2016 Was Another Banner Year for Commercial Real Estate
For all its ups and downs, U.S. commercial real estate enjoyed another banner year in 2016, thanks in large part to the unprecedented run in multifamily rents and property values and the fact that the U.S. continues to be viewed as a 'safe haven' by global property investors.
But it was also marked by continued distress in the retail property sector as the 'creative destruction' forces unleashed by Amazon and other internet retailers continued their inexorable impact on traditional bricks-and-mortar stores.
Here is the news reported by CoStar that you, our readers, considered to be the most interesting and newsworthy in 2016:
1. Leadership Transitions Among Top CRE Shops
Changes at the top always garner the most interest among our core CRE readers and 2016 was no exception. Beginning with Marcus & Millichap in March, to Cushman & Wakefield, followed by CBRE in June, JLL in August and Cushman & Wakefield just last October, all made several major changes to their senior leadership lineup during the year:
Nadji to Succeed Retiring Kerin as President, CEO at Marcus & Millichap
Lafitte and Frese Elevated to New Global Group President Positions at CBRE
JLL Implements Leadership Succession Plan: Ulbrich to Succeed Retiring Dyer as Global CRE Firm's Chief Exec
Cushman & Wakefield Realigns Leadership Roles for Top U.S. Execs
2. Macy’s To Close 100 Full-Line Stores
The news that Macy's plans to close another 100 stores caught many by surprise. The move raised a red flag among already-jittery mall investors and signaled a much-more aggressive stance by Macy's CEO Terry J. Lundgren to pursue strategies to unlock more value from the department store chain's real estate. These related stories also attracted strong reader interest:
Macy's Gives Brookfield First Crack at Redevelopment Plans for 50 Stores
Disparity in Mall Values Driven by Powerful Combination of Forces
Taubman, Kimco Start Off 2016 With ‘De-Malling’ Plans for Pair of Retail Centers
3. 'Dual Agency' Transactions Under Scrutiny in California Court Case
CoStar's real estate audience was also very interested in the intrigue over a California court case involving the legal implications of 'dual agency' representation in that state. In a decision with potentially far-reaching impact on how commercial and residential real estate brokerages do business, the California Supreme Court upheld a lower court ruling that a listing broker had a fiduciary responsibility to both the buyer and the seller in a "dual agency" transaction.
4. Economists, CRE Industry Begin to Take Stock of Trump's Election Upset on Property Markets
The surprise election win of real estate developer and reality television star Donald Trump as the next U.S. president set off a bit of a scramble among business leaders grappling with the unexpected economic and regulatory impact of an upcoming Trump presidency. However, the shock of the unexpected election results was quickly replaced by the realization that the same party now controls Congress and the executive branch. The industry is poised to monitor the election's impact in the year ahead with significant changes expected to the tax code as well as U.S. trade policy and rollbacks in the nation’s financial and business regulatory framework.
5. Hines Exploring Potential Sale of Nearly $5 Billion in Holdings
The news of Hines' decision to cash out two of its sponsored REITs and lock-in returns at current property valuations was seen by many as a sign that commercial property markets may be approaching their peak. Hines later went on to strike several major deals with other investors to sell its holdings. Hines was joined by KBS and NorthStar Realty in putting large portfolios on the block even as a large number of publicly traded REITs including Liberty Property Trust, Kimco and others wound down their aggressive property disposition strategies.
6. US Banks Ratchet Up CRE Lending Standards
Throughout 2016, there was a pitched battle between bank regulators calling for stricter underwriting standards for CRE loans, and lenders competing for business in an increasingly competitive real estate lending environment. Despite federal banking regulators putting banks on notice that they were going to be taking a closer look at CRE loan concentrations, banks continued to pump up their CRE lending, buoyed by continued strong property fundamentals, much to the chagrin of regulators. Stay tuned for CoStar's continued coverage of this important topic in 2017.
