A strong U.S. dollar could propel foreign interest in commercial real estate stateside as investors flee weakening economies and geopolitical conflicts abroad.
But the strength of U.S. currency is just one piece of a complex puzzle that dictates global investment activity, and it won’t necessarily translate into billions of dollars pouring in from overseas.
As of July 29, the value of the dollar was outpacing the euro and the pound by 2 cents and 18 cents, respectively. That could signal an even greater investment opportunity in the U.S. among foreign buyers, though it is far from the only factor at play, FTI Consulting Senior Managing Director Josh Herrenkohl said.
“The value of the investment will always trump the value of currency,” he said. “While the value of the U.S. dollar certainly plays into some of the decision-making, at the end of the day, institutional investors are looking to acquire assets that are going to appreciate and will continue to be strong on a go-forward basis, regardless of what currency they’re paying.”
Long seen as a safe haven for assets, overseas investment in U.S. commercial properties made a triumphant return in 2021 when foreign institutions purchased close to $71B of domestic CRE. That was double 2020’s volume and marked the greatest foreign investment in the U.S. since a total of $94.6B was invested in 2018, according to Real Capital Analytics.
If history repeats itself, foreign interest could break down along national lines, Herrenkohl said.
In 2015, when the strength of the dollar outweighed most world currencies, countries with economies similar to the U.S., like Canada, chose to keep their money close to home. But countries with more volatile economies, like Brazil and Argentina, chose to level up their U.S. investments.
“You think we have it bad, many countries have seen 20%, 25%, 30% inflation,” he said. “Even if you are paying a little bit more because of the U.S. denomination, you’re less subject to many of those fluctuations that South American investors might traditionally be faced with.”
In other parts of the world, geopolitical conflicts could dissuade certain countries from investing in the States, Herrenkohl said. China, for example, put a significant amount of money into U.S. commercial real estate in 2015, but that is less likely this time around.
“I don’t think we are going to see a lot of investment in the near term from China, and the same could be said for Russia, for obvious reasons,” he said.
Asian investors have so far this year been more cautious with their investments in the U.S. and Europe, said Harry Tan, head of Asia Pacific research at Nuveen Real Estate. This hesitancy is motivated more by elevated recessionary risks and higher borrowing costs than changes to currency value, he said.
“Investors backed by dollar funding may take the opportunity to accelerate their investments into markets where they already have an existing interest to invest into,” Tan said in an email. “However, institutional investors invest into CRE based on fundamentals; they do not speculate on currency movements.”
The relative strength or weakness of the dollar against the euro makes little difference in investment decisions made by Commerz Real AG, a German investment firm, because the company is legally required to hedge foreign currencies, which protects its assets from future fluctuations, Head of Fund Management Timo Lutz said.
“It doesn’t really matter if the exchange rate is 1-to-1 — as it is more or less nowadays — or 1-to-20 or 1-to-40,” he said. “You have to bear the costs … but you are more or less protected in the long run.”
Commerz Real considers many factors when choosing where to invest, and the cost of currency is just one part of that equation. Investments in U.S. real estate come at a premium when there is a strong dollar, but that added cost is outweighed by other factors, such as the market’s unprecedented demand and distance from the Russia-Ukraine War, Lutz said.
“It’s always the big picture for us from a research point of view,” he said. “We are of the opinion that the U.S. economy is slightly stronger, and they will most likely be able to manage a recession more quickly than the eurozone.”
Commerz Real could choose to redirect funds away from the U.S. if the cost of hedging decimates returns, though Lutz said that is unlikely. The company has $3.19B of assets under management in the U.S., including hotels, offices and retail properties.
“The expectation is that the European Central Bank will increase interest rates, meaning hedging costs will get cheaper and cheaper,” he said. “Nowadays, it’s quite high due to the fact that there is a huge gap, but that will narrow the gap.”
American investors in European CRE flocked to the continent in the first quarter of this year, but cross-border investment volume slowed in Q2, in part due to economic impacts from the Russia-Ukraine War, said Judith Fischer, an associate at Knight Frank, a UK-based real estate consulting firm.
The weak outlook for the European economy, fueled by rising interest rates and inflation, a softening of commercial property prices and a waning occupier market, are all factors behind the dip, Fischer said.
