Cap Rates Continue to Compress

Research & Forecast Report Wisconsin | Investments First Quarter 2015 Cap Rates Continue to Compress Research | Wisconsin Unlike the first quarters...
1 downloads 2 Views 1MB Size
Research & Forecast Report

Wisconsin | Investments First Quarter 2015

Cap Rates Continue to Compress Research | Wisconsin

Unlike the first quarters of the past several years, 2015 started out anything but quiet. In February alone, more than $110 million of industrial real estate transacted between three separate portfolios, all of which were purchased by first-time Wisconsin investors. These transactions support the idea that coastal and primary market investors are drawn to active secondary markets like Milwaukee. Office investment sales were hot on the trail of the industrial segment with the announcement of the sale of Willis Tower in Milwaukee’s nearby neighbor to the south. Just weeks after that news, the Gas Light Building located in the Milwaukee CBD sold for a 7.81% cap rate. This is the second downtown office tower to trade in the past year. Last May, 411 E Wisconsin Ave was sold for a 7.94% cap rate to an East Coast investor.

continues to push cap rates closer to prerecession lows. Medical and multifamily assets are continuing their cap rate compression trends in the 6% and 7% cap rate areas.

Willis Tower

With high demand from investors and healthy vacancy rates in place, development interest is ramping up in all asset classes. Most notably is downtown multifamily development with over 750 units currently under construction and another 1,000 units proposed. Activity has also greatly increased for industrial spec and build-to-suit projects. With the metro Milwaukee industrial vacancy rate dropping to 5.04%, developers are taking advantage of the lack of quality available space and ramping up their efforts mainly along the I-94 corridor. MixedUse/Retail development continues to be active throughout Southeast Wisconsin. continued on page 2…

Located just 90 miles to the south of Milwaukee, the Willis Tower was sold for a record-breaking $1.3B in March 2015.

As major transactional activity continues to increase, cap rates continue to compress across all asset classes. A prime example of cap rate compression are the recent sales of the Actuant corporate headquarters in Menomonee Falls. The class A office building sold for a 7.39% cap rate in late 2013, was sold again in February 2014 for a 6.80% cap rate and is now listed for sale at a 6.00% cap rate. Demand for high quality, institutional-grade industrial product

MARKET INDICATORS Q1 2015 OFFICE ABSORPTION (SF) OFFICE VACANCY INDUSTRIAL ABSORPTION (SF)

Quarter to Quarter

Year Over Year

ECONOMIC INDICATORS Q1 2015

45,213 18.8%

OFFICE USING JOBS

1,032,069

INDUSTRIAL VACANCY

5.04%

RETAIL ABSORPTION (SF)

-6,618

RETAIL VACANCY

6.6%

MULTI-FAMILY DEMAND (Units)

-330

MULTI-FAMILY VACANCY

3.1%

*Projected Sources: Colliers | Wisconsin, CoStar, Xceligent, MPF Research

190,450

METRO MKE UNEMPL.

5.6%

WISCONSIN UNEMPL.

4.8%

MIDWEST UNEMPL.

5.1%

NATIONAL UNEMPL.

5.5%

Source: US Bureau of Labor Statistics

Quarter to Quarter

Year Over Year

continued from page 1… However, things could change slightly come June when the Federal Reserve meets to determine whether or not to raise interest rates. The last time the Fed actually raised rates was 2006. The Federal Funds effective rate has been near zero since 2009. Though some economists speculate the raise could happen this June, others believe a September increase is more likely. A number of variables could sway the decision either way, but a rate hike is inevitable.

Gas Light Building

Office On the heels of Blackstone’s pending acquisition of the iconic 110-story Willis Tower in downtown Chicago, Milwaukee is also starting to feel a surge of new investment in office product in its central business district. The art deco style “Gas Light Building,” located at 626 E. Wisconsin, traded in March of 2015 to Gas Light Milwaukee LLC, an investment group led by M&J Wilkow Ltd. M&J Wilkow is a full service Chicago-based investor, institutional advisor and join venture partner. The 20-story, 131,727 square foot tower boasts a 21 foot lighted weather beacon at its rooftop. The sale closed at $20.5M ($155.62 PSF) and a reported 7.81% cap rate on in-place income. The building is approximately 80% occupied with the US Forestry Service (GSA) leasing over 91,000 SF in a long term lease. In another high-profile transaction, Ladder Capital Corp (NYSE: LADR) acquired Actuant Corporation’s (NASD: ATU) office headquarters in suburban Menomonee Falls, Wisconsin (Milwaukee) for $17.05M ($209.19 PSF) in February. The 81,503 square foot building was built-to-suit Actuant in 2011 by local Milwaukee developer Irgens. Irgens then sold the property to an investor for $15.37M ($192.00 PSF, 7.39% cap rate) in late 2013. The 2015 cap rate was reported at 6.80%, almost 60 bps less than the previous sale.

