Data-Less 2017 Market Outlooks (Analysis Without Paralysis) Part 2

Posted: December 14, 2016 by Eli Randel

DATA-LESS 2017 MARKET OUTLOOKS (ANALYSIS WITHOUT PARALYSIS) Part 2

Read Part 1 Data-Less 2017 Market Outlooks

Despite the moving market pieces and political volatility which could affect the US capital markets, I muted the noise and “what-if” scenarios, spoke to several trusted advisors, and put my thumb in the air to paint a picture of what I think the 2017 CRE capital markets will look like:

Following a flurry of sometimes fruitless activity (lots of squeezing, minimal juice) in Q4 to close investment sales and refinance debt before year end, I expect a brief pause and “holding of the breath” entering 2017 as Trump takes office and investors shake off their added holiday weight. Eventually, the ambitious deployment targets and billions of dollars in unplaced capital will resume the deal chase and direct or LP equity will be plentiful albeit more risk averse. Despite the domestic perception of political risk, foreign economies still view the US as a safe-haven for capital and will continue to gravitate towards the US CRE market to escape their own struggling economies, political risks, and low (and even negative) interest rate environments. Large supplies of domestic and foreign capital competing for deals coupled with strong growth assumptions will mostly offset softening values resulting from upward pressure on cap rates caused by rising interest rates and costs of capital.

The debt markets will become tricky to navigate as interest rates rise and a new regulatory environment mostly for banks and conduits emerges (although Trump has discussed reversing many of the new regulations), but good deals with good sponsors will have no shortages of financing options from debt-funds, conduits, agencies, life companies, and banks. Ultimately lenders will be eager to get to work and to begin deploying their aggressive 2017 targets with balance sheet products from banks and debt-funds continuing to find an opportunity for larger market share. Borrowers will learn to settle for lower leverage or more creative capital structures as rising costs of capital will make debt harder to service and while younger investors will be unsettled by rising costs of debt, more seasoned investors will remember a time when interest rates were well into the teens and will conclude that rates are still relatively low and opportunistic for borrowers.

The last two quarters of the “Wall of Maturities” resulting from the many 10 year loans originated in 2005-2007 will pass mostly as a continued non-event as most maturing loans have successfully paid-off following a sale or recapitalization. Despite some value softening, most asset values remain above their 2007 value or at least above their unpaid loan balances. However, some market softening and the new financing environment may cause a handful of notable maturity defaults, but competition for any deals that emerge will pull returns below opportunistic levels. Distress investors will mostly continue to wait on the sidelines into extra innings. Assets that do default will take a year or two to make it to investors (unless sold as notes) and competition for the deals will push pricing above opportunistic levels.

Transaction velocity will be about even or slightly below 2016 as buyers may increase their yield requirements and sellers are slow to (or choose not to) adjust their expectations and the bid-ask gap – always existent but easier to bridge in a bull market – widens for many deals. However, as repeatedly stated, competition to place capital may offset and shake-off what would seem like a rationale cooling. Pent up capital supply, investors with long time horizons, expiring equity funds, and baby-boomer retirees rightsizing their income, will contribute to transactional movement and deals will still get done at a good pace.

Overall I believe 2017 will mostly mirror 2016 with some signs of softening and plateauing seen in certain product types and markets. I believe a tale of two bifurcated markets may emerge where good product in good markets will remain sought after and yields will remain low and asset values high. In most respects, basic value-add, low-risk profile deals, and core assets will feel similar in pricing to 2016 as institutional capital remains mostly bullish on long-term fundamentals and will look to keep the lights on by continuing to place capital. However, secondary and tertiary markets may initially slow in deal velocity in 2017 as private capital can be less cerebral to value changes (largely because capital is proprietary and not OPM) and sellers will have a hard time dropping their value expectations while buyers have a harder time navigating debt markets causing the bid-ask gap to widen and deals to become harder to execute. However, I think as the year progresses and sellers slightly loosen their expectations while entrepreneurial capital floods secondary markets chasing greater yields than core markets offer, volume in secondary and tertiary markets for sub-institutional product will increase – especially if job creation as promised by the incoming president occurs and infrastructure investment creates new occupiers and tenants armed with government contracts.

To find deals that fit your criteria, please visit www.crexi.com where you will find an aggregated marketplace of over 6,500 commercial real estate investments (and rapidly growing). One-click NDAs, due diligence vaults, and a user-friendly email marketing portal ensures you can immediately begin underwriting deals.

Eli Randel

Eli Randel, CREXi Business Development ManagerEli Randel is Director of Business Development based in CREXi’s Miami office. Eli spearheads CREXi’s growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone’s Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida.

