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Will commercial real estate values fall? This is how investors can prepare

Will the commercial real estate market always go up? Of course not.

But investors have been spoiled by two decades of double-digit returns that were too good to last. In 2016, returns on institutional-grade property fell below a 20-year 10.1% average for only the first time since the Great Recession, and the latest Urban Land Institute’s Real Estate Economic Forecast puts estimated 2018 and 2019 returns around 6%.

Commercial real estate is cyclical, so it’s logical to expect a downturn at some point. But conventional wisdom holds that it won’t come soon. Colliers International’s 2018 Outlook on U.S. property markets says 2017 was the market’s peak, but the commercial real estate industry is expected to show continued growth, albeit at a more moderate pace, making a real estate market crash less likely.

Although the commercial real estate market’s outlook is still respectable, should investors be deterred by a potential decrease in returns from investment properties in the coming years? As the founder of a real estate investment firm, my informed answer is no. In fact, I believe investors should own private commercial real estate in every market cycle for the following reasons.

Read more from Forbes

 

Why Silicon Valley isn’t headed for a recession any time soon, economist predicts

At least one respected economist has an uplifting message for the real estate community: stop worrying about a downturn.

Christopher Thornberg, founding partner of Los Angeles-based Beacon Economics, on Tuesday told the crowd at Colliers International’s 19th annual Trends event that it isn’t yet time to start collective hand wringing. In fact, he predicted the economy would be full steam ahead for another 24 months and that, in many ways, the economy may better in 2018, even as he warned that he did see signs of a new bubble that could impact the market in the long-term.

“When you look at the underlying indicators, not only is there no chance of a downturn over the course of the next 24 months, if anything, the economy is actually going to accelerate,” he said. “It’s going to be a good year.”

The message comes as a welcome reassurance in Silicon Valley, which has seen economic upswing for a nearly unprecedented stretch, bringing consistent gains in leasing activity, transaction dollar amounts and development across the Valley.

Read more from Silicon Valley Business Journals

Rents in San Francisco and Oakland slip versus 2017

Having ended last year lower than where they started, asking rents for apartments in San Francisco inched up 1.1 percent over the past month but remain 1.3 percent lower versus the same time last year.

In fact, based on a comparison of roughly 2,500 listings, the weighted average asking rent for an apartment in San Francisco, including one-off rentals as well as units in larger developments such as Avalon’s new complex in Dogpatch pictured above, is currently around $4,050 a month which is 9 percent below their peak in the fourth quarter of 2015 with the average asking rent for a one-bedroom now running around $3,400 a month having ticked down from around $3,650 back in late 2015.

Read more from SocketSite

Multifamily Market Trajectory in U.S. to Continue in 2018

According to a new report by Freddie Mac, the U.S. multifamily market will see continued strength in 2018, largely mirroring last year’s performance.

Freddie Mac’s Multifamily Research and Modeling Vice President Steve Guggenmos and Manager Sara Hoffmann find that the moderated growth the market saw in 2017 will continue through 2018. Originations will set another record this year, while rents will keep growing at current levels due to a healthy labor market and continued lifestyle preferences toward renting. Additionally, they forecast that over the next year, completions will peak and supply will increase only slightly faster than demand. While vacancy rates are expected to continue their upward trajectory at the national level and in most metropolitan areas, vacancies in most locations will remain below their historical averages through 2018.

Read more from World Property Journal

Haight neighbors claim 100 percent affordable housing project at McDonald’s is too tall

The rent is too damn high, and to correct this, every San Franciscan is clamoring for The City to build affordable housing — and a lot of it. But one pocket of our sleepy little town is drumming up opposition to a plan for affordable housing at the site of the McDonald’s restaurant on Stanyan Street.

The problem? It’s too tall, they say.

The Haight Ashbury Neighborhood Council — or HANC, as they’re called — penned a public letter in late December laying out its support for the project, in general, but voiced concern that a 65-foot, 7-story-tall development would “substantially change the character of the area,” due to its “height and bulk.”

Read more from the San Francisco Examiner

Powell as Fed Chief—A Win for CRE Investors and Lenders?

As 2017 comes to a close, commercial real estate total transaction volume is over $500 billion according to CoStar. Although, that equates to a 14 percent year over year decline, many forget that those levels are still higher than 2006—a banner year. Regardless, numerous industry observers are holding their collective breath. In fact, Janet Yellen began 2017 indicating a potential bubble in commercial real estate driven in part by today’s extended low interest rate environment.

In response, lenders, investors and regulators remain anxious with the possibilities of cap rates blowing out in the face of rising interest rates. But are these concerns warranted and will the nomination of Jay Powell actually lead to strong levels of commercial real estate price growth?

Read more from National Real Estate Investor

How CRE Investors Could Cash in On the Tax Bill

President Trump signed the new Tax Cuts and Jobs Bill on Dec. 22, effectively putting the final seal of approval on the most substantive tax law changes that the country has seen in 30 years.

It may take some time to crunch the numbers to determine just how much tax savings the new tax bill could generate for commercial real estate investors. The general view is that provisions specific to property owners and developers will deliver a net positive result—although not nearly the windfall that corporations will see with a drop in the tax rate from 35 percent to 21 percent.

Read more from National Real Estate Investor

What’s Up With Retail?

Rent, online shopping, regulations, and a higher minimum wage reduce the brick-and-mortar presence.

Omar Mughannam of Beauty Center faced a 30 percent rent increase at one location.

For local retailers, whose inventory costs are high and whose profits depend on foot traffic and fickle consumer demand, even small increases in rent can be difficult to bear. And when rent increases hit double digit percentages, owners are often forced to relocate to a more affordable space, consolidate multiple outlets, or close altogether.

Empty stores are everywhere, in Rockridge where Itsy Bitsy, Cotton Basics, Rockridge Home, and See Jane Run once seemed to thrive; in Elmwood where the corner of College and Ashby looks sparse without Jeremy’s, and in Montclair Village, too, where the local bike shop and Daisy’s are no more.

Global Economic Briefing, The NAI Global Quarterly Review of The Economy

In June the U.S. economy entered its 96th month of economic expansion, the third longest in U.S. history since 1854. Odds are favorable that this period of growth will surpass #2, which took place during the turbulent 1960s (1961-1969), yet calling the takeover of the 120-month economic expansion and #1 “tech boom version 1A” from 1991 to 2001 is too early to say.

That was one of the takeaways from a recent Global Economic Briefing sponsored by NAI Global in a live webcast presented to NAI professionals and guests in mid-June by Dr. Mark J. Eppli, Professor of Finance and Bell Chair in Real Estate at Marquette University. Once a quarter, NAI Global hosts an economic outlook call featuring domestic and international experts on the economy and other business trends.

Read more from NAI Global

Abandoned Warehouses Are Being Transformed Into Popular Mixed-Use Developments

Outdated warehouses of the past are being resurrected to accommodate a new future. But that future is edging some people out of town.

Now, developers are using the empty vessels as a base to create the much-desired live-work-play dynamic. But this shift may not be good for all, CityLab reports.

Read more from Bisnow