Multifamily investment activity in Connecticut is expected to gain some additional momentum this year after a reasonably strong 2008. Last year, investors’ fears of the added risks associated with lower-tier assets limited transactions to mostly Class A and B+ properties in the state’s urban areas. While reduced investor demand for properties in secondary and tertiary locations will continue, buyers are expected to target Class B/C apartments in stable CBD markets. Buyers will likely target lower-tier properties in the New Haven and Hartford core, Hamden and the Fairfield/Bridgeport/Trumbull Triangle, where students drive demand for properties. Fewer Class A transactions and the presence of low-leverage opportunistic buyer funds will likely result in a shift in pricing trends, causing cap rates to increase to the mid-7 to 9 percent range. Apartment properties are trading and being financed in the region, thanks largely to agency lenders and still-active local and regional commercial banks. With the fall of the CMBS market, a financing void has emerged in the local and national markets. In 2006 and 2007 CMBS originations nationwide totaled more than $400 billion. Our research suggests that more than $80 billion in CMBS loans will come due in 2009-2010 and recapitalizing those loans will …
Northeast Market Reports
Clearly, the demand for office space has significantly diminished since the end of last year. Office leasing is directly related to jobs and the expectation of future employment and, therefore, over-reliant on Wall Street. However, it does lag behind the stock market somewhat. Having said that, it is important to look at the Manhattan office space market with a broader perspective. The unique advantages of New York City include the diversity of businesses residing here and the transportation infrastructure that makes it easy for people to get to work. Other cities such as London, Seattle and Silicon Valley, California, are far more reliant on specific industries and their market tends to suffer more dramatically when those industries are in decline. Although the financial services and banking industry represents a large portion of the overall inventory of office space in Manhattan, industries such as healthcare, legal (with strong bankruptcy and litigation departments) and accounting have shown resilience — and in some cases growth — of their businesses. The subleasing of excess office space, although predominantly in the financial services sector, also includes retailers, law firms and pharmaceutical companies. Recent major leases include: Deutsche Bank, which renewed 150,000 square feet at 345 …
We expect 2009 to continue to be a tough year for commercial/investment real estate, but multifamily is certainly the preferred product type for institutional and private investors delivering stable, solid returns, particularly in the supply-constrained New England markets. Transaction velocity was actually fairly strong through EOY 2008 although cap rates and IRR have increased by 100 to 150-plus basis points from a year ago, and currently we are pricing properties using cash-on-cash returns based on true, twelve month trailing operating data. Fortunately, the greatest demand from institutional investors is for well-constructed Class “B+” to “A” properties in the region. While we don’t have the problem of shadow inventory that we do in Florida, Arizona and other markets, we have noticed an increase in vacancy for Class A and B properties in the region. Occupancy in a number of properties we analyze for our monthly same-store rent comp survey has dipped, but we’re still ahead of most other national markets. We are generally seeing an increase in vacancy in New Haven, Fairfield, Middlesex, New London and Hartford County properties from 100 to 400 basis points but we expect strengthening later this year. After 30-plus years in this business, my honest opinion …
As we continue to track changes and trends in the industrial sector on Long Island, two things remain constant: Go East and Go Up. The east offers land availability and height is playing a more significant role than ever in space utilization. It’s always been about cost effectiveness. When land was plentiful and less costly, it was more economical to build out, rather than up. With the shortage of land, the price has escalated such that, to achieve the same cubic feet of space, it is necessary to build or raise the ceiling heights for better economic functionality. This, coupled with better material handling equipment, makes it practical and necessary to accommodate growth and maintain profitability. A prime example of this is the pending sale of the Stimpson Company property in Bayport — a low-ceiling, 200,000-square-foot building set on 22 acres. An old line regional company is buying this property because it has an oversized plot, and while they were planning to raise the ceiling from 15 to 40 feet clear, plans were only recently abated as a result of the current economic environment. As mentioned, the towns of Islip and Brookhaven have been aggressively seeking industrial growth through their …
