Real Estate Forecast – Cloudy with a Chance of Sun

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in on Nov 2, 2016.

From a purely unscientific pointof-view (my disclaimer), the forecast for the real estate market in 2013 is cloudy, with a chance of sun.

The year 2012 was generally positive, and busy. The year ended with a flurry of acquisitions/sales fueled by the fear of capital gains tax increases in 2013, which could skew expectations for what 2013 may bring. Nonetheless, it appears that owners, developers and investors are continuing to adjust to the new realities in our industry that were born from the late-2000s collapse.

The retail sector in the Northeast has settled into some fairly predictable patterns, which has its positives and negatives.

On the positive, developers and owners seem to be having success in rehabilitating certain older centers that can be acquired at lower prices.

This has enabled owners to offer cheaper deals to quality retailers that find it easier to lease spaces in established markets, as opposed to taking a chance on centers with no sales data.

In addition, Main and Main is still an attractive location, and drug stores, gas/convenience stores and banks are still completing transactions at a relatively healthy clip.

On the negative side, the universe of active retailers is not expanding back to pre-collapse levels.

When looking at a new, community shopping center, most of the smallshop spaces are filled by restaurants and service-retail uses, such as nail salons, hair salons and other similar uses that do not involve the sale of hard or soft goods.

Some traditional “retail” deals are still being made, but the ratio of retail to restaurant/service uses has swung decidedly to the restaurant/service.

While rent is rent, restaurant/services uses put a higher demand on parking, and most anchor co-tenants try to limit the amount of space that can be filled with non-retail uses. The office market appears to be steady, albeit at its post “go-go” days. Landlords are filling spaces, and tenants are solidifying their locations, typically at lower or flat rates.

Although free rents and various forms of allowances to tenants are very normal, businesses seem to have figured out where they stand in the economy and are no longer on the sidelines.

Residential continues to be non-existent, other than starter-type homes and select “one off” projects. From where we sit, the housing market shows no sign of improving. Until employment numbers rise, we see no movement in new homes. The only segment of the residential market is multi-family, which continues to be strong.

Finally, the lending market is chugging along and, in some respects, has picked up. The post-collapse fundamentals have not changed, such as lower LTVs and lending on costs, not appraisal, but lenders are active and deals are being closed.

For better or worse, securitized lending is back and borrowers are taking advantage of higher LTVs and non-recourse for projects that qualify. Whether this makes sense is an entirely different discussion, but this once-dead product is definitely back.

So, when compared to 2007-2008, the forecast is not great, but this is 2013 and the sun continues to break through the clouds.