|Situs RERC’s Value vs Price Trends in CRE
Situs RERC asked the nation’s leading CRE valuation experts experts to provide ratings of the extent to which CRE values are supporting prices for different property types and markets. Lower ratings indicate that a particular property type or market is overpriced and higher ratings indicate it is underpriced.
In general, Situs RERC’s valuation trends experts considered overall CRE to be overpriced relative to value during third quarter 2017, a significant change from second quarter 2017, when they believed prices were fairly priced relative to value. In fact, the overall value vs. price rating for third quarter 2017 was the lowest recorded since Situs RERC began compiling the ratings in second quarter 2014. During most of the quarters since then, CRE has been slightly overpriced or fairly priced – with the notable exception of fourth quarter 2014, when our experts said CRE was underpriced. With high liquidity and cheap debt in the market, these ratings come as no surprise. However, if the cost of debt increases and capital appreciation decreases, it will be critical for investors find the markets and asset classes that can increase their income.
Among metros surveyed in the East, New York City, Boston and Washington, D.C., were overpriced, while Philadelphia was fairly priced and Charlotte was underpriced in third quarter 2017. The very low cap rates in the East region, combined with increasing interest rates, makes it difficult to bid on and finance deals. In New York City, experts are seeing cap rates increase due to greater supply and higher interest rates. New York City was rated as the most overpriced.
- Ratings for Boston and Washington, D.C., decreased in third quarter 2017 and tied for the second-most overpriced metro in the region.
- Both New York and Boston have become significantly overpriced since first quarter 2017.
- Value vs. price ratings for Charlotte are the highest they have been since second quarter 2014.
In the Midwest region, ratings for Chicago, Kansas City and Minneapolis decreased in the third quarter, while Columbus and St. Louis value vs. price ratings increased. Kansas City, Minneapolis and St. Louis were considered fairly priced, while Chicago and Columbus were considered overpriced, according to our experts.
- From the second quarter to the third quarter, Chicago and Kansas City dropped significantly in value vs. price. Minneapolis dropped only slightly.
- The value vs. price ratings rose slightly for Columbus and St. Louis.
- Average value vs. price ratings were highest for the Midwest region compared to the other regions since prices have not been bid up.
As with the other regions, our experts were mixed regarding value vs. price in the South region. Compared to the previous quarter, average ratings across the major markets in the South region declined.
- On average, ValTrends experts indicated that Austin remained underpriced while Dallas moved from being overpriced to underpriced in second quarter 2017.
- Atlanta, Houston and Miami all shifted from being underpriced in second quarter 2017 to overpriced, according to the ValTrends experts — dramatically so for Houston and Miami.
- Miami was the most overpriced it has been in the three years that Situs RERC has collected these data.
On average, our experts indicated that values in the west did not support prices during the second quarter. Metros in the West region were the priciest investment option relative to value for investors among all the regions.
- Phoenix had the greatest relative value vs. price decline among all the metros surveyed, moving from highly underpriced in the second quarter of 2017 to slightly overpriced in third quarter 2017.
- Seattle, which has been rated as overpriced over the past three years, is now seen as being fairly priced.
- Los Angeles and San Francisco were overpriced; both received some of the lowest ratings since Situs RERC began collecting these data.
To purchase your copy of the Situs RERC Real Estate Report, visit store.rerc.com or call 319-352-1500.
In Real Estate’s Next Act, Blockchain Threatens to Take Center Stage
A few years ago, Alexandra Kramer was midcareer as a successful real estate and securities lawyer when her husband asked her an unexpected question:
“Have you ever thought about going back to school?”
The partner at CKR Law, an international firm with dozens of global offices, was befuddled. A graduate of Barnard College, she had already earned a law degree from the University of Pennsylvania and a master’s in real estate from New York University.
“Why would I ever need to go back to school?” she asked.
“Thanks to blockchain,” her husband told her, “we may not need lawyers anymore.”
She had never heard of blockchain, but starting that evening, she made it a point to find out about it.
Blockchain, Kramer learned, is a digital network technology that acts as a self-auditing ledger, creating an ironclad record of transactions and value.
Theorized since the early 1990s, it was given first life in 2008 as a key component of Bitcoin, a digital currency launched by an anonymous group online. Instead of backing from a government that attests to its legitimacy, the currency works by using a transparent public record to guarantee that all users will agree who owns how much of it.
read more: Commercial Observer
Now You Can Pay Your Rent in Bitcoin
While you still can’t buy a meal at many restaurants with bitcoin, you can now pay your rent with it.
ManageGo, a Brooklyn, New York-based rental platform that offers landlords and tenants payment and maintenance scheduling services through online and mobile applications, is now adding bitcoin to the list. Starting early next year, a tenant can pay in bitcoin through the mobile app.
Here’s how it works: The tenant uses bitcoin and then ManageGo converts the bitcoin to dollars using Coinbase, a digital cryptocurrency broker. The landlord gets the rent payment in dollars. Since bitcoin is extremely volatile, the value is locked in at the time of the payment.
There has not been a lot of demand for this service, but executives at ManageGo, which has been around for seven years, say it is only a matter of time.
read more: CNBC
Office Tenants Today Value and Expect Quality Connectivity
A survey of 150 U.S. office leasing decision makers conducted by Radius Global Market Research for WiredScore found that a building’s Internet connectivity is second only to location in importance to tenants when seeking office space.
A global company with offices in New York and Europe, WiredScore is the founder of an internationally recognized program for rating building digital connectivity technology. The survey, The Value of Connectivity, which was conducted online from Aug. 2 – 4, 2017 in New York City, Los Angeles, Chicago, Philadelphia, Dallas/
Fort Worth, San Francisco, Washington, Houston, Boston and Atlanta, found that 80 percent of tenants experience connectivity issues at one time or another. And more than half (77 percent) of them say poor connectivity affects their bottom line.
Additionally, 77 percent of tenants say they would sign a longer lease if a building has superior technology or sign a lease more quickly if assured the building’s connectivity meets their business requirements.
Other findings include that respondents have a preference for a “Wired Certified” building (79 percent) and are willing to pay more per sq. ft. for superior connectivity infrastructure (84 percent).
read more: NREI
Warehouses Get Bigger, Taller and Faster as E-Commerce Takes Off
Those boxes piling up on your doorstep over the holidays don’t ship from Santa’s workshop. As Americans spend more money shopping online, real estate developers are sinking record amounts of money into new warehouse space, building bigger, taller structures to meet the needs of e-commerce — and the robots that help it along.
Builders spent $2.7 billion on U.S. warehouse construction in October, the most since the census started keeping track in 1993. The size of the average warehouse completed this year was 188,000 square feet, according to a report published this week by CBRE Group Inc., more than double the size in 2001. Developers are also raising their roofs, with ceiling heights up 21 percent over that period.
Warehouses are getting bigger for the same reason retailers and logistics firms are building more of them.
“It’s the notion of the endless aisle,” said Joe Dunlap, a managing director at CBRE, where he leads the supply chain advisory practice. A retailer that stocks 30,000 items in its stores might offer 10 times as many items for sale online. More stock requires larger footprints. Higher ceilings accommodate mezzanine levels, letting operators cram more shelves into a building.
Today’s industrial buildings also require thicker concrete floors to support heavy machinery used to automate the warehouse process, Dunlap said.
read more: Bloomberg
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