Inside:Delivering Extraordinary Experiences at Every OpportunityChip Clarke

Economy Firing on Most (But Not All) Cylinders David Versel and Jonathan Chambers

Satisfying Demand for Crane-Served Buildings

Steve Kozarits

Institutional Investors Bank on Build-to-Core

Jeff Knowles

Investment Strategies RevisitedSteve Pumper

Q1 2016

transwestern.com

Transwestern is a privately held real estate firm of collaborative entrepreneurs who deliver a higher level of personalized service – the Transwestern Experience. Specializing in Agency Leasing, Management, Tenant Advisory, Capital Markets, Research and Sustainability services, our fully integrated global enterprise adds value for investors, owners and occupiers of all commercial property types. We leverage market insights

© 2016 TRANSWESTERN

and operational expertise from members of the Transwestern family of companies specializing in development, real estate investment management and research. Transwestern has 34 U.S. offices and assists clients through more than 180 offices in 37 countries as part of a strategic alliance with BNP Paribas Real Estate. Experience Extraordinary at transwestern.com and @Transwestern.

Q1 2016

3

Delivering Extraordinary Experiences at Every Opportunity

We are pleased to share our latest edition of Insights, which includes articles on current capital markets strategies, demand for niche industrial real estate and creative approaches to new development. Staying in front of market trends is one of the ways we support our clients’ real estate goals.

In 2015, Transwestern marked the strongest performance in its 38-year history. In addition to strong financial performance, we celebrated recognition for our corporate culture, client solutions and achievements in sustainability. This momentum carried us into 2016, as we continue to execute a number of initiatives to promote innovation across our family of companies and further enhance our client service. In short, we want to ensure in every interaction we live up to our promise of Extraordinary – for our team members and for our clients.

One initiative we are especially proud of is our new national partnership with Make-A-Wish®, which grants wishes for children with life-threatening medical conditions. Make-A-Wish was selected as our philanthropic partner because its values so closely match those of Transwestern: to create extraordinary experiences for those it serves. No matter how much we grow, we’ll never lose sight of the importance of giving back to the communities we serve; this is a common goal that unites us as team members and partners.

Regards,

Chip ClarkePresident | Americas Transwestern

A Message from Chip Clarke

transwestern.com

National Economy Emerges From 2015 in Good Condition

A fter a sluggish start to 2015, the national economy ended the year on an upswing, with healthy job growth during the last three quarters and respectable gross domestic product growth for the year.Gross Domestic Product (GDP)Real GDP growth for 2015 was 2.4 percent, according to the Bureau of Economic Analysis. GDP growth was driven primarily by personal consumption expenditures, which was partially offset by negative contributions from net exports and inventory investment. GDP expansion was uneven during the year, though, with sub-1 percent growth in the first and fourth quarters but stronger growth during the middle of the year. Moving forward, negative net exports will continue to be a significant drag on the U.S. economy as a strong U.S. dollar and weak Chinese economy hamper the trade balance. The most recent report from the Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters projects real GDP growth to be 2.6 percent in 2016, 2.5 percent in 2017 and 2.8 percent in 2018.

Job GrowthJob growth was robust throughout 2015 with the national economy adding 2.71 million new payroll jobs over the year. Nearly all job growth was in the private sector, with 2.6 million private jobs added over the 12-month period. Growth was led by the Education/Health and Professional/Business Services sectors, which accounted for about 45 percent of the overall job gains. After several years of job reductions, public sector employment began to pick up in 2015, especially in the latter half of the year, with 110,000 new jobs added during the year. The pace of public sector hiring is currently at its highest level since early 2010.

David Versel Senior Vice President Delta Associates

GDP PERCENT CHANGE

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

ANNU

AL G

DP C

HANG

E IN

200

9 CO

NSTA

NT D

OLLA

RS

2007 2008 2009 2010 2011 2012 2013 2014 2015Note: Quarters are seasonally adjusted at annual rates.

Source: Bureau of Economic Analysis, Delta Associates; February 2016.

PAYROLL JOB GROWTH

0

0.5

1

1.5

2

2.5

3

3.5 PRIVATE SECTORPUBLIC SECTOR

NEW

PAY

ROLL

JOB

S (M

ILLI

ONS)

Year-Over-Year

Note: Data are not seasonally adjusted.Source: Bureau of Labor Statistics, Delta Associates; February 2016.

