What Do Baby Boomers and Millennials Have In Common & Why It's Important in Commercial Real Estate

By Charley Babb What do Baby Boomers and Millennials have in common? They both like to spend money. While they may spend their money on Read more

The Economic Benefits of Walkability

By: Brandon Wilhite Starting with the Federal-Aid Highway Act of 1956, the way cities were developed in the United States began changing. Although it was Read more

Brexit – Immediate Effect on Commercial Real Estate?

— By Sunny Sajnani In late June 2016, a historic referendum was voted on approving the British withdrawal from the European Union (EU).  The immediate Read more

Hotels: What Inning Are We In?

By: Justin Laub I recently returned from the Urban Land Institute’s national conference on hotels and resorts. The last time ULI held this event was Read more

Choppy CMBS Market Hoping For Resurgence

By Charley Babb CMBS issuance for the first quarter of 2016 was roughly half of the production for the same period in 2015. This has Read more

Predevelopment Risk, What Is It?

MCA was recently retained by a sophisticated client to arrange a construction loan and secure a joint-venture equity partner for a very large project Read more

Metropolitan Capital Advisors Arranges a $14,440,000 Fixed-Rate Permanent Loan

Metropolitan Capital Advisors has arranged a $14,440,000 fixed-rate permanent loan on a Portfolio of two office properties located in the Dallas Metroplex. The Portfolio Read more

UT Real Estate Finance & Investment Center; Long on Longhorns, Short on Bull

-By Scott Lynn Being involved in commercial real estate has always been a continuing educational experience. Not only is it gratifying to embrace these experiences Read more

Take a Ride on the CMBS Rollercoaster

— By Sunny Sajnani The Commercial Mortgage-Backed Securities (CMBS) market has experienced a series of ups and downs, creating a very uncertain start to 2016.  Read more

PRE-REVIEW…When the DUS Settles

By Duke Dennis If you are an apartment owner or buyer in Oklahoma, did you know that the Federal National Mortgage Association (also called “Fannie Read more

The Details of a $2,593,000 Interim Construction Loan for Roanoke Crossing

Metropolitan Capital Advisors has arranged a $2,593,000 construction loan for a to-be-built 24,000 s.f. retail center located within the Roanoke Crossing Power Center, which Read more

Home is Where the Heart is in the Hot Senior Real Estate Market

by Kevan McCormack Senior Living continues to be one of the hottest real estate “asset classes”.  Within the broad Senior Living classification, the industry is Read more

Wading Into the Waters of a Volatile CMBS Market

By Brandon Wilhite The CMBS market plays a vital role in commercial real estate by providing liquidity to the market. CMBS provides long-term debt financing, Read more

Condos: They’re Back

By: Justin Laub Remember when condos were getting built all around the country and we had overzealous banks, liar loans and no down payments? That Read more

The Power of RECA (Real Estate Capital Alliance) Rides Again

By Scott Lynn Metropolitan Capital Advisors is a member of the Real Estate Capital Alliance (RECA www.reca.us). RECA is a professional association of 18 independently owned Read more

5 Takeaways from 2016 Commercial Real Estate Finance Conference (MBA/CREF) In Orlando

By Todd McNeill The annual Mortgage Bankers Commercial Real Estate Finance (CREF) Conference held in Orlando last week does not need an introduction.  After three Read more

Who Says The Industrial Warehouse Real Estate Market Isn’t Sexy?

By Roger D. Wyche With all the attention being paid to CRE announcements such as those from Toyota, Liberty Mutual, the Dallas Cowboys, Charles Schwab, Read more

Commercial Real Estate Capital Markets are Liquid; Development Accelerates During 2015

By Scott Lynn Commercial real estate capital markets have gone full cycle since the depths of the Great Recession. Capital providers are now considering a Read more

Metropolitan Capital Advisors Arranges a $9,650,000 Acquisition Loan for a Plano Office Building

Metropolitan Capital Advisors, Ltd. (“MCA”) has arranged an acquisition loan for the Plano Parkway Business Center office building located in Plano, Texas.  MCA arranged Read more

Online vs. Brick & Mortar Retail – Where Are You Shopping for the Holidays?

— By Sunny Sajnani In today’s world of Uber and Amazon Prime, it’s obvious that people are focused on convenience in their consumption.  Yesterday, I Read more

Is it 10-7 for the 1031 Exchange?

by Charley Babb In their heyday of the 1970s and 1980s, citizens band (CB) radio users utilized the “ten code” as part of their style Read more

Looming Rate Hike Means CRE Values Have Peaked? Not so Fast…

By Brandon Wilhite On December 16, the Federal Open Market Committee (FOMC) will meet to discuss, among other things, whether to raise the Federal Funds Read more

Happy Ending: A Tax-Increment-Financing Success Story

By Duke Dennis When it comes to Tax-Increment-Financing (TIF) in the context of commercial real estate, it is best to focus on the gap between Read more

Baseball: America’s Pastime & Commercial Real Estate’s Favorite Analogy

October means baseball. Meaningful, dramatic, high-energy, playoff baseball. In our world, analogies to baseball are frequent, because Commercial Real Estate is apparently best understood in Read more

Trick or Treat...Recourse or Non-Recourse?

