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People who use flexible office spaces want to increase their usage there to comprise half of their workweek – an increase of 19% from current levels – while decreasing their remote working time by the same percentage, according to a report issued this week by Cushman & Wakefield in conjunction with WeWork.

With sentiments such as these, the argument for companies contemplating using flex office space has perhaps never been stronger.

Companies and workers are finding flex space working arrangements to allow for valuable collaboration, a better balance of office and remote work, and more options overall, and businesses appreciate the opportunity to avoid lengthy lease terms.

Avoiding ‘Too Much’ WFH

Rob Lowe, executive managing director and partner at Stream Realty Partners, tells GlobeSt.com that one of the main lessons learned from the pandemic is that workers enjoy the flexibility of working from home – no commute, less unwarranted supervision, more comfortable work attire, etc.

“And employers learned that many corporate functions perform well without the requirement of a five-day, in-person work week – accounting, marketing, etc. The question persists as to what’s the right WFH balance.

“Today, employers have landed on the conclusion that too much WFH takes away from culture, learning, accountability, and ultimately productivity. Workers are accepting this conclusion with the mandate that they have more flexibility in their work schedule.”

Flex Office Use Strong Well Before Pandemic

Kevin Fagan, Moody’s Analytics’ Head of CRE Economic Analysis, tells GlobeSt.com that flex office usage has been very strong, even before the pandemic.

The amount of space leased to flex office operators more than doubled across the US in the roughly three to four years prior to 2020, and that was not limited to WeWork.

Moody’s tracked roughly 300 other operators in the US, ranging from one-off locations to small specialty flex offices supporting specific industries or groups of people, to larger operators doing enterprise solutions like Industrious and IWG.

“Given the increased need for flexibility to support hybrid working, we expect the growth trend to continue,” Fagan said.

“From a commercial real estate risk perspective, this can be positive or negative. On one hand, more volatility is introduced by the much shorter lease terms common for users of flex office space (small single offices are often month-to-month, while even larger enterprise leases will only be roughly three-year maximum, as compared to the average traditional lease of roughly nine years).

“On the other hand, a flex office can raise the value of a property. For example, going back to the mid-2000s in London, having a well-curated flex office operator in your building is typically seen as an amenity by your tenants because it offers them very functional common area space for their workers and guests, and it serves as a mechanism for companies to grow or shrink their workforce without having to go through the expensive process of adjusting the amount of traditional, longer-term lease space they occupy.”

Better Lease Terms, Room to Grow

Regan Donoghue, senior principal strategy at Unispace, tells GlobeSt.com that the demand for flexibility started a few years before the pandemic when tech firms were refusing to sign leases longer than two years.

“They did this because they were experiencing rapid growth, and we’re constantly evolving into new ways of working,” Donoghue said. “While most firms returning to the workplace are not going through rapid growth, they are most certainly faced with constant change.

Looking at a future that is ambiguous and uncertain, the best approach any firm can do is to plan for the imminent change. A hybrid solution only solves for when an employee would come in and possibly where they might use a shared seating arrangement.

“A work environment needs to be more; it needs to be responsive and agile to best support the needs of the workers.”

Donoghue said that humans are wired for survival and thrive in environments where they are given the ability to design how they wish to implement the task at hand.

“For so long, the workplace has been a static and stale space that has drained the creativity of many (hello isolated offices, sad cubes and noisy benches). It’s time we let our work environment become an adaptable and flexible space that will spark brilliance in the minds of many.”

Flex Options and Desirable Locations Key

Beth Moore, head of strategic growth at Raise Commercial Real Estate, tells GlobeSt.com, “Given the high-growth nature of many of our clients, flex has become a key pillar in their portfolio strategy whether they are launching a new market, incubating a new idea, or exploring options at specific locations.

“As companies plan for the future, our clients are using flex and on-demand spaces to test fit and assess what work arrangements are resonating with their employees and business needs.”

Moore added that one thing is certain, “the amount of flex options, desirable locations, and cost-effective solutions means flex will be an integral part of our clients’ strategies for the foreseeable future.”

