Archives for 2016

Research Report

Slowing absorption and a pending wave of new supply are setting the stage for muted growth.
A combination of decelerating leasing velocity and a lower level of “mega leasing” resulted in just 6.5 million square feet of net absorption during the fourth quarter. Near-full employment and a shortage of skilled talent suppressed leasing activity in several major technology hubs.
Despite these workforce constraints, tech remained the office market’s primary demand driver, representing 24.4 percent of national leasing activity and helping offset suppressed tenant demand in the legal and financial services sectors.
Learn more about what happened in Q4, and what to watch for in 2017, in our complete Office First Look.
By: JLL 
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Developers, city and county officials broke ground on Burlington Northern Santa Fe Railway Co.‘s $20 million to $25 million rail-served industrial park located on 1,400 acres near Los Lunas on Wednesday. Dirt was moved as construction began on a rail spur that will connect the BNSF line to what could be central New Mexico’s largest rail-served industrial park when built out.

The groundbreaking has created excitement among manufacturing companies, according to RIO Real Estate Investment Opportunities, LLC, the project’s developers.

Federal, state and local officials joined private sector partners on Wednesday to celebrate the groundbreaking of the Central New Mexico Rail Park. (Bernalillo County)

“We’ve had up to six inquiries already from major companies looking at the Southwest and looking at rail-served opportunities,” said Lawrence Rael, a partner of Rio Real Estate, following the groundbreaking. He said he could not yet name the companies due to nondisclosure agreements.

What is being dubbed the Central New Mexico Rail Park could transform New Mexico’s transportation and logistics industry while creating thousands of jobs, county officials and developers involved with the project said. Earlier this month the Bernalillo County Commission approved a memorandum of understanding that would reimburse the Village of Los Lunas up to $400,000 to construct the rail spur between the rail park and the existing BNSF rail line.

Rael said the regional cooperation is the first he has seen of its kind for the state.

“To me as a former MRCOG director and citizen of this state, it’s exactly what we need to be doing. What’s good for Valencia County is going to be good for Bernalillo and vice versa,” he said. “For us, the investment from Bernalillo County in this is significant. It not only validates this is a regional facility, it validates we’re open for business in central New Mexico.”

Located west of Los Lunas near the BNSF Railway, the park site is considered a central connection between southern California and Chicago.

Rio Real Estate owner Tim Cummins also owns the Merillat facility in Los Lunas and the nearby Los Morros Business Park. He said following the groundbreaking, the inquiries made about the park have been surprising.

“When we started working on this, we anticipated it being mainly warehouse and distribution logistics kind of jobs. But since we went public on it, pretty much all of it has been manufacturing inquiries,” he said. “There’s some pent-up demand in central New Mexico for rail uses for business and for manufacturing.”

Los Luna is also the future home of a Facebook data center just off I-25.

“We’ve got this one, we’ve got Facebook. We’ve got a lot of momentum in the village,” said Ralph Mims, economic development manager for Los Lunas, following the groundbreaking. “We’re looking at 5,000 jobs potentially once we bring the industry, manufacturing and wholesaling into this location.”

By: Rachel Sapin (Albuquerque Business First)

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(Bloomberg Gadfly) — 2016 was supposed to be the year of the REIT — until it wasn’t.
In September, real estate got its own major market index category, bringing real estate investment trusts more visibility and, by extension, access to more capital.
Like clockwork, real estate-related ETFs saw their greatest inflow ever in September. But October saw steep outflows, due to investors’ fondness for higher government bond yields and a greater likelihood of an interest rate hike. November’s seismic political shift exacerbated those conditions, making an interest rate increase almost inevitable and sending bond yields soaring further.
The election of Donald Trump and his attraction to a stronger dollar have helped spur higher rates, meaning, also, higher borrowing costs. That’s a bad thing for REITs, which pay 90 percent of their taxable income as dividends and thus rely on debt for growth.
The specter of higher interest rates also caused a bond selloff and 10-year government bond yields to rise. Rising bond yields also make REIT yields less attractive to investors.
In turn, nearly all types of real estate investment trusts saw price declines recently, regardless of their underlying fundamentals. Total returns on the National Association of Real Estate Investment Trusts’ All Equity REIT index had surpassed the S&P 500 Index until November, when the S&P 500 pulled ahead. Recent price drops have offset some of REITs’ long-term gains:
Retail and health care REITs have suffered the most lately. The retail businesses that underpin the former have long faced dwindling in-store sales and looming deadlines for debt repayments. Rising interest rates will only mean more pain for retail landlords, who may have trouble refinancing.
Health care REITs, for their part, are the most susceptible to rising interest rates. Their underlying leases tend to be longer term than other real estate leases, meaning property owners may not be able to raise rents fast enough to offset rising rates.
But not all is bad in REIT-land.
Single-family housing rentals have been this year’s success story. Private equity real estate company Blackstone is set to make public its Invitation Homes holding, the biggest single-family housing landlord. The sector has received a boost from millennials delaying home ownership.  Industrial REITs, thanks to sustained demand from e-commerce, have also had a stellar year. Their growth is expected to continue as same-day e-commerce delivery requires more industrial space in and around major cities.
In general, real estate fundamentals are strong. Demand for real estate of many types is high and rents for the most part are growing. A steady interest rate increase and competition from bond yields won’t change that. In fact, an interest rate hike should signify an improved economy — which will have a greater impact on REITs than rates. And NAREIT’s average dividend yield (4.47 percent) is still about 200 basis points higher than 10-year treasury bonds (2.53 percent), so that still makes them an attractive bet.
Growth is still on the horizon for REITs, as evidenced by a 9 percent increase in the amount of capital raised this year compared to last, according to data from financial analytics company S&P Global. As noted above, REITs pay out most of their profits as dividends to investors, so they rely on borrowing to expand.
So while 2016 caused some short-term pain for REITs, the sector’s fundamentals suggest that it still has good long-term prospects.
By: Rani Molla (National Real Estate Investor)
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