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

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The Fiscal Cliff and Commercial Real Estate

The Fiscal Cliff, or more appropriately, the reason we are dealing with the Fiscal Cliff, will undoubtedly impact our economy in such a way that opportunities will abound in commercial real estate.

The reason Congress has been dealing with the fiscal Cliff is because our nation’s $16 trillion in debt. Worse, we have $60 trillion in unfunded government pensions, Medicare, Medicaid and Social Security obligations. In other words we are a $76 trillion debtor nation.

The Fiscal Cliff is Congress’ way of dealing with the increasing deficit necessary to service our debt, it does not address the debt itself. Our real issue is the debt itself. We can only solve our debt problem by increasing taxes or cutting our spending. Since Congress is obviously not inclined to do either, our government needs to find an alternative way of solving this problem. I believe they have.

The Federal Reserve, which historically has dealt with interest rate policy on a quarterly basis, announced in an unprecedented move that it intends to keep interest rates at the Fed discount window at 0% through early 2015. This has created an artificial cap on interest rates. At the same time, by virtue of the Fed’s QE3 policy, the Fed is effectively printing $85 billion a month—without end. Undoubtedly this devaluation of the currency will help us pay our debt off in cheap dollars. It should also have an upward pressure on interest rates. But, by virtue of the fact that interest rates remain artificially low, we will not feel the effects of this printing of money until the Fed removes its cap on interest rates.

And when that happens, watch out. Interest rates should increase dramatically. Rising interest rates will have a significant impact on commercial real estate. Rising interest rates will bring with inflation. They will also bring with them increasing rates. Properties, such as triple net lease single tenant assets which have very nominal rent increases, typically lower than CPI, will start to act and look like bonds, diminishing in value with rising interest and capitalization rates. By contrast, inflation-protected real estate, those assets with underlying leases that adjust for inflation, should be able to maintain or increase in value.

Adding to the opportunity,  we’re approaching a time when many properties can be purchased at below replacement costs, and financed at historically low interest rates. Investors are able to acquire real estate assets at below replacement cost prices, finance them with long-term low-rate financing, and protect them with inflation-protected leases will benefit from the inflationary cycle we see coming.

While the drama on Capitol Hill is certainly causing headaches for economists around the world, those in the commercial real estate industry should see opportunity amidst the frustration.

Posted on by Jacob Frydman in News, United Realty Leadership Leave a comment

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

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

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

Top 5 Biggest Commercial Mortgage Loans In NYC From January to April 2012

***This blog entry is a guest post from PropertyShark.com and contains data developed by their analysts. PropertyShark.com aggregates real estate data and listings from hundreds of public and proprietary sources into an easy-to-use yet comprehensive property research website covering a dozen major markets.***

A recent survey done by loan officers at Federal Reserve informs us that since the beginning of February 2012, banks — domestic banks in particular — have started to ease loan standards for the commercial real estate sector. At PropertyShark.com, we searched for the biggest five commercial mortgage loans in NYC from January to the end of April 2012 and compared them to the loans secured during the same period last year to see what the changes are.

The data shows that waters remained rather still this year except for two blockbuster loans in April. The rest of the loan activity stayed within last year’s patterns, when none of the commercial loans surpassed $175,000,000.

The biggest mortgage loan this year amounted to $520,000,000, with New York State Fund Housing Agency as lender. With it, real estate developer Gotham Organization is set to bring a change in the West Side’s residential landscape, as the massive housing project at 550 West 45th Street is expected to offer more than 1,000 affordable and luxury residential units at one address.

The second was secured against the 53-story tower at 1515 Broadway. Right before media giant Viacom paid a whopping amount to renew the lease of this entire building, the landlord, SL Green, obtained a loan of more than $320,000,000 from the New York branch of Bank of China. This is not the first mortgage SL Green, the largest office landlord in NYC, receives from the Chinese lender.

Are these two loans going to set a trend? It might be too early to tell, but they sure rocked the boat a little.

As a lender, Deutsche Bank has proven quite active during this time. In March 2012, it added to its lending books a $142,148,560 mortgage secured against the 7-story office building at 10 East 52nd Street, Manhattan, after one of its subsidiaries, the German American Capital Corporation, had financed in February a $125,000,000 loan going to The Solow Building in Manhattan.

