August 19, 2016
By Dennis Kaiser
Commercial real estate transactions in Los Angeles climbed 8.7% in the first half of the year, as opposed to a 17.2% drop nationwide, making the West Coast metropolis the top market by investment volume. Connect Media asked CBRE’s Chalvis Evans, a broker who focuses on CRE in the San Gabriel Valley market, and George Entis, a capital markets research analyst, to share what’s behind the numbers.
Q: What are some of the highlights of the latest CBRE report on CRE investment?
Entis: Acquisitions in the first six months of the year climbed to $14.2 billion, while transaction volumes fell 17.2% across the U.S. Los Angeles was only one of three markets – the other two being Boston and Denver – among the Top 15 to capture volume gains. Single asset purchases, a good indicator for investment momentum, totaled $11.2 billion, an increase of 9.1% from the prior year.
Q: Why is Los Angeles attractive to investors?
Evans: China views U.S. real estate, and particularly metro areas such as Los Angeles, as safe havens for their cash. Overseas countries have historically, and maybe now more so than ever, looked at real estate in California as a stable asset that will appreciate steadily with minor dips, but with always an ability to come back up. A recent deal drew 26 offers for a property, with 20 being from China.
Q: What are contributing factors fueling the investment?
Entis: Tighter lending standards and more stringent capital regulations, coupled with investor concerns over a slowing economy, have contributed to record levels of real estate “dry powder,” or committed assets awaiting investment. The $129 billion of private debt funds, which typically have a five-year investment horizon, means the flow of money into commercial real estate in U.S. metro areas is likely to continue in the foreseeable future.
Choppy waters around the world have investors preferring less risky assets, and looking for stronger yields when there is a scarcity of safe assets. Los Angeles, widely perceived as a safe-haven gateway city, is well positioned to capitalize on the deployment of dry capital, and to grab a larger share of direct investment overall.
For comments, questions or concerns, please contact Dennis Kaiser