Mid Atlantic Real Estate Journal — June 8 - 21, 2012 — 21A
www.marejournal.com
A PPRAISAL I NSTITUTE
By Jay L. White, MAI, CRE, Apex Realty Advisory, LLC Real estate investment issues as of midyear 2012
R
eal estate industry practitioners need to take into consideration
least through late 2014. But risks of this stimulus include accelerating inflation, which is pushing up against the Fed’s goal of 2%, further weakening the value of dollar and fueling asset bubbles by discouraging saving and encouraging undue risk-taking. The commercial real estate benefits from economic growth as well as the current favor- able interest rate marketplace. This environment makes real estate a desirable asset class since it offers investors at- tractive yields compared with
alternative investments and is relatively inexpensive on a relative basis since. Capitalization rates provide a tool for investors to use for roughly valuing a property based on its Net Operating Income. As a measure of risk current capitalization rates are above the levels estab- lished from the go-go times of 2005–2007 but are below the 10-year average level. Over the past two years, per Real Capital Analytics, capitaliza- tion rates have fallen 70 basis points from 7.7 to 7.0%, where-
as 10-year Treasury rates fell at a faster pace from 3.7 to 2.0%, during this same time period. The spread differential and relationship between the Treasury yields and real estate yields supports the claim that real estate is relatively inex- pensive today. The outlook is for lower risk assets with stable incomes to be competitively bid which will lead to a greater price increase for these assets. Higher risk investments will receive less attention, due to the uncer- tainly about debt underwrit-
ing, market timing, and mag- nitude of their improvement. Patient investors, with appro- priate/tempered yield expecta- tions and timing expectations, may find pricing opportunities in today’s market, but invest- ments requiring aggressive growth assumptions will be more difficult to execute. Apex Realty Advisory, LLC is a real estate valua- tion and advisory services business located in Wilm- ington, Delaware. It is led by the author of this article Jay L. White, MAI, CRE. ■
the economy as we l l as the capital market con- ditions since they both are driving forc- es behind the f undamen - tals of com- mercial real estate.
Jay L. White
In terms of economic growth for the first quarter 2012 GDP was just revised downward to 1.9% from a preliminary esti- mate of 2.2%. This is a decline from the 3.0%GDP reported in fourth quarter 2011. Economists estimate 2012 GDP growth to fall in a range of 2 to 2.5%. Although we have sluggish growth it does seem that GDP has recovered but lackluster job growth still remains a problem. In terms of the capital mar- kets The Fed controls interest rates and U.S. treasury yields using very powerful monetary policy market intervention tools. The Fed most recently has sought to lower borrow- ing costs through purchases of longer-term government securities (i.e., Operation Twist). The sales didn’t raise short-term yields because the Fed has pledged to keep interest rates near zero at CHICAGO, NEWJERSEY, NEW YORK — Jones Lang LaSalle’s Capital Markets and Industrial Services an- nounced the firm has ar- ranged a programmatic joint venture equity vehicle be- tween Sitex Realty Group (SRG) and State Teachers Retirement System of Ohio (OSTRS). The new venture, led and operated by SRG, will commence June 1, 2012 and will seek to acquire more than $140 million of indus- trial real estate over the next 24 months. Together, they are focusing exclusively on value-add acquisitions in the industrial asset class. The venture will target the met- ropolitan regions of Chicago, New Jersey, and New York for its acquisitions. ■ Jones Lang LaSalle Arranges $140+m Programmatic JV Equity Vehicle
Jay L. White MAI, CRE® • Andrew W. Smith, MAI 101 Brandywine Boulevard Wilmington, DE 19803
P: 302-479-5300• F: 302-397-2403 www.apexrealtyadvisory.com
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