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Thursday, December 14, 2017

State of Atlanta market discussed at Bisnow event

By Nadine Melo (Atlanta) 

The room was teeming with excitement on December 5th, an odd sight given the time of day –7:30 am to be exact. 

Atlanta real estate professionals gathered by the entrance of Bisnow’s state-of-the-market event, grabbing their badges and greeting fellow peers as they made their way to the coffee station to continue their conversations. Some even provided their own projections on what can be expected of the market in the upcoming year. 

After an hour of networking, The Ardent Companies CEO and event host Mark Shulman kicked off a three-panel discussion.

“Today, Bisnow is all about projects and predicting the future,” he said. 

Here are some of the topics discussed on where the Atlanta market is today and where it will be in 2018: 

While the first panel made it a point to discuss all commercial real estate asset classes, panelists did so through the use of mixed-used developments. Mixed-used projects, and in particular retail, served as the framework for most of the discussion, and it was not surprising why. 

In fact, retail, more than any other asset class, serves as the foundation for most mixed-use developments that we see today in Atlanta and elsewhere. Look at Avalon, the Battery and Colony Square and retail is, indeed, the common denominator. However, panelists stressed that, to be successful, mixed-use properties must provide consumers with an experience. 

“For retail, it's the overall experience that developers have to create to get people in there,” said BBG Director Grant Griffin. 

A fact which was furthered addressed by Franklin Street Director Reid Mason, who attributed the success of Avalon, a mixed-use development located in Alpharetta, GA, to the marketing and programming of the project.

“It goes back to the consumers and the consumers these days want an experience,” said Mason. “They want something unique. These developers are looking for that (uniqueness) to put in their center.”

HFF Senior Director Chip Sykes opened the capital markets discussion with the following statement: “You are going to hear as a general theme that capital is abundant and that it’s being put thoughtfully and with discipline, and very unlike what we saw in the previous cycle.” 

“Office has been restrained and is good, because markets like Atlanta can get in trouble for overbuilding,” said PCCP Director John Randall. 

In addition to the change in real estate fundamentals, there has been an increase in insurance companies lending money to developers and landlords seeking debt financing outside of the typical CMBS loan.

“Insurance companies are lending more money now on an annual basis than they ever had previously – about $80 billion annually over the past three years, which is a high-water mark for the industry,” said Sykes.

Later, the developing southside of Atlanta’s downtown area, along with the issue of affordability and transportation, dominated much of the third panel discussion. While most panelists agreed that the burgeoning renaissance of south downtown is a huge boost for the overall marketability of the city as Amazon considers Atlanta for its HQ2 site, the fact remains that the city’s growth can be stymied if the issues of affordability and transportation are not dealt with now. 

“I think we do have an affordability issue, both on the development and the production side of our business,” said Shelton McNally, Principal of Conor McNally, “It’s just harder to make yields work on the more expensive, in-fill, higher-cost deals right now.” 

McNally went on to say: “If you do have a good transportation infrastructure you can move people around the city effectively, and you can deal with the affordability issue.” 

Despite the growing concerns over affordability, transportation and overbuilding, panelists projected a positive outlook for commercial real estate in 2018.

(Nadine Melo is the marketing co-ordinator in Avison Young’s Atlanta office. She works closely with her office’s capital markets group.)

Tuesday, December 12, 2017

Senior Housing Reaches New Heights

By Dan Baker (Washington, DC)

The senior housing industry has reached new heights in its relatively youthful existence as a real estate asset class as it continues to distinguish itself from multi-family, health care and hospitality as a viable institutional investment.

A multitude of factors have combined to create one of the largest bull runs in the history of the senior housing market, making it a great time for owners and/or operators to sell, refinance, or otherwise recapitalize their properties: 

  • Low interest rates for construction, bridge and permanent financing;
  • New entrants and capital to the space;
  • Increasingly favorable long-term demographics;
  • Turmoil, high pricing, and decreasing yields in other real estate assets; and
  • A dramatic increase in operator sophistication and transparency.