2014 2015

20-YEAR AVERAGE = 2.4%

OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Jonathan Chambers Associate Delta Associates

Q1 2016

5

PAYROLL JOB GROWTH

0 100 200 300 400 500 600 700JOB CHANGE (THOUSANDS)

12-Months Ending December 2015

Note: Data are not seasonally adjusted.Source: Bureau of Labor Statistics, Delta Associates; October 2015.

INITIAL UNEMPLOYMENT CLAIMS

250

300

350

400

450

500

550

600

650700

INIT

IAL U

NEM

PLOY

MEN

T CLA

IMS

(THO

USAN

DS)

Four-Week Moving Average

15-Year Average = 378,374

Peak in Initial Unemployment Claims (not shown) Week of 3/28/09 = 659,250

Week of 12/26/15 = 277,000

2010 2011 2012 2013 2014 2015Note: Data are seasonally adjusted.

Source: Federal Reserve Bank of St. Louis, Delta Associates; February 2016.

0%

2%

4%

6%

8%

10%

12%

1980 1985 1990 1995 2000 2005 2010 2015

UNEM

PLOY

MEN

T RAT

E

UNEMPLOYMENT RATE

RECE

SSIO

NS

Note: Seasonally adjusted.Source: Bureau of Labor Statistics, Delta Associates; February 2016.

*Data available starting March 2007.Source: Bureau of Labor Statistics, Delta Associates; February 2016.

0%

1%

2%

3%

4%

5%

AVERAGE HOURLY EARNINGS

12-M

ONTH

PER

CENT

AGE

GROW

TH Average 2007 – 2009 = 3.1%

Average 2009 – 2015 = 2.0%

Federal GovernmentManufacturing

InformationWholesale Trade

Other ServicesState and Local Government

Transportation/UtilitiesConstruction/Mining

Financial ActivitiesRetail Trade

Leisure/HospitalityProfessional/Business Services

Education/Health

2007* 2008 2009 2010 2011 2012 2013 2014 2015

Net monthly job growth for the last three months of 2015 averaged more than 275,000 jobs; this resurgent job growth has helped dispel concerns that the economic recovery was faltering after recording two consecutive months of net job additions below 200,000 in August and September. Month-to-month gains (seasonally adjusted) from January to December 2015 averaged approximately 221,000 jobs per month.

UnemploymentInitial unemployment claims have decreased steadily since peaking in March 2009. The unemployment rate (seasonally adjusted) declined to 5.0 percent as of December 2015, down from 5.6 percent one year earlier, and marking its lowest level since before the Great Recession. This decline occurred despite the labor force increasing 1.9 percent during the same time period. The unemployment rate should continue to decline in 2016 but at a slower rate, as the number of cyclically unemployed persons dwindles.

Wage GrowthIn December 2015, the average hourly wage was 2.5 percent higher than one year before. Although this represents the strongest year-over-year wage increase since before the recession, it is well below the 3.0 to 4.0 percent annual increases experienced during the last expansion period. This is a pressing issue for many aspects of the economy, including price levels and consumption patterns. Wage growth tends to be a lagging indicator of an economic recovery, and the current recovery has progressed much slower than most. As job growth continues to rise in 2016, particularly in high-wage sectors, such as Professional/Business Services, wage growth should accordingly pick up steam.

Corporate ProfitsU.S. corporate profits totaled $2.06 trillion during third quarter 2015 on an annualized basis, down very slightly from $2.08 trillion in second quarter 2015 and from $2.20 trillion in third quarter 2014. Corporate profits have largely plateaued in recent years as more companies are taking a cautious approach of buying back shares and slowly increasing dividends. Companies are continuing to weigh options on how to best deploy earnings and profits and, in many cases, are showing a preference for mergers and acquisitions over riskier, capital-intensive projects that could rock the boat for shareholders. However, the recent increases in hiring indicate that corporate leaders are becoming more confident about consumer demand.

transwestern.com

$40

$60

$80

$100

$120

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2008 2009 2010 2011 2012 2013 2014 2015*

Corporate ProfitsS&P 500 12-Month EPS

CORP

ORAT

E PR

OFIT

S (T

RILL

IONS

)

CORPORATE PRE-TAX PROFITS

S&P 500 12-MONTH EPS

$20

Note: *Through September 2015, seasonally adjusted at annual rates.Yearly data are not seasonally adjusted. EPS reflect operating earnings as of September 2015.

