Chicago: It's the hottest commercial property market since 2007

Sales of Chicago-area commercial properties are on pace for their best year since the crash amid an improving economy and low interest rates.

Investors acquired more than $9.15 billion in local apartments, hotels, retail, office and industrial properties through August, up 28 percent from the $7.14 billion spent through the first eight months of last year, according to New York-based Real Capital Analytics Inc.

Sales volume is on track for its highest annual level since its peak in 2007, when $22.5 billion in commercial property sold.

Investor demand for real estate continues to rise amid the slowly growing economy, which is pushing up occupancies and rents, and low interest rates, which has kept borrowing costs low and made it harder to find good returns on other investment types. At the same time, many landlords are capitalizing on soaring prices by putting their properties up for sale. And even higher prices in hot coastal markets are drawing more investors to Chicago.

“Nationally there's more being invested in commercial real estate, but I imagine Chicago is benefiting from the compression in yields and increase in prices in places like New York, San Francisco and Los Angeles,” said Ben Carlos Thypin, director of market analysis at Real Capital.

Nationally, prices for commercial real estate, except for office properties, have passed their 2007 peak, according to a report by Green Street Advisors Inc., a Newport, California-based research firm. A commercial-property price index calculated by Green Street has risen 7 percent in the past 12 months.

Sales of Chicago-area industrial properties have risen 55 percent, according to Real Capital, buoyed by renewed demand for “higher-grade” buildings by institutional investors, said Britt Casey, an executive director in the Rosemont office of real estate brokerage Cushman & Wakefield Inc. With 13.5 million square feet sold here in the first half of the year, Chicago was the most active industrial market in the nation, according to New York-based Cushman & Wakefield.

The recovering economy should help boost demand for commercial space, and support sales and prices in turn, Mr. Thypin said.

“Whether (the economy) continues to grow at the pace it seems to be growing this year remains to be seen, but the bottom falling out anytime soon is pretty unlikely,” he said.

Expecting a typical increase in activity in the fourth quarter, Mr. Thypin expects Chicago-area commercial property sales to exceed last year's total of nearly $14.6 billion.

Significant sales so far this year include the record $850 million paid for the office tower at 300 N. LaSalle St. and the $85 million deal for the 1.6-million-square-foot Solo Cup warehouse in the south suburbs. Other deals include the $60 million sale of the Golf Mill Shopping Center in Niles and the $132 million sale of a Gold Coast apartment building.

Need a corporate loan? Forget your bank - tap the shadow banking system instead

New York --(SoberLook.com)--
Here is a simple question: what percentage of US banks' balance sheets is taken up by loans to businesses? The answer may surprise some. It's just under 11.5%, down from about 16% some 10 years back. Banks began preferring real estate loans (particularly commercial real estate) to corporate credit in the early part of last decade. That didn't work out so well (see post). Since the financial crisis, banks' deleveraging sent the number to new lows. The percentage began to rise in 2011 but has stalled again this year.

Source: FRED

The result of Basel-based regulation has been the reliance on corporate ratings for capital requirements. Loans of companies without a strong rating or with no rating at all require significantly more capital to hold on balance sheets. And loans to companies with strong ratings pay such a low rate these days, it eats into banks' profitability. This is especially true for the middle market and lower middle market companies. Outside of basic inventory, equipment, and receivables financing (mostly short-term), banks remain cautious.

It doesn't mean however that credit to companies is not available. In fact multiple lenders have been stepping into banks' domain. BDCs, CLOs, credit/mezzanine funds, bond/loan retail funds, etc. have been providing credit to businesses in the US. That transformation to non-bank lenders over the past decade has been quite spectacular - especially in the middle market.

Source: Aranca (click to enlarge)

When you hear all the pundits talk about "shadow banking", they usually miss the fact that most corporate loans now come from outside the banking system. So the next time your medium-sized business needs some long-term financing, you may get a better answer from your not-so-local BDC than your local bank - particularly while credit markets remain hot.

Foreign buyers boost commercial real estate investment

Summary:  Canadian, European, and Middle Eastern investors, ushered by the hospitable lending environment, are looking to make real estate investments in the U.S.  The new wave of foreign investors have focused on the East and West Coasts. but are projected to move inland toward Dallas and Houston, which have the attractive job growth and population growth foreign real estate investors find attractive.  The asset class is itself an attractive alternative to volatile securities markets.  Foreign investment is expected to reach $350 billion this year, up 30% from last year, though still below the 2007 record of $570 billion.  It is a sellers market as commercial real estate supply is low.

Dallas --(U.S. Dallas News)--
The commercial real estate market is quickly making up ground lost in the recession.

And so far higher interest rates haven’t rained on the parade of investors looking to take advantage of the market.

A surge in foreign investment in this county’s property markets is also underway.

“The amount of capital that is coming from foreign investors in the U.S. is going to accelerate pretty dramatically,” Mark Gibson, executive managing director of HFF LP, told real estate executives meeting in Dallas on Friday.

Gibson said most of the offshore investors looking to boost their U.S. real estate holdings are coming from Canada, Europe and the Middle East.

Increasingly these buyers are spreading out from the large East and West Coast markets to buy in other cities, including Houston and Dallas.

Commercial property investors are focused on locations with the best long-term growth prospects, Gibson told members of the Commercial Real Estate Women Network at the Omni Dallas Hotel.

“They are looking at markets with job and population growth,” he said. “And they are looking for the infrastructure that is going to support jobs and population growth.”

Dallas-Fort Worth and Houston are near the top of the list of the country’s fastest employment growth markets. All of Texas’ major markets are seeing huge population increases — due in part to migration of people and business from other states.

“There are more corporate headquarters moves happening in the U.S. now than we’ve seen ever,” Gibson said. “A stunning amount of corporate America is relocating out of California to other places.”

Gibson said HFF — one of the country’s largest commercial real estate investment banking and property marketing firms — is forecasting about $350 billion in commercial real estate investment in the U.S. this year.

That’s up about 30 percent from last year, but it’s still well below the record $570 billion in 2007.

Gibson said many of the commercial property problems created by the recession have been solved. “Distressed asset problems — that’s yesterday,” he said.

Most of the big bank lenders “have worked through all their [problem properties] for the most part,” Gibson said. “They are on offense instead of defense — they are deploying capital into real estate.”

Even with this year’s higher interest rates, investors are pumping billions into commercial property, Gibson said.

“They are very tired of volatility in the public securities market,” he said. “They think it’s been hijacked by traders.”

Gibson doesn’t see any of the commercial property pricing and construction excesses that were apparent before the recession.

“There is discipline in the market, which there wasn’t in 2007,” he said. “Commercial real estate supply is still modest.”

In fact, he said, “It’s the lowest percentage supply of commercial real estate as a percentage of GDP in U.S. history.”

http://www.dallasnews.com/business/commercial-real-estate/headlines/20131011-foreign-buyers-boost-commercial-real-estate-investment.ece