Despite robust demand, the multifamily market is feeling the effect of new supply with many owners unable to raise rents as they could earlier in the cycle. With vacancy rates rising, apartment owners will find this year challenging, but fundamentals are strong enough to "weather the storm," says Victor Calanog, chief economist with Reis.
Analysts are watching with concern the rising number of interest-only commercial mortgage-backed securities, as these borrowers will have to shoulder heavier debt payments just as the cash flow from their properties starts to slow. Partial-interest-only loans are also at risk, and the overall situation could lead to an increase in defaults during an economic downturn.
REIT returns generally have low correlations with returns from the broad stock market. Nareit's Brad Case reports that some REIT property sectors -- including health care, self storage, residential, infrastructure, and data centers -- seem to be especially defensive with average correlations of 65% or less even during periods encompassing market crises. Even those property sectors with the highest REIT-stock correlations, though, have shown correlations of 78% or less even during the Financial Crisis.
Industrial and multifamily REITs are benefiting from strong economic trends, but they both face short-term supply headwinds, says Spencer Levy, head of Americas research at CBRE. In the long run, their fundamentals are strong, but the asset class that he believes represents the best buying opportunities is in the retail REIT space "because there's been a tremendous overreaction to the encroachment of the internet."
Scooping up 755,900 square feet, Facebook has just signed the largest office lease in San Francisco's history, at MetLife Investment Management's Park Tower. The social media company has also signed leases to occupy three offices in Sunnyvale, Calif., which are under development by realty firm Jay Paul.
A panel of experts at the International Council of Shopping Centers' ReCon event noted that retail centers are not dying, but rather becoming more particular about experience- and destination-related tenants and shying away from department stores. "There's far too much retail happening today that isn't going far enough to create that extra special feeling, whether it's speed, efficiency or surprising product," said Stephen Jay of JLL-owned Big Red Rooster.
Simon Property Group says it will spend $4 billion on transforming some properties into experience destinations. Phipps Plaza in Atlanta is getting a boutique hotel, office space and a wellness center, while Simon's King of Prussia, Pa., property will see the addition of a Class A office tower and a residential component.
The Des Moines, Iowa, City Council is considering several plans for the downtown area that could increase tax incentives to EMC Insurance Cos. and Blackbird Investments, which plan to swap land in the area. The companies' plans include turning a portion of Kaleidoscope at the Hub, a retail center, into an $88 million skyscraper with commercial space.
Bath & Body Works Outlet, Juicy and Smoothie Cafe, Cronin's Irish Cottage, Old Navy Outlet and Kitchen Collection are planning to move into The Crossings Premium Outlets in Tannersville, Pa. The additions will happen over the next several months.
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