Flexibility is Worth Paying For

Alex Snyder, Portfolio Manager, Real Estate Securities, CenterSquare Investment Management, tells GlobeSt.com that “in a land of uncertainty, flexible space is king. The more companies need to be able to pivot and move in an ever-changing world, the more they value flexibility, and the more they’ll pay for it.”

Snyder said that providers of flexible space, both in terms of sizing and time, stand to benefit from this need.

“It’s a way to recruit talent,” he said. “Providing great flex space is selling pickaxes into the gold rush. Employees don’t hate the office, but they hate the commute. By and large, they like socializing, enjoy collaborating, and take joy in nice spaces.

“If small satellite offices can offer time to come together and collaborate, build culture, it will be desired by both employers and employees.”

WFH vs. Flex Work Varies by Location

Serge Vishmid, managing principal, Atlas Capital Advisors, tells GlobeSt.com that preferences for flex space vary by geography, even for the same clients.

For example, Vishmid tells GlobeSt.com, in Northern California (the Bay Area), “the model is very much remote work at this point, whereas in Florida and Chicago virtually everyone is back in the office full time.”

In Orange County, Calif., he is seeing more of a “flex” type of approach with more and more employees starting to actually come back to the office. Overall, the expectation from the C-Suite is that most employees will be back in the office full-time over the next 18 to 30 months.

Seeking Space That is Inspiring

Katie Pace, director of launch communications and media relations at Steelcase, tells GlobeSt.com, “We don’t necessarily have data showing whether workers are choosing flex spaces or not. However, we know workers prefer spaces that are more inspiring and offer more choices to accomplish different types of work — places where they can both collaborate and focus.

“This presents an opportunity for organizations to rethink their workplace to create a place people want to work from and earn their commute. The workplace, whether a traditional office or a flex space, needs to be more enticing than remote work setups.”

 

Source:  GlobeSt.

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Ron Osborne, Managing Director/Broker of SperryCGA | RJ Realty, represented The Strachman Family in the purchase of a 8,864-square-foot retail property located at 702-706 NE 1 Ave. in Ft. Lauderdale, Florida.

The deal closed September 12.

The buyer, Judith Strachman Rev. Living Trust, purchased the property from Barkan Investments for $4,250,000

The property is currently occupied by Chops & Hops Axe Throwing Lodge, a one-of-a-kind bar that pairs the ultra-fun activity of axe throwing with world-class cocktails and live music, Ft. Liquordale Entertainment, and Crossed Keys Society, a quirky, feel-good tattoo studio and creative space.

Judith Strachman Rev. Living Trust purchased the property to complete the exchange of the sale of the Boulevard Center, a retail plaza located at 1504-1538 E Commercial Blvd. in Oakland Park, Florida, earlier this year. Osborne represented Judith Strachman Rev. Living Trust in that transaction. After an extensive search for a single tenant, NNN leased property that would offer a strong return, the trust elected to purchase the subject property which has two tenants, Chops & Hops and Ft. Liquordale, on the main floor and Crossed Keys Society on the second floor.

“With the current rents lower than what we believe market rents could be, this property has nowhere to go but increase in value,” commented Osborne. “We looked at several STNL properties over the last 4 months and could not find one in the south Florida market that would offer a reasonable return and future upside.”

The Buyer was interested in the property due to its location within Flagler Village in Ft. Lauderdale. With the redevelopment of the old SearsTown property only a short distance from the subject property’s location, the Buyer believes that the area is only going to increase in value over time.

“We had no problem obtaining financing for the property thru Locality Bank and both the Buyer and lender agree that the location is one of the hottest markets in Ft. Lauderdale,” added Osborne.

Osborne has represented The Strachman Family as trust advisor over the last 20+ years and, in the last 5 years, helped in repositioning its portfolio of management-intense multi-tenant retail properties. The family is repositioning its portfolio for the future.

The property was listed by Native Realty.

 

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A recent investor survey by Marcus & Millichap reveals that while CRE transactions may level out this year, investor sentiment remains strong.

The mid-year survey’s headline index value of 159 is “somewhat reminiscent of the trend we saw in 2016,”in which sentiment declined a bit as higher interest rates bit into the market, says Marcus & Millichap’s John Chang.

”But they’re not down by as much as people might expect,” he says.

