and LIBOR. Furthermore, call the Real Estate Capital RateLine at 7RE-CAPITAL (773-227-4825) for hourly rate updates.

Contact: Jeanne Peck, Executive Director, Toll Free 800-994-RECI (7324)
The Real Estate Capital Institute(r), 3517 West Arthington Street, Chicago, Illinois USA 60624