Features

Jim Flynn, Hunt: Multifamily demand drivers have remained strong...

Hunt: Multifamily Should Remain a Favored Product Type in 2020

by Jaime Lackey January 21, 2020

James P. Flynn, CEO of New York-headquartered Hunt Real Estate Capital, believes 2020 will continue to provide a strong environment for multifamily lending and transactions. Though this may be good news for borrowers, it does mean competition in the market will also remain strong. Flynn addresses these points and elaborates on ORIX USA’s acquisition of the Hunt Companies’ commercial real estate financing subsidiary in the Q&A below. Finance Insight: What commercial property sector will experience the most activity in 2020, and why? Flynn: Multifamily should continue to be the most active commercial real estate sector in terms of financing activity. The MBA forecasts that multifamily lending will top $395 billion in 2020, a 9 percent increase over 2019 activity. That figure represents nearly 60 percent of the total commercial real estate activity forecast for 2020. With the Fed signaling no change to borrower costs for the year, the consensus seems to be a continued period of interest rates near historic lows. Multifamily owners and operators will continue to take advantage of this environment to rehabilitate, refinance and refine their portfolios. Of course, the other side of the equation is the growth in multifamily demand drivers. These drivers have remained strong, …

January 21, 2020

Features Northeast Feature Archive

Sagging Foreign Investment Fails to Extinguish Optimism

by Taylor Williams January 21, 2020

Foreign investors in U.S. commercial real estate are on pace this year to sell more assets than they acquire on an annual basis — something that hasn’t happened in seven years. Through the first three quarters of 2019, foreign investment in U.S. commercial real estate totaled $30 billion, compared with $60.6 billion during the same period in 2018, according to Real Capital Analytics (RCA).The New York City-based commercial property research firm tracks deals of $2.5 million and above. To be sure, the lack of large entity and portfolio transactions driven by foreign buyers that beefed up last year’s cross-border sales volume are partly to blame. But so are a number of other factors, which have largely relegated many foreign investors to the sidelines. Those factors include premium pricing, a prolonged period of high hedging costs, and an economic expansion that has lasted so long that it resembles the second game of a baseball double-header. The falloff in demand has affected core office assets in major markets in particular, say commercial property experts, but cross-border buyers continue to expand into secondary markets and a broader range of properties (see sidebar). Nevertheless, commercial property experts remain confident that foreign investors are on …

January 21, 2020

Features Retail

Retailers, Landlords Face Complications of Factoring Online Returns Into Gross Sales

by Jeff Shaw January 17, 2020

With the rise of e-commerce, declining foot traffic in malls and shuttering department stores, retail landlords and brick-and-mortar tenants have faced a wave of challenges in recent years. As a result, both landlords and tenants are constantly searching for new and unique ways to improve their bottom-line figures. One recent area where this has become an issue concerns in-person returns from online sales, and how they affect a retail tenant’s percentage rent calculation. Many retail leases contain a percentage rent provision in which a tenant pays a portion of its gross sales above a certain threshold to the landlord in addition to the tenant’s other rental obligations. These provisions often include numerous exclusions that can be deducted from a tenant’s gross sales calculation, including employee discounts, gift certificates prior to redemption and fees paid to credit card companies. Many leases also contain language allowing retailers to deduct the sales price of items that have been returned by customers. As a result of the rising popularity of online shopping, disputes have arisen between retail landlords and tenants as to whether tenants can deduct the sales price of items bought online and subsequently returned in store from the gross sales calculation in …