Last year during the period January-April the highest mortgage loan was the $175,000,000 associated with The Milford Plaza Hotel in Manhattan. Foreign banks competed again with the domestic ones, Deutsche Bank appearing once more as one of the main lenders, with a $125,000,000 mortgage loan going to The Sheffield at 322 West 57 Street, one of the most sought-after condo buildings in Midtown Manhattan.

Here are the rankings for the highest commercial mortgage loans for January-April 2011 and 2012:

NYC Top 5 New Mortgages in January 2012-April 2012


 

 

 

 

 

 

 

 

 

NYC Top 5 New Mortgages in January 2011-April 2011



Posted on by Jacob Frydman in Commercial Real Estate, Guest Blog Post, Hotels, News Leave a comment

High Expectations for Commercial Real Estate

After shunning the asset class since the Financial Crisis, retail and institutional investors are tiptoeing back into commercial real estate. A batch of recent studies suggest commercial real estate should outperform nearly every other asset class in 2012. A new survey by the Pension Real Estate Association indicates investors expect an average return of 9.3 percent this year – a 140 basis point increase from what the survey indicated three months ago. PREA surveyed a total of 22 firms in the first quarter, representing investment managers, financial advisors and researchers.

The 22 member firms surveyed expect outperformance primarily in the NCREIF Property Index (NPI). The biggest returns, according to the survey, are expected in the apartment sector, with returns in the office, retail and industrial sectors expected to come in slightly lower, but still outperform.

Investor sentiment for all four property types has risen since the beginning of the year, along with the overall market. Despite the increased bullishness for 2012, the average forecast still predicts a gradual slowing in returns through 2013 and 2014 as investment in the sector heats up.  Apartments are expected to remain the hottest sector with projected annual returns of 10.9 percent. In the other sectors, respondents expect higher income returns in 2012 compared with apartments, but lower overall capital appreciation. Respondents expect the retail and office sectors to each return 8.9 percent. Industrial buildings, at 8.4 percent, was the laggard.

Looking past this year to longer term expectations reveals a different picture. Over a five year horizon to 2016, the office sector has the highest average return forecast, with industrial coming in second. It’s important to note that there is some disagreement amongst forecasters about the best performing sector over the next five years. Over one-third of respondents see the office space as producing the highest returns while the same proportion chose the apartment sector. Almost one-quarter see industrial as the best performer through 2016.

A new report from the global accounting firm Deloitte & Touche finds that Real Estate Investment Trusts (REITs) are well-positioned to outperform the market this year due to improvement in property fundamentals and market dynamics as well as their relative advantage as an alternative asset class.

Unlike pre-recession times, growth prospects of REITs are now heavily dependent on mergers and acquisitions and driving increases in rental income, due to limited development activity, the report found. Although there is no certainty about the relative outperformance of REITs over competing asset classes, an improvement in the broader economy will be the key to sustained growth for this asset class. In the long term, REIT’s may benefit from global expansion as emerging markets implement REIT provisions within their tax codes to facilitate real estate investment activity.

It is noted within the Deloitte report that the performance of REITs have been a bright spot within the CRE industry over the past two years. Improved access to capital drove significant transaction growth and REITs were able to acquire prime properties within major markets at favorable pricing due to the overall market distress. REITs continue to outperform the major markets and are favorably positioned during this economic uncertainty. REIT owners are expected to focus on property operations, leasing and property management; as well as mergers and acquisition opportunities, in order to add value until a full-fledged economic recovery resumes.

 

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

Taking The LEED

The 2011-12 BOMA/NY Pinnacle Awards were handed out earlier this month and included the highest total of LEED- and Energy Star-rated buildings in the competition’s history. The Pinnacle – New York’s competition of the TOBY (The Building of the Year) Awards of BOMA International – is the highest award given to owners and property managers in Gotham’s commercial real estate industry. This year’s competition recognized a number of green buildings.

The Norman Foster-designed Hearst Tower became the first LEED for New Construction Gold-certified commercial office building in New York City to subsequently earn Platinum under the LEED for Existing Buildings: Operations and Maintenance rating system. Tishman Speyer manages the building in cooperation with Hearst. Since 2006, total annual energy consumption has dropped by 40 percent and water usage by 30 percent.

According to Crain’s, tenants looking for older, environmentally friendly buildings have a slightly better chance of finding one on the West Side than on the East. However, a mere 37 existing buildings in Manhattan have obtained LEED certification from the U.S. Green Building Council, or USGBC, which bestows the distinction.