“They are probably worried of what is still to come in Europe,” she said. “That’s why you’re not seeing so much of an influx of institutional investors. At the moment, they may be more hesitant.”
The decision of whether or not to invest in the U.S. could also come down to how much confidence a buyer has in the Federal Reserve. The Fed has thus far responded to volatility in the market by raising interest rates, which could deter some investors, said William Edward Spriggs, a Howard University professor of economics and chief economist for the AFL-CIO.
“The U.S. economy continues to be strong, but it faces clear headwinds,” he said. “The Fed is one of those threats because the Fed is mischaracterizing what it needs to slow down. We’ve already seen the slowdown in the U.S. from fixed investment, which would include commercial real estate.”
Despite economic turmoil in the U.S. and the Fed’s aggressive — or, in Spriggs’ view, misguided — attempts to tamp down inflation, overseas investors will continue to view the U.S. dollar as a safe and stable currency.
To explain this phenomenon, Spriggs referenced a moment in history when Alexander Hamilton solidified America’s reputation as a reliable economy by promising to pay off its debts from the Revolutionary War.
“The commitment that Hamilton made has forever marked the United States as the most stable government in the world,” he said. “The United States always pays its debts — and that’s why they revere the dollar.”
Source: Bisnow
Commercial Contracting Challenges Expected to Continue
The challenges facing commercial contractors – including increased costs of materials and labor, shortages, and delays – will likely continue in the future, according to a recent Cushman & Wakefield survey.
A whopping 98% of general contractors surveyed by the firm indicated an increase in supplier costs and material lead times, while 75% reported increased project execution timelines. And 96% of GCs said they expect future supplier costs to remain high, while 73% anticipate project execution timelines to increase slightly to significantly. Eighty-eight percent expect lead times to increase slightly to significantly in the next six months.
Source: GlobeSt.
A Strong U.S. Dollar Could Mean A Lot — And Not So Much — For Commercial Property Investment
A strong U.S. dollar could propel foreign interest in commercial real estate stateside as investors flee weakening economies and geopolitical conflicts abroad.
But the strength of U.S. currency is just one piece of a complex puzzle that dictates global investment activity, and it won’t necessarily translate into billions of dollars pouring in from overseas.
As of July 29, the value of the dollar was outpacing the euro and the pound by 2 cents and 18 cents, respectively. That could signal an even greater investment opportunity in the U.S. among foreign buyers, though it is far from the only factor at play, FTI Consulting Senior Managing Director Josh Herrenkohl said.
Long seen as a safe haven for assets, overseas investment in U.S. commercial properties made a triumphant return in 2021 when foreign institutions purchased close to $71B of domestic CRE. That was double 2020’s volume and marked the greatest foreign investment in the U.S. since a total of $94.6B was invested in 2018, according to Real Capital Analytics.
If history repeats itself, foreign interest could break down along national lines, Herrenkohl said.
In 2015, when the strength of the dollar outweighed most world currencies, countries with economies similar to the U.S., like Canada, chose to keep their money close to home. But countries with more volatile economies, like Brazil and Argentina, chose to level up their U.S. investments.
In other parts of the world, geopolitical conflicts could dissuade certain countries from investing in the States, Herrenkohl said. China, for example, put a significant amount of money into U.S. commercial real estate in 2015, but that is less likely this time around.
Asian investors have so far this year been more cautious with their investments in the U.S. and Europe, said Harry Tan, head of Asia Pacific research at Nuveen Real Estate. This hesitancy is motivated more by elevated recessionary risks and higher borrowing costs than changes to currency value, he said.
The relative strength or weakness of the dollar against the euro makes little difference in investment decisions made by Commerz Real AG, a German investment firm, because the company is legally required to hedge foreign currencies, which protects its assets from future fluctuations, Head of Fund Management Timo Lutz said.
Commerz Real considers many factors when choosing where to invest, and the cost of currency is just one part of that equation. Investments in U.S. real estate come at a premium when there is a strong dollar, but that added cost is outweighed by other factors, such as the market’s unprecedented demand and distance from the Russia-Ukraine War, Lutz said.
Commerz Real could choose to redirect funds away from the U.S. if the cost of hedging decimates returns, though Lutz said that is unlikely. The company has $3.19B of assets under management in the U.S., including hotels, offices and retail properties.