January 17, 2020

Features Retail

Unless Assessors Recognize Challenges of Shopping Centers, Property Taxes Will Rise

by Jeff Shaw January 15, 2020

As retailers rise and fall in the age of Amazon, property taxes remain one of retailers’ largest operating expenses. That makes it critical to monitor assessments of retail properties and be ready to contest unfairly high taxable valuations. Assessors — and property owners attempting to educate those assessors — must understand how the changes taking place in the retail sector affect property value. Assessors must adjust their models to reflect new market realities, and property owners or their representatives must be able to explain why previously held valuation assumptions could no longer be valid. No Going Back Changing consumer tastes have always required retailers to adapt in order to survive, but traditional retailers are facing a different kind of challenge today. The increasing role of e-commerce in overall sales reflects a fundamental change in consumer behavior that will not reverse course with the whims of fashion. The ability to shop online is resetting consumer expectations, and retailers are struggling to adapt and stay competitive. This struggle is evident in store closings that in 2019 are outpacing closings from the prior year. In addition to the threat of e-commerce, some economists believe a recession is coming in 2020. Falling retail sales, …

January 15, 2020

Affordable Housing Content Partner Development Features Georgia Mixed-Use Multifamily Southeast Southeast Feature Archive Walker & Dunlop

Egbert Perry and Affordable Housing: How One Man’s Vision Launched a National Movement

by Jaime Lackey January 12, 2020

When picturing the rebirth of downtown Atlanta, one of the first images to come to mind is the skyline — the iconic high-rises. Another, often overlooked, part of this picture includes Atlanta’s skywalks. In the early days of redevelopment, these walkways connected luxury buildings above urban neighborhoods that many had abandoned, and effectively furthered the separation of the “haves” from the “have-nots.” Iconic Atlanta developer Egbert Perry was driven to challenge development that emphasized the separation. From his perspective, perpetuating the separation of community members simply perpetuated the issues of inequity and injustice that plagued the city. Perry was motivated to bring people together in a different way, in neighborhoods that would appeal to everyone. Where others saw poverty, blight, and dilapidated housing projects, Perry saw potential — and pioneered a new approach to affordable and workforce housing, commercial real estate development, and community development and investment. The Story Begins at Centennial Place In 1994, when Perry left H.J. Russell & Company to start The Integral Group, he quickly came upon an opportunity to redevelop the area now home to Centennial Place. The 60-acre property was located in the heart of downtown Atlanta, and was considered to be the most …

January 12, 2020

Features Heartland Feature Archive Industrial Self-Storage

Strong User Demand, High Returns Keep Self-Storage Buyers Hungry

by Kristin Harlow January 9, 2020

The self-storage industry started its upswing during the Great Recession as more and more Americans turned to storage units as a result of being forced to downsize or foreclose on their home, recalls Alec Pacella, president with NAI Pleasant Valley in Medina, Ohio. “That’s when the industry sparked, but it’s never stopped,” he says. There are three main reasons that the self-storage sector has continued to perform well as a commercial real estate property type, according to Pacella. First, an increase in consumer spending has left Americans with more goods to store. Second, there’s been an influx in larger institutional investors and regional aggregators looking to acquire self-storage properties. Lastly, the advent of technology has enabled operators to run properties remotely and offer services such as automatic payment systems and 24-hour access. While the industry has long been dominated by the local mom-and-pop type operators, there are examples of regional players expanding their portfolios today. One such company that Pacella cites is Valley Storage, which has entered the Ohio market from its headquarters in Maryland. The company now has five locations in Northeast Ohio in addition to facilities in Pennsylvania, Virginia and North Carolina. Oversupply concerns The supply of new …

January 9, 2020

Features Kentucky Louisiana Southeast Texas West Virginia

The Terrible T’s of Inventory: Timing and Taxes

by Kristin Harlow January 7, 2020

Inventory taxes pose an additional cost of doing business in more than a dozen states, and despite efforts to mitigate the competitive disadvantage the practice creates for many taxpayers, policymakers have yet to propose an equitable fix. Virtually all states employ a property tax at the state or local level. The most common target is real property, which is land and land improvements; and tangible personal property such as fixtures, machinery and equipment. Nine states also tax business inventory. These include Texas, Louisiana, Oklahoma, Arkansas, Mississippi, Kentucky, West Virginia, Maryland and Vermont. Another four states — Alaska, Michigan, Georgia and Massachusetts — partially tax inventory. In these 13 states, inventory tax contributes a significant portion of overall property tax collections. From a policy standpoint, however, inventory tax is probably the least defensible form of property tax: It is the least transparent of business taxes; is “non-neutral,” as businesses with larger inventories, such as retailers and manufacturers pay more; and it adds insult to injury for businesses whose inventory is out of sync with finicky consumer buying habits. Few fixes Taxpayers have had few options in attempting to reduce inventory tax liability because an inventory’s valuation is seldom easily disputed. So, …

