The residential real estate market has received quite a bit of attention over the last two years, and for good reason.
The housing market has become so tight that inventory is extremely hard to come by in nearly every market, and prices are now higher than ever for homes. The properties that are listed for sale typically get snatched up in record time—and often sell for higher than asking price—which has made it tough for most buyers to compete.
Case in point: A moderately priced home recently went for sale in Raleigh, North Carolina, and it was absolutely inundated by potential buyers searching for affordable properties. That mad dash by buyers was enough to make national headlines, but any buyer who’s looked for property in the last two years was almost certainly not surprised by the overwhelming interest. That’s just part of what buyers face when looking for property in a red-hot housing market.
But the property buying frenzy that has occurred recently has hardly been limited to the residential housing market. Commercial real estate transactions have also exploded—with a surprising surge in transactions occurring over the last year. Throughout 2021, investors big and small snatched up everything from apartment buildings, warehouses, and distribution centers to other types of commercial properties, such as hotels. As of the second quarter of 2021, multifamily property sales were up 26% year over year and nonresidential properties were up 16% compared to the year prior.
There were also increases in sales rates across all commercial property types. The rampant demand for commercial properties also led to $193 billion in commercial real estate transactions occurring in the third quarter of 2021—and a record $809 billion in commercial property sales for all of 2021.
So what exactly drove the surge in commercial real estate transactions throughout 2021—and why? EquityMultiple compiled a list of six important trends in the commercial real estate markets during 2021, covering topics from the rise of individual investors to the impact of the federal reserve’s pandemic policies. Here’s what you should know.
1. Weak Bond Markets Sent Investors Seeking Alternatives
When the returns on traditional investments, like stocks or bonds, are down, investors tend to seek out opportunities to make the target returns on their investments. At the close of 2021, the U.S. stock market posted the best three-year returns seen in 24 years—but the same was not true of bonds. In December 2021, the inflation rate in the U.S. jumped a whopping 7%—which, in turn, quickly pushed bond prices lower and decreased the potential for high returns for investors.
The lower bond prices caused key bond market indices to post their first losses since 2013, and led investors to look for other ways to put their money to work, which included commercial real estate securities, real estate investment trusts, and other commercial property investments. While potentially risky, commercial real estate transactions can be lucrative for investors, with annual yields averaging between 6% and 12%, with potential for significant appreciation depending on market conditions and other factors. That means investing in commercial real estate has the potential for a significantly higher return on investment when compared to the average return on bonds.
2. Federal Reserve Prevented A Distressed Property Sell-Off, Making Easy Debt Available For Deals
When the COVID-19 pandemic hit, investors expected the commercial real estate market to take a significant hit—which would have allowed them to snatch up distressed properties at bargain-basement prices. That didn’t happen, however, because the Federal Reserve made it a lot easier and cheaper to borrow by significantly lowering interest rates at the start of the pandemic. The cheaper cost of borrowing led to $102 billion in loans being extended to property owners in the first nine months of 2021, which kept the commercial real estate market from collapsing.
These loans were then converted into commercial mortgage securities, which are offered to individual investors, investment firms, and other financial management companies as shares. By doing this, swaths of investors were able to buy into commercial real estate transactions without having to fund the full purchase of the physical properties or land. Apartment buildings, life science labs, and industrial properties—which were expected to yield higher returns than other commercial properties, such as shopping malls or retail centers—were especially sought after. These types of commercial properties yielded more than $193 billion in sales during the third quarter of 2021.
3. Demand For Distribution Centers Surged
Online shopping became even more popular than before during the pandemic, as in-person shopping became a dangerous—and, in some cases, nearly impossible—task. That surge in online orders for everything from food items to toilet paper meant online and e-commerce retailers needed to lease more distribution center space to have a base to store their inventory and originate shipments.
In turn, the demand for distribution centers surged, and vacancy rates at these properties reached historic lows. That led investors to capitalize on the trend by buying distribution centers and then rake in the profits from the high lease prices. Rampant supply chain shortages also made it difficult to develop more of these types of properties, which only added more fuel to the fire. Distribution centers and warehouses were suddenly selling for a premium, and investors were willing to pay the price for these properties, which kept transaction rates high.