Data-Less 2017 Market Outlooks (Analysis Without Paralysis) Part 1

Posted: December 7, 2016 by Eli Randel with Guest Contributor Paul Cohen

DATA-LESS 2017 MARKET OUTLOOKS (ANALYSIS WITHOUT PARALYSIS) 

The computer can’t tell you the emotional story. It can give you the exact mathematical design, but what’s missing is the eyebrows. – Frank Zappa

As a tech company and a marketplace that has seen approximately 7,000 deals come through our doors since our inception in October 2015, we are data driven and pattern focused. However, for our market predictions we walked away from our computers to drive our neighborhoods, speak with our clients, visit stores to get a feel for the holiday retail pulse, and approach our forward-looking predictions instinctively to avoid analytical-paralysis or failures to read the stories between the lines. CRE data and surveys can often organize the “what” but sometimes fail to explain the “why” (or input). Our goal for our 2017 predictions was to focus on the “why” with the expectation that we (or anyone else) will not get the predictions perfect but that the value sometimes resides in the thought-journey and not solely the destination.

Industrial Outlook Paul Cohen – Southeast Regional Director

For many, industrial real estate is the most boring asset type. Buildings usually lack structural sophistication, are often “dirty”, reside in less traveled outskirts, and yields as of late are compressed to once unthinkable lows and lacking in the return premiums that used to often exist. Despite the lack of sex-appeal, it’s possible industrial real estate is currently the most stable asset type and poised for long-term prosperity.

During the last three or four-years land values have increased significantly in most major port and shipping markets and often the highest-and-best-use (or only use that will “pencil-out”) has been residential even in once industrial submarkets (Doral, FL for instance). Housing brings new residents and demographics which creates the need for warehousing particularly in our new economy where firms like Amazon and FedEx have made speed and logistics a priority and therefore need distribution proximity to population clusters. Rising land costs have done two things simultaneously: 1) because land doesn’t pencil-out well for industrial development there has been little new supply; 2) increased residential demographics has increased demand for industrial space.

A reason I particularly like Industrial real estate and find it a safe investment is it remains semi-immune to technological advances which may threaten other asset types. Modern technology advances and trends like automation, e-commerce, and telecommuting do not generally hurt industrial occupancy or demand but could actually fuel it. Whereas telecommuting trends can contribute to office space demands, and e-commerce has contributed to the decrease of brick-and-mortar retail demand, manufacturing and distribution continues to need distribution hubs across the country to quickly and efficiently produce and distribute products. And while automation has created less need for proximity to skilled workers and may change floor plans, the need to be near population clusters for quick distribution will limit major sprawl from cities.

Future segment potential impactors and risks include: oil prices – which are currently low and affect manufacturing and transportation costs, the political landscape and resulting impact on trade, new manufacturing technology, and the housing market. Politically, the incoming administration’s oft-discussed views on trade could result in decreased imports which could slow activity at port markets. However, penalties for companies moving overseas to exploit cheaper labor (known as “offshoring”) could keep companies and occupiers in the US and potentially increase domestic manufacturing and exporting. Additionally, a professed government plan for mass infrastructure investment will certainly require industrial storage and manufacturing to support those construction efforts. Next level technology like 3-D printers could eventually change how products are manufactured and delivered but I think we have time to see how that unfolds and impacts to industrial will initially be limited. Last, the housing market should be watched as a cooling in the housing market can affect the industrial market in two ways: 1) a decrease in residential development will likely decrease land and construction costs and open the door for industrial developers to deliver more supply; and 2) occupiers tied to the housing industry (like tile and furniture producers) will suffer if the housing market cools. In 2007 while leading the industrial investment sale team in Miami for CBRE, we saw occupiers struggle, vacancies increase, and rents soften.

Ultimately, while pricing has risen and yields have dropped as low as 4% for core product in top markets, I predict industrial real estate to be a very safe asset type with great fundamentals and macro-trends favoring its long-term health. Deal velocity or transaction volume, which is currently down about 25% from 2015, will remain below historical norms as some investors can’t stomach the compressed yields resulting from competition for deals and strong growth assumptions, but patient capital will continue to acquire assets and will benefit in the long-term when they do. While rents in some markets have reached once unimaginable highs and will someday soon flirt with $20/SF levels, lower transportation and labor costs resulting from cheap oil and automation have helped manufacturers offset increased occupancy costs. As land becomes more scarce and development of industrial space less practical, we think occupancies will stay high and rent growth will fuel long-term IRRs despite currently high asset values.

At www.CREXi.com we currently have 786 industrial properties (and growing rapidly) being offered by the best brokers in the business. We encourage you to visit and learn more or reach out to me anytime @ paul@crexi.com or 786.877.0544.

Recommended Reading:

LA Times – Warehouse Robots

USA Today – Offshoring

Eli Randel

Eli Randel is Director of Business Development based in CREXi’s Miami office. Eli spearheads CREXi’s growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone’s Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida.

