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FeaturesTexas & Oklahoma Feature ArchiveTop Stories

Building To Suit Population Growth

by Taylor Williams

Commercial real estate construction follows increases in population, and Texas has hit a growth spurt. In May 2016, the U.S. Census Bureau reported that five of 11 of the nation’s fastest-growing cities — Georgetown, New Braunfels, Frisco, Pearland and Pflugerville — are in Texas. The state’s metro areas, and the surrounding suburbs fueling this growth, are seeing construction in several sectors. High-end multifamily is popular throughout Texas. In Houston, hotels were being constructed in anticipation of the Super Bowl. In North Dallas, multifamily and retail are expanding to serve corporate growth, while industrial and manufacturing buildings are being constructed to serve transportation hubs south of the Metroplex. “We are seeing a lot of growth all over the state,” says Srinath Pai Kasturi, vice president and general manager of the central Texas division of Cadence McShane Construction. “Over the past four to five years, Texas has been fortunate to have seen a large influx of people from other states, and that has stimulated growth.” Texas added more than 1.8 million jobs from 2004 to 2014 —the most in the United States and 2.5 times California’s total change, according to Texas Comptroller of Public Accounts’ analysis of data from Economic Modeling Specialists, International. …

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FeaturesHealthcareTop Stories

Duke Realty: Micro Hospitals Lead the Way Among Emerging Trends in Healthcare Sector

by Taylor Williams

Facing shortages in construction labor and obstacles in originating financing for new projects, developers who specialize in healthcare properties are starting to think smaller, according to a recent study by Indianapolis-based REIT Duke Realty Corp. This means more micro hospitals. Micro hospitals are similar to community and small-town medical facilities — a hybrid of urgent care centers and full-fledged hospitals. They offer significantly fewer inpatient beds than regular hospitals — eight to 12 per facility is average — and typically span between 15,000 and 50,000 square feet. As such, they fit more comfortably into densely populated urban pockets and provide more immediate access to acute and emergency care. With delivery costs that range from $7 million and $30 million, depending on size, micro hospitals represent a cheaper means of financing a regular hospital. What else is driving demand for micro hospitals? According to the study, they offer a convenient, cost-effective alternative to larger hospitals without compromising the quality of care. When considering where to build a micro hospital, developers are encouraged to pinpoint high-visibility sites within 20 miles of a major hospital. This enables them to tap directly into the smaller submarkets for which micro hospitals are intended. “Anticipated changes …

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FeaturesIndustrialMultifamilyNortheastNortheast Feature ArchiveOfficePennsylvaniaRetailTop Stories

Pennsylvania Supreme Court Takes Up Issue of Reverse Property Tax Appeals Across State

by Haisten Willis

By Gregory Schaffer Pennsylvania property owners and tenants, who pay some of the highest property taxes in the nation, are no doubt aware of the annual deadline to file a property tax appeal. After all, one look at a new tax bill is often enough to make even the most seasoned tax manager scramble to contact their local tax counsel. However, very few taxpayers are aware that the assessment they may have accepted as favorable could easily trigger a reverse appeal filed by the local school district. Assessment appeals filed by the taxing entities, often referred to as reverse appeals, are increasingly common as cash-strapped school districts seek to fill their coffers. Just as a tax manager might view an inflated assessment as a reason to appeal, more and more school districts see potentially under-assessed properties as a much-needed source of additional revenue. To the bane of many taxpayers, this tactic has now reached the city of Philadelphia. Despite undergoing a citywide property revaluation for the 2014 tax year, with another currently slated for 2018, the Philadelphia School District recently decided to begin filing reverse appeals against properties it feels are under-assessed. On Sept. 15, 2016, for the first time, …

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U.S. Homeownership Rate
FeaturesMultifamilyTop Stories