4. Soaring Home Prices Increased Demand For Apartment Rentals
Between the housing market inventory shortage and the rapidly increasing prices of homes, buyers have been priced out or pushed out of home purchases across the nation. In turn, the demand for rental properties has skyrocketed—which has led investors to set their sights on apartment buildings. In 2021, multifamily property sales—which includes apartments, duplexes, fourplexes, and other multifamily units—totaled $335.3 billion, up 128% from the year prior.
By purchasing apartment buildings, commercial property investors are able to capitalize on the opportunity to profit from the increased rent prices that occurred. In 2021, rent increased by an average of 11%—or three times the normal rate—and it has only continued to increase from there. As of February 2022, the average national rent price for one-bedroom units was up 22.6% year over year, and two-bedroom rent was up an average of 20.4%.
5. Small Investors Flocked To Commercial Real Estate With Non-Traded Real Estate Investment Trusts
Real estate investment trusts are attractive to investors because they allow investors to buy shares of a trust that invests in commercial real estate projects rather than buying and managing their own properties. This can make commercial real estate less risky and more affordable for investors, but you have to be an accredited investor to invest in most traditional publicly traded REITs—which comes with numerous financial requirements, like a high net worth and high earned income.
As such, it can be tough for small investors to qualify, which has led them to set their sights on other options such as real estate crowdfunding, which opens access to commercial real estate transitions and other private fund structures. Another option includes open-ended funds, known as non-traded real estate investment trusts. Non-traded REITs accounted for about 42% of the alternative investment market in 2021, with about $36.5 billion total in fundraising that year alone. Part of the draw is that, unlike most traditional REITs, investors can buy into non-traded REITs for as little as $2,500—and there’s an opportunity for big returns in exchange. Most non-traded REITs have been paying dividends above 5%, which is competitive—and often beats—other types of fixed-income investments.
6. Investors Were Looking For An Inflation Hedge
Rising inflation has become a growing issue, as the rate of inflation increased by 7% in 2021. Periods of rampant inflation are tough on the economy because they cause the price of everything from rent to groceries to increase, which makes the dollar less valuable. Inflation can also cause a big hit to potential returns on investments, and that’s especially true for investments with fixed rates, like money market accounts, because these rates are generally lower than the rate of inflation, which means that the money earned on these accounts won’t cover the loss from inflation.
The one type of investment that tends to withstand surges in inflation, however, is commercial real estate. That’s because investors can raise the rental or lease rates on their properties to combat any potential losses from inflation. That being the case, investors purchased a record number of commercial properties in 2021 to hedge against inflation and mitigate any potential losses. This, in turn, helped real estate transactions surge.
Source: Clayton News-Daily
Five Developers Seeking Industrial Projects In The Agricultural Reserve In Southwest Palm Beach County
Five developers filed land use amendments for industrial development in the Agricultural Reserve in southwest Palm Beach County.
All five applications are in response to a county-initiated process to establish a Commerce Future Land Use category in the Agricultural Reserve to allow light industrial projects. The County Commission is set to vote on this in August.
The Agricultural Reserve is traditionally a rural and agricultural area. Most of the development allowed there has been for single-family homes, creating one of the fastest growing neighborhoods in South Florida. Residential developers must set aside land for preservation in the Agricultural Reserve, and industrial developers would be required to do the same.
Five sites in the Agricultural Reserve in Palm Beach County have been proposed for light industrial development.
(MAP CREDIT: JMORTAN PLANNING & LANDSCAPE ARCHITECTURE)
Amid huge demand for industrial space throughout Palm Beach County, all of the industrial land along Atlantic Avenue just east of State Road 7 has been approved for development and there’s a need for more development to serve the residents, said Lauren McClellan, senior project manager for Palm Beach Gardens-based JMortan Planning & Landscape Architecture, which represents all five land use applications.
Gunster attorney Brian Seymour, who represents Fort Lauderdale-based BBX Capital Corp. in the largest application, said it was filed so the company could get a head start on the long process of a land use change amendment so it will already be in the works should the County Commission approve the Commerce designation. He noted that the light industrial category would not permit heavy industrial uses or self-storage facilities, but it would be appropriate for small-bay warehouses, last-mile distribution centers, and cold storage.
David A. Menchof, an associate professor of supply chain and operations management at Florida Atlantic University, authored a letter for BBX stating that building last-mile distribution centers in the Agricultural Reserve would reduce traffic because goods can reach residents there faster without having to be delivered from distribution centers further away.
