November 29th, 2011 :: Posted by CRE Console
Not sure how I missed this one, but C-III Capital Partners continues to make strong moves in acquiring CRE service business lines.
From an October 17th, 2011 press release:
Grubb & Ellis Company (NYSE: GBE), a leading real estate services and investment firm, announced today that it has entered into exclusive negotiations with a subsidiary of C-III Capital Partners LLC, an affiliate of Island Capital Group LLC, which has partnered with an affiliate of Colony Capital LLC regarding a strategic transaction with the company.
A C-III affiliate also has agreed to invest $10 million in Grubb & Ellis through the expansion of the company’s existing $18 million credit facility with Colony Capital and purchase $4 million of Colony’s existing facility, which will establish both C-III and Colony Capital as significant stakeholders in Grubb & Ellis.
In August, we questioned why C-III Capital didn’t jump on Grubb & Ellis back then:
Why NAI Global and not G&E or C&W???
I’m not knocking the brand, NAI has some great brokers and an impressive footprint. But, it was interesting to see that Farkas elected to buy NAI Global over Grubb & Ellis or Cushman & Wakefield, both of which have widely been known to be up for grabs. Arguably, both have a stronger network of investment sales brokers through which to funnel C-III Capital and Centerline’s listing opportunities.
Additionally, Grubb & Ellis was looking to unload Daymark Realty Advisors (aka G&E’s former TIC sponsor business line they inherited through their merger with Triple Net Properties).
Farkas’ Island Capital Group already owns a fund management business, which could have folded Daymark’s asset management business line into it.
It could have been that Colony Capital’s $18 million loan threw a kink in that whole deal, so he settled on NAI Global, instead. I have no inside information; this is pure speculation…
It looks like C-III Capital has now ponied up $10M of the $18M credit facility Colony Capital has provided to G&E, so there was less of a kink, and more of a team effort.
Who is next on Farkas’ target list?
Posted in Industry Commentary | No Comments »
November 10th, 2011 :: Posted by CRE Console
Posted in CRE Trends, Industry Commentary | 1 Comment »
November 8th, 2011 :: Posted by CRE Console
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Posted in About CRE Console, CRE Marketing Tips, Useful Graphics | No Comments »
November 3rd, 2011 :: Posted by CRE Console
Moody’s/REAL Commercial Property Price Index (CPPI) rose 2.4 percent during the month of August and is now 15.3% above its April 2011 lows.
From the Moody’s report:
The share of distressed transactions included within this month’s CPPI was 21.7%, down 5.9% from last month and the lowest level since January 2010. Prices for distressed transactions were down by 3.5% from the last month and are 6.9% above their post peak low set in August 2010. The reduced share of distressed transactions helped drive this month’s overall price increase.
Looking forward, we do not envision significant price increases over the next year. While distressed transactions should be at or near their high water mark for this cycle, there is less CMBS loan origination to help support acquisition pricing, especially beyond the portfolio lender sweet spot of trophy properties and top tier markets.
This builds on similar sentiment from last month’s report:
Price increases in the near term are likely to be earned the old fashioned way, by rent growth, rather than through higher leverage or financial engineering. Continued economic uncertainty will take a toll on the assumptions utilized by buyers in making their investment decisions. Slow job growth will crimp expectations for the absorption of vacant space and for rent increases, which in turn will constrain near term price increases.
Moody’s also noted the the slowing pricing increases on their Six-City Trophy index and lower distressed asset sale volume in the overall index:
August saw a slight increase of 0.8%. The flattening out of prices for the six-city series and the CPPI are consistent with reports from Real Capital Analytics that cap rates have flattened out for all sectors but multi-family.
Distressed assets recorded a decrease of 3.5%. Transaction volume for distressed sales comprised 21.7% of this month’s observations, the lowest percentage since January 2010.
As prices for both the six-city series and the broad middle market (non-major assets and non-distressed assets) were comparatively flat for August, the bulk of the improvement in CPPI came from a reduced share of distressed transactions.
[Download the full report]
Posted in CRE Trends | No Comments »
September 29th, 2011 :: Posted by CRE Console
Sure enough, as soon as I comment on a slow down in transaction volume, there is an avalanche of new blockbuster deals. Just to note a few of the biggest recently announced:
Blackstone’s Purchase of Equity One Portfolio Signals Confidence in Retail
National Real Estate Investor – Sep 29, 2011
On Sept. 26, Equity One Inc., a North Miami Beach, Fla.-based REIT, announced that it entered an agreement to sell 36 shopping centers in Southeastern U.S. to Blackstone Real Estate Partners VII for $473.1 million. The centers total approximately 3.9 million square feet of space and are located in Georgia, Florida, North Carolina, South Carolina, Alabama, Tennessee and Maryland.
Buyer pays $217.5 million for 200 W. Madison
ChicagoRealEstateDaily.com – September 28, 2011
A pension fund said Wednesday that it paid $217.5 million for the 45-story office building at 200 W. Madison St., one of several big downtown office sales this year.
