Multi-Family Properties Might Be The Way To Multi-Millions

In the current commercial real estate market, investing in multi-family homes should be on the radar. Multi-family properties don’t always have to be 20 floor sky rise apartments in a big city. They can be smaller duplexes, town homes Read more

New Real Estate View: Why The Homeless Are Big Business In New York

It's a grim scenario: In New York, there are more than 50,000 homeless. Of that number, 21,000 are children, an increase of 21 percent from last year, according to a report by the Coalition for the Homeless, a New Read more

Red Is the New Green – Chinese Investors Eye US Assets

***This blog entry is a guest post from Elton Steinberg, Marketing Associate at United Realty*** American fund managers should be aware of current and future trends that may make the Chinese account for a more significant portion of overall foreign Read more

Gimme Shelter - Foreign Investors Seek Returns and Safe Haven in US Real Estate

***This blog entry is a guest post from Elton Steinberg, Marketing Associate at United Realty*** Foreign investment has been a significant driver of the US real estate market recovery. Investors from across the globe have been responding to negative stimuli Read more

Preparing For Coming Inflation

Whenever you turn on the news, you hear about our country’s $16 trillion of national debt which we cannot pay off.  Unfortunately, that’s just a small portion of our country’s financial problems.  Did you know that we also have more than $60 trillion of unfunded government pension obligations, unfunded Medicare and Medicaid and social security liabilities?  And that this debt is increasing at more than $1 trillion per year?

Just think – the US owes more than $76 trillion that iInflation Hits Real Estate Investments In Philadelphiat can’t pay off.  Worse, none of our politicians are willing to raise taxes or cut spending to deal with that problem, because if they raise taxes or cut spending they get booted out of office! As expected, they are more concerned with holding on to their jobs.

So how is our government going to deal with this problem? The same way governments have dealt with this problem throughout history – they print money.

By printing money they inflate the currency, and pay off the debt with cheap dollars, and while that may be good for the government, it is terrible for investors.

When the government prints money, people who saved their money and people who invested in fixed income, bonds and other liquid assets get hurt badly.  In some cases they can get wiped out.

And what’s worse – this time around, the government is artificially keeping interest rates at zero until early 2015 so they can keep inflating our currency without much backlash.

Ask yourselves a few questions:

  • When was the last time you remember not being able to get any interest on money in savings accounts?
  • When was the last time you remember the 10-year treasury at below 1.5%, or corporate bonds at 3%?
  • When was the last time you remember the Federal Reserve printing $40 Billion a MONTH, without end, (which they are now doing and calling it “QE-3”)?

So how do you protect against inflation?  — WITH HARD ASSETS – and frankly, there is no better hard asset than real estate.  Unlike gold or commodities, real estate can generate current income and grow in value with inflation – it has historically been used to generate cash flow and capital appreciation, and is also considered a hedge against inflation.

We are living in unprecedented times, and these events will create risks for some, and opportunities for those who prepare.

 

Posted on by Jacob Frydman in Commercial Real Estate, United Realty Leadership Leave a comment

Foreign Investors Pour Capital into New York Commercial Real Estate Market

Real Estate Investment BankMany New Yorkers have the view that their city is the capital of the world. Recent commercial real estate trends indicate they might actually be on to something.  Investors from Russia to the Middle East are pouring capital into Big Apple real estate in record amounts.

Indeed, foreign investment in the U.S. real estate  market has been increasing for the past 12 consecutive quarters. Overall foreign investment in the U.S. is also surging.  According to the Commerce Department, the U.S. attracted $28.7 billion in foreign direct investments between January and March 2012. The investment trend has been led by Europeans seeking a safe haven from their own debt crisis and uncertainty about the Euro’s viability as a currency.  In 2011, foreign investment in the U.S. totaled $234 billion, a 14% jump over $205.8 billion in 2010. Two-thirds of that cash came from Europe.

In the real estate sector, foreign investment has about $82.5 billion in the 12-month period ending in March 2012—up about 24% from the $66 billion they spent the year before — but only 9% of all residential real estate sales come from international buyers, according to a recent report from the National Association of Realtors.

