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Apartment Industry Shows Widespread Improvement According to NMHC Quarterly Survey of Market Conditions
 WASHINGTON, DC – The apartment market continues to rebound from the "Great Recession" according to NMHC's latest Quarterly Survey of Apartment Market Conditions.
Sales volume is up, debt and equity are more available and markets are tighter, according to respondents. For the first time since October 2005, all four survey indexes recorded better market conditions than three months ago. Indexes for both sales volume and equity financing registered all-time highs. The biggest improvement came in market tightness, which jumped from 38 to 81.
"There is clear improvement in apartment market conditions on all fronts," said NMHC Chief Economist Mark Obrinsky. "We saw a sharp increase in the Market Tightness Index, which fits with the surprisingly strong (for a seasonally weak period) effective rent growth. And the all-time highs recorded by the sales volume and equity financing indexes offer even more reason for optimism."
"Even so, a sustained recovery in the apartment market needs a firm economic and demographic foundation. While the long-term prospects for the industry are bright, in the near-term the industry’s prospects still depend upon a stronger rebound in both the job market and household formation."
Key findings include (for all four indexes, figures above 50 indicate improving market conditions):
The Market Tightness Index, which measures changes in occupancy rates and/or rents, rose sharply from 38 to 81. This was the highest figure in nearly four years. Fully 64 percent of respondents said markets were tighter (meaning lower vacancies and/or higher rents). Only two percent reported looser markets. This is the sixth straight increase for this measure.
The Sales Volume Index increased to a record-setting 72 from 56. Forty-eight percent of respondents indicated sales volume was higher. This is the highest ever reported and represents a nearly complete reversal from a year ago, when 43 percent said it was lower.
The Equity Financing Index increased further from 66 to a record 71, indicating that equity financing is more available. Nearly half indicated that equity financing was more available; another record. Only three percent thought equity financing was less available. This is the sixth consecutive quarter this index has improved.
The Debt Financing Index also increased, from 49 to 58, meaning borrowing conditions have improved. Eighteen percent said conditions for multifamily borrowing were better this quarter; nearly 80 percent indicated that borrowing conditions were unchanged. Only two percent said conditions were worse.
Retail Real Estate Market Has Hit Bottom According to Jones Lang LaSalle 2010 Spring State of the Retail Market Report
Traditional investors sidelined while special servicers determine best course of action for distressed assets
 CHICAGO, IL - Despite lingering economic stress that continues to curb consumer spending and affect the retail sector, recent evidence within the investment sales community indicates the retail real estate market has hit bottom and is showing increasing signs of recovery in 2010. The number of significant retail bankruptcies that grew to 13 in 2009 has slowed in the new year and occupancy costs have dropped with market rents stabilizing at 25 to 50 percent below the peak in 2006. Retail cap rates have fallen slightly, and will continue to experience downward momentum in the next 18-36 months as credit markets thaw, retail sales improve, vacancy rates decline and rents slowly increase, according to Jones Lang LaSalle's 2010 Mid-Year State of the Retail Market Report.
During the past two years, retail property transaction volume has fallen more than 80 percent, with just 239 sales of multi-tenant shopping centers in excess of 80,000 square feet of leasing transactions completed in 2009. A mere $7.2 billion in strip-center and $4.3 billion in mall and other (including urban retail, mixed-use properties, single tenant, etc.) investment sales were completed in 2009. The 2009 sales figures represent a decline of 32 percent and 57 percent, respectively, compared with year-end 2008.
"The lull of retail sector transactions in 2009 allowed both buyers and sellers the chance to regroup, survey the landscape, and prepare for future acquisition and disposition activity," said Kris Cooper, Managing Director of Jones Lang LaSalle's retail investment sales business. "New retail buyers are entering the market now including private investors, REITs and financial institutions. They're seeking core at 7.5 to 8.25 cap rates on well capitalized assets and non-core at 9 to 10 percent or higher. Some opportunistic buyers are relieving troubled owners with a quick close to take the asset off their books, but that's in exchange for purchasing the asset at 10 to 12 percent or higher. Attractive core retail properties are actually generating better pricing due to the availability of cheaper debt and lack of core product."
