Category: US/Texas CRE News

Boulder Group 2nd Quarter 2022 Net Lease Report

Posted on by Sarah

MARKET OVERVIEW

Cap rates in the single tenant net lease sector increased slightly or were unchanged in the second quarter of 2022. Following record low cap rate levels for all three asset classes in the first quarter of 2022, the increase in borrowing costs and the current inflationary environment were the main determining factors for the change in cap rates. Single tenant cap rates increased by 5, and 7 basis points for the retail and office categories respectively. Cap rates for single tenant industrial remained at the prior quarter’s level.

During the second quarter of 2022, the Federal Reserve announced two rate hikes. One in May for 50 basis points and another in June of 75 basis points – the Federal Reserve’s largest rate hike since 1994. Accordingly, for the first time since late 2018, the 10-year treasury yield surpassed 3.00%, peaking near 3.50% in mid-June. This correlated to higher borrowing costs and created a pause for some net lease investors looking to acquire assets at higher cap rates. Additionally, some sellers may choose to hold assets versus a sale given a decline in value. Consequently, transaction volume in the second quarter of 2022 was down approximately 15% when compared the same time period in 2021.

Lower priced net lease properties experienced less impact in pricing due to the higher likelihood of cash purchasers. Inversely, higher priced properties faced more upward cap rate pressure as net lease investors saw diminished leveraged returns for these assets as borrowing costs increased. Aside from CMBS lending which remains volatile, net lease lending terms remained status quo with the exception of interest rates. Rising rates caused lenders to constrain loan proceeds, limiting loan-to-value in order to keep healthy debt service coverage ratios.

Net lease investors will be carefully monitoring the Federal Reserve’s monetary policy and its impact on the capital markets. Transaction activity will remain dependent on the velocity of 1031 buyers motivated by tax consequences and seller’s willingness to move to pricing that meets non-1031 buyer’s return thresholds. Cap rates will continue to face upward pressure as additional rate hikes from the Federal Reserve are expected in 2022. However, the limited supply of properties with long term leases to credit tenants will keep competition amongst investors.

‘Excited to Go Back’: How the Office Environment Became a Recruiting Tool

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In today’s job market, some employers are leaning into a new recruiting tool, something that has historically simply been a mundane and overlooked factor when trying to lure new talent: the office.

“Let’s say a job seeker gets two similar offers when it comes to compensation and benefits, but one company provides a flexible hybrid work environment in a really nice building with amenities, and the other doesn’t,” says James Stein, Senior Director at Cushman & Wakefield’s Dallas office. “Which job would you chose?”

The competitive recruiting in some fields has generated a flight to quality in the office market.

“That concept is pretty straightforward: make going to the office an experience, something that is worthy of an employee’s commute,” Stein says. “Make sure the building and the space are something that, when the employee gets home, they say, ‘“I’m excited to go back.’” Click to read more at www.rednews.com.

National Industrial Service Facility Portfolio Acquisition Financed with $61 Million Loan

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JLL Capital Markets has arranged $61 million in acquisition financing for an industrial portfolio comprising nearly two-dozen last-mile, cross-dock truck terminals and transload properties across 17 key markets in the Southeast, Mid-Atlantic, New England and Central U.S.

JLL worked on behalf of the borrower, Biynah Industrial Partners, to source the acquisition loan.

The portfolio is 93% leased to 18 tenants with an average tenure of nearly 17 years and substantial investment-grade in-place tenancy. The portfolio crosses various regions with assets in the Southeast, Mid-Atlantic, New England and Central U.S.

The portfolio provides end-to-end logistics solutions for today’s supply chain demands. These facilities represent mission-critical freight distribution transfer points, facilitating the flow of goods at the last stage of the supply chain. Each site offers optimal solutions for facility location, facility size, proximity to major infrastructure, truck court sizing, auto parking and other special use considerations.

This portfolio highlights the growing demand for Industrial Service Facilities (“ISF”), a rapidly growing multi-billion asset class that is suddenly on the radar of institutional investors. Such last-mile, cross-dock truck terminals and transload properties are increasingly driving investor attention due to their critical role in the movement of goods amidst supply chain backlogs.

The JLL Capital Markets team that represented the borrower was led by Managing Director Matthew Schoenfeldt and Director Lucas Borges.

