Wanted to start a discussion so some acquisitions guys can speak on some trends they are seeing in various asset classes. Whether it be market, or positioning of assets, foreign equity, cap rates/yields, anything.
Please comment with the type of asset you are referencing...
Hey CRE12345, I'm here to break the silence...any of these links help you?:
If those topics were completely useless, don't blame me, blame my programmers...
Student housing cap-rates are rising as the market is getting oversupplied unless at fortress locations less than 3 blocks away from campus at premier universities, these are getting sold at ridiculously low cap-rates. Development spreads are decreasing as land/construction costs have surged.
Senior housing is experiencing healthy capital inflow but shrinking operating margins. Actual development spreads are coming in lower than expected and pro forma rents are often unrealistic. The market for stabilized product seems to be very healthy while the value-add/distressed world is the wild west, no one really has a gauge on what to pay for an 84% occupied AL/MC deal in Dallas or Atlanta, for example.
We're seeing about a 50 bps spread between student and market rate, which is notable because for a while they were lockstep.
I think there could be some big pain coming soon in the student space, new project rents are unrealistic and absorption is slowing. The new generation is cognizant of record high tuition, and is seeking more affordable ways to pay for school. Much of the new enrollment growth has come from lower income families which means lower budget for living costs. Most of the money is chasing investment in the same Axio tracked markets and all pile into the same schools when similar data models light up.
The last conference I went to indicated we are in the meat of the irrational exuberance phase getting the vibe that too may people think the party will never end.
Used to lend term or working capital for AL/MC and SNF in the distressed space, you're 1,000% right on it being the wild west, especially on some heavily distressed areas in the Midwest/Deep South.
Affordable housing is seeing a great deal of interest from new players in the space. Many of these players are UW to rent increases that are not legal let alone realistic due to a lack of knowledge around the various layers of regulations. Cap rates are now on par with market rate product in a lot of markets.
Where are you seeing this? I'm in affordable in the NY metro area and we're starting to get a ton of unsolicited interest in our deals. Which isn't to say that cap rates are on par with market product, but I get a strong sense that most newcomers to the space are vastly underestimating the difficulties in managing and operating affordable developments.
LOL of course I was thinking this might happen.
I like to call it the Blackstone effect. They make a big purchase or a strategic push into a niche asset class and all the dumb money piles in behind them.
We got some hotels in our portfolio and they are hitting the peak and many markets have already began seeing negative growth. Alot of it is supply related too. Might be the first asset class to take a beating due to supply post recession.
I'll share my secret sauce once I've made some money off it :D
For real though; the rhetoric surrounding industrial is becoming stale. The concept that supply is insufficient to satisfy growing demand is simply untrue in more markets than you would think. This is a classic case of people listening to talking heads without doing any individual research themselves. There seems to be this expectation that the e-commerce evolution will continue regardless of larger issues, ie; poor corporate debt ratios, decreasing trade flows, etc. The fact remains that e-commerce is a LOSS LEADER in nearly every single instance right now. There will be a recalibration in this market segment just like there is when every trend gets too hot.
Now, I'm not saying warehouse/e-commerce use projects should be avoided. I'm simply saying that you need to pay attention. There are several markets where demand is not keeping pace. Be weary of markets that are beginning to lag. It's a chain reaction that will affect all drivers of real estate valuations.
Some considerations; this is becoming a micro-market and even a pocket specific game - know why a certain micro performs a certain way, tangentially, understand the tenant base in these markets and what specifications they are looking for, industrial is going through an evolution on the owner side as well, keep pace or be left behind.
The space is maturing every day and reaching a new level of sophistication. Understand this and how to benefit for this evolution and you won't be caught with your hot dog in a hamburger bun.
I won't argue that the investment market is outpacing leasing demand in most core cities, but the runway for infill last-touch/shallow-bay rents could not be longer. The cost differential between retail and industrial rents is tremendous - tenants who don't need high-street presence are going to start consolidating more and more into urban pseudo-retail industrial. Industrial attrition in just about every urban coastal market is far outpacing deliveries. A lot of those dooms day stats are hampered by big-box and middle America markets.
Honestly I think the biggest trends to figure out moving forward, especially in that space, will be parking and labor costs.
Every institutional multifamily deal, across markets, is trading at a 4-cap on real, tax adjusted numbers. DC, Boston, Dallas, Austin, Atlanta, Orlando... you name it and it's a 4-cap; doesn't matter if it is brand new or 1995-built product, it is a 4-cap and the only difference between value-add and core is where you think you can take the stabilized cap rate. Seattle, LA, and SF are the exceptions and everything there is a 3.85-cap, but they have the same themes on where you can stabilize the cap rate.
How do you underwrite taxes? You just bring it to purchase price?
I am seeing the same trends for market rate Multifamily, super competitive, ton of buyers with cash. IRRs are floating around that 11-13%, 6-7% unlevered. We have been targeting Core, Core+ assets over the past year or so, really diving into luxury Class A assets and over the past month or so we are just getting pushed out on everything. Prices are getting to the point where its not worth the small return.
Starting to dive back into the class B/C product
Depends on the municipality. 100% obviously in California, 95% in Texas (unless we have a good reason not to), low to mid 90s in DC (varies in Maryland), Boston is a crap shoot and depends on the township, Seattle at 95% unless there is that wonky MFTE thing, but in all instances we're bringing it somewhere between 90% and 100% on a stabilized basis and that is what goes into our cap rates but it may take a year or three before it reaches that value.
I'm seeing values in that range or lower (we target returns in that range). Core is pricing between 6% and 6.5% unlevered (varies by market), and value-add (whatever that means these days) is between a 7 and an 8. We've focused more on deals coming out of lease-up in locations we like for our value-add/core-plus vehicle rather than missing on every single marketed value-add deal (unless it is over $75m). Thesis is that the yields aren't dissimilar and you aren't taking as much product-level risk or capex risk while reaching similar returns. Renovation deals are still a bloodbath and have pretty deep bid sheets, but on the newer deals the pack is smaller and if a 1031 group doesn't show up you can buy at a pretty compelling basis relative to replacement cost. Who knows if we're right?
Where are agency and lifeco's pricing 5-10 year loans? How much positive leverage is there at this point?
Agencies are back in the game now. Just locked a spread around 155 for a seven year loan with Fannie (same spread for fixed and for the SARM). Freddie is out of the market, seeing spreads around 175-180 for fixed and ~190 for the SARM. LifeCo's and banks are pretty well tapped out for the year and we haven't see competitive quotes from them in the last 90 days. All of that is assuming 65% of COST not purchase price.
On the Life Co front we just quoted a 10yr take-out from one of our exclusive correspondents for 2.8%, 65% LTV 1.30x DSCR, 30yr AM. A couple of our competitors just announced closings at 3.1% for similar deals.
Guessing term, not am
I remember 3 years ago for every single value-add MF deal, 5 cap was the magical number (real unadjusted numbers).
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