Source: Bureau of Economic Analysis, Standard and Poor's, Delta Associates; February 2016.

3

3.5

4

4.5

5

5.5

6

6.5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of Existing Home SalesAverage Existing Home Sales Price

EXISTING HOME SALES VS. SALES PRICE

AVERAGE SALES PRICE (THOUSANDS)

NUM

BER

OF S

ALES

(MIL

LION

S)

$210

$220

$230

$240

$250

$260

$270

$280

*Seasonally adjusted annual sales rate.Source: National Association of Realtors, Delta Associates; February 2016.

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1980 1985 1990 1995 2000 2005 2010 2015

PERC

ENTA

GE C

HANG

E

CPI-UPCEPI

INFLATION AND PERSONALCONSUMPTION EXPENDITURE INDEX

Note: CPI-U and PCEPI through December 2015. Data reflects 12-month percentage change. Source: Federal Reserve Economic Database (FRED), Delta Associates; February 2016.

ANNUAL CHANGE IN EXISTING HOME SALE PRICES

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2008 2009 2010 2011 2012 2013 2014 2015

PERC

ENT C

HANG

E FO

R M

EDIA

N PR

ICE

OF S

INGL

E-FA

MIL

Y HO

MES

Note: Data reflect 20-city composite index.Source: Standard & Poor/Case-Shiller, Delta Associates; February 2016.

Housing MarketHome prices in the 20 major metro areas covered by Standard & Poor/Case-Shiller increased 5.8 percent during the 12 months ending November 2015, the most recent data available. This is up from the October 2015 figure of 5.5 percent, but down from the 10 to 15 percent increases seen in later 2013 and early 2014. Slower price growth has been influenced by the expansion of the inventories of homes for sale in many metro areas. In spite of rising interest rates expected in 2016 (see below), Delta Associates expects increased construction and higher sales prices to continue to drive housing price growth during the coming year.

Inflation and Interest RatesThere had been a great deal of discussion throughout 2015 about when the Federal Reserve would increase the federal funds rate and by how much. Stock market woes on Wall Street brought about by a faltering Chinese economy and extremely low oil prices led the Federal Open Market Committee (FOMC) to decline to raise rates in their September meeting. However, revitalized job growth in October and November, and an inflation rate hovering at 5 percent, provided the FOMC with the confidence to implement a slight, 0.25 percent increase in the federal funds rate target at the Dec. 16, 2015 board meeting. The rate hike, which was nearly universally anticipated, was the first in nearly a decade.

In addition to the December 2015 interest rate increase, the Federal Reserve has also indicated its intention to enact further incremental increases to interest rates in 2016. Still, interest rates have been at historically low levels, so the expected modest increases will keep long-term interest rates relatively low.

Inflation was 0.7 percent during the 12 months ending December 2015, with a strong dollar and lower domestic energy prices keeping prices in check. The personal consumption expenditure price index (PCEPI), which takes into account changes in consumption habits as people substitute some goods and services for others, rose 0.6 percent during the 12 months ending December 2015. We expect inflation to be contained in the near-term due to modest wage growth and a strong dollar, coupled with the fact that price pressure tends to lag economic growth by a year or more. Given these conditions, inflation will likely remain in the 0.5 percent to 1.0 percent range on an annualized basis through 2016.

OutlookDespite the generally good economic news in 2015, the current recovery has shown a few areas of weakness. The primary area of concern is the lack of significant wage growth, stemming from job growth in lower-paying sectors and limited competition for quality workers. Wage growth finally began to ramp up during the latter months of 2015, and Delta expects 2016 to bring further improvement in

Q1 2016

7

this area, as the pool of unemployed workers looking for jobs continues to dry up and employers increase compensation to attract the best qualified personnel.

Another major concern moving forward in 2016 is international trade. China, one of the largest U.S. trading partners, is in the midst of a considerable economic slowdown, which will likely be a drag on U.S. net exports

— bad economic news from China has already caused significant economic turbulence in the first weeks of 2016. In addition, a strong U.S. dollar, which saw virtually zero inflation in 2015, will also hurt the nation’s trade balance. Delta does expect inflation to return modestly next year, however, especially since energy prices have likely hit bottom.

Overall, 2016 will bring another year of sustained, but modest, economic growth. The national economy will expand and add jobs over the next year, but growth will continue to be slower than in past economic recovery cycles.

