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2015 Global Investment Statement Report

Market momentum to continue, with 83% expecting a further rise in investment volumes in 2015.

Jobs growth in metro markets fueling demand. After a weak, weather-impacted start to 2014, US economic growth accelerated in the second and third quarters. For the whole year, real GDP growth is forecast at 2.1%, to accelerate further to nearly 3% in 2015. It is estimated that this could translate into a gain of 2.5 million jobs in 2014 in 2015, increasing to 2.7 million in 2015, which would be the highest annual total since 2000.

As significant as the improvement in the aggregate economic statistics is the greater number of markets within the US driving growth. Whereas earlier in the recovery the intellectual capital, energy and education (ICEE) markets were the main drivers, growth has expanded to and accelerated in more US metropolitan areas in 2014, including some of the hard-hit housing markets such as Phoenix, Las Vegas and many metropolitan areas in Florida, fueling greater demand for real estate. As an example, half of the US metropolitan areas tracked by Colliers International has recovered all of the office-using jobs lost during the recession, and nearly 90% added office-using jobs on a year-over-year basis in June 2014.

In addition to stronger demand, low supply-side pressure in most markets and property types is contributing to tightening in the US real estate markets. Lender caution, high construction costs (which continued to increase through the recession) and still-elevated vacancy rates in many markets and property types are restraining development. The construction activity that is occurring, especially speculative, is generally targeted, concentrated in the strongest markets and submarkets where tenant demand remains robust, such as Houston, San Francisco, Silicon Valley, Boston and New York. This measured approach to development, coupled with positive demand trends should result in further occupancy gains.

These trends bode well for the investment market, as US survey respondents identified property fundamentals and economic growth as the two most important factors influencing investment decisions.

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Healing seen in Las Vegas commercial real-estate market

By Jennifer Robison
Las Vegas Review-Journal

Southern Nevada’s homes market isn’t the only real estate sector seeing falling loan delinquencies.

An improving economy means fewer commercial borrowers are in danger of default, too.

New numbers from Trepp, a New York-based commercial real estate and banking research firm, show a substantial drop recently in late commercial loans. The Las Vegas Valley in December had 53 properties with real estate loan payments that were more than 90 days late, for a 10.7 percent delinquency rate. That was down from 14.9 percent in December 2013.

It was also less than half of the rate in mid-2011 when 24 percent of local commercial properties were behind on their real estate loans, said Sean Barrie, a Trepp research analyst.

Nearly 150 local properties were delinquent in mid-2012.

Delinquencies are an important economic indicator because they reflect whether commercial landlords can make their payments. That’s driven in turn by economic expansion and business formation.

Delinquencies are falling as more borrowers and banks look for loan workout strategies, Barrie said.

Those alternatives to default are available because the local market has stabilized, said Bob Ybarra, an analyst with commercial brokerage CBRE Las Vegas.

“You’re seeing a lot more absorption (leasing of space) in industrial, office and retail properties,” Ybarra said. “The overall fundamentals are better: You have a strong economy, businesses are rebounding, there’s more job creation, and there’s more wealth. We’re not breaking records, but some of these centers are starting to fill up with tenants again. And when they fill up, the landlords can service their debt.”


New numbers from CBRE Las Vegas show how dramatically leasing has swung in the recovery.

Net absorption of local office space has totaled about 3 million square feet since 2012. That’s compared with negative absorption, or loss of leased space, of 1.8 million square feet from 2009 through 2011. Office vacancies in the fourth quarter were still high, at 21.2 percent, but that was down from 27 percent in the downturn.

Industrial absorption was 2.8 million square feet in 2014, up 17.3 percent over 2013’s rate. The submarket posted net absorption of 5.2 million square feet in 2013 and 2014, compared with 3.1 million square feet of negative absorption from 2009 to 2012. Industrial vacancy averaged 7.3 percent, down from 10.2 percent a year earlier.

The swing in absorption rates hasn’t been as dramatic in retail because the sector wasn’t as hard-hit. But vacancies continue to trend down as tenants fill space. Retail vacancy averaged 10.4 percent in the fourth quarter, down from 11.5 percent in the fourth quarter of 2013 and well below a 2011 high of 14.1 percent.

Delinquencies varied by submarket. The office sector had 22 properties with late loans in December. Industrial had four. Retail had 17. There were also seven multifamily properties and three lodging properties with loans that were late by 90 days or more.

On top of improved cash flow from new tenants, credit markets have loosened, Ybarra said. That means more access to bridge lenders who can help property owners with refinancing. There are also more investors willing to gamble on the local market.

“During the downturn, there was very little activity here because everyone had a big, red ‘X’ across the state,” Ybarra said. “Now, people are willing to lend in Las Vegas. There are more investors people can go to give up equity in their property as well.”


The news wasn’t all good.

Southern Nevada’s default rate continued to outpace the national level.

December’s nationwide delinquency reading of 5.75 percent was about half of Southern Nevada’s rate.

That was also the case during the recession: When the local rate hit 24 percent in July 2012, the national rate was 10.24 percent.

The largest local commercial loans more than 90 days late include: the Westin Casuarina Hotel on East Flamingo Road, with a loan balance of $136.5 million; hotel Loews Lake Las Vegas, with a balance of $117 million; Sahara Pavilion North, a shopping center at Decatur Boulevard and Sahara Avenue, which has a balance of $56.3 million; Entrata di Paradiso Apartments, at 2701 N. Rainbow Blvd., which carries a $39 million balance; and Rainbow Promenade, a shopping center at North Rainbow Boulevard and Smoke Ranch Road, with $37.9 million in loans outstanding.

The Westin Casuarina entered foreclosure in 2010 after then-owner Columbia Sussex Corp. stopped making payments on the property’s $160 million mortgage. A court-appointed Pyramid Hotel Group its receiver; Pyramid leased the property’s casino to 777 Gaming beginning in 2012.

Pyramid also manages the Loews property, which opened as the Hyatt Regency in 1999 and switched to the Loews brand in 2006. The property has been in receivership since 2009 when it defaulted on it’s $117 million mortgages. It switched to the Westin brand in 2012.

The 333,000-square-foot Sahara Pavilion North has been in default since February 2011, while the 228,000-square-foot Rainbow Promenade has been in arrears since November 2012.

Observers said commercial delinquencies should continue to fall through 2015.

Barrie said the Las Vegas rate should tick down as the national rate does, though he added that it would be difficult to forecast another four-percentage-point drop.

Ybarra said it’s hard to predict default rates, but he said he anticipates an even better year ahead for the local commercial real estate. Economic “fundamentals” should continue to improve, he said. For example, dropping gasoline prices will mean more discretionary income for consumers, which in turn will help the retail sector grow and further cut real estate vacancies.

Contact Jennifer Robison at Find her on Twitter: @J_Robison1

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Top 5 Predictions for the Multifamily Sector in 2015

In the year ahead, demand for multifamily properties in urban areas and in the affordable housing sector will continue increasing, while appetite for luxury condos may slow down, predicts Byron Carlock, Jr., U.S real estate practice leader with consulting firm PwC. Carlock, whose past stints included the role of CEO and president of CNL Lifestyle Properties and chief investment officer of Post Properties, is a member of the Urban Land Institute and a board member Emeritus at Harvard Business School.

Below he shares his predictions for the multifamily sector in 2015:

  • There will still be a shortage of housing units in most major markets, and the industry will see an affordable housing problem in the top markets.
  • Multifamily demand will continue to increase with urbanization trends, which are attracting baby boomer and Millennial cohorts to multifamily housing.
  • Nearly 29 million Millennials still live at home (due to student debt and delayed entry into jobs that allow self-sustenance). They will move out and start their own households over the coming years as the economy’s slow recovery continues.
  • Ultra-high-end multifamily condo housing in certain major markets is seeing high prices supported by foreign buyers, although questions are emerging as to the depth of that buying community. A slowdown in the escalating prices in New York City is beginning to be discussed.

Multifamily housing will continue to provide greater flexibility and mobility and be deemed more convenient by those seeking to simplify their lifestyle, downsize or maintain locational flexibility due to job or family issues.