CCIM Institute: Market Trends

Developer Turns to Crowdfunding for CRE Fund

Investing in commercial real estate has typically been associated with institutions and high net-worth individuals. Crowdfunding works for startups and small projects, but the practice hasn’t made much headway into CRE. While retail investment in stocks made headlines earlier this year with the GameStop saga, CRE is a different market — one that’s less liquid with longer investment timelines

But real estate developer Jamestown hopes to prove the viability of crowdfunded CRE with the first direct-to-consumer platform to be launched by a global real estate institution. Interested parties can participate in Jamestown Invest 1 LLC at a minimum of $2,500. The fund acquired a majority interest in the Southern Dairies at Ponce City Market in Atlanta, a historic dairy distribution plant that has been converted into an 80,000-sf boutique office space and is occupied by ten tenants.

Interest in Rural Land on the Rise

Social distancing was a concept that rocketed from obscurity into our collective consciousness in 2020. But the growing desire for distance wasn’t kept to grocery lines and backyard barbecues. Brokers reported increased interest in rural land markets. According to a survey from National Land Realty, 22 percent of land brokers saw a significant increase in business, while 33.6 percent experienced some growth.

Considering such interest, land values increased during 2020, with 44.5 percent of responding brokers seeing values increasing by 1 to 5 percent. A lot of interest focused on recreational land along with farmland.

“Investors rediscovered a safe haven in land real estate in 2020, which made for a very good year for land sales — with record-breaking volume in the second half of the year,” said Jason Walter, CEO of National Land, in a prepared statement.

Retail REITs Improve Rent Collections in 4Q2020

Though many retail outlets outside of grocery and home essentials faced a difficult 2020, malls increased rent payments to REITs throughout the year. According to data collected by S&P Global Market Intelligence, 11 REITs focusing on shopping centers all reported increases in rent collections in 4Q2020 compared to the previous two quarters.

Federal Realty Investment Trust reported collecting 89 percent of rent in 4Q2020, the lowest figure of the 11 REITs, compared to 85 percent in 3Q2020 and 68 percent in 2Q2020. Kite Realty Group Trust topped the list in rental collections at 95 percent, followed by Retail Properties of American Inc. (94.1 percent) and SITE Centers Corp. (94 percent).

Office, industrial, and casino REITs all reported higher rates of rent payments (with the three casino REITs all reporting 100 percent), though the mall-focused REITs saw improving rent collections throughout 2020.

Hospitality’s Recovery Looks Slow but Steady

The travel and leisure sector was arguably hardest hit during the initial COVID-19 disruption in 2020. Sustained by an expected volume of guests, hotels saw reservations disappear virtually overnight. But now that vaccinations are available, projections for the sector offer a light at the end of the tunnel.

According to a February report from Moody’s Analytics, national revenue per available room (RevPAR) will approach pre-COVID levels by 2025. Thanks to Moody’s Analytics projections of 5 percent growth in GDP in both 2021 and 2022, hotels will recover with a resumption of leisure and business travel, even if RevPAR will not entirely recover until the end of the decade.

Major metro areas such as San Francisco (-65 percent) and Chicago (-61 percent) will see the sharpest declines in RevPAR from 4Q2019 to 4Q2021, while Knoxville, Tenn. (-3 percent), and Fort Myers, Fla. (-15 percent), will be the least affected.

Rental Debt Keeps Accumulating During Recovery

Eviction moratoriums spread across the U.S. as the country dealt with the first wave of the coronavirus pandemic. Rental forbearance has been another avenue to alleviate the pressures faced by those negatively impacted by COVID-19. But now a year from the initial tumult, as the economy looks to get back on track, accumulated debt in rental properties is a significant concern for tenants and owners.

A recent study by the Federal Reserve Bank of Philadelphia estimates that tenants who lost employment due to COVID-19 have amassed more than $11 billion in arrears. A broader examination of the rental market by Moody’s Analytics estimates that more than $53 billion in back rent, utilities, and fees have accumulated by January 2021.

COVID relief passed in December 2020 included $25 billion in federal rental aid, but the multifamily sector faces difficulties in recapturing delayed rental income.

Smaller Metropolitan Areas Eye Mixed-Use Revitalization

With many people considering all the implications of working, living, and even visiting large coastal cities during the COVID-19 pandemic, some inland locations see opportunity in attracting new residents or keeping others from leaving with mixed-use developments projects.

Pittsburgh has been a model of reinvention, with the metropolitan area attracting new industries, including robotics, to replace manufacturing that had left western Pennsylvania. But smaller, suburban locations are investing in mixed-use developments to help revitalize residential, commercial, and retail interest in downtown areas.

Hamilton, Ohio, outside of Cincinnati, for instance, is transforming a downtown paper mill into a $144 million mixed-use project that will include a sports complex, hotel, convention center, and restaurants. Also, Green Bay, Wis.; Akron, Ohio; and Canton, Ohio, all have relatively impressive nine-figure plans to attract interest in the Rust Belt.

Dallas Leads Nationwide Construction Boom

Unlike many other sectors of commercial real estate, industrial saw record levels of development in 2H2020. By the end of 3Q2020, more than 328 million sf of industrial space was under construction across the U.S. Dallas-Fort Worth topped all metro areas with 28 million sf, with both Chicago and Atlanta topping 20 million sf in construction projects.

While Dallas boasted the most activity, the Texas hub actually had more space under construction in 2019. Denver had the largest year-over-year increase in developments, more than doubling its pipeline to 7.4 million sf. That increase includes the largest speculative facility under construction — a 594,000-sf warehouse in Aurora, Colo.

In terms of vacancy, Baltimore, Houston, and Phoenix all topped 8 percent, followed by Charlotte, N.C., and Dallas-Fort Worth above 7 percent. Los Angeles, Detroit, and New York had the lowest vacancy rates, all below 4 percent.

Self-Storage’s Outlook Varies Across the U.S.

Entering 2020, some analysts feared the self-storage sector was becoming oversaturated with new inventory. Some municipalities were even putting a freeze on new facilities. While COVID-19 may have put the brakes on some construction, street rates for self-storage units ticked upward in 2020. According to a February report from Yardi Matrix, prices for standard non-climate-controlled units increased by 3.5 percent in January 2020 compared to the previous year, while prices for climate-controlled spaces increased 2.3 percent.

Of 32 metro areas examined by Yardi, California boasted the three top-performing locations, with Inland Empire, San Jose, and San Francisco seeing the biggest increases in rental rates. Conversely, Boston saw modest increases in rates, but developers abandoned 15 projects during 2020, more than any other market.

Source: “Market Trends“