A — January 25 - February 7, 2013 — Mid Atlantic Real Estate Journal
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Mid Atlantic R eal E state J ournal Publisher ............................................................................Linda Christman Section Publisher ................................................................Elaine Fanning Section Publisher ..................................................................Andrew Hicks Section Publisher ....................................................................Steve Kelley Senior Editor/Graphic Artist ................................................ Karen Vachon Graphic Artist/Social Media Specialist ............................ Rachel Rugman Office Manager ....................................................................Joanne Gavaza Editorial Consultant .............................................................. Ben Summers Contributing Columnists ................................................... Leo Leyva, Esq. Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly P.O. Box 26 Accord, MA 02018 (Mail) 312 Market Street, Rockland, MA 02370 (Overnight) Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, P.O. Box 26, Accord, MA 02018 USPS #22-358 | Vol. 24 Issue 2 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
Mid Atlantic Real Estate Journal
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f the end of 2012 is any indication, then the com- mercial real estate market is certainly on the upswing. Was the increased volume of commercial real estate transac- tions because of the fear of the fiscal cliff or a sign of things to come? It was likely both. While the increased activity in the commercial real estate market at the end of 2012 and the rush to close deals before December 31st can be attributed to the threat of the fiscal cliff and the potential tax consequences, which all were anticipating, it also showed that there are deals to be made and investment opportunities worth pursuing. In all likelihood, the growth will not continue at the rate we experienced at the end of 2012. Recovery will be slow, but will most likely continue. Because new construction has been somewhat stalled over the past several years, apartment, office, industrial and retail va- cancy rates appear to be on the decline. This drop in vacancy rates has led to increases in rents and if the demand in- creases, it could also lead to new construction. Since the “Great Financial Recession” began, investors have been cautious about where to allocate their capital. Now that the market has shown slow but somewhat steady im- provement, investors are more inclined to allocate that capital to real estate assets. We have seen this primarily with our private equity and investment I
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fund clients, who were holding onto their funds or investing in other markets, but now they have turned their focus back on the real estate market. This renewed interest in the real es- tate market can be attributed to the income-producing possibili- ties and potential for a greater rate of return based on the re- cent showing of increased rents which has been brought about by decreased vacancy rates. In addition, because last year was an election year and the fiscal cliff was looming, many investors were extremely cau- tious regarding their overall investment strategies. Now with the election behind us and the fiscal cliff averted, at least for now, investors may be willng to make long-term plan- ning and strategic decisions, knowing there will be another four years under the Obama Administration. The commercial mortgage- backed securitization market also started making a come- back near the end of 2012, and although the threat of the fiscal cliff loomed, the desire for yield over less risky bonds seemed
to outweigh the fiscal cliff con- cerns. Considering commercial mortgage-backed securities (CMBS) are delivering higher yields than those offered by U.S. Treasuries or other forms of government backed invest- ments, the resurgence of the CMBS market should con- tinue into 2013, resuming the confidence behind commercial real estate assets remaining strong. With interest rates holding steady at all time lows, mez- zanine loans have also once again become attractive to senior lenders and borrowers. While many senior lenders generally continue to cap their loan-to-value ratios at no more than about 70%, mezzanine debt has once again become necessary to complete many deals. The lower interest rates on first mortgages has made it affordable for borrowers to obtainmezzanine financing and attractive for senior lenders to deploy capital without selling off interests. While there are a number of positive signs in the economy, continued on page 22A
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