Real Estate Forum

NEWS FRONT
Multifamily Investors See Continuing Surge

NEW YORK CITY—Even in the wake of a boom in 2012, multifamily is poised to grow, according to a group of industry experts at the recent BuildingsNY conference, held at the Jacob R. Javits Convention Center. A host of factors, including continuing low interest rates and steadily increasing demand, promise to keep the market thriving, they said.

“Apartment sales will remain healthy
throughout the year, without major
changes in prices or rates,” said Peter Von
Der Ahe, first VP, investments, Marcus &
Millichap. “Neither inflation nor rising
interest rates are a concern before we have
real wage growth nationally. As long as
economies worldwide remain stressed,
treasury yields will decrease, keeping inter-
est rates low.”
The city also benefits from both a fairly
healthy local recovery and the slower eco-
nomic turnaround elsewhere in the nation,
Von Der Ahe said. “We’re benefiting from
the stimulus being given by the government
in the form of low interest rates, so there’s a
favorable environment for investing.”
Just how favorable? “Rents are up 13.6%
in the first quarter over Q1 2012, and we’re
expecting a 5.2% increase for the year.”
Other industry players and observers
also are optimistic based on Q1 activity. “In
2012, multifamily buildings represented
about 30% of total dollar volume of sales
but they were about half of all properties
transacted,” said Robert Shapiro, first VP
of sales, Massey Knakal Realty Services.
“For multifamily buildings, transactional
turnover—or the percentage of properties
that sold out of the total stock—was 1.4%.
While that was a significant decrease from
the 2.5% transactional turnover in Q4
2012, I think the market was just digesting
all of the transactions that took place in
Q4 2012,” when investors rushed to get
deals done to avoid tax issues in 2013.

Why Retail Condos Are CRE’s New Hot Asset Class

Ownership has its privileges. Today’s opportunities for investing in retail condominiums, the darling of the real estate investment scene, are increasing at a breathtaking pace. Elbowing their place at the top of the list of real estate’s asset classes, the sector is the urban equivalent to the suburban strip center and the much-cham-pioned single tenant net-leased asset. Demand for urban retail is unprecedented.

For investors new to this asset class, retail condos are the retail portion of a property that has been converted to condominium ownership. An owner acquires a deed to the unit and pays real estate taxes and a common charge for the upkeep of common areas. As the owner, one can finance, sublet or sell as desired.

Little attention had been paid to retail condominiums prior to 2000 when the inventory was significantly less than it is today. However, in 2012, demand remained strong throughout the year. According to research from Eastern Consolidated, more than $2 billion in retail properties traded in Q4 2012, up from a previous high of $780 million in Q2 2012. Most significantly, the sale of the retail condos at 666 Fifth Ave. and the St. Regis Hotel took the lead as the highest prices ever paid for this asset class.

As this new asset class is beginning to gain in popularity nationwide, retail condos have been flourishing in major metropolitan cities with dense populations, such as Miami’s South Beach, Chicago, Philadelphia, Boston, Los Angeles and San Francisco. New York City has the largest inventory of retail condos, accounting for more than 60% of all retail condominium sales nationwide.

By Adelaide Polsinelli

Low interest rates, and an influx of cheap international capital, have created the perfect storm for investors and retailers. Along with the tax benefits of ownership, retail condominiums are smart investment vehicles with fewer barriers to entry. They provide a hedge against inflation as well as the benefits of future appreciation. Capital from countries with weaker economies looks to retail condos as a flight to safety. Currency rate fluctuations have also lured international investors to this asset class.

If you believe in the future of an area, buying a retail condo is an easy way to participate with limited management and a predictable future. Although this once was mostly attractive to investors, retailers now realize that they can buy their spaces almost as cheaply as they can rent while also taking advantage of the appreciation in property values and, at the same time, building equity.

Historically, low interest rates have created opportunities for retailers to consider buying their space as the cost to lease starts to become close to or equivalent to owning.

In cities with high property values, buying allows an investor to participate in the real estate without committing to the additional management and capital requirements of owning a building.

Compared to residential condos, retail condos have less supply and provide greater resale values. Those with strong leases are easily financed by lenders, making it a great investment for one’s real estate portfolio. And unlike a multifamily investment, there are fewer headaches, less management problems, lower maintenance issues and more predictable expenses.

Adelaide Polsinelli is senior director of Eastern Consolidated’s Retail Sales Group in New York City. She may be contacted at ap@easternconsolidated.com. The views expressed here are the author’s own.