 Much of the new product being developed today is different from most of the existing inventory in the market. Amenities, such as bistros, game rooms, theaters and outdoor space, are becoming standard. Key-card access, advances in lighting, Wi-Fi, telemedicine, and the use of electronic health records are also commonplace. Larger units and fewer studios (except in memory-care facilities) are what one would expect in a recently constructed senior housing community.

However, the sky is not all blue for the industry, which is beset with challenges from numerous angles. Increasing regulations and media coverage in the wake of recent natural disasters in Florida, Texas, and California have required operators to invest resources into emergency preparedness. Incorporating quickly evolving technologies into communities to be a more appealing partner to other operators in the healthcare space also requires investment in resources and personnel. Additional headwinds are:

  • Labor, in terms of both availability and quality, is the dominant challenge for large and small operators alike;
  • Affordability remains a pressing issue that the industry has yet to resolve, as middle- class prospective residents, who account for the majority of the baby boomer generation, have enough assets to not qualify for government assistance, but not quite enough to afford the high-end product that is mostly being developed today. As one industry observer said: “They’re too rich to be poor – and too poor to be rich.”
  • When entering a senior housing community, the typical resident is increasingly older and more frail, with more complex medical requirements and in need of assistance with daily living activities, further encumbering an already thin labor force.
  • A tremendous inventory of first-generation senior housing, built in the 1980s and 1990s, is on the market seeking a buyer, and there is concern about the competitive abilities of that real estate in the future due to physical-plant limitations.

These factors are often much more burdensome on smaller, individual owner-operators than larger, regional or national operators due to a lack of efficiencies and economies of scale. As a result, a typical seller in today’s senior housing market has only one property, or a small number of them, and is faced with the decision to grow to remain competitive or sell to capture a market where valuations are historically high.

In all, the senior housing market is alive and well, with unprecedented levels of capital chasing returns in the space, but investors and operators must not believe that simple demographics will lead to success. Proactive operations, thoughtful design and development, and properly structured deals will succeed over the long run as new competition intensifies in the space.

(Dan Baker is a Vice-President in Avison Young’s Washington, DC office. He specializes in senior housing dispositions on behalf of REITs, private-equity firms, and individual owner-operators. His career in senior housing began in 2007 working for an operator in facilities.) 

Wednesday, November 15, 2017

2017 Highlights of the Canadian Apartment Renter Survey


By Amy Erixon, Toronto

On September 12, I presented the results from the second annual Apartment Renter Sentiment Survey, with surprising findings in many areas, among others - recycling commitments and rising tech savvy among tenants.   Across Canada, commute times decreased and so did the time to find an apartment, key findings in the 2017 pan-Canadian Apartment Rental Survey.  Overall, Canadians polled are less fussy than their US counterparts, and stay in place much longer.  A higher percentage of renters are married, at 50% compared to one-third south of the border, and nearly one third have children living in their units.  Nearly one-third of the 10,000 survey respondents indicated they had previously owned a home, and desire for a hassle-free life style led the list of reasons why they were renting.  A whopping two-thirds indicated they plan to stay in their current apartment, and 31% had been in place for more than 3 years.   Broadly representative of the Canadian population, by geography and other demographics, 25% of those surveyed were age 18-30, while 39% were over 50. 
While 20% of renters polled indicated they were highly satisfied, 70% indicated satisfaction with their current living arrangement, Vancouver landlords were ranked significantly better than their Toronto counterparts for service quality ad responsiveness.  Asked whether they would be willing to pay more for amenities they did not have, 43% of tenants said they would - including at the top of the list, high speed internet access, energy efficient lighting, fitness facilities and tri-slot garbage (recycling).   In terms of amenities targeting a subset of the population, 37% of renters have children,   35% have pets, and 59% said they would use package lockers, while fewer than 8% of units reported offering this service. 

