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Sperry CGA | RJ Realty’s Ron Osborne Closes Three Sale Transactions Totaling $8 Million

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Ron Osborne, Managing Director/Broker of SperryCGA | RJ Realty, has completed three significant transaction in the 2nd quarter of the year.

5360 S State Road 7-Tamarac FL_Photo Courtesy of Ronald Osborne_DxO

The most recent transaction involved the sale of both the real estate and business located at 5360 S. State Road 7 in Tamarac. The transaction was handled as an exclusive listing but completed off market in order to protect the business from interruptions.  Hi-Tech Collision, a well-known paint and body business for over 38 years, was purchased by Gerber Collision or subsidiaries, In addition, the Buyer leased an additional 2,500 square feet from the Seller, who owns the adjacent multi-tenant property. While the amount of the combined sale is confidential, the sale price of the real estate transaction, which is comprised of 9,747 square feet of buildings situated on 23,756 square feet of land, was $2,750,000.

Osborne stated, ”Due to the current financing condition in the lending market and higher interest rates, it was decided to reach out only to the national body shop companies as they have the ability to pay cash or execute a long-term lease.” 

Gerber Collision was ultimately selected from several major buyers to purchase the property rather than lease it, which was preferable to the Seller. Gerber also agreed to retain all employees in order to keep the quality of work consistent. This was important to the seller as most of them had been long-term employees.

6001 N University Dr-Tamarac, FL_Photo Courtesy of Ronald Osborne_DxO

The second transaction, which closed in June, involved the sale of a former bank building located at 6001 N University Dr., also in Tamarac. The building was leased to Sunnyside Cannabis Dispensary, which is scheduled to open at the end of this year. The tenant executed a 10-year NNN lease. The property closed at $4,520,000 in an all-cash transaction. The Buyer, GCDC 5, LLC, an entity managed by Osborne, purchased the property as it offered a much higher yield than other STNL (single net tenant lease) properties in South Florida by more than two percentage points. Osborne stated that since this type of tenant is very hard to obtain financing for, especially in the current increasing interest rate climate, the all-cash offer with proof of the available funds to purchase made GCDC 5, LLC offer very attractive to the Seller. Barry Wolff and Alan Lipsky of Marcus and Millichap represented the Seller in the transaction.

1030 N Federal Highway-Pompano Beach FL_Photo Courtesy of Ronald Osborne

The third transaction completed by Osborne, which closed in May, involved the sale of 1030 N Federal Highway in Pompano Beach, FL. The property was leased to Hertz Car Rental for more than 10 years. When Hertz declined to renew its lease at market rates, GCDC, LLC decided to market the property for sale or lease. The property totals approximately ±800 square feet of office space, situated on 8,000 square feet of land. While numerous full list price offers of $795,000 were received from used car dealerships, the zoning did not allow for that use, so the offers were ultimately declined. Numerous list price offers were subject to financing, which, in the current market climate, were questionable. An offer was ultimately accepted from Autobuy/WePayTheMax.com for $750,000 with a very short contingency period only to confirm that the city would permit an auto appraisal office.

Osborne is now representing GCDC, LLC in its 1031 exchange and has identified several properties of interest for purchase and expects to close on another cannabis dispensary in Homestead in August.

 

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5 Ways AI Can Impact Commercial Real Estate

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Artificial Intelligence (AI) is one of many forms of technology that’s found its way into the commercial real estate sector and it could potentially radically transform how industry stakeholders operate and transact, CREXi’s Shanti Ryle recently wrote for WealthManagement.

AI’s impact on CRE could include improving productivity, decreasing operational spending and enhancing industry professionals’ ability to find, research and close deals.

“We’ve already seen transformation,” Ryle said. “AI’s recent advancements are ushering in a new era of technology tools to enhance commercial real estate’s relationship-driven business.”

Ryle identified five key areas where the CRE industry could leverage AI:

Administrative Tasks

As natural language processing ChatGPT and other AI versions have improved, technologies can handle different administrative processes. With AI taking care of those, CRE stakeholders and brokers have more time to focus on their business relationships and tasks that need their expertise. AI-powered tech can collect market and data reports, schedule meetings and property tours and update property listings. Additionally, AI bots continue to sound more natural when communicating with clients, which offers a seamless computer experience and frees up investors’ and brokers’ time.