January 7, 2020

Features Retail

Entertainment Offerings Help Keep Malls Out of the Morgue

by Taylor Williams January 3, 2020

Much has been made about online retail — and rightly so — with Amazon now an integral part of everyday life in the United States. But e-commerce’s growth doesn’t mean brick-and-mortar retail is dead. Brick-and-mortar outlets can be viable and profitable, even as retail bankruptcies and store closings increase. Real estate professionals should battle the misconceptions behind retail in 2020 and beyond while keeping an eye on where the next generation of retail is headed. The mall of 1975 is no longer. But could these retailers reemerge in hotel lobbies, airports/transportation centers and medical centers? Total retail sales have increased at an average annual rate in excess of 4.35 percent since 1993, according to Trading Economics. Additionally, most retailers’ quarterly earnings statements — whether from Walmart, Target, Home Depot or major grocers — report increased physical same-store and online sales (with a few exceptions noted later). While online sales have yet to reach 10 percent of total retail sales, the growth is on track to make a material impact by 2025, with 20 to 25 percent of total retail sales projected at that time. If it’s not in-store sales lost to online consumption or recessed consumption post-Great Recession, what’s behind …

January 3, 2020

Features Multifamily

Healthy Occupancy Hinges on Winning the Apartment Amenities Arms Race

by Taylor Williams January 1, 2020

When deciding where to live, the choice isn’t always a matter of finding the newest property on the market. Oftentimes it comes down to which property can most effectively meet and exceed your expectations as a renter. For example, these two “blind” multifamily rental listings identified below are within the same five-mile radius in Upstate New York. They’re both firmly in the luxury rental space and offer in-unit washers and dryers and dishwashers. In other words, they’re practically identical in terms of location and necessities. Can you guess which of the two commands a higher rental price and much more interest from renters? Property A: Built in 2018, average unit size of 1,180 square feet, two bedrooms, two bathrooms, community fitness center, dog park, private patio. Property B: Built in 2010, average unit size of 1,395 square feet, two bedrooms, two bathrooms, community fitness center, dog park, shared outdoor and indoor spaces. If you guessed property B, you’re right. You’re also probably wondering if you’ve heard the full story about that rental property and its amenities. That community fitness center? It’s filled with new equipment from Wellbeats and Peloton. That dog park? It’s a full-on playground for pets, with agility …

January 1, 2020

Features Industrial

How E-Commerce Has Impacted Industrial Real Estate

by Taylor Williams December 27, 2019

Over the past decade, the way we shop has undoubtedly changed. With the evolution of e-commerce, subsequently, so has industrial real estate. Increasing delivery speeds and near-immediate access to goods have become top priorities for consumers, pushing retailers and their supply chains to follow suit. The demand for warehouse space in close proximity to major highways and transit hubs has steadily increased. These locations allow for faster and more efficient deliveries to the end user. Over the past five years, the industrial real estate sector has experienced healthy growth while other sectors have struggled to maintain demand, further showcasing the correlation of growth to the rise in e-commerce. As online retailers continue to competitively decrease their shipping windows — think Amazon’s and Walmart’s one-day shipping policies — demand for last-mile delivery facilities has risen. The last mile refers to the final movement of goods from a warehouse or distribution center to a final destination. The need for modernized, last-mile facilities has increased with the requirement to meet consumer demands and increase shipping speeds. Shifting Expectations Throughout the last few years, when it comes to shipping and delivery time frames, customer expectations have significantly increased. Ten years ago, it was expected …

December 27, 2019

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