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Philadelphia Metropolitan Area Real Estate Law Blog

Commercial real estate sales increasing in medium-sized cities

Pennsylvania commercial real estate investors may have heard about the recent $150 million sale of the Datran Center in Miami. The deal, which was made jointly by Acre Valley Real Estate Capital and ABS Partners Real Estate, reflects the trend of investors moving from major to medium-sized cities.

Because properties in many major cities such as San Francisco and New York are rising in price, a lot of investors are focusing on smaller, more affordable commercial real estate properties found in places such as Dallas, San Jose and Miami. For this reason, Acre Valley and ABS have purchased other properties in medium-sized cities including garden apartments in Cary, N.C. and office facilities in Charlotte, N.C.

Some commercial real estate markets may be approaching oversupply

Pennsylvania investors might look to current real estate trends to determine whether there are certain areas that may be approaching oversupply. This can indicate that some markets have become overbuilt due to continued expansion in certain locations.

One area of interest would be office construction. During the first half of 2016, deliveries on this type of construction equaled 24.3 million square feet, and reports indicate that there is another 98.9 million square feet that is currently under construction. Some market leaders are concerned that there may be overbuilding in New York City, Dallas and Houston. San Francisco was also showing signs of overbuilding. However, recent advances in the tech and life-science markets have increased demand.

Food trucks offer a way into the lucrative hospitality sector

The hospitality sector has become increasingly interesting to commercial real estate investors throughout Pennsylvania and the U.S. in recent years. However, backing a restaurant can still be an extremely risky proposition. Studies show that 60 percent of new restaurants fail within three years of opening, and a quarter fail to even make it through their first year before shutting their doors for good.

Food trucks can offer commercial real estate investors a less expensive way to test the waters of the hospitality sector. Americans spend more than $1 billion each year on street food, and the amount they spent at food trucks increased by more than 9 percent between 2010 and 2015. While opening a traditional restaurant often costs as much as $500,000, getting a food truck operation off the ground can generally be done for an outlay of between $15,000 and $100,000.

Investing online in commercial real estate debt

Philadelphia residents who want fixed-income investments with high yields and greater security may want to look at loans collateralized by commercial real estate. Online lenders have helped fill in the gaps so that people can have greater access to these types of investments. However, before evaluating these opportunities, it is important that investors consider several factors regarding these online lenders.

Investors who are considering fixed-income commercial real estate investments by using an online marketplace lender have a number of factors to consider to make a prudent investment. One of the important factors to consider is the expertise that the lender has with commercial real estate. Even if the online lender uses technology to isolate particular opportunities and statistical details, it is important that it is equipped to use effective, traditional methods to help close deals. Underwriting personnel should be available to provide in-depth reviews and analyze particular risk factors when crafting loan options.

Hard money loans for commercial real estate projects

Some Pennsylvania real estate developers occasionally encounter financing problems for their projects. Many might turn to an alternative type of debt called a hard money loan. There are several reasons why these types of loans should only be used in case of an emergency, however.

Unlike traditional loans, hard money loans are given by financing groups for very short terms ranging from one to three years. The upfront costs are substantial and the interest rates are normally set very high. The loans are considered to be high-risk. Instead of loaning the appraised value of the property to the borrower, the companies make loans based on the value that they believe the property could sell for in a few months without improvements. This means that the companies will often extend loans that are 50 to 70 percent of the appraised property value.

Real estate investments placed in seperate class by S&P and MSCI

Many investors in Pennsylvania and around the country still think of the 2008 mortgage crisis and subsequent financial meltdown when they consider putting their money into real estate, but several years of healthy returns have nurtured at least some confidence in the nation's property markets. The real estate sector has outperformed most other notable benchmarks in recent years, and these investments were placed in a separate class by MSCI and the S&P Dow Jones Indices on Sept.1.

While mortgage real estate investment trusts will still be classified as financials, all other REITs will be better placed to attract potential investors in the new category. The newly packaged real estate operating companies will likely prove popular because they are required by law to distribute at least 90 percent of their taxable income to shareholders as dividends. The new classification will also draw more attention to the robust fundamentals of the current property market and the recent gains enjoyed in the office and apartment sectors.

REITs to be reclassified

Investors in Pennsylvania who have real estate as part of their investment portfolio may be aware that equity real estate investment trusts, also known as REITs, will be reclassified into a separate sector from the financials sectors. This will have a number of implications for investors.

The popularity of REITs is one reason for this movement, and the sector is expected to grow in the years ahead. With the move, REITs are likely to be less volatile because their performance will no longer be tied to other financial securities. Investment in REITs may increase because now that they are in their own sector, their performance will be more visible to investors, and this is likely to make them more attractive. However, mortgage REITs are not included in the move to the new sector. These are already a riskier investment than other types of REITs, and they may become riskier since the volatility of the financial sector will continue to be an issue.

Crowdsourcing becomes a popular real estate financing option

Much has been written in recent months about a credit crunch that real estate buyers and investors in Pennsylvania and around the country may soon be forced to contend with. However, there is one part of the commercial real estate financing sector that has been growing rapidly. Crowdsourcing has grown from a cottage industry to a multi-billion dollar economic powerhouse in just a few short years.

The Portland-based crowdfunding company CrowdStreet has taken the concept and applied it to commercial property deals with considerable success. Since it began offering its crowdsourcing service in 2014, CrowdStreet has generated more than $1.7 billion in financing for 60 commercial projects. This summer has been particularly high-yielding for the firm. CrowdStreet execs say that they expect the success to continue well into the future.

Chinese appetite for U.S. real estate still strong

Pennsylvania investors who follow the U.S. residential and commercial real estate markets are likely aware that their Chinese counterparts have been very active in recent years. During the 1980s, iconic American properties like the golf complex at Pebble Beach and New York City's Art Deco landmark Rockefeller Center were scooped up by Japanese investors, but Chinese nationals now make up the largest group of foreign property buyers.

China buyers have poured in excess of $110 billion into U.S. property markets in the last five years, and some consultants expect that figure to grow to about $218 billion by 2020. While media coverage of this buying spree has tended to focus on high-profile commercial property deals, the data shows that Chinese buyers have been active in the residential sector as well.

County has zoning problem in emergency dispatch project

Officials in a Pennsylvania county are having a difficult time completing construction of an emergency communications system. For the past two years, Montgomery County officials say that they have been trying to convince township supervisors in Upper Merion to give them the zoning rights to construct a 180-foot tower. The $36 million project requires 30 towers, and so far all but one of the towers has been built.

If it is completed, the upgraded emergency dispatch system will improve communication between county dispatchers and emergency responders all over Montgomery County. Without the last tower in Upper Merion, the emergency dispatch system will be spotty in sections of Upper Merion, Lower Merion, West Conshohocken and Bridgeport. During major events, the old dispatch system can have poor coverage that makes emergency communications challenging.

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