By: Scott Lynn Metropolitan Capital Advisors has brokered billions of non-recourse commercial real estate loans over the years that have been placed with banks, conduits, Read more

What Do Baby Boomers and Millennials Have In Common & Why It’s Important in Commercial Real Estate

By Charley Babb

What do Baby Boomers and Millennials have in common? They both like to spend money. While they may spend their money on different items, collectively Boomers and Millennials account for more than $5.5 trillion of annual spending power. This equates to over 30 percent of the annual GDP of the United States. With 150 million people combined, Boomers and Millennials are prompting changes among retailers in order to capture more of these two population segments’ customers and sales. This is true regardless of whether the sales are generated in traditional physical locations or via online retailing.

Not surprising is the fact that Baby Boomers are fueling the healthcare industry. True to our culture of “better living through chemistry,” they are consuming massive quantities of pharmaceuticals. The real estate implications are that drug stores are raking in the sales. These retailers have noted sales growth of greater than 8 percent over the past year. Approximately 57 million Americans will be over the age of 65 by the year 2020. That will account for 16 percent of the total US population. Look for continued long-term growth in the drug store sector of retailers.

A day does not go by without reading an article about the spending habits of the Millennial generation. I know from my own experience (my four kids are all Millennials) that rather than spending as much money on “things” as my generation, Millennials love to allocate a fair share of their disposable income to “experiences.” Much of this is spent in restaurants and bars. As such, these establishments have experienced over 6 percent growth in sales over the past year. Other businesses within the hospitality sector have benefited from this generation’s spending habits as well. Q1 occupancy in US hotels came in at over 60 percent, which is the second highest level on record. A cornucopia of new brands designed to cater to the Millennial traveler have sprung up almost out of nowhere. In addition, Baby Boomers, with plenty of disposable income spent on travel, have the hospitality sector thriving.

While Millennials do enjoy their experiences over things, they are also spending money on furniture and home furnishings. This segment grew at nearly 4 percent over the past 12 months. Millennials are starting new households, albeit typically in apartments, at an expanding rate. Just try to visit your nearest urban center without noticing prolific apartment construction. More than 200,000 new apartment units were delivered nationally during the 12 months ending in March 2016. During the same period, absorption outpaced even this robust addition to the supply, thus reducing the national vacancy rate to 4.2 percent. Affluent Millennials seek live-work-play options in or near central business districts; however, a less reported but significant number of them seek to lease more affordable suburban options. Locations near public transportation, such as light rail stations, have fared particularly well.

light rail commercial real estate

So apparently my children and I enjoy spending our money. They may rent and I may own my home, but we all love to enjoy our experiences together. Smart retailers will continue trying to attract that next dollar from each of us and likewise, real estate entrepreneurs are cooking up new real estate deals/projects to attract these tenants. MCA is currently working on several assignments involving mixed-use/destination-oriented /”experience-focused” projects where the anchor tenants are a conglomeration of fantastic restaurant with lines out the door producing staggering sales. The day has come, the paradigm has shifted … traditional grocery and department stores are no longer the only game in town when the goal is attracting throngs of eager Millennials (and likely Boomers too) looking for just the right experience

The author, Charley Babb, is a Principal and Senior Director in the Denver office at Metropolitan Capital Advisors. Charley can be reached at cbabb@metcapital.com or visit the Metropolitan Capital Advisors website at http://www.metcapital.com

 

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The Economic Benefits of Walkability

By: Brandon Wilhite

Starting with the Federal-Aid Highway Act of 1956, the way cities were developed in the United States began changing. Although it was never the intent of the legislation, new highways funded by federal and state funds incentivized development away from city centers and into the suburbs in quantities never before seen in American history. New highways, originally intended to provide mobility for US military resources, made suburban areas more accessible, and thus more attractive to the masses. Suburban development thrived, and with it, the American car culture, necessitated by the new commuting patterns of workers who worked in the city centers and lived in the suburbs. Suburban development patterns of single-use developments and neighborhoods (i.e. residential subdivisions, retail shopping centers, and suburban office parks) further exasperated America’s dependency on automobiles. Within a generation, walking between destinations as part of a daily routine became a thing of the past for large populations of American citizens.

walkability commercial real estate

Recent trends are indicating that preferences are changing across both demographics and generations. Growth in Vehicle Miles Traveled (VMT) per capita is slowing according to most studies and some studies actually show the number shrinking considerably. The recent rise of on-demand transportation services such as Uber and Lyft are starting to make some rethink the idea of car ownership all together in some parts of the country. This trend will likely increase with the rise of autonomous cars, thereby reducing the cost of those services.

