Commercial Real Estate: CRE investors perceive more risk compared to this time last year

CRE investors perceive more risk compared to this time last year

In 2Q 2018, Situs RERC’s institutional respon­dents rated return vs. risk for overall Commercial Real Estate (CRE) up slightly from the previous quarter but down from a year ago.

This is one of the many conclusions presented in the recently released Situs RERC Real Estate Report, “The Waiting Game.”

Each quarter, Situs RERC gauges investor sentiment about the CRE market by surveying institutional investors who represent pension funds, insurance companies, financial institutions and private equity firms. As part of this survey, respondents were asked to provide ratings of return vs. risk in the CRE market. The return vs. risk metric assesses investor perceptions of risk-adjusted returns in the market and is rated on a scale of 1 (risk far exceeds return) to 10 (return far exceeds risk).

Institutional respondents rated return vs. risk for overall CRE at 4.8 in 2Q 2018, up from 4.7 the previous quarter and down from 5.1 year-over-year. While the rating increased slightly, it still signifies that risk outweighs return in the CRE market. The rating is somewhat concerning because it was the fourth consecutive quarter that Situs RERC respondents believed that risk outweighed return in the CRE market. The return vs. risk rating has been generally declining since 3Q 2016.

Among property types, the industrial and apartment sectors continue to offer favorable risk-adjusted returns due to solid market fundamentals. However, disruptors in the retail industry have caused an increase in perceived risk, leading to that segment having the lowest return vs. risk rating among all property types.
For investors, value-add opportunities exist, but branching out across the risk spectrum makes the underwriting process more important. It will be crucial for inves­tors to carefully examine the social, economic, governmental, environmental and supply-and-demand characteristics of the local market. In value-add endeavors, marketability, investment and feasibility analyses of specific properties also become more important in identifying the highest return vs. risk opportunities.

Full results are available in the 2Q 2018 Situs RERC Real Estate Report, “The Waiting Game.”  Our report is the nation’s longest-running real estate research report offering investment criteria and investor insights on all the major markets and property types.

Visit our website or call 319-352-1500 for subscription information.

The government may want to buy your dying mall

Local governments across the US are taking over dying shopping malls.

These municipalities, concerned that vacated retail centers will blight the landscape and drag down surrounding property values, have been buying up malls they fear are being starved of capital by the private sector.

Governments often rely on land banks to fund the purchases. These government-backed or quasi-public entities are usually used to acquire derelict homes and lots through tax foreclosures when it is clear that no private investment is forthcoming.

“As we recovered from the recession, the market has reabsorbed some properties but not in the smaller communities that never recovered,” said Frank Alexander, co-founder and senior adviser of the Center for Community Progress, which promotes land banks. “In those places, we’re getting more questions about how to deal with abandoned shopping centers.”

Real-estate analysts say that tabulating the number of takeovers is difficult, in part because government buyers aren’t always easily identifiable. Yet a number of analysts believe this is a small but growing trend in cities with failing malls.

Read more: Wall Street Journal

Median U.S. household income increased in 2017

A decade after the financial crisis, American families are finally climbing out of the deep trough created by the Great Recession.

Median American household income reached $61,372 in 2017, according to the Census Bureau, which described that level as statistically indistinguishable from where it was in 2007.

The numbers released on Wednesday show that the American middle class suffered a “lost decade” in the wake of the 2008 financial crisis, as median household income fell sharply, and then began a slow recovery.

But the gains have not been equally felt and the numbers revealed a sharp divergence between the wealthiest Americans and everyone else. The incomes of the nation’s most affluent households have climbed sharply since the crisis, driven largely by investment gains. The Census Bureau said income inequality did not rise significantly last year.

The steady growth of the American economy has produced broad gains for the last few years. The 2017 report marked the third straight year that income has increased while poverty has declined.

Read more: New York Times

WeWork rival Convene makes play for small, midsize companies

Convene, which provides flexible meeting and working space, enlarged its midtown Manhattan footprint with its biggest lease ever, expanding a partnership with RXR Realty LLC and going after the small- to medium-size tenant that industry leader WeWork Cos. has just begun to court.

The New York-based startup has leased 116,000 square feet of office space spanning four floors at RXR’s 530 Fifth Ave. The target is businesses with 10 to 100 employees.

“This is mainly for companies looking for under 10,000 square feet that have outgrown a co-working environment but are not yet ready to commit to a long-term lease with a building owner,” Ryan Simonetti, co-founder and chief executive officer of Convene, said in an interview. “We feel that whole segment has really been forgotten about.”

In August, Convene’s much larger rival announced the launch of HQ by WeWork for companies with 11 to 250 employees.

Read more: National Real Estate Investor

Amazon opening checkout-free Go store in NYC

Amazon is now branching all the way to the opposite coast by way of expanding a rollout of its checkout-free Amazon Go physical store concept.

The e-commerce giant is planning to open a store in New York City, joining Amazon Go’s that are likewise planned for San Francisco and Chicago. Those would be in addition to three existing stores already up and running in Amazon’s hometown of Seattle.

Amazon confirmed the news after also posting last week several job listings for a New York-area Go store that were spotted by The Information. The listings were for positions including store manager, assistant store manager, something called a “learning and development manager” and a training lead associate.

Amazon opened the doors to its first Go store in Seattle earlier this year. From The Information, that original store “attracted wide fascination by using a combination of cameras, artificial intelligence and other sensors to allow shoppers to grab items off shelves and immediately exit the store without having to wait in checkout lines. While the experience of shopping in the store can feel a bit like shoplifting, customers are automatically charged for the items they take with them.”

Read more: New York Post

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