Posts
COMMERCIAL REAL ESTATE PRICES CONTINUED TO CLIMB IN FEBRUARY. The two broadest measures of aggregate pricing for commercial properties within the CCRSI—the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index— gained 1.5% and 1.4%, respectively, for the month of February 2015. Both indices have increased by more than 13% over the 12 months ending February 2015 as the pricing recovery for commercial property expanded into smaller markets and secondary property types.
HIGH LEVEL OF INVESTMENT ACTIVITY SUGGESTS COMMERCIAL REAL ESTATE WILL CONTINUE TO BE A SOUGHT-AFTER ASSET CLASS IN 2015. ... transaction activity through February 2015 suggests this will be another active year for commercial real estate acquisitions. The U.S. composite sales pair count of 2,357 and sales volume of $18.9 billion in the first two months of 2015 exceeded totals from the same period in 2014. Meanwhile, the share of commercial property selling at distressed prices fell from 32% in 2011 to less than 10% for the 12 months ended February 2015.
The strength of commercial real estate belies the fact that this continues to be the weakest economic recovery on record. That's a conundrum which in turn suggests that 1) the economic fundamentals are arguably stronger than most people realize, 2) very low borrowing costs (i.e., easy money) are artificially boosting property values, and/or 3) commercial real estate never experienced a bubble of the magnitude that residential real estate did. I think government meddling in the mortgage market was a significant factor contributing to the overbuilding, overpricing, and eventual crash (think Fannie Mae, Freddie Mac, no-down payment loans, stated income qualifications, government guarantees, and interest-only loans). Things never got so carried away in the commercial real estate sector, where market forces were still operating to keep things more or less rational.
In any event, a vibrant commercial real estate market is at the very least a source of comfort for us bulls. Things can't be that bad if commercial real estate values are increasing more than 10% per year.
51 comments:
Actually U.S. commercial real estate prices fell by about the same amount as residential real estate prices in the 2008 bust.
I am a little concerned by what I see in institutional quality commercial real estate today. I see some of what we saw in 2008. That is, every time a trophy office tower or shoppong mall is purchased it is explained that the tower will be refurbished and higher rents garnered in the future and that justifies the extremely rich purchase price.
In 2008 we saw a commercial buyers of real estate go high in the capital stack. That is, they would secure a first loan from commercial bank and then mezzanine financing from others, often up to 98 and 99 percent of the total purchase price.
On residential real estate, it may be worth pondering an elimination of the home mortgage interest tax deduction, as well as elimination of Fannie and Freddie.
I have trouble reconciling the high amount of commercial vacancies in my area with the fact that sales prices have not declined. Logically I can only think of two possible explainations. As noted by Mr Cole, buyers may be trying to force up rents to offset the high prices they paid for the property. Unfortunately, with a slow growth economy and stagnant incomes, the tenants either downsize space or close, resulting in higher vacancies. Alternatively the low interest rates enable the owners to carry the vacant space at a low cost (at least relative to the upside of eventually renting the space). In that case I would presume that a lot of sellers will all hit the market when interest rates rise.
Given the lousy employment recovery, Mr. Cole's theory appears to be right on. Looks like a bubble.
Obamacare. It has completely wrecked the economy. Bubbles, stagnation, inflation - it is a total mess now.
This is exactly what the opponents of Obamacare predicted would happen.
D Brown: Your comment is interesting. I do not know what city you live in.
Certainly, real estate is prone to over supply. In fact, today many industries are prone to over supply such as autos computer making, clothing, even food.
Abd, there is today capital gluts. Money looking for a home.
It is not PC to say so, but I think the problem today is not on the supply side, it is on the demand side.
At last the reputal to Benjamin Cole's pleadings for more action from the Federal Reserve!!
Jim Paulsen of Wells Capital Management and Lakshman Achuthan of ECRI agree on the causes of the slow U. S. economic recovery: supply-side constraints. One, aging demographics have reduced the growth of the labor supply and two, remarkably weak productivity performance.
Paulsen: "At only 0.73% annualized growth in the contemporary recovery, the U.S. labor supply has grown
less than half its average pace in the seven prior recoveries since 1960 and about 40% slower than it grew during the last three recoveries."
Paulsen: "Annualized labor productivity has risen by only 1.24% in the current recovery compared to about a 3% postwar average and at a pace which is only about one-half the experience during the last three recoveries."
Paulsen explains: "Chart 3 strongly suggests the disappointing contemporary recovery is not due primarily to high debt burdens, low savings rates, or muted risk-taking behaviors (i.e., demand-side
constraints) as many believe. Rather, this irregularly slow recovery seems more likely tied to a watershed slowing in the growth of the U.S. labor supply and its productivity
performance (i.e., supply-side constraints)."
