Local Real Estate Market Continues to Strengthen

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The Indianapolis real estate market this year will continue to gain strength along with the economic recovery, as several sectors are showing more improvement.While most real estate sectors continue to recover, the local industrial market is performing particularly strong.The absorption rate is as strong as it’s been since before the Great Recession began in late 2007.
 
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Self Storage Boom

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Self-storage had a banner year in 2014 and 2015 will see much of the same. Occupancy averaged above 90 percent in 2014, a record high. Three of the top five REIT’s listed in the Bloomberg REIT Index for the past three years are self-storage REIT’s. The sector’s strength led to fierce competition by investors to acquire self-storage facilities in 2014. Self-storage is now on the radar of many investors from individuals to private equity firms. The self-storage industry is no longer misunderstood or ignored and is now considered a core asset. As a result, cap rates are at all-time lows. Stabilized class-A facilities are trading near 5.5 percent cap rates and quality portfolios as low as 5 percent. With over 4.5 million sq. ft. of new storage being built in 2014 and interest rates expected to begin rising late 2nd quarter or early 3rd quarter of 2015 the sale of existing facilities may slow but the sector will continue to be very strong as most markets are still undersupplied.     

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Interest Rates Rising Soon

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Interest rates rising SOON!  With the recent unemployment numbers dropping to 5.5% the government considers that full employment which has been one of the prime indicators that the Fed has been waiting to see before increasing interest rates. We have all been talking about it for awhile but it's clear it will be a reality soon so any refinancings, property sales etc should be accelerated where possible before the rate increases take affect.
 

 

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Fed's Yellen: Rate Hike Not Likely Coming Soon

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Original Article: http://www.thinkadvisor.com/2015/02/24/feds-yellen-rate-hike-not-likely-coming-soon

 

Federal Reserve Board Chairwoman Janet Yellen gave an upbeat message to lawmakers Tuesday: employment has been improving “along many dimensions,” domestic spending and production have been increasing, and real gross domestic product (GDP) is now estimated to have increased at a 3.75% annual rate during the second half of last year.

However, in testimony before the Senate Banking Committee, Yellen noted that U.S. inflation continues to run below the FOMC’s 2% objective. “In large part, the recent softness in the all-items measure of inflation for personal consumption expenditures (PCE) reflects the drop in oil prices,” Yellen said.

Yellen also said that the FOMC considers it “unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings.” The Fed’s next policy meeting is March 17-18.

If economic conditions continue to improve, as the FOMC anticipates, she said, the Committee “will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis.”

The timing of normalization will depend critically on continued labor market improvement.

Said Yellen: “Provided that labor market conditions continue to improve and further improvement is expected, the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when, on the basis of incoming data, the Committee is reasonably confident that inflation will move back over the medium term toward our 2% objective.”

Jim O’Sullivan, chief U.S. economist for High Frequency Economics, says that Yellen’s testimony was “fairly upbeat on the recovery, consistent with the expectation that policy normalization will begin before too long.” However, “she was not definitive at all on timing, but there was no sign of any significant change in views on the economy relative to those laid out at the time of the December press briefing.”

Said O’Sullivan: “There are still risks, of course, and for now inflation is too low, but officials continue to anticipate that inflation will move back toward 2% over time.”

As to oil prices, Yellen noted that while the drop in oil prices “will have negative effects on energy producers and will probably result in job losses in this sector, causing hardship for affected workers and their families, it will likely be a significant overall plus, on net, for our economy.”

Foreign economic developments, however, “could pose risks to the outlook for U.S. economic growth,"  Yellen said.

She added that the uncertainty surrounding the foreign outlook “does not exclusively reflect downside risks. We could see economic activity respond to the policy stimulus now being provided by foreign central banks more strongly than we currently anticipate, and the recent decline in world oil prices could boost overall global economic growth more than we expect."

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Not a One Trick Pony

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Revel & Underwood has been in the real estate business for over 30 years, providing numerous services to our clients. Brokerage, property management, investments...you name it. The Revel & Underwood team can do it. One part of the real estate puzzle that was missing was the residential piece. That is no longer the case. We now have the ability to market and sell your home as well as finding a new home. The Revel & Underwood team can give you all of the same perks of the big name residential companies but what sets us apart is our commitment to our clients. We are not listing 200 homes at a time and trying to juggle all of our clients. We provide first class service to all of our clients whether its a personal home to a multimillion dollar commercial property.  Our last two home sales were for $995,000 which was 100% of the asking price, and $260,000 which was 95% of the asking price. Both properties sold in 2 weeks or less after listing the home. If interested in selling your home, or if you are looking to purchase call Revel & Underwood and let us help you today!