The Americas as a whole experienced a 1.5% increase in its Capital Value Index in the first quarter of 2012, while the rest of the world saw flat growth, according to the global real estate advisory firm CB Richard Ellis. That growth was concentrated in prime properties in Central Business District (CBD) areas, such as New York City. Others CBDs that saw investor focus included Washington, DC, San Francisco and Boston. Foreign investors are coming in with cash looking for assets that are tied to the value of the US Dollar in order to shelter their investments from the riskier European currencies. The New York City commercial real estate market has become an attractive investment for those foreign investors worrying more about wealth protection than income generation.

Several Real Estate Investment Trusts (REITs) and private fund offerings are attracting capital from foreign investors searching for a safe haven. That trend is expected to continue as long as yields on U.S. Treasury securities remain low and Europe continues to struggle.

Posted on by Jacob Frydman in Commercial Real Estate, Foreign Investors Leave a comment

Real Estate Thoughts: Hotel Markets

The hotel market is one that remains in a state of flux.

Hotel Room in Hotel Real Estate

Over the last several years there has been a significant lack of new construction of hotel properties, primarily due to the financing markets, as well as a decline in tourism nationwide. As our economy begins to recover there will a need for additional hotel capacity. At the same time, while the European economy suffers, this may result in a reduced demand for US hotel rooms from European tourists who will be traveling less frequently, creating a forecast for a relatively shaky market. The best opportunities appear to be in larger central business districts of major cities where occupancies are at or exceed 75%.

New York is a unique market, given that the cost of hotel rooms has risen to be generally unaffordable, except at the very top of the market. Therefore, the opportunity in a city such as New York is to convert non-hotel properties that lie outside of the central business areas but are connected by transportation hubs, so that tourists can find affordable hotel rooms close to but not in Manhattan. A current example of this is Brooklyn, a good bet for new or converted hotel rooms, especially with the construction of The Barclay’s Center. In other markets, one might wish to consider a prime location with an older property that has fallen into disrepair or lack or high vacancy. Buying those hotels both on “the cheap” and repositioning them, or renovating them and “putting a flag on them” (i.e. Marriott, Wyndham, etc.) could be an opportunity as well.

 

 

 

Posted on by Jacob Frydman in Commercial Real Estate, Hotels Leave a comment

Assisted Living Needs No “Assistance”

A recent report from the National Investment Center for the Seniors Housing & Care Industry showed overall, the average occupancy rate for seniors housing properties in the second quarter of 2012 was 88.6 percent, an increase of 0.3 percentage points from the prior quarter and a 0.9 percentage point increase from a year earlier. The seniors housing average occupancy rate has risen consistently during the past nine quarters and is 1.6 percentage points above its cyclical low of 87 percent in the first quarter of 2010.

The occupancy rate for independent living properties in the second quarter of 2012 averaged 88.5 percent, and the occupancy rate for assisted living properties averaged 88.7 percent. Both independent living and assisted living showed improvement over the prior quarter, rising 0.2 and 0.3 percentage points, respectively. The average occupancy rate for independent living is now 1.7 percentage points above its cyclical low, while occupancy in assisted living is 1.5 percentage points above its respective cyclical low. “Occupancy is now at a four-year high, and the supply-demand fundamentals suggest that the recovery will continue in the near-term,” said Michael Hargrave, vice president of NIC MAP®.

 In a recent column for Commercial Property Executive Magazine, Mel Gamzon, president of Senior Housing Investment Advisors Inc. said,  “Despite all the uncertainty in the capital markets, seniors housing witnessed its second-best year ever, with a more than $16 billion transaction volume, catalyzed by the ultra-aggressive healthcare REITs. From the second half of 2010 into 2011, the REITs closed more than $20 billion worth of portfolio transactions in this space using the REIT Investment Diversification and Empowerment Act (RIDEA) and triple-net-lease structures. The REITs and their institutional capital partners have put the seniors housing sector front and center with prospective industry investment sources that are seeking returns greater than other real estate asset classes can offer.”Seniors Housing Complex in Construcion

And a large, Ohio-based real estate investment trust has bought the Windsor at Lakewood Ranch assisted-living center and a memory care operation for $30 million. Health Care REIT bought the 70,000-square-foot and 35,000- square-foot centers, at 8220 Natures Way, from companies belonging to Timothy J. Buchanan and Stephen D. “Pete” Russell.