In 2016, the index declined 12 points and the number of CRE transactions flattened. This year, the index has declined 11 points and that could deliver relatively similar results, in what Chang calls a “relatively modest softening.”

“Yes, the market is going through a recalibration as investors rework numbers based on the rising costs of capital, but the survey respondents aren’t telegraphing a significant market change,” he says.

According to the survey, the top two investor concerns are interest rates and inflation. About two-thirds said interest rate increases aren’t affecting their investment plans, and almost 9% said they’d buy more commercial real estate because of rising interest rates. On the sell side, 77% said the rate increases haven’t caused them to change plans and 11% said they plan to sell more.

Respondents were even more dismissive of inflation, according to the survey. Twenty-four percent of respondents said they’d buy less CRE but almost 12% said they’d buy more. The buying intentions with respect to more inflation-resistant property types like apartments, hotels and self-storage indexed higher, with about 14.4% of investors overall saying they’d buy more of those assets because of elevated inflation.

Cap rates are expected to rise as a result of rising interest rates as well, with 14% of investors surveyed saying they think cap rates will rise by 50 basis points or more over the next year. About 35% think they’ll go up by less than that, and 27% expect no change. And Chang says  since there’s still a lot of capital coming into CRE, yields and stability look compelling.

“Consider that the last 12 months ending in the second quarter of 2022 was by far the most active commercial real estate investment transaction year on record,” Chang says. “Even if activity steps back a bit over the next 12 months, it will still likely rank as the second most active year.”

 

Source:  GlobeSt.

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Whether inflation first entered your adult life in the 1980s, the late 2000s or the first few years of the 2020s, the aftermath is more or less the same: emptied wallets and angry consumers.

And while some inflation is good (like the Federal Reserve’s annual target of 2%), too much is obviously not.

Amidst all the commentary that usually accompanies inflated economies, you may hear the word “hedge” thrown around quite a few times. And while many asset classes can help you provide a hedge against inflation, how can you utilize commercial real estate specifically as a hedge?

How Inflation Degrades National Currencies

In inflated economies, your average consumer ends up having to pay more for everyday items and conveniences than what may be considered average due to decreased purchasing power. Purchasing power, in this regard, refers to how much value of something you can extract with a single unit of currency (such as a single US dollar). In inflated economies, this decreases, and vice versa for deflation.

Illustrating Decreased Purchasing Power

This fall in purchasing power can be simply illustrated with a simplified example. Let’s say John Doe usually pays $100 a month for groceries in a regular economy. And let’s say that a large-scale financial crisis has just crippled that economy. As a result, consumers, now driven by fear of the unknown, start spending less and saving more.

Businesses in John Doe’s country, however, still need to make a profit, but this decrease in consumer demand is ultimately shrinking profit margins. So, these businesses start raising their prices to compensate. And these price increases accelerate even more when those businesses start paying more for raw materials and labor as a result of this financial crisis, creating a domino effect.

All of this creates an inflation rate of, say, 9%. This means that, if something cost $1 last year, it now costs $1.09 today. Each unit of that economy’s currency has lost 9% of its purchasing power, and John Doe will now pay $109 a month for groceries for the very same things.

What Does Inflation Leave Behind?

Ultimately, what inflation leaves behind is your average consumer having to pay more for everyday goods and services at no fault of their own. And while inflation can come about as a direct result of high employment and strong economic growth, there are a myriad of things to factor in a large, complex economy like price gouging or consumers getting higher-paying jobs. More impactfully are the consequences of macroeconomic factors such as global conflicts, financial crises and large-scale natural disasters.

Hedging Against Inflation

To hedge against inflation, you store your money in assets that appreciate in value over a certain period of time. Store here is a synonym for purchase. Gold is probably the most popular example of a hedge against inflation. As the purchasing power of the U.S. dollar falls, an ounce of gold tends to become more expensive as more investors buy it.

As such, the owner of that gold has successfully hedged against inflation. They can sell off that asset and receive more dollars in compensation than they originally invested, compensating for the drop in that currency’s purchasing power.

How Commercial Real Estate Can Hedge Against Inflation

Commercial real estate operates in a similar way to gold in inflationary environments. As the purchasing power of a currency drops, average property values tend to increase alongside new and existing commercial rentals as lease renewal rates increase. This is largely the case with properties that are already developed and have been around for some time. It’s likely that the interest rates on any loans taken out to purchase those properties were lower before inflation hit.