M&M: Homeownership Hits 12-Year Low as Young Households Favor Apartments

by Jeff Shaw

Homeownership rates in the United States have hit a 12-year low due to a combination of younger people’s preference for apartments, a low housing inventory that has inflated sales prices and strong absorption in the multifamily sector, according to a research brief from Marcus & Millichap. Single-family homes are experiencing low inventory compared to demand, with the supply of available homes holding steady for several months. The current supply represents just 3.6 months of sales, a record low, according to the brief. As a result, the median home price increased 7.3 percent on a year-over-year basis to $230,400 in January 2017. The apartment sector, meanwhile, is still seeing a drop in vacancy despite the fact that deliveries are expected to peak this year. Nearly 290,000 apartments were delivered nationally during 2016, but strong absorption still managed to push vacancy down 20 basis points to 3.9 percent. According to the brief, “young households’ increased propensity to rent fuels apartment demand, and the absorption of 294,100 units in 2016 was the fourth highest year on record.” Following this year’s peak, though, Marcus & Millichap predicts new apartment supply will taper off in 2018. Lenders have already begun to tighten the purse strings …

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FeaturesTop Stories

Interest Rates, Political Unrest Threaten to Jeopardize Health of Commercial Real Estate, Says Economist

by John Nelson

The U.S. economic expansion continues on, extending its long streak of slow but steady growth. The economy has benefitted from years of stability in both the political and monetary realms, but massive paradigm shifts are underway. These changes are breeding uncertainty, which threaten both overall economic expansion and the commercial real estate industry in a way not seen in years. On the monetary front, years of low and declining interest rates supporting credit markets and asset prices are giving way to a new environment. Rates have risen noticeably since the fall and the Fed is overseeing a tightening cycle. Rising interest rates pose a new challenge to credit conditions and valuations, which has already been reflected in the significant decline in investment volume reported in January by Real Capital Analytics. The sharp rise in interest rates has scuttled the closing of some deals, protracted the closing of others and thrown financing terms for a loop across the board. The larger uncertainty and concern, however, is emanating from the political realm. The new administration has proposed radical policy shifts to immigration, trade, regulations and taxes. Both the amount of proposed policy changes and their severity are resulting in an uptick in …

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FeaturesMultifamilyTop Stories

Interest Rates Are Top Concern for Multifamily Professionals, Capital One Survey Finds

by John Nelson

BETHESDA, MD. — Concern over potential interest rate hikes is tempering optimism in the multifamily market, according to a recent survey conducted by Capital One Multifamily Finance. Capital One conducted the survey during the NMHC 2017 conference in San Diego in late January. The survey gauges emerging trends and industry insights from multifamily real estate professionals across the country. About 51 percent of multifamily professionals consider rising interest rates to be their biggest challenge in 2017, more than double the 25 percent of respondents who cited rising costs as their greatest concern. Only 5 percent of those surveyed anticipate potential regulation to be their biggest challenge this year. (Percentages are based on 95 responses.) These interest rate concerns may signal the end of the current cycle for the multifamily market as 50 percent of those surveyed believe the market has entered the last few legs of the race, while only 7 percent feel the cycle is in its early stages. Despite market sentiment, significantly more respondents anticipate being buyers than sellers in 2017; 51 percent said that they anticipate being buyers, while 23 percent anticipate being sellers. “While more industry professionals expect to be buyers than sellers in 2017, increasing …

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FeaturesHealthcareTop Stories

Strong Demographic Trends Drive Investment Activity in Medical Office, Says Marcus & Millichap

by John Nelson

As the 65-and-older age segment increases by 20 million individuals over the next 10 years, demand for healthcare services will rise, which attracts investors to the long-term growth potential of medical office real estate. Institutional funds and REITs are actively searching for larger healthcare deals and portfolios, and private capital is emerging as a major option in the $5 million to $20 million-price range and could begin to take a larger share of transactions this year, according to Marcus & Millichap’s National Medical Office Research report. A rise in crossover capital is also increasing competition for medical office properties as single-tenant retail investors target similar investment opportunities in this segment for higher yields. For-sale inventory is limited as medical office assets are in high demand with cap rates compressing over the past several years. On-campus medical office buildings command top cap rates, trading at sub-6 percent initial yields for single-tenant properties, while multi-tenant buildings draw first-year returns in the mid-6 to low-7 percent range, according to the report. Off-campus medical office properties with strong tenancy, which often include a healthcare system and long remaining lease terms, are in high demand. These properties fetch initial returns in the mid-6 percent area. …