Sky-High Rental Prices Surpass Pre-Pandemic Levels by More Than 25%

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The pandemic fueled a meteoric rise in rental prices, and a severe shortage of supply isn’t helping. The nation’s median rental price hit its latest new high of $1,849 per month in May, representing a 26.6% increase since 2019 before the pandemic began, according to the Realtor.com monthly rental report released today.

A key factor driving the ongoing rent surge is a lack of supply, as rental vacancy rates, which were already trending lower, have taken a sharp dive during the pandemic. These trends are magnified in the biggest cities that tend to attract younger residents, many of whom are in the early stages of their careers and looking for the flexibility in their living situations.

“We do not have enough housing, and increased costs are a concern for all, including the 40 million Americans who choose to rent,” said Bob Pinnegar, president and CEO of the National Apartment Association. “The white-hot housing market has further fueled existing supply shortages and increased housing costs as renters stay in apartments longer and expenses tied directly to property values — like taxes and insurance — skyrocket.” Click to read more at www.forbes.com.

Pain, Pain, Pain: From Soaring Gas Prices to Rising Labor and Materials Costs, Inflation is Making Life Difficult for CRE Occupiers

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Pain. That’s what inflation is bringing to both businesses and consumers today. Gas prices are soaring. Families are spending more at the grocery store. And the average interest rate on 30-year, fixed-rate mortgages has been inching ever closer to 6%.

Inflation is also upending the business models of commercial real estate occupiers, something that Cushman & Wakefield addresses in its latest research.

As the report says, the largest expenses for most businesses are labor costs, which range from about 30% of total operating expenses for transportation firms to 60% for office-using businesses such as accounting, legal, medical and professional services. And today, labor costs for real estate occupiers are rising more quickly than at any time in recent memory, according to Cushman & Wakefield.

According to the Employment Cost Index for the private sector, median wage growth in the first quarter of 2022 rose 6% when compared to the same quarter a year earlier. That’s tied for the fastest rate on record dating back to 1990.

Another challenge for occupiers? Retaining employees. Cushman & Wakefield reported that workers who changed jobs in April of this year received a year-over-year wage increase of 7.2% compared to the average wage increase of 5.3% that workers staying in their current roles saw. Workers understand that they’ll typically earn more by jumping to another company. This makes it especially difficult for companies to keep their best employees if they don’t want to match those bigger wage increases.

It’s little surprise then, that Cushman & Wakefield reports that the number of people quitting jobs remains near an all-time high.

These challenges aren’t likely to disappear soon, either. As Cushman & Wakefield says, escalating labor costs don’t ease as quickly as other forms of inflation. Wages tend to be sticky.

Rising labor costs aren’t the only inflation challenges that businesses face. Cushman & Wakefield says that commercial real estate occupiers are also facing higher electricity, heating and cooling costs. In the United States, the consumer price index for electricity rose 11% during the previous 12 months ending in April, while the consumer price index for natural gas rose 22.7%.

Then there are soaring transportation costs, increases that are especially difficult on companies that ship their product across the country. As Cushman & Wakefield reports there is no sign that these costs are heading down anytime soon.

Another rising expense? The cost of materials. According to Cushman & Wakefield, the Producer Price Index for industrial commodities — excluding fuel– rose 13.8% during the 12 months ending in April, with certain products such as plywood, steel and chemicals rising by even larger margins.

However You Describe it, There’s No Cooling Down the Texas Land Market

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“White hot.” “Very active.” “Extremely strong.” “Unparalleled.”

Ask Texas land brokers about what the market is like today and you’ll get colorful descriptions that boil down to one thing: competitive conditions even those with decades of experience haven’t witnessed in their career.

“I’ve never seen the market as a whole have this much momentum in synergy and velocity,” says broker Rex Glendenning, Owner of REX Real Estate. “Over the past four decades, certain sectors of the market have been extremely hot, but I’ve never seen all the different sectors of the real estate industry have the type of momentum we have here right now.”

Glendenning, who started REX back in 1987, thinks the post-pandemic development cycle may have pushed markets such as Dallas-Fort Worth and Austin a whole cycle ahead.

“What may have taken six to eight years has happened in two or three years,” he explains. “Families are moving to Texas. New companies and corporations are building their headquarters here.” Click to read more at www.rednews.com.