Retail Investment Market COOL DOWN

Retail Investment Market Calms Down April 03, 2007 By Dees Stribling, Net Lease Correspondent
When it comes to investing in retail properties--which form the basis of roughly half of all net lease deals--an emphasis on quality is back, according to a recent report by Marcus & Millichap Real Estate Investment Brokerage Co. The rush to retail, while not over, has slowed down. "Borrowers will want to be aware of some trends that may develop in the months ahead," the report notes. "For one, distinctions based on asset quality will become increasingly apparent as the year progresses. Spreads on lower-tier assets, for example, are forecast to widen in response to slower economic growth, but on average, pricing is expected to stay attractive."
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Unlike recently, investors won't find lenders quite so willing to lend to facilitate the acquisition of just about any sort of retail property, and buyers aren't quite as eager to buy, either. "Buyers are more careful in terms of underwriting and willing to pay less than a year ago," Bernard J. Haddigan, senior vice president and managing director of the national retail group of Marcus & Millichap, told CPNetLease. "There's still an abundance of capital in the market, but it's a little more selective." Also, according to the report, lenders may feel greater pressure from regulators this year as concerns about risk exposure intensify. In 2006, the Federal Reserve and FDIC warned that the concentration of commercial real estate loans had reached record highs and proposed guidelines to small lenders about overexposure to commercial properties. But such pressure might not even be necessary, especially if the U.S. economy cools a bit later this year. "Rapid price appreciation over the past few years alleviated some of the risks borne by lenders," the report notes. "With price growth cooling, lenders will apply more stringent underwriting standards for lesser-quality assets, particularly those with noncredit or low-credit tenants." In short, "quality matters--location, asset quality, tenant credit quality," said Haddigan. "Investors aren't dying to buy any retail property regardless of how marginal or bruised or how short the leases. It's two o'clock and the bar's closing. A bit of sobriety came back to the market." For more info: SEE www.houstonrealtyadvisors.net