Once the Federal Reserve begins raising interest rates to combat inflation, the cost of owning the property for the owner stays the same while its value grows. This is not so much so, however, for properties currently or planning to be under development. Inflation often leads to increased costs for labor and materials, slowing down property development as a result. This means that demand for existing properties rises while demand for new ones falls, placing the odds all the more in favor of existing commercial real estate property owners.

Timing Matters

Commercial real estate as a short-term hedge against inflation usually doesn’t bode as well as its long-term alternative. Your investment needs time to mature, and purchasing CRE when it’s too late will not protect your portfolio in the same way.

This is largely due to the rising costs of goods, services and labor that come with inflation, most especially when it rapidly accelerates. By the time you start considering putting some cash in CRE in an inflated economy, not only will it be more expensive, it’s usually too late.

Instead, you should approach investing in CRE as a long-term hedge. As we get out of these inflationary times, now is a good time, as soon as you’re able to, to look into investment strategies and talk to the right professionals to help you get started; the last thing you want to do is wait too long.

Selecting The Best Property Type

Selecting the best commercial property types as a hedge is where market specifics really come into account. Take the Covid-19 pandemic, for example; the virus put many retail outlets out of business but led to a flaming hot housing market. Those invested in retail felt the aftershocks of the pandemic as retail values plummeted, while those invested in multifamily and industrial real estate saw quite the opposite.

This is extraordinarily important information to keep in mind moving forward into a post-pandemic economy. The retail market has forever changed, and while consumers still enjoy shopping in person, there is no denying the cold lessons the pandemic taught us about e-commerce. In the end, do your research and stay diligent when investing in CRE.

 

Source: Forbes

South Florida’s apartment buildings have traded at record prices as rents continue to climb.

However, there will likely be fewer apartment building transactions this year compared to last year, according to a recent report from Cushman & Wakefield.

The report; authored by Calum Weaver, director of Cushman & Wakefield’s multifamily group in Florida; stated that sales volumes slowed this summer “and will likely be 20 to 30% lower than in 2021.”

That’s because higher interest rates have impacted the profitability of multifamily deals.

Despite the headwinds, multifamily sales activity remains strong as foreign and domestic buyers continue to “pour into South Florida,” Weaver said.

“Investors view it as a safe, stable, and strong asset class,” he added. “Especially compared to turbulent stock, Bitcoin, or exotic NFTs.”

South Florida’s apartment buildings traded at record highs in the first half of 2022, for an average of $345,000 a unit in Miami-Dade, $300,000 a unit in Broward, and $379,000 in Palm Beach County.

The deals add up to $4.96 billion in multifamily transactions, in “the second-highest six-month sales total in history.”

Forty-two percent of South Florida’s 367 multifamily transactions between January and July took place in Miami-Dade, while 34% were in Broward, and 24% were in Palm Beach County.

First-time investors made many of those purchases in a trend that’s expected to continue, according to the report.

Landlords’ net rental income, or effective rent, isn’t rising much as it did in 2021. But their profits continue to increase, the report stated. Over six months, rents increased 7.5% to $2,186 a month in Miami-Dade. In Broward, rent rose 5.3% to $2,326 a month during the same time.

In Palm Beach County, the rent increase was flat, with an increase of less than 1% to $2,326 a month.

It’s the first time average rents in all three counties exceeded $2,000 a month, Weaver wrote.

South Florida has led the nation in rent hikes since the pandemic as well-paid remote workers and executives moved to the region from other parts of the United States, brokers and developers have told the Business Journal.

There are signs, however, that rent increases are slowing down.

Ken H. Johnson, an economist at Florida Atlantic University, has theorized that asking rents will drop as some remote workers return to their points of origin due to employers’ demands that they spend more time in the office.

There is some anticipation that rent increases will stabilize as more apartment units are built in South Florida. A recent report from property technology company Yardi projected that 19,000 apartment units will be finished by year-end.

Weaver’s report noted that year-to-year vacancies increased in Broward to 4.4% from 3.5%. Vacancies also went up in Palm Beach County, to 6.4% from 4.5%.

