IRVINE, CA—The rise in the 10-year Treasury bill and subsequent dramatic increase in interest rates is causing many buyers to adjust their purchase parameters, but sellers are dragging their heels, Hanley Investment Group's president Ed Hanley tells GlobeSt.com. The locally based company, a nationally-recognized boutique real estate brokerage and advisory firm specializing in the sale of retail properties, closed out 2016 with the sale of 82 retail properties totaling nearly $540 million. We spoke with Hanley exclusively about his views on the investment market in 2017.
Hanley tells us the market has started to show signs of transition. “Prior to the election, many buyers were sitting on the sidelines with a 'wait and see' attitude, so there were fewer offers on a property. Since the election, the 10-year Treasury bill rate has increased dramatically, raising the interest rates for borrowers by approximately 50 basis points or more. Although buyers have adjusted their purchase parameters as a result of these factors, sellers have not, and thus we are in a period where the current product on the market is still reflective of the premium pricing that was achieved previously by sellers.”
Hanley says he expects that sellers, barring any catastrophic event, will slowly start to lower their asking price once closings on similar product type reveal a higher cap rate, thus proving that the most aggressive buyers (i.e., 1031 exchange and international buyers) are demanding higher returns. “These closings have not yet occurred, so we may be seeing some unrealistic pricing in the market carried over from 2016. The aggressive buyers still exist in the market today and will continue to be present throughout 2017; there are just fewer of them.”
Additionally, the supply of product will increase in 2017 and 2018 due to the wall of maturing debt that will cause some owners to sell versus refinance, Hanley notes. “This is good news for investors since there should be more attractive exchange opportunities to purchase than there has been in the recent years.”
IRVINE, CA—The rise in the 10-year Treasury bill and subsequent dramatic increase in interest rates is causing many buyers to adjust their purchase parameters, but sellers are dragging their heels, Hanley Investment Group's president Ed Hanley tells GlobeSt.com. The locally based company, a nationally-recognized boutique real estate brokerage and advisory firm specializing in the sale of retail properties, closed out 2016 with the sale of 82 retail properties totaling nearly $540 million. We spoke with Hanley exclusively about his views on the investment market in 2017.
Hanley tells us the market has started to show signs of transition. “Prior to the election, many buyers were sitting on the sidelines with a 'wait and see' attitude, so there were fewer offers on a property. Since the election, the 10-year Treasury bill rate has increased dramatically, raising the interest rates for borrowers by approximately 50 basis points or more. Although buyers have adjusted their purchase parameters as a result of these factors, sellers have not, and thus we are in a period where the current product on the market is still reflective of the premium pricing that was achieved previously by sellers.”
Hanley says he expects that sellers, barring any catastrophic event, will slowly start to lower their asking price once closings on similar product type reveal a higher cap rate, thus proving that the most aggressive buyers (i.e., 1031 exchange and international buyers) are demanding higher returns. “These closings have not yet occurred, so we may be seeing some unrealistic pricing in the market carried over from 2016. The aggressive buyers still exist in the market today and will continue to be present throughout 2017; there are just fewer of them.”
Additionally, the supply of product will increase in 2017 and 2018 due to the wall of maturing debt that will cause some owners to sell versus refinance, Hanley notes. “This is good news for investors since there should be more attractive exchange opportunities to purchase than there has been in the recent years.”
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