American investors in European CRE flocked to the continent in the first quarter of this year, but cross-border investment volume slowed in Q2, in part due to economic impacts from the Russia-Ukraine War, said Judith Fischer, an associate at Knight Frank, a UK-based real estate consulting firm.
The weak outlook for the European economy, fueled by rising interest rates and inflation, a softening of commercial property prices and a waning occupier market, are all factors behind the dip, Fischer said.
The decision of whether or not to invest in the U.S. could also come down to how much confidence a buyer has in the Federal Reserve. The Fed has thus far responded to volatility in the market by raising interest rates, which could deter some investors, said William Edward Spriggs, a Howard University professor of economics and chief economist for the AFL-CIO.
Despite economic turmoil in the U.S. and the Fed’s aggressive — or, in Spriggs’ view, misguided — attempts to tamp down inflation, overseas investors will continue to view the U.S. dollar as a safe and stable currency.
To explain this phenomenon, Spriggs referenced a moment in history when Alexander Hamilton solidified America’s reputation as a reliable economy by promising to pay off its debts from the Revolutionary War.
Source: Bisnow
Commercial Real Estate Investor Sentiment Signals A Changing Outlook
As we round the halfway mark of 2022, dynamics are shifting in the commercial real estate investment environment.
Preliminary data from SitusAMC Insight’s second quarter 2022 institutional investor survey shows changing preferences among property segments.
Compared to the previous quarter, the percentage of investors selecting industrial as the best property type over the next year plummeted from 47 percent to 11 percent, citing major concerns that the sector is overpriced. Apartment was the most favored segment among investors; 56 percent of investors ranked apartment as the best sector, up from 21 percent last quarter.
Skyrocketing mortgage rates are putting a crimp in single-family affordability, resulting in strong demand conditions for apartments. Several investors also remarked that apartments were the best inflation hedge among the property types. Retail appears to be making a comeback, with investor preference for the sector climbing to 33 percent from just 11 percent last quarter, citing opportunity for yield plays. Investor sentiment on office, on the other hand, is extremely bearish; no investors selected it as the top property type, with the sector falling from 16 percent in first quarter.
SitusAMC is seeing these sentiment shifts play out in their client work. After so many quarters of seemingly unstoppable growth, the industrial sector is starting to show initial signs of a slowdown, even though fundamentals are still strong. While rents are still growing in most markets and investors are still anticipating widespread above-inflationary rent growth and are underwriting to these assumptions, it is unrealistic to expect another quarter of 8 percent to 12 percent rent growth. Meanwhile, the buyer pool for industrial has been shrinking since the beginning of the year, and some of the larger portfolios are not being financed or traded.
Some Value Deterioration
The value driver for apartments in the second quarter was market rents and rent growth. There is still very strong sales activity, but, as with industrial, there are fewer investors at the table when the bidding reaches the best and final round. Regardless, the fundamentals remain very strong. For the first time in several quarters, low-rise apartments are performing better than garden apartments. Suburban is still outperforming urban, but some urban locations are showing signs of growth.
Investment rates are not decreasing across the board— they are very specific to the assets and the submarket. Gateway markets are lagging but improving. New York is the leader of the gateway markets, and Chicago is seeing improvements in rent growth, which is translating into some value improvement. San Francisco is starting to produce positive indicators as well, and Boston and Seattle are experiencing growth momentum. SitusAMC Insight’s proprietary multifamily affordability indexes indicate improved affordability in gateway markets vs. affordability deterioration in non-gateway metros.
SitusAMC’s retail valuations were slightly up in second quarter. Leasing activity has picked up, with many reflecting short-term mid-pandemic leases that are expiring and being renewed. A couple of large deals involving grocery-anchored centers have signaled very strong cap rates, in the low-to-mid 4 percent range, in strong markets like San Diego and Miami. However, these rates were negotiated at the beginning of the year when the debt markets had not yet changed.
Some SitusAMC clients are repricing their assets down slightly because of the debt market environment. In addition, recent strong retail sales are unlikely to continue as inflation erodes consumers’ disposable income and redirects spending to everyday necessities like gasoline and food. Retail outlets that provide essential goods, such as neighborhood and community centers with grocery anchors, will likely maintain steady income streams. Malls could be hurt by the decline in nonessential spending.