Actuant Corporation

The Milwaukee Gas Light Building is the second CBD office tower to transact in the last year. The GSA-anchored tower sold for $20.5M at a 7.81% cap rate.

Industrial Industrial product in Wisconsin continues to be in very high demand. The first quarter of 2015 witnessed fewer, but larger sale transactions. Three major portfolios of industrial holdings were traded and welcomed three new entrants to Wisconsin. Those portfolios were: > Centerpoint Properties (Chicago, IL) sold 10 buildings in scattered Milwaukee locations totaling $61.25M in value to Westmount Realty Capital LLC (Dallas, TX) > Luterbach Construction (New Berlin, WI) sold three class A industrial assets in New Berlin (Milwaukee) totaling $30.85M to James Campbell Company LLC (Los Angeles, CA) > KTR Capital Partners LP (New York, NY) sold three class B industrial assets in scattered Milwaukee locations totaling $19.75M to Gramercy Property Trust (NYSE: GPT; New York, NY) These portfolios generally traded in the 7.25% to 8.25% cap rate range. However, some sellers are now realizing sub 7% cap rates for core, class A industrial (with long term leases) for the first time in a generation in Wisconsin. Please watch for our second quarter 2015 report that will highlight a couple of blockbuster industrial sales.

2

Luterbach

5400 S Westridge Drive was sold as part of the Luterbach Portfolio. The 114,000 SF building was 100% leased to two tenants at time of sale.

Investment Market Report | Quarter 1 2015 | Wisconsin | Colliers International

Retail Investor demand for net leased retail is roaring back in most markets across the country, including Wisconsin. When private investors move and unlock capital out of management-intensive assets (office, medical, apartments, etc) there can frequently be motivations to move 1031 exchange money into more passive single tenant net leased retail properties. Moreover, the aging baby boomer population enjoys investing in net leased retail as an alternative hedge to their equity and bond holdings. In one private transaction in March 2015, the Ken & Lynne Mundee Family Trust acquired a 2005-built 21,500 square foot building in Appleton, WI (Fox River Valley market). The property was sold and leased back on a 10 year term by regional operator Allied Pools & Spa. The building traded for $2.67M ($123.69 PSF, 8.85% cap rate). In a separate larger transaction in Appleton, Inland Capital Corporation (Oak Brook, IL) sold the 78,997 square foot Fox River Commons to Agree Realty Corporation (NYSE: ADC; Bloomfield Hills, MI) for $12.2M ($154.44/SF, 8.0% cap rate). Fox River Commons is 100% occupied by Bed Bath & Beyond, Barnes & Noble and Old Navy.

Fox River Commons

Gallun Tannery Atlanta-based Atlantic Realty Partners’ proposed development River House would feature four buildings totaling 450 units along the Milwaukee River on the former Gallun Tannery site with rents starting around $2.20 PSF

Multi-Family

In March 2015, Agree Realty Corporation purchased Fox River Commons, a nearly 80,000 SF shopping center occupied by national tenants Bed Bath & Beyond, Barnes & Noble and Old Navy.

Quality multifamily assets continue to be in high demand with few landlords willing to part with these highly cash flowing and stable assets. As such, developers are actively chasing good apartment sites as the race is on to get units completed and leased up. Rents for some of these newer developments such as Atlantic Realty’s River House start at approximately $2.20 PSF, well above the reported Downtown/Shorewood average rent of $1.35 PSF. The question now is when is it all too much? While the developers remain extremely bullish, high construction costs are a large challenge. Broken condo developments in appealing submarkets have largely been absorbed, with duplex ranch units drawing the most competition. continued on page 5…

HISTORICAL INVESTMENT SALES DOLLAR VOLUME Number of Transactions

300

*Includes all arms length investment sales in Wisconsin across the office, flex, shopping center, industrial, multi-family, health care, retail and hospitality property types. Sources: Colliers|Milwaukee, CoStar