Data Analysis and Research

AI has the potential to make the research and data collection process even faster. It can provide insights and metrics in almost real-time, compared to the days or weeks it would take analysts to complete. As macroeconomic conditions move faster, it’s critical that stakeholders receive property market information as quickly as possible.

CRE owners can also leverage AI’s forward-looking abilities. The technology can identify and predict trends in specific markets, assisting potential investors and brokers in determining what office space demand might look like in certain cities. The technology can also help industry professionals understand the risk factors that exist in a given area as well as determine potential development sites based on changing demographic information.

Automated Marketing

More CRE professionals have turned to AI to help generate their marketing materials, according to Ryle. Leaning on tech to create blog posts, listing copy and targeted social media ads is saving team members time and energy, which can be put toward other tasks. While helpful, some experts advise relying solely on AI to create marketing content—some human guidance should be involved.

Data Management

CRE yields a lot of information. AI can make it easier to sift through; it can pull data from reports faster as well as let individuals know when updated records are due or alert a CRE owner to when tenant demand has increased. AI can also organize, store and locate documents on demand, so CRE owners can make more informed decisions without taking so much time manually searching for the necessary data.

Financial Planning and Organization

AI has also all but eliminated the need for manual calculating. The technology can process figures quickly through a machine that’s absorbed knowledge from prior financial models and results to generate accurate outputs. For example, investors could use AI tools while calculating net operating income and return on investment so they know what investment factors to consider as the contemplate a deal. Meanwhile, CRE underwriters and lenders can use the tech to predict potential returns on specific contracts.

“Commercial real estate is well-poised to take advantage of AI as a vital component in customer service, marketing and analytics, and data management,” Ryle said. “Organizations that embrace the technology wave will likely get a competitive advantage. “Overall, AI tools will enable brokers and stakeholders to streamline processes and focus on what they do best: engage in human relationships and clear a path to generate the highest ROI on commercial investments.”

 

Source:  Connected

 

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Broward County Ranks Among Most Competitive Rental Markets In U.S.

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Broward County ranked the fourth most competitve market for renters in the U.S.

Apartments remained vacant an average of 41 days in the county, with 95.5% of its apartments occupied, 67.2% of its leases renewing and 14 renters competing for each available apartment.

Miami-Dade County ranked at the top of the list.

The report from rental listing website RentCafe scored 137 areas across the U.S. based on the average number of days an apartment stayed vacant, the percentage of occupied apartments, the number of prospective renters per available unit, and the lease renewal rate between the months of January and March.

Under that criteria, Miami-Dade County was ranked at No. 1 with a competitive score of 120. According to the report, apartments stayed vacant for an average of only 33 days – the shortest span of any other area in the top 20.

In RentCafe’s previous report, released in March, North Jersey was named as the most competitive market in the U.S.

Palm Beach County was the No. 20 most competitive rental market where apartments stayed vacant an average of 38 days, 95% of the apartments are occupied, 11 prospective renters competing for each available apartment and there’s a 59.5% renewal rate.

Another three Florida communities made RentCafe’s top 20 most competitive market list: Southwest Florida (No. 3), Orlando (No. 8), and Tampa (No. 19).

“Developers in Florida have been busy completing new apartments. However, this is still not enough to keep up with pent-up demand, which is why Florida markets are claiming the first spots on our list,” the RentCafe report stated.

 

Source:  SFBJ

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Institutional Investors Upping Interest In Industrial Outdoor Storage

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Industrial outdoor storage (IOS) is emerging as an increasingly popular property sector among institutional and other types of investors.

Interest in the sector ramped up during the pandemic as space was needed for container storage to relieve backlogged ports. Estimates from the experts WMRE interviewed suggest that the U.S. IOS market, which represents a niche within the larger industrial asset class, ranges somewhere between $130 billion and $200 billion in value.

