Market Intelligence Report: First Quarter 2015

MARKET INTELLIGENCE REPORT: First Quarter 2015

Prepared by: Anthony J. Buonicore, P.E., Principal, The Buonicore Group

The commercial real estate market is healthy and expected to remain so for at least the next three years based on a combination of sound economic and property market fundamentals. This was the gist of recent forecasts by the Urban Land Institute (ULI) Center for Capital Markets and Real Estate, the Pension Real Estate Association (PREA) and National Real Estate Investor (NREI)/Marcus and Millichap. The latest mix of forecasts point to investor confidence in the commercial real estate market being at an all-time high. All this positive sentiment reflects continued improvement in fundamentals across all property types. Major market property prices now exceed 2007 pre-crisis peak levels, while property prices in smaller markets are fast approaching pre-crisis peak levels.

Fundamentals Strengthening

Commercial real estate property fundamentals in all sectors will continue to be supported by improving demand as economic conditions strengthen and labor market slack diminishes. Apartment and industrial demand is expected to remain robust. The hotel sector is strong. The office and retail sectors are making good progress with demand outpacing supply. The drop in energy prices is also helping to bolster the retail sector.

Also boding well for the forecast is that most property sectors do not show a risk of overbuilding. Supply is increasing, particularly for the apartment and industrial sectors. Apartment construction is expected to reach an all-time high this year, while office and retail supply have experienced only modest gains.

Foreign Investment at All-Time High

One of the most prominent themes across all major commercial property sectors is that of high foreign direct investment, principally in the major metro markets. Slow global growth and record-low long term yields in other advanced economies, most notably Germany and Japan, suggest that the U.S. commercial real estate market will continue to be a favored safe haven destination to park capital. The torrent of foreign investment is driving up real estate prices and putting additional pressure on cap rates. Markets favored by foreign investors have become super-competitive with foreign capital often crowding out domestic investors. With much of this activity occurring in major metros, domestic investors have been moving to secondary and tertiary markets, a trend also reflected in EDR Insight’s ScoreKeeper output for 1Q15.

Lenders Wading Back into the Water

Strong capital flows from both equity and debt sources continue to boost liquidity and drive transaction activity. The availability of equity capital has accelerated acquisitions and portfolio repositioning to capitalize on the low cost of capital, consistent revenue streams, and rising prospects for appreciation. At the same time lenders are back in full force with mortgage origination activity at record levels. The wave of liquidity has pushed property prices to record or near-record levels in core markets and is now spreading into secondary and tertiary markets.

Another Strong Year for CMBS, Rising Wave of Refis

The CMBS market has effectively returned to pre-crisis levels, and the forecast is for 2015 to be another strong year. After hitting the $94 billion mark last year, it now appears the CMBS market is poised to expand further this year to as much as $125 billion in issuance. In 1Q15, there was already a total of $26.9 billion of CMBS issuance. Moreover, the market is facing a huge wave of maturing 10-year loans from the boom years of 2005 to 2007. The wave represents more than $300 billion in loans (comprised of more than 25,000 loans) that are heading toward the refinancing markets for resolution through 2017.

Property Transaction Market

Trends in commercial real estate transaction growth are traditionally reported on a “sales dollar volume” basis, rather than on a “number of sales transactions” basis. Unfortunately, if the interest is in gaining insight into the trend associated with the number of deals taking place in the market, reporting the trend on a sales dollar volume basis may be heavily biased by a few high-priced sales transactions.

Insight into the trend in the number of commercial property sales transactions taking place may, however, be gained by reviewing actual property sales data collected and recorded in tax records at municipal offices. CoreLogic currently tracks such data for all major U.S. markets, although there may be a 60- to 90-day lag until the information is reported. As such, CoreLogic routinely corrects data over time based upon the most up-to-date information. This means monthly sales transaction data reported below may vary slightly from data reported previously.

The number of commercial real estate sales transactions as reported by CoreLogic since November 2013 is provided below: MktIntellRpt_1Q15_CREgraphNOTE: These data only include recorded sales transactions. They do not include leasing transactions, e.g., telecom deals where sites are often leased, properties undergoing refinancing (which may be significant), and property loans being sold or securitized (CMBS).