 

According to the Herald Tribune, Health Care REIT, founded in 1970, manages a $14.9 billion portfolio of senior-living centers, medical office buildings and inpatient and outpatient medical centers around the country.

Finally, NREI has a new report that says seniors housing pros expect more access to capital and an increase in construction starts during the next six months.

Posted on by Jacob Frydman in Housing Market Leave a comment

No Vacancy Signs Dominate Rental Market

Landlords boosted apartment rents to record levels in the second quarter as demand from tenants sitting out the home-buying market pushed vacancy rates to their lowest point in more than a decade, said the Wall Street Journal. Despite the sluggish economy, average rents increased in all 82 markets tracked by Reis Inc., a real estate data firm. Average rents are now at record levels in 74 of those markets and now top $1,000 a month on average in 27 of them, including Miami, Seattle, San Diego, Chicago and Baltimore.

The biggest rent boost of the second quarter was in New York City, where the average rose to $2,935 per month, up 1.7% from the first quarter. The nation’s vacancy rate fell during the quarter to 4.7%, its lowest level since the end of 2001, Reis said.

Reis said that this is only the third quarter in over three decades that the vacancy rate has been below 5%. When vacancies fall to this level, landlords typically accelerate rent increases “and that is exactly what is transpiring,” the Reis report states.

And it’s not likely to stop soon. Rents could “spike as landlords perceive that tight market conditions afford them greater pricing power over tenants,” Reis said.

A report from AC Lawrence indicates similar trends in their June report.

According to SmartRealEstateInvesting.com, values of apartment buildings are soaring, contrasting sharply with the single-family housing market. In some cities, investors are now surpassing peak prices for rental property buildings. TIAA-CREF, which spent $800 million on apartments last year and could spend more this year.

Demand for rental apartments also may fall if some builders succeed with appeals to move renters into the market for single family homes. Home builders have begun marketing to renters: PulteGroup Inc., one of the nation’s largest publicly held builders, recently introduced a line of homes marketed as being more affordable than some monthly rents, called The Independence Series from the Centex division of the firm.

Landlords will be looking for a 6 to 10 percent increase on current tenants and an 8 to 12 percent increase on new vacancies, according to a report by Bond New York.

Overall pricing in Manhattan will likely increase by 8 to 10 percent on average for the coming year. “We anticipate landlords’ confidence levels will increase with the high occupancy rates and high prices, which will cause vacancy pricing to increase as well,” the Bond report said.

A Bloomberg News story notes that Prudential Douglas Elliman found that median rents jumped 9.5 percent to $3,121 from the fourth quarter of 2010 to the fourth quarter of 2011.

And Citi Habitats announced that their fourth quarter report found average rents rose 8.4 percent to $3,309.

 

 

Posted on by Jacob Frydman in Commercial Real Estate Leave a comment

The Perfect Storm For Commercial Real Estate Investing

This article originally appeared as an Op-Ed  from  United Realty CEO Jacob Frydman on ValueWalk.com, a website dedicated to Breaking News in Business, Finance, Politics, Tech and Investing. The link can be found by clicking here.

Most of us know that timing is everything when it comes to investing. If you bought equities during the tech bubble over a decade ago, you’re investment probably hasn’t grown much over the last decade. Despite the crisis in housing market, many folks are wondering if now is the right time to get into real estate.

Some worry that the drop in real estate values over the past three years contributed to the economic downturn we have experienced and real property values will remain flat for the foreseeable future. I know it may be contrarian, but this could be the best time I’ve ever seen to get into the real estate market, especially commercial real estate.

The decline in prices since 2007 makes it possible to acquire good properties for considerably less than it would have cost even 3 years ago and often at below replacement cost. We are also in a historically low interest rate environment, which means financing the purchase of a building today is the cheapest it has ever been. Leverage is one of the components that make real estate so attractive and provides enormous returns on the upside.