David VerselDavid.Versel@DeltaAssociates.com 202.778.3110

Jonathan Chambers Jonathan.Chambers@DeltaAssociates.com 202.778.3111

This article is based on economic data available as of February 1, 2016.

12-MONTH PAYROLL EMPLOYMENT CHANGE THROUGH DECEMBER 2015

METRO AREA JOB CHANGE# %

LA Basin Los Angeles/Long Beach/Glendale 93,700 2.2% Orange County (Santa Ana/Anaheim/Irvine) 41,400 2.7% Riverside/San Bernardino/Ontario 47,800 3.6% Total LA Basin 182,900 2.5%New York 156,400 1.7%San Francisco Bay Area San Jose/Sunnyvale/Santa Clara 46,100 4.4% San Francisco/San Mateo/Redwood City 38,700 3.7% Oakland/Fremont/Hayward 21,300 2.0% Total Bay Area 106,100 3.3%Dallas/Ft. Worth 98,900 2.9%Atlanta 77,800 3.0%Washington, DC 68,500 2.2%Seattle 56,800 3.0%South Florida West Palm Beach/Boca Raton 14,100 2.4% Fort Lauderdale 24,900 3.1% Miami/Miami Beach/Kendall 16,300 1.5% Total South Florida 55,300 2.2%Phoenix 55,300 2.9%Boston (Metropolitan NECTA) 45,800 1.7%Portland (OR) 41,700 3.8%Detroit (Detroit/Warren/Livonia) 39,600 2.1%Tampa-St. Petersburg 38,800 3.1%Orlando 38,100 3.3%San Diego 37,500 2.7%Charlotte 36,100 3.3%Philadelphia 35,500 1.3%Austin 34,900 3.8%Minneapolis-St. Paul 34,000 1.8%San Antonio 33,600 3.5%Baltimore 31,000 2.3%Nashville 29,100 3.2%Chicago 27,500 0.6%Indianapolis 27,400 2.7%Denver-Boulder 25,500 1.6%Cleveland 23,300 2.2%Houston 23,200 0.8%Sacramento 22,900 2.5%Columbus (OH) 20,300 2.0%Salt Lake City 19,900 3.0%Cincinnati 19,700 1.9%Las Vegas 18,200 2.0%Jacksonville 17,300 2.7%Raleigh-Durham 16,700 1.9%St. Louis 15,500 1.2%Pittsburgh 14,000 1.2%Memphis 8,500 1.4%Oklahoma City 6,900 1.1%Kansas City 2,700 0.3%New Orleans (900) -0.2%

Note: Data are not seasonally adjusted. Source: Bureau of Labor Statistics, Delta Associates; February 2016.

“Despite the generally good economic news

in 2015, the current recovery has shown a

few areas of weakness.”

Q1 2016

7

transwestern.com

When Not Just Any Industrial Property Will DoSatisfying Demand for Crane-Served Buildings

Manufacturers that deal with heavy metal materials or fabricate large, unwieldy products rely on massive overhead bridge cranes to maneuver items, a requirement that adds another layer of complexity to the site selection process. While industrial properties such as distribution centers are fairly uniform in design, crane buildings must be custom-tailored to each tenant’s specifications – a situation that significantly limits the number of existing buildings suitable for companies that rely on this equipment to support their operations.

Currently, U.S. markets with a vacancy rate of 10 percent or lower in the crane-building sector are located in the Gulf Region, Mid America, Northwest, Rocky Mountain, Southern California/Hawaii and Washington/Alaska. In 2016, the scarcity of these special-purpose facilities is likely to intensify as a result of an uptick in steel-related manufacturing. Growth in the auto industry — fueled in part by manufacturing jobs returning from overseas — is indicative of the trend. A record-breaking 17.39 million vehicles were sold in the U.S. during 2015, surpassing the 17.35 million mark set in 2000 according to WardsAuto. The auto industry is poised to exceed the sales record again in 2016, boosted by continued economic expansion, low gas prices and easy access to credit.