Paul Cohen – Guest Contributor

Paul Cohen is the Southeast Regional Director of Business Development and is based in CREXi’s Miami office.   Paul is primarily focused on expanding CREXi’s footprint in the southeast markets. Prior to joining CREXi, Paul was a Managing Director at Cohen Financial, his privately held real estate firm that specialized in investment sales and equity raises, and previously held a Senior Vice President position at CBRE.

What the H Does “Off-Market” Mean Anyway?

Posted: November 30, 2016 by Eli Randel

WHAT THE H DOES “OFF-MARKET” MEAN ANYWAY?

What makes a deal “off-market” when the offering is being shared on LinkedIn or broadcasted (“marketed?”) on real estate search engines and web platforms designed for mass distribution?

Once, an off-market disposition strategy was generally employed for speed or discretion. A seller would show a deal to a select few known-closers to: dispose quickly; “save” a small broker fee; or avoid alerting sensitive parties to a sale. The buyer would receive an exclusive (or semi-exclusive) look at a deal in exchange for confidentiality and speed. Sometimes Buyer could negotiate an opportunistic price for their willingness to navigate unique situations or a discount could be a result of Seller failing to price the property in the open market (offsetting any “saved” commissions).

Today “off-market” deals are broadcasted and promoted on social networks, real estate search engines, and mass marketing campaigns to unknown entities. Where the deal type was once Match.com – a way for qualified and compatible parties to privately connect – the off-market space has sometimes devolved into Ashley Madison – a forum for nebulous characters and activity.

When thousands of buyers can access the same deal, what makes it “off-market” and what other challenges and questions emerge?

  • How many other buyers are reviewing the opportunity, and how many have already walked away?
  • Is there a daisy-chain of brokers and platforms “representing” the deal and opening the door for fee disputes and market confusion?
  • Am I negotiating with a party that has any authority with Seller? Will a potential offer be properly received?
  • Is the provided deal information: based on reasonable assumptions, from the seller, and accurate?
  • Is Seller motivated or did they simply tell an inquiring party: “I’m not in the market, but I would consider selling if I could get (insert unreasonable price)”?
  • Is the deal a repackaged version of someone else’s listing?

While true off-market circumstances still exist, should be taken seriously, and there are great brokers who have unique access to those opportunities, the unfortunate reality is most often the term is used as click-bait for a party to either a) engage with buyers when a lack of an exclusive listing won’t allow them; or b) to give sizzle to an otherwise less-than-executable deal.

Instead of looking for a needle in the large and sometimes deceptive haystack, go to www.crexi.com. CREXi is the best way for buyers to utilize technology to discover REAL commercial deal opportunities with the nation’s best brokers. Our aggregated marketplace has over 5,500 verified listings (and exponentially growing). Speaking with the top listing brokers and demonstrating an understanding of the market and an ability to execute, remains the best way to get exposed to every deal in a market including the oft-elusive truly off-market opportunity.

Eli Randel

Eli Randel is Director of Business Development based in CREXi’s Miami office. Eli spearheads CREXi’s growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone’s Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida. 

Nothing Is Easy

Team CREXi – November 22, 2016

Besides being gluttons for punishment, yearning for higher hairlines and larger bald spots, and aspiring for less taxes in the form of lean salaries, we at CREXi are here to bring technology to the slow-to-adapt commercial real estate market. “But Eli, I’m a real estate purist, does the CRE industry really need technology to be great?” you might ask. My answer: “No.” Commercial real estate is already a great industry. My favorite industry. As the son of a real estate investor and entrepreneur, I owe any business prosperity in my life to the CRE industry. However, I learned a valuable lesson as a child when my father would announce every night while walking in the door: “Eli, nothing is easy!” As my life and career progressed, I learned truer words have never been spoken. So how can we make the lives of our clients and customers easier?

DEAL CONDUITS

There is a supply and demand disconnect in the commercial real estate market. Sellers and their brokers always want more buyers and offers for their dispositions while buyers always want access and exposure to more deals. Both sides of the transaction are searching for each other yet often fail to connect. CRE has long been a high-barrier-to-entry market with opaque information. When new investors flow into new markets the common strategy remains: take every broker out to lunch for six months to ensure you are receiving all of their offerings. Having seen the waistlines of some old broker friends, those lunches aren’t always cheap. Our aggregated marketplace of 5,500+ deals allows buyers to quickly find inventory and download information following the one-click execution of an NDA as opposed to waiting for a response to an e-mail or phone call. You can find available properties and obtain information in minutes not days. Brokers also have a forum to reach and curate their listings to a wider audience than the local buyer pool and directly target our exponentially growing user pool of current and active commercial real estate investors.

ONE STOP DEAL MANAGEMENT

Real estate is still a mostly pen-and-paper industry which is time consuming and inefficient. The disposition process is rife with pain points. Most brokers are using 3-6 often expensive platforms to run their process and usually employ a staff of 2-3 team member for support. We’ve created a platform that will speak to every one of these pain points all in one intuitive easy to use web location. Game changing features are in development and will drastically simplify the entire process and transaction work-flow. Contact us for a demo.

