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

Chinese Real Estate Buyers, Feng Shui & Lucky Numbers

Chinese investors have spent over $10 billion on residential real estate in the United States in the past two years, and invested $1.71 billion in commercial real estate in 2011 alone. This large influx of Chinese buyers makes it important for real estate professionals to understand their wants and needs.

First, let’s look at why U.S. investments are so appealing to Chinese investors. If one word comes to mind, it’s value.

Real estate is very expensive in China, and high prices are the driving force behind investments in the United States. “For the price of a 500-square-foot one-bedroom apartment in Hong Kong, around $2 to $3 million US, one can buy a 5,000 square foot house on a half-acre lot in most parts of the U.S.,” said Robert Hsu, editor of InvestorPlace’s China Strategy column, in a recent article.

In the article, titled Chinese Investments in U.S. Real Estate, Mr. Hsu shows Chinese buyers are purchasing everything from stereotypical homes in suburban areas to lavish estates. “My friends in China often ask me about a $34.5 million Beverly Hills mansion that was recently sold to a mainland Chinese couple. In New York City, a $50 million apartment in the new One57 condominium tower was also sold to mainland Chinese buyers,” he stated.

Whether purchasing a small house in Phoenix, Arizona or a full-floor condo in New York City, many Chinese buyers make decisions with numbers in mind. To accommodate them, developers are actually planning projects based on ancient Chinese philosophies.

During the planning of One57, developers decided to put the largest, most luxurious units on the 80th through 88th floors. Since the number eight is believed to be a lucky number associated with prosperity and wealth, it should be no surprise to hear that many of the units were purchased by Chinese buyers.

Aside from lucky numbers, feng shui is also very important.

Originating in China thousands of years ago, feng shui is a system of geomancy that uses the laws of Heaven and Earth to receive positive qi (or chi). Following feng shui principles and building positive energy is believed to improve one’s quality of life.

When it comes to real estate, feng shui applies to everything from putting toilet seats down to furniture positioning to color schemes. Surprisingly, implementing feng shui concepts can actually boost home value and decrease time-on-market, while on the flip side, ignoring feng shui can adversely affect sales. This is especially true in areas with a large number of Chinese buyers, such as Los Angeles, New York City, and Miami.

A study released in 2007 by the Chinese Science Research Institute found that 21 percent of the Chinese public say they believe in feng shui. This means over one-fifth of Chinese buyers in the United States will likely make decisions with feng shui in mind, which adds up to billions of dollars in investments.

In the end, marketing is all about understanding target markets, and real estate professionals in the U.S. are beginning to get a feel for Chinese buyers. However, there’s still a long road ahead.

Source: http://www.fixandflipnetwork.com/2012/07/chinese-real-estate-buyers/

Property Slips in Manhattan

Despite chirpy predictions by brokers about a strengthening Manhattan real-estate market in 2012, a slowdown in co-op and condo sales has deepened so far this year.

Sales were off 6.4% so far during the first quarter, compared with the year-earlier period, which was the worst quarter for sales since the Manhattan market hit bottom in 2009.

The decline occurred despite a pickup in sale of apartments selling for $4 million or more, including the most expensive apartment sale ever in Manhattan—an $88 million penthouse at 15 Central Park West.

Greg Heym, an economist at Brown Harris Stevens and Halstead, said the slowdown likely reflected weakness in the local job market, including last year's loss of 4,300 jobs in the securities industry between April and December.

"For the first time since the recovery, the U.S. is growing at a quicker pace than New York City," he said. "It had been the U.S. holding us back. That is no longer the case."

The quarterly sales figures are based on a preliminary analysis of data from the city Department of Finance, and include closings filed as of the end of the second month of each quarter.

When sales dropped in fourth-quarter reports, the plunge was viewed by industry figures as an aberration—the result of a temporary economic shock from a gyrating stock market and uncertainty over the European debt situation.

But the new figures indicate that the weakness in sales persisted into the new year, and is likely to produce lower final numbers for the full first quarter.

