Research Report Stimulates Commercial Real Estate Thoughts.

The economic and research team at Cassidy Turley do an incredible job and their analysis, insights and writing are great! We realize that we are biased because they are our colleagues but we are very proud of their work and we learn something every-time we read one of their reports.  They have done it again with the recently released US Multi Family Forecast Report, Summer 2013.

We wholeheartedly recommend that you read it not only if you are interested in apartments as an investment or in that sector of the real estate but also because of the broader insights it illuminates on the commercial real estate market. Here are the kinds of questions that this report review that we feel are applicable to most investment real estate:

• ·      What happens when a recovery gains velocity?
• ·      How difficult it is to make returns when cap rates fall so low?
• ·      The importance of demographic and demand analysis?
• ·      Trends associated with debt; at the household or business level as well as at the acquisition, underwriting and financing level?
• ·      Investor perceptions on the differences between Gateway Markets and Secondary or Tertiary Markets?
• ·      Chasing yield? (A lot of owners/investors in the Sacramento Region hope this will happen.)
• ·      What are the impacts of recent interest rate increases?
• ·      How about the correlation between interest rates and cap rates?

We found this to be a thought provoking research report that stimulates many insights.  Here is an example on how they quantified the differences in Gateway, Secondary, and Tertiary Markets.

 U.S. Multifamily Market

Average Asking Cap Rates

	Class A Core to Core + Product	Class B Product	Class C Value-Add Product
1st Tier Marketplaces (Gateway)	4-6% Range	6-7% Range	7% or More
2nd Tier Marketplaces	5-7% Range	7% or More	8% or More
3rd Tier Marketplaces	6-8% or More	8% or More	9% or More

As you look at that table ask yourself if there is enough yield difference to buy an A Building in a small town for example Stockton or Fairfield vs. a “C Building” in San Francisco or San Jose?  If Rents are growing rapidly in the Gateway City but maybe the recovery isn’t underway with any velocity and therefore the landlord doesn’t have much if any pricing power, which will give you better returns?  Is the spread high enough to take the risk on a particular property or in a particular community?

These are very interesting times. For investors, both buyers and sellers there is much to consider and there will probably be winners and losers. Thanks to the research and economic folks for helping point out many of the variables that need to be considered. 

Also, we want to point out that the report then drills down into regional markets; Northeast, South Atlantic, South Central, Midwest, West-Mountain and West-Pacific. And here in California they highlight activities and trends in Los Angeles, Oakland-East Bay, Orange County, Sacramento, San Diego, San Francisco, and San Jose.

You can download and read the report here.  If you want to talk about it please give us a call and we would be happy to discuss or put you in touch with the researchers and authors of the report.

http://www.cassidyturley.com/research/market-reports/market-report/mktid/133/interior/1