New York–The velocity of real estate transactions should improve this year, with property pricing to stabilize as liquidity returns to the marketplace, with REITs playing a leading role in the revival, according to FTI Schonbraun McCann Group, the real estate advisory practice of FTI Consulting, Inc.
“We’re pretty optimistic,” Jahn Brodwin, senior managing director of FTI Schonbraun, tells MHN. “We see transaction volume improving in a meaningful way. “ He says that he does not see transaction activity going back to the levels of 2006 and 2007, however.
“That’s good news, though, as that was an overheated market,” he says.
Multifamily properties should attract a good share of investment dollars, particularly among investors who are looking for stable investment yields, according to Brodwin. The properties offer a great inflation hedge, as landlords can raise rent on a yearly basis. Vacancy rates also tend to be fairly steady, and capital requirements tend to be lower than on other property types.
“If you own an office building, and you lose a tenant who rents half the building, you’re going to have to spend a lot on improvements to the building to attract a new tenant, and a lot on brokers working to lease up that space,” Brodwin says. Capital requirements at a multifamily property tend to be required in smaller increments.
REITs are in excellent position to become major players in the investment landscape, Brodwin says, as they have raised approximately $20 billion in equity over the last 12 months.
“They’ve built a war chest to take advantage of distressed properties,” Brodwin says.
A number of REIT IPOs are also in the offing, Brodwin says. While the availability of debt is restraining real estate transactions, REITS have the ability to tap into the public debt markets. In comparison to private investors, they typically buy properties at loan-to-value ratios of 50 to 60 percent, which are the terms that lenders are typically extending to borrowers today.
Banks are now extending the loans of many of their borrowers, but Brodwin says that can only last so long, as a rising interest rate environment will force an increased amount of sales.