Archives for January 2019

Berkadia’s new poll reveals focus on interest rates, GSE lending and the ever-growing use of technology.

Interest rate hikes, GSE lending confidence and adapting new technologies are all on the forefront this year as commercial real estate professionals reflected on 2018’s deal flow and anticipates new year opportunities, according to Berkadia’s 2019 Outlook Powerhouse Poll.

Interest Rates

As the commercial real estate industry navigated four interest rate hikes last year, investors still accepted less returns and ended the year on a high note as 82% said that deal volume either met or exceeded their expectations for the year. Berkadia’s professionals are now keeping a close eye on interest rates in 2019 and investors may not react as favorably to as many rate hikes.
“This year, we may see the commercial real estate industry hit the reset button after a dynamic past 12 months. The market absorbed the heavy interest rate increases of 2018, but interest rate uncertainty in the year ahead could impact the current level of investor interest,” said Ernie Katai, Executive Vice President and Head of Production at Berkadia. “That being said, available capital remains strong and we may see more larger-scale transactions than in years past.”
For example, an owner of a building may have a specific dollar amount in mind for the value of his commercial property but when interest rates rise and uncertainty in the market looms, the actual price point of his property may decline and interest in purchasing his property may drastically fall. There is always an impact with every interest rate increase, especially in the real estate market and industry professionals are fully aware of the trend but remain cautiously optimistic.

GSE Lending

As the Government-Sponsored Enterprises (GSEs) are typically tied to the political climate, CRE professionals are closely watching the government to determine any developments with 82% of respondents still expecting GSEs to provide most of the financing this year. Last year, $140 billion worth of business was done with GSEs, Katai tells GlobeSt.com.
“While we await new Federal Housing Finance Agency (FHFA) and Freddie Mac leaders at the start of the year, there may be more smoke than actual fire around the issue of GSE Reform, as the administration focuses on other priority issues,” said Katai. “Until we have further clarity on what reform will look like, we expect investors to keep their foot on the gas when it comes to deal activity.”

Multifamily Transactions

With 89% of respondents expecting the number of multifamily transactions in 2019 to remain the same or decrease from the prior year, 77% say that multifamily deal sizes will either grow or at least remain the same as 2018.
“Workforce housing continues to be the most popular investment as they appeal to the middle class segment of the population that aren’t purchasing a home for a variety of reasons including more mobility and budgetary constraints,” explains Katai. “Luxury rentals are still popular, but there are a smaller pool of residents willing to pay those rents.”

Technological Advances

Commercial real estate technological advancements have increased over the past year and there will be a push to integrate these advances into everyday work life even more than ever before. According to the poll, 85% of mortgage bankers and 78% of investment sales brokers agree their respective commercial real estate functions include increased technology use than in the past year. The most popular types of technology that may impact the CRE industry are big data, artificial intelligence and blockchain technology.
“The big deal will be actual adaptation when it comes to routinely using the existing and emerging technology,” says Katai. “This is why Berkadia continues to train and focus on technology. In this industry, we are still somewhat shopping at Sears & Roebuck as Amazon hasn’t been created yet. Venture Capital firms are raising up to $3 billion per month for CRE technology purposes, that tells us that some of our antiquated practices will go away faster than we think. As we move forward, the ability to sift through large mounds of data and quickly give solid and accurate advice to our clients is the future. The CRE industry is rapidly changing. If professionals don’t sit up and notice, there will be implications.”
The 2019 Outlook Powerhouse Poll data was collected via an online survey conducted internally by Berkadia in December 2018. The sample was based among Berkadia’s 60 offices throughout the US and with 151 respondents.
By: Tanya Sterling (GlobeSt)
Click here to view source article.

“The Opportunity Zone program appears to be attracting significant amounts of capital, and many investors we have spoken to have mentioned multifamily as perhaps the best property segment for investment under the program.”

The Opportunity Zone program could be successful at increasing housing development in certain areas, though whether this will include more affordable housing is not clear and will vary from metro to metro. Significant investments in these areas should help trigger and sustain economic development as the program offers greater incentives for longer investment periods.
“The Opportunity Zone program appears to be attracting significant amounts of capital, and many investors we have spoken to have mentioned multifamily as perhaps the best property segment for investment under the program,” says Cory Loviglio, Quantitative Strategist, Ten-X Research. “However it remains to be seen how much affordable housing this program will actually provide.” In many cities, he explains, adding affordable housing is a challenge closely tied to elevated construction costs, specifically related to the rising cost of materials and labor, not just land or taxes. And in more rural areas, there already tend to be fewer apartment buildings so it appears less likely that they will be inserted into spaces dominated by single-family housing. “Nonetheless, the program should add to housing stock judging by the attention it has already drawn from investors, specifically those with multifamily interest,” he says.
The investment activity in Opportunity Zones will likely depend on various criteria set forth by investors that do not necessarily apply to economic distress levels. Factors include risk profiles, geographic preferences, real estate sector preferences, and time horizon. These factors will inevitably lead to some opportunity zones drawing significantly greater investment and development than others, as based on the criteria, some are better suited for investment, Loviglio tells GlobeSt.com.
Of course, since opportunity zones vary across the country and certainly within cities, no two opportunity zones are alike. For example, some of these zones are in very small census tracts with a high variance in economic, demographic, and housing conditions; while others are already in the process of being developed and still some have not seen any movement in recent years. Investment activity, as a result, can vary based on factors beyond such conditions.
“Areas with prime access to transportation offer upside in development. Jamaica, Queens, for example, has already attracted plans from multiple opportunity funds thanks to its public transit infrastructure,” says Loviglio.
Long Island City similarly offers public transit options and has already seen development activity in recent years, making Amazon’s announcement to establish part of its HQ2 there a logical move.
“We are likely to see more companies take advantage of the tax benefits under the program, though it should be noted that while parts of Long Island City are designated opportunity zones, the area has been undergoing a development boom and is hardly economically challenged. While such expansion into opportunity zones may not become the norm and the vast majority of these zones are much more economically distressed, they do provide opportunities for massive redevelopment, so we should see many other companies at least considering the benefits when expanding or relocating,” explains Loviglio.
By: Tanya Sterling (GlobeSt)
Click here to view source article.

