Ready for Liftoff
Ever it since the financial system came crashing down in late 2008, investors in retail real estate properties have been licking their wounds.
They were bludgeoned by a confluence of factors — the unavailability of debt, declining fundamentals and a retail landscape massively shaken up by closures and liquidations. Many paid the price for too generous assumptions of continued growth and prosperity. All these factors drove down values from precipitous heights. By some measures, values fell more than 40 percent peak-to-trough.
As a result, many investors faced a difficult set of choices. When sitting on a property no longer worth the price paid — and perhaps being underwater on a mortgage now worth more than the property itself — buyers have had to figure out the best way to minimize losses.
All of this made for a strange investment sales climates. Top-tier multi-tenant and single-tenant deals continued to trade even during the darkest days. The market has only gotten better for those kinds of deals as financing increasingly came on line. But for a long time there has been a gaping hole in the middle and some assets — secondary and tertiary assets in less desirable markets — still aren't trading at all.
In addition, a multitude of buyers lined up cash to pounce on what they thought would be opportunities to buy great assets at distressed prices. However, those kinds of deals proved to be few and far between.
Still, today, there are signs that investors have figured out how this market works and the funk is lifting.
Investment sales volume hit nearly $8 billion in the fourth quarter of 2010, the highest figure since the Lehman Brothers implosion. In addition, the CMBS market, which in its darkest days looked like it might never reemerge, has mounted an impressive comeback. And, for the first time in a while, both buyers and lenders are showing an increased appetite for risk. Deals further down the value chain are getting priced and beginning to move. Fundamentals are getting better and retailers are showing an increased appetite for expansion.
All told, it makes for an investment climate that's ripe for improvement in 2011. The most generous predictions say that it might even reach 2004 levels of dealmaking this year.
In the following series of features, we break down different aspects of the market and look at the reasons why many believe it is now time to strike.
CMBS Lenders Are Coming Back, as is Their Appetite for Risk
Jan 12, 2011 8:04 AM, By Elaine Misonzhnik
The CMBS market has regained vigor as lenders are once again finding an appetite for risk. ...
Investors Tap Cash on the Sideline as Sales Velocity Begins to Rise
Jan 27, 2011 12:17 PM, By Beth Mattson-Teig
The stockpile of capital that investors have been accumulating may finally start to shrink as investment in retail real estate picks up. ...
Climate Improves for Potential Retail REIT IPOs
Jan 19, 2011 7:00 AM, By Elaine Misonzhnik
The economic conditions may make retail REIT IPOs more attractive....
Retail REIT Stocks Finished 2010 on High Note
Jan 5, 2011 12:32 PM, By David Bodamer
Retail REITs as a group posted total returns of 33.41 percent in 2010, according to NAREIT—the second straight year that the sector delivered strong results....
Views from Inside GGP's Restructuring
Feb 10, 2011 3:23 PM, By Elaine Misonzhnik
General Growth set the precedent for what a REIT bankruptcy looks like. ...
Cedar’s Ullman Readies for a Busy Year
Feb 3, 2011 3:31 PM, By Elaine Misonzhnik
Leo Ullman took an unusual path in building Cedar Shopping Centers. ...