3

Investment Market Report | Quarter 1 2015 | Wisconsin | Colliers International

Q1 2015

Q4 2014

Q3 2014

Q2 2014

Q1 2014

Q4 2013

Q3 2013

Q2 2013

Q1 2013

0 Q4 2012

$0.00 Q3 2012

50

Q2 2012

$50.00

Q1 2012

100

Q4 2011

$100.00

Q3 2011

150

Q2 2011

$150.00

Q1 2011

200

Q4 2010

$200.00

Q3 2010

250

Q2 2010

$250.00

Q1 2010

Dollar Volume in Millinos

Dollar Volume

Number of Transactions

Dollar Volume - 12 Mo. Rolling

$300.00

NOTABLE RECENT INVESTMENT SALE ACTIVITY INDUSTRIAL BUILDING

CITY

BUYER

SELLER

CenterPoint 10 Property Portfolio

SALE DATE

PRICE

PRICE PSF

ACTUAL CAP

Various

Westmount Realty Capital LLC

Centerpoint Properties

2/4/2015

$61,250,000

$35.21

Undisclosed

Luterbach 3 Property Portfolio

New Berlin

James Campbell Company LLC

Luterbach Properties

2/20/2015

$30,085,000

$73.58

7.23%

KTR 3 Property Portfolio

Various

Gramercy Property Trust

KTR Capital Partners LP

2/13/2015

$19,750,000

$43.62

8.35%

2/5/2015

$11,825,000

$43.63

11.50%

1/28/2015

$3,250,000

$56.00

Undisclosed

LakeView Corporate Park East

Pleasant Prairie

KTR Capital Partners LP

Panattoni Dev Co & CalSTRS (JV)

MTI Electronics

Menomonee Falls

AIC Ventures

AnchorBank FSB

BUILDING

CITY

BUYER

SELLER

SALE DATE

PRICE

PRICE PSF

ACTUAL CAP

Gas Light Building

Milwaukee

M&J Wilkow Ltd

James Drescher

3/27/2015

$20,500,000

$155.62

7.81%

N86W12500 Westbrook Xing Menomonee Falls

Ladder Capital Corp

Artis Z Shepherd

2/15/2015

$17,050,000

$209.19

6.80%

3600 S Lake

Milwaukee

The Molasky Group of Companies

Stark Investments

2/2/2015

$12,750,000

$154.46

Undisclosed

149 E Wilson St

Madison

McGrath Property Group

McShane Development Co.

3/2/2015

$2,000,000

$53.06

Undisclosed

BUILDING

CITY

BUYER

SELLER

SALE DATE

PRICE

PRICE PSF

ACTUAL CAP

Fox River Commons

Appleton

Agree Realty Corporation

Inland Private Capital Corporation

3/5/2015

$12,200,000

$154.44

8.00%

Cayuga Court

Middleton

Lokre Cayuga, LLC

Investment Planning Corp.

2/6/2015

$8,900,000

$132.23

8.50%

5370 Integrity Way

Appleton

Ken & Lynn Mundee Family Trust Allied Pools & Spas

3/4/2015

$2,670,000

$123.69

8.65%

400 Reid St

De Pere

General Capital Group

R.K. Future, LLC

3/6/2015

$2,750,000

$66.65

7.00%

15464-15476 Janesville Road Muskego

Maverick Investments

Boulder Venture

3/18/2015

$2,840,000

$320.98

7.25%

SALE DATE

PRICE

PRICE/UNIT

ACTUAL CAP

OFFICE

RETAIL

MULTI-FAMILY BUILDING

CITY

BUYER

SELLER

Brook Lane Apts

Milwaukee

Hivernan Realty Group LLC

Dominion Properties

1/8/2015

$12,635,000

$45,450

7.75%

Lodgewood Apts

Milwaukee

Katz Properties, Inc

Anthony J Sendik

1/15/2015

$9,650,000

$126,974

Undisclosed

8433 N Servite Dr & 7100 N Milwaukee 60th St

InterCoastal Group

Thies & Talle Management, Inc

1/30/2015

$9,091,000

$45,914

7.50%

3 Property Portfolio

Various

RCL Investment IV LLC

Arcadian Apartments LLC

2/18/2015

$3,750,000

$52,083

Undisclosed

White Oaks at Pond View Park

Greenfield

Coachlight Communities, LLC

Horizon Construction Group

1/2/2015

$3,245,100

$40,564

Undisclosed

Farwell Arms

Milwaukee

3S Investment Group LLC

Trike Property Management

3/27/2015

$3,050,000

$63,542

Undisclosed

1766-1812 N Warren Ave

Milwaukee

Varol Tuncay, Sally Green

Dominion Properties

1/16/2015

$2,900,000

$193,333

Undisclosed

Milwaukee

G8 Properties, Inc

Capital Crossing Servicing Co., LLC

3/5/2015

$2,400,000

$25,532

7.77%

BUILDING

CITY

BUYER

SELLER

SALE DATE

PRICE

PRICE/ROOM

ACTUAL CAP

Super 8 - Oneida St.

