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
Banks Expect To Tighten Standards For CRE Loans Even More
A new Federal Reserve report noted that banks continue to get nervous overall and in particular about commercial real estate.
The reactions to CRE lending was similar levels of tightening by large banks and others.
The July Senior Loan Officer Opinion Survey on Bank Lending Practices, or SLOOS, got responses from 66 domestic banks and 19 U.S. branches and agencies of foreign banks. Surveys went out on June 15, 2023, and were due back June 30, so all the data is more than a month old. It may be that conditions aren’t changing quickly enough to reduce the information’s meaning.
That said, according to the Federal Deposit Insurance Corporation (FDIC), as of the first quarter of 2023, there were 4,672 FDIC-insured institutions and 3,006 FDIC-supervised, so even though a concentration of the largest banks responding to the Fed’s survey might well be descriptive of that segment, the remainder isn’t nearly large enough for a comprehensive look at the banking industry.
The survey included two special sets of questions. One was about current lending standards compared to the midpoint of a range they have been in since 2005. The other question was bank expectations for changes in their standards in the second half of the year and the reasons for any change.
In the second quarter, “major net shares of banks” said they had tightened their standards on all categories of CRE loans. The same degrees of tightening were reported by large banks and other banks, though, again, without a representative sample, it’s impossible to say whether a majority of all banks were doing so.
Additionally, banks were largely reporting that there was weaker demand for all CRE loan categories. This was more pronounced in banks that were not the largest. Foreign-based banks reported similar responses on both questions.
According to the sample, standards tightening isn’t over. Major net shares of banks said they expect to tighten standards on construction and land development loans as well as on nonfarm, non-residential loans.
A moderate net share of banks said they would tighten standards on all residential real estate loan categories, including those that are GSE-eligible.
Also, the number of FDIC-insured and -supervised institutions in the first quarter of 2022 were 4,796 and 3,100 respectively. In the first quarter of 2021, there were 4,978 and 3,209. And in the first quarter of 2020, 5,116 and 3,303. While not a survey, the progression offers a partial different view of how the industry might be doing.
Source: GlobeSt.
15 Years Of Low Interest Rates Reshaped The U.S. Economy. Here’s What’s Changing As Rates Stay Higher For Longer
The United States is entering a new economic era as the Federal Reserve has been hiking its benchmark interest rate.
Interest rates today stand above 5% as the Fed tries to slow the economy down and fight inflation. As interest rates climb, economists say financial conditions are headed back to being more normal.
Back-to-back financial crises gave past Fed policymakers the conviction to take interest rates as low as they can go, and keep them there for extended periods of time. Along the way, they disrupted the basic math of personal finance and business in America.
For example, the Fed’s unconventional policies helped to sink the profits investors received from safe bets. Government bonds, Treasury securities and savings accounts all return very little yield when interest rates are low. At the same time, low interest rates increase the value of stocks, homes and Wall Street firms that make money by taking on debt.
As the Fed hikes interest rates, safer bets could end up paying off. But old bets could turn sour, particularly those financed with variable loans that increase alongside the interest rate. A wave of corporate bankruptcies is rippling through the U.S. as a result.
In recent years, economists have debated the merits of zero lower-bound policy. As the Fed lifts that federal funds rate, policymakers warn that rates may stay high for some time. That could even be the case if inflation continues to subside.
To view CNBC‘s ‘How The Federal Reserve’s Interest Rate Hike Are Reshaping The U.S. Economy‘, click the arrow below:
Source: CNBC
Fewer CRE Loans Being Refinanced, But Lenders Find Other Ways To Work With Borrowers
Lenders and special servicers are looking beyond refinancing options when it comes to working with borrowers on commercial real estate loans that are set to mature in the coming months and years, even as those loans increasingly are backing properties facing distress.
According to an analysis by Moody’s Investors Service, the percentage of real estate properties that use commercial mortgage-backed securities debt that are being refinanced is on the decline. Conduit refinance rates were 78.1% and 71.8% in the first and second quarter of this year, respectively, compared to 85.5% in 2019, the year before the Covid-19 pandemic and broader economy upended the commercial real estate market.
Interest-rate hikes imposed by the Federal Reserve over the past year in the wake of rising inflation have compressed real estate values. Add to that rising vacancy rates and a weaker leasing environment in especially the office sector, and the pressure has increased on building owners with loans coming due in the near term.
Lenders also have tightened standards in the wake of a more challenging economy and commercial real estate market, with some banks outright saying they’ve stopped new lending to office properties. While fewer loans are getting refinanced overall, there’s been an uptick in the number of performing loans that are past maturity but haven’t been formally extended. That amount, negligible before the pandemic, reached 5.2% in Q1 of this year and 6.9% in Q2.
The Moody’s analysis, which only examined CMBS loans, found 16.7% of maturing loans tracked by the firm were delinquent as of the second quarter. That share was much higher in the office sector, with 27.6% of office loans scheduled to mature in Q2 2023 considered delinquent.
Source: SFBJ
CRE Carrying Costs Are Nearly As Burdensome As Interest Rates
Little things can add up.
For CRE, that is a range of costs including insurance, utilities, taxes, and other operating expenses. That can burden a property just as easily as higher interest rates.
According to a Moody’s Investor Service report cited by Barron’s, overall expenses for CRE properties are up by more than a third between 2017 and 2022. Insurance is up 73% over the last five years, utilities are 40% more expensive, and property taxes and other operating expenses rose 27% and 29% respectively.
And the lion’s share of these cost burdens, insurance, show little sign of retreating.
Commercial property insurance premiums hit a record rise of 20.4% in the first quarter of 2023. It’s the first time since 2001 that rates jumped more than 20%. Premiums have been rising by double digits in many markets. Some policy renewals offered half the coverage for that same price. The lack of affordable options is putting needed levels of coverage out of the reach of owners.
Yardi reported that states with increasing climate-related risk, such as Florida and Texas, see their costs rising upwards of 50% and starting to threaten new development and property sales.
Insurance prices are hitting deep into the financial viability of CRE projects, Brett Forman, managing partner at Forman Capital, tells GlobeSt.com.
The problem is that insurance companies are being hit hard by climate change-driven natural disasters. Massive coverage obligations even in a few geographic areas can drive the overall finances of carriers, which then will increase rates across the board.
John Vavas, a commercial real estate finance attorney at law firm Polsinelli, points to insurance as well as other carrying costs like taxes. Add increased debt service and it can mean having to find additional equity.
The increase in costs can then affect the ability to get refinanced. Lenders who are watching risk worry that suddenly NOI at a property could drop, making it more difficulty to ensure payments.
Source: GlobeSt.
Sperry CGA | RJ Realty’s Ron Osborne Closes Three Sale Transactions Totaling $8 Million
Ron Osborne, Managing Director/Broker of SperryCGA | RJ Realty, has completed three significant transaction in the 2nd quarter of the year.
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.
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.
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.
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.
5 Ways AI Can Impact Commercial Real Estate
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.
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
Broward County Ranks Among Most Competitive Rental Markets In U.S.
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).
Source: SFBJ
Institutional Investors Upping Interest In Industrial Outdoor Storage
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.
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.
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.
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.
He also mentioned the attraction of low cap-ex.
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.
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.
Source: Wealth Management
Are Small Multifamily Properties CRE’s Low Hanging Fruit?
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
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.
Source: MPA
Broward County Auto Dealerships To Be Demolished To Build New Ones
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