US Investors Bet On Hotels and Offices
March 31, 2017
Please find several mezzanine and/or preferred equity opportunities which could be of interest to you:
– 20% IRR on $20 Million New York Condo Tower Preferred Equity – We represent a best in class developer who is building arguably the best condo tower in New York City. This transaction is fully capitalized including a generous amount of very attractive low cost EB-5 financing. All of the construction money is in place to commence building this beautiful tower now.
– High Yield Manhattan Condo Preferred Equity Opportunity – This property enjoys an excellent Mid-town Manhattan location and your last dollar price per foot is approximately 50% of the retail sales price on a per square foot basis. The estimated return here is north of a 20% IRR.
– 42% IRR, 3.4x Multiple on New York Entertainment, Retail and Operating Business – You will be partnering with some of the top real estate professionals in Manhattan on this highly profitable entertainment and retail special purpose project. The project has fabulous retail, F&B, parking and a truly unique operating business component which will provide worldwide notoriety and branding opportunities.
– 13% Current Cash-On-Cash Return On 8.4 Million SF Heavily Cash Flowing U.S. Class A Office Portfolio – This is a phenomenal project with a highly successful property owner who is seeking a JV equity partner to recapitalize a heavily cash flowing suburban office portfolio located in prime locations throughout the United States.
Please enjoy the below article from the Financial Times on the strong performance in the US office and hotel sectors since the election.
US Investors Bet On Hotels and Offices
Property along the Miami Beach Coast
MARCH 29, 2017 by: Joe Rennison in New York
Real estate has been one of the losers from the so called Trump trade since the US election. But pockets have outperformed as investors have bet that stronger economic growth will boost demand for offices and hotels.
Hotel and Resort real estate investment trusts are up 14.8 per cent since the election and Office Reits have risen 10.8 per cent — both outperforming the broader market.
The broader S&P 500 Real Estate index is up a modest 3.3 per cent since November 8, against an overall market rally of more than 10 per cent. The index is dominated by Reits — companies that own or finance real estate allowing investors to get exposure to the sector through owning the company’s stock.
Rising interest rates herald higher mortgage prices, which weigh on the sector. It also diminishes demand for rental yields — which tend to pay higher income than other stocks — as other assets offer more attractive yields. But the prospect of higher economic growth may also filter through to a need for building space.
As companies grow, the need for office space to accommodate growth increases. Analysts at Morgan Stanley point to the banking sector as an example; as financial services benefit from both political tailwinds and rising interest rates, office Reits with exposure to banks should benefit as well.
Edward Mui, an analyst at Morningstar, added: “It is important to step back and look at the context of why interest rates are rising. For the most part it is based. off the expectation of increased or accelerating economic growth.”
But despite this Trump bump, commercial real estate prices have declined from their peak in mid 2016 and the Morgan Stanley analysts expect 2017 to mark the end of its bull cycle.
“The market is differentiating between Reit subsectors with more tailwinds than headwinds,” said Richard Hill, one of the bank’s analysts. “The market is developing haves and havenots.”
Occupancy rates and rental prices for commercial real estate are high, limiting the potential for further growth, said the analysts. The recovery since the financial crisis in property prices has also outstripped home prices, with commercial real estate now 23 per cent above it peak in 2006-07, while housing is 0.5 per cent above by comparison.
Morgan Stanley expects residential real estate to outperform in future. Residential Reits are up 7 per cent since the US election. In contrast to commercial real estate, housing supply is low, helping push prices higher.
Freddie Mac (https://www.ft.com/topics/themes/Fannie_Mae_%26_Freddie_Mac), one of the mortgage agencies, reiterated expectations that higher interest rates, coupled with high home prices, would damp home purchases over the year.
But the analysts believe a more favorable policy environment could increase access to credit, helping to offset any headwinds. Since the financial crisis, more stringent rules have been placed on mortgage providers in a bid to prevent the boom in subprime lending that occurred in the run-up to 2008.
This has constrained lending to higher quality borrowers, cutting off potential homebuyers that do not meet the specific standards.
“There are substantial regulatory restraints on residential mortgage lending and we expect that to be somewhat loosened,” said Vishwanath Tirupattur, head of US fixed income research at Morgan Stanley. “That is a substantial positive.”