Zoned for industrial use, IOS sites typically house vehicles, construction equipment, building materials and even shipping containers on an interim basis and range in size from two to 10 acres, often including a small building. The sector has been referred to as a “beautiful ugly duckling” by Green Street’s Vince Tibone since the properties are just lots with storage containers and construction equipment that have delivered “exceptional” returns over the last three years and brought in more institutional investors for funds raising hundreds of millions of dollars to target IOS.

While the sector is not immune to the same forces that are affecting other property types in the current environment, Tibone said he remains bullish on IOS over the next five to 10 years. Investor demand for IOS has been buoyed by strong recent operating results, favorable long-term supply/demand dynamics and a minimal cap-ex burden with an option to use the land for a higher and better use at some future time.

IOS sites located in infill submarkets in particular can deliver risk-adjusted returns “that are superior to those available on most other commercial real estate investments, including traditional industrial,” Tibone said. However, the fragmented, non-institutional ownership structure of the sector today makes it difficult to invest at scale, he noted.

“IOS portfolios do not come on the market often and the best returns are likely available through one-off deals, where there could be operational upside left on the table from the prior owner,” Tibone said. “Those with the patience and wherewithal to aggregate infill IOS sites over time should be rewarded with robust total returns relative to other property types.”

Among investors that are currently raising funds and targeting acquisitions in the IOS marketplace is EverWest Real Estate Investors, a Denver-headquartered real estate investment advisor with $5.2 billion in assets under management, including in the industrial, multifamily, office and retail sectors.

EverWest operates open-end funds and three single–client accounts with industrial strategies focused on IOS. The average size of the deals it has completed ranges between $10 million and $25 million.

So far in 2023, EverWest acquired two IOS sites—39.6 acres south of Atlanta for $12 million and 4.12 acres in Miami for $12.5 million, according to John Maurer, EverWest’s senior managing director and head of portfolio management. In May, the firm also invested in an industrial asset in Carlson, Calif. that includes acreage that can be used for IOS.

Part of the appeal of the sector is that when U.S. industrial inventory tightens and rents rise, IOS sites rise in value as they become reliever locations for a wide range of logistics activity, Maurer noted. In addition, in a market where industrial assets are still often priced at a premium, with cap rates as low as 4.5%, an IOS site adjacent to such a traditional industrial asset will often sell at a cap rate that’s 50 basis points higher. Rental rates in the sector have also been rising by 3.5% to 4.0% a year, according to Maurer.

EverWest’s open-end fund, the Open End Diversified Core Equity Fund in the NFI-ODCE Index, has a target return of 10%. Like Tibone, Maurer noted that the IOS marketplace is less institutionalized than regular industrial and has more fragmented ownership.

“We think because it’s difficult to acquire these sites that are smaller, if you aggregate portfolios in a target market that there’s going to be a cap rate compression,” Maurer said.

As a result, EverWest aims to aggregate a number of acquisitions from different sellers to build up its IOS holdings. Over the past 12 to 18 months, the firm has invested about $200 million in the IOS sector and it hopes to double that volume in the next 12 to 18 months. EverWest is also planning to launch an enhanced fund with a higher return strategy in the near future that will have a significant IOS component, according to Maurer. The firm is hoping to build off its current investor base of public and private pension plans, foundations and endowments, insurance companies and financial advisors for the fund, Maurer said.

However, Maurer admitted that EverWest’s transaction volume is currently about 15% off what it was a year ago because the increase in interest rates has made the firm more selective in making new purchases.

“There are some compelling opportunities in the marketplace in terms of attractive return potential, given where rates are today versus they were 12 months ago,” Maurer said. “We always want to look at where pricing is going and take advantage of correctly priced opportunities. What we see is sellers ultimately capitulate and need liquidity, so they will sell at market-clearing prices based on our new model for interest rates in the current environment.”

Assuming a leverage level of 40% to 40%, EverWest’s investments can deliver gross returns of 12% to 14% over a seven- to 10-year period, Maurer noted. That would require a barbell approach of doing straight up five-year lease IOS deals, he said. There would also need to be some value-add component for redevelopment in its strategy. About 20% of the IOS marketplace is about adding a warehouse over time, Maurer noted.