Office values remained relatively flat in the second quarter; most of the increases in values seen were owing to contractual rent increases. Overall office values are skewed, however, by strong growth in life science. SitusAMC is seeing many tenants downsizing. Daily office occupancy is mired around 40 percent, and it might not exceed 60 percent in the long term. There has been a flight to quality as employers try to attract top talent during a tight labor market.
On the bright side, near-term market rent growth has steadily increased over the past year, however, and is getting closer to the standard 3 percent. The strongest growth markets continue to be in the Sun Belt and the suburbs, which are doing better than CBD and gateway markets, but rents are increasing in those areas, as well. There have also been a lot of early renewals—near 10 percent, the highest level since 2015—though this is partly due to leases that expired during the pandemic and were renewed on a short-term basis.
Source: Commercial Property Executive
What CRE Investors Should Consider When Contemplating A Recession
Investors “shouldn’t be afraid of an impending recession” and should instead consider what the economic picture will look like over hold times of three, five and ten years, according to one industry watcher.
On one hand, Chang says, job creation is robust, with an average of 488,000 jobs added per month this year. Unemployment remains low at 3.6% and wage growth strong at 5.2%. And while retail sales have flattened recently they are still up nearly 8% over last year.
So does it really matter if the US undergoes a recession? That depends, according to Chang.
The Great Financial Crisis involved a liquidity crunch that curtailed real estate investment, which Chang says is unlikely in the current scenario. And while there are a variety of causes and effects for recession periods, Chang predicts the US is likely looking at a recession along the lines of the 1981 or 1990 downturns. Both periods were preceded by strong growth and rising inflation that pushed the Fed toward the same types of aggressive rate hikes we’re seeing today. Yields softened in both recessions, but nothing like the 2009 decline, and Chang noted considerable variation among property types, with apartments, for example holding up well in the 1980s and dipping mildly negative in 1991 – though “nothing like the hit the sector took in 2009,” he says.
Much of the risk to CRE investors will depend on asset and location.
Source: GlobeSt.
New Lincoln Dealership Proposed In Coconut Creek
Auto magnate Terry Taylor wants to build a Lincoln dealership in Coconut Creek.
The 79,897-square-foot Lincoln of Coconut Creek would be constructed next to Infiniti of Coconut Creek, at 5501 W. Sample Road. The entire property is owned by TT of Sample LLC, led by Taylor of West Palm Beach-based dealership giant Automotive Management Services.
The company currently operates a small Lincoln dealership within the Infiniti building.
The city’s Development Review Committee heard the plans on July 14, and city staff will continue to review the application until it’s ready for the Planning and Zoning Board as well as the City Commission, said Amy Edwards, a development review specialist with the city of Coconut Creek.
The Lincoln dealership would have 29,924 square feet of showroom and office space, 49,973 square feet of automotive retail and 358 parking spaces. Penney Design Group in Bethesda, Maryland designed the project.
The only other Lincoln dealerships in Broward County are in Pembroke Pines and Pompano Beach.
South Florida is one of the busiest markets in the country for car sales, and the increase in new car values has boosted sales for many dealers. Building a stand-alone Lincoln dealership will make it easier for Taylor to provide repair and maintenance service to his customers.
Lithia Motors & Driveway Pays Combined $72.27 Million For Lehman Dealership Enterprises Real Estate Assets
Lithia Motors & Driveway paid a combined $72.27 million for the real estate assets of Lehman Dealership Enterprises, according to Miami-Dade County records.
Medford, Oregon-based Lithia announced the acquisition of the family-owned chain of nine dealerships on June 28, but didn’t disclose the price. The deeds filed in Miami-Dade list the prices of the real estate but not other assets that were likely included in the deal, such as the value of automotive inventory and the dealership franchises.
Here is how the sales from Lehman to various affiliates of Lithia Motors broke down:
Bill Lehman Jr. said the dealerships have nearly 500 employees and Lithia is keeping almost all of them. They had about $850 million in sales a year.
