Heartland Real Estate Business

FEB 2018

Heartland Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Midwest.

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www.REBusinessOnline.com Heartland Real Estate Business • February 2018 • 25 tors, including a stubborn bid-ask spread that has slowed commercial property sales. Buyers and sellers completed $405.2 billion in commercial real estate trans- actions during the period January through November 2017, according to New York City-based Real Capital Analytics. The firm tracks apartment, hotel, industrial, office, retail and de- velopment land deals of $2.5 million and up. The latest available figures indicate a year-over-year decline of 7.4 per- cent. Real Capital attributed some of the falloff to a decrease in portfolio sales, which peaked at $118 billion in 2015 and then proceeded to slide to $85 billion in 2016. Through the first 11 months of 2017, portfolio sales to- taled $77.1 billion. Wally Reid, a se- nior managing di- rector with HFF in Houston, suggests that big portfolio deals or bulk buys could balloon in 2018 as real estate investment trusts go private or pursue large transactions, just as Hilton Hotels, Equity Office Prop- erties, Archstone- Smith Trust and others did in 2007 when property values were at a peak. Reid's office last year advised Hous- ton area office landlord Parkway Inc. in the $1.2 billion sale of its entire 19-building portfolio to the Canada Pension Plan Investment Board (CP- PIB). The sales price represented a 14.3 percent premium to Parkway's share price when the deal was an- nounced in June. The transaction materialized a few months after CPPIB and two institu- tional investors agreed to acquire a 49 percent interest in two Parkway as- sets. "The equity got under the hood after the first deal and said, 'Oh let's just buy the whole company,'" says Reid. HFF placed $35 billion in debt through three quarters in 2017, a year-over-year increase of nearly 27 percent, according to HFF financial reports. While the bid-ask gulf also has con- tributed to a slowdown in deal mak- ing, buyers on deadline to fulfill 1031 exchange transactions have typically been meeting the seller's price, mort- gage bankers say. But intermediaries fear that trans- actions could further stall given the probability of rising interest rates as the economy heats up and the Fed- eral Reserve hikes the federal funds rate and unwinds some $4.5 trillion of assets on its balance sheet that it amassed during quantitative easing. The benchmark 10-year Treasury yield ended 2017 at around 2.5 per- cent after generally hovering between 2.2 percent and 2.5 percent for the year with a few bouts of volatility. But the question is whether sellers, faced with higher capitalization rates if interest rates indeed rise, will adjust their ex- pectations. "If sellers can't get their cap rate, will that further dampen their appe- tite to sell?" asks Francis, who is based in CBRE Capital Markets' Phoenix of- fice. "What are they going to buy if they can't get the price that they could have six months ago?" A recession-signaling inversion of the yield curve and ever-present geopolitical dan- gers also threaten investment sales activity. The gap be- tween yields on the two-year and 10- year Treasury notes flattened to around 50 basis points early this year, one of the lowest levels since 2007. Meanwhile, from North Korea to Iran, the possibility of upheaval lurks in numerous global locations and could bring the securitization market to a standstill, Knight warns. "When the tsunami hit Japan, CMBS shut down," explains Knight, whose office originated some $2.7 billion in 2017, up $1 billion over 2016. "We've seen a lot of stability in the CMBS market, but all it takes is some event or somebody starting a conflict to re- strict capital flows to real estate." Refinance alternative In some cases, the stalemate be- tween buyers and sellers has already Alicia Turlington 404-832-8262 aturlington@francemediainc.com REGISTRATION & GENERAL INFO: Eric Goldberg 404-832-8262 egoldberg@francemediainc.com SPONSORSHIP & SPEAKING INFO: Rich Kelley 914-468-0818 rkelley@francemediainc.com interfaceconferencegroup.com/srw2018 Seniors Housing Business, Western Real Estate Business and the InterFace Conference Group are pleased to host the 4th annual InterFace Seniors Housing West information and networking conference on March 1st at the Omni Los Angeles. The event will focus on the state of seniors housing investment, development, financing and operations on the West Coast. If you are active in seniors housing in California, Oregon, Washington, Nevada, Arizona, Colorado, Utah or New Mexico, THIS IS A MUST-ATTEND EVENT! March 1 st » Omni Los Angeles 4 th Annual I N T E R F A C E Richard Ackerman Chairman, Senior Managing Principal Big Rock Partners Andrew Kohlberg President & CEO Kisco Senior Living Jessica Andrews Senior Vice President Merrill Gardens Senior Living John Cochrane President & CEO HumanGood Torsten Hirche President & CEO Transforming Age Tana Gall CEO Blue Harbor Senior Living Dan Madsen Chairman & CEO Leisure Care CONFIRMED SPEAKERS (as of January 16th) PLATINUM SPONSOR GOLD SPONSORS SILVER SPONSORS Wally Reid HFF Tucker Knight Berkadia

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