Here’s a look at the five applications:
The County Commission is also considering a county-initiated land use change to permit apartment projects there.
Source: SFBJ
Industrial Developer Buys Park ‘N Fly Lot Serving Fort Lauderdale Airport
Bridge Industrial paid $20 million for the Park ‘N Fly lot serving Fort Lauderdale/Hollywood International Airport.
Atlanta-based PNF-FLL LLC, part of the company that operates Park ‘N Fly in multiple cities, sold the 22.4-acre site at 2200 N.E. Seventh Ave. in Dania Beach to Bridge Point Dania 161 LLC, an affiliate of Chicago-based Bridge Industrial. It’s located between the airport and Port Everglades.
The property last traded for $4.8 million in 2017.
On its website, Park ‘N Fly says the Dania Beach location will close after June 26. Two privately-owned off-site parking lots remain for the airport.
Source: SFBJ
Amazon Likely To Reduce Warehouse Space In South Florida Amid E-Commerce Slowdown
Amazon.com Inc. is expected to scale back its warehouse holdings nationally, including in Broward County.
At a June 8 public meeting, John Biggie, chairman of the Coral Springs Economic Development Advisory Committee and principal of JBI Development, said the Seattle-based e-commerce giant has “nixed” plans to move into 225,000 square feet within the Commerce Park of Coral Springs, at 4000 N.W. 126th Ave. The facility was slated to hire 200 people, according to previous announcements from Amazon.
Yuri Quispe, a broker with JLL and a member of the committee, said Amazon will also pull out out of a lease deal that it signed 2.5 years ago at a couple warehouse facilities near Sample Road and the Florida Turnpike.
In May, it was widely reported that Amazon executives said the company was losing billions of dollars due to fewer e-commerce sales and an overabundance of warehouses. As a result, the company planned to shrink its national industrial footprint.
Within South Florida, Amazon controls 8.7 million square feet of distribution space. Of that amount, about 2.3 million square feet has yet to be occupied, according to figures from CoStar Group.
Aside from Commerce Park, a source said Amazon has yet to fill an 823,000-square-foot facility at 4600 N. Hiatus Road in Sunrise, a 216,000-square-foot facility at 3750 Palm Drive in Homestead, and 1 million square feet at 13200 S.W. 272nd St. in unincorporated Miami-Dade that it purchased in 2020.
Keith Graves, senior VP of Berger Commercial, said that in the “big scheme of things,” Amazon will have a minimal impact in this industrial market, which has more than 45 million square feet of inventory.
Nationally, the industrial market is shattering records. However, Quispe and Biggie warned that rough times may be ahead for Coral Springs’ industrial sector.
The 430,000-square-foot Commerce Center of Coral Springs was built in 2018 by Pennsylvania-based EQT Exeter. Exeter paid $14.88 million for the site a year prior. EQT Exeter sold Commerce Center to an unknown buyer in late 2021 as part of a $127.8 million deal. EQT Exeter still manages the site.
Source: SFBJ
Industrial Revolution Continues: ‘Ongoing Boom’ Draws Out Latest Crop Of Newcomers
It’s rare for a property type to extend a growth cycle beyond a decade. But industrial real estate’s dominance only seems to grow — attracting newcomers while big players scrap for the materials and land they need to keep their projects moving and potential clients happy.
While longtime powerhouses like Prologis and Panattoni plow forward with their own mammoth projects — and Amazon admits that it has too much industrial space on its hands — other companies are making their debut, hoping to seize on some of the continued demand and expanding yields.
Although the industrial market has been on an expansion trajectory for years, there seems to be plenty of room for newcomers.
There seems to be widespread consensus that the industrial heyday is far from over.
Carroll pointed to the nationwide vacancy rate for industrial space — 3.3% in the first quarter, according to Cushman & Wakefield, with lease rates up 15.2% on average compared to a year ago — and a rapid pace of leasing that means new spec development is snapped up as soon as it’s finished, if not before.
Among the industrial newcomers is Peterson Cos., the Virginia-based developer of residential communities, huge retail districts and data centers. Peterson took the plunge into industrial development last year, and has two projects totaling 334 acres underway in the Washington, D.C., area, with another 915 acres in the planning stages, according to Peterson President of Development Taylor Chess.
