Category Archives: Investment

Israeli Investors Looking to Buy

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Day two on the Massachusetts – Israel Innovation Economy Partnership Mission with Governor Patrick started with an intimate meeting with some of the largest Israeli real estate investment firms and insurance companies. 

These companies have substantial assets in Israel, but, with a relatively small home market, they are diversifying their investments worldwide in Europe, Asia, South America, and the United States. In 2010, Israelis were the second largest investment group in the US.  

These firms are investing in most product types, including office, retail, multi-family, and medical/research. They say that they are finding better returns in the United States than in other countries. 

However, to date their investments have been in major metropolitan areas like New York, Miami, Houston, the Bay Area, and even Las Vegas. They have not had much success in Boston. Some have tried, but few have been able to find the right opportunity. 

Today Governor Patrick made a great case to have these public companies come to Massachusetts. With markets stabilizing and rents moving upwards, now is the time for Israeli companies to look here for direct investment and joint ventures. Industry leaders and government officials look forward to welcoming them to the Bay State!

Good News in the Debt Markets

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We have come a long way since the “depression” of 2008.  For real estate, lending all but dried up and many loans were being called in (some are still in jeopardy.) But times are changing.  For the right borrower, for the right real estate, money is available from a number of sources and competition for deals is back (with some caveats.)

According to lending guru George Fantini’s Key Trends from the First Quarter 2011 Lender Survey, the recently moribund conduit market (securitized lenders) is back for projects with good cash flows.  According to him, the number of credible originators has doubled to 20 with 10 year loans in the mid to high 5’s (lower with 5 year terms.) However, unlike the other lenders (banks and insurance companies who offer terms up to 30 years for $2-30mm loans), they are only interested in the $10mm plus market.   The trade off is that the conduits are not as conservative when it comes to underwriting, although big banks have been talking about 75% loan-to-value ratios (up to 80% for apartments).

Insurance companies are offering rates from the upper 4’s into the 6’s depending on the loan term (the shorter the term, the lower the rate.)

However, be prepared to sign personally for these loans, unless you are dealing with a high quality product (like apartments) or are willing to lower your loan-to value ration substantially.

But the good news is that debt is back and the world of real estate is starting to normalize.  That won’t completely happen until we see some serious increases in employment and corporate/personal spending.

Boston’s Investment Market in 2011 – What Would Leventhal Say?

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News of the recent sale by The Fallon Co. and Cornerstone Real Estate Advisers of the 465-unit Park Lane Seaport apartment towers to a group of institutional investors comes as no surprise. Neither was the price tag at over $195 million.

Well located and leased commercial properties as well as multifamily rental properties are being bid-up by pension funds, foreign investors and investment funds.  There is plenty of money, but a limited supply of this quality product.

Alan Leventhal

With a limited supply and increasingly restive investors, Boston’s investment market looks ready for a comeback, and expert investors are already showing signs that 2011 could be the year.  I’ll be listening closely at our Annual Meeting next Wednesday, when investing guru Alan Leventhal speaks with NAIOP Chairman Kevin McCall about his company’s plans and predictions.

As reported in the BBJ, Fitch Ratings provided outlooks for 2011 and concluded that Boston is “one of five markets with economic vitality and tenant demand to remain a viable option for investors in real estate debt.”

Alan’s company, Beacon Capital Partners’ investment strategy focuses primarily on office properties in a select number of target markets, including Boston, Washington, D.C., New York, Los Angeles, San Francisco, Seattle, Chicago, London, and Paris.  They believe that these markets are more resilient to the peaks and valleys of the real estate cycle and offer greater and more consistent strength over the long term.

Beacon has had a great track record in evaluating prospective investments in constrained markets that offer them opportunities to capitalize on the market inefficiencies and to add value through operating expertise.    Let’s see what he has to say about this market and what we can expect to see in 2011. Register to hear A Conversation with Alan Leventhal, part of the NAIOP Annual Meeting, from 8-9:30 on Wednesday, Dec. 15 at the Seaport Hotel.

A Tale of Two Cities: Commercial Real Estate Investment in Boston

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The BBJ reports that a PricewaterhouseCoopers national survey confirms what we, here in Boston, have been seeing for this past year, that real estate values are living a double life.  There is a very healthy market here for core assets with low vacancies and long term leases – long enough to get through this downturn and, hopefully hit inflation in rents.

With low interest rates, credit becoming more available for credit worthy borrowers, and a ton of investor money looking for low risk real estate investments, cap rates are falling (and prices are climbing for sellers.)  More owners are considering the sale of their properties, not only due to financial pressures, but because this is a good market to sell class A properties into.  There are already a number of apartment projects that have hit the street with asking prices in the 4-6% cap range – and they will most likely sell at those prices.

Except for the other real estate. You know, the kind of property that the opportunity funds were looking to buy at a deep discount.       

Oh that there were more of that product out there.  But that is the problem.  Generally, banks and/or regulators have not pushed borrowers over the cliff (ala 1990s.) So, with limited core and distressed product and a crush of investor dollars, there is no sign that prices will moderate anytime soon for the quality stuff, or that the problem property will be priced to sell.

At the NAIOP Main Event breakfast: “Investors Unplugged,” this seemed to be the theme.  But there were some concerns voiced even about the core quality product.  The big question seemed to be can you buy at the current low returns and have an exit strategy that justifies the acquisition price.  What if interest rates rise?  Generally, cap rates rise too.  And if you can’t count on cap rates dropping to appreciate your investment, then you must be convinced that vacancies are going to drop sufficiently for rents to go up.  Will that happen in all markets?  Only those with the ability to grow the job market.  (Note, Massachusetts employment has been relatively flat from 1990 to 2010!)

And for those distressed properties counting on leasing up the vacancies, how long an absorption period are you plugging into your underwriting assumptions and how much will those rents need to rise?

Lastly, the answer to the question for each of the NAIOP participants of what can you pay for an asset today, was what is the appropriate rate of return on your capital?  That is going to be very different for the pension fund, opportunity fund, sovereign fund or REIT.

So, get ready for a bumpy ride through 2011.  Some players are rooting for the FDIC to pull the plug on life support, while others are just looking for a little more forebearance.  How that works out will be the key to the pricing of real estate product.