SPEED

Commercial Real Estate remains a relatively illiquid asset class. Deals typically take 6-9 months from the first broker meeting to eventual closing. We aim to speed up transactions by eliminating inefficiencies and large chunks of downtime associated with slow information flow and antiquated processes. As famed investor Sam Zell says: “Liquidity Equals Value.” We aim to add value to the commercial real estate process by speeding up deals.

Nothing is easy, but we hope to make transactions easier.

 

Feel free to reach out anytime to “geek-out” over CRE or CRE Tech @ eli@crexi.com or 305.331.2881. Resumes are always welcome to those interested in joining the mission.

Coming Soon in our Weekly Blog:

  • Data-less 2017 Market Predictions (Analysis Without Paralysis)
  • What the F Does “Off-Market” Mean Anyway
  • A week in the Life of an Offering Memorandum
  • When Going Hard is Bad
  • Forget Hillary, Where Did My 30,000 (Marketing) E-Mails Go
  • Tinder for CRE
  • Thanks For the Listing, See You in Six Months

 

4 Ways CRE Technology Has Changed the Deal Flow Process for the Better

Executing a CRE deal from start to finish these days is a far cry from what it was even 5 years ago. From the variety of online mediums available to market properties to having the ability to sign legal documents electronically, all aspects of the business have been transformed by technology.

Technology’s goal is to make our lives easier as well as give us access to goods and services previously unobtainable.  The same is true in commercial real estate.  The rapid pace at which information is exchanged and the accessibility of such information is a major factor in improving and streamlining the deal flow process.  Technology mirrored after other industries as well as new apps and platforms created specifically for CRE is a stark contrast to the traditional methods utilized by CRE professionals in the past. Here’s a rundown of some game changing technology.

Drones and 3D Imaging

Our ability to communicate property details via images has been revolutionized with the advent of 3D imaging and the application of drone technology to real estate.

3D images have a range of uses in CRE, but marketing is its most common application. They make it easy to instantly share 3D models and floor plans that do more than a verbal description ever could. These are also useful for planning renovations or new developments by allowing a potential client/buyer to envision the finished product.  Sites like Floored offer interactive 3D models, video fly throughs, and more.

Drone footage is a unique way to present visual information. It’s changing how CRE thinks about property tours and site selection. These “unmanned aerial vehicles,” can be used to photograph properties from previously unavailable viewpoints. They provide a new perspective on building size and situation for buyers, whatever their geographic location.

Sensors

Another very powerful tool that generates a wealth of data for CRE is sensor technology. The information they provide can be applied to tasks like site selection, property valuation and market analysis.

Sensors that measure pedestrian or vehicle traffic accumulate data over time that provides useful information. It can be used in conjunction with transit data for an even more robust picture of a given property. 

Sensors are also integral to the idea of “smart buildings.” Sensors can monitor everything from HVAC usage to moisture levels, and make properties more energy efficient.

Each of these tech developments is a part of the rapidly growing Internet of Things, which uses an army of devices to automatically and constantly gather useful data.

CRMs

Another technology development that is significantly impacting the deal making process is the evolution of the CRM platform. Managing and tracking property listings, contacts, marketing data, and deal progress on a centralized platform eliminates redundant tasks and missed opportunities by increasing visibility to industry decision makers that wasn’t possible not too long ago.   

CRM platforms manage contacts and prospect lists, and include detailed insight on their demographics, preferences, and past interactions. Many platforms can also facilitate lead generation and enable automated email.  CREXI takes it a few steps further by offering their clients an extensive toolbox of innovative marketing and sales tools from which to choose, all complimentary for the user.   

Another benefit of CRM is that it’s housed in the Cloud, so users don’t have to use valuable space on their hard drives nor does it require users to download or install additional programs.

Transaction Management

Most aspects that encompass a CRE transaction can now be handled online via CRM platforms. Owners, buyers, and brokers have the ability to interact in a secure environment, and track activity and interest in multiple properties from one centralized location. Once a deal is agreed upon, due diligence documents can be shared and updated instantly, decreasing the typical drawn out turnaround time. 

Another major advantage of online transaction management is transparency. All of the players in a transaction have the ability to access up to date information on demand, throughout the transactional process.  Removing this often cryptic layer from the proverbial playing field, is a benefit to both buyers and sellers by allowing them to work smarter rather than harder. 

CREXi users can see real time updates on offers and the due diligence progress, as well as generate comprehensive reports containing complex data and analytics pertaining to a property. The timesaving power of this approach is incredible and promotes news ways of determining property value and stimulates idea sharing and collaboration. 

This ever-changing technological landscape continues to prove that knowledge is power.