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Medical Office Upswing

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With the Affordable Care Act (ACA) in place and functioning an increased demand for medical services is starting to be realized. As a result medical office vacancy has slipped below 10 percent for the first time in five years and it’s expected to continue to fall further through 2014. Asking rents are up as well especially in the large metro areas and in newer generation buildings.

On the sales front there is far more capital chasing deals than there are assets to buy. With demand so high and interest remaining compressed cap rates are at or near all-time lows 5.75% - 8.75%. Again newer generation buildings in large metro areas are selling on the low end of that range and older off campus buildings in secondary and tertiary markets are selling on the high end of that range. The sheer volume of transactions has increased each of the past three years and is expected to continue that trend in 2014 provided there is enough product coming on the market. As long as interest rates remain at or near current levels cap rates are expected to remain at current levels given the increased demand by both private and institutional buyers.   

 

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How do you RATE?

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10 year treasury rates fell under 2.5% in June making rates the lowest they have been all year!
 
If you are looking to refinance, buy, sell or develop now is a a fantastic time. Banks finally have more more to loan then clients and are providing much more aggressive and liberal terms than in the past.
 
Current Index Rates:
 
1  Month LIBOR 0.15%
5  Year T-Bill 1.61%
10 Year Swap 2.66%
 
So reevaluate your real estate portfolio and take advantage of the current market. As always if you require help looking for opportunities please contact us.

 

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Finding the Right Fit

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When in a hiring position it seems harder and harder to find the right person these days. With so many college graduates struggling to find jobs and people looking to change careers it can be a process. Recently being in this position of hiring I found it difficult to wade through the massive amounts of resumes that flooded my inbox. Do you hire a fresh new college grad that has a new look on things but lacks work experience and has been sitting in classrooms for the past 4 or 5 years? Or do you go with someone with experience but maybe doesn't have some of the new technical skills or innovative ideas. 
 
No matter which way you go you are getting a box of chocolates. You never know what you are going to get. When going through the process it may seem like it is important to get someone  and be done with it but that isn't the best case. We found that taking your time and biting the bullet on not having someone is the best strategy. Doing your diligence and asking the right questions is important. Being transparent on what the job is and laying out everything will ensure you will get someone who is interested in the position and not just there for the money until they get the job they want.
 
Finding the right fit is not always easy and not happen on the first try. Sticking with it and taking your time will ensure that you and your company are getting someone that will contribute to your company. 
 

 

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Property Values

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There are three distinct periods of commercial real estate ownership:

·       Acquisition

·       Operational

·       Disposition

 

Each stage is equally important and requires planning & execution. Acquisition is dependent of quality underwriting and operational is dependent on quality management. Disposition on the other hand is more dependent on the overall market than anything ownership can directly control. No matter how well a specific property is positioned in terms of its performance & property desirability its true value at disposition will be based on what buyers are willing to pay in the current market. As a rule buyers pay more in a low interest rate environment vs a high interest rate environment due to the simple fact that they benefit from lower debt service which in turn produces a higher cash-on-cash return. In a low interest rate environment cap rates are compressed and valuations are elevated. The inverse is true when interest rates rise.

 

Over the past 24 months sellers have benefited from the historically low cap rates that are associated with the historically low interest rates courtesy of the Fed’s stimulus plan. When the Fed begins to taper back their bond buying then interest rates will rise and cap rates will follow suit. As a by-product in this cycle, property values will fall.

 

There are certainly ways to help prepare a property for sale such as:

·       Making a thorough property inspection and any necessary repairs

·       Working hard to maximize occupancy & rental rates

·       Cleaning up receivables

 

The above are prerequisites to putting your facility on the market but they don’t have nearly the economic impact that interest rate & cap rate changes do. Even the greatest economists can’t predict exactly when and to what level that interest rates will change. But what everyone can agree on is that given the historically low interest rates over the past 24 – 36 months and with the Fed making statements that they will begin to taper their stimulus plan sooner than later that interest rates will go up at some point. So if your disposition strategy calls for you to sell in the next several years you may want to obtain a current valuation of your property and take a strategic look at accelerating your disposition date in order to capitalize in on the current market which has pushed property values to all-time highs.      

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"Be fearful when others are greedy and greedy when others are fearful"

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Per Warren Buffet "Be fearful when others are greedy and greedy when others are fearful"  this quote came when he was asked about loaning $25 billion to several companies during the financial crisis and now has earned $10 billion in dividends on those loans an incredible 40% return. Whether dealing in billions or much smaller numbers the advice it still the same you need to look at opportunities based on your parameters and not follow the herd mentally whether it be panic or over exuberance in making deals.

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