CRE Bubble? Not If, But When

2 weeks ago

2 weeks ago 0 0 35

Recent NREI article “Low U.S. Interest Rates Are Fueling a Bubble in Commercial Real Estate” claims it is not a matter of if the CRE bubble will pop, but when it will pop. I wholeheartedly agree with author Jay Rollins’ assessment and strategy. We’ve already seen investor push back on properties purchased post-2015 that are now back on the market. The current owners paid too much, thinking prices would increase, but in my opinion, the market has flattened—with further appreciation less likely than price deflation. The spreads between real estate yields and other financial instruments are historically low, and like Rollins, I have to believe that interest rates will increase sooner rather than later. I certainly don’t see them decreasing. The best opportunity for upside today is in new development, which has considerably more risk than buying existing assets. Historically, developers get caught by recession and rising interest rates. This time will be

CRE 2020: What to Expect

By Stan Sonenshine in Real Estate Development

1 month ago

1 month ago 0 0 64

A recent NREI slideshow “Breaking Down CBRE’s 2020 Market Outlook” reviewed economic development, tax rate cuts, CRE investment, cap rates and market trends, among other topics, when considering what’s in store for 2020. In general, I agree with CBRE’s assessment that a slowdown in absorption will occur in all sectors as supply continues to grow. We are gradually moving to the confluence of oversupply and slow down. When that becomes problematic and to what extent it creates opportunities or problems is hard to predict. I started thinking about this a few months back in “Development Market Phase: How Long Will It Last?” As expected, the impact on individual sectors will be uneven. In my opinion, retail faces the greatest degree of uncertainty due to online shopping and shifting consumer buying habits. I can’t believe that the multi-family sector doesn’t have significant overhang already, and office will be negatively impacted by the WeWork pullback.

City Centers Create Sense of Community

By Stan Sonenshine in Atlanta's edge cities

1 month ago

1 month ago 0 0 66

Atlanta’s edge cities are developing City Centers to create a sense of community, and it’s working. Since the holiday season is in full swing, it feels appropriate to continue the discussion about community I started in my last blog “The Importance of Community Engagement.” I suggested that leaning into our communities through service and events helps us feel more engaged. But I don’t believe that just happens. It is the addition of City Centers—intentional placemaking at its finest—that elevates the community’s sense of belonging. City Centers Help You Belong In a time when negativity, divisiveness and complaining feel ubiquitous, encouraging a sense of community offers people a positive feeling. While “sense of community” itself is difficult to quantify, it is absolutely a constructive and powerful force for a community’s overall health. Prime Example: Downtown Alpharetta The re-imagining of downtown Alpharetta is just one example of a city determined to craft

The WeWork model looks weak. What is the SoftBank Group to do?

WeWork Weak? Looks That Way

By Stan Sonenshine in Uncategorized

2 months ago

2 months ago 0 0 117

A recent BisNow article looks at the impending takeover deal between SoftBank Group and The We Company, which values WeWork’s parent company between $7.5B and $8.5B. Here’s what I think: SoftBank is throwing good money away, but the company probably has zero choice if it wants to salvage any of its existing investment. I cannot believe SoftBank paid former CEO Adam Neumann that much money to step down; there must have been a reason. (The article states, “To take control over The We Company, SoftBank will buy $1B in stock from Neumann, pay him a $185M consulting fee and extend him $500M in credit to repay a loan led by JPMorgan.”) As I’ve considered in previous blogs, the WeWork model looks weak. The office market is probably peaked and likely will flatten at a time when WeWork has made its maximum space commitment to date. Also, no barriers exist for

Community Engagement Makes Communities Stronger, like the Food That Rocks event at City Springs in Sandy Springs

The Importance of Community Engagement

By Stan Sonenshine in Atlanta's edge cities

2 months ago

2 months ago 0 1 190

Community Engagement Makes Lives Better Community is defined as a group of people living in the same place or having a particular characteristic in common. But I think it goes beyond that. Whether denoting a physical or religious connection or a bond through common interests, community engagement makes our lives better. Three years ago, in the blog “Atlanta’s Edge Cities Develop New City Centers,” I focused on the development of City Centers and their impacts. In subsequent blogs, I consider how these initiatives impact communities beyond just their physical existence. When you engage in actions or organizations that support the community in which you live, you improve the quality of life in that community. When you connect with people face-to-face in real time, you grow the fabric of your community. Community Engagement = Stronger Community Community Assistance Center As a Sandy Springs resident, I offer the Community Assistance Center (CAC)

Investing in a CRE asset without due diligence or market analysis is just not smart.

Avoid the Sins of CRE Investment

By Stan Sonenshine in Real Estate Investment Strategies

4 months ago

4 months ago 0 0 111

A recent Globe St.com article “The Seven Deadly Sins of CRE Investment” argues, “Buying a CRE asset above its value or at a low cap rate is rarely a route to a successful transaction.” I couldn’t agree more. While situations exist where it is acceptable to pay up, such as the need to acquire a key piece in an assembly, I never advocate buying investment property without proper due diligence or market analysis. Unfortunately, vigorous deal competition coupled with the need to invest idle capital, particularly funds with time limits, inevitably leads investors to commit some of these sins mentioned in the article. After all, what is one or two bad deals in a large portfolio if the other deals are good, right? I disagree. Also, often individual investors invest foolishly because they are driven by the desire to avoid taxes on the gains resulting from a sale. So, they overpay to

The Worth of WeWork?

By Stan Sonenshine in WeWork

4 months ago

4 months ago 0 0 147

Business Insider posted a recent article entitled, “NYU professor calls WeWork ‘WeWTF,’ says any Wall Street analyst who believes it’s worth over $10 billion is ‘lying, stupid, or both’.” Here’s my take on this article: WeWork looks like any other office landlord, just wearing a different suit. Outside of being cool, WeWork owns nothing proprietary, and as I have argued before, there is no barrier to competition from real landlords. If it were such a great concept, office property owners and developers would be providing more flexible space options. But they wouldn’t be able to obtain financing because debt service relies on a steady and reliable income stream—which this concept certainly is not. WeWork might pull off this IPO because of the current market euphoria, but they won’t be getting any of MY money.

Family Offices: Do Your Due Diligence

By Stan Sonenshine in Atlanta Real Estate Investment

5 months ago

5 months ago 0 0 142

I recently read the National Real Estate Investor article “Survey Shows Family Offices Falling Short on Due Diligence for CRE Deals.” This article is 100% on point. Investors not familiar with the nuances of private real estate investments do not consider the elevated risks often posed by real estate, which result from its illiquidity, debt, lack of transparency, and reliance on a sponsor. Family-office professional DJ Van Keuren’s questions that family offices should ask during due diligence (modified below from the article) hit the mark. What is the sponsor’s track record? How long has the sponsor been in business? How much of its own money is the sponsor investing in the deal? What are some examples of deals that went south? How did you handle those situations? What is the market demand for this type of property? How many similar projects are in the local development pipeline? Has the sponsor run the numbers

Atlanta Office Market: Hot or Not?

By Stan Sonenshine in Atlanta Office Market

5 months ago

5 months ago 0 0 188

Think back to the office market in 1985. People were saying, “Nothing can go wrong. People are still coming.” Those same people were soon singing the blues because surprise, surprise, something went wrong. Is Atlanta’s office market as hot as it seems? BizNow’s recent article The Fastest-Growing Office Rents in the U.S. Are in Atlanta touts Atlanta’s office market success, but, in my opinion, fails to give a full picture. I see it more as a tale of two cities—the institutional office market and the local office market. Midtown + Buckhead: Hot Atlanta Office Markets Media likes to focus on the hot markets, like Midtown and Buckhead, and rightfully so, according to these stats: “Rents at premier office spaces in Midtown and Buckhead have risen 14.2% since last year, breaking the $50/SF ceiling for the first time.” Plus, 2.2M SF of new prime office space is underway with “Selig Enterprises

In the Development Market Phase of the real estate cycle

Development Market Phase: How Long Will It Last?

By Stan Sonenshine in Real Estate Cycle Phases, Real Estate Development, Real Estate Investment Strategies

7 months ago

7 months ago 0 0 258

The business cycle is “long in the tooth,” and the real estate cycle is also very, very mature. Last year, in Timing the Real Estate Cycle, I focused on real estate cycle phases, which included Recession, Distressed Selling, Value Creation (Stage 1 + Stage 2), Mature Investment Market, Development Market and Overdevelopment + Bust. Right now, we are in the Development Market phase. Here’s how I previously described it; see if it rings true. Rents and values are up. Vacancies are down. New construction accelerates. Investors…are flush with cash. Lenders are aggressive. Values of existing properties are peaking. There is simply more capital chasing deals than there are opportunities. The downside risk is increasing. The “nothing can go wrong” mentality is taking over. New project announcements are appearing almost daily. Development Market Phase: Alive and Well Here’s what I see now: Transaction volume on the sale/investment side of business has

CRE Bubble? Not If, But When

CRE 2020: What to Expect

City Centers Create Sense of Community

WeWork Weak? Looks That Way

The Importance of Community Engagement

Avoid the Sins of CRE Investment

The Worth of WeWork?

Family Offices: Do Your Due Diligence

Atlanta Office Market: Hot or Not?

Development Market Phase: How Long Will It Last?

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