Auto makers and their suppliers are driving absorption of crane-served buildings in parts of Michigan, Missouri, South Carolina, Georgia, Tennessee, Alabama, Mississippi, Kentucky and Texas. In addition, suppliers are securing space in traditional industrial properties as they ramp up operations to meet demand from auto makers. Here are a few deals anticipated to increase demand for all types of industrial space in their prospective markets:

Volvo Car Corp. began construction in September 2015 on a $500 million plant near Charleston, South Carolina

Mercedes-Benz is set to start development this year on a $500 million assembly plant in Charleston

Steve Kozarits Senior Vice President Tenant Advisory Services Transwestern

Faraday Future, an electric car manufacturer, announced in December 2015 it will construct a $1 billion assembly plant in Las Vegas, Nevada

Yorozu Automotive Alabama is building a $100 million metal stamping plant in Jasper, Alabama, that’s slated to finish construction in January 2017

As with any site selection process, when searching for a crane-served facility, companies must evaluate whether to acquire, lease or build space. Many economic, operational and human capital factors play into the decision, and specialists can help formulate creative solutions and source the best deals. In December 2015, for example, Anchor Fabrication leased a 224,800-square-foot, crane-served building in Fort Worth, Texas. Transwestern found a vacant, off-market manufacturing facility that could be modified to accommodate the full-scale metal fabrication company. Constructed in the 1980s, the property is owned by the City of Fort Worth, which provided rent concessions to offset the expense of retrofitting the building.

Redeveloping an existing building worked in this situation, but sometimes, the cost to modify an asset is not financially practical. For many tenants, the most cost-effective solution is to build. Crane-served buildings are expensive to develop

— sometimes double that of a typical warehouse. Presently, the specialized building costs $100 to $120 per square foot for the shell versus $60 to $70 per square foot for the shell

Q1 2016

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"…the scarcity of these special-purpose facilities is likely to intensify as a

result of an uptick in steel-related manufacturing."

OREGON

NORTHERNCALIFORNIA

SOUTHERN CALIFORNIA & HAWAII

WASHINGTON & ALASKA

INLAND NORTHWEST

INTERMOUNTAIN

ROCKY MOUNTAIN

ARIZONA

TEXAS

MID AMERICA

NORTHWEST

MID SOUTH

GULF REGION FLORIDA & PUERTO RICO

SOUTH ATLANTICST. LOUIS

CENTRAL STATES

NEW ENGLAND

NEW YORKPHILADELPHIA

BUFFALOWISCONSIN

NORTHERN OHIO

CINCINNATI

PITTSBURGHINDIANA

TRANSWESTERN LOCATIONVACANCY OVER 20%VACANCY BETWEEN 11-20%VACANCY BELOW 10%

MICHIGAN

Crane-Building Vacancy Rates of a traditional industrial facility. And with construction costs escalating, reliable build-versus-lease analyses will become increasingly more important.

Transwestern has advised clients on leasing, purchasing, selling and developing all types of niche industrial space – from sophisticated manufacturing facilities to refrigerated warehouses to complex intermodal distribution hubs. For each engagement, Transwestern combines industrial expertise with a higher level of client service and draws upon specialists in transaction management, business incentives, capital markets, management and research.

Steve KozaritsSteve.Kozarits@Transwestern.com 312.881.7097

Q1 2016

transwestern.com transwestern.com

“By pre-arranging the acquisition before a

building is developed, the buyer ensures it will not have to compete against

the open market to risk a second-place finish.”

Q1 2016

11

place finish. Institutional investors also execute build-to-core contracts as part of a higher-risk, higher-yield component of their overall deployment strategy. In addition, they use the strategy to reach acquisition levels for certain product types and/or in various geographic regions. Giving them a competitive advantage, build-to-core puts them in a better position to win deals in markets where they want to invest.

From the developer’s standpoint, the deal structure can be advantageous because it provides a built-in exit strategy. Taking into consideration the interest in build-to-core from our clients, Transwestern Development Co. is utilizing the strategy for projects involving a variety of product types with a combined value of more than $350 million. Several capital groups are participating in these developments in major Florida, Texas and California markets.

We expect build-to-core to remain popular among institutional investors due to a volatile global economy increasingly encroaching on the U.S. real estate market and real estate’s growing status as a preferred asset class. Regardless of the shifting economic and capital markets environment, Transwestern Development Co. will continue to explore and engage in innovative deals that best benefit our clients.

Jeff KnowlesJeff.Knowles@Transwestern.com 713.231.1639

Institutional Investors Bank on Build-to-CoreMade-to-Order Industrial Assets Provide Path to Achieve Investment Objectives

Investors seeking a competitive edge and developers hoping to boost bottom-line performance are incorporating a build-to-core strategy in greater numbers. Simply defined, a