News
Pre-Cursor to a Storm
October 31, 2012
| Monday, 125 guests joined us for Bisnow’s 2nd Annual Capital Markets Summit at the Marriott Long Wharf. New Englanders have never been known to shy away from a storm. | |
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| Forecasting how CRE will perform is still all about the economy. CoStar managing director Hans Nordby expects CRE investment and trading activity to be steady through year-end. With ’12 institutional-quality national office cap rates at 5.7%, and better in some core markets, compared with 10-year Treasuries at 1.8%, investors seeking yield are finding CRE very attractive. The most appealing cities are the Sexy Six: NY, Boston, DC, San Francisco, Chicago and LA. (Sorry, Kalamazoo. Hit the gym.) Alternative markets like San Jose and Austin are also posting good numbers, Hans says. | |
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| If Europe sinks into the sea, Hans adds, the US economy will get wet. (Somehow that prospect isn't as daunting now.) Countering that bad news: life companies' CRE lending is up 60% compared to ’07. CMBS is coming back, as are banks—though banks are still off their highs. Mitigating falling US cap rates, property incomes are lower than in the last boom. But Boston is an exception; multifamily rents are higher than in’ 07. Overall, Hans says, the level of capital market trading activity is normal. Besides sending us Hans, CoStar was also an event sponsor. On Oct. 1, CoStar launched a new multifamily analytic tool, which parses numbers like rental rates down to individual apartment complexes. | |
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| Our panel (we use them to block the exit): UBS managing director Gary Gowdy, Campanelli partner for acquisitions Stephen Murphy, JP Morgan executive director Craig Theirl, New Boston Fund SVP finance Mike Buckley, AEW managing director Marc Davidson, Webster Bank SVP Claudia Piper, and Collier International partner in charge of investment sales/Boston Lisa Campoli. Colliers was also an event sponsor. | |
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| UBS has $2B in Massachusetts CRE, including 53 State Street, purchased by a fund that it manages purchased for $610M late last year. Still, there’s ample capital for core assets, especially if they have low or no leverage. Gary is seeing cap rates that have gone as low as the 3% range but, he confesses, he prefers not to look at those numbers. Most of the new capital he sees is coming from Asia. In the dicey European and the UK economies, it's difficult for owners to refi when debt rolls over, which is a drag on their performance. Europe will struggle with debt for a while. | |
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| In the last 12 to 18 months, Marc (here with Webster Bank's Claudia Pier) also has seen Asian funds coming into US markets in a big way. They’re being aggressive but quiet, working with US partners to manage complex tax issues. While much investment is focused on downtowns, Marc thinks if there's a renewed emphasis on R&D and manufacturing that might help revitalize suburban properties. The ‘burbs might also benefit from the rise of downtown apartments rents, i.e. $4.50/SF in Santa Monica or $2,000/month for a 345 SF apartment. Condo lending, meanwhile, could pick up in big cities as units that sold for $1,000/SF four years ago now go for double. | |
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| In Boston, where it’s a struggle to purchase multifamily buildings, Craig says his team is increasingly building properties with the intention to hold them for five to 10 years. It’s a good way to keep a portfolio going in a high-barrier market, he says. They’re also investing in suburbs like Burlington, where they spent $215M on Network Drive. For him to buy in the 'burbs, properties must have a story: a skilled labor force, good transportation access, restaurants for taking clients to lunch, and night spots for young employees to bond. (A T train with on-board Chipotle and a DJ would meet three of those requirements.) While I-495 has its detractors, Craig notes that it’s abundant flex space offers companies room to grow. |