Achuthan summarizes:
"a. Productivity growth has averaged half a percent a year for the past four years
b. Potential labor force growth has averaged half a percent a year for the past four years, and will remain there for the next decade, according to the CBO
c. Since productivity and labor force growth add up to about one percent, even if the Fed's 2% inflation target is met, nominal GDP growth is still likely to trend down towards 3%"
Primary references are these .pdf docs
http://www.wellscap.com/docs/emp/20150423.pdf
https://ecri-prod.s3.amazonaws.com/downloads/150423_MinskyConf_ECRI.pdf
Jim Paulsen's Solutions to the Supply Side Problems Described Above
"Ultimately to “speed up” the U.S. economy in this or future recoveries, attention needs to shift from treating weak demand to boosting supply capacity....Certainly reopening Ellis Island would help boost labor supply growth and raise the speed of future recoveries. However, while we believe this will
eventually be accomplished, politically it will likely take several more years before a new more liberal immigration policy is
adopted.
"More immediately, we are hopeful the second half of this recovery will see improved productivity performance. This will require faster investment spending from both the private
and public sectors adding technologies and infrastructure
which will allow our slow growing labor supply to become more effective. Indeed, as we have argued elsewhere (see the
March 20, 2015 Economic & Market Perspective), success or
failure in finally boosting productivity during the next few years may well prove to be the most important factor shaping the rest of this economic and stock market recovery."
Weak productivity growth is by definition the reason the recovery has been so weak. The real question is why productivity growth has been so weak. Is it because of a lack of money? Interest rates that are too high? I don't think so. The more obvious answers are burdensome regulations (e.g., Obamacare, Dodd-Frank), high marginal tax rates, and general, lingering risk aversion. Investment, in turn, has been weak because of those factors, not because of anything the Fed has or hasn't done. Those things can be fixed with appropriate fiscal policies.
William: I am more than on board with all sorts of supply-side improvements. Lesser unemployment benefits, elimination of the VA, wipe out food stamps, eliminate the USDA, cut the Defense Department in half, much lower business and worker taxes. The GOP would turn pale face at the pro-business rules I would implement.
Every nation must invest in infrastructure, plant and equipment, education, work ethics and contractual honesty.
But today every industry I can think of over-supply demand easily. Is there an industry you can mention that is running full-bore?
If so tell me. I want to invest in an ETF related to that industry.
Productivity tends to surge when there is strong demand. See the 1990s in the USA.
@ Benjamin
The .pdfs are short and well worth reading because both authors note that the supply side issues are shared by all developed economies, most much worse off than the US because of their economies' structural problems and even worse demographics.
Paulsen refers to a "misdiagnosis" of our economic problem and Achuthan describes it as "a longstanding misunderstanding". Central banks are prescribing a monetary treatment (extremely low interest rates and QE) designed to treat demand side weakness when the real problems are on the labor supply side.
This is why the massive QE has not been more effective the past couple of years - and will have only a limited effect in Japan and Europe as well.
We most desperately need an accurate diagnosis of the US and global economic problems; and politicians who can persuade the electorates of the validity of the treatment. This applies to Euroland and Japan too.
Commercial Real Estate values vary greatly from location to location. In hot markets sales prices reflect zero rate Fed policy. We won't know for several years whether or not these prices are justified. The rubber will meet the road when properties need to be refinanced at higher interest rates. Some lenders such as community banks and credit unions now have loan portfolios with a % of commercial real estate greater than 50%. Loan terms have been quite aggressive and getting more so. Zero rates are pushing lenders to take on additional risk. Should the economy more to a higher rate environment without rent growth, there will be problems.
iven the lousy employment recovery, Mr. Cole's theory appears to be right on. Looks like a bubble.
Very nicely explained and really good use of words. Thanks for sharing the information. Having our house is still a dream for most as the rental house market is still in boom. The price rise and other factors matters a lot in the real estate factors. Still if someone is planning to have a nice location house than this link may help out.
Thanks for this!Commercial lot for sale in cavite is a good choice.
Great Post and Nice Article.Its Very Informative Post.I like it.Thanks for Sharing.
Seawoods Grand Cetral
There are plenty reliable real estate agencies on the market that you can rely on for buying home in Scottsdale. One of my best friends used http://www.realestateforsaleinaz.com last summer and he is very happy. What's more, I really love the place as well and I am thinking of using them as well someday.
