| IN THE June 15, 2011 ISSUE |
Rising Cost of Construction Materials Puts Contractors in a Bind
| By Matt Hudgins, NREI Contributing Writer |
The dramatic slowdown in commercial real estate development in recent years due to the deep recession and its lingering effects has prevented a supply glut, but wiped out thousands of construction jobs in the process. At mid-year 2011, builders who have managed to stay in business are now finding their profits squeezed by rapidly rising costs.
“Materials costs for construction have greatly outstripped the Consumer Price Index and even the overall Producer Price Index in the first four months of 2011,” says Ken Simonson, chief economist for The Associated General Contractors of America.
“However, contractors are so hungry for work that they are continuing to promise to deliver jobs for almost no increase in price, in spite of their having to pay more for materials,” says Simonson. “That’s a pretty dangerous situation for contractors who have already cut their margins to a minimum, or maybe into negative territory.”
Will Cap Rates Rise or Fall in 2011 and 2012? The Answer May Surprise You
| By Victor Calanog, NREI Contributing Columnist |
After rising 300 to 500 basis points in 2009, average transaction-based cap rates fell in 2010 through early 2011. Why have cap rates fallen so quickly when fundamentals have yet to show meaningful gains? Won’t cap rates increase if inflation and interest rates begin to rise?
Cap rates represent the initial return to the investor based on the purchase price and the annual net operating income the property generates. This definition often leads to confusion. Consider this seemingly straightforward statement: “A rise in cap rates implies a decline in property value.” This is not necessarily true.
Suppose a property earned $100,000 in income in 2010 and sold for $1 million, or a 10% cap rate. If the same asset earns $120,000 in 2011 and sells for $1.1 million, the cap rate is now 10.9%.
Macquarie CNL Global Income Trust’s First Acquisition is Distribution Center Near Austin
Macquarie CNL Global Income Trust has acquired a distribution center in Pflugerville, Texas that is fully leased to FedEx Ground Package System Inc. The property was acquired for $4.55 million.
‘‘We believe this transaction aligns with our goal of building a portfolio of properties that can provide stable income to our shareholders,’’ says Andy Hyltin, president of Macquarie CNL Global Income Trust.
The company plans to build a portfolio of U.S. and international properties, with potentially up to 60% of its assets located outside the United States. The company seeks to become a public, non-traded real estate investment trust.
Despite Tepid Economic Data, Hotel Investment Executives Remain Bullish
| By Ed Watkins, Lodging Hospitality Editor-in-Chief |
In an era of nonstop 24-hour news, even the slightest discouraging word can put a damper on the mood of an industry. Thus, nearly 2,000 executives gathered last week in New York for the New York University International Hospitality Industry Investment Conference fresh from a news cycle headlined by a less-than-positive report on jobs growth and downright bad news on housing starts.
As a result, the mood at the conference, at least initially, was one of caution: everyone agreed hotel industry fundamentals are gathering significant steam, but the state of the U.S. economy had some speakers and attendees wondering about the future.
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