However, vacancies remain “at historic lows” in Miami-Dade County, at 3%, the report stated.

As more multifamily units are built, vacancies are expected to marginally increase in South Florida.

There are now 39,216 units being constructed in South Florida, including 9,192 apartments that recently broke ground in Miami’s Brickell Financial District and downtown areas, 3,657 units in Hialeah and Miami Lakes, as well as 3,611 units in West Palm Beach, Weaver wrote.

There could be a decrease in new projects as it becomes more difficult for developers to obtain construction loans, the report noted.

But demand for rentals is expected to remain high as home prices rise in tandem with rents.

The median price for a single-family home in South Florida rose to about 13% to $542,878, the report stated, adding that “average home values are increasing at a greater rate than rents, making ownership for many even tougher.”

Meanwhile, South Florida’s population grew by 47,000 people year to date.

“This was more than the 42,842 population increase for all of 2021,” the report declared, adding that the population hike was “equally split among the three counties.”

South Florida’s population is expected to continue to grow, according to Cushman & Wakefield.

“Household formations in South Florida are expected to increase to over 37,000 each year in the next five years,” the report stated.

If half of these new households are renters, “that represents over 18,500 new renters a year in South Florida.”

Rising rents may be a boon for landlords, but they could dissuade some professionals and companies from moving to South Florida, some experts have warned.

Their costs are rising, too, as insurance cost hikes “continue to be a challenge” with premiums per unit ranging from $1,000 to $1,800 a unit, the report stated.

However, Weaver’s report noted that South Florida is home to a strong job market, with unemployment at 3% or lower and salaries increasing by 6% over the last 12 months.

 

Source:  SFBJ

 

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For more than a decade, the commercial real estate industry has enjoyed a zero or near zero Federal Funds Rate, and with it, a historically low cost of debt. That unprecedented run has officially come to an end, as the Federal Reserve increased its Fed Funds Rate four times in response to inflation. Fed Chair Jerome Powell has signaled more increases to come later this year.

The Fed’s action caused the commercial real estate industry to pause and assess the new market conditions. According to Cliff Carnes, EVP at Matthews Real Estate Investment Services, that pause lasted a mere six weeks.

In this interview, Carnes explains why investment appetite has completely returned, what’s driving the price stabilization in spite of higher rates, and how the near-term outlook is even more promising, with predictions of strong real estate returns and an upward trend in pricing.

Click here and press play to hear all of Carnes’ insights on investment activity, interest rates and inflation, as well as advice for investors pursuing acquisitions in this market.

 

Source:  GlobeSt.

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A building that makes “no sense” to most investors could be a diamond in the rough to another — and knowledge and information is key in the current rising rate environment, according to one industry watcher.

“You can’t add value to bonds — and unless you own a VC firm or you’re Warren Buffett or Elon Musk, you really can’t create value by owning stocks,” says Marcus & Millichap’s John Chang. “Other than owning a company or a franchise, only real estate allows investors to roll up their sleeves, either physically or metaphorically, and create value in an investment.”

And Chang says this happens in one of three ways: repositioning, management, or knowledge.  Repositioning can be as simple as upgrading common areas and as complex as transforming high-rise office towers into apartments (a trend that’s happening at a rapid rate in some major metros).  It can also fall somewhere in between those extremes: think moving a Class C property to Class B or repurposing an outdated shopping mall into a mixed-use asset.

Creating value in management can also run the gamut, Chang says.

“At the simplest level, an investor may see some high value but basic operational things that can be done — perhaps just cleaning up a property, adding professional management and moving the rents to market,” he says. “Something more complex may be re-tenanting a building. An office investor I know bought a very large property with an enormous vacant space. He already had a major tenant lined up so he bought the building, restructured the space a bit and then plugged the new tenant in. Boom: the building went from 25% occupancy to 90% occupancy and the property value changed dramatically.”

Chang also draws on another anecdote, this time in the multifamily space, to illustrate this point further. He says an investor he knows with a great apartment management team bought several small- to mid-sized near the ones he already owns and leveraged that team across multiple units.