There are 19 building on the West Side that were certified after renovations and retrofits, compared with 18 on the East Side, according to data from USGBC. The data does not include new building such as 11 Times Square or 7 World Trade Center, new skyscrapers that were designed with LEED certification in mind.

Three new speculative, LEED-hopeful office buildings are slated to come on line in 2013. Together, One World Trade Center, Four World Trade Center, and 51 Astor Place will deliver 6 million square feet of new space into the Manhattan office market.  The Wall Street Journal points out that the success of leasing efforts at the 2013 towers will have repercussions for other high-profile projects who will also seek LEED certification. 7 Bryant Park510 West 22nd Street and Related’s Hudson Yards project on the far West Side are three such projects.  While the more efficient use of office space is great for the environment, it’s not good for developers and landlords looking to fill up their buildings.

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

Banks Compete For CRE Lending

According to a recent report from the CoStar Group, banks have picked up their lending activity to commercial real estate in recent months – a sign the slow-but-steady economic recovery is beginning to pick up steam.

The report says banks that are lending again see lower risk owner-occupied properties and multifamily properties as preferred targets. But with lenders focusing on the same ‘safe shelter’ property sectors, it is creating widespread competition for the better-quality borrowers in those areas. The real battle ground may be next year from the coming opportunities in construction and development lending.

“The area of lending that we see being the most competitive on pricing continues to be the commercial real estate arena, with a lot of players in and including the life insurance companies,” said Kirk W. Walters, senior executive vice president and CFO of People’s United Financial Inc., a bank holding company in Bridgeport, Connecticut.

Kelly S. King, chairman, CEO and president of BB&T Corp. in Winston-Salem, NC, told CoStar the competition is not yet so fierce that existing customers are getting picked off, but he did say banks are looking for more diversity as their own customer base is dwindling. Richard K. Davis, chairman, president and CEO of U.S. Bancorp in Minneapolis, MN, told the website the two coasts are where the activity is most competitive. And Joseph Ficarola, chairman, president and CEO of New York Community Bancorp, said that his $42 billion holding company in Westbury, NY, is only targeting the best borrowers.

In its quarterly survey of senior loan officers, the Federal Reserve found that business lending, or commercial and industrial loans, was enjoying increased demand – and greater competition among banks. The Fed reported that this was the second consecutive survey in which reports of stronger demand for such loans by domestic banks outnumbered reports of weaker demand. Reflecting this, commercial loans at commercial banks in the U.S. have risen about 15% between March 2011 and April 18, according to Fed banking-industry data.

Within this loan study, The Fed says most domestic banks generally reported having eased their lending standards and having experienced stronger demand over the past three months. Standards on C&I loans to large and middle-market firms, and to small firms, were about unchanged. However, moderate to large net fractions of domestic banks eased many terms on C&I loans to firms of all sizes, with most indicating that they had done so in response to more aggressive competition from other banks or nonbank lenders.

Domestic banks also reported an increase in loan demand from firms of all sizes. In contrast, a small net fraction of foreign respondents again reported a tightening of their lending standards on C&I loans and a decrease in demand for such loans. A moderate net fraction of domestic banks reported having eased standards for commercial real estate (CRE) loans. As has been the case recently, significant net fractions of domestic banks reported that demand for CRE loans had strengthened. On net, foreign branches and agencies reported that standards and demand for CRE loans were little changed.

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

Welcome To The “#CRE Post” Blog

Greetings,

Commercial real estate and investing are the foundations of United Realty. Without large commercial properties and the people who invest in them, our company, staff and current roles in the real estate ecosystem would not exist.

Making the decision to blog on behalf of United Realty was not an easy one. The information we hope you find on this blog will need to be informative, relevant, professional, and most of all – consistent. These responsibilities fall on the shoulders of our staff and each other.

We look forward to sharing our commercial real estate insight and experience as well as our capital markets insight and experience with those who choose to read the blog. Expect to find our thoughts on industry transactions and trends, as well as what we believe the future holds with respect to what we specialize in. You will also find content related to our role as corporate citizens and the social responsibilities and charitable efforts that we hold close to our hearts.

We look forward to your comments and feedback. We hope that the #CRE Post results in sharing, learning, and turning online connections into offline relationships.

Thank you,

Jacob Frydman, Chief Executive Officer

Jacob Frydman

Posted on by Jacob Frydman in United Realty News 1 Comment