Investors have yen for real estate

Secondary U.S. markets are catching fire with investors as total office sales rise nearly 8% in the first three quarters. The commercial mortgage-backed securities market could reach $40 billion this year.

Move over, New York (and Chicago and Los Angeles). Real estate investors have their sights set on secondary cities and rents are rising accordingly, Bloomberg News reported Monday.

Real Capital Analytics Inc. found that 31% of real estate transactions this year have taken place in secondary and tertiary markets (cities other than New York, San Francisco, Los Angeles, Washington, Chicago and Boston). That's up eight percentage points from 2011.

Capitalization rates, which measure yield by dividing net operating income by sales price, in those cities are on the rise. In the first half of 2012 the average for secondary and tertiary markets was 7.7%, up from 6.3% the year before.

Investors looking for higher yield assets in a period of historically low interest rates are increasingly turning to commercial real estate, often beyond the nation's coastal hubs.

Real Capital's data show that office sales nationwide in January through September rose 7.7% from a year earlier, to nearly $48 billion, Bloomberg reported. If transactions for Manhattan's Worldwide Plaza and several other big-ticket properties go through, 2012 may close out with a deal volume of more than $70 billion. That would be the best year since 2007's peak of $212 billion.

Banks are issuing more securities backed by commercial mortgages. In September alone they issued $6.9 billion worth, the highest amount December 2007, Bloomberg reported. Total commercial mortgage-backed securities may reach $40 billion this year.

Primary markets, New York included, are also showing signs of life. Office prices in the six largest cities rose 16% in the first half of 2012 from the same period of last year. According to Cassidy Turley's Manhattan office market report for October, Manhattan rents are also rising. September's average asking rent was $56.52 per square foot, a 62-cent increase from August. That figure is still a far cry from the city's peak, which was $67.06 in May 2008.

Source: http://www.crainsnewyork.com/article/20121008/REAL_ESTATE/121009908

US property uplift held back by commercial space

Los Angeles: The Urban Land Institute cut its forecast for US commercial real estate sales by 12 per cent to $748 billion (Dh2.75 billion) through 2014 because projections for economic growth are “down considerably” from six months ago.

Deals for properties such as office buildings, shopping centres and warehouses probably will be $223 billion this year, $250 billion next year and $275 billion in 2014, according to a ULI survey released today of 39 economists and analysts from real estate investment, advisory and research firms. In a March report, sales were forecast at $250 billion this year, $290 billion next and $312 billion in 2014.

The forecast “is generally less optimistic regarding the economy and the performance of commercial real estate,” the Washington-based institute, which researches land-use and development issues, said in its survey.

A recovery in commercial real estate nationwide is being damped by sluggish economic expansion. The lowered forecast is the result of slower than expected growth in the US GDP, which is now projected to expand 2 per cent both this year and next year before rising to 2.9 per cent growth in 2014, the ULI said.

“These forecasts are down considerably from the spring 2012 forecast, which forecast the GDP would grow by 3 per cent in 2013,” according to the semiannual “ULI Real Estate Consensus Forecast.”

The forecast for new commercial mortgage-backed securities also was cut. CMBS issuance probably will total $35 billion this year, $45 billion next and $60 billion in 2014, the ULI said. That’s down from a March forecast of $40 billion this year, $58 billion next and $75 billion in 2014.

One projection boosted from the last survey was for the performance of real estate investment trusts (Reits). Annual returns for equity Reits are forecast to be 15 percent this year and 10 per cent both next year and in 2014. That’s up from the previous forecast of 10 per cent this year, 9 per cent next and 8.5 per cent in 2014, the institute said.

“If you’re a large institutional owner or Reit or a leveraged individual, all of those holders are interested in holding real estate,” Douglas Poutasse, a Boston-based executive vice president at real estate adviser Bentall Kennedy who participated in the survey, said on a conference call. “They are happy to hold real estate because of the very attractive returns, especially compared to the bond market.”

The ULI conducted its survey from August 21 to September 14.

Source: http://gulfnews.com/business/property/international/us-property-uplift-held-back-by-commercial-space-1.1081730

Home prices in largest U.S. cities fall in October from September

Home prices in the nation's largest cities fell in October for the second straight month, suggesting that prices will head down further next year and dashing hopes that the sluggish housing market was headed for an upturn.

The Standard & Poor's/Case-Shiller index, a measure closely followed by economists, showed price drops in 19 of 20 cities since September. Overall, the price index slipped 1.2% month over month and fell 3.4% compared with October 2010.

The decline is typical of the season, when home buyers back off after the busy summer period. But coming off five straight months of increases through August, the retreating prices in the fall suggest that weakness in the market may stretch into 2012.

Atlanta was on particularly shaky ground, according to Case-Shiller data. The price index there declined 5% in October after falling 5.9% in September and was down 11.7% over the last 12 months. Atlanta, Cleveland, Detroit and Las Vegas had average prices that were lower than they were in January 2000.

In Los Angeles, the Case-Shiller index recorded a monthly decline of 1.5% in October after sliding 0.8% in September. Year over year, L.A. prices are down 4.9%, as measured by the index.

San Diego fell 0.6% from September and was down 4.5% from October 2010. In San Francisco the pattern was almost the same, with the price index off 0.7% from September and down 4.7% from a year earlier.

"In the October data, the only good news is some improvement in the annual rates of change in home prices," said David M. Blitzer, chairman of the index committee at Standard & Poor's. In 14 of the 20 cities tracked, the rate of the annual decline in home prices slowed.

Home prices appeared to be stabilizing earlier this year, but that may have been an illusion produced by a temporary reduction in foreclosures, economist Patrick Newport of consulting firm IHS Global Insight said in a research note. The foreclosure pipeline was slowed after media reports that some lenders cut corners when processing their foreclosures.

More than 6 million homeowners — 12.6% of the homeowners with mortgages — were either delinquent on their payments or in foreclosure at the end of the third quarter, the Mortgage Bankers Assn. said. About 22% of residential properties with mortgages were underwater at the end of the third quarter, meaning that the homeowners owed more on their loans than the properties were worth, according to CoreLogic data.

"Add to this the currently high unemployment and underemployment rates, one gets a recipe for further price declines," Newport said in a research note. "Our view is that foreclosures, excess supply and weak demand will drive prices down another 5% to 10%."

Should the economy slip into a recession, the unemployment rate will climb, driving foreclosures up and leading to an even larger drop in home prices, Newport said. He rated the chance of another recession a 35% probability.

The Case-Shiller index, created by economists Karl E. Case and Robert J. Shiller, is widely considered the most reliable read on home values. The housing index compares the latest sales of detached houses with previous sales and accounts for factors such as remodeling that might affect a house's sale price over time.

The index also provides seasonally adjusted data. S&P has warned that the adjusted data are unreliable because the high number of distressed properties has distorted the market.

The Case-Shiller data cast a pall on recent, more promising market feedback. Last week, the Commerce Department said construction of new homes and apartments was up 9.3% last month from October and up 20.1% compared with November 2010.

Home sales in California were up 4% in November compared with the same month a year earlier, though they fell 4.2% from October, according to real estate research firm DataQuick. The median home price in the state in November was $244,000, down 4.3% from a year earlier but up 1.7% from October, the report found.

Source: http://www.latimes.com/business/realestate/la-fi-housing-prices-20111228,0,541656.story