Happy New Year 2011!
This year will be a great year of opportunity for commercial real estate and your chance to become more prosperous. The brisk retail sales for this past holiday season has created renewed optimism among the all the news organizations which so unfairly influences the masses. As of late, I have been engaged in the placement of several new leases and there are signs of decreasing vacancy. This is definitely an indicator of renewed vitality in the marketplace. Obviously, most lenders are still skeptical and rightly so about speculative projects; however there is money out there available for the most assertive of investors.
Capitalization rates have been falling on some credit grade investments such as Walgreens from 8-8.5% earlier in 2010 to 6.5-7.3% late in the year. Many investors have sought shelter from the volatility of the stock market to a more qualified risk of guaranteed returns. This combined with no new construction of these types of projects has created compression in the marketplace to drive down CAP rates. Medical Office Building projects are becoming quite popular and I believe before the year 2011 ends, there will be a gradual return to the retail segment as a viable investment.
I recently attended a small group presentation led by Eugenio Aleman, a senior economist from Wells Fargo. Eugenio said, ‘during the recession, our country lost approximately 9 million jobs and the current rate of employment absorption is approximately 200,000 jobs per month.’ He calculated according to this estimate it will take approximately four years to achieve some sense of normalcy. He also related most likely we will not see a realistic return of new home construction until this time. Eugenio also indicated interest rates will most likely rise following the fluctuations of the treasury markets and those involved in the bond market might re-evaluate their positions.
For the savvy investor, there will be many more opportunities this year to find incredible buys on properties especially in major markets throughout the Midwest and Southeast. A recent auction in Indianapolis where a property sold for a fraction of the market value is a testament to this prediction. Opportunities will be popping up in many places, but only those who take heed will be the real winners. Now is the time to build relationships with new lenders and re-establish former relationships to position yourself for great opportunity. We are still in Phase I of the real estate cycle, the expansion phase and like the old adage says, “Buy Low – Sell High!” We are in the buy low timeframe.
In regard to multi-family housing opportunities, decreasing vacancy and improved stability in the economy makes these opportunities ripe for the picking.
So evaluate your position and set your goals for 2011 and take advantage of this moment in time.
Interest rates are still at all time lows, properties are everywhere, and economic growth has only way to go and that is up!
I look forward to discussing with you investment strategies and opportunities in 2011, so please contact me.
Have a Super 2011!
Rob
