Friday, January 29, 2010

D.C. Has Global Appeal

According to a new study from the Association of Foreign Investors in Real Estate, Washington D.C. is the top U.S. city for investment. A major reason cited is the “government activism we have now”, which is spurring job growth and attracting residents. The survey also revealed other positive indicators, such as two-thirds of respondents planning on boosting their investment in U.S. real estate this year as compared to last and half expecting U.S. commercial real estate to recover by or before the fourth quarter 2010.

For the D.C. net lease sector, this survey can be seen as a portent of good things ahead. Should the some of predictions of the survey pan out and both investment in the D.C. area rise and commercial real estate see a recovery by the end of the year, it would certainly be a better turnout than many would have predicted. While it has been widely reported that D.C. is doing better than nearly all other U.S. metropolitan areas, it is refreshing to see this fact backed up by those with foreign perspectives.

Net lease properties have already been on many peoples watch lists due to their bond like structure and relative security & stability. When the economy picks up and money starts to flow again, there is a reasonable school of thought saying it will first flow into secure investments rather than the riskier types seen in years past. Net leases fit this bill perfectly.

What the Association of Foreign Investors in Real Estate Survey is essentially saying is that commercial real estate recovery has a reasonable chance to be around the corner and one of the main centers of growth will be Washington D.C. Though this is by no means certain (note the survey itself is split 50-50 on recovery in 2010), if it does prove to be true, it will be quite the year for our nations capitol. However, whether widespread commercial real estate recovery does or does not arrive in 2010, net leases in the D.C. area should see a positive year regardless of the encircling climate, due to their inherent demand and the city’s growth.

Friday, January 22, 2010

Calkain Featured in Shopping Center Business

Jonathan Hipp, President and CEO of Calkain Companies, was recently interviewed by Shopping Center Business for their January issue. Among the topics discussed were the 1031 exchange and single tenet net lease markets. You can read the document in more detail here, but a summary of these topics is listed below.

1031 exchanges have suffered from the drop in market activity and though there may be signs that this trend is abetting, volume has not shown sustained positive increases. Furthermore, the bulk of properties traded are between $1-20 million, with larger deals somewhat scarce. New regulations are also being considered to strengthen 1031 standards, as the collapse of LandAmerica convinced many that more rules are needed in the market.

The demand for single tenant net lease properties remains high compared to most areas of real estate, though sales volume has certainly fallen from its previous highs. Today the market is somewhat segmented by geography, with Washington DC, seeing more net lease transactions than most other areas. Like 1031’s, most deals concern properties under $20 million, with many in the $5 million range. There is still disconnect between buyers and sellers, many are not willing to alter their expectations. Financing is also a large issue and is in-part behind the reduction of large scale deals because it is very hard to obtain large amounts of financing.

Overall, the market continues to experience corrective pains as it adjusts itself to new realities. However, there is a feeling that the worst is over, though recovery may not be right around the corner. In the end people are still buying and selling properties, they are just much more selective about when and where they do it.

Wednesday, January 13, 2010

Retailers Better Prepared for 2010

With 2009 safely behind us, many retailers are showing greater strength and preparedness for 2010. Last years lessons have been learned well, lower overhead, better planning and a focus on value are the keys to success in this environment. Thus, whether 2010 marks the beginning of retails resurgence or simply an improvement in strategy, it looks to be a better year than 2009.

As highlighted by ICSC, discount retailers such as Target, Costco, Kohl’s and Wal-Mart all have plans to expand with new locations. The quick service restaurant industry is also set to expand with companies such as Burger King, Sonic and Panera Bread planning new store openings. Clearly the environment is conducive to the growth of value based stores. It is also forcing higher-end stores to rethink their positions; Neman Marcus and Nordstrom are now considering adding value focused offerings.

Retailers who are planning expansion are also looking at redevelopment rather than construction. With retail space experiencing heightened vacancies and lower rents, it is more economical to take advantage of existing space rather than starting new construction projects. There are exceptions to this trend, such as certain quick service restaurants like Buffalo Wild Wings, who continue to expand through construction rather than redevelopment.

Though retailers have cut their teeth on the hard times of 2009 and surely step into 2010 better prepared, in the end their fate is inexorably tied to that of the consumer. Unemployment continues to hover at 10% and many do not see significant change in the future. 2010 will most likely witness a greater quantity of deals than 2009 but will not see a return to the levels of earlier years. However, in today’s brave new world, a positive trend should be taken positively.