Renewed Investor Confidence Emerges for 2017

By Dennis Kaiser

Los Angeles’ Westside is a hot bed of CRE activity, as companies locate operations in markets stretching from Santa Monica to Playa Vista to Hollywood. The arrival of the Expo Line and the constant pull of sandy beaches are serving to fuel institutional investors appetite for opportunities in virtually every asset class.

The nearly 400 who gathered at Connect Westside LA 2016 heard the latest trends from five top institutional players from across the country on a panel titled, Finding Yield in Primary Markets. They examined the outlook for 2017 and the best asset classes, property types and submarkets for placing capital on L.A.’s Westside

Multiple panelists agreed that the Westside market is fundamentally strong across the property types, though the competition is fierce for opportunities aligned with yield expectations. There clearly is renewed investor confidence looking ahead into 2017. And that’s despite uncertainty surrounding how a new administration and expected interest rate hikes will affect CRE, as well as local anti-growth and development regulations that are likely to constrain supply in a high demand market.

Here are the key takeaways from the conversation:

Sklar Kirsh’s Andrew Kirsh notes there is “trepidation” in the marketplace with some “pull-back,” yet “transactions are getting closed.”

UBS’s Rod Chu notes that the interest rate picture has caused some buyers in the market to “want price reductions. Sellers have to think about that and maybe push the pause button.” He says they are seeing properties on the West Coast not clearing the sales process. They’ve even been invited “back into the fray” after best-and-final offers are in.

Heitman’s Lynn King-Tolliver says there is some “repricing” as deals are “coming back to the table.” She noted that there’s “less in the pipeline” as investors evaluated the length of the recovery, though she believes there’s still “a bit more run, even though core cap still has been a bit sluggish.”

CBRE Global Investors’ Gardner Ellner notes that for some deals, typically involving higher quality assets in top markets, it is easier for “properties to draw a line in the sand” regarding retrade requests. Though, “owners of lower quality assets or funds with finite lifecycles may not have that option.”

Canyon Partners’ Charlie Rose notes the pull back by lenders has benefitted the company, especially “on the construction side where they can “fill the role of a traditional bank lender. The inefficient capital markets are providing them opportunities to realize “equity-like returns at a discount.”

King-Tolliver notes that “growth and inflation in the economy are maybe good for CRE.”  That’s especially true if investors’ 2017 projections and budgets were based on pre-election timing. Now, with a new administration, investors may want to explore adjusting to what’s expected to be a more pro-business climate.

For comments, questions or concerns, please contact Dennis Kaiser