  APPENDIX on TRANSACTION ACTIVITY: The Movers and the Shakers

The Most Active Buyers of High Quality Properties ($10 Million or Greater) in the Past 12 Months (in order of dollar volume acquired) as tracked by Real Capital Analytics.

Legend:

Italics indicates this buyer has acquired additional properties beyond what was reported in last quarter’s Property Intelligence Report.

Bold indicates a buyer newly added to the list in the quarter.

Regular font indicates no change or a reduction in properties owned/acquired from last quarter’s report.

All Property Types:

  1. Blackstone Group – 263 properties
  2. NorthStar Realty Financial – 424 properties
  3. Global Logistics Properties – 287 properties
  4. GIC (Government of Singapore) – 284 properties
  5. Brookfield Asset Management – 407 properties
  6. JP Morgan – 27 properties
  7. Clarion Partners – 100 properties
  8. Starwood Capital Group – 297 properties
  9. WP Glimcher – 41 properties
  10. Ventas, Inc. – 223 properties
  11. Brookdale Senior Living – 245 properties
  12. Norges Bank Investment Management – 8 properties
  13. Farallon Capital Partners – 28 properties
  14. Hudson Pacific Properties – 27 properties
  15. General Growth Properties (GGP) – 57 properties
  16. TIAA-CREF – 33 properties
  17. Invesco Real Estate – 49 properties
  18. Select Income REIT – 88 properties
  19. Lone Star – 137 properties
  20. MetLife – 24 properties

Multifamily:

  1. Clarion Partners – 60 properties
  2. Lone Star – 64 properties
  3. Blackstone – 37 properties
  4. Guardian Life Insurance Company – 26 properties
  5. Thor Equities – 35 properties
  6. TruAmerica Multifamily 23 properties
  7. UBS – 14 properties
  8. TIAA-CREF – 14 properties
  9. Maximus RE Partners2 properties
  10. Invesco Real Estate – 13 properties

Office:

  1. JP Morgan – 15 properties
  2. Blackstone – 25 properties
  3. Norges Bank Investment Management – 8 properties
  4. Farrallon Capital Partners – 28 properties
  5. Hudson Pacific Properties – 27 properties
  6. Hines – 27 properties
  7. Caisse de Depot – 7 properties
  8. OMERS –9 properties
  9. Callahan Capital Partners – 5 properties
  10. RXR Realty – 6 properties

Hotel:

  1. NorthStar Realty Finance – 155 properties
  2. Blackstone – 87 properties
  3. Anbang Insurance Group – 1 property
  4. Hilton Worldwide – 10 properties
  5. American Realty Capital (ARC) Hospitality Trust -116 properties
  6. Brookfield Asset Management – 75 properties
  7. Chatham Lodging Trust – 58 properties
  8. Strategic Hotels & Resorts – 3 properties
  9. Starwood Capital Group – 191 properties
  10. Hyatt Hotels – 4 properties

Retail:

  1. WP Glimcher – 38 properties
  2. DDR – 120 properties
  3. Macerich – 12 properties
  4. Blackstone Group – 106 properties
  5. O’Connor Capital Partners – 9 properties
  6. Kite Realty Group – 61 properties
  7. Starwood Capital Group – 9 properties
  8. JP Morgan – 4 properties
  9. Kimco – 85 properties
  10. AustralianSuper – 2 properties

Industrial:

  1. Global Logistics Properties – 285 properties
  2. GIC (Government of Singapore) – 282 properties
  3. Colony Capital – 232 properties
  4. Select Income REIT – 52 properties
  5. Greenfield Partners – 105 properties
  6. Abu Dhabi Investment Authority – 2 properties
  7. Exeter Property Group – 43 properties
  8. CalPERS – 15 properties
  9. Gramercy Property Trust – 32 properties
  10. Clarion Partners – 15 properties

 Senior Housing & Care:

  1. Brookdale Senior Living – 236 properties
  2. Northstar Realty Financial – 144 properties
  3. Ventas, Inc. – 127 properties
  4. HCP, Inc. – 58 properties
  5. Northstar Healthcare – 116 properties
  6. Health Care REIT – 56 properties
  7. Senior Housing Properties Trust – 37 properties
  8. Sabra Health Care REIT – 31 properties
  9. Aviv REIT – 43 properties
  10. Newcastle Realty – 24 properties

 Most Active Groups Acquiring Sites for Development (over the last 12 months)

  1. HFZ Capital Group
  2. Greenland Group
  3. Tishman Speyer
  4. Oceanwide Real Estate Group
  5. Crown Resorts
  6. Oaktree
  7. Clarion Partners
  8. Carmel Partners
  9. Boston Global Investment
  10. Fortis Property Group

Most Active Sellers of Commercial Real Estate (over last 12 months)

  1. Blackstone
  2. DRA Advisors
  3. Glimcher Realty Trust
  4. JP Morgan
  5. Rockpoint Group
  6. Goldman Sachs
  7. Fortress Investment Group
  8. Prudential Real Estate Investment
  9. Beacon Capital Partners
  10. Invesco Real Estate

 Most Active REITs

  1. American Realty Capital Trust (3,966 properties) – retail
  2. Essex Property Trust (239 properties) – apartment
  3. Vornado Realty Trust (344 properties) – office/retail
  4. Mid-America Apartment Communities (265 properties) – apartment
  5. WP Glimcher (119 properties) – retail
  6. Kite Realty Group Trust (129 properties) – retail
  7. W.P. Carey (783 properties) – office/retail/industrial
  8. SL Green Realty Corp. (99 properties) – office
  9. Brookfield Office Properties (115 properties) – office
  10. Liberty Property Trust (679 properties) – office/industrial
  11. DDR Corp. (415 properties) – retail
  12. Ventas (1,500 properties) – healthcare
  13. Realty Income Trust (4,327 properties) – retail
  14. Senior Housing Properties (370 properties) – senior housing
  15. DCT Industrial Trust (407 properties) – industrial

Top Industrial Property Owners

  1. ProLogis (San Francisco, CA)
  2. Duke Realty Corp. (Indianapolis, IN)
  3. Clarion Partners (New York, NY)
  4. Liberty Property Trust (Malvern, PA)
  5. DCT Industrial Trust (Denver, CO)
  6. Majestic Realty Co. (City of Industry, CA)
  7. First Industrial Realty Trust (Chicago, IL)
  8. IDI Gazeley (Atlanta, GA)
  9. Industrial Income Trust (Denver, CO)
  10. STAG Industrial (Boston, MA)
  11. CenterPoint Properties (Oak Brook, IL)
  12. Americold (Atlanta, GA)
  13. USAA Real Estate Co. (San Antonio, TX)
  14. EastGroup Properties (Jackson, MS)
  15. W.P. Carrey (New York, NY)
  16. MetLife Real Estate Investors (Morristown, NJ)
  17. Chambers Street Properties (Princeton, NJ)
  18. Ivanhoe Cambridge (Montreal, Quebec, CN)
  19. TIAA-CREF (Charlotte, NC)
  20. Hartz Mountain Industries (Secaucus, NJ)

Top Industrial Developers

  1. ProLogis (San Francisco, CA)
  2. Clarion Partners (New York, NY)
  3. Duke Realty Corp. (Indianapolis, IN)
  4. Panattoni Development Co. (Newport Beach, CA)
  5. Trammel Crow Co. (Dallas, TX)
  6. Liberty Property Trust (Malvern, PA)
  7. Majestic Realty Co. (City of Industry, CA)
  8. DCT Industrial Trust (Denver, CO)
  9. McDonald Development Co. (Atlanta, GA)
  10. USAA Real Estate Co. (San Antonio, TX)
  11. First Industrial Realty Trust (Chicago, IL)
  12. Transwestern Development Co. (Houston, TX)
  13. EastGroup Properties (Jackson, MS)
  14. Equus Capital Partners (Philadelphia, PA)
  15. The Buzz Oates Group of Cos. (Sacramento, CA)