CORFAC News

Falls Church, VA (March 4, 2013) – CORFAC International 2013 President Bill Hawkins announced the results of CORFAC’s Investor Sentiment Survey that was conducted in late February and sent to more than 100 CORFAC members who are Certified Commercial Investment Members (CCIMs) and others that specialize in investment sales in the U.S. and in Canadian Provinces.

There were dozens of responses representing both coasts and the middle of the U.S. plus one from Manitoba, Canada. Among the many markets covered by CORFAC International, the survey reflects opinions from commercial real estate professionals in Boston, Charlotte, Richmond, Baltimore, Chicago, Milwaukee, Detroit, Little Rock, Dallas/Ft. Worth, Winnipeg, multiple locations in Southern California, multiple locations in Northern California, Portland and Seattle (about half of survey participants did not identify their respective markets).

Most of the commercial investment sales specialists said that they represent private investors over institutional clients more often – approximately 75%-to-25% of the time, yet even that was offset by several survey respondents reporting that they represent private investors 90%, 95% and 100% of the time. Conversely, other CORFAC members say that institutional investors account for 70% or more of their clientele. (for more on these two perspectives, see ‘Broker Quotes’ after the survey results)

Survey Results
The majority felt that their markets were ‘strong’ on investment sales activity (55%), while 18% thought it was ‘good,’ 18% thought it was ‘moderate’ and 9% thought investment sales activity was weak in their markets.

In a ‘so what’ moment as it relates to last year’s threat of a fiscal cliff financial meltdown and the likelihood of increased taxation, the majority of CORFAC’s investment sales professionals said that sellers who tried to close investment property sales last year – but did not -- before capital gains tax increases kicked in this year, would go ahead and try to sell their assets in 2013 anyway (46%).

The majority thought that the current market favors sellers (70%) over buyers (20%) but several answered ‘it depends’ and with qualifying comments – among them:

•  “Core properties favor sellers and value-add/REO properties favor buyers.”
•  “Smart buyers of value-add product can do well, the same with sellers able to positions their assets for a ‘Class A’ purchaser (institutional money).”
• “There is a limited supply of buildings listed “For Sale” in our market right now but I wouldn’t necessarily say that it favors sellers.  Of the buildings that are listed “For Sale,” a majority of them are either overpriced or functionally obsolete (or both). Buyer demand is strong so when a quality building comes onto the market at a fair price, it should trade fairly quickly.  However, a “fair” price is still 20%+ below the highs from 2007.”

Not surprisingly, multifamily ran away with the favored investment product type (36%) yet industrial properties also ranked highly (27%) and was followed by office (15%), owner-occupied (8%), retail – especially single tenant, national quick-service restaurants (8%) and net leased investment properties were favored by 5% of survey respondents.

Predictably, ‘Cap Rates’ were all over the chart, they varied by asset type and whether properties are Core/ Class A assets or are in outlying and secondary markets. The ‘Cap Rate,’ or  capitalization rate, is determined by dividing the annual net income of a property by its sale price and tells investors what the building will yield on an annual basis. Core/Class A assets typically have lower Cap Rates, or yields, because they are deemed safer investments while higher Cap Rates reflect the perception that there is greater investment risk.

• The Cap Rate low for multifamily was 4%, its high was 9% and the average was 5.5%.
• The Cap Rate low for office was 5%, its high was 11% and the average was 8%.
• The Cap Rate low for industrial was 5%, its high was 11% and the average was 7.5%.
• The Cap Rate low for retail was 4.75%, its high was 12% and the average was 7.94%.
• The Cap Rate low for owner-occupied investments was 1%, its high was 11% and the average was 7.3%. One respondent said that the variance from a low of 1% to a high of 11% reflects the wide degree of the owner-occupiers’ credit, the loan term and location of the property.
• The Cap Rate low for net-leased investments was 5%, its high was 10% and the average was 7.65%.

In terms of a forecast for the balance of 2013, 60% of CORFAC’s survey participants predicted that prices would increase, 40% said they would remain flat and none thought that prices would decline during the year.

Corporate Facility Advisors (CORFAC) has 86 affiliated offices worldwide.

Broker Quotes – Private Investor Trends in Texas and Institutional Investment Trends in the Eastern U.S.
In the Dallas suburb of Southlake, an upscale enclave city of approximately 27,189 people, out-of-state & local investors are buying commercial property with an eye on retirement or simply betting on the strong Texas economy.

“I have represented a pharmaceutical sales manager from Boston who has purchased multi-tenant-occupancy office buildings & high end residential homes to lease and plans to retire here. In this market you can buy 5,000-6,000-square-foot buildings for $1 million and up. I also sold a 45,000-square-foot, multi-tenanted office building that was 93% leased to a New Jersey investor. Both of these investors know that Texas has one of the best economies in the U.S. and they are looking to diversify their investments and income from other than just their paychecks and the returns you can get from stocks, bonds and investment funds,” said Jennifer Gray, CCIM, Managing Partner in Northeast Tarrant County (Southlake, TX) with Bradford Commercial Realty Corp./CORFAC International.

The suburb is northwest of the Dallas/Fort Worth International Airport and encompasses the Greater Southlake, Grapevine, Colleyville, Keller, North Fort Worth markets.

Gray said that she has also seen investment activity for owner-occupied office buildings from CEOs, small business owners & high-net worth individuals that live in Southlake, some of whom have their businesses in Dallas and they want a second office that is closer to home. Medical doctors are another component of the investment sales activity in the Greater Southlake market area. All of these types of investors also understand the cost advantages of owning versus leasing office space, she said.

“Banks have a preference for owner-occupied buildings and are eager to make loans to good credit, high-net worth individuals. Plus, the cost of money is at an all-time low – as low as 2%,” Gray said. ###

Throughout the eastern half of the U.S., institutional money is chasing returns.

“We’re seeing yield-seeking behavior. Investors are shifting in an out of asset classes, or they will shift in geographic markets, for better yields. They’ll go where the next opportunity is, or look elsewhere if they are getting priced out of a market. For example, we’ve seen investors kicking tires in Baltimore because pricing is getting over-heated in Washington D.C.,” said Owen Rouse Jr., Senior Vice President & Director, Capital Markets, with Manekin/CORFAC International (in the Baltimore suburb of Columbia, MD).

The other trend that Rouse observed was identified in the CORFAC survey as the second strongest market by investment category or product type – and they are industrial properties.

“Industrial is starting to get white hot in big bulk markets like Northern New Jersey, the Lehigh Valley and port cities. It is easy to understand, buy and underwrite even though investing in industrial property has a different set of challenges, such as dispersed ownership (other than REITs). In addition, portfolio sizes, measured in dollars, tend to be smaller, which makes the category less appealing to big institutions that prefer to place large capital investments in fewer transactions,” said Rouse.

About CORFAC International
CORFAC International (Corporate Facility Advisors) is comprised of privately held entrepreneurial firms with expertise in office, industrial and retail real estate leasing and investment sales, multifamily property acquisitions and dispositions, property management and corporate services.  In association with FIABCI (the International Real Estate Federation) and global affiliates, CORFAC International offers commercial real estate services with market reach in 65 countries worldwide. In recent years, CORFAC firms have averaged over 8,500 completed transactions annually totaling more than 600 million square feet worth an excess of $5.2 billion for their customers. For more information on the CORFAC network, contact 703.532.6160 or visit www.corfac.com.