Generations from Millennials to retiring Baby Boomers are increasingly showing a preference for living in walkable communities. Both retailers and employers, both wanting to be close and convenient to their customers and employees, are following suit and showing a preference towards mixed-use walkable neighborhoods. Intuitively, it would make sense that as demand for walkable neighborhoods increased, so to would property values in those neighborhoods. The data backs up that intuition: A recent study conducted by Real Capital Analytics and WalkScore found that between 2005 and 2015:

  • Prices for properties located in Central Business Districts (CBDs) have risen 125%
  • Prices for suburban properties that are also considered highly walkable increased 43%
  • Prices in less walkable, car-dependent suburban locations increased only 21%-22%

The benefits of walkability don’t end there. Workers and residents in walkable areas typically have lower transportation costs. When combining housing costs and transportation costs, residents living in cities typically viewed as having high costs of living such as New York City, San Francisco and Washington DC actually spend a lower percentage of their income than residents in cities typically considered to be more affordable such as Houston, Atlanta and Dallas. Additionally, residents enjoy significant health benefits from living in walkable communities such as lower instances of obesity and diabetes.

Because of these benefits, walkable communities are no longer limited to urban city centers. Public officials of suburban cities also recognize walkable and livable communities are a key to economic competitiveness. As a result, many new suburban developments are developed adjacent to commuter rail and offer mixed-use “live-work-play” environments.

Metropolitan Capital Advisors has assisted our clients in financing projects ranging from mixed-use high-rise redevelopments in CBDs to ground-up mixed-use developments in suburban locations.

The author, Brandon Wilhite, is a Senior Director in the Dallas office of Metropolitan Capital Advisors. Please contact Brandon Wilhite at bwilhite@metcapital.com or visit the Metropolitan Capital Advisors website at http://metcapital.com.

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Brexit – Immediate Effect on Commercial Real Estate?

— By Sunny Sajnani

In late June 2016, a historic referendum was voted on approving the British withdrawal from the European Union (EU).  The immediate reaction was a short-lived dive in world stock markets, which immediately rebounded a week later.  Investors of all assets classes have come to realization that Brexit will result in a long-term transition for the UK, rather than an immediate change.  So what does all this mean for commercial real estate in the United States?  Why does the UK decision to distance themselves from other European nations affect us?

brexit commercial real estate

Markets

Bexit is likely to have a short-term positive effect on commercial real estate in the United States, especially in large gateway cities and in the office market.  “We’re probably going to see more foreign capital push into the safe haven that is the United States.  The greatest effect will probably be in the office markets of U.S. cities that are points of entry for international travelers,” said Suzanne Mulvee, director of research at CoStar, a commercial real estate analytics company.

The longer-term effects of the vote and Britain’s actual withdrawal from the EU are less clear.  “Brexit is one more in a series of shocks to the global economy that will have uneven implications for the U.S.,” said Christian Redfearn, professor of real estate at the University of Southern California. “An exit from the EU could signal the beginning of the end of the EU experiment and a lot of uncertainty about one of the major drivers for the world economy.”

Gerard Mildner, director of the Center for Real Estate at Portland State University, said Brexit will probably have little immediate impact on the U.S. economy or commercial real estate markets, but could be part of a larger shift in the nature of the global economy.  “The risk is that other countries will copy Britain and impose trade barriers.  The most exposed U.S. sectors will be export businesses (e.g., aerospace, agriculture, technology), port-related industrial property and the financial industry.”

Interest Rates

US Treasury rates have tanked since the Brexit vote.  The 10-year US Treasury rate has fallen from 1.74% on June 23, 2016, to 1.37% on July 5, 2016—a reduction of 37 bps in 2 weeks.  Also note, when the energy market was at its low at the beginning of the year, the 10-year treasury rate was 2.24%.  A drop in rates comes as investors flee to the safety of the 10-year treasury note that serves as the benchmark for mortgage interest rates, creating a “Brexit benefit” for lenders and borrowers.  For purposes of new financings, this is a huge benefit for borrowers that are locking in long-term rates especially compared to the price of capital only 6 months ago.

These drastic rate decreases don’t benefit everyone.  Brexit drastically affects Defeasance Costs and Yield Maintenance for borrowers that are trying to unwind and payoff CMBS debt (and other permanent mortgage products).  The cost to defease a CMBS loan has become substantially more expensive due to the decline in treasury yield.  Since most CMBS loans being defeased now are maturing within a couple of years, the cost is more correlated with short-term yields.  As yields rise, the cost to defease is cheaper; however, as they drop, the cost increases.  As an example, the yield on the 2-year note has dropped from 91 basis points at the beginning of June to 58 basis points at the beginning of July.  Thus, many borrowers are being surprised at the jump in the cost over the past couple weeks.

The Principals and Senior Directors at MCA are preparing for surge of financing requests to lock in long term rates given the current environment.  Please reach out to us if you have questions on how your deal will place in today’s credit markets.

The author, Sunny Sajnani, is a Senior Director in the Dallas office of Metropolitan Capital Advisors. Please contact Sunny Sajnani at ssajnani@metcapital.com or visit the Metropolitan Capital Advisors website at http://metcapital.com.

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