CHICAGO, IL, Oct/ 3, 2011 -.The Real Estate Capital Institute's monthly Scoreboard finds that after investors returned from the summer holidays a few weeks ago, the demand is insatiable for quality assets of all classes as funds flood the market given minimal yields in the corporate and government bond markets.
However, substantial pricing gaps and desirability between core properties and non-core assets, as well as primary and secondary markets.
On a property by property basis, real estate capital markets are summarized as follows:
Multifamily - multifamily capitalization rates are near historical lows starting in the low 4% range in major markets along the Coast. The high-end range for Class C properties in secondary markets is 400 basis-points-or-more, again illustrating the dramatic difference in core versus non-core assets. Extremely low mortgage rates help drive down cap rates for this sector, especially with agency support -- often in the mid-3% range or more for Class A properties.
Industrial - Strong demand exists for credit deals with capitalization rates starting below 5% for the right tenant/lease profile. However, more typical properties trade in the 6% to 7.5% range. Expect a cautious growth in this sector based upon modest rental increases. With strong credit, longer-term mortgage rates hover in the 4% to 5% range.
Office - the saving grace with this sector is the lack of new supply. Rents are at, or near, the bottom with virtually no room for discounting. Value add and opportunity plays dominate suburban office market transactions, while CBD core assets in major markets trade near the peak levels of 2007 as institutional investors seek shelter in high quality assets.
Retail - Tenants are finding excellent opportunities to move into second-generation space vacated by bankrupt retailers. In most markets, a 4 to 5 year oversupply exists, although infill development opportunities may crop up. Developers are returning to more traditional retailing concepts including pharmacy and grocery-anchored centers, as online retailing makes more inroads into nonessential consumer spending. For the most part, lifestyle centers are the hardest hit categories. Pricing and financing mirrors other commercial property sectors, depending upon credit profile, etc.
Lodging - The lodging industry sales volume has nearly doubled from some of its historical lows. However, luxury and limited service projects, particularly in premier locations, still commands favorable capitalization rates as low as 6%; 8% or more is the norm for this sector for a vast majority of properties.
Jeanne Peck (top right photo), Research Director of the Real Estate Capital Institute, notes that "since interest rates are ridiculously low, ownership focus is on preserving values through cost-cutting and other proactive management measures."
She suggests, "The lending community is cautiously selective on financing new transactions, using lower leverage and stricter underwriting versus low interest rates as tools for getting deals committed and funded."
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:
The Real Estate Capital Institute(r)
3517 West Arthington Street
Chicago, Illinois USA 60624
Jeanne Peck, Research Director