Source: SFBJ
“It’s On Fire.”: Miami Mayor Touts South Florida Economy
Miami Mayor Francis Suarez made an appearance on Fox Business where he discussed Miami’s booming economy, referring to it as “on fire,” as the city posts repeated increases in real estate sales, an influx of new jobs, and the welcoming of tech businesses from states like California and North Carolina.
Miami in recent years has made its mark as a burgeoning tech city, being named one of the top cities in America for eCommerce business. The city has managed to carve out a niche in the cryptocurrency space, with the creation of a cryptocurrency specific to the area: MiamiCoin.
South Florida has seen an influx of new residents from both domestic and international origins, as well as businesses moving headquarters seeking more favorable tax structures. The surge in people inhabiting the city has led to higher demand for real estate, driving prices higher while keeping the market red-hot. Miami-Dade County’s real estate market continues to skyrocket, as the Miami Association of Realtors in MArch registered the county’s third-highest month ever in terms of sales.
Ken Griffin, Illinois’ richest person and founder of industry-leading investment firm Citadel, announced in June that he is relocating his company from Chicago to Miami, citing a more business-friendly atmosphere and a comparative reduction in crime.
In a memo sent to employees, Griffin noted that Florida harbors a better corporate environment due to its favorable tax structure and lack of an income tax. The move is expected to be a multi-year process and will necessitate the construction of a new office building in the downtown Miami neighborhood of Brickell.
In prior years, Griffin threatened to pull Citadel out of Illinois, referring to Chicago in 2013 as a city of “broken schools, bankrupt pensions, rising crime, a declining tax base, and public corruption.”
Citadel is one of the most successful hedge-fund firms, overseeing $51 billion in assets and regularly outpacing competitors and the market, making a swift recovery following the 2008 recession.
Source: The Capitolist
Construction Starts Continued To Climb, But Slowdown May Be Looming For Specific Sectors
Construction starts have remained robust this year but certain sectors could begin to see a slowdown in the coming months.
Total construction starts rose 4% in May to a seasonally adjusted annual rate of $979.5 billion, according to data released late last week by Hamilton, New Jersey-based Dodge Data and Analytics LLC. But among the major categories tracked by Dodge, nonresidential building starts was the only one that increased, by 20%, while residential starts fell by 4% and nonbuilding starts dropped 2% during the month.
It’s a signal homebuilders are starting to pull back on what had been an active construction pipeline through the Covid-19 pandemic, as demand for housing wanes amid a rising-interest-rate environment.
Year-to-date, total construction is 6% higher in the first five months of 2022 compared to the same period in 2021. In that period, residential starts have actually grown 3%, suggesting the tide is only starting to change on the homebuilding front.
Nonresidential building starts have increased 17% annually in the first five months of the year, while residential starts are 5% down.
Richard Branch, chief economist at Dodge Construction Network, said in a statement the construction sector has become increasingly bifurcated in the past several months.
Branch said while the overall trend in construction starts is positive, the very aggressive stance taken by the Federal Reserve to combat inflation risks slowing momentum in construction.
Ken Simonson, chief economist at the Associated General Contractors of America, said in an interview he felt homebuilders are in much more precarious position right now than multifamily or nonresidential construction.
Ripple effects on construction starts from the passage of the federal $1.2 trillion Infrastructure Investment and Jobs Act late last year hasn’t been felt yet. Simonson said for a while he’s expected contractors wouldn’t go to work on any IIJA-funded projects until late 2022 or early 2023, which he said he continues to expect. When that occurs, that’ll bolster the pipeline for the nonbuilding sector.
Outside of single-family home construction, multifamily and warehouse development — both of which have seen big growth through the pandemic — may be the most vulnerable to a slowdown, Simonson said.
Seattle-based Amazon.com Inc.’s (NASDAQ: AMZN) disclosure this spring that it had excessive warehouse capacity is one signal of slackening demand, he continued.
Amid rising costs and interest rates, it’ll become more challenging for multifamily developers to pencil out deals, also making it more vulnerable than other sectors, he added.
One of the sectors likely to boom: manufacturing. New automotive plants, and large-scale facilities to support the burgeoning electric-vehicle industry, will translate to new business for general contractors nationally, Simonson said.
Source: SFBJ
Commercial Real Estate—Buy, Sell Or Hold?
