You miss 100 percent of the shots you never take, and if you think it’s expensive to hire a professional to do the job, wait until you hire an amateur. FOR OVER 20 YEARS, I HAVE WORKED EXTENSIVELY WITH OWNERS AND BUYERS IN LAND, COMMERCIAL AND INVESTMENT REAL ESTATE IN PHOENIX, TUCSON AND THROUGHOUT ARIZONA. PLEASE LET ME KNOW HOW I CAN HELP YOU. Call me if you want to sell your property and need an estimated value. Phone / Prefer cell: 520-975-5207
Office: 480-948-5554 or email me walterunger@ccim.net. – What is a CCIM.
In Business and in Life you don’t get what you deserve, you get what you Negotiate.
contact me if you want me to get you the value of your property.
CLICK HERE TO VIEW ALL MY LISTINGS.
Are you ready to sell or purchase your Land or Commercial Building in Phoenix, Scottsdale, Maricopa County and Pinal County, Arizona, please call me?
Walter Unger CCIM – cell: 520-975-5207 – walterunger@ccim.net
MARGARITA FOSTER PUBLISHED ON APRIL 19, 2023
Corporate Earnings Becoming More Relevant
Data confirms what CRE professionals suspected over the first quarter of 2023: CRE sales have stalled.
Transaction volume was off significantly for office, retail, multifamily and industrial assets combined, contracting by -60.3% quarter-over-quarter and -64.3% year-over-year, according to CoStar, the publisher of LoopNet. Dollar volume moved from $116 billion to $46 billion and $129 billion to $46 billion respectively.
Year-over-year volume declined the most for office assets (-72.2%) and quarter-over-quarter volume declined most for industrial properties (-69.4%)
“We’re in a stale period where people are waiting to see what happens, which is why there’s no transaction volume,” said Chad Littell, national director of U.S. capital markets analytics at CoStar. But for perspective on these first quarter figures, he noted that they are being compared to last year’s peak transaction numbers.
“We’re coming off really robust transaction volume in the fourth quarter of 2021,” with $239 billion trading hands, making the first quarter contraction appear starker. “The decline in transaction volume is less pronounced when comparing the first quarter of 2023 to the five-year pre-outbreak period.”
Key conditions contributing to the decline include flat or falling rents, higher operating costs from rising inflation and increased capital costs that have caused values to decline. Sellers and buyers can’t agree on pricing and lenders have pulled back significantly from CRE lending.
Historically Fast Interest Rate Movement
Littell pointed toward a lesser discussed dynamic in the current cycle that is contributing to the current sales freeze: it’s not just the level of rate hikes, but also the pace at which they occurred. “The interest rate move was the fastest that pretty much any of us have seen in our working professional lives, and that basically ground the market to a halt,” Littell said.
Historically, he said Federal Reserve Economic Data (FRED) shows that the most recent significant rate hike was between 2004 and 2006, when rates were raised by about 4.2 percentage points over roughly two years. By comparison, the recent move, so far, involved 4.6 percentage points over 12 months.
While quickly adjusting to these new levels is difficult for most assets — and impossible for some — these hikes signify that “we’re reverting to the mean,” said Steve Martin, managing principal at SDM Partners, a developer, investor and operator of CRE in the southeastern United States. We’ve had a 15-year run of 10-year U.S. treasury yields that ranged between 1.5% and 2.0% “but if you look at the 50- or 60-year average it’s just over 5.0%,” Martin said.
With rates rising, “whatever spread we all thought we had is gone,” Martin noted. Now, instead of asking “how much money am I going to make,” owners are focused on the money they put in and how much of it they will be able to get out; said differently, return of equity not return on equity.
SEE IT ALL: https://www.loopnet.com/learn/cre-sales-plummet-in-q1-as-expected-heres-what-to-focus-on-next/1493995786/
An Equity Cushion
For owners in asset classes like industrial or multifamily, “if they bought in 2019 or 2020, for example, they’ve likely built an equity cushion from price appreciation and loan paydown, so they’ve got some room to maneuver,” CoStar’s Littell said. “I don’t want to paint a picture that every single owner is faced with this challenge. Many of them will be able to sell, and probably not get what they were hoping a year ago, but they’ll still be able to get out okay.”