And finally, there’s knowledge, which Chang says is “all about finding market inefficiencies and exploiting them.” This could include acquiring assets based on emerging demographics or population migration, or could come on the heels of a major employer changing its HQ location or in advance of a tax or policy change. Chang says there are ample opportunities to “capitalize on information where the pending changes are not baked into an asset’s price.”

Several recent examples bear that out: the global supply chain dilemmas plaguing virtually every sector of the economy have prompted many companies to consider re-shoring or near-shoring to mitigate those types of risks in the future.

“These and more opportunities are out there, and a lot of them will make sense regardless of rising interest rates or other factors affecting the market,” Chang says.

 

Source:  GlobeSt.

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“Follow the money” has for decades been a popular phrase in investigative journalism. But for far longer it’s been a de facto principle in business and investing. A new Marcus & Millichap video addresses the increasing movement of capital between the states.

“Investment into smaller cities has risen sharply and the volume of interstate investment has surged,” says John Chang, senior vice president and director of research services. 

In other words, investors are spreading their money out geographically for a number of reasons, including diversification, the search for higher yields, state tax policies, and retirement strategies, “to capitalize on unique market dynamics like migration and demographic trends.”

The firm suggests looking beyond gateway cities at secondary and tertiary markets. In 2011, 46.6% of the dollar volume of capital went into these areas. In the first quarter of 2020, before the full onset of the pandemic, that amount had climbed to 53.1%. Now, the share is 58%, the largest ever, leaving 42% in primary markets.

Concentrate that much money into existing markets and a number of things will happen. One that Chang mentions is that the increased flow is a component of yield compression in the secondary and tertiary markets. The cap rates edge that these markets have over primary markets is only 1.1 percentage points, “the tightest spread since 2009.”

Marcus & Millichap saw its clients in 2021 acquire almost $26 billion in commercial real estate outside their home state. The dollar pace has picked up in the first half of 2022 (though it’s good to remember that dollar comparisons can be misleading given that CRE prices rose, making properties more expensive and potentially totaling higher even if the volume were roughly equivalent). And it means that local buyers increasingly are facing competition from other states. The considerations of out-of-state buyers might include moving to a state with low or no personal taxes, meaning they can likely afford a price premium.

Texas has seen the highest inbound volume of capital going to purchase CRE properties. The firm said the amount it saw customers putting into Texas over the last 12 months was more than four times higher than in 2019, which was previously the peak year. Northeast, Southeast, and Mountain regions saw almost double the amount of inbound capital compared to 2019.

The biggest region for buying out of state was the Mountain one, tripling the amount in 2019. California, too, saw a tripling of moving capital out of state over 2019, reaching $11 billion. Another $7 billion came out of the Northeast, with $4.1 billion hailing from New York.

All the data is from Marcus & Millichap, so can’t be seen as statistically representative of national investment trends.

 

Source:  GlobeSt.

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Ron Osborne, Managing Director/Broker of SperryCGA | RJ Realty, has completed 3 major transactions within the automotive real estate sector.

After working through a variety of property and title issues for more than a year, The Taverna Collection, an entity managed by GianMarco Taverna, purchased the Ted Vernon Specialty Automobiles location at 8301 NW 7 Ave. in Miami (pictured above) from TAM Investment Properties, LLC, Both the dealership and property were owned and operated by Ted Vernon. The properties consist of approximately 38,961 square feet of buildings and a total of 3.53 acres of land. The transaction closed at $6,500,000. Xavier Cossard PA assisted in the sale. In a separate transaction. Ted Vernon Specialty Automobiles will be relocating to Greater Orlando in the near future and the purchase will complete its 1031 exchange. This subsequent transaction, which was facilitated by SperryCGA/Flint Brokers, an affiliate office, closed on August 2.

The second transaction involved the sale/leaseback of 500 N. State Road 7 in Plantation. The property sold for $1.7 million. The seller, 500 Ventures, LLC, sold the property and a related company, Car Net Auto Sales, Inc. The tenant leased the property back for 5 years on a triple net basis. The combined value of the transaction was approximately $2.4 million. Osborne stated that the location being situated on a hard-lighted corner along with having legal conforming zoning for auto sales drove the value. The transaction marks the third transaction Osborne has completed with the same buyer, GCDC 3, LLC, for automotive properties in the South Florida area.