The commercial real estate market was beaten, broken and left for dead by Covid-19 in 2020.
It roared back to life in 2021 with record-breaking sales of $809 billion, but like cops pulling up to a rowdy frat house all-nighter, the arrival of unrestrained inflation and soaring interest rates may signal the party’s over. That has many real estate investors at a strategic crossroads wondering, “do I buy, sell or hold?”
Privately owned commercial real estate has historically offered a strong hedge against inflation. The owners of properties with short-term leases such as apartments, self-storage, and manufactured home communities can quickly raise rents to match inflation, as measured by the Consumer Price Index. That’s a significant advantage as the CPI topped 8% in March and April, reaching 8.6% in May, the highest rate since 1981. Then, like today, inflation was driven by a dramatic spike in oil and gas prices and an unrestrained Treasury flooding the economy with money.
In 1980, newly installed Federal Reserve Chairman Paul Volcker responded by strangling the flow of currency to such an extent that in December 1981, mortgage rates hit 20%. Inflation quickly declined, but at a cost of 10.8% unemployment, a decline of 3% in GDP, and not one but two recessions. While inflation is the friend of many landlords, recession is not, and the commercial real estate business began a decade-long decline.
A recession has followed every sharp increase in inflation over the past 75 years, and the current gravity-defying trend shows no sign of fading. The Producer Index – what manufacturers pay for raw materials – rose .08% in May, doubling the .04% increase in April, for an annual rate of 10.8%. Those costs will be passed on to the consumer, driving the CPI yet higher. Gas is over five dollars, and diesel is flirting with six. Given that sudden spikes in energy costs preceded six of the last seven recessions, and the Commerce Department reporting an unexpected decline in retail sales in May, another recession seems inevitable.
Investment real estate performance and GDP rise and fall together. A weak economy creates a decline in business and consumer spending, limiting the ability of landlords to raise rents. Pandemic resistant, “essential businesses” like Dollar General and Walgreens have been highly favored by investors. However, with leases holding their rents flat for 10-15 years, landlords will be losing money every year, as will big-box retail and office building owners with long-term leases not indexed to CPI. The Fed’s more aggressive monetary policy will create higher long-term interest rates, provoking a recession and stricter commercial lending requirements. Higher rates and loan equity requirements result in lower returns, causing investors to retreat and property values to fall. For investors with such assets who are alarmed by a disintegrating economy and contemplating a sale, it may be best to hold and wait for the inevitable recovery.
The cycle of decline and recovery often occurs over a decade or more. Property owners under 50 can afford to wait for the next upcycle if the market sees a significant correction. Commercial real estate always trends up over decades, and for 25 years has outperformed the S&P 500 Index, with average annualized returns of 10.3% and 9.6%, respectively. And, unlike stocks, bonds, and cryptocurrency, real estate has never been worth zero. For those younger investors, this may be the right time to buy.
Named a “Top Ten US Bank” by Forbes in 2022, TowneBank is a leading commercial real estate lender in Virginia and North Carolina.
What’s the case for selling in the current market? Few people doubt that commercial real estate values have reached a cyclical peak after a 12-year bull run. Secretary of the Treasury Janet Yellen recently expressed concern to the US Senate Banking committee that banks and non-bank lenders such as insurance companies and hedge funds maybe be overleveraged at a time of rising interest rates. Knowing cash is king, there is anecdotal evidence that portfolio owners are choosing to boost liquidity with strategic dispositions at apex pricing. In what may be a record-breaking sale for a single such property, an Arizona company paid $363 million for Jamaica Bay, a manufactured home community in Fort Myers, Florida.
Many investors anticipate a wave of defaults when acquisitions at aggressive pre-COVID prices can’t cover the debt service when their loans soon reset at higher rates. When real estate crashed in 1973, legendary investor Sam “Gravedancer” Zell, the father of the modern REIT, picked up dozens of high-quality apartment buildings at a fraction of replacement cost. Zell used the massive cash flow from those assets to buy office buildings at 50 cents on the dollar when the real estate market crashed again in the 1980s, becoming a billionaire. Today, the post-COVID “hybrid working” trend is driving tenants from center city office buildings to the more affordable suburbs. Those tenants who remain are demanding aggressive rent concessions to stay.