Brokers said that new deal signings have been rising lately, especially in the last two weeks of an unusually warm February. Residential sales often rise sharply during the spring, usually the peak selling season in New York.

The analysis for the year so far showed that sales of apartments selling for less than $1 million, the largest segment of the market, fell by the most, 7.9% overall, including a steep 14.9% decline in sales of co-ops at that price point.

At the same time, sales at the top end of the market, for apartments selling for $4 million or more, rose by 15.6%, as brokers reported a continuing influx of foreign buyers and strong sales in new condominiums.

At the Laurel, a 31-story new condo on First Avenue and 67th Street, brokers at Corcoran Sunshine Marketing Group said they posted $23 million in sales in February, helping to sell out 80% of the building.

Median prices in Manhattan rose, in part because of a drop in the number of less pricey sales. The median price of a Manhattan apartment rose by 5.7%, while the average sale price, boosted by the record $88 million sale, rose by 21.2%.

Still, several brokerage firms said their new contract activity was running ahead of the same period last year.

Pamela Liebman, president of Corcoran Group, said that sales may have been depressed lately because of falling inventory, especially of well-priced apartments. Typically there is a surge of new listings in the spring.

"Anything that comes on in a good building at the right price is selling extremely fast," she said. "Open house traffic is up, the number of buyers is up. There is a severe shortage of new development product."

Hall Willkie, the president of Brown Harris Stevens, said that his new contract figures show that the number of deals with signed contracts rose in January and February compared with the same period a year earlier.

Another brokerage executive, Diane Ramirez, the president of Halstead Property, said: "It is a good, lively, active market across the board."

Jonathan Miller, an appraiser and president of Miller Samuel Inc., who prepared market reports for Prudential Douglas Elliman, said the sluggish figures reflect the fact that "people just held back" toward the end of last year because of economic uncertainty.

He said Wall Street bonuses, though down, were higher than expected, and unlikely to further damp the market.

Even so, he said he didn't expect a dramatic change in the market during the months ahead.

"The real outlook is more of the same," he said, "with significant activity at the upper echelon of the market and more mundane level and pricing at the lower end."

Source: http://online.wsj.com/article/SB10001424052970203986604577255683014521206.html?mod=googlenews_wsj

Thirty cities get half of global property dollars

(Reuters) - More than half the recent global investment in commercial real estate found a home in just 30 cities with a quarter spent in London, Tokyo, New York, Hong Kong and Paris, according to real estate services company Jones Lang LaSalle

In a report released on Wednesday, it said it expects major cities in emerging markets to increasingly become viable contenders for real estate investment dollars, expanding its list of 30 "alpha" cities over the decade.

By 2020, the list likely will broaden to the top 50 with investment spreading to such cities as Mexico City, Delhi, Guangzhou, Houston and Istanbul, Jones Lang LaSalle said.

Those cities were attracting global corporations, who are most often tenants, it said. Yet, as the quality of the buildings there improve and the real estate markets become more transparent, and the buying and selling becomes easier, these markets become safer for investment.

The study included investments in shopping centers, malls, office buildings, warehouse and distribution centers, and hotels. The report does not include apartment buildings.

Within 10 years, the bulk of commercial real estate investment will be in assets located in 300 cities where technology enables large global companies to operate in more cities, Jones Lang LaSalle said. Those include secondary and tertiary cities in China as well as those in more mature economies such as Austin, Texas.

Even with that expansion, traditional real estate investment markets will retain their top positions, especially those in the United States, said Jeremy Kelly, a director of global research for Jones Lang LaSalle and author of the report.

"While, the Asian/Pacific story is very compelling, and many real estate players are focusing on the growth opportunities there, we shouldn't forget the chunkiness, size and growth potential of many U.S. cities," Kelly said. "They are among the most innovative, and they are huge cities. Eleven of the top 30 in 2020 will be in the United States."

Source: http://www.reuters.com/article/2012/01/25/us-property-globalinvestment-idUSTRE80O1NQ20120125