7. Open Season on Appraisal Firms as JLL Snaps Up Three More Integra Realty Offices
JLL's plan to add a robust valuation and advisory services business line to match its competitors emerged as the top real estate M&A story line in 2016, with more dominoes expected to fall in this sector in 2017. Insiders widely expect other IRR affiliates to be acquired by larger companies in coming weeks or months. Other M&A news capturing a lot of interest in 2017 included Cushman & Wakefield's acquisitions of Taylor & Mathis in Florida and Atlanta-based Multi Housing Advisors to expand its market share in fast-growing southeastern markets, and Newmark Grubb Knight Frank's bid to add top talent in key markets.
8. Blackstone Seeking to Revive Non-Traded REIT Industry
In a surprising move that could radically reshape the beleaguered non-traded REIT industry, the $100 billion behemoth that is Blackstone Real Estate announced plans to launch its first-ever non-traded REIT, seeking to introduce new fee structures and lend its considerable heft to the once-mighty real-estate capital-raising sector.
9. Internet Commerce Drives Strongest Surge in Demand for US Industrial Space Since 2001
Typically outshone by the multifamily and office sectors, warehouse and distribution property saw a lot of the investment and leasing action in 2016. Among the many blockbuster deals, Global Logistic Properties Ltd. agreed to buy a 15-million-square-foot logistics portfolio from Hillwood Development Co. to solidify the Singapore-based company's position as the second-largest owner of industrial property real estate in the U.S. That was followed one week later by Blackstone Group was jumping back into the industrial property space with an agreement to buy 46 logistics properties totaling over 26 million square feet from LBA Realty for a reported $1.5 billion.
"All in all, the last six months have been the best in our company’s history," said Hamid Moghadam, chairman and CEO of San Francisco-based Prologis (NYSE:PLD). "E-commerce and supply chain reconfiguration continue as big drivers of demand for our product. The Class A market is where the action is."
10. WeWork, Other Shared-Office Providers Aiming to Reinvent How Office Leasing Works
CoStar readers were intrigued by the remarkable success of WeWork and other popular shared-office providers, with their ongoing expansions greeted by both confidence and skepticism in the long-term prospects for the concept.
BONUS. Gold Rush: Swelling Numbers of CRE Brokers Making for Tougher Competition in the Ranks
Another interesting if unexpected trend in 2016 was the impact of swelling ranks of commercial real estate brokers, attracted by the recent run in sales and leasing activity. The number of commercial members with less than two years of experience nearly doubled to 9% in 2016. CoStar News shared the perspective of several experienced managers on the impact of the broker boom.*
Over 80 Percent of Largest US Markets Improving According to Freddie Mac
Freddie Mac released its Multi-Indicator Market Index showing the majority of the top 100 housing markets across the country steadily improving, with one additional state, Georgia, entering its outer historic benchmark range of housing activity.
The national MiMi value stands at 86.4, indicating a housing market that's on the outer edge of its historic benchmark range of housing activity with a +0.42 percent improvement from September to October and a three-month improvement of +1.86 percent. On a year-over-year basis, the national MiMi value improved +5.88 percent. Since its all-time low in October 2010, the national MiMi has rebounded 46 percent, but remains significantly off its high of 121.7.
Forty-one of the 50 states plus the District of Columbia have MiMi values within range of their benchmark averages, with Colorado (98.6), Utah (101.5), Hawaii (98), Idaho (97.2) and Oregon at (96.8) ranking in the top five with scores closest to their historical benchmark index levels of 100.
Seventy-seven of the 100 metro areas have MiMi values within range of their benchmark averages, with Dallas, TX (100.2), Nashville, TN (100.5), Honolulu, HI (100.8), Ogden, UT (100.8), and Los Angeles (99.1), ranking in the top five with scores closest to their historical benchmark index levels of 100.
