Browse Tag: Investing

Research: 1Q 2012 Cap Rates Flat

Boulder Group Chart: Cap rates flat

The Net Lease Market Report from Chicago-based Boulder Group says the asking cap rates around the country are more or less flat versus the previous quarter. Retail sector cap rates rose 3 points, industrial sector cap rates dipped 6 points and office cap rates fell 15 basis points according to the company’s investment research.

Interviewed at Globe Street, Boulder Group President Randy Blankstein said low availability of lease financing was part of the reason why cap rates were flat.

“There just isn’t much core available, it’s a bifurcated market. Investors are going to move into shorter term properties with secondary credit, with higher risk.”

Higher interest rates may already be forcing investors into higher return territory, such as the 10-Year Treasury Rate going up to 2.39% in March. If interest rates continue to increase, cap rate compression could suffer worse than since Q2 2011.

New development will remain limited throughout 2012, he says. “While there may be some new dollar stores and banks, there’s just too much need to fill vacant boxes such as Borders,” Blankstein says.

Long an attraction to investors for their high and steady rates of return against low interest rates, net lease deals provide that the tenant pays not only rent, but a range of costs associated with the property including taxes, maintenance, utilities and others.

Since many net lease players expect the market to slow, the outlook for brokers could mean a return to a more traditional, less securitized commercial property market, constrained both by limited availability of financing and by the turning away of investment capital from such deals.  While cap rates will always vary by location, by expense structure and lease term, don’t be surprised to see reminders that cash — even in commercial real estate — is king.

 

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5 Tips for Finding New Commercial Real Estate Revenue Streams

We welcome our newest blog contributors, the CCIM Institute, one of  NAR’s Commercial Affiliate organizations. We invite you to comment!

 

As the economic recovery lags, businesses realize they need to do even more to cut expenses, reduce payrolls, and find new sources of revenue. But what is left to cut? Where can they find new streams of revenue?

Real estate is often a company’s most valuable asset, and real-estate related moves can yield the biggest return on investment. In the July/August issue of CIRE magazine, Martin N. Burton shares 10 strategies that commercial real estate professionals and their clients can employ to find additional savings and new avenues for cash flow. Here are five highlights:

1. Divide and Prosper – If the time has come to sell off an asset, owners can maximize the chances of sale and total return by selling off smaller parcels instead of a single large one. Not only do smaller parcels typically sell for higher per-square-foot values, but their lower overall prices attract more potential buyers.

2. Embrace This Audit – Some companies have begun to adopt green practices, such as switching to fluorescent bulbs, or making sure employees turn off lights and computers regularly at the end of each day. But a comprehensive energy audit can help leverage the benefits of these improved practices to achieve even greater savings.

3. Bond with PACE – Property Assessed Clean Energy bonds can make green retrofitting even easier, allowing cities to finance a property owner’s green improvements. The owner repays the loan through tax assessments on that property over 20 years. In many cases, the money saved in reduced energy expenses is enough to cover the loan and bring in cash flow.

4. Increase Parking Revenues – Parking operation changes hold enormous upside potential for properties located in high parking demand areas. This is because the primary investment required to raise parking income is in management and not physical construction. A change in operations can unlock the hidden value in pricing for weekend, weekday, in-season, out-of-season, reserved, and valet parking, increasing parking “turns” and, consequently, revenues. Even changing the mix of just a portion of stalls from monthly reserved parking to daily or hourly parking can have a substantial impact on cash flow. Contact a parking professional for a look at just how much money can be made.

5. Get Paid for Rays – Until recently, electricity generated from solar panels on one’s property could only be used to offset the electricity used on that site. Now, feed-in tariffs allow property owners to sell excess solar power directly to a utility. The electricity generated on rooftops feeds into the utility’s power lines, for which the utility pays a tariff to the property owner.

Read more about these and other strategies for creating revenue streams.

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Giving Credit Where It’s Due: TNP Retail Trust Lands Major Credit Deal

The inside view of a Shopping Mall
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The economic downturn’s longest-lasting effect is in the chilling of the credit markets.  Without the lubricating capital to finance acquisitions, expansions and development, the commercial real estate economic engine sputters or halts. Loud concerns about unavailable credit were heard from nearly every commercial RE pro in attendance at NAR’s annual this past November. Yet, as 2011 approaches, there are strong signs of the engine turning over again.  Will we leave the ditch behind?

TNP Strategic Retail Trust’s recent deal with KeyBank National Association securing $35M in revolving credit seems to qualify as good news on that front, suggesting that investment in shopping malls across Main Street America is back in vogue.  From David Bodamer at RetailTraffic.com:

TNP Strategic Retail Trust Inc. entered, through certain of its wholly owned subsidiaries, into a secured revolving credit facility with KeyBank National Association. The facility has an initial aggregate leading commitment of up to $35 million. It replaces TNP’s existing $15 million credit facility, which matured on Dec. 17. The new facility includes an accordion feature that allows for an increase in commitments of up to $150 million as the company continues to grow. It has an initial maturity date of Dec. 17, 2013, subject to extension.
The facility will be secured by certain TNP-owned properties and will be subject to a number of financial covenants, including minimum and maximum limits on the company’s total leverage ratio, interest coverage ratio, fixed charge coverage ratio, liquidity and tangible net worth. TNP may use the facility for acquisitions and investments in real estate-related assets, capital and tenant improvements at existing and future properties, debt refinancing and other general working capital purposes.

“We are pleased to expand our relationship with KeyBank and appreciate their continued support and confidence in our company,” said Anthony W. “Tony” Thompson, CEO of TNP, in a statement. “Additionally, we expect that this increased flexibility and borrowing capacity will allow us to compete for almost any [appropriate] property.”