Change Is Coming

In the meantime, the number of institutional players involved in the sector is growing. For example, Brooklyn-based Zenith IOS, a builder and owner of outdoor storage properties, has partnered with institutional investors advised by J.P. Morgan Global Alternatives, to buy hundreds of millions of dollars of IOS properties last year. In February, J.P. Morgan and Zenith IOS announced a $700 million joint venture to buy more IOS assets.

Another active participant in the marketplace is Alterra IOS, which is part of Philadelphia-based Alterra Property Group, a real estate investment and development company that, according to reports, made more than $850 million in acquisitions over the past year.

In its most recent announcement, dated June 22nd, the firm expanded its presence in Las Vegas by acquiring a six-acre site for $7 million—its third in the marketplace.

Alterra declined to comment on its current fundraising effort, instead referring to a public filing from the Ventura County Employees’ Retirement Association (VCERA). The filing contained a recommendation to commit $35 million from the pension fund to Alterra’s IOS Venture III fund. Alterra’s goal has been to raise $750 million for the fund targeting IOS properties, according to IPE Real Assets. A previous Alterra fund raised $524 million in 2022, exceeding the firm’s goal of $400 million.

IOS Venture III will target smaller, infill IOS assets operating on triple net leases. Part of the value proposition of these assets, according to VCERA’s filing, is that they are typically owned by single owner-operators and have escaped the attention of most institutional investors. Alterra also plans to leverage its in-house management and leasing expertise to pursue value-add strategies for the assets. The firm estimates that it will generate from 30% to 40% of its total returns through the assets’ current cash flow, creating annual cash flow yields of 6% to 8%.

The fund has an eight-year horizon, with two one-year extension options, and will offer a preferred return to investors of 9%, with a carried interest of 20%. The fund’s net IRR target is between 14% and 16%, with a leverage ratio of 65%.

In addition to VCERA, Alterra’s equity investors include other public pension funds, foundations, endowments, insurance companies and family offices, both domestic and foreign, according to Managing Director Matthew Pfeiffer.

“Investors are finding IOS an attractive proposition right now because, unlike with a number of other real estate assets, supply is structurally muted, with municipalities not being incentivized to add new zoned land for outdoor storage,” Pfeiffer said.

He also mentioned the attraction of low cap-ex.

“Beyond the favorable supply and demand dynamics, IOS also benefits from being a very low capital expenditure business translating into low frictional leasing costs to put new tenants in the space,” Pfeiffer noted. “Lastly, the tenant profile is largely credit and national, under a triple-net lease structure that further entices institutional capital’s interest in the space,”

According to BJ Feller, managing director and senior vice president at Northmarq, cap rates on traditional industrial properties have gotten so aggressive in recent years that institutional capital was looking for opportunities with a similar profile, but more attractive cap rates.

“Once they’ve been able to establish their credibility and track record in the segment, we’ve seen operators have great access to the capital sources who want to play in this asset class,” Feller said.

He added that while equity inflows to the sector have “cooled to a certain degree” on a year-over-year basis, they remain robust relative to other property types.

“Most of the decline has been a reaction to caution that cap rates may be going mildly higher and offer better acquisition opportunities in the months ahead,” Fuller said.

 

Source: Wealth Management

 

 

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Are Small Multifamily Properties CRE’s Low Hanging Fruit?

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With inflation weighing down deals and unpredictable interest rates menacingly lurking to scare off investors, the commercial real estate space is increasingly scary terrain on which to tread. Yet navigational insights from a trusted guide can help in avoiding pitfalls across the rough landscape.

Enter Daniel Llorente, chief lending officer at Florida-based lender Korth Direct Mortgage, to help demystify the panorama. He took time to chat with Mortgage Professional America to discuss favorable trends he’s seeing in the space.

There’s low-hanging fruit to be had, he suggested. Think multifamily and consider a smaller swath of the jungle from which to secure it. Metaphors aside, smaller balance deals are increasingly popular with investors who wouldn’t otherwise be able to secure traditional financing, he said.