The most improving states month over month were Nevada (+1.96%), Connecticut (+1.45%), Arizona (+1.40%), South Carolina (+1.33%) and Washington (+1.31%). On a year-over-year basis, the most improving states were Nevada (+12.87%), Massachusetts (+12.77%), Florida (+11.65%), Mississippi (+11.53%) and Arizona (+10.28%).
The most improving metro areas month over month were Springfield, MA (+1.96%); Tucson, AZ (+1.87%); Las Vegas, NV (+1.77%); Ogden, UT (+1.51%) and Worcester, MA (+1.48%). On a year-over-year basis, the most improving metro areas were Orlando, FL (+17.45%); Worcester, MA (+16.02%); Chattanooga, TN (+14.78%); Dallas, TX (+14.51%) and Tampa, FL (+14.45%).
In October, 43 of the 50 states and 82 of the top 100 metros were showing an improving three-month trend. The same time last year, 30 states and 69 of the top 100 metro areas were showing an improving three-month trend.
Len Kiefer, Deputy Chief Economist of Freddie Mac stated, “The National MiMi stands at 86.4, a 5.88 percent year-over-year increase, but still below its historic benchmark normalized to 100. The purchase applications indicator is up nearly 20 percent from last year and is reflected in the recent better-than-expected existing and new home sales purchase data. MiMi does not yet capture the recent jump in mortgage rates since the election, which will drive down homebuyer affordability and likely dampen demand for home sales next year in some markets. While we see strong house price growth in markets like Dallas, Houston, Orlando, Phoenix and others, most are still well below their pre-2008 peak and still have significant room for improvement.”**
Gill Group’s 2016
Gill Group worked with hundreds of clients in 2016, and we asked a few to let us know how we did.
Among those represented are Greystone, Mercy Housing, Churchill Stateside, Pillar, Bellwether, McCormack Baron Salazar, WNC, Hallmark and the Seattle Housing Authority.
Greystone Affordable Housing Initiatives LLC
We have worked with Gill Group for several years through many different divisions of our company. With Greystone being one of the largest servicers of affordable housing in the industry, it is important for us to find team members that are reliable. Gill Group's appraisals, market studies, capital needs assessments, and environmental assessments have helped us secure Low Income Housing Tax Credits and S&P Bonds as well as RD, HUD, Fannie Mae and Freddie Mac financing. If you ever need third party reports, Gill Group can provide them very quickly and with relatively low costs. Their reports always make our process easier, and if you have a chance, I would recommend using them for your next project.
The Hallmark Companies, Inc.
Through our work with USDA RD financing, Low Income Housing Tax Credits and Tax-Exempt Bonds, we have used Gill Group quite a few times. Their Appraisals, Market Studies, CNAs and Phase I ESAs are widely-accepted in all of the states where we have partnered with them. Having a company that is dedicated to deadlines and quality makes our transactions and applications a much more pleasant experience. Having a properties located in urban, suburban and rural communities throughout the southeast it certainly helps that they are approved with so many state housing finance agencies. I am always impressed that they can turn reports around quickly whenever we are under a time sensitive deadline. Cash Gill, Todd Gill and the rest of the team are great to work with!
We have worked with Gill Group for over eight years and are very pleased with their services. They have provided hundreds of appraisals for our year 15 deals and are one of our preferred providers. They are always reasonably priced, have fast turnaround times and assist with any questions we have whether they pertain to ongoing projects or are just general questions about appraisal processes. Most importantly, they meet their delivery deadlines. We would highly recommend them to anyone in the industry.
Seattle Housing Authority
We have worked with Gill Group for a few years now, and their reports are always approved by HUD with very little need for revisions. When that need does arise, however, they are prompt in their responses and are willing to go the extra mile to ensure that we have as seamless a transaction as possible. We would highly recommend them for any HUD reports you may need.