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Kermit Baker, AIA
FeaturesMixed-UseTop Stories

AIA’s First Architecture Billings Index for 2017 Slips into Negative Territory

by John Nelson

WASHINGTON, D.C. — The first Architecture Billings Index (ABI) of the year slipped below the positive mark, reflecting a decline in demand for design activity at architecture firms. The American Institute of Architects (AIA) reported the January ABI score was 49.5, down from a very strong 55.6 in December 2016. The score reflects a decrease in design activity, with any score above 50 indicating an increase in billings. The new projects inquiry index was 60.0, up from a reading of 57.6 the previous month, and the design contracts index, which is an early indicator of construction contract awards, was also positive with a mark of 52.1. Given the positive showing for the new projects inquiry and design contracts indices, Kermit Baker, AIA’s chief economist, isn’t too concerned about the ABI starting 2017 in the negative territory. “This small decrease in activity, taking into consideration strong readings in project inquiries and new design contracts, isn’t exactly a cause for concern,” says Baker. “The fundamentals of a sound nonresidential design and construction market persist.” Regionally, the West was the only geographic region with a negative showing (48.8). The South led the way with a 54.2 mark, followed by the Northeast (53.0) and …

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FeaturesLoansTop Stories

After Strong 2016, Commercial Lenders Prepare for a Slightly Better 2017

by Kristin Harlow

SAN DIEGO — Commercial mortgage lenders, their correspondent lenders and brokers gathered this week in San Diego at the annual MBA CREF Conference held at the Manchester Grand Hyatt. The Mortgage Bankers Association (MBA) reports 3,200 attendees at this year’s conference, a 10 percent rise in attendance over 2015. Mortgage bankers are fresh from one of the strongest years in originations in an era that shows few signs of a slow down. While there are some possible speed bumps in 2017, many attendees were upbeat and positive about 2017 and beyond for the commercial real estate lending industry. MBA reported its results for the industry in a session with its chief economist and senior vice president of research and technology, Michael Fratantoni, and vice president, commercial real estate research, Jamie Woodwell. Volume was up in commercial mortgage lending in 2016, with a record $502 billion in originations. MBA has forecasted 2017 to have a slightly larger volume of $515 billion. MBA cites continuing strong commercial real estate fundamentals as the main reason for the predicted increase in 2017, with other factors including a strong job market and relatively low interest rates. MBA’s forecast does not include any possible economic stimulus — …

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FeaturesTop Stories

Rising Interest Rates Top Concern for Real Estate Executives, According to Seyfarth Market Sentiment Survey

by Kristin Harlow

CHICAGO — Rising interest rates continue to dominate concerns for U.S. commercial real estate executives in 2017, according to Seyfarth Shaw’s second annual survey of the commercial real estate market. Seyfarth’s 2017 Real Estate Market Sentiment Survey found that respondents are even more hawkish about interest rate increases this year (98 percent concerned) compared to last year (90 percent concerned). Of these “hawks,” 77 percent expect multiple rate increases in 2017. Other topics rounding out the top three concerns include supply/demand issues and banking regulations. Notably, political change-over and tax policy rank fourth and fifth this year, overtaking maturing CMBS loans from the previous year. Concern regarding the industry’s ability to refinance record levels of maturing CMBS loans remains strong with 86 percent of respondents expressing concern, nearly matching the 87 percent in 2016. Participants were also asked their primary source of equity for 2017, to which 36 percent of respondents indicate that institutional investors would be their primary source of equity. Comparatively, 21 percent report no engagement of third-party equity. Over two-thirds of respondents believe that the Trump presidential administration will have a positive impact on the 2017 commercial real estate market. Of those respondents, deregulation was top of …

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