Big Rush On Multifamily Properties Is Unleashed

 

“One of the bigger trends we’ve noticed is the big rush when it comes to lenders like KDM or individual investors, are multifamily property types,” Llorente said. “Another new underserved market that’s opened up has been the smaller balance, smaller multifamily investment properties.”

 

Like any savvy lender, KDM is capitalizing on the trend: “Right now, we’ve opened up a new program to service this underserviced market,” he said. “We do loan amounts now between $20,000 and $5 million. That’s to help service not just single-family homes, but your duplexes, triplexes, 10-unit buildings, your smaller, suburb apartment buildings that, believe it or not, in the last 10, 15 years have been somewhat underserved because those products don’t qualify for Fannie, Freddie small balance loan amounts.”

 

The interest is not limited to just investors, Llorente said. “Yes, from both sides,” he replied when asked of the appeal. “Individual investors are devoting more time in finding those properties and the people who lend the money – the big investors, insurance companies, banks – have more interest to actually fund those acquisitions.”

 

Llorente theorized on the sector’s increasing popularity among investors, saying there are just so many 200- to 500-unit properties available to buy. “The low-hanging fruit that’s still available to purchase at reasonable prices are the investor single-family homes, duplexes and triplexes that haven’t really gotten the love they should have gotten in the last few years. He’s seen the trend manifest in his own backyard: “We’ve been noticing here in Miami as we’re starting to see high-end duplexes, people acquiring those properties and putting in pools, a third floor and making them more high end. Obviously, they’re going to be rate-sensitive, but given the direction rents have gone in, rents are in a position where they absorb moderately higher interest rates.”

And Yet, Everything Is Relative

Of course, everything is relative, and dynamics differ from market to market. The riskier areas are the tertiary markets where work life is more concentrated for their denizens.

“I’m anticipating maybe the markets that have been overdeveloped that are on the way out of town are going to be the ones that are going to have the bigger slowdown,” he said. “In my experience, when you have those tertiary markets – let’s say you have a town with 30,000 people in it – chances are the lion’s share of the population of that small town all work for the same company. If the company picks up its bags and moves, all of a sudden, the value of that town has gone down to pretty close to zero. Primary and secondary markets have been stable. In tertiary markets, it all depends on economic conditions.”

 

Source:  MPA

 

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Broward County Auto Dealerships To Be Demolished To Build New Ones

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King Motors filed plans to demolish its dealership buildings at 1345 to 1399 S. Federal Highway in Deerfield Beach in order to construct larger buildings for both Hyundai and Genesis

King Motor Company of South Florida currently has 40,896 square feet of automotive space in three buildings situated on 1.94 acres. They were built in 2006.

King Motors previously operated Mitsubishi and Suzuki dealerships there. However, it recently changed to Hyundai and Genesis

 

Source:  SFBJ

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Expenses Rising Faster Than Revenues For Many Apartment Owners

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Expenses are rising faster than revenues for multifamily affordable housing properties, a trend that will likely continue to accelerate, according to a new report from S&P Global Ratings.

Property owners saw net income per unit increases, however, as rent growth was as high as 37% from 2020 to 2022.

Growth has slowed considerably in 2023, though. GlobeSt.com this week reported that the median US asking rent fell 0.6% YOY to $1,995 in May. That nationwide drop is the largest since March 2020, attributed to a building boom that increased supply and economic challenges that lessened demand.

Markets continue to reflect regional and local variations in their asking rates with the Northeast/Midwest posting rises of 5%, even as numbers nationwide declined from a year earlier in May, according to Redfin.

On the expense side, meanwhile, property insurance premiums are an increasing percentage of total expenses with the average property insurance costs rising from $387 in 2020 to $590 in 2022 and several insurers have announced plans to significantly increase premiums in California in 2023 and 2024 or limit their exposure in states with elevated environmental risks.

Repairs and maintenance costs rose from $816 to $1,045 and utilities spiked from $1,487 to $1,693.

Paula Munger, Vice President, Research, National Apartment Association, tells GlobeSt.com that based on a few very informal polls she has taken of owner/operators this year through early June, the results have been fairly consistent in that fewer than one in 10 are expecting NOI to decrease or go negative this year.

