Tuesday, June 2, 2015

RECI Reports Real Estate Buyers and Sellers Enjoy Best Capital Market Ride in Years



Jeanne Peck
Chicago, IL – Real Estate Capital Institute reports Good News Bears stomp out Bad News Bulls,
as investors now worry about how good times keep getting better. 

  Rates are still low, but investors grow increasingly skeptical such trends will continue, including the following:

*   "Cap Rates are not capped" - Dipping below 5% for credit-tenant
properties and core assets is no longer impossible.  Low mortgage ranges
along with insatiable appetites for all type of cash-flowing commercial real
estate drive record-high pricing, even above 2006-2007 levels.  1031X buyers
prevail for smaller deals, while institutional players try to expand more
into urban-infill assets, where product availability is scarce.   Less
pricing differential for primary vs. secondary markets, as long as asset
quality and store sales performance [e.g., retail] reflect solid results.
Astute owners are pruning their portfolios, mainly selling assets in
smaller, less strategic markets to take advantage of current risk-pricing
dislocation.

*   "Flat spreads" -  As commercial property markets steadily improve with
the retail sector leading the way, mortgage spreads between various property
types flatten out.  Overall spreads start as low as 120 basis points over
comparable-term treasuries for low leverage loans (below 50% LTV); 150-170
basis points for moderate leverage (65% LTV) and under 220 basis points for
full leverage loans (75% LTV).  With rates remaining in comparatively low
ranges over the past few years, more owners comfortably stay with
floating-rate debt.  As with equity markets, little pricing differentiation
for mortgage rates in primary vs. secondary markets.

*   "Replacement costs count" - Peaking property values ignite more new
construction demand:  More and more, cost-equals-value formulas drive
investment decisions. Developers and tenants find new construction more
appealing.  In particular, users are driven to high-density urban areas near
public transportation.  Automobile parking lots are shrinking, while bicycle
racks grow.

Jeanne Peck of the Real Estate Capital Institute(r), suggests, "The party
continues as owners and sellers enjoy the best capital market ride in years.
When will the music stop?  No one knows for sure, but why worry -- just go
with the flow!"

For a complete copy of the company’s news release, please contact:

Jeanne Peck, Executive Director
director@reci.com / 

www.reci.com

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