Canadian landlords continue to lag their tenants in technology arenas.  While most renters initiated their search on-line, and half of all renters with access to on-line features utilize them, fewer than 20% of communities have tenant portals and on-line payment schemes.  Fifty-five percent of renters indicated that smart thermostats and in-unit alarm systems were important, which, for context nearly tied with desire for a walk-in closet and en-suite bathroom.   High speed Internet access, for the second consecutive year rated as the single most important feature, ahead of parking, proximity to a grocery store and access to transit (which closely followed).

I encourage all owners to sign up to participate in next year’s survey.  To view my 2017 presentation, click https://www.realestateforums.com/globalproperty/en/program/2017-program.html.

To receive the white paper on the results, and to obtain access the underlying database, contact Sarah.Segal@Informa.com.  

Wednesday, November 8, 2017

Key attributes of Atlanta’s industrial real estate market

By Nadine Melo (Atlanta)

Strong market fundamentals, stability and long-term growth have made industrial the most coveted real estate sector across the U.S. Nothing exemplifies this dynamic more than Atlanta’s industrial market.

Despite being one of the last markets to recover from the recession, Atlanta is not only the second most active market in the southeast, but it has absorbed a staggering 37.8 million square feet (msf) of industrial build-out in the past decade alone, according to GlobeSt.

The pace of Atlanta’s industrial market growth is even more astounding when you consider that the current year-to-date absorption of 16.8 msf has already surpassed the 2016 total by 23%, according to Avison Young Research.

Now, what exactly is driving Atlanta’s industrial growth when compared to other markets like L.A and Chicago? The panel from Atlanta’s industrial Bisnow event in September surmised that such factors as the growth of e-commerce, demographics, and location are primarily responsible.

One cannot mention the current industrial boom without talking about e-commerce first. Industrial’s growth is backed, in large part, by the changing dynamics occurring in the retail space. The internet has driven the creation of a globally inter-connected economy that has impacted both logistics and the supply chain, respectively. Resulting in smaller players competing on equal footing with their larger counterparts.

In turn, the demand generated from e-commerce is driving the need for modern building specs that requires the logistics of the industry to operate at optimal efficiency. As discussed by the panel, pricing, larger floorplates, separate entrances, drive-thru and higher clear ceiling heights (32 feet and above) are some of the prerequisites being issued by tenants today.

Big-box retailers, like Target and Amazon for example, are driving the growth of industrial product by searching for urban infill locations. As a result, retailers can fulfill orders within a 24-hour time frame and with increasing frequency, the same day, by being close to their demographic base – a marked contrast to the sector’s previous focus on location and access to infrastructure.

Proximity to a strong demographic base translates into instant access to not only your consumer, but also to talent, and Atlanta more than satisfies that need. Between 2015 to 2016, Atlanta’s population grew by 1.6%, statistically making it the ninth-largest metropolitan area in the country, according to the U.S. Census Bureau/

However, the current growth is not simply attributed to e-commerce and demographics. In fact, Atlanta has always been a major transportation hub for the U.S. As mentioned by Larry Callahan, a panelist at Bisnow’s September event and CEO of Pattillo Industrial Real Estate, Atlanta is a logistics hub by design. Since its inception in 1837, Atlanta was designed to serve as a strategic railroad junction, and its legacy is evidenced by the various railroad tracks that now comprise the Beltline.

When looking at a map, it's easy to see why Atlanta is attractive to national and foreign investors alike. Atlanta is home to the most visited airport in the world, according to Metro Atlanta Chamber, and located just 250 miles away from the Port of Savannah, the largest single container terminal in the U.S. In addition, three major interstate highways pass through the metro and provides access to 80% of the U.S market.

According to Brittany Holtzclaw, a panelist at the Bisnow event, current local industrial projects are being driven by e-commerce and investors’ desire to get close to the population base while keeping costs low. Therefore, Atlanta is a perfect market for international projects, as demonstrated by the foreign investment activity that we are seeing in the market today.

