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COSTA MESA, CA—While the beginning of the year was quiet as investors regained their footing following the election, the number of investment transactions in the Orange County market has picked up since the summer, said speakers at RealShare Orange County here last Thursday. Speakers on the panel “Capital Markets: Technology, International and Private Investing Spur Growth” said the market is still a strong draw for both domestic and international investors.
The market is very active in refinancing and purchases, but long escrows have been a challenge because lenders only want to lock rate for 60 to 90 days, said Michael Derk, senior managing director, capital markets, for Institutional Property Advisors, a division of Marcus & Millichap Corp. “Buyers are getting fickle in secondary areas and are looking at the fundamentals more.”
The market is flooded with capital, and there aren't as many deals closing, but this is changing, said Jason Bressler, VP of Mesa West Capital. “The beginning of the year was quiet, but the summer picked up. People are settling down and money is burning a hole in their pockets.”
Moderator Rob Cord, president of Coldwell Banker Commercial Advisors, said part of the problem investors are facing is the dearth of available properties for purchase. “You're able to sell, but then where do you go? Do you just sit on that money?”
Branching out into alternative categories is one solution. John Strockis, SVP of acquisitions for SmartStop Asset Management, said the institutional-investment cap rate compression in the self-storage led his firm to invest in student housing. “We're getting to the end of the cycle. Student enrollment is high, and purpose-built complexes are a good product with great amenities.” Senior housing is another category to which the firm has expanded its investments, Strockis said. “There's longevity in this category. A person born today will live to 150—where will we house them?”
There's more equity on the sidelines than we've ever had in the market, said Ryan Parkin, managing partner for Cress Capital LLC. “Where is all this capital going to go?” Secondary and tertiary markets is one theory, but how are these deals sourced, Cord asked. “Just hustling; there are no secrets,” Parkin replied.
Cord asked how they panelists see the impact of technology on investment sales and what they are seeing in the market. Jim Palmer, SVP, commercial brokerage channel, for Ten-X Commercial, said, “Real estate is the second-oldest profession and it's very much relationship driven. It has been a slow adopter to technology.” Palmer added that high-net-worth investor share is up 300% over the last 10 years, partially because this investor cohort finally has access to a level playing field and the opportunity to transact due to online marketplaces. “It's spurring growth by letting more people come to the party.”
Cord asked if there have been landlord concessions in the Orange County market, and Derk said there have been some concessions on the class-A multifamily side, but the B and C market is rock solid. “There's so much wealth here. Retail is suffering, but that can be converted to office. Multifamily is strong and having a positive year—the fundamentals are strong. Orange County is about as safe as it gets for investing.”
Bressler agreed, adding, “We continue to see things turning in the right direction. We're seeing creative office in Orange County, conversion of industrial into creative office.” Palmer said the hotel market is dipping.
Bressler said this summer, institutional capital started to come back into the game. “The buyer mix is changing; foreign capital is picking up.”
Derk added that he doesn't see interest rates going up because there are too many areas of Orange County that have just recovered, and an interest-rate increase would devastate them.
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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.
