HFF Research Memo for April 27, 2016: Show Me the Moolah

Wednesday, April 27, 2016

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.

In the early morning of April 27, 1953, United States Air Force General Mark Clark issued a shortwave radio communication over lands controlled and supported by the USSR. Aired by Japanese and South Korean radio stations, the missive was translated into Korean, Mandarin, Cantonese and Russian. “To all brave pilots who wish to free themselves…you are guaranteed refuge, protection, human care and attention. If pilots so desire, their names will be kept secret forever.”

So began Operation Moolah, an offer of $100,000 (in 1953 dollars!) and the above consideration in exchange for bringing a Soviet MiG-15 jet fighter into U.S. hands. No pilot answered the call, that is until North Korean pilot Lieutenant No Kum-Sok landed at Kimpo Air Base in South Korea, but only after the armistice ending the Korean War was signed.

The U.S. military sought the MiG-15 for its operational, technological and engineering ingenuity. An Asian executive very recently told me that his interest in acquiring U.S. real estate was principally driven by his desire to enhance his firm’s expertise.

Offshore investors’ net investment in U.S. commercial real estate amounted to $4.55 billion in the first quarter 2016. Acquiring $10.2 billion in the first 90 days of the year, the amount spent on purchases was approximately 62 percent lower than the $27.2 billion spent in the first quarter of 2015. Though a significant reduction year-over-year (quarter by quarter comparison can be volatile), the first quarter 2016 marked the 11th consecutive quarter of net positive investment and completed the second-highest 12-month total of all time at $74.2 billion.

Simply reviewing the amount of “pending” transactions in the marketplace affords me confidence in the notion second quarter data will affirm offshore investors’ sustained interest in our markets.

“Show me the Moolah!”

Treasury bonds certainly benefited from an influx of capital today as the yield on the 10-year UST fell 8 bps on the day after the FOMC announced they would not hike their Fed Funds Rate until June at the earliest.

As the below intraday graph demonstrates, the reversal seized a multi-day increase in the yield on the 10-year. Though corporate bond yields did not move in tandem, I would expect them to decline early on Thursday. We’ll see.

 

About Jimmy Hinton

Mr. Hinton serves as Managing Director of HFF, responsible for the firm's national research efforts. Mr. Hinton works with the executive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.

During his tenure at HFF, Mr. Hinton has supported the execution of more than 150 commercial real estate transactions totaling more than $4.5 billion in 20 states. Mr. Hinton has experience in fixed- and adjustable-rate debt, mezzanine debt, construction loans and joint venture executions on behalf of clients engaged in the acquisition, development and recapitalization of property types including multi-housing, industrial, office, retail, medical office and storage properties.

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