Pillar Capital Finance
We, at Pillar Capital Finance (formerly St. James Capital), have worked with Gill Group for 10 years through HUD’s Multifamily Accelerated Processing Program. From our experiences with them, they have been deadline-driven and always quick to respond to any questions we have. We would be happy to recommend them to anyone in the affordable housing industry.
Bellwether Enterprise Real Estate Capital, LLC
We have worked with Gill Group through HUD MAP and USDA Rural Development projects. Their reports are always on time and are accepted everywhere we use them. Their pricing is competitive, especially for portfolio deals, and they offer tiered pricing based on timing needs. It is nice knowing that we can turn to Gill when we need fast turnaround times or assistance with out-of-the-box deals.
Churchill Stateside Group, LLC
Gill Group has provided appraisal, feasibility studies, and capital needs assessments on a variety of affordable housing developments in which Churchill Stateside Group, LLC provided long-term financing. All reports were found to be of good quality, completed within the timeframe set, and revisions, if any, were handled in a prompt and expeditious manner.
McCormack Baron Asset Management
Having worked with Gill Group through their appraisals, capital needs assessments and rent comparability studies, I have seen first-hand how well they are able to complete reports on projects involving many different program types. We have enjoyed our relationship with Gill Group and look forward to it continuing long into the future.
Mercy Housing Inc.
Mercy Loan Fund has used the Gill Group for appraisals, capital needs assessments and phase I environmental site assessments. Based on our experience, the Gill Group was competitive with pricing and got the reports to us in a timely manner. The reports were very thorough and covered exactly what was requested. We will plan on working with the group in the future when possible.
Investor Group Makes a $625k/Unit NYC Senior Housing Play
Another high-profile senior housing project is coming to Manhattan, through the nearly $150 million acquisition of a 15-story building on the Upper West Side.
The art deco building has 239 units, meaning that the purchase price equates to more than $625,000 per unit. Despite this eye-popping sum, the incoming owners describe the building—which has a notorious history—as a value-add project.
“We thought this was an asset that was underperforming and we should own,” Steven Krieger, partner with The Engel Burman Group, told Senior Housing News. “The guts of this building, with 11- and 12-foot finished ceilings, wide hallways, and expansive windows, are perfect for a value-add play.”
The property, which is currently called The Esplanade and bills itself as “luxury senior residences,” will be operated by an Engel Burman affiliate. Engel Burman, based in Garden City, New York, owns The Bristal Assisted Living, which operates 13 locations on Long Island, Westchester, and New Jersey.
The full plan for how The Esplanade will be updated, what care levels it will include, as well as a new name, still is being determined, he said. The property currently is not licensed as an assisted living facility.
The Engel Burman Group bought the building with partners The Northwind Group and Harrison Street Real Estate Capital LLC. Debt financing came in part through a $110 million acquisition loan from KeyBank.
Rents have not yet been determined, but the new owners believe they will be sustainable in the given market.
“We looked at it and felt good about the rental rates we think we can charge versus affordability,” Christopher Merrill, CEO of Harrison Street, told SHN. “We’ve been in some high-end markets, and we think for the return we’re looking to generate, we can support the rents that are needed.”
This project joins two other high-profile senior housing developments on Manhattan. One of these, involving real estate investment trust Welltower Inc. (NYSE: HCN) and Sunrise Senior Living, may charge $20,000 per month for memory care. The other is a $246 million tower to be operated by Maplewood Senior Living.
More than capital improvements are required for the Upper West Side property, however. In May 2015, a two-year-old girl died after being struck by debris that fell from the building’s facade.
In September 2016, New York City’s Department of Buildings (DOB) brought criminal charges against Esplanade Venture Partnership and its majority shareholder, Alexander Scharf.
“Despite a recommendation … to immediately repair cracks in the exterior walls, appropriate action wasn’t taken,” the DOB stated in a press release. “The ownership made minor repairs but continued to allow the facade to deteriorate.”
The new owners recognize that they need to repair the building’s reputation.
