Peter Boritz, President of RDM, reviews the first quarter of the year and offers his thoughts on the industry in the upcoming months.
After a 91% drop in sales volume in 2008 and 2009, the New York City market is making a comeback; with more buildings coming onto the market since 2008. In addition, sale prices are on the rise as buyers begin to outnumber sellers.This turn in the economy has lead to some “testing” of the market. One asset had 20 bidders until an all cash deal was complete for a large Time Square building. At RDM, we have seen a spike in our building measurement services, creating REBNY and BOMA calculations along with updated floor plans to support sales and marketing.
I’m cautiously optimistic about this thaw as we wrap up the first quarter of the year. It will be interesting to see where buildings trade at. It is clear there is a lot of money on the sidelines just waiting to get in the game.
The commercial real estate industry continues to see theeffects of the economic downturn of the last year, subsequently leaving commercial property values at an all-time low. In addition, well-known industry insiders report the market has reached bottom, providing the perfect time for new owners and power players to utilize this downturn to invest in distressed assets. However, investors should be sure of the true value of a property prior to acquisition, which means obtaining accurate usable and rentable footages. This is often a missed or overlooked aspect of due diligence.
As a leading authority on building measurement methods, Real Data Management has played a critical role in helping investors complete some of the biggest real estate transactions and continues to serve as a valuable resource for the commercial real estate community. Whether it is a footage dispute in an existing property or due diligence that is required prior to acquiring a building, RDM provides understanding on how buildings get measured and a full platform of solutions for landlords, brokers and property managers.
For new investors, RDM’s Due Diligence Report allows buyers and sellers to get a better understanding of the existing square footage conditions, the efficiency of each floor plate, the potential R.O.I. of the property as a whole and includes:
- Area analysis to better comprehend existing usable footages and loss factors - Projections report depicting target rentable footages, potential growth and R.O.I. - Building reconciliation on rentable areas to validate PROFORMA - Creation or validation of floor plans to support marketing, management and leasing efforts - FAR studies to determine existing air rights - Efficiency report, a descriptive breakdown on how efficient a property is floor by floor
Check back for more as Real Data Management takes a look at commercial real estate market trends, their influence on the industry and how RDM can help when the market turns around. Visit our website to get our White Paper on Building Measurement trends.
As the Equity REITs raise big money the mortgage REITs are experiencing some hesitation among investors.
Over the past six months equity REITs have been on a tear raising money to poach distressed assets. With commercial lenders still on the sidelines, cash is the only way to get deals done. This year alone over $14 Billion has been raised by REITs, with most of that coming from the big players like Boston Properties, Simon Property Trust and Vornado.
This has been the glimmer of hope for the equity REITs in these dismal times. REIT risk managers and CFOs are likely thinking, “Well, if deals cannot get done now, we can at least raise some cash to scoop up some quality assets on the cheap”. Mortgage REITS on the other hand haven’t been so lucky.
As recent as this past week, we have seen a flood of mortgage REIT IPOs hit the market. These smaller, less capitalized, mortgage REITs have also been attempting to raise cash in an effort to capitalize on distressed assets, in their case, loans. Only a small proportion of all REITs are classified as mortgage REITS. Technically, these are finance companies that lend on real estate assets and use creative hedging activities to manage their risk exposure. They are more complicated and more risky than their equity brethren, and hence, are smaller and don’t carry the house hold name like some equity REITs do. These mortgage REITs are going after the now defunct CMBS market. With mortgage backed securities being the cause for this once-in-a-generation economic meltdown, no one wants to touch new CMBS offerings. This has led to low values placed on new CMBS deals, and a lot of mortgage REITs see an opportunity, sensing the CMBS packages may be under valued.
What we are seeing is the perceived value of “street cred” among investors. As far as raising capital goes, the bigger equity REITs didn’t have a problem. Despite the lack of funding, rising cap rates, and ramping vacancies the Vornados and Simon Properties of the world have always been well capitalized. They splurged like everyone else during the boom times and made some bad decisions, but they avoided getting over leveraged and were never in danger of default. Another advantage the equity REITs have going for them is dividends. Despite the recent cut-back by many REITs, the majority of them have been paying out steady dividends for years with above average yields.
The mortgage REITs have a few things going against them when it comes to raising capital: 1) They are purchasing risky mortgage backed securities, 2) They are highly leveraged entities, 3) All the recent chatter about commercial real estate being the next “shoe to drop” has soured many investors on the idea of investing in the commercial real estate market, and 4) Many are smaller organizations, and to generate capital quickly for opportunistic situations it helps to have a track record, it helps to have “street cred”. This is why many of the recent funds created by these mortgage REITs have seen dramatic cuts in value.
Peter Boritz, President of RDM, reviews the first quarter of the year and offers his thoughts on the industry in the upcoming months.