“It’s not happening, but it absolutely is top of mind for them in thinking that it might happen in the near future,” Munger said. “If the Federal Reserve truly is done raising rates, inflation continues to trend downward, the industry adjusts to higher for longer, the job market stays strong, and we manage to skirt a recession, I could see rent growth getting stronger next year.”

Karlin Conklin, Principal, Co-President & COO at Investors Management Group, tells GlobeSt.com, “Bid farewell to the days of double-digit rent growth when rising expenses were an afterthought.

“Entering a new era of expense management requires a recalibration. Expenses are one of the main levers we can work on during a market correction, as we increase NOI by minimizing costs.

“Rather than pursuing new revenue streams, we’re staying focused on collections. Our priority is to offer our residents a quality living experience of great value. We’re aiming for a win-win, particularly during challenging times, by maintaining reasonable rents that don’t burden residents with excessive charges.”

Conklin said insurance has been the greatest noncontrollable expense across her national portfolio over the past three to four years.

“Insurable values have risen dramatically over the last few years,” she said. “As the cost of construction rises, so does the replacement cost of a building.”

Geography is playing a large role in expense and revenue management.

Kai Pan, Executive Managing Director in JLL’s Value and Risk Advisory Group, tells GlobeSt.com, “We’ve heard insurance increase named as a primary reason for buyer re-trades in many coastal markets, and it has scuttled transactions in many cases.”

In his appraisals, he’s seen insurance increase from $1,042 to $3,484 per unit (234% in Gulf Coast) and from $434 to $1,206 per unit (177% in Florida).

This is happening at large public apartment REITS as well, he said.

“Camden reported in their Q1 23 earnings call that they expect total insurance expense will increase by approximately 35% in 2023 due to exposure to coastal markets,” Pan said.

“Even Equity Residential (EQR), who has no Florida exposure, reported about 20% increase on insurance portfolio-wide.

“Part of the reason for the extraordinary insurance increase is due to inflation-fueled construction cost increase, which leads to a larger amount to be insured.”

Doug Faron, co-founder and managing partner at Shoreham Capital, a privately held real estate firm in West Palm Beach, Fla, tells GlobeSt.com that recently Florida has experienced an increased frequency of natural disasters that have forced insurance carriers to leave the state.

“That, combined with a multitude of new developers entering the market, high-interest rates, and a rise in construction-defect litigation, has caused insurance premiums to skyrocket,” Faron said

Faron said there’s been a “massive spike” in insurance costs in just the past 90 to 120 days, with premiums for a multifamily property currently averaging anywhere from $1,400 to $2,500 per unit, up from $600 to $800 per unit at the start of the year.

“It is no longer just a coastal issue either, with inland cities, like Orlando, also experiencing high insurance rates,” he said. “These ballooning costs have the potential to affect site selection, delay construction timelines, or even kill a deal in its tracks.”

 

Source:  GlobeSt.

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The Next Institutional Frontier: Marinas, RV Resorts

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Since we’ve recovered from the pandemic and are no longer confined to our homes as we were during the worst of the outbreak, there has been an increase in this trend, which started as we started to come out of the pandemic and has continued ever since.

The “get-outside-and-live” trend has been a goldmine for rustic accommodation, RV-friendly resorts, and marinas for all kinds of sailing vessels. This bonanza is drawing more and more attention from commercial real estate investors seeking for a promising area of expansion.

Monarch Alternative Capital, an investment company with nearly $11 billion in assets under management and dual headquarters in New York and London, is the most recent player to wager on the great outdoors. Monarch announced this week the launch of Go Outdoors, a platform to acquire, develop and operate marinas and RV resorts across the US.

“Monarch believes these sectors are historically overlooked real estate asset classes which benefit from attractive growth tailwinds and are in the early stages of institutionalization,” the company’s statement said.

According to Monarch, RV resorts and marinas profit from favorable business fundamentals that allow them to generate stable, brisk rental income growth. The availability of new marinas and RV resorts is constrained by a stringent regulatory environment, a lack of suitable land, and the capital intensity of new ventures, according to the business.