Foreshadowing a coming market correction are dozens of “distressed” real estate funds, amassing billions of dollars. Global investment firm Angelo, Gordon & Co. L.P. has in 36 months attracted $11billion in investment to its “distressed debt and special situations” platform. Investors are betting on a spike in real estate loan defaults, with banks forced to sell their debt at deep discounts to maintain FDIC liquidity requirements.
What about the smaller investor or owner/user? If you’re a doctor over 60 wanting to cash out the equity in your medical office building to facilitate a more comfortable retirement, now may be the time to sell and lease back. The demand for these properties is ceaseless due to their resilience during economic slumps. Montecito Medical is one of the nation’s largest privately held companies specializing in healthcare-related real estate acquisitions and a leader in sale and leaseback transactions. Since inception in 2004, Montecito has closed healthcare real estate transactions of over $5 billion.
Sale-leasebacks are increasingly common in other asset categories such as industrial real estate, perhaps the hottest commercial real estate category of all.
Owners with management-intensive assets like single-family rentals, manufactured home communities, and small apartment buildings may want to relax, travel, and otherwise enjoy the result of decades of hard work. They can use IRS Code Section 1031 to trade into management-free “absolute net,” single-tenant retail, enjoying historically low interest rates, avoiding capital gains and pocketing tax-free cash.
Being sensitive to economic cycles when buying, selling or hanging on is essential for success in commercial real estate.
Source: Forbes
Car Demand Fizzled Two Years Ago But Now Delray Beach Has Two Dealerships The Works
Despite car sales waning since the beginning of the pandemic, Delray Beach is seeing significant reinvestment in the industry with a pair of large new dealerships in development.
Earlier in June, the city gave preliminary approval for a new 4.3-acre Hyundai dealership at 2419 N. Federal Highway. As a result, Delray Hyundai would move from its current location just south of George Bush Boulevard into the new property, which is twice as large.
Additionally, a new AutoNation Land Rover Jaguar dealership is being planned for 1001 W. Linton Blvd., adjacent to a Mercedes-Benz dealership. Plans have been submitted to the city and are currently under review.
This comes less than a year after Tesla opened a service center in Delray Beach along Federal Highway.
The commitment to new dealerships comes after the industry experienced significant losses at the beginning of the pandemic. In 2020, rental car companies sold off more than 770,000 vehicles, a third of their combined fleet, according to the Washington Post.
Additionally, inflation and supply chain issues have caused car prices to skyrocket with new car prices jumping 12.6% since last year, according to Fortune Magazine. In May, new car sales dropped 11% from April, marking the lowest level since December, according to Bloomberg.
Karl Brauer, an executive analyst at iSeeCars.com , said supply-chain issues, such as a global shortage in microchips, which are vitally important for new cars, have helped cause the significant drop.
While the supply-chain issues are causing significant problems, Brauer said he thinks there’s “optimism and some valid thinking [in the industry] that this is transitory” and that eventually the microchip issues will be resolved and help stabilize the business model.
AutoNation “continues to both build and buy dealerships, so clearly there’s confidence at that level for these kind of dealer conglomerates to continue to grow whether the buy existing dealers and add them to the mix or build brand new ones,” Brauer said.
Delray Beach currently has 22 car dealerships, Planning and Zoning Board member Christina Morrison said during a public meeting.
The proposed Hyundai dealership would be built on a vacant lot that’s remained undeveloped for more than a decade and an adjacent pottery store. The land was purchased for $10 million in January, according to Palm Beach County Property Appraiser records. Nearby businesses include Gunther Volkswagen and Gunther Volvo dealerships, a car wash, a home furnishing store, and bicycle shop.
The project would help revive the area and create new employment opportunities, said Bonnie Miskel, an attorney representing the developer, in documents submitted to the city.
Miskel added the dealership would “allow for a multimillion-dollar investment in construction and related costs and the creation of scores of new jobs” as well as an increase in property values.
Planning and Zoning Board member Allen Zeller was in favor of the new dealership, noting that “not a lot has happened” in the area over the past decade.
Board member Joy Howell, who voted against the project, questioned whether another car dealership was the best use of the city’s scarce available land while the city faces a housing shortage.
The project will go before the City Commission for final approval later this year.
Source: NewsBreak
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