Investor interest in commercial property picks up

Survey: 68 percent expect to increase capital spending this year

Wednesday, September 24, 2014

By: Richard Lee

As the economy slowly improves, more commercial real estate executives are looking to develop assets and deploy capital in secondary markets to generate returns, and the Stamford market is providing opportunities.

Of the 100 senior commercial real estate executives surveyed in a 2014 Commercial Real Estate Outlook Survey conducted by tax advisory firm KPMG, 68 percent expect to increase capital spending in 2014, up from 60 percent in 2013.

Interest in Stamford is increasing, according to John DiMenna Jr., president of locally based Seaboard Properties, which owns commercial buildings at 300 Main St., 1 Atlantic St., and 88 Hamilton Ave., in Stamford and 220 Elm St., in New Canaan.

`Seeing opportunity'

"There's been tremendous growth in New York, and investors are seeing opportunity in some other areas of the country," said DiMenna, whose firm is constructing a Marriott Residence Inn in Stamford. "Investors are looking at Class A properties in secondary markets. In Fairfield County, there has been a lot of interest in investing."

Interest should be strong in 300 Atlantic St., 177 Broad St., and 201 Broad St. (Canterbury Green) in Stamford -- three office buildings that RFR Realty is offering for sale, according to DiMenna.

"The New York metro market is the strongest market in the country, and Fairfield County is part of it," said DiMenna, optimistic about the prospects for his new long-term stay hotel. "The hospitality market in Fairfield County caters to business traffic."

DiMenna's firm bought 1 Atlantic Street, in 2008 when it was 75 percent leased, and now it nearly fully occupied at 98 percent.

The rate of office space absorption is moving at a faster pace in Stamford than other submarkets in the county, and as a result, the county recorded more than 222,300 square feet of positive net absorption during the first half of the year, according to a recent report by CBRE.

"The county is experiencing another solid mid-year of positive net absorption for the first time since the first half of 2011," CBRE reported.

That is data that attracts the interest of investors.

 

`Getting tighter'

"There's leasing activity going on. It's the smaller market that's very active, and that's starting to impact the mid-market," said John Hannigan, principal in Stamford-based Choyce Peterson, which specializes in representing businesses in their search for commercial space. "For under 10,000 square feet, the market is getting a little tighter."

The limited supply of available Class A office space in the county is causing investors to look a Class B office properties, said Mary Grande, partner in KPMG's Metro New York Financial Services tax practice and based in Stamford.

"Leasing activity has improved in Fairfield County," she said, "and there is a shift toward foreign investment in the market."

Much of the interest can be attributed to the region's proximity to New York City, where premium office space in Manhattan is reaching capacity, she said.

The KPMG study shows that 80 percent of executives expect foreign investment in U.S. real estate to increase. Roughly 40 percent of those respondents predict non-U.S. investment to climb by 6 to 10 percent, while 8 percent expect an increase of more than 20 percent.

"We've seen a substantial amount of Chinese capital deployed in 2014, and we expect that trend to continue as real estate funds, large institutions and foreign investors look for direct and indirect investment in real estate equity and real estate debt because of the attractive yields," said Phil Marra, leader of KPMG's National Real Estate Funds.

When asked to identify regions with the best real estate investment opportunities, almost half the respondents in the KPMG study chose the Southeast (48 percent, up from 28 percent in 2013). The Northeast ranked fourth, behind the Southwest and Midwest with 30 percent of participants saying it offered the best real estate investment opportunities -- down from 36 percent in 2013.

When asked which types of properties their company would be looking to acquire or invest in, Class A assets in primary markets led the list, followed by development opportunities, distressed assets, Class A assets in secondary or tertiary markets and Class B/C assets.