Currently, more than $700 billion in notes backed by retail properties are underwater, though a majority are still performing and current. This could change as loan maturity dates begin to force the issue between 2014 and 2017. Special servicers are expected to gain greater prominence in the years to come as they determine the best course of action for distressed assets.
"The days of 'extend and pretend' are coming to a close as special servicers, banks and other lenders examine the financial ramifications of extending loans versus liquidating assets," added Cooper. "There will be opportunistic buys available this year, but don't expect a tidal wave of product to hit the market — there will definitely be an orderly disposition of assets in 2010."
One example of that could be the orderly way General Growth Properties (GGP) is handling its bankruptcy reorganization plan. Following an unsolicited $10 billion takeover bid from the Simon Property Group, a federal judge has given GGP until mid-July to straighten things out while it prepares a recapitalization proposal in conjunction with other suitors/partners. Simon and other potential bidders will be allowed to submit offers in the meantime. Still, all of this maneuvering has the potential to significantly alter the retail investment sales landscape. The stigma of selling assets at a discount has begun to wane and is now viewed as opportunistic, while data points from current sales help to confirm pricing and build consensus. However, many within the industry view the activity surrounding the nation's largest mall owner with cautious concern.
It will be very interesting to watch how the GGP bankruptcy plays out and which players come out on top. No single corporation should be able to establish dominance in any sector of commercial real estate. Should this happen it does not necessarily equate to achieving desired results for retailers and competitors," said Greg Maloney, CEO and President of Jones Lang LaSalle Retail. "One thing is for certain, investors once again see the potential for growth in retail investments and that's a positive sign for everyone in the industry."
Little has changed in the realm of investor interest as grocery-anchored centers continue to curry the greatest favor, while those centers with market-leading tenants holding strong credit come in at a close second. Retail property cap rates now stand at a low of 7.5 percent for core grocery-anchored properties with attractive assumable debt to a high of 10 percent or more for malls. Also faring well are properties offering tenants with long-term leases and strong sales, those located in major metro markets and those that offer a single tenant with strong credit. Lifestyle centers, power centers, malls in tertiary markets and permitted land remain out in the cold with only the most opportunistic of investors buying at 10-12 percent caps or higher, using incentives such as "quick close" and all cash to lower pricing.
"The turnaround in the retail sector will rely heavily upon the return of consumer confidence, as consumers move from buying only what they need and return to buying what they want," added Maloney. "Discounters and value oriented retailers will continue to garner the lion's share of discretionary dollars, but the 'latte effect' no longer seems to weigh heavily on the minds of consumers who appear poised to open their wallets to retailers like Starbucks. The second half of 2010 shows great promise with the potential of an increase in retail occupancy."
After several dismal years, the spectre of increased confidence, stabilizing vacancy rates and rents, as well as a lack of new inventory should all spell brighter times to come for both sellers and buyers alike. "While the institutional investors continue to sit out a spell, entrepreneurial buyers and foreign investors are moving now. Cash is still king and this is a great time to explore prospects ranging from toxic maturing notes to core investment opportunities," said Margaret Caldwell, Managing Director of Retail Investment Sales.
MBA Study: First Quarter 2010 Commercial/Multifamily Mortgage Originations Increase from Year Earlier, Though Levels Remain Low
 WASHINGTON, DC - First quarter 2010 commercial and multifamily mortgage loan originations were 12 percent higher than during the same period last year and 26 percent lower than during the fourth quarter of 2009, according to the Mortgage Bankers Association's (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.
"The results of the survey showed changes in commercial and multifamily origination levels varied significantly between investor groups. However, it's hard to draw conclusions based on first quarter numbers given seasonal effects, such as the industry's usual push to finalize deals before the end of the year, resulting in lower first quarter origination activity," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "Based on surveys from the Federal Reserve Board and discussions with lenders, there appears to be increasing capital available for commercial mortgages, but only limited demand for new mortgages from commercial and multifamily property investors."