While Atlanta’s industrial market shows no signs of abating, with approximately 5.1 msf to be delivered by year-end 2017, real estate professionals can expect to face various challenges in the foreseeable future. Said challenges include: site location, construction costs, higher asking rents and traffic congestion as the metro region and industrial real estate demand continue to grow.

(Nadine Melo is the marketing co-ordinator in Avison Young’s Atlanta office. She works closely with her office’s Capital Markets group.)

Monday, October 30, 2017

Multi-family real estate: past, present and future

By Gary Lyons and Craig Cadwallader (Raleigh-Durham)

As most readers understand, the multi-family property sector has been on a tear for the last seven years with primary growth indicators reflected in the last five years across much of the United States and, certainly, in Raleigh-Durham’s Research Triangle region.

Overall, the Triangle market has been fueled with an influx of new residents (and capital) seeking affordable and/or short-term housing solutions until they determine their long-term plans; many of the newcomers are millennials and baby boomers who are considering downsizing their homes. Between 2010 and 2015, the Raleigh-Durham area’s population grew by 16.5%, making it the fastest-growing metropolitan area in the nation, according to MPF Research.

As millennials quickly become the majority of the new entrants into the job market and family formation continues to be delayed, there is a continued increase in the relative demand for rental properties of all types, with apartments continuing to lead the way.

Developers have responded with a historic level of construction, delivering an average of 4,600 units per year between mid-year 2012 and mid-year 2017 with another 5,550 units slated to be completed over the next four quarters. In spite of this record level of deliveries, occupancy levels have held consistently between 94% to 95% since 2012, while lease rates have been climbing at an average of 3.5% per year since then, according to MPF Research.

Well-capitalized developers have had no problem securing favorable short-to-long-term financing solutions from a wide variety of lenders, including Fannie Mae, Freddie Mac, the Federal Housing Administration/Department of Housing and Urban Development, commercial mortgage-backed securities (CMBS), the U.S. Department of Agriculture and insurance-related loan product types. Lending terms have been extraordinarily favorable with common loan-to-value ratios of 65% to 75% and interest rates ranging from 3.26% to 4.85% based on loan type. For bridge loans, interest rates have ranged from 8.99% to 13.00%, with limited fixed periods available, and construction loans have hovered around 5.25%. Lenders’ overall appetite for writing new loans has diminished somewhat and will impact some developers’ ability to finance new projects, but we believe that there is no short-term end in sight to the continued growth of the sector in the Triangle.

According to a recent National Multifamily Housing Council (NMHC) and National Apartment Association (NAA) study, North Carolina will need an additional 220,000 apartments by 2030. If one were to assume that the Triangle region will supply approximately a third of the statewide inventory, our region would need to add a total of 73,333 units, or 5,641 units per year, by 2030. If, however, the Triangle’s demand equates to 40% of the statewide production, developers would need to deliver an average of 6,769 units per year.

Finally, investors continue to be enthralled with our region’s multi-family assets with approximately $1.4 billion worth of inventory trading in 2016, according to MPF Research. Volume and prices have cooled from the peak of 2016 with volumes down 41.9% on average and prices down 6.5% ($125,000 per unit) year-over-year. As of mid-year 2017, the national average sales price was $151,000 per unit versus $125,000 per unit in the Triangle, with prices varying based on product type.

In recognition of the strong demand for multi-family properties, Avison Young is expanding its multi-family service offerings in Raleigh as part of a companywide initiative to expand Avison Young’s footprint in the sector.

(Gary Lyons and Craig Cadwallader are both members of Avison Young’s capital markets team in Raleigh-Durham. Lyons is a senior vice-president specializing in the marketing, disposition and acquisition of investment properties. Cadwallader is a vice-president specializing in multi-family properties. Recognizing the appeal of multi-family properties among the global investor community, Avison Young recently hired Cadwallader, a 15-year commercial real estate veteran, to lead the company’s multi-family practice in the Triangle.)

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