Friday, May 20, 2016

10 Biggest Commercial Real Estate Stories of 2015

1. Blackstone Buys Everything

blackstone real estate
2015 was a big year for Jonathan Gray and Blackstone’s real estate division. They began the year by purchasing 36 apartment properties from the Praedium Group for $1.7 billion. Then in February, Blackstone bought 50 percent stake in six Manhattan office buildings, valued at approximately $4 billion. They kept the momentum going in March when they purchased a 2.8 million square foot tower in Chicago for $1.3 billion. Skipping to October 2015, Blackstone bought a medical office for $4.8 billion. Including debt, the transaction is valued at $8 billion. But, don’t think Blackstone was idle the months in between. They had large transactions occurring every month of 2015. October and November were no different. October brought an 80-acre multi-building multifamily complex in New York City for approximately $5.3 billion. And, in November 2015 Blackstone purchased $3 billion in real estate fund stakes from pension fund CalPERS. The deal includes 42 funds involving both international and domestic assets.

2. Continued CRE Brokerage Consolidation

One of the biggest deals of 2015 was DTZ’s plan to acquire Cushman & Wakefield for $2 billion.
CBRE has acquired and integrated more than 100 firms over the past decade. The firm has been on pace over the past two years to execute and integrate an M&A with a new firm about once a month. CBRE made one of its biggest deals in 2015, that being the acquisition of Global WorkPlace Solutions (GWS) for about $1.47 billion. GWS is a leading provider of integrated facilities management solutions, and the company will now operate as part of CBRE’s Global Corporate Services business.

3. Senior Housing Sector

The interest in seniors housing is evident in the spike in investments sales transactions over the past year both seniors housing properties and nursing care facilities. Investors are viewing seniors housing as a true investment grade asset class. At the end of the second quarter of 2015, sales activity for seniors housing properties for the previous 12 months totaled $17.2 billion – up 42 percent compared to the same period a year ago. Nursing care facilities saw an even bigger rise of 118 over that same period to total $7.3 billion in sales, according to Real Capital Analytics.


4. Multifamily Investors Bid in Secondary, Tertiary Markets

Investors are now buying apartment properties in big numbers in smaller cities and towns. $16.2 billion were the apartment market sales in secondary and tertiary markets for the first quarter of 2015. Property prices are also rising quickly in secondary and tertiary markets.

5.  5 Ways 2015 Looks a lot like 2007 

money funding
  1. When Real Capital Analytics released their latest Commercial Property Price Indices (CPPI) report in early October, the all-property composite index was up 1.5 percent in inflation-adjusted terms compared to November 2007, with prices for multifamily, industrial and urban office properties already higher than their pre-recession peaks. 
  2. Where can you buy a REIT? In 2006, private equity firm Blackstone Group announced the acquisition of Sam Zell’s Equity Office Properties Trust for a record-breaking $39 billion. 
  3. Sam Zell makes an exit. He sold the company, Equity Office Properties Trust, just before the tides turned. Then in October 2015, Zell made the headlines again. This time for selling 23,000 apartment units owned by Equity Residential to Starwood Capital Group for $5.37 billion.
  4.  In 2006, the $5.4 billion sale of New York’s Stuyvesant Town and Peter Cooper Village multifamily community to a venture of Tishman Speyer and BlackRock Inc. eventually came to show everything that was wrong with the previous boom era. The $5.4 billion price tag reportedly included a $3 billion CMBS loan, $1.3 billion in additional loans, approximately $1 billion raised from various equity investors and only $56 million from Jerry and Rob Speyer’s wallets. Jump to October 2015, and Stuy Town is trading again. A joint venture of Blackstone and Canadian real estate investment firm Ivanhoe Cambridge agreed to pay $5.3 billion to take the complex off the auction block, where it ended up after Tishman Speyer walked away from it in 2010. 
  5. There is a new investment strategy called real estate crowdfunding – it allows multiple investors to place their money in real properties and real estate loans through online marketplaces. The investors don’t know each other, don’t manage the properties themselves and may not even know all that much about commercial real estate.

6. Private Equity Pours Money Into Self-Storage Deals

According to a recent quarterly industry survey, Investors are crowding into self-storage as the sector continues to post the highest long-term returns of any commercial property type. About 80 percent of self-storage properties are owned by mom-and-pop type businesses. But according to Marc Boorstein, a principal with Chicago-based MJ Partners Self Storage Group, private equity is starting to enter the sector. Investors have flocked to this industry because of how quickly rents can be increased. 

7. The Walgreens/Rite Aid Merger


The drug store sector continues to consolidate, much like other retail sectors. Walgreens Boots Alliance, Inc. recently announced plans to acquire Rite Aid. The $17.2 billion deal will likely have a significant impact on the retail real estate industry, particularly the net lease sector. Rite Aid will be a wholly-owned subsidiary of Walgreens Boots Alliance, upon completion of the merger.

8. The Rise of Micro-Unit Apartments

Micro-units represent a small but growing niche of the real estate multi-housing market. These units are about the size of a hotel room, but that varies depending on where you are. According to a report by the Urban Land Institute (ULI), a micro-unit might be 300 square feet of living space in New York City or 500 square feet in Dallas. The appeal is clear for investors and developers. ULI has found that smaller units have higher overall occupancy rates than mid-sized or larger units, and calculates that rental prices of these units – averaging $2.647 per sq.ft. – are up to 81 percent higher than larger units.

9. What the Bond Market Tells Us About Real Estate Prices

bond market
There is a correlation between the bond market and commercial real estate, and that could mean that there are some definite changes ahead. Although real estate cap rates have yet to follow bond rates higher, many believe this is what’s in store for the market. Rising interest rates will likely trigger higher cap rates. However, it remains to be seen whether a rise in cap rates will signal a subsequent drop in real estate prices, or whether fundamentals will remain strong enough amid an improving economy that properties could maintain current pricing levels, or even see a further rise in prices. 

10. New Investors Rush Into Student Housing 

New investors are piling in the market for student housing properties. They are impressed with how student housing performed through the Great Recession. Prices for apartment properties overall fell by about 20 percent, but average prices per bed for student housing properties stayed strong. Bidding wars are driving prices higher and investors are accepting cap rates as low as 5.5 percent for student housing properties within walking distance of tier-one universities. For tier-two or tier-three schools with a shuttle bus ride away, investors are accepting 7.5 percent cap rates.