Cupertino City Center sold for reported $120M
Silicon Valley / San Jose Business Journal – September 28, 2011
American Realty Advisors has acquired Cupertino City Center I & II, a 300,000-plus square foot office complex that is leased out to Apple Inc. in a deal reported to be worth at least $120 million.
Bell Partners sells Cotswold, SouthPark retail properties
Charlotte Business Journal – September 26, 2011
Bell Partners Inc. says it has sold the Cotswold Village and Terraces at SouthPark retail centers to Developers Diversified Realty Corp. for a combined $85 million. Cotswold Village, one of Charlotte’s oldest and most well-known shopping centers, accounted for the bulk of the transaction, selling for $74 million, while Terraces sold for $11 million. Both were owned by affiliates of Bell Partners.
Ivy Realty Pays $42M for Stake in One East Broward Blvd
South Florida’s Citybiz Real Estate – September 28, 2011
Ivy Realty has acquired One East Broward Boulevard, a 19-story, 340,000-square-foot Class A office building located at the gateway to Fort Lauderdale’s downtown. The purchase marks the company’s fourth acquisition in the South Florida market over the past year.
These deals alone add up to $1 billion of transaction volume, all being either office or retail assets (eg. not multifamily.) This pick up in commercial real estate sales volume could signal a strong Q4, after what many will admit was a relatively weak Q3.
Posted in CRE Trends, Industry Commentary | 1 Comment »
September 27th, 2011 :: Posted by CRE Console
Moody’s reported that its Commercial Property Price Index (CPPI) was up 5% in July and that most of the increase was due to middle market asset pricing:
As in June, the broad middle market (non-major assets and non-distressed assets) drove the bulk of the overall increase of 5.0% in the July CPPI. Middle market transactions have accounted for approximately 60% of volume in recent months.
Distressed asset sales accounted for 27.6 percent of the overall sales volume, with the distressed index inching up 2.6 percent.
While the “middle-market” segment is reportedly the contributor to the price increase, I am not sure how long that trend will last, as m-o-m transaction volume has fallen off a cliff.
Real Capital Analytics recently reported on the slow in transaction volume for the month of August:
Sales of significant commercial property totaled $13.1b in August representing a 13% year-over-year gain. While still positive, the rate of growth represents further slowing following rather modest increases recorded in July. Both months were well below the over 100% gains experienced in the first half of the year.
Despite the recent loss of momentum in transaction volume, prices appear to be holding firm with cap rates stable across all property types and industrial exhibiting a downward trend. The Moody’s/REAL Commercial Property Price Index also echoes the stagnation in prices with the latest release showing that nationally, prices have fluctuated around the same levels for the past two years.
What they don’t say is that $13.1 billion volume in August is tepid at best. Consider June 2011 – volume was approximately $23 billion. In July and now August, it was sub-$15B. So, while y-o-y year sales volume is only down 13 percent, it is down nearly 45 percent since the June peak.
Market activity and investor interest feels like it has come to a screeching halt. It will be interesting how this drop in transaction volume will impact the CPPI. In its latest report, Moody’s did note:
Price increases in the near term are likely to be earned the old fashioned way, by rent growth, rather than through higher leverage or financial engineering. Continued economic uncertainty will take a toll on the assumptions utilized by buyers in making their investment decisions. Slow job growth will crimp expectations for the absorption of vacant space and for rent increases, which in turn will constrain near term price increases.
[Moody's/REAL September Report]
–
September 27, 2011 4:30pm
Just read this article on Bloomberg, wherein both Jeff Blau and Barry Sternlicht say they’ve seen a similar slowdown:
“In the last 60 days, it really slowed down,” Related Cos. President Jeff Blau said at the conference. “People are throwing term sheets around but they’re not closing deals.”
Real estate investors are concerned the U.S. economy may enter another slump, said Barry Sternlicht, chairman and CEO of Starwood Capital Group LLC[...]
–
September 27, 2011 7:48pm
Updated as noted in the comments below.
Posted in CRE Trends, Research Reports | 6 Comments »
September 23rd, 2011 :: Posted by CRE Console
 PricewaterhouseCoopers has released its 2nd half survey findings for 2011. Through the first half of the year, most investors sounded cautiously optimistic about the rest of 2011. Not surprisingly, strong demand for multifamily product was noted.
National Highlights
As the United States faces an array of challenges, many investors view the commercial real estate (CRE) industry as a bright spot in an otherwise gloomy investment environment.
CRE performance is sensitive to economic shifts, but changes tend to happen more slowly. A slowdown in economic growth and job creation has dampened investor sentiment since the start of this year.
There is concern that heightened insecurity among businesses and consumers, if persistent, will disrupt the slow-but-steady recovery occurring within the industry.
Overall Cap Rate Analysis
The average overall cap rate decreased in 26 Survey markets during the third quarter of 2011. Investors expect overall cap rates to either hold steady or decline in most markets over the next six months.
Valuation Issue
The use of rent spikes increased in 18 Survey markets over the past year. Major sources of debt include life insurance companies, as well as regional and local banks. Sellers have started to gain control of certain sectors of the industry, such as apartments.