Despite being just south of Philadelphia, Delaware continues to maintain its presence in the New England market and its own identity. After a very active period from 2005 to 2007, office development in Wilmington’s central business district (CBD) is now taking a breather. The last project finished, the Renaissance Center at 4th and King streets, still has significant vacancies. The suburban market has also slowed, and new developers are taking a wait-and-see approach before speculatively breaking ground on new projects. This current slowdown in market activity is attributable partly to the market and partly to the usual summer slump. The slowdown has brought overall vacancy rates to 17.1 percent for Class A and B office product, including sublease space. The Wilmington CBD comes in with the highest rate at 20.5 percent (Class A and B, including subleases), while western New Castle County posts a rate of 6.2 percent, an anomaly compared to the other submarkets that lean more towards the CBD’s rate. Currently, rents for Class A space in the CBD can run from the low $20s to low $30s per square foot. Suburban rents for Class A space are equivalent, ranging from the low to high $20s. Leasing may …
What area is your expertise? Connecticut — Fairfield County. What trends do you see presently in office development in your area? Slow to moderate growth in office demand. An adequate supply of product is available but not many “lookers.” Who are the active office developers in your area? Very little new development. Mostly local developers without national recognition e.g. Building and Land Technology of Norwalk and The Davis Company, also of Norwalk. Please name one or two significant office developments in your area. What impact will these projects have on the market? Blackrock Realty’s new railroad station project is underway in Fairfield that will become Fairfield Metro Center office park. The 100 Fairfield Metro Center building will encompass the first phase of the development and contain 200,000 square feet of Class A office space. A pavilion building on-site will add another 70,000 square feet to the overall development. Phase I is scheduled for completion in 2009. Where is the majority of development taking place? Why is this area doing well? Lower Fairfield County. It’s located along the commuter route to New York City. What area do you expect to be the next big development market? Why? The 33-acre Wilton Corporate …
The Soho neighborhood in Manhattan, New York City, has become synonymous with shopping and entertainment. Bounded by Houston Street on the north, Layfayette Street in the east, Canal Street on the south and Sixth Avenue on the west, the growing popularity of the area has made it the place to be for retailers. Just in the last few years, the retail rental rates on Broadway in Soho have increased dramatically. Three years ago, retail rents on the first block on Broadway between Prince and Houston streets were around $200 per square foot, but today even small space on the first and second blocks of Broadway are ranging from $400 to $500 per square foot. Many high-end fashion retailers are clamoring to open stores in Soho not just for the opportunity for high retail sales, but to have a presence in one of Manhattan’s most sought after markets. Hugo Boss recently signed a substantial lease on Broadway between Prince and Spring streets, which in turn has prompted other major fashion retailers to seek space in the area. Many top European designers are also beginning to look for space in the Soho area. The Soho area is not just attracting small shop …
With more and more New York City industrial neighborhoods becoming gentrified, industrial properties are in increasingly short supply. The situation is especially notable in the outer boroughs, where most of city’s industrial real estate activity is focused. Over the past ten years, approximately 30% of industrial property in the outer boroughs has been converted for other uses. In fact, the city’s decision to rezone industrial neighborhoods for residential and commercial development has created a strong market for warehouse and manufacturing spaces. The outer boroughs are all experiencing similar industrial market conditions, with a vacancy rate hovering at about a mere 3%. In Brooklyn, the Bush Terminal and Gowanus areas remain heavily industrial, while Red Hook, Green Point and Sunset Park are seeing an increase in residential developments. The Bronx has always offered a smaller inventory of warehouse and manufacturing facilities, predominately in Port Morris and Hunts Point, and recent conversions have made availabilities tighter than ever. The industrial market on Staten Island, which was always limited, has not experienced much change. Queens is currently the most active borough in the industrial sector. Many neighborhoods, such as Woodside, Maspeth, Corona and College Point, have kept their industrial identities. Other areas, like …
What area is your expertise? The Greater Pittsburgh Metropolitan Area and Western Pennsylvania. What trends do you see presently in multifamily development in your area? The Greater Pittsburgh MSA is a very stabilized and historically steady market. There are high barriers to entry, modest but steady rent increases, strong occupancy and limited concessions are offered to tenants. Who are the active multifamily developers in your area? The recent active developers in the Greater Pittsburgh MSA include Lincoln Properties and Continental. Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? The Cork Factory located in the “Strip District” on the river front in Pittsburgh. This project was recently developed into 297 luxury apartments from a vacant warehouse. The Cork Factory is a tremendous success in terms of lease-up time and achieving record high rents. This project, along with The Encore on 7th, represent the two newest apartment communities built in the City of Pittsburgh in more than 30 years. The Encore on 7th was built from the ground up by Lincoln Properties. The community contains 151 luxury rental units and was completed in 2006. Where is the majority of development …
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