Among the key findings in the report are:
- New commercial and multifamily mortgages increased 12 percent from last year's levels.
- On an absolute level, volumes remain low, with significant variations between investor groups.
- Originations for CMBS conduits and life insurance companies increased dramatically on a percentage basis – coming off of
very low bases.
- Originations for Fannie Mae and Freddie Mac, which had remained robust through the credit crisis, fell by almost half.
First Quarter 2010 12 Percent Higher Than First Quarter 2009
The 12 percent overall increase in commercial/multifamily lending activity during the first quarter was driven by increases in originations for office and retail properties. When compared to the first quarter of 2009, the increase included a 98 percent increase in loans for retail properties, a 29 percent increase in loans for office properties, a five percent decrease in loans for multifamily properties, a 28 percent decrease in loans for industrial properties, a 46 percent decrease in hotel property loans, and a 68 percent decrease in health care property loans.
Among investor types, loans for conduits for CMBS saw an increase of 657 percent compared to last year's first quarter. There was also a 131 percent increase in loans for life insurance companies, a four percent decrease in loans for commercial bank portfolios, and the dollar volume of loans for Government Sponsored Enterprises (or GSEs – Fannie Mae and Freddie Mac) saw a decrease of 49 percent.
First Quarter 2010 26 Percent lower Than Fourth Quarter 2009
First quarter 2010 mortgage originations were 26 percent lower than originations in the fourth quarter 2009. Among investor types, loans for conduits for CMBS saw an increase in loan volume of 430 percent compared to the fourth quarter 2009, loans for life insurance companies saw an increase in loan volume of one percent compared to the fourth quarter 2009, commercial bank portfolios decreased by 48 percent during the same time span, and originations for GSEs decreased 43 percent from the fourth quarter 2009 to the first quarter 2010.
Compared to the fourth quarter of 2009, first quarter 2010 originations for office properties saw a 29 percent increase. There was an 11 percent decrease for retail properties, a 24 percent decrease for industrial properties, a 37 percent decrease for multifamily properties, a 73 percent decrease for hotel properties, and a 91 percent decrease for health care properties.
Marcus & Millichap Report Indicates National Office Market Poised For Recovery In 2011
 ENCINO, CA – The U.S. office market continues to soften in many major markets nationwide, however; vacancies have started to stabilize, indicating a recovery is in store for 2011, according to a recent report issued by Marcus & Millichap Real Estate Investment Services.
In 2009 severe job losses impacted the growth of the national economy. The severity of job losses during the recession overshadowed the lack of overbuilding in the office sector, pushing vacancies to levels similar to those recorded after the 2001 recession and not far off from the 1990s crisis.
"Vacancies are still rising, but the pace has slowed, and the remainder of 2010 should mark the peak for this cycle, with a gradual recovery in 2011," says Alan Pontius, managing director of the firm’s National Office and Industrial Properties Group. "The expiration of leases signed during the height of the last expansion period will drag on NOIs for the next few years but should be somewhat offset by a release of pent-up demand through above-average job growth between 2011 and 2013."
Despite these short-term challenges, some markets, including Washington, DC, Philadelphia and Los Angeles will be among the healthiest in 2010, accordingto Marcus & Millichap. The firm has ranked 44 markets nationwide in its National Office Properties Index, based on a variety of factors, including prospects for job growth through year-end 2010, vacancies, rental rates and construction starts.
"In the office investment market, quality will continue to dominate acquisition and lending decisions, leading to further divergence in prices and cap rates this year," adds Pontius. "Expectations of high-quality assets coming to market through large volumes of distressed sales continue to exceed the reality as lenders opt to modify and extend loans as much as possible to avoid further losses."
