Blog Post

While Temperatures were Plummeting Outside, U.S. Investment Market was Heating Up in the First Part of 2015

Pierce Mayson
Vice President

Even as the country was enveloped in a bitter cold snap to start 2015; inside the offices of buyers and sellers, things were just heating up. Investment trends in the first few months of 2015 have shown a strong start to the year with year-over-year transaction volumes for January and February up 38%. A big contributor to the increase in volume came from portfolio transactions which rose 69% from a year earlier.

The trade of individual assets is up as well, boasting growth of 24% overall. Two recent examples of individual asset sales are Germantown Plaza in Germantown, Tenn., and Canoe Creek Plaza in Saint Cloud, Fla. Each of these transactions illustrates the amount of aggressive opportunistic capital in the marketplace. Purchased at a low-to-mid 6% cap rate, Germantown Plaza represented an excellent anchor re-positioning play for the buyer; while Canoe Creek Plaza had more obvious upside in leasing up shop space, but required the assumption of difficult, above-market debt.

The retail sector saw 54% of its overall volume come from portfolio trades, contributing to a trend witnessed by many in the industry over the last 12 months.

With the extraordinary availability of debt and cap rates holding steady at a low marker, institutional buyers have continued to look for ways to put their capital stacks to work while not being outbid by aggressive private money on a one-off basis. Their solution: portfolio and entity-level purchases. Groups like Inland, KIMCO and Blackstone have all recently participated in large such transactions. Companies like Edens have seen an added benefit from their portfolio and entity-level transactions – instant market share. With its purchase of Texas-based AmREIT, Edens acquired a notable retail footprint in markets like Houston, whereas before it had none.

With industry pricing up 5 percent, retail continues to show moderate gains. However; while prices are now above peak levels set before the Global Financial Crisis (GFC) for office and apartment assets, retail is still middling at relative figures that are 12 to 17 percent off of peak levels. Translation: there is still room for improvement. With the 10-year UST having slipped below the 2% level on average for the first two months of 2015, that improvement could be coming very soon. Increasing competition between CMBS lenders and regional/local banks, which are pushing to gain market share, has set the stage in the lending arena. Perhaps while winter weather was churning outside, the real perfect storm was building in the capital markets.

Written by Pierce Mayson, Vice President, Investment Sales