Green Bay

JAGDAMBE, LLC

Supertel LP

1/30/2015

$2,500,000

$30,120

Undisclosed

Sheraton Brookfield

Brookfield

LLJ Ventures

Archon Group

3/18/2015

$16,600,000

$42,674

Undisclosed

CITY

BUYER

SELLER

SALE DATE

PRICE

PRICE PSF

ACTUAL CAP

4131 W Loomis Rd

Greenfield

American Realty Capital Healthcare Trust II

Advance Pain Management

1/8/2015

$16,000,000

$315.45

Undisclosed

Pavilion at Glacier Valley

Slinger

LTC Properties, Inc

SCI Construction, Ltd

2/19/2015

$13,946,000

$258.26

7.83%

Aurora 6 Property Portfolio

Various

American Realty Capital Healthcare Trust II

Daymark Realty Advisors (TIC)

3/18/2015

$48,700,000

$318.33

6.88%

Brookview Meadows

Green Bay

Capital Senior Living Corporation Besaw, Tim & Peggy

1/13/2015

$18,870,000

$150.33

6.88%

Heritage House of Portage

Portage

SHA Capital Partners

Grothe, Dan & Andrea

3/2/2015

$5,900,000

$118

Undisclosed

1665 Yellow Briar Dr

De Pere

VHC, Inc

LeDuc Properties LLC

3/17/2015

$4,175,000

$193.67

9.49%

Riverwood Apts HOSPITALITY

MEDICAL BUILDING

4

Investment Market Report | Quarter 1 2015 | Wisconsin | Colliers International

Real-Estate Owned & Special Asset Groups

Multi-family continued from page 3… These sites will continue to suffer until developers gain permission to convert to apartments or rent until sale-able. Oak Creek has become an active apartment submarket with the much anticipated Drexel Town Square development and recent listing of lakefront development land on Depot Drive. This site is adjacent to the city’s Lake Vista Redevelopment. Downtown and Eastside transactional activity picked up in the first quarter. Notable transactions include the sale of Lodgewood Apartments, a 76-unit high-rise apartment building overlooking Lake Michigan in the heart of downtown Milwaukee. The building sold for $9.65M ($126,974/unit). Additionally, a 94-unit garden style project located on the Milwaukee River in Riverwest (near Eastside) traded at $2.35M ($25,000/unit) in early March.

REO/SAG departments and their corresponding inventory are much smaller now than the previous three years. As most banks have worked through their challenges and competition for bargains remains tight, pricing has stiffened. We are seeing more capital from both coasts and the Chicago area driven to secondary markets for more appealing cap rates, particularly on value-add opportunities. Remaining REO broken residential development sites have been severely picked over and those that remain come with substantial development challenges. Investors, lenders and brokers are closely monitoring CMBS loan maturities that extend through 2019 as they were issued during previous market peaks or in the early years of the current market recovery.

INVESTMENT SERVICES | WISCONSIN

RESEARCH Tyler Jauquet Research Analyst Direct +1 414 278 6811 [email protected]

Jennifer Cameron Research Analyst Direct +1 414 278 6801 [email protected]

Tom Shepherd, CCIM Partner | Wisconsin Direct +1 414 278 6815 [email protected]

Joe Eldredge Vice President | Wisconsin Direct +1 414 278 6825 [email protected]

Jennifer Bullock Investment Analyst | Wisconsin Direct +1 414 278 6867 [email protected] *Content Provider

Copyright © 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

502 offices in 67 countries on 6 continents

Colliers International | Wisconsin 1243 N 10th Street Suite 300 Milwaukee, WI 53205 TEL: 414 276 9500 FAX: 414 276 9501

United States: 140 Canada: 31 Latin America: 24 Asia: 39 Australia New Zealand: 160 Europe & Middle East: 108 $2.2 billion in annual revenue 1.7 billion sf under management 16,300 professionals and staff

Suggest Documents