Kingda Ka, Viper... San Francisco?
Those are three of the scariest roller coasters. In S.F.'s case, we refer to the up-and-down ride of investment sales. Luckily, 2014 has us back on the rise. Hands up!
Take Eastdil's Jeff Weber, whose team has done $5B in investment sales in the Bay Area year to date. That's over double where they were at last year. Above, speaking this week at the Bay Area Mortgage Association (BAMA) September panel at the City Club. Market wide, S.F. sales volumes in 2014 YTD are 30% higher than comparable 2012 YTD volumes. Bay Area volumes have been up and down, he says, with 2012 being an enormous year and in 2013 downtown S.F. sales volumes were down 50%. Right now we're still well below the 2007 peak of transaction volumes, but interestingly, there will be more equity spent this year.
CBRE's Darla Longo says there's a flight to core for industrial, she says, and major life companies and institutions are taking the risk to build brand new core buildings. Capital's been disciplined about what it wants to buy, which is different from 2007—when both Class-A and B were flying off the shelves.
HFF's Gerry Rohm says his firm is interacting with overseas investors to understand their investment criteria in the US. (Our strategy for spending in Europe usually involves mimicking what they do on Downton Abbey.) In 2012, $20B of transactions involved foreign capital. In 2013, $38B. And 2014 is on track to exceed that. Overseas capital likes that the Bay Area will be an energy exporter vs. importer, coupled with how tech-driven the market is. Large sovereign wealth funds like Norges have been pretty active in S.F., he says, and can spot the fact its innovation is creating job growth and demand.
We suspect the crowd was swapping blackjack tips, since many will be heading to Vegas for the CMBA Western States CREF Conference next week. As gateway cities spike in price, investors are opening their target zones in search of yield. That has caused the spread between primary and secondary market pricing to compress a bit in the past year, says Jeff. Value-add opps are scarce, and lots of capital is raised around trophy assets. It's the deals in between core and value add where Jeff's found the best risk-adjusted returns for investors. East Bay is a great story, where residential rents are half of that in the city, he adds.
International capital has arrived in the neighborhood big time, says Ellis Partners' Melinda Ellis Evers, who moderated. Asian capital has always been active, says Jeff, but in the last 12 to 18 months the amount of Chinese capital has skyrocketed as more groups look to invest money outside of mainland China. (Examples include 225 Bush and the JV with Tishman on Lumina.)