I believe we are fast approaching a “perfect storm” for acquiring properties now. Over the next few years, several other trends will occur that make the opportunity even better. By 2013 an unprecedented number of securitized loans will be coming due, at debt levels that will be difficult, if not impossible, to refinance. That should create further buying opportunities for smart commercial real estate investors.

The global sovereign debt crisis and the sluggish economy have forced governments to take actions, such as quantitative easing, which nearly everyone agrees will eventually lead to inflation. For all these reasons, we at United Realty Partners believe we can acquire properties at great prices, finance them with low interest rate debt, improve the value of the rental stream as inflation starts to kick-in, and then dispose of the assets at higher prices towards the end of our holding period.

While stocks and bonds have their place as traditional instruments of investment, investors are increasingly looking towards alternative investments – real estate, hedge funds, private equity and commodities to engineer an overall enhanced performance of their portfolios.

Historically, real estate has been relatively un-correlated to the broader stock and bond market. Said differently, investments in real estate typically do not fluctuate based on the broader stock market, and therefore, real estate helps to diversify a portfolio. Real estate provides an investor with the opportunity to earn current cash-flow, while serving as a hedge against inflation.

Institutional investors have historically allocated a portion of their overall portfolios to direct real estate investments. In 2010 that allocation was 8.53% of their overall portfolios, but has been steadily rising as equities prove more volatile and fixed-income yields remain low. Many experts believe that investors should allocate at least 20% of their portfolios to real assets.

While most small investors do not have access to commercial real estate deals, they can invest through a well-managed Real Estate investment Trust (REIT). Choosing the right REIT can be difficult, but those that acquired property during the boom and have little capital for new investments should probably be avoided. Remember, timing is everything.

Posted on by Jacob Frydman in Commercial Real Estate 1 Comment

Investors Plow Equity Into Projects

The Wall Street Journal recently highlighted an upbeat trend in real estate;  a handful of high-risk real-estate projects are moving forward in major U.S. cities.

But the WSJ points out, developers are financing these projects with equity, mostly from outside investors. That lowers the risk of turning over a building to lenders if the project fails, but it also raises the stakes for developers and investors, who are putting more of their own money on the line. 

In the years leading up to the recession, developers and investors typically would borrow up to 90% of the financing for a project. Putting up only a small sliver of their own capital, they stood to make oversize gains. But when the downturn hit, many investors couldn’t pay back their debts and were forced to turn over their properties to lenders.

Firms such as Hines are moving ahead with a speculative, 45-story office building in Chicago. Montreal-based Ivanhoe Cambridge, the real-estate arm of a Canadian pension-fund money manager, has committed $300 million in equity to that development along the Chicago River.

And in New York, private-equity firm CIM raised equity for its condo tower by tapping individual investors who put in at least $1 million each. CIM is also active in other cities.

In Hollywood, a 1.7 acre site that housed a closed Old Spaghetti Factory restaurant was bought by CIM who said the high-rise will house a 301 residences, 39,000 square feet of office space, 13,500 square feet of ground floor retail and a 21,000-square-foot public park.

And in Chicago, CIM acquired Block 37, the struggling State Street shopping mall, from Bank of America Corp. Crain’s reported in February that CIM had agreed to buy the 305,000-square-foot property, which is about 30 percent leased to tenants including Anthropologie, Sephora and Puma. CIM plans to lease the balance of the building to national and local retailers.

The WSJ also said the developments now moving forward are primarily in markets that have seen high demand for certain types of space. Demand for high-end condos in New York remains strong, while a booming technology sector is pushing office vacancies down and rents up in San Francisco.

While part of that increase has been driven by rising rents and occupancies, analysts say much of it comes from increasing investor demand for properties. As a result, many buildings’ values have risen even though their incomes have stayed relatively flat. That has made development attractive. In San Francisco, for example, investors have paid as much as $800 a square foot for office buildings, while developing a new property would cost about 25% less than that.

Posted on by Jacob Frydman in Commercial Real Estate Leave a comment

RENT-ing is Sweet Music to Brooklyn Investors.

Real Estate NYCYou don’t need to have a Broadway hit to enjoy rent. Brooklyn is booming.

