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Below, David Jangro, Axia Director of Investment, shares some noteworthy CRE news stories and provides insights on these topics. You can review the high-level takeaways or full commentary below.
Brokers Busy, More Buyers Than Sellers at Moment
RV Parks are one of the last unconquered frontiers in commercial real estate, with a market largely bifurcated between smaller “mom n’ pop” type owner operators and very large groups operating numerous properties at scale such as KOA and Jellystone Parks. It is no surprise then that the interest of an increasing number of private investment syndicates and funds has gravitated to RV park assets like moths to a flame as the reach for yield moves beyond the post-pandemic darlings of multi-family and self-storage. As this article from Woodall’s Campground Magazine suggests, RV park brokers are experiencing growing demand from more sophisticated buyers seeking strong cash flow and discounted valuations amidst the backdrop of higher interest rates and a reduced opportunity set among more traditional commercial asset types. Fortunately, here at Axia we identified the potential inherent in RV parks relatively early in the post-pandemic cycle, acquired several campground assets, and have since used our ownership experience to recognize the operational challenges posed by these assets. The Woodall’s article further validates many observations we have made over the past two years of RV park ownership and helps serve as a bullish indicator as to liquidity for our parks once the time for disposition comes.
High Level Take-Away: RV Park properties are beginning to attract a wider buying audience at a time when many operators are choosing to hold and improve their properties. This should bode well for any RV Park owner able to reposition and market their property while the supply/demand imbalance persists. Buyers seeking a discount are likely to be disappointed given this imbalance, outside unique instances of motivated selling such as owner retirement or generational transition.
For anyone familiar with my market commentary in Axia’s Quarterly Reports or In The News publications over the past 6 months, this headline from Green Street should come without shock. While many mainstream financial press pundits avoid the nuance behind the seemingly staggering drop in commercial asset transaction volume, directionally they are not wrong. Yes, as the headline implies, U.S. investment sales transaction volume has objectively fallen 70% on a year over year basis from 1Q2022, however, a few caveats are in order. First, transaction volume did not start showing signs of slowing until Q2/Q3 of 2022 so the 1Q2022 volume from which the comparison is being drawn is still near the top of what was a white hot market for commercial real estate investment sales in the wake of the Covid pandemic. Not to say transaction volume isn’t in fact below historical averages currently, but it is much closer to long run average volume than the headlines would have you believe. Second, and I have beaten this dead horse thoroughly by this point, the 70% year over year drop is driven largely by a precipitous decline in Office sales due to the uncertain outlook for this asset type and appalling vacancy rates. Yes, multi-family and industrial volume has declined as well, and significantly in some sectors, but investment activity among these asset types is still much healthier than the 70% drop headline would indicate.
High Level Take-Away: Transaction volume for US commercial real estate investment sales declined substantially in the first three months of 2023, however, we are coming off several quarters of near record setting activity so this decline should be evaluated in a broader historical context. Higher interest rates, tightened credit availability, and a large Buyer-Seller valuation gap are the primary drivers behind the decline, but the Office sectors woes are heavily to blame as well.
Industrial warehouse and logistics properties have been the golden child of the commercial real estate investment landscape over the past several quarters, with billions of dollars in acquisitions coming from small and large investors alike. The final close of EQT’s $4.9B EQT Exeter Industrial Value Fund VI demonstrates the demand among investors for exposure to industrial assets has serious staying power. EQT cites stable vacancy rates and respectable rent growth as the features they find most attractive in the industrial space. Even with robust pipelines of new development in many of the major industrial markets, demand is anticipated to keep national level rent growth above 5% for the next several quarters, and potentially beyond.
High Level Take-Away: It is no secret industrial properties have performed exceptionally well in the wake of the pandemic as evolving supply chains, e-commerce growth, and shifting demographics positioned the asset class as one in which a serious unmet demand existed. While I agree with EQT’s investment thesis behind their large industrial fund, I would take it one step further and posit industrials’ fundamentals (vacancy and rent growth) will remain strong for the next several years, as opposed to quarters. Challenging financing conditions and increased costs have caused many industrial developers to hit pause or scrap projects as deal economics withered. This “kink” in the development pipeline should sustain supply/demand dynamics well into the late 2020’s. Rent growth in many markets may come back down to single digits and vacancy may rise back towards historical averages, but on a relative basis industrial should continue to be a star performer.
Portfolio Manager - Director of Investment
Before joining Axia, David developed real estate experience at Everbank/ TIAA CREF in the distressed MBS trading unit and on one of Colliers market-leading investment brokerage teams. David brings a decade of financial services experience, working at Credit Suisse and Goldman Sachs within their Wealth Management and Hedge Fund Strategies groups, and an MBA from Vanderbilt.