The third transaction was the leasing of 770 N. State Road 7, an auto repair facility located in Plantation, owned by GCDC 2, LLC. The lease is a true triple net lease transaction with an approximate lease value of $650,000 for the 5-year term. Osborne supervised the renovations of the property after it was purchased back in December 2021 for $1,450,000.

770 N. State Road 7 Plantation-After Renovation

Osborne believes strongly that any automotive property in a prime location with legal conforming zoning and an active dealer and repair license will only increase in long term value. He has multiple clients that are always looking for automotive related properties in prime location in the tri-county area.

 

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U.S. commercial real estate investment volume rose 10 percent year-over-year in the second quarter of 2022, to $167 billion, with industrial and logistics investments providing nearly $32 billion of the total and office $24 billion, according to a recent CBRE report. Trailing four-quarter volume totaled a record $881 billion.

The industrial sector saw its investment volume drop slightly, down 1.3 percent year-over-year from $31.6 billion in the second quarter of 2021. The office sector saw a bigger decrease—down 9.5 percent—from the second quarter of last year, when office investments reached $26.6 billion. Multifamily was the leading sector, with the total at $78 billion, a 32.4 percent year-over-year increase from $59.1 billion in the same time frame last year

“While we expect sales volumes in 2022 to end the year at a healthy level from a historical perspective, we do see some weakening in the remainder of the year amid higher interest rates and uncertainty as the macroeconomic landscape evolves,” Darin Mellott, senior director of capital markets research for CBRE, told Commercial Property Executive.

While portfolio transaction volume increased 41 percent, entity-level transactions fell by 17 percent year-over-year in the second quarter, largely due to higher borrowing costs. The Federal Reserve began raising interest rates in March, the first rate hike since the pandemic began—with a 25-basis-point increase, followed by a 50-basis-point increase in May and the three-quarter percentage point increase in June, the largest since 1994.

On a trailing four-quarter basis, New York was the top market, with $67 billion, up a strong 104.3 percent year-over-year. Los Angeles followed with total investment volume of $65 billion, up 61 percent. Rounding out the top 5 were Dallas-Fort Worth, at $50 billion, for an increase of 91.9 percent; Atlanta, at $40 billion, up 88.3 percent; and the San Francisco Bay Area, with just under $40 billion in volume, up 44.4 percent year-over-year.

Houston had the biggest year-over-year increase in trailing four-quarter volume, at 150 percent, with about $29 billion in total investment volume. Other markets with big year-over-year increases in trailing four-quarter volume were: Orlando, Fla., $15.4 billion, up 136.8 percent; Las Vegas, Nev., $11 billion, up 132.5 percent; South Florida, $34 billion, up 117.3 percent; and Nashville, Tenn., with $12.1 billion in total investments, up 116 percent.

Prices, Cross-Border Investment Up

Institutional investors were net buyers last quarter, while private investors, REIT and cross-border investors were net sellers, according to the CBRE report. Private investors accounted for $102 billion, or 61 percent of the total. It was a 19.3 percent increase from the private investors’ volume of $85.4 billion during the same quarter last year. Institutional investors had a total investment volume of $39.9 billion in the second quarter, down 7.9 percent from $43.3 billion in 2021. REITs and public companies clocked in at $9.2 billion, a 5 percent decrease from $9.7 billion a year earlier.

Inbound cross-border investment volume increased by 16 percent year-over-year, to $6.5 billion, but was down by 9 percent from the first quarter of the year due to the strengthening of the U.S. dollar. Multifamily was the leading sector for inbound cross-border investment, at $3 billion, followed by industrial with $2 billion and office at $1 billion.

Canada was the top country for U.S. inbound cross-border investment, with $24 billion in investments. Singapore followed, with $14 billion, and South Korea at $5 billion.

Prices were up across the board in the second quarter, the report showed. The RCA Commercial Property Price Index increased by 18.5 percent year-over-year. The industrial sector marked the biggest increase, up 27 percent year-over-year, followed by multifamily, with a 24.3 percent increase. Office property prices rose 10 percent for the second quarter year-over-year.

Read the full CBRE report.

 

Source:  CPE