As 2012 drew to a close and the industry's recovery progresses, com-mercial real estate offered varied investment opportunities across each major sector and a diverse number of cities, even though macroeconomic uncertainties still exist, such as the fis-cal cliff, according to the fourth quarter 2012 findings of the PwC Real Estate Investor Survey.

According to the report, investors in the office sector are showing a greater acceptance for slower growth and less apprehension about moving further out on the risk spectrum. Although core trophy assets remain the preferred target of both domestic and interna-tional investors, aggressive pricing and improved fundamentals have resulted in certain investors looking to buy

either core in strong secondary mar-kets or less-than-core in primary mar-kets.

"The commercial real estate indus-try continues to show its investment durability as assets command attrac-tive spreads over fixed-income invest-ments and offer more stability than stocks, while most property sectors

Investors Anticipate Opportunities in Commercial Real Estate across

All Major Property Sectors in 2013, According to Latest PwC

Real Estate Investor Survey™

There are many methods for acquir-ing wealth available across the globe today. One of the most easily accessible ways even for the new investor is real estate investing. Many people have made millions of dollars by investing in the real estate market in one form or another.

Real estate is a profitable vehicle for the investor who is dedicated to learn-ing about all of the different types of investments, option, risks and potential rewards that come with real estate investing. There are many different ways to invest in real estate. Here are some of the more common ones people use to get started.

Find investment deals in real estate in: New York City Los Angeles Chicago Houston Boston Seattle1) Rental property.

This is one of those rare real estate investments where you can make money even if you pay top dollar for the property. The reason is you are going to hold onto this property for the long term. You're only requirement is the property generate a positive cash flow. This means after you sum up all of your expenses on the property like financing cost, taxes, insurance and a vacancy rate, the amount you are col-lecting in rent surpasses this figure. This is one of the classic "get rich slow" methods of real estate investing. You are making a small amount of money each month from the property in rental income, and you are also slowly build-ing up equity in the property over time as you pay down the mortgage.

2) Pre-construction invest-ment.

This is also known as buying prop-erty on "spec" or on the speculation that when the property is finished it will sell for a much higher price than you have invested in it. This is seen mostly in new condominium projects where investors fight to buy the units before they are built assuming the price will come up once construction is complete. I have known investors who have pur-chased several condo units in a facility being built and put $5,000 down on each unit as a down payment. Then before the property was even construct-ed "flipped" their contract to an end buyer who was willing to pay them 4 to 5 times their down payment just to get in on the deal. The problem with this type of investing is it normally only works when a market is going up regu-larly. In a down market like we are experiencing these types of deals are much harder to find but they are still out there. There are still part of the country that are very desirable to live

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January 2013

The cost to insure apartments increased by 9.5 percent between 2011 and 2012, marking the second con-secutive year of rising insurance expenditures according to the National Multi Housing Council’s (NMHC) Apartment Cost of Risk Survey (ACORS). The survey covers data from more than one million apart-ment units, the largest number of units covered by the survey to date, operated by 55 apartment firms, track-ing three principal components of insurance premiums: property, gener-al liability and workers’ compensa-tion. The 9.5 percent increase in 2012 came entirely from property risk costs, with general liability and workers’ compensation costs staying virtually unchanged from 2011.

“Respondents noted that their

Apartment Insurance Costs Increase for the Second Consecutive Year

According to National Multi Housing Council Report

Continued on page 3

Greater Investor Optimism in Retail, Especially for National Regional Malls; Technology Office Markets and Warehouse Sector Showed Steepest Cap Rate Declines in Q4

ow that the holidays are behind us, anyone who was not able

to move before they rang in the New Year will be resuming their search for a new home. Follow up is the key to closing the sale when no decision is made on the first visit. However, many leasing people still hesitate to keep in contact with their prospective renters or make call backs on the appoint-

ments that are no shows. This question may shed some light as to why this occurs:

Q: I know I should probably follow up more on my guest cards and also call people who make appointments and don’t show up, but calling people back makes me feel like I’m “bugging them.” If they’re really interested, won’t they just come back or call me?