Now, as the company’s initial prediction proved out, hastened along by the pandemic, Peterson doubled down on its efforts, launching an industrial arm in earnest to capitalize on the staggering demand.
Peterson’s not alone. Nationwide companies that have operated successfully for decades in other property types are also diversifying their efforts by turning to industrial.
South Carolina-based Greystar, for example, is a bastion of multifamily development and management, with thousands of units in major markets across the country. But Greystar in March paid $43.7M for 154 acres near the Phoenix airport, setting up the company’s first large-scale industrial project. Greystar got a leg up on its foray into a new product type by purchasing a parcel with plans that were already approved by the local planning authority. Greystar will work with a development team assembled by the former owner of the land, a Phoenix-based company called Unbound Development, according to a press release announcing the deal.
Similarly, private equity giant KKR & Co. earlier this month announced a dramatic push into industrial development, with plans to build 1.8M SF worth of mid-sized warehouses in last-mile distribution locations in Atlanta, Dallas, Denver, and Orlando, Florida.
And Tishman Speyer, known for its office buildings, hired Andy Burke, formerly of industrial developer Terreno Realty Corp., as its managing director to oversee industrial acquisitions and development. Tishman Speyer in December 2021 announced that it acquired two middle-mile distribution centers in Colorado and Pennsylvania.
Each of these new entrants to the industrial market appears to have a focus on last-mile distribution, which is basically the white whale of industrial development right now, according to Carroll, thanks to its demand paired with a lack of available land.
The lack of available land is something about which Chess at Peterson knows a lot.
Land availability is just one of the challenges for any company trying to develop industrial properties right now. Shipping delays and turbulence in markets and foreign countries continue driving up the cost of materials, and labor is difficult to find in most markets. This doesn’t just make buildings cost more, it impacts a key factor for potential industrial tenants: speed to market.
With so much competition for land, materials and labor, the addition of new players to the marketplace could be considered a negative for existing companies that are already battling to get what they need. But Tanjuan says that for those who are committed to the product type, there’s a way forward.
Source: Bisnow
Commercial Real Estate Investment Up 45% Year-Over-Year
After a banner year of CRE investment in 2021, 2022 is off to a solid start.
Reports from both Colliers and CBRE for the first three months of this year found that investment in CRE is up and, by some accounts, setting records.
U.S. transaction volume hit $161B, a first-quarter all-time high, Colliers found. CBRE clocked total transaction volume at $150.4B, which was a 45% increase over the same time the year before.
Volume was up for all asset classes, but unsurprisingly, multifamily took the top spot, capturing $63B, according to Colliers. That amounts to a 56% increase year-over-year and sets a new record for multifamily, according to Colliers.
By CBRE’s count, multifamily also took the lead, but CBRE found it garnered $57B in investment volume, a 42% increase over the previous year’s first quarter. It is common for brokerages to have different numbers based on their research metrics, including size of deals tracked.
Greater New York and greater LA were in the No. 1 and No. 2 spots for transactions, respectively, CBRE found. New York saw $63B worth of deals, while greater LA trailed closely behind with $62B worth of transactions.
Earlier this year, CBRE forecast that even after 2021’s record highs, CRE investment would continue to grow in 2022.
Though interest rates are moving upward and inflation is soaring, these factors haven’t had an impact on CRE yet, Colliers said, though it also noted those would likely be reflected in data later in the year because there is a lag between interest rates being hiked and deal flow effects.
CRE is often called an inflation hedge, and the interest in CRE this year could be seen as confirmation that investors view property as an investment that could withstand the uptick, but now some investors have begun to make moves that indicate they aren’t sure how much longer that will hold true.
Source: Bisnow
Florida Has The Top 5 Hottest Metro Commercial Real Estate Markets
The first quarter of 2022 may have technically been a winter-to-spring transition, but CRE metro markets were particularly hot in the Sun Belt and West, with Florida walking away with the top five out of 16 markets.
That’s according to the National Association of Realtors’ Commercial Real Estate Metro Market Conditions Index. Only one market—Boston—was outside of those regions.
The organization says that the index, which shows relative performance, “is calculated using 25 variables pertaining to the metro area’s economic conditions (job growth, unemployment rate, wage growth), demographic conditions (net domestic migration, population growth), commercial market conditions for multifamily, office, industrial, and retail property sectors (vacancy rate, absorption, rent growth, cap rate, professional/business services, and retail trade job growth) and employment conditions in the hotel/lodging industry (job growth, share of leisure and hospitality workers to total employment)”
An index number for an area above 50 means that market conditions were stronger than a national average while one below 50 means weaker. The index combines upwards of 25 variables, depending on what information is available.
