King George III of England was crowned 256 years ago this week at the age of 22. Before his 40th birthday, George III would lose a war for the largest single territory his Britain had ever claimed, the future United States of America. Following domestic disputes relating to an appropriate response to rising nationalism, both at home and abroad, Britain finally capitulated even if after putting up a significant fight.
If all this sounds familiar, it should – and not only because you studied American history. Reduced liquidity in the London commercial real estate markets following the Leave vote has resulted in Manhattan retaining its crown as the most favored market for investment. Investment on the peninsula exceeded $50 billion in the year ending September 30, indeed down some 14 percent from a recent high of $60 billion but outperforming the United Kingdom capital by approximately $18 billion after London experienced an approximately 43 percent drop in velocity from recent pre-Brexit peaks.
Though velocity has tightened dramatically in London as market participants have squinted to focus on any lapse in tenant demand or near-term roll, the market remains a favorite (but not the favourite) for foreign capital seeking western real estate exposure.
Domestically, multi-housing assets remain the only property type with year-over-year expansion in transaction volumes for the first nine months of 2016. Ad interim, hotel and land sites are experiencing 20 to 40 percent declines over the same comparative period. You will notice in the below table that individual transactions, the bread and butter of the industry and, for that matter, HFF, remain flat, while portfolio/entity level transactions remain muted. However, recent announcements are hinting at a late-year comeback for “P&E”
Source: Real Capital Analytics (RCA)
While foreign capital remains very much a net acquirer of U.S. real estate, they are increasingly facing competition from familiar adversaries in domestic institutional capital and private capital – and, in my view, REITs too very soon. The recovery of REIT share prices relative to net asset value will improve the competitive position of REITs and, potentially, restore the listed REITs to a position of aggressive purchasing, whereas their non-listed brethren remain under-funded relative to previous years.
Source: Real Capital Analytics (RCA)
Global yields remain deflated, while cap rates on domestic real estate assets continue to prove resilient even as the Treasury market has expanded in yields by 15 to 20 basis points across the maturity curve. The global commercial real estate industry is and will take note: Another American revolution is percolating.…
Jimmy 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.