It does seem “logical” that a person interested in your community will just naturally get back in touch with you. However, there are a multitude of options out there right now. Besides, renting an apartment is a lot of hard work, and it’s also a MAJOR buying decision. People who are looking for a new home NEED YOUR HELP! They will continue to need assistance until they reach a decision about where they want to live.

If you think back to the last time you made a major purchase, it’s likely that the salesperson helped you with your buying decision. It was probably their knowledge of the product, com-bined with pointing out how it would meet your needs, which were some of the determining factors in your deci-sion. This would require the salesper-son to have excellent product knowl-edge, establish ALL your needs (i.e. size, style, color preference(s), budget constraints, etc.) and then close the sale. However, if you weren’t quite ready to decide and then looked at and considered other options, you may have forgotten about some of the ben-efits of the product you looked at ini-tially. This is where the follow up work comes in. The salespeople who keep in

touch with their prospects can contin-ue to sell the benefits of their product long after the prospect has left the sales floor. This will deepen the rela-tionship that was established so there is a sense of commitment on both sides.

Now imagine your most recent pro-spective renters and the circumstances causing them to relocate. Put yourself in their place and think about all the decisions they have to make as a result of their move. If you have an apart-ment at your community that will work for them and you are sincerely interested in meeting their needs, why wouldn’t you follow up with them? Of course if all you care about is just rent-ing an apartment and not the person who will be living in it, then you’re right: You would “just be bugging them.” People can recognize a phony a mile away. On the other hand, people are also pretty good at detecting when someone sincerely cares about them and has their best interests at heart. The follow up work you do will come off as a true expression of your desire to meet the needs of your prospective renters, if you genuinely care about them.

If you have a question or concern that you would like to see addressed next month, please ASK THE SECRET SHOPPER by making contact via e-mail. Your questions, comments and suggestions are ALWAYS welcome!

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greatest challenges in 2012 came from obtaining adequate and affordable coverage in traditional catastrophe risk zones. In fact, catastrophe exposed properties were the major drivers of the increase in premium costs and higher deductibles,” said Rick Haughey, NMHC’s Vice President of Property Operations and Technology. “With U.S. catastrophe losses in 2012 expected to be moderately higher than average due to Hurricane Sandy, the outlook for insurance costs in 2013 remains uncertain. This uncertainty mitigates what would be downward pressure on 2013 catastrophe rates due to strong underwriting capacity for primary insurers and reinsurers.”

Additional key findings:The mean (nonweighted) average

for the total cost of risk increased 9.5 percent in 2012, driven by an increase in property cost of risk, which accounts for 70 percent of the average apart-ment firm’s total cost of risk.

The mean average property cost of risk increased by 10.4 percent and average per occurrence deductibles increased to $118,000 from the unusu-ally low average deductible of $66,000 in 2011.

The mean average general liability cost of risk remained virtually unchanged in 2012 after a 9 percent increase last year.

The mean average workers’ com-pensation cost of risk in 2012 also remained similar to 2011 at $1,038 per

full-time employee.Property terrorism insurance take-

up rates increased to 91 percent in 2012, compared to 85 percent in 2011. A slight decrease in property terror-ism insurance rates was also report-ed.

About the SurveyThe ACORS contains information about

property, general liability, umbrella, work-ers compensation, D & O, professional lia-bility, employment practices, environmen-tal, and newly added insurance lines includ-ing terrorism and cyber liability. Fifty-five firms representing over one million apart-ment units supplied data on rates, deduct-ibles, retentions, key coverage terms, claims history and more for the key lines of cover-age.

Firms that completed the survey can receive exclusive access to the full data set, along with the report analysis by Conning Research and Consulting on behalf of NMHC. Non-participating NMHC mem-bers can download an executive summary and a PowerPoint summarizing the results at www.nmhc.org/goto/61017.

