San Jose Tops Secondary Markets For CRE Investment

The San Jose metro area tops the list of secondary markets for CRE investment, according to new research from Trepp.

The region, which includes Sunnyvale and Santa Clara, Calif., ranked first in Trepp’s recent roundup of real estate investment thus far in 2021, outpacing the Las Vegas-Henderson-Paradise and Sacramento-Roseville-Arden, Calif., regions.

San Jose reclaimed its top spot from 2018, and was the MSA with the highest level of new CMBS issuance, with more than $3.3 billion invested across 41 loans since March 2020. About 80% of that total came from 32 loans issued in the office sector in 2020.

“While there are signs of a ‘techsodus’ from California reflected in the MSA’s low population growth ranking, the area has also seen enough positive market development to leapfrog it back into the rankings’ top spot,” the report notes. But while delinquency rates remain low, the market has also fallen from grace somewhat as the result of the pandemic. According to Realtor.com’s “hottest- markets” survey, San Jose-Sunnyvale has fallen 109 spots since January 2020 and now ranks at spot 132 and its population fell the most from 2019-2020 out of the secondary MSAs that Trepp tracks.

All of the three top metros had high levels of outstanding Volume Growth (OVG %) dating back to 2017, while also reporting low delinquency and special servicing rates along with strong weighted average debt-service coverage ratios, according to Trepp.

At the bottom of the rankings: Cleveland-Elyria, Ohio, Portland-Vancouver-Hillsboro, and St. Louis.

“Cleveland has seen comparatively little OVG over the past five years, while also still reeling from the effects of the pandemic,” the report notes. After a tumultuous year, Portland fell nine spots from last year’s ranking while combating a high unemployment rate and struggling loans backed by collateral in the area. St. Louis similarly has struggled to attract CMBS investment, while also seeing low population growth.”