“It’s an opportunity to change the reputation, to fix it,” said Merrill. “I think you have to have professional management, you have to have good policies and procedures in place … bring in the right people. The residents will see change.”
Filling a Need
High costs and limited land make New York City a tough market to enter, but the need for senior living options appears clear: There currently are only about a dozen licensed assisted living communities in the Big Apple.
Meanwhile, Manhattan alone was home to more than 1.5 million people as of the 2010 U.S. Census. And people who are 60 or older are projected to make up 20% of NYC’s total population by 2040, according to NYC Department for the Aging figures cited by the WSJ.
“From an infill standpoint, from an irreplaceable asset standpoint, we’re pretty excited about it,” Merrill said of The Esplanade investment. “When you look at the numbers of assisted and independent living and memory care needed on the island, it’s amazing.”***
- Gill Group and National Title & Escrow plan to attend the Council for Affordable Rural Housing’s (CARH’s) Midyear Meeting (Strengthening Rural Housing with Valued Partnerships) January 23rd – 25th in Sarasota, FL.
- In 2016, Gill Group attended over 75 meetings and conferences across the entire United States.
GROWTH (2016 - Highlights):
- Gill Group added over 20 staff members throughout our 15 national and regional offices including MAIs, General Certified Appraisers, PE Engineers and AIA Architects.
- Gill Group’s subsidiary, National Title & Escrow (NTE), added two new underwriters: Fidelity National Title Insurance Company and Stewart Title Guaranty Company.
- NTE also added a new sales representative, Jimmy Crace, bringing 20+ years of experience and well over 100 national relationships in commercial and multifamily title.
- In 2015, Gill Group attended over 50 meetings and conferences from California to New York, and just about everyone in between.
GROWTH (2015 - Highlights):
- Gill Group added two offices in Michigan and one in Wisconsin, further expanding our staff of architects and engineers.
- Gill Group and Greystone formed a Joint Venture to provide a full line of consulting and development services for Rental Assistance Demonstration (RAD) transactions. Gill Group and Greystone are utilizing each of our areas of expertise in a collaborative effort, with a mission to partner with PHAs across the nation in preserving and expanding the affordable housing inventory under the HUD RAD program. Our team fully understands the intricacies of the real estate and affordable housing industries, and our services are provided by professionals who are fully immersed in LIHTC executions, construction management, project accounting, regulatory compliance, real estate transactions, and opportunity development. We sit on national and state boards and have in-depth knowledge of industry trends and best practices. As a developer team, we operate as three individual entities, each with a unique set of previous transaction experiences that add value to the project at hand. As a collaborative unit, we draw upon those experiences to bring to the table creativity, fresh ideas and unsurpassable development advisory services.
- Gill Group’s subsidiary, National Title & Escrow, added two new offices in Missouri and Arkansas, further expanding our ability to service our nationwide base of customers.
- Gill Group attended 40+ meetings and conferences throughout the United States in 2014.
GROWTH (2014 - Highlights):
- Gill Group began the process of working with owners of affordable housing to develop a web-based program that will work hand-in-hand with our services. It will give the users of our appraisals, market studies, capital needs assessments and many other services easy access and real time usage.
- Gill Group added 2 offices with appraisers, market analysts, engineers and architects.
- Within the offices are 11 architects, one MAI appraiser, one general certified appraiser, four market analysts and 12 additional support staff.
Gill Group has published the following:
- New York Real Estate Journal - How can low-income housing facilities translate into high profits?
- New York Real Estate Journal - Up, up and away: Home mortgage interest rates and gasoline prices continue ascending.
- Tax Credit Advisor - Boston MSA Market Snapshot
- Tax Credit Advisor - Seattle MSA Market Snapshot
- Northeast Industrial Development Resource Guide - What Appraisers Know About Investing.
- Affordable Housing Finance – Urban and Rural Market Studies.