Based in Washington, DC, NMHC is a national association representing the inter-ests of the larger and most prominent apart-ment firms in the U.S. NMHC’s members are the principal officers of firms engaged in all aspects of the apartment industry, includ-ing owners, developers, managers and finan-ciers. One third of Americans rent their housing, and more than 14 percent live in a rental apartment.

For more information, contact NMHC at 202-974-2300, e-mail the Council at info@nmhc.org, or visit NMHC’s web site at www.nmhc.org.

in and are experiencing market growth.

3) Flipping houses. This is a type of property investment

that has made leaps and bounds in the last few years thanks to the popularity of many popular home improvement and house flipping shows on cable net-works in the last few years. This has become a very dangerous thing as peo-ple who have no idea what it actually takes or costs to renovate and flip a property are buying homes because they think "I saw it on television and I can do that" Television doesn't show

you the whole picture. You have to be aware of all of the hidden costs like marketing the property, closing costs, carrying costs if it doesn't sell right away, etc. You need to make sure you are buying the property at a significant discount to cover yourself completely.

4) Buy and hold. As mentioned above, real estate

tends to gain value over time. Bad properties in bad neighborhoods will accrue equity if given enough time. History has shown us that even when a large market correction occurs like has happened now, properties eventually

do recover and increase in value. The secret is to make sure the property is at least covering it's own costs while you wait for the equity to build up in it.5) Lease options.

Not everyone has perfect credit. For those who have credit issues finding a lender to purchase a home can be an impossible task. They need time to get their credit repaired. These people are perfect candidates for lease options. They will pay above market value for the house and put a non-refundable down payment down. They are willing to pay for the privilege of rebuilding their credit while working towards a

path of home ownership. For these people, a lease option presents a solu-tion to their lending problem and buys them the time they need to get their credit and/or income ready to go to a traditional lender.

Media Contact: James Paffrath RealtyPin.com, 1-(866) 960-8649, james@realtypin.com News distributed by PR Newswire iReach: https://ireach.prnewswire.comPR Newswire (http://s.tt/1ygg7)

How ...continued from front page

continue to post occupancy gains and rental rate growth," said Mitch Roschelle , partner, U.S. real estate advisory practice leader, PwC. "Foreign investors are particularly bullish on U.S. commercial real estate as they look for stable investments during uncer-tain times abroad. In 2013, Survey respondents expect to see an uptick in sales activity as property owners cull portfolios to take advantage of the low cap rate environment. And as invest-ment capital continues its trend of matriculating beyond just apartments, cap rates are expected to compress across the entire asset class."

Investors Becoming More Comfortable with Buying in the Retail Sector

The above chart illustrates that the decline in overall capitalization (cap) rates has extended to the retail sector. According to the fourth quarter Survey findings, investors remain optimistic about investing in the national regional mall market despite a slow-moving economic recovery and a challenging retail landscape. Buying opportunities remain few and far between, especially for Class-A+ and Class-A malls, with huge barriers to entry making high-quality malls thrive, which also keeps owners from selling them.

According to surveyed participants, yields have compressed too much for well-leased strip shopping centers that some are considering buying value-add in great locations due to a lack of new supply. For power centers, chal-lenges mainly stem from rising Internet retail sales, merchant consolidations, and an inability to easily shrink into urban streetscapes.

In the fourth quarter of 2012, the average overall cap rate, the initial return anticipated on an acquisition and a reflection of an investment's anticipated ownership risk, decreased in 24 of the surveyed markets, held steady in seven, and increased in just one of them. The overall cap rate shifts remain irregular with tech office mar-kets (i.e. San Francisco) and the ware-house sector both showing some of the steepest declines. The national ware-house market's cap rate compression, where the average overall cap rate declined 40 basis points, reflects the optimistic outlook held by most sur-veyed investors.

The average overall cap rate declined again in the Survey's national Central Business District (CBD) office market, marking nearly ten instances of quar-terly declines since the first quarter of 2010. Moreover, the current average of

6.70% is the lowest reported for this market since the second quarter of 2008. Due to this cap rate compression, some Survey participants are taking time to identify CBD assets to sell – while others remain in search of select buying opportunities.

