Green Street Issues Strong “Buy Now” Signals as Cap Rates Continue to Decline
Recent fundraising by real estate private equity firms has smashed records and many were already sitting on war chests before the pandemic. Blackstone and Brookfield remain the dominant players, but Lone Star Funds, the Carlyle Group and Oaktree Capital Management have all recently closed funds in the $5- to $10-billion range. As for Blackstone, its non-traded REIT alone takes in $2 billion per month. Competition among private equity shops will lead to even higher property prices moving into 2022.
Four Sectors Emerge as Leaders in Year-Over-Year Price Appreciation
According to Green Street’s all-property CPPI, property prices have increased 18% this year and are now 8% higher than they were before the coronavirus pandemic began.
The recent surge in pricing has been broad based, but industrial, apartment, manufactured home park and self-storage have led the way with outsized gains. Pricing of malls and office properties, on the other hand, has been relatively weak, and both have struggled to recover COVID losses.
Industrial Cap Rates Dip Further
Industrial values have increased by a whopping 39% in the past year. Fundamentals are flying high on the heels of stellar tenant demand, driven by ecommerce-growth. As a result, cap rates have fallen in every major market relative to pre-COVID levels, but yields have declined by a greater magnitude in non-coastal markets. The spread in industrial cap rates between coastal and non-coastal markets (approximately ~100 bps) has never been this tight.
According to our recently expanded Sales Comps solution that allows users to access verified transactions of $5 million and above across eight property sectors, the largest industrial sale closed so far in 2021 totaled $345 million. Costco Wholesale acquired the 1.6-million sf asset in Ontario, CA, for $214 per sf. CenterPoint Properties Trust was the seller.
Apartment Values Gaining Steam
Rapidly rising rents have placed downward pressure on cap rates in many regions of the U.S., including the popular Sun Belt metros and less-dense coastal markets, according to a recent Green Street Quick Take. Cap rates in those areas range from mid-3% to low-4%.
Transaction activity has started to increase in coastal markets, particularly for larger class-A properties. Seattle, the D.C. Metro, and Los Angeles have seen more deals trade at healthy price levels. Price discovery in New York and San Francisco remains limited, but there are signs of thawing.
In the near term, rapidly improving operating fundamentals, and accommodative capital markets will bolster apartment values.
The largest apartment transaction to-date in 2021 closed in Highlands Ranch, CO, a suburb of Denver. Crow Holdings acquired Palomino Park, a 1,184-unit asset for a total of $435 million, or $367,399 per unit. JLL represented the seller, Nuveen Real Estate.
For apartment deals of any size, visit our newly expanded Sales Comps solution.
Self-Storage Price Growth Stands Out
Self-storage values jumped 47% over the past year and increased 40% from their pre-COVID values. Over the past month, values remained unchanged.
Near-term prospects for self-storage property price growth are strong and analysts are showing nominal concern for overbuilding. Historically, storage demand has built a reputation for being recession resistant, as typical storage demand drivers are present in both expansionary and contractionary economic environments. That said, positive cash flows in the storage sector aren’t bulletproof, as industry participants observed in 2019 in the face of a swath of new supply.
Green Street’s Sales Comps solution comes in handy for identifying the highest-priced self-storage sales in 2021. Baranof Holdings and Invesco Real Estate acquired a $48.5-million asset at 545 Stevens Avenue W in Solana Beach, CA, for $152.46 per sf. Cushman & Wakefield represented the unidentified seller.
For more information on this verified transaction, schedule a Sales Comps demo.
Manufactured Home Park/RV Values Soar
According to Green Street’s latest CPPI, manufactured home park/RV values jumped 28% in 2021 and soared 31% since pre-COVID.
In late summer 2021, Green Street reported that the manufactured home park/RV sector was “firing on all cylinders.” Rent growth is expected to remain healthy in the coming years, moderating in the single digits. Downsizing baby boomers, surging RV/camping demand in the wake of COVID and rapidly spiking costs of other housing alternatives bodes well for the sector.
The perfect storm of ultra-low bond yields, strong fund flows to private equity, and open debt markets is expected to lift property prices even higher. What may catch observers off guard, is the speed and magnitude of the adjustment. Buyers in the private real estate market should consider investing now before cap rates tighten even further.
For more information on comprehensive, transaction-level data on properties valued at $5 million or more, explore our Sales Comps solution.
Product Enhancement: Expanded U.S. Sales Comps Solution
Proprietary Data: October 2021 CPPI Index
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