1784 Capital Holdings is repurposing a vacant restaurant into self storage in Scottsdale, where demand for self storage is growing.

Multifamily activity has driven growth in the self-storage market, particularly in dense urban markets. Phoenix, which has seen tremendous multifamily investment and rising demand, is no exception, and vacant retail has become fodder for self-storage development in the market. 1784 Capital Holdings is repurposing a vacant Macaroni Grill into self storage in Scottsdale. The property, which will be rebranded Gold Dust Storage, will be complete in 2019.
“Scottsdale is one of the most affluent cities in Arizona, with strong demand for self-storage and generally the highest self-storage rental rates in the state,” Shane Albers, chairman and CEO of 1784 Capital Holdings, tells GlobeSt.com. “The strength of the market is driven by barriers to entry, high land prices, and difficult city approval processes. When combined with excellent demographics and a dynamic live/work city environment, along with numerous outstanding new multifamily, condominium, single family and mixed-use developments, this environment is very conducive to the success of self-storage.”
The company’s vision is to build a high-end self-storage facility to serve the market. The former restaurant was a good fit for self storage because of the location. In addition to the strong visibility at the site, it was also a good candidate for ground-up construction because of the size. The restaurant sits on 2.1 acres, and the final project will include 117,567 gross square feet and 82,505 square feet of net rentable space. “The former Macaroni Grill site is exceptionally well-located on the corner of a lighted intersection with easy access and great visibility on one major thoroughfare—Scottsdale Road—and very close to another—Shea Blvd. The size of the parcel is also ideal for the ground-up construction of a Generation V Self Storage facility,” says Albers.
1784 is bullish on the self-storage market in Scottsdale and is planning to continue to look for opportunities in the market. “There is continued opportunity nationally to redevelop well-located outdated and/or closed restaurants and struggling and/or shuttered retail sites into Generation V Self Storage properties with an increasingly mixed-use component,” adds Albers.
While the project will deliver sometime this year, 1784 plans to hold the asset through stabilization. However, Albers also says that they may hold beyond stabilization.
By: Kelsi Maree Borland (GlobeSt)
Click here to view source article.

More and more developers are requesting sustainable design and looking for ways to implement sustainable features into properties.

2019 will be the year for sustainable design. According to designer Ameen Ayoub of Ameen Ayoub Design Studio, more and more developers and clients are asking about sustainable design and looking for ways to incorporate sustainable features into projects. This includes everything from solar panels to electric charging stations, and the demand is expected to grow significantly in 2019.
“We are seeing clients ask for sustainable design more and more. Many clients have made the decision to install solar panels,” Ayoub, who has worked on sustainable projects across the country, including The Lofts at Cleveland Square, tells GlobeSt.com. “Currently, the codes are now requiring all new builds in residential houses to install solar panels. This was not the case just a year ago. We have installed solar panels and electric charging stations in many of our commercial office and multi-residential projects as well. We also have landscaped roofs on existing roofs which has helped with heat gain as well as capturing water for reuse.”
Automation is at the top of the list for emerging trends, and Ayoub expects automated mechanical, electrical and plumbing systems to be one of the major trends in automation this year. Those include companies like Savant or Lutron. “This has given clients the ability to control the building systems remotely as well as run diagnostics and troubleshoot any problems that arise,” explains Ayoub.
In addition to automation, healthy building is also rising in popularity. “We are also seeing clients asking for Biophilic design strategies which are essentially “healthy building” efforts,” says Ayoub. “These include the more traditional items we see like solar panels, rainwater treatment systems but now there are other items that are starting to trend as well including lighting and the natural exterior light conditions throughout the day that is now being matched with lighting systems.”
In addition, Ayoub says that operable window, natural light and areas that allow users to bike or use public transit have also become popular.
While sustainable design is growing in popularity, affordability is the major challenge. “Sustainable design is definitely on the rise but the industry is always affected by the market place and affordability of this type of design,” says Ayoub. “We always see cost being the number one determining factor. As much as clients want the sustainable features it is always a very large budget adjustment, which deters some of the really great sustainable strategies form being implemented.”
In California, however, developers are finding ways to manage those costs. “In California we see much more sustainable design happening because the state has always lead in setting the standard for the country in this area as well as many other sectors,” adds Ayoub.
Despite the challenges, Ayoub expects a significant increase in sustainable design this year. “In 2019 we predict a sharp rise in buildings connected more to automated smart systems that monitor and control buildings,” he says. “At the residential and commercial level, smart systems that are wifi/internet based are trending significantly. Clients expect to have, at a bare minimum, systems that can be controlled remotely via an internet connection. The affordability of some of the basic smart building systems like Nest home system will usher in more awareness of what is available for the average consumer.”
By: Kelsi Maree Borland (GlobeSt)
Click here to view source article.