In the apartment sector, surveyed participants believe market conditions continue to favor sellers, but some investors sense that rents may have peaked for now and that certain mar-kets have become overpriced. In addi-tion, investors remain attentive to the near-term impact of new construction. Consequently, this market's average initial-year market rent change rate dipped for the second consecutive quarter, suggesting less upside in this market.

Investor Outlook Through 2015The PwC Real Estate Barometer

included in the Survey tracks the antic-ipated performances of the four main property sectors (office, retail, indus-trial, and multifamily) from 2012 to 2015. For the office sector, even though the sector's recovery as a whole lags behind other commercial property sec-tors due to lower job creation among office-space using companies, as well as an evolving work environment, many metros are benefiting from a lack of new supply. As a result, the barom-eter places 35.2 percent of the U.S. office stock in expansion by year-end 2012. This percentage is expected to grow through 2015.

Pockets of strength exist in the retail sector and are starting to outnumber the weaknesses in certain trade areas. The barometer places 45.6 percent of the U.S. retail stock in recovery by year-end 2012. As the industrial sector con-tinues to recover, occupancy gains are being reported in most industrial mar-kets across the country. As a result, the portion of U.S. industrial stock in recov-ery is expected to grow annually through year-end 2014. By year-end 2015, the expansion and recovery phas-es of the real estate cycle will dominate this sector.

Underlying fundamentals for the U.S. multifamily sector remain extreme-ly positive through 2015 due to pent-up demand and a growing preference for renting instead of buying. The expansion phase of the cycle will dom-inate this sector for the next four years.

"While the recent slowdown in the country's economic recovery and job gains has reduced leasing activity across much of the nation's office sec-tor, it has not had the same impact on

the warehouse sector, with many sur-veyed investors calling the sector extremely healthy," stated Susan Smith , editor-in-chief of PwC's quarterly real estate investor survey. "While the U.S. multifamily sector remains a top invest-ment choice, concerns about new sup-ply and overpricing do exist, which has some investors looking to other sec-tors, like retail, which had been a bit taboo for many investors for quite a while, but is starting to regain attention even with the rising popularity of e-commerce."

Information about subscribing to the PwC Real Estate Investor Survey can be found at www.pwc.com/us/realestatesurvey.

About the PwC Real Estate Investor Survey™

The PwC Real Estate Investor Survey, now in its 25th year of publica-tion, is one of the industry's longest continuously produced quarterly sur-veys. The report provides overviews of 33 separate markets, including ten national markets -- regional mall, power center, strip shopping center, CBD office, suburban office, flex/R&D, warehouse, apartment, net lease, and medical office buildings. The report also includes a review of 18 major U.S. office markets including Atlanta, Boston, Charlotte, Chicago, Dallas, Denver, Houston, Los Angeles, Manhattan, Northern Virginia, Pacific Northwest, Philadelphia, Phoenix, San Diego, San Francisco, Southeast Florida, Suburban Maryland, and Washington, DC. In addition, the report covers three regional apartment markets - - Mid-Atlantic, Pacific, and Southeast, and two regional warehouse markets - - East North Central and Pacific. In

addition, the National Development Land Market is included in the second and fourth quarter issues while a com-prehensive lodging report is included in the first and third quarters.

The fourth quarter 2012 report also features up-to-date information relat-ing to forecast periods, structural vacancy replacement reserves, forecast values, tenant improvement allowanc-es, and vacancy assumptions. In addi-tion, each issue of the survey contains over ten tables of market data focusing on value expectations, tenant improve-ment allowances, forecast periods, structural vacancy, and growth rates.

About the PwC NetworkPwC firms help organizations and indi-

viduals create the value they're looking for. We're a network of firms in 158 countries with more than 180,000 people who are committed to delivering quality in assur-ance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com.

Learn more about PwC by following us online: @PwC_LLP, YouTube, LinkedIn, Facebook and Google +.

© 2012 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with profes-sional advisors.

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4 The Landlord Times - Colorado • January 2013

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Investors ...continued from front page

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