Some of the market variables include changes in non-farm employment and unemployment rate, GDP growth, population growth, changes in apartment rents; rent to income share, new office space leasing, net absorption of office and industrial; and changes in jobs in specific sectors. A score of 80 or above means an area is outperforming on at least 20 out of the 25 areas.
So, for example, Orlando-Kissimmee-Sanford, Florida, the top-rated metro, outperformed the US overall on 21 out of the 25 variables and landed with an 84 index. Wages were up 9%; 10,000 people migrated there from other states; office vacancies were 8% versus 12.2% nationally; multifamily asking rents were up 25% compared to the national 11.4%; industrial vacancy rate was 3.6% versus 4.1% national; and retail vacancy was 3.8%, where the nation’s average was 4.5%.
That was the only index score of 80 or above. The other top four locations, all in Florida, were Miami-Miami Beach-Kendall (76); West Palm Beach-Boca Raton-Delray Beach (76); Fort Lauderdale-Pompano Beach-Deerfield Beach (72); and Fort Myers (72).
Out of the top 16 markets, the only other state with two entries was Georgia: Savannah (72) and Atlanta-Sandy Springs-Roswell (68). At the bottom of the top 16 was Provo-Orem, with an index of 68.
Source: GlobeSt.
Woodmont Beefs Up Palm Beach Park Of Commerce Portfolio With $21 Million Warehouse Deal
Four months after acquiring a massive development site at Palm Beach Park of Commerce, Woodmont Industrial Partners paid the same seller $21 million for a recently completed warehouse nearby.
An affiliate managed by Eric Witmondt, CEO of the Fairfield, New Jersey-based commercial real estate firm, bought the 212,000-square-foot facility at 15501 Park of Commerce Boulevard in Jupiter. The seller is an affiliate of Atlanta-based TPA Group, records show.
Woodmont Industrial paid $99 a square foot for the warehouse, which is pre-leased to two tenants, a press release states. The buyer obtained a $7.5 million mortgage from Valley National Bank, records show.
TPA recently completed the warehouse after breaking ground last year, the release states. The building has a 36-foot ceiling height clearance, parking for cars and trailers, and a concrete truck court. It was the last Palm Beach Park of Commerce property owned by TPA.
The master-planned industrial park spans 1,300 acres with heavy and light industrial developable land, as well as commercial building sites, according to TPA’s website.
In January, TPA Group sold 116.6 acres at Palm Beach Park of Commerce to Woodmont Industrial for $40.4 million, records show. In a partnership with PCCP and Butters Construction & Development, Woodmont Industrial plans to build eight warehouses, the release states. The first two buildings, spanning a combined 354,390 square feet, are expected to be completed in July 2023.
In a statement, Woodmont Vice President Anthony Amadeo said the firm is “extremely bullish” on Palm Beach County, where the company is building 2 million square feet of industrial space in the next 24 months.
Palm Beach County has a significant need for new industrial space. In the most recent quarter, tenant demand was so high that leasing volume slowed substantiallydue to a lack of available spaces and new projects, according to a JLL report.
Net absorption shot up to 135,862 square feet in the most recent quarter, compared to 52,247 square feet during the same period of last year. Yet, only 321,000 square feet of new industrial space is currently under construction in Palm Beach County, the report shows. The county had a first quarter vacancy rate of 4.5 percent, and asking rents for industrial tenants averaged $9.47 a square foot.
Source: The Real Deal
Easton Group Proposes Warehouse Near Port Of Palm Beach
Easton Group has proposed a warehouse in Riviera Beach to aid in distribution of goods from nearby Port of Palm Beach.
Miami-based Easton Group owns the 8.9-acre site on the Dr. Martin Luther King Jr. Blvd. on west side of railroad tracks. It acquired the vacant property for $6.5 million in December 2021 through SFG ISF Riviera MLK LLC. The developer has a pending application with the city to combine three parcels into a single tract of land and to build a 34,500-square-foot warehouse/office facility.