Renting of docking, storage, and RV pads is becoming more and more popular as recreational boat registrations, boating engagement, and RV ownership soar. According to the National Marine Manufacturers Association, recreational boating is currently a $250 billion business.

 

Source:  GlobeSt.

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Multifamily Industry Grappling With Surging Insurance Costs

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First came supply-chain-fueled higher construction costs. Then came inflation and interest-rate hikes imposed by the Federal Reserve.

Multifamily property operators are seeing their property insurance premiums rise at a time when the cost to build and finance a commercial real estate project remains elevated, even though most material prices have stabilized.

The recent spike in insurance costs arguably could have the most significant ripple effects within the multifamily industry, as higher rates will likely prompt multifamily landlords to pass those additional costs to tenants. But for income-restricted housing or rent-controlled apartment markets, according to those in the industry, the options to offset those higher costs are more limited.

A recent survey by the National Multifamily Housing Council, a trade group representing rental-housing owners and developers, found property insurance costs have risen 26% on average among respondents during the past year. Hurricane Ian had a tremendous impact on rising premiums, but internal insurance dynamics, industry consolidation, carriers departing some markets and climate change are also to blame for the higher costs.

Beyond the cost of operating an apartment property or portfolio, higher insurance premiums are starting to affect property valuations and disrupt transactions.

Michael Power, a chartered property casualty underwriter at New York-based FHS Risk Management, said during an NMHC webinar that in years past, adequate insurable replacement values weren’t necessarily enforced by the insurance industry. There’s been a monumental change on that front this year, he said, with everyone now required to directly report adequate insurable rebuilding costs for all buildings.

“That is having a huge impact on premiums because it’s driving up the total insurable value of your assets. … It creates a compound effect on premiums,” Power said.

 

Source:  The Business Journals

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Is Retail The New Darling Of The CRE Industry?

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A recent panel discussion at ICSC Las Vegas covered the state of the capital markets and during a morning session, where industry experts provided insights into the current situation, shedding light on the challenges and opportunities facing the market. Hessam Nadji, the president and CEO of Marcus & Millichap, kicked off the discussion by acknowledging the significant disruption caused by the movement of interest rates.

Nadji compared the situation to the financial crisis of 2008 and 2009, emphasizing that while the financial system was not on the brink of collapse this time, the impact on valuation and transaction velocity was similar. Sellers, Nadji noted, were hesitant to enter the market unless compelled by urgent circumstances. However, any products that did hit the market were attracting multiple offers, despite the tight financing conditions, with the intention of refinancing later, he said. Nadji also pointed out that retail, surprisingly, emerged as the new darling of the industry, outperforming other property types.

Glenn Rufrano, ICSC Chair and former CEO of VEREIT, moderator of the panel, expressed relief that the industry had moved away from the bottom of the economic downturn. This sentiment was echoed by other participants who acknowledged the progress made but also emphasized the need for more activity. Alex Nyhan, CEO of First Washington Realty and ICSC Trustee, for example, noted the changing composition of buyers for grocery-anchored shopping centers.

Nyhan explained that “caution had become prevalent in the market,” prompting a “wait for the debt market to stabilize approach” before putting more properties up for sale. However, he mentioned that demand from life companies remains strong.

Rufrano asked about the dynamics of buyers and sellers in the market where panelist Devin Murphy, president of Phillips, Edison & Co., responded that there was still considerable activity in the market. According to Murphy, while overall activity had declined, there were still opportunities to acquire assets. For example, Murphy’s company had successfully acquired four grocery-anchored centers in the first quarter, despite the challenging environment. The sellers encountered currently are primarily institutional investors motivated to sell due to the denominator effect, which aimed to rebalance their portfolios. Additionally, individual holders who were not willing to inject more equity into their assets are also ones who are seeking to sell. Despite the decline in overall activity, Murphy revealed that his company had managed to purchase nearly $100 million worth of assets in Q1.

Rufrano acknowledged the importance of understanding the motivations behind buyer and seller decisions. He expressed optimism, expecting to see more activity before the end of the year, indicating potential progress in the capital markets.

 

Source:  GlobeSt.

 

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