Littell added that for those facing a refinancing, the days of loan-to-value (LTV) ratios of 70%, or more, are over. Today, if your bank agrees to loan to you, the ratio will likely fall closer to 55% to 65%, Littell said, meaning that owners may need to write a check to refinance a property.
”It’s very bumpy out here and it’s going to get bumpier.”
Steve Martin, SDM Partners
Some owners are just riding this out, Littell said, adding that those that had planned to sell in the fourth quarter of 2022, or the first quarter of 2023 have discovered that buyers are faced with the same interest rate and LTV challenges that they are. He said that sellers with positive cash flow and no debt coming due are simply waiting, figuring they can hold on and see how things play out.
Meanwhile, owners staring at higher rates as loans mature are hoping that interest rates will go down, Littell said. ”They’re waiting as long as they possibly can, hoping that inflation will continue to decelerate and they’ll see the Fed cut rates.”
Higher Rates for All
Martin noted that “real estate is capital intensive and traditionally very highly leveraged,” so it’s no surprise that these rate hikes are having an outsized effect on the CRE industry. But, he added, there is a domino effect downstream that affects banks, commercial mortgage-backed securities (CMBS), and pension funds, among others. “It’s very bumpy out here and it’s going to get bumpier.”
Littell agreed that higher interest rates are indeed impacting businesses outside of real estate. “There’s an entire economy of businesses that use debt to fund operations,” growth and inventory, he said. So, as interest expense goes up for businesses, their profits tend to slow.
“Basically, our entire economy is now dealing with higher interest rates,” and that means slower growth and negative earnings for some, Littell said, adding that “as this happens, companies start laying people off.”
Earnings have already been slowing in tandem with interest rate hikes, he said. “If you look at S&P earnings year-over-year, they went negative in the fourth quarter and they’re going to be more negative in the first quarter of this year,” indicating for Littell that a corporate earnings recession is coming.
Littell believes CRE professionals need to focus on quarterly earnings to monitor corporations as they start to feel the heat of rising interest rates amid a slowing economy, since they too must borrow to keep their companies operating.
Focus on Earnings, not Employment
Many professionals, as well as the media, are focused on the employment rate when it comes to signs of some future economic contraction or recession, said Littell. But he believes that instead, they should focus on the health of the consumer, their spending patterns and real wages, as well as corporate earnings.
He said that a common refrain is “we’re still doing okay because employment is strong.” But FRED shows that generally, the unemployment rate rises slightly or stays flat as we transition into recessions. “I think people are waiting for weakness in the labor market before we hit a recession,” he said. In fact, however, labor contraction has historically been a lagging indicator. “We usually don’t see this big, leading ramp up in unemployment to sound the alarm.”
”If corporate earnings are falling, what are the chances that they’re going to expand their real estate footprints? What’s the chance that they’re going to hire more people? These questions deserve more attention.”
Chad Littell, CoStar
In this cycle, where the rapidly rising cost of debt is largely responsible for the decline in CRE sales, Littell said corporate earnings are a meaningful leading indicator. “If corporate earnings are falling, what are the chances that they’re going to expand their real estate footprints? What’s the chance that they’re going to hire more people? These questions deserve more attention.”
Everyone is still focused on interest rates, Littell said, but he believes that over the next two years, the focus will shift toward the broader economy and the financial health of the tenants supporting commercial real estate cash flows.
“That’s the next question, and if I were actively allocating capital, that’s what I’d be focused on.”
MARGARITA FOSTERSENIOR EDITOR, EDUCATIONAL CONTENT, LOOPNET
Margarita Foster, LEED, AP is senior editor for educational content at LoopNet. She has held research, analyst and communications roles at brokerage firms Cassidy & Pinkard and Grubb & Ellis (now Cushman & Wakefield and Newmark, respectively), and led chapter relations and research/publication divisions at nonprofit organizations ULI and NAIOP. She specializes in office, industrial, retail, residential and hotel products, examining zoning, finance, design, construction, leasing, operations, sales and environmental issues. She can be reached at mfoster@costar.com.
SEE IT ALL: https://www.loopnet.com/learn/cre-sales-plummet-in-q1-as-expected-heres-what-to-focus-on-next/1493995786/
FROM ME: FOR OVER 20 YEARS, I HAVE WORKED EXTENSIVELY WITH OWNERS AND BUYERS IN LAND, COMMERCIAL AND INVESTMENT REAL ESTATE IN PHOENIX, TUCSON AND THROUGHOUT ARIZONA. Now is the time, if you are thinking of selling or purchasing your Land or Commercial Building in Phoenix, Scottsdale, Maricopa County, Pinal County, Arizona / Office / Retail / Industrial / Multi-family / please call me on my cell 520-975-5207 or e-mail me walterunger@ccim.net. Investors and Owner / Users need to really know the market today before making a move. The market has a lot of moving parts. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands your needs. I am marketing my listings on Costar, Loop-net, CCIM, CREXi, Catylist, and various other web sites. I also sold hundreds millions of dollars’ worth of Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with brokers, Investors and Developers. I am also a CCIM and through this origination ( www.ccim.com ) I have access to marketing not only in the United States, but also international
DISCOVER WHAT IS HAPPENING IN ARIZONA
History of Arizona from 900 BC – 2017 -Timeline.
What is a CCIM. In Business and in Life you don’t get what you deserve, you get what you Negotiate.
contact me if you want the me to get you the value of your property.
Walter Unger CCIM – cell: 520-975-5207 – walterunger@ccim.net
Click here to find out what is a CCIM:
CLICK HERE TO VIEW ALL MY LISTINGS.
Are you ready to sell or purchase your Land or Commercial Building in Phoenix, Scottsdale, Maricopa County and Pinal County, Arizona, please call me?
Walter Unger CCIM
Associate Broker
West USA Commercial Division
7077 E MARILYN RD.
Suite 200, Building 4.
Scottsdale AZ, 85254
Phone: 480-948-5554
Cell: 520-975-5207
History of Arizona from 900 BC – 2017 -Timeline.
History of Arizona from 900 BC – 2017 -Timeline.
WHY PHOENIX? AMAZING!!! POPULATION IN 1950 – 350 K PEOPLE; “NOW 5 MIL”. – “5TH. BIGGEST CITY IN USA”
- DEMOGRAPHIC FACTS ABOUT MARICOPA COUNTY:
Walter Unger CCIM – walterunger@ccim.net – 1-520-975-5207 – http://walter-unger.com
Timeline of Phoenix, Arizona history
Facts of Arizona – year 1848 to 2013
CLICK HERE: Arizona Opportunity Zones As We Understand /maps. Interested!!! Please contact me.
Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix, Tucson, Arizona.
Walter Unger CCIM
Associate Broker
West USA Commercial Division
7077 E MARILYN RD.
Suite 200, Building 4.
Scottsdale AZ, 85254
Phone: 480-948-5554
Cell: 520-975-5207
FOR OVER 20 YEARS, I HAVE WORKED EXTENSIVELY WITH OWNERS AND BUYERS IN LAND, COMMERCIAL AND INVESTMENT REAL ESTATE IN PHOENIX, TUCSON AND THROUGHOUT ARIZONA. PLEASE LET ME KNOW HOW I CAN HELP YOU PLEASE CALL ME
CLICK HERE TO VIEW ALL MY LISTINGS.
Also Call me if you need an estimated value of your Property.
Call me if you want to see a map with what is in the Construction Pipeline for Apartments.
Prefer cell: 520-975-5207, or email me walterunger@ccim.net. CLICK HERE TO VIEW ALL MY LISTINGS.
Check out my professional profile and connect with me on LinkedIn.
Walter Unger CCIM, CCSS, CCLS
I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years. If you have any questions about Commercial / Investment Properties in Phoenix or Commercial / Investment Properties in Arizona, I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us.
Please reply by e-mail walterunger@ccim.net or call me on my cell 520-975-5207
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