The Riviera Beach Planning and Zoning Board approved the application 5-1 on April 28. The project will need City Council approval at a later date. The building would have 31,500 square feet of warehousing and 3,000 square feet of office, along with 60 trailer loading docks lining the building. There would be 49 trailer staging parking spaces on the site.
Source: SFBJ
Commercial Property Sales Up 183% Across South Florida
Commercial property purchases have shown few signs of slowing down after a banner year, according to a recent report from JLL Capital Market’s Miami office.
South Florida commercial real estate transactions rose to $25 billion in 2021. That’s a 183% increase from the $8.8 billion in transactions across Miami-Dade, Broward, and Palm Beach counties recorded the year before.
The momentum has spilled over into this year. In the first three months of 2022, JLL recorded $6 billion in commercial real estate transactions completed across the tri-county area industry-wide, up 51% from the first quarter of 2021. (Data from the first quarter of 2022 is preliminary and subject to change, a JLL spokeswoman told the Business Journal.) This sharp rise in deal activity could be found across the industrial, multifamily, office and retail sectors.
Danny Finkle, senior managing director of JLL’s Miami office, credits the new wave of transactions to Florida’s “business-friendly environment and excellent quality of life.”
A significant portion of the property sales centered on multifamily housing. In 2021, there were $14.69 billion in real estate transactions involving residential rentals, an increase of 277% from the previous year. In the first quarter 2022, there have been $2.75 billion in trades involving South Florida apartment buildings, a 76% hike compared to the year-ago quarter.
In the office sector, there were $5.38 billion in trades in 2021, a 235% jump from the year prior. In the first quarter of this year, there have been $1.05 billion in office sales, a year-over-year increase of 10%.
Meanwhile, retail property transactions rose 136% in 2021 year over year to $3.88 billion in South Florida. Then another $1.28 billion of retail transactions took place in the first quarter of this year, a 186% hike compared to the year-ago quarter.
As for industrial, sales volume increased 63% from the previous year to $2.3 billion in 2021. In the first quarter of 2022, a total of $908.29 million in industrial transactions took place, a 76% leap from the year-ago quarter.
Companies and well-off individuals have been migrating to South Florida in greater numbers due to the region’s popularity, weather, and lack of income taxes, brokers and developers have told the Business Journal. It’sa trend that’s expected continue through the rest of 2022, making South Florida a prime spot for investment. Multifamily properties likely saw the biggest increases because rents are surging at a faster rate in the Miami area than almost any other metro in the U.S.
The migration has tipped e-commerce into overdrive, creating a shortage of warehouse and distribution space as companies seek to fulfill the orders of a humming economy amidst a continuing supply-chain crunch.
JLL stated that its Miami office handled 121% more investment sales, debt, and equity transactions in 2021 than the year before. To accommodate that growth, JLL promoted Cody Brais, Kenny Cutler and Max La Cava to director status.
Headquartered in Chicago, JLL has 3,000 capital market specialistsacross 50 nations. The data in JLL’s report was supplied from Real Capital Analytics, a New York-based real estate analysis company that has recorded $40 trillion in commercial real estate transactions since its founding in 2000.
Source: SFBJ
Palm Beach County Could Allow Thousands Of Apartment Units To Be Built In Agricultural Reserve
Palm Beach County officials could approve a land use change that would permit more than 2,100 apartments in the Agricultural Reserve to address the lack of workforce housing in the area.
The County Planning Commission approved on April 8 the future land use change to facilitate “essential housing” in the Agricultural Reserve west of Delray Beach and Boynton Beach. The application was initiated by county staff, not a particular landowner. However, the application would apply to five specific parcels covering a combined 269 acres in the area.
The Agricultural Reserve is one of the largest markets for single-family home development in all of South Florida. The development rules encourage low density and a certain portion of land must be set aside for agriculture and open space for every acre developed. Using density of 2.5 units per acre, nearly 11,000 homes have been developed there, according to the county memo.
Given the low-density development pattern in the Agricultural Reserve, there are almost no housing opportunities for most people employed in the workforce, the county memo stated. The median sales price of a home on less than one acre in the area was $880,000, according to the Palm Beach County Property Appraiser. Less than 3% of the homes sold for under $500,000.
The staff recommendation for the essential housing land use category is eight units per acre and a requirement to preserve 60% of the site and develop 40%. In addition, 25% of the units must be workforce housing.
