What CRE Challenges Remain in 2013?

MIAMI—With 2013 halfway over, it's time to reassess. So what challenges remain? How is the economy impacting commercial real estate?

To get a perspective from the private real estate and development front, GlobeSt.com caught up with Austin Khan, Chief Investment Officer at Laurus Corporation. Most recently, Laurus snapped up a Sheraton Hotel in Washington, D.C., completed the acquisition of Gateway 1 & 2 in Houston, and finished a Holiday Inn Express renovation in New Orleans.

GlobeSt.com: What are the biggest challenges we face this year?

Khan: In general, the unevenness of the economic recovery could be the biggest potential obstacle to robust growth in the real estate sector. U.S. equity markets have performed very strongly, but GDP and employment growth remain sluggish. 

Consumer spending has been driving GDP for the past several quarters, but the recent changes in tax policy related to the fiscal cliff deal and rising fuel costs may result in some softening there. Housing is rebounding in some markets but value growth remains stalled in others. Finally, although the U.S. economy remains in a slow growth pattern, there continues to be GDP contraction in other key international economies such as the U.K., Germany and Japan.

GlobeSt.com: What is your view of the economy as it relates to commercial real estate? What do you predict is the pace and depth of recovery in 2013?

Khan: Strength in the debt capital markets will continue to drive transaction pricing in 2013.  Also, capital is starting to flow into markets outside of the gateway cities which should allow those markets to benefit significantly in terms of price appreciation.

GlobeSt.com: Are you more certain than we were last year? Still uncertain?  

Khan: Laurus Corporation is even more certain about this year as we have seen many investors with a rapidly increasing appetite toward top 30 markets outside of the gateway cities, which is where we have been focusing most of our investment efforts over the past two years.

GlobeSt.com: What markets are likely to perform best and why?

Khan: Laurus continues to focus on major markets with stronger than average employment growth where there are clear opportunities to acquire with both yield and capital appreciation in mind. Over the past 18 months, we have been active in markets, including New Orleans, San Antonio, Salt Lake City, and Minneapolis.   

GlobeSt.com: How have the capital markets changed in the past 12 months and how are they likely to change throughout the course of the year?

Khan: Lenders have increasingly started to look at proforma NOI in sizing and pricing deals, which is a significant shift from prior years. As a result, the ability to finance the types of value-add opportunities primarily pursued by our firm has improved significantly.