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January 18, 2012  
 
 
 
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Six Sexy Capital
Markets Trends

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Turns out, you can put the word "sexy" in front of anything. There's no rules, Sexy. (Hmm, put it after and it gets creepy.) Tension in Europe. S&P downgrades. Government cutbacks. What's it all mean for real estate? We asked six capital markets experts to weigh in.
 
1. More of the Same?
Blackstone real estate debt chief Peter Sotoloff thinks 2012 will be a lot like 2011. Best-in-class sponsors and properties will continue to get the most attention from investors, he tells us, with a focus on recapitalizing large portfolios and marquee assets. “Many of the deals done at the height of the market in 2007 mature this year, creating a need for new equity capital.” Turmoil in Europe means pricing will be significantly wider (we're told that word makes sense, even though we keep picturing an obese dollar sign) than previous years, and core Class-A deal spreads will likely land around the high 200 bps.
2. CMBS Holds Steady
Ethan Penner, CBRE Capital Partners
CMBS volume should approach or slightly exceed that of 2011, says CBRE Capital Partners president Ethan Penner. (Last year saw around $30B in CMBS issuances.) Bond investor demand “should be pretty good,” he tells us, but the below-investment grade buyer base is “thin” and will inhibit issuance. Spreads for new production should “tighten measurably,” with the exception of AAA-rated deals—AA-rated should be around 225 bps, A-rated around 300 bps, and BBB-rated around 400 bps.
3. Confidence Is Everything
 
David Webb, Jaime Butler, Cassidy Turley
Overall economic sentiment will in large part determine the availability of development financing, Cassidy Turley's David Webb (above, with colleague Jaime Butler) tells us. “August's mini-crash created uncertainty, and we're gradually crawling out of that hole” he says. “We expect continued improvement in the availability of capital, but there's not going to be a frenzy of deals.” One change on the horizon: Equity is getting more expensive, as capital providers adjust for greater levels of perceived risk and more developers compete for the same group of investors. (Related note, we don't have a name for the August crash, as we do the "Great Recession?" Allow us to coin The Beach Days Tiny Malaise.)
 
4. More Core, Please
 
HFF, Sue Carras
HFF DC co-chief Sue Carras tells us low interest rates combined with high uncertainty means investors will continue to prefer core opportunities. Life companies will increase lending production by 20% over 2011 (their biggest year ever), she says, and the correlation between real estate yields and BBB-rated corporate bonds will spur some to equities, which for many will be the first time in a long while. "Real estate is a favored asset class on a risk-adjusted basis," she says. Locally speaking, 2012 will deliver around $4B in CMBS maturities, creating financing and sales opportunities. The big wild card: government cutbacks.
 
5. Hospitality Opportunities
 
Greg Rush, Dune Real Estate Partners
Dune Real Estate Partners principal Greg Rush (snapped recently at a Bisnow NY event) describes his firm's strategy as “opportunistic with an element of distress.” Hospitality deals in particular fit the bill, he says; it's the hardest sector to find financing in, and backed-up CMBS market means most deals require a substantial equity contribution. (Which is where his firm comes in.) Dune targets opportunities throughout the capital stack at a 20% IRR or two-times multiple on equity. The best way to source deals? Leveraging borrower relationships, he says, even if bank portfolios are beginning to trade.
 
6. REITs Want Partners
 
CBRE, Bill Prutting
Inspired by Justin Timberlake and Jessica Biel's pending nuptials, expect REITs to put a stronger emphasis on JV this year by co-investing with pension and life companies, foreign capital, and large equity funds. CBRE's Bill Prutting says partnering with seasoned operators gives REITs more flexibility, freeing up capital for other transactions. But it's not as simple as it sounds: “With their stocks and dividends under increased scrutiny, REITs will have to remain disciplined, steering clear of highly leveraged properties and portfolios, and being selective in determining their JV partners.” They're also not interested in one-off transactions—as establishing these JVs is time-consuming, so REITs will target institutional capital to grow a portfolio programmatically.

Bisnow
This Morning in Tysons
 
Tysons Corner has come a long way from the gas station and convenience store that once stood at the intersection of Routes 7 & 123. This morning, 650 joined us at the Hilton Tysons McLean for an event. Expect multifamily development in the submarket to take place first, our expert panelists say, and office transactions will be driven in large part by consolidations. Stay tuned for continued coverage tomorrow.
 
In other Tysons news, Bisnow has learned that JP Morgan Chase, RBS Citizens Bank, and Greystar have reached an agreement to provide construction financing for Greystar's 404-unit apartment project at Georgelas Group's site around the Tysons West Metro station. Construction will start this quarter, with delivery slated for 2014. The total value of the package is rumored to be around $80M. Parties connected to the transaction declined to comment.

Bisnow
Progression Place Hits Market
 
Progression Place
JLL's Jonathan Morris has been tapped to market Progression Place in Shaw for sale on behalf of Four Points LLC. The property, under construction (featuring 100k SF in office space, a 205-unit luxury apartment building, and 19k SF of ground-floor retail), is expected to sell for around $130M. It's owned by a JV between Four Points, Ellis Enterprises, and the Jarvis Co. Delivery is slated for October 2012.

Bisnow
Costco Coming to Alexandria
 
Yesterday Costco announced the purchase of a 12-acre site off Rte. 1 in Alexandria for a new store. The bulk-retailer currently operates 16 stores in the DC region, and the new location opens next spring. H&R Retail's David Ward, Marc Katz, and Geoffrey Mackler and Daniel Venable with NWAP II (Northwest Atlantic) repped Costco (which prefers its brokers in bulk). Seller National Amusements repped itself.
 
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