July 19, 2012

The Wednesday Wrap: July 18, 2012

Each Wednesday, The Wrap presents a compilation of recent noteworthy commercial real estate stories from a variety of publications. Below are five stories that caught our eyes in recent days.

• “Retail Sales Cap Sluggish Quarter” by Neil Shah and Jie Jenny Zou of The Wall Street Journal

Retail sales dropped again in June, marking the first time that sales have fallen for three months in a row since 2008.

Economic concern due to the weak job market, uncertainty about U.S. tax policy and global economic turmoil have consumers cutting back, said Guy Berger, economist at RBS Securities.

Retail sales are a strong indicator of economic growth, fueling two-thirds of the economy. June’s disappointing numbers have economists reining in growth predictions and could push Federal Reserve officials toward taking additional actions to boost growth.

• “Big Sales, Public Offerings Spotlight Hot Summer For Hotel Investors” by Randyl Drummer of CoStar

Major deals in the hotel industry seem to confirm forecasts by industry analysts that investment in hospitality and lodging space will be strong in the second half of 2012.

 Average daily rates and RevPAR (revenue per available room) are rising in the national hotel sector, according to Marcus & Millichap’s second-quarter Hospitality Research report.

Revitalized asset performance coupled with the low supply of incoming hotel stock continues to push investors to acquire properties, according to the report.

Industry analysts expect transaction volume to increase through the end of the year. But like much commercial real estate investment, investors generally are focused on hotels in major markets with strong local economies and demand drivers, Marcus & Millichap reported.

• “REITs Outperform Broader Market in Q2 and First Half” by Ron Kuykendall of REIT.com

U.S. REITs significantly outperformed the broader equity market in the second quarter, first half of the year and the past 12 months, according to the National Association of Real Estate Investment Trusts.

All REIT market sectors with the exception of apartments showed strong returns in the first half of 2012. The retail sector did particularly well, with a total return of 21.15 percent for the first half. Industrial and office REITs also performed well in the first half of the year.

 REITs also provided stronger dividend yield at the end of the first half than the broader market.

“The requirement that REITs pay out nearly all of their taxable income to their shareholders as dividends makes them attractive to investors as a strong generator of income in both up and down market environments,” said Michael Grupe, executive vice president of research and investor outreach at NAREIT.

• “A Clean Life for Grimy Gas Stations” by Ronda Kaysen of The New York Times

Thousands of gas stations closed in the last 20 years due to the rising price of oil, leaving empty spaces that mar the aesthetic appeal of business districts across the U.S.

Gas stations are often built at busy intersections, making them prime locations for new businesses to be built.

But the opportunity to build at these desirable intersections doesn’t come without challenges, Kaysen notes.

The lots are often on ground contaminated by leaking fuel, and federal regulations require the new owners to pay for cleanup.  The added costs make it hard to get developers on board with investing in a project on a former gas station site.

There’s also community backlash as many of these former mom-and-pop stores are considered historic landmarks in some towns. Developers deal with building constrictions as they attempt to preserve certain historic qualities of the gas stations. 

• VIDEO: “CRE Cap Rates Lower than Estimated” from REIT.com

Paul Curbo, portfolio manager with Invesco, gives his analysis on cap rates. He explains that cap rates are lower than analyst estimates and how cap rates are affecting the apartment sector. Curbo also touches on improved fundamentals in the office sector.



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