Commercial Market Still Struggling, But Realtors® Focus On Positive Trends
 WASHINGTON, DC – While the commercial real estate market may not have fully recovered, National Association of Realtors® Chief Economist Lawrence Yun identified some developing, positive trends in the market that could eventually lead to recovery at the recent Economics Issues and Commercial Business Trends Forum.
The forum was part of a three-day real estate summit, Realtors® on the Rise: Stabilizing the U.S. Mortgage Finance Delivery System, during NAR's Midyear Legislative Meetings & Trade Expo in Washington, DC.
"With the momentum of a broader economic expansion and the recent creation of jobs, the commercial market is showing slight signs of improvement," said Yun. "There will likely be weaker figures through 2010, but it's important to keep in mind that commercial real estate almost always lags the economy by a full year."
Yun said jobs only began increasing a couple of months ago and are still below peak. "We have turned a corner in terms of jobs, but we still have a long way to go."
The commercial market has seen a few improving trends in recent months. The market is experiencing an increase in transactions due to more distressed properties available, and prices are beginning to stabilize. Yun believes within the next year more lending will slowly become accessible to commercial property owners. Two commercial sectors showing the most promise are manufacturing and multifamily. Manufacturing activity and employment have risen recently and because household formation is also rising, the multifamily sector will likely fare the best during this economy.
Despite some of these promising trends, the commercial market is still experiencing high vacancy rates and rent concessions. "All real estate is local, but I expect to see vacancy rates bottoming out and rent rising by next year," said Yun.
Yun also warned against some of the possible risks commercial practitioners may experience in the future such as high interest rates and inflation, as well as increased taxes for commercial real estate investors.
During the session, Yun was joined by two leading economic experts, Diane Swonk, Mesirow Financial; and Brendan Reilly, Commercial Mortgage Securities Association. The panelists agreed that an improving economy and job creation continue to be the two main factors when it comes to restoring the commercial real estate market.
"The commercial market may not be where we would like to see it right now, but it is trending up," said Swonk. "The economy is slowly stabilizing and jobs are steadily rising, but full recovery cannot happen without liquidity. Liquidity is the fuel for the engine in the commercial real estate market."
While in D.C., Realtors® actively engaged policymakers on Capitol Hill in an effort to enhance liquidity in the commercial real estate market to avoid driving down economic recovery. Realtors® support an increase to the cap on credit union business lending and urged lawmakers to take a more active role in addressing the problems facing commercial real estate markets.
Cushman & Wakefield: "U.S. Industrial Leasing Activity Increases in 1Q 2010, While Construction Completions Hit Historic Low"
 NEW YORK, NY - Cushman & Wakefield recently released its first quarter U.S. Industrial MarketBeat report, which shows leasing activity has increased year-over-year, while construction completions have reached a record low.
Industrial leasing activity increased 10.3 percent from the first quarter of 2009, totaling 60.4 million square feet at the end of the first quarter of 2010. The majority of U.S. industrial markets reported an increase in leasing activity year-over-year, with Orange County,CA; Atlanta; Jacksonville; and the Greater Los Angeles Area reporting increases of more than 1 million square feet each.
"The improvements in retail sales and consumer confidence have been positive leading indicators for the industrial real estate market," said Maria Sicola, executive managing director and head of Americas Research for Cushman & Wakefield.
While the overall vacancy rate for the U.S. continued to increase - reaching 10.8 percent at the end of the first quarter of 2010 - the number of markets that saw a quarterly decline in vacancy increased.
Limited construction completions sustained and kept vacancy increases low in other markets. Just 3.2 million square feet of new space was added during the first three months of the year, a fraction of the five-year quarterly average of 26.2 million square feet, and the lowest amount of construction completions since Cushman & Wakefield began tracking the U.S. industrial market.
"While we did see an increase in projects currently under construction, the majority of these are being built on a build-to-suit basis, which bodes well for absorption," said Jim Dieter, executive vice president of Cushman & Wakefield's U.S. Industrial Services. "We expect to see positive absorption in the U.S. and its major markets in the near future."
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