PwC Real Estate Barometer
Most of the U.S. office stock will be in recovery by year-end 2011. The amount of U.S. retail stock in recession will greatly decline by year-end 2013.
The portion of U.S. industrial stock in recovery is expected to surge over the next 15 months. The multifamily sector continues to lead the recovery.
Previous reports, along with cap rate trend charts can be found here and here.
[PwC Press Release]
Posted in CRE Trends, Industry Commentary | No Comments »
September 23rd, 2011 :: Posted by CRE Console
Moody’s/REAL Commercial Property Price Index (CPPI) rose by 5% in the month of July.
The Moody’s/REAL Commercial Property Price Index advanced 5 percent from June. It’s up 1.2 percent from a year earlier and almost 13 percent from its post-peak low in April, the New York-based company said in a report today.
Demand was driven by middle-market properties that aren’t considered major assets.
Meanwhile, both CoStar’s National All Property Type Composite Index and Green Street’s Commercial Price Index only increased 1 percent during the same period.
How is the Moody’s index 400 basis points different than CoStar’s and Green Street’s?
Not sure, but we’re looking into it. More analysis to come…
[Bloomberg]
Posted in CRE Trends | No Comments »
September 20th, 2011 :: Posted by CRE Console
 Lender iStar Financial has foreclosed on Westgate City Center located in Glendale, Arizona, a suburb of Phoenix.
According to a Wikipedia post:
Ellman acquired Westgate in 2006 by swapping his ownership in the Coyotes for Jerry Moyes’ ownership share of Westgate. Ellman had moved the Coyotes to Glendale in 2005 after failing to get an arena built at the former Los Arcos Mall in Scottsdale.
Two auctions are scheduled for foreclosed Westgate City Center properties. One auction, for September 19, 2011, is for properties securing a $97.5 million loan from iStar Financial. A second auction is scheduled for November 3, 2011 for properties securing a $202 million loan from Credit Suisse.
Owned by The Ellman Companies, Westgate opened in 2006 on 223 acres off the Loop 101 in Glendale and is adjacent to Jobing.com Arena and University of Phoenix Stadium. Westgate has had a mixed performance record, with AMC Theatres, DeVry University and a number of restaurants leasing space at the complex.
[Phoenix Business Journal]
Posted in REO Monitor | 4 Comments »
September 15th, 2011 :: Posted by CRE Console
As part two to yesterday’s post, I wanted to examine how much of the bubble in Moody’s/REAL CPPI was attributable to cap rate compression, and the portion which was attributable to something else (eg. rent growth, increase in occupancy, etc.).
A disclaimer, I am in no way a statistician, but I did stay at a Holiday Inn Express last night. I have no idea if this is academically acceptable method by which to measure these variables, but logically, it makes sense (to me).
Moody’s/REAL CPPI verses a Cap Rate Index
January 2001 = 1.00
In January 2001, Real Capital Analytics Core Cap Rate was reported to be 9.31%, so this level of a cap rate would equal “1.00″. At this index’s peak (i.e. when cap rates were the lowest) core cap rates were 6.37%. So, using simple math: 9.31% / 6.37% = 1.46.
This would mean that cap rate compression pushed commercial property prices up by 46%, at its peak.
Meanwhile, Moody’s/REAL CPPI peaked at 1.92, a couple months after our cap rate “index” peaked.
So where did this additional spike in value come from? This additional value came from increased net operating income, either through rent growth or increased occupancy levels during this same period.
This makes logical sense, as the economy was doing well, rents were rising along with demand and occupancy levels.
Now, the core cap rate “index” is at 1.31, or the same level as April 2005, while Moody’s/REAL CPPI is at 1.05. So, while the cap rate index is about 10% of its peak, the CPPI is down nearly 50%.
Why such disparity? Well, rental rates and occupancy levels have declined, thereby lowering NOI levels and property values accordingly.
Where am I going with this?…
If someone were to argue that the U.S. has the same economic outlook as it did in April of 2005, we’d all laugh. So, why are investors paying 2005 cap rates?
Some would argue because of the spread. Looking back at the Part 1 blog post, Commercial Real Estate Verses Bonds, it shows the cap rate to 10-year T-Bill spread was 291 basis points in April, 2005.
The current spread as of August, 2011 is 486 bps. That means investors are realizing a “premium” of 195 basis points over their 2005 purchases.
Is a 195 bps premium on the spread worth the risk?
Posted in CRE Trends, Industry Commentary | 2 Comments »
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C-III Capital invests $10M in Grubb & Ellis
Not sure how I missed this one, but C-III Capital Partners continues to make strong moves in acquiring CRE service business lines.
From an October 17th, 2011 press release:
In August, we questioned why C-III Capital didn’t jump on Grubb & Ellis back then:
It looks like C-III Capital has now ponied up $10M of the $18M credit facility Colony Capital has provided to G&E, so there was less of a kink, and more of a team effort.
Who is next on Farkas’ target list?
Posted in Industry Commentary | No Comments »