I’m flattened by your contents keep up the excellent work. Sarasota Real Estate
home city trung kính
http://homecitytrungkinh.com.vn/
home city
http://homecitytrungkinh.com.vn/tong-quan-du-an-home-city/
chung cư trung kính
http://homecitytrungkinh.com.vn/mat-bang-can-ho-chung-cu-trung-kinh/
trung kính complex
http://homecitytrungkinh.com.vn/tien-ich-trung-kinh-complex/
thiet ke website gia re
https://www.facebook.com/Ba-Xo%C3%A1y-Thi%E1%BA%BFt-k%E1%BA%BF-website-gi%C3%A1-r%E1%BA%BB-1038205619601916/
I really like the dear information you offer in your articles.
3 bhk Flats for sale Near Wipro
Very nice blog to read and understand. Your words were so clear in delivering the important information.
Trusted Real Estate Company in Gorakhpur | Real Estate Company in Gorakhpur | best Real Estate Company in Gorakhpur | real estate company gorakhpur
Wow, fantastic blog layout! How long have you been blogging for? you made blogging look easy. The overall look of your site is great, as well as the content!
Real estate
What We Offer
We offer a hassle-free solution that allows you to sell your Fort Myers house fast. We pay cash which allows us to buy as-is and close when it's most convenient for you!
No-obligation Cash offer usually within 24 hours.
The title company will handle all of the paperwork and close the deal properly.
We are here for you the entire way through the process. It's very simple and for more information please click here sell my house in estero fl
Very informative and impressive post you have written, this is quite interesting and i have went through it completely, an upgraded information is shared, keep sharing such valuable information.
Malik Riaz Hussain must be appreciated for whatever services he has provided for the residents of the Bahria town. He is truly the best real estate person in the country right now.
Hi,
Thank you for your valuable information. keep it up :)
Very nice blog and best information about Commercial Real Estate.
https://www.moharihospitality.com/
Hi,
Thanks for sharing your blog. It was very nice. If you want florida commercial properties then you can consider MMG Equity Partners we are one of the leading privately owned investment company in florida. We will guide you and help you through the entire process.
I think this is an informative post and it is very useful and knowledgeable. therefore, I would like to thank you for the efforts you have made in writing this article. philadelphia luxury apartments
I really appreciate the kind of topics you post here. Thanks for sharing us a great information that is actually helpful. Good day! hausverwalter duisburg
I think this is an informative post and it is very useful and knowledgeable. therefore, I would like to thank you for the efforts you have made in writing this article. 1909 arch street apartment
We are dealing in commercial plots in capital smart city Islamabad and Plots are available on easy installment plans in Nova city, Plots are also available in an overseas block in park view city Lahore
I have read all the comments and suggestions posted by the visitors for this article are very fine,We will wait for your next article so only.Thanks! Houses for sale regina
Lahore Park View Villas
Park View City Islamabad
Lahore Smart City
Blue world city Islamabad
These are the leading housing societies in Pakistan
Thanks for sharing.....
real estate brokerage is a smart decision for a variety of reasons. First, you can take advantage of market fluctuations by locking in a fixed rate before prices rise.
An Amazing Blog Thank Your For A share Good info
Bahria Town Lahore is a sublime turn of events, a delightful lodging society. Bahria Town Lahore Sector F It's a rich spot where life accompanies loads of solaces and speculation offers immense benefits. Bahria Town covers an enormous region and has the fundamental entry on Canal Road Lahore
Avalon City Islamabad is a multi-purpose housing society on Main Chakri Road, that will be developed by ZKB Developers. The Society has a huge potential for profit as it is Pakistan's First-Tech Housing society with Ultra-Modern Tech facilities
best Football pitch stamp Nine-player Football Field. NOTE: By state association adoption, the dimensions of the field may be altered.
This is a Good Blog!
The project plan of the Faisal Town Phase-2 Housing Plan is planned by a group of specialists, including designers and structural designers. A lot of consideration is being given to foundation development to make it sparkle in other housing societies.
Payment Plan:
The Faisal town phase 2 Payment planis exceptionally reasonable for financial backers. Faisal Town Phase-2 Housing Plan plots available to be purchased are accessible at financial plan cordial costs as follows:
Nice article, Thanks for sharing, check out my work on real estate social network.
Looking for a strategy to shop on Amazon for everything you need without going bankrupt? To get amazon 10% off entire order coupon code and enjoy significant savings, use our promo code. Amazon provides everything you need at rates you'll love, from technology to apparel to household necessities.
Double your assets through real estate investment, Regency Marketing offers you the best options
park view city islamabad installment plan
Post a Comment