- Tax Credit Advisor – LIHTC Appraisals 101
- Affordable Housing Finance – Five Ways to Optimize a Market Study
Cash Gill, MAI has had the opportunity to speak on the following topics:
- (Indianapolis, IN) National Council of Affordable Housing Market Analysts - Maximize Your Market: Understanding the Methodology Behind Market Studies.
- (Reno, NV) Nevada Council of Affordable and Rural Housing - Don't Get Caught in the Red. New Guidelines for Audits and Inspections.
- (Washington, DC) The Institute for Professional and Executive Development - Nonrecourse HUD Deals - So You Closed Your Nonrecourse HUD Deal. Now What? And Is It Really Nonrecourse?
- (Arlington, VA) Council for Affordable and Rural Housing - Property Valuation: The Correct Way to Value Properties.
- (New Orleans, LA) National Council of Affordable Housing Market Analysts - Affordable Housing Site Analysis
- (Las Vegas, NV) Nevada Council of Affordable and Rural Housing - Auditing and Accounting Guidelines for Section 42 Low Income Housing Tax Credits.
- (Washington, DC) Council for Affordable and Rural Housing - Rural Development Appraisals and Market Studies
- (Miami, FL) Council for Affordable and Rural Housing - The Equity Market - Impact on Rural Housing
- (Washington, DC) Council for Affordable and Rural Housing - How to Foster Affordable Green and Rural Housing Needs Assessments
- (Indianapolis, IN) Affordable Housing Association of Indiana - Market Analysis – Best Ways Use Market Studies to Ensure Application Points
- (Portland, ME) Enterprise Buyer/Seller Conference for RRH 515 Properties – Valuing the Product. What Is My Development Worth?
- (Washington, DC) National Housing and Rehabilitation Association – Financing and Underwriting Special Needs Housing.
- (Atlanta, GA) National Council of State Housing Agencies – Comprehensive Market Analysis.
- (Chicago, IL) AHF Live – Strategies for Rural Deals.
- (Dallas, TX) Crittenden Multifamily – Financing Special Use Properties.
- (Washington, DC) Council for Affordable Rural Housing – Rural Housing Preservation
- (Denver, CO) National Council of State Housing Agencies – Rural Housing Strategies
- (Denver, CO) National Council of State Housing Agencies – Y15: Preservation and Disposition Seminar
- (San Antonio, TX) Rural Rental Housing Association – LIHTC Legislative Update
- (Key Largo, FL) Council for Affordable Rural Housing – How National Appraisal Practices Impact USDA Assisted Properties
- (San Francisco, CA) National Council of State Housing Agencies – Changes and Challenges in Rural Housing Development
- (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
- (Franklin, TN) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
- (Columbus, OH) Council for Rural Housing & Development of Ohio – Rural Housing Market Research
- (South Bend, IN) Great Lakes Capital Fund’s University of Affordable Housing – Valuation Risks Using Financing for RAD Deals
- (Chicago, IL) National Council of State Housing Agencies – Rural Development Opportunities
- (Orlando, FL) National Association of Housing and Redevelopment Officials – Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies
- (Alexandria, LA) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
- (Ft. Lauderdale, FL) Southeastern Affordable Housing Management Association (SAHMA) – Rent Comparability Studies 101
- (Indianapolis, IN) Midwest Buyer/Seller Conference – CNAs and Appraisals
- (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities (2014)
- (St. Pete Beach, FL) CARH – Preservation Challenges and Opportunities
- (Nashville, TN) TAHRA – Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies for LIHTC and RAD Transactions
- (Los Angeles, CA) NCSHA – Successful Development in Challenging Markets
- (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities
- (Seattle, WA) NCSHA – Rural and Native American Development Strategies
- (French Lick, IN) AHAIN – Appraisals and CNAs
- (French Lick, IN) AHAIN – Pulling it All Together
- (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
*as seen on costar.com
**as seen on multifamilybiz.com
***as seen on seniorhousingnews.com
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