COSTAR SAYS: Sensing that commercial real estate markets are near a point that
properties are not going to get any less expensive, there is a strong temptation
to jump in and grab deals while the getting is good and real estate is still
affordable.
However, CRE brokers and advisors who have been refined by
five years of recession are cautioning their clients against over-exuberance.
Instead, they are encouraging clients to measure their risk tolerance and move
forward at an unrushed pace.
"There are a tremendous amount of deals
available, some riskier than others; some short term and some long-term
turnarounds,” said Gregory P. Schenk, president of The Schenk Co. in Columbus,
OH. “The first thing we do is judge our clients risk tolerance and how much
capital they have on hand. We need to find out if the client is looking for
immediate monthly income, or seeking longer term appreciation on a sale.”
“Once we know those items, we can find what properties suit them best
and align them with like-minded individuals,” Schenk said.
“We are
seeing a faster pace of activity combined with an urgency,” said Adelaide
Polsinelli, senior director of Eastern Consolidated in New York. “The momentum
is continuing due to 1031 exchange buyers who have dollars to place as a result
of last quarter dispositions. Clients are approaching the market with fervor!
There is no time to waste. However, every deal must be properly vetted and
pricing razor sharp."
Benjamin Phillips, director of operations at
Phillips Commercial Real Estate Services Inc. in Dallas, said multifamily is
seeing strong demand from buyers in DFW. "Investors have voiced concerns
regarding the overbuilding of new units but I don’t think it’s there yet,
athough developers always seem to know how to rain on our parade when demand
climbs," said Phillips. "Generally speaking, my most common advice is get good
management, get long-term fixed interest, non-recourse, fully assumable
financing (another reason I like multifamily), and be realistic with what the
numbers are going to take to do what you want to do."
Brokers are also
sharpening their skills in anticipation of increased deal volume, and telling
their clients to sharpen their pencils so that they don’t overpay.
“To
prepare for the eventual market turnaround, I have attended educational courses,
expanded my referral network, re-established connections with local lenders,
purchased a new laptop and become proficient with CoStarGo on my iPad,” said Bob
Zavakos, principal of NAI Dayton in Dayton, OH.
Steve Collins, executive
vice president of Environmental Liability Transfer in St. Louis, MO, said there
are clear signs that more people are trying to clear out distressed assets.
“We are seeing more deal opportunities,” Collins said. “We are traveling
more to tour sites, meet brokers and sellers, and attend networking conferences.
Although the information available online is helpful, we believe it is still
important to meet brokers and owners face-to-face to build the strong
relationships that help close deals.”
More Distressed Properties Coming To Market
“In Dallas, our group is
keeping an eye on troubled assets, which we believe the lenders are now prepared
to take control of and bring to market,” said Robert Deptula, principal, Tenant
Advisory at Transwestern in Dallas. “But we are focused on getting assets with
significant vacancy, and positioning tenants who can purchase the building and
occupy that vacant space.”
“The institutional community is not looking
kindly on these buildings when valuing for purchase. That provides our owner
occupants a chance to buy the building at below market prices and underwrite the
vacancy favorably with their tenancy,” Deptula said. “We believe that 2013 will
provide our clients with other opportunities to acquire equity ownership in
properties in return for bringing their lease to the table either as the
purchaser or part of a partnership. Low financing rates coupled with a low
purchase price makes for an excellent economic opportunity for our corporate
users who have the ability to purchase or be part of a partnership.”
Meanwhile, the availability of distressed assets is expected to had a
direct impact on deal volume.
"Banks have finally decided that
'commercial short-sale' is not a dirty word and won’t get you fired,” said David
S. Miller, vice president/National Accounts at Chicago Title Insurance Co. in
Scottsdale, AZ. “That will shrink the pool of buyers as the risk-reward buyer
will not be wanting to pay non-distressed prices. "
As the values rise,
fewer properties will be subject to material defaults and replacement financing
will be more available, further shrinking the amount of product coming to
market, added Miller.
“With the re-entry of financing by the commercial
banks, more buyers will want leverage to increase their yields as cap rates
continue to be compressed," Miller said. “This will slow down transaction volume
as sellers and buyers will start to reach an impasse on price and terms. If
buyers can’t get a lower price for cash, they’ll be turning to the capital
markets for leverage.”
Nudging Values A Little Higher
“On the assumption there is a
recovery underway, with the inevitable rise in long-term rates from their
historic lows, we plan to 'reach' on acquisition values in 2013, and anticipate
an inflationary rise in rents, particularly because of the supply-constrained
character of the market in eastern New England,” said Leonard Bierbrier,
president of Bierbrier Development in Lexington, MA. “We believe the competitive
position of a cost basis built on low cost debt, versus players who delay
entering the market, will be well rewarded.”
Neal Jernigan, partner in
Crossley, Jernigan & Ellison Inc. in Alpharetta, GA, is advising clients
that the industrial market is in the beginning stages of recovery and that the
office, while slightly behind in the recovery process, is also likely on th
emend as well.
"With the anticipated general lower risk profile in both
investment products, we are encouraging them to be a bit more aggressive in
their underwriting while tempering their yield requirements for selected
investment opportunities, be it core, value add, or opportunistic plays, in well
located, dynamic markets,” said Jernigan.
For more information on Houston office space, Houston
retail space or Houston warehouse space and
Houston industrial space, please call 713
782-0260 or see my web site at : www.houstonrealtyadvisors.com
Thank you for your interest.
Thanks,
Ed A. Ayres
Houston Realty Advisors, Inc.
Mitaquye
oyasin
Posts