That land use category would be restricted to locations fronting major roads, like Atlantic Avenue and Boynton Beach Boulevard, in close proximity to Florida’s Turnpike. Under the essential housing proposal, these five sites could be developed with a combined 2,152 units. However, that number could increase to 5,379 units if the owners of these properties are able to preserve land in other locations within the Agricultural Reserve, thus being able to build apartments on the entirety of their land within the essential housing district.
Developers such as GL Homes frequently buy land in the Agricultural Reserve for preservation in order to build home communities in other locations in the area. One of those five locations already has a pending development application.
The essential housing land use plan would need approval from the County Commission at a later date.
Source: SFBJ
Industrial Park Breaks Ground Near West Palm Beach With $53M Loan
An affiliate of Vecellio Group broke ground on an industrial park near West Palm Beach after obtaining a $52.65 million construction loan.
United Bank of Charleston, West Virginia provided the mortgage to 101 Sansburys Way LLC, an affiliate of Vecellio Group, a construction materials firm and contractor. It covers the 32.8-acre site at the same address, which is on the north side of Southern Boulevard, just west of Florida’s Turnpike.
Fort Lauderdale-based Hernandez Construction recently filed notice with Palm Beach County that it started work on the project. The site was approved for three warehouses for a combined 435,800 square feet. The first phase is a 165,000-square-foot warehouse with 32-foot clear height.
The developer is working with Fort Lauderdale-based Helms Development on the project.
According to the fourth quarter report from Colliers, the Palm Beach County industrial market had a 3.2% vacancy rate, down from 3.6% a year earlier, amid 949,211 square feet of positive absorption over the year. There was 548,824 square feet under construction, so there was certainly room for more buildings based on the pace of absorption.
Source: SFBJ
Six Reasons For The Surge In Commercial Real Estate Transactions In 2021
The residential real estate market has received quite a bit of attention over the last two years, and for good reason.
The housing market has become so tight that inventory is extremely hard to come by in nearly every market, and prices are now higher than ever for homes. The properties that are listed for sale typically get snatched up in record time—and often sell for higher than asking price—which has made it tough for most buyers to compete.
Case in point: A moderately priced home recently went for sale in Raleigh, North Carolina, and it was absolutely inundated by potential buyers searching for affordable properties. That mad dash by buyers was enough to make national headlines, but any buyer who’s looked for property in the last two years was almost certainly not surprised by the overwhelming interest. That’s just part of what buyers face when looking for property in a red-hot housing market.
But the property buying frenzy that has occurred recently has hardly been limited to the residential housing market. Commercial real estate transactions have also exploded—with a surprising surge in transactions occurring over the last year. Throughout 2021, investors big and small snatched up everything from apartment buildings, warehouses, and distribution centers to other types of commercial properties, such as hotels. As of the second quarter of 2021, multifamily property sales were up 26% year over year and nonresidential properties were up 16% compared to the year prior.
There were also increases in sales rates across all commercial property types. The rampant demand for commercial properties also led to $193 billion in commercial real estate transactions occurring in the third quarter of 2021—and a record $809 billion in commercial property sales for all of 2021.
So what exactly drove the surge in commercial real estate transactions throughout 2021—and why? EquityMultiple compiled a list of six important trends in the commercial real estate markets during 2021, covering topics from the rise of individual investors to the impact of the federal reserve’s pandemic policies. Here’s what you should know.
1. Weak Bond Markets Sent Investors Seeking Alternatives
When the returns on traditional investments, like stocks or bonds, are down, investors tend to seek out opportunities to make the target returns on their investments. At the close of 2021, the U.S. stock market posted the best three-year returns seen in 24 years—but the same was not true of bonds. In December 2021, the inflation rate in the U.S. jumped a whopping 7%—which, in turn, quickly pushed bond prices lower and decreased the potential for high returns for investors.
The lower bond prices caused key bond market indices to post their first losses since 2013, and led investors to look for other ways to put their money to work, which included commercial real estate securities, real estate investment trusts, and other commercial property investments. While potentially risky, commercial real estate transactions can be lucrative for investors, with annual yields averaging between 6% and 12%, with potential for significant appreciation depending on market conditions and other factors. That means investing in commercial real estate has the potential for a significantly higher return on investment when compared to the average return on bonds.
2. Federal Reserve Prevented A Distressed Property Sell-Off, Making Easy Debt Available For Deals
When the COVID-19 pandemic hit, investors expected the commercial real estate market to take a significant hit—which would have allowed them to snatch up distressed properties at bargain-basement prices. That didn’t happen, however, because the Federal Reserve made it a lot easier and cheaper to borrow by significantly lowering interest rates at the start of the pandemic. The cheaper cost of borrowing led to $102 billion in loans being extended to property owners in the first nine months of 2021, which kept the commercial real estate market from collapsing.
These loans were then converted into commercial mortgage securities, which are offered to individual investors, investment firms, and other financial management companies as shares. By doing this, swaths of investors were able to buy into commercial real estate transactions without having to fund the full purchase of the physical properties or land. Apartment buildings, life science labs, and industrial properties—which were expected to yield higher returns than other commercial properties, such as shopping malls or retail centers—were especially sought after. These types of commercial properties yielded more than $193 billion in sales during the third quarter of 2021.
3. Demand For Distribution Centers Surged
Online shopping became even more popular than before during the pandemic, as in-person shopping became a dangerous—and, in some cases, nearly impossible—task. That surge in online orders for everything from food items to toilet paper meant online and e-commerce retailers needed to lease more distribution center space to have a base to store their inventory and originate shipments.
In turn, the demand for distribution centers surged, and vacancy rates at these properties reached historic lows. That led investors to capitalize on the trend by buying distribution centers and then rake in the profits from the high lease prices. Rampant supply chain shortages also made it difficult to develop more of these types of properties, which only added more fuel to the fire. Distribution centers and warehouses were suddenly selling for a premium, and investors were willing to pay the price for these properties, which kept transaction rates high.
4. Soaring Home Prices Increased Demand For Apartment Rentals
Between the housing market inventory shortage and the rapidly increasing prices of homes, buyers have been priced out or pushed out of home purchases across the nation. In turn, the demand for rental properties has skyrocketed—which has led investors to set their sights on apartment buildings. In 2021, multifamily property sales—which includes apartments, duplexes, fourplexes, and other multifamily units—totaled $335.3 billion, up 128% from the year prior.
By purchasing apartment buildings, commercial property investors are able to capitalize on the opportunity to profit from the increased rent prices that occurred. In 2021, rent increased by an average of 11%—or three times the normal rate—and it has only continued to increase from there. As of February 2022, the average national rent price for one-bedroom units was up 22.6% year over year, and two-bedroom rent was up an average of 20.4%.
5. Small Investors Flocked To Commercial Real Estate With Non-Traded Real Estate Investment Trusts
Real estate investment trusts are attractive to investors because they allow investors to buy shares of a trust that invests in commercial real estate projects rather than buying and managing their own properties. This can make commercial real estate less risky and more affordable for investors, but you have to be an accredited investor to invest in most traditional publicly traded REITs—which comes with numerous financial requirements, like a high net worth and high earned income.
As such, it can be tough for small investors to qualify, which has led them to set their sights on other options such as real estate crowdfunding, which opens access to commercial real estate transitions and other private fund structures. Another option includes open-ended funds, known as non-traded real estate investment trusts. Non-traded REITs accounted for about 42% of the alternative investment market in 2021, with about $36.5 billion total in fundraising that year alone. Part of the draw is that, unlike most traditional REITs, investors can buy into non-traded REITs for as little as $2,500—and there’s an opportunity for big returns in exchange. Most non-traded REITs have been paying dividends above 5%, which is competitive—and often beats—other types of fixed-income investments.
6. Investors Were Looking For An Inflation Hedge
Rising inflation has become a growing issue, as the rate of inflation increased by 7% in 2021. Periods of rampant inflation are tough on the economy because they cause the price of everything from rent to groceries to increase, which makes the dollar less valuable. Inflation can also cause a big hit to potential returns on investments, and that’s especially true for investments with fixed rates, like money market accounts, because these rates are generally lower than the rate of inflation, which means that the money earned on these accounts won’t cover the loss from inflation.
The one type of investment that tends to withstand surges in inflation, however, is commercial real estate. That’s because investors can raise the rental or lease rates on their properties to combat any potential losses from inflation. That being the case, investors purchased a record number of commercial properties in 2021 to hedge against inflation and mitigate any potential losses. This, in turn, helped real estate transactions surge.
Source: Clayton News-Daily