Earlier this week, I gave a presentation, RISK MANAGEMENT TRENDS IN THE 2ND ACT OF MARKET RECOVERY, at the RTM Contaminated Properties Transactions conference in Philadelphia. There were three general themes to my talk:
1. Despite the rocky start to the year, the economy is still improving. A long list of barometers currently points to more property transactions over the near-term.
2. Interest in properties is bleeding outward from the primary metros into the mid-sized (or secondary) ones. Much like the Architectural Billings Index is viewed as a leading indicator of future construction activity, EDR’s ScoreKeeper model provides a valuable barometer of where investor interest is focused given that environmental due diligence is conducted in advance of closing property transactions. Based on the latest ScoreKeeper results, the majority of the highest-growth metros in 2014 vs. 2013 are secondary metros. This trend is the result of investors expanding from the primary metros like New York, San Fran and LA in search of higher yields and less intense competition for the choice, low-risk properties.
3. Environmental underwriting standards are still risk averse. The results from a battery of questions in EDR Insight’s two September surveys of lenders and environmental professionals indicate that lenders and other users of environmental risk assessments are holding fast to current risk management standards–or are becoming even more risk averse. Here’s one finding to illustrate the common theme of high caution in the market:
As we move into the final quarter of the year, market recovery marches on, a wider array of properties in a greater number of markets is changing hands, buyers are cautious and new opportunities are emerging, specifically for the redevelopment of contaminated properties. Commercial property owners, developers and local governments who positioned themselves well during the Great Recession are turning their attention to restarting previously-shelved projects in this strengthening economy. And these delayed projects often involve sites with some form of environmental impact that was deemed too costly for redevelopment.
With the caveat that the accuracy of any forecast depends on factors outside of our control, not the least of which are growing concerns about Middle East tensions, the outlook for 2015 is generally positive, and of course, moving into the 4th quarter, we are expecting to see the traditional seasonal uptick in deal flow that typically accompanies the close of a calendar year.
For the full copy of the slide deck from RTM, click here.