LOS ANGELES—It’s only sunshine and rainbows in the capital markets world, according to experts on CBRE‘s Real Estate 360 in 60 web forecast. CBRE brokers Kevin Shannon, Val Achtemeier and Darla Longo agreed that there is still an abundance of equity, debt and foreign capital in the market and fundamentals are very strong.
“The investment sales sector is firing on all cylinders now as the capital gods are smiling on us,” says Shannon. “Most core deals are completed with no debt involved. They are all cash deals. We’re not seeing the loan-to-value ratios we did from 2006 or 2007. That’s not happening this cycle so far. Capital is not making high-leverage bets.” With so much capital in the market, investors are starting to find deals in secondary markets, and value-add transactions are starting to increase. In major West Coast markets, like Seattle, Phoenix and Denver, where capital is especially abundant, records are breaking all the time.
Longo echoes Shannon’s thoughts, adding that industrial has taken multifamily’s place as the “new darling.” “We’re seeing a huge increase in foreign capital, which is unusual for the industrial product type,” she explains. “Smaller industrial companies are following the ‘priority proximity’ principle where they want to be near population centers and close to priority shipping hubs in order to get products in consumers’ hands.” Big box industrial had already been very active. Here in L.A., there are several big-box industrial developments under construction, including the 1-million-square-foot build-to-suit facility that Roll Real Estate is building for American Tires. However, that activity is now trickling down into the smaller facilities, which are beginning to pool investor interest as well.
There is a fear that with so much capital, lenders will begin to take big risks, and while Achtemeier explains that this is true, she adds that they are doing so “in a more disciplined manner.” She says, “They understand the submarket, the property and the risk, and are doing reasonable deals. Debt capital is available across the capital stack at competitive pricing, so it is a great time to be a borrower now.”