CHICAGO—Equity investors from across the spectrum, from pension funds and REITs to domestic sources and international ones, have stockpiled cash for commercial real estate purchases—and US investment sales continue to exhibit significant momentum as 2013 heads to the finish line. Safety and stability remain top of mind for investors, according to Jones Lang LaSalle's Capital Markets experts, but heated competition for suitable properties is forcing many investors to widen their scope to consider riskier assets and those located in secondary markets as they search for better pricing and higher yields. The ongoing brisk pace of investment sales and investors' growing appetites for non-core assets highlight the conversation at the Urban Land Institute's Fall Conference, currently taking place here.
Through the first nine months of the year, private capital remained the most abundant source of investment dollars, accounting for 43% of the sales volume. Institutional equity and REITs supplied 23% and 19% of the sales volume, respectively. Canada was the largest source of foreign capital in the US investment sales market during the first three quarters, followed by Singapore, China and Germany.
“Five years after the financial crisis, investors' 'flight to safety' remains a prominent trend,” says Keith Largay, an executive vice president with JLL. “For example, the average occupancy rate for transacted properties was near a historic high at 93 percent in the third quarter.
“However, investors are definitely casting a wider net for purchases,” he adds. “We're seeing them pursue riskier opportunities, such as assets with shorter remaining leases and lower occupancy rates as well as development projects. Transaction volumes in such secondary markets as Atlanta, Dallas and Houston are up significantly. In fact, through the end of September, transaction volume had increased by 62% year-to-date in Atlanta when compared to the same period in 2012. That's the largest increase of any major metro.”
The office, retail and industrial sectors have experienced stronger-than-expected growth in investment sales so far in 2013, growth that has offset some softness in apartment transactions. Overall, US sales transaction volume should increase by approximately 15% in 2013 when compared to last year, to $278 billion. That would be a slight drop from 2012's increase of 30% from one year earlier.
“We continue to pursue opportunistic real estate across all the major asset classes—office, retail, hotel and multifamily—as well as student housing and seniors housing properties,” relates Seth Singerman, founder and managing principal of Singerman Real Estate. “While the competition for deals has certainly increased, the spread between buyer and seller expectations has narrowed, driving the significant level of transaction activity. We have been very acquisitive, however, to meet our return objectives and have selectively taken on lease-up or re-positioning risk.”
As for debt, delinquencies and charge-offs for commercial real estate loans at banks remain on a downward trajectory, while banks also report loosening lending standards and increased borrower demand as 2013 winds down.
“As the recovery continues to widen, we believe both domestic and international investors will continue to aggressively deploy capital in US commercial real estate, across various sectors and markets,” Largay states.
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Sule Aygoren
Aygoren oversees the editorial direction and content for ALM’s Real Estate Media Group, including Real Estate Forum and GlobeSt.com. In her tenure with ALM, she’s held roles of increasing responsibility, including Managing Editor. Aygoren has received several awards for her coverage including Best Trade Magazine Report from the National Association of Real Estate Editors and the James D. Carper Award for Young Journalists. Under her direction, Forum has received four national NAREE awards for Best Commercial Real Estate Trade Magazine.