Although the American dream is still to own property, renting has taken off in the years since the Financial Crisis, especially in highly desirable neighborhoods like Brooklyn. That has caused a flurry of activity among commercial real estate investors looking to capitalize on rising rents and low financing. A recent report in the New York Times mentioned sale of 111 Kent Avenue in Brooklyn for $55.5 million, or more than $895,000 for each of 111 Kent’s 62 apartments. The NYTimes article goes on to mention that the price paid per apartment is a record for such properties outside Manhattan, according to the data company, Real Capital Analytics.

Steiner Studios recently acquired a 60-unit rental in the Carroll Gardens neighborhood of Brooklyn for $24.5 million, or $408,000 a unit, and is in contract to buy another rental building in the borough. Other big sales include Invesco Real Estate’s purchase of 75 Clinton in Brooklyn Heights for $50.8 million, or roughly $686,000 a unit. Invesco also bought the Arias Park Slope at 150 Fourth Avenue for $57.5 million, or roughly $605,000 a unit. Equity Residential bought 175 Kent Avenue in Williamsburg for $76 million, or nearly $673,000 a unit. The Naftali Group recently bought a vacant site at 267 Sixth Street in Park Slope that was intended to be a condominium and is instead building a 12-story, 104-unit rental building.

Reports point to several factors behind the trend, including a strong rental market and low interest rates. Rents in the borough increased by 10 percent in 2010 and were estimated to increase by 7 percent last year, according to a market report by TerraCRG.

Even those people who want to purchase a home are having difficulty obtaining a mortgage, according to The Times article. So they turn to renting instead. In addition to a strong rental market, Brooklyn is attracting waves of investors because of the many stalled condominium sites that are primed for conversions into rental buildings.

The Real Deal reports that studios have recently been heating up in the rental market. Previous months have shown that studios lagged behind the one and two bedroom categories for the month-to-month price change, but that is changing. Leading the way was Williamsburg with the highest monthly studio price increase.

Data from MNS shows that Boerum and Cobble Hill are listing rents that are about $100 less than last month. Although the discounts are primarily in walk-up buildings, renters looking for a hot location with a little sacrifice in luxury should hop the F/G trains and start looking. MNS reports that compared to last spring, Park Slope has achieved the highest year-on-year price increase of 33% in the borough. Two-bedrooms are up over $1,000 and new inventory, as well as rental product in condo buildings have pushed the rents up in the neighborhood.

 

Posted on by Jacob Frydman in News Leave a comment

There Are Still Clouds Amid Housing Sector’s Silver Lining

Real Estate ContractAmid mounting evidence that the extended real estate market recession is finally abating, investors are still advised to display considerable caution before jumping back into the market without the advice of competent investment counsel. Over the past few sessions, newly released industry and government data would seem to raise recovery hopes as the residential home market has shown some encouraging signs of reversal. Sales of new homes as well as resales have suddenly ratcheted upward and prices in key markets have been recovering from multi-year lows. This enthusiasm was further encouraged by Toll Brothers’ fiscal year 2012 second-quarter results which showed its revenues rose to $373.7 million with deliveries of 671 units, as compared with revenues of $319.7 million and 591 deliveries in the year ago period. But of greater market impact, according to analysts, was the fact that Toll said it ended the second quarter of its 2012 fiscal year with a backlog of $1.50 billion, for 2,403 housing units, an increase of 49% in dollars terms and 37% in units, compared to the year-ago second-quarter-end backlog of $1.01 billion and 1,760 units.

As the leading builder of luxury homes, analysts consider Toll’s encouraging results to be a possible bellwether for the housing sector in general. Nevertheless, some housing market economists have suggested that the price recovery may be more a reflection of dwindling supply, as new construction has been sharply curtailed over the past couple of years. It will take a couple of months of sustained growth in new starts numbers coupled with firming prices to confirm that a turnaround is taking hold. In the meantime foreclosure activity in outstanding mortgages from the boom years of the mid-2000s continues as a drag on the sector and the pace of loan modifications still appears to be lagging expectations. Sub-prime mortgage securitizations from the issuance boom in 2007-2008 remain well under water and even senior tranches are available at distressed sale levels. The situation is being acerbated by the reluctance or inability of banks or servicers to actually take responsibility for maintaining foreclosed properties. As a result they often are caught in unwanted litigation from tenant or tenant groups over property maintenance. Litigation serves to further delay any corrective activity leading to even greater property deterioration with the result that property values recede even further below outstanding mortgage balances.

Nevertheless, astute investors that avail themselves of well researched market intelligence should be able to identify deals that are discounted to such levels that astute management and patience should be well rewarded. For this reason it is important to seek out professional management that has experience in dealing with such mortgage instruments and that is also in touch with the market and aware of the current state of actual ground level conditions. Such an organization will be able to guide investors towards the best opportunities at any given time. But more important, they will be able to keep investors away from situations that may appear lucrative on the surface but that may actually be fraught with longer term dangers.

Posted on by Jacob Frydman in Housing Market, News Leave a comment

Recovery in Retail CRE Under Way, Proceed With Caution

It might not be ‘shop til you drop,’ but a recent report by commercial real estate services provider Cassidy Turley notes that the retail sector absorbed 3.1 million square feet in the first quarter, following a pace of 3.4 million square feet in the fourth quarter of 2011.

The pace over the last six months is five times faster than any point in the recovery cycle. Further, vacancy fell 10 basis points to 10.9% — the first decline in five years. Average asking rents, which have fluctuated in the past year, increased slightly in the first quarter of 2012 to $19.00 per square foot. Markets with the highest percentage of rental growth include Austin at 3.4%, Charlotte at 2.9%, Oakland-East Bay at 2.7%, and San Jose and Seattle at 2.6%. Manhattan claims the top per-square-foot rate with an average asking rent of $56.96.

“We may have a long way to go to reach what’s considered full recovery, but the U.S. retail sector also has made tremendous strides from our depths,” said Cassidy Turley’s Chief Economist Kevin Thorpe in their May 22 report.  We don’t see the middle-class consumer returning to its old spending patterns, much less the credit-fueled ‘aspirational shopping’ of the mid-2000s, for a number of years. This simply is not going to happen until the housing market recovers and much of the equity lost in the downturn is restored.”

Moreover, some investors remain cautious when it comes to retail CRE. Even through a recovery, given the long-term impact of online shopping on bricks and mortar, as well as the shopping habits of American consumers, one must be cautious about retail real estate.  The market is bifurcated, with high end luxury brand urban locations such as Fifth Avenue in New York, the Miracle Mile in Chicago and Rodeo Drive in Beverly Hills, continuing unprecedented increases in demand resulting in significantly higher rents, contrasted with an oversupply of suburban strip centers, which likely will be negatively impacted as consumers increase their online shopping trends.

First-tier shopping centers – those in vibrant urban markets or top suburban intersections or trade corridors – are posting marked improvement, with the highest rate of deal activity and, in most cases, rental-rate growth. Second-tier locations – shopping centers lacking strong anchors or not “on the main drag” – in the nation’s strongest market are generally posting rent growth as well. The trend is not replicated in weaker markets as third-tier shopping centers face challenges in nearly every market. This goes to prove again that real estate is all about location.

One of the most encouraging signs for the industry is that the era of massive big-box vacancies appears to be over, according to Retail Traffic Magazine. Several big chains stores including Ulta, Five Below, TJ Maxx, Ross Dress for Less, REI and Whole Foods have been snapping up those big-box vacancies, Thomas W. Gilmore, executive vice president with Los Angeles-based Madison Marquette, told the magazine recently.

“Landlords at high quality, well-located shopping centers no longer have to give in to tenants when it comes to rents. At those centers, the power equilibrium has returned to leasing negotiations. In the strongest markets in the country, landlords are even able to push rents,” Matthew K. Harding, president and COO of Levin Management Corp., told Retail Traffic.

That momentum is likely to continue as retailers try to gain a better understanding of their customers and real estate, marketing and merchandising departments interact with each other in order to make the best decisions on store openings.

Posted on by Jacob Frydman in Commercial Real Estate Leave a comment