CAP rates are still firm in most investment segments of the market. We see CAP's as low as 5.25 in some west coast investments. New Walgreens are holding in the 6.25-6.40 opening price offerings in good locations. Advance Auto and Auto Zones list in the 6.50 range for new store locations. Video and Fast Food new offerings are approaching 7.0 and up. Multi-tenant office and Industrial investments are all over the board depending upon tenant strength, location, the age of the property and base lease terms. Firming of office rental rates has helped that market segment. Retail and Multi-family investments are in greatest demand and are holding near 2005 CAPs.
The commercial mortgage industry broke its record again last year with $201.7 billion of volume according to the Mortgage Bankers Association. This was 48% higher than the $136 billion originated the prior year. The trade group expects 2006 origination activity to remain solid.
A recent study in Real Estate Investor Outlook shows the use of 1031 exchanges is rising in popularity. This seems to be particularly true as more baby boomers look to shift their holdings into less management-intensive properties, or start planning to transfer wealth to the next generation. One-third of the respondents in this survey have executed a 1031 exchange in the past 12 months, and 44% expect their use of 1031 exchanges to increase over the next five years. Exchanges make is easier for investors to expand, diversify and shift portfolio strategies by buying and selling real estate in different product types and different geographic markets without tax consequences.
Afer news that John Dugan, the comptroller of U.S. currency at the Treasury Department, might be making way for banks to compete in the real estate market as owners and developers, the industry was full of questions. This from TrendWatch at CPN print News. --
Traditionally, banks have been relegated to the financial side of real estate as a method of controlling the effects of market fluctuations on bank capital. Since 1904, banks were also prevented from owning real estate if the bank was not the major tenant. --
Dugan's decision now allows Bank of America Corp. to develop a Ritz-Carlton hotel in its Charlotte, N.C. headquarters and The PNC Financial Services Group to build an office complex in Pittsburgh. Some industry experts worry that the change may mean banks will be able to use their extensive capital access to outbid competitors and gain control of a considerable slice of the market. "Happy days are here again"...
If you thought 2005 was a banner year for investment sales, brace yourself for the eleven-digit sequel. Atlanta based Kinglsey & Associates projects that U.S. pension funds will invest roughly $59 billion into commercial real estate this year.
Meanwhile, foreign investors - bent on parking their capital in U.S. real estate - will pour almost half that amount into the market.
The lure of high single digit returns and the lack of obvious alternatives are proving hard to resist. Location, property type and CAP prices attained remain the keys for individual investors in this heated environment.
Cost of construction materials for investment properties outpaced the consumer price and the producer price indexes in both 2004 and 2005. However, even with these incrases, contractors report a healthy level of activity.
The improving economy makes projects worth doing despite the higher material costs for developers.
In a recent report on the costs outlook for construction, Associated General Contractors predicted that cement and concrete costs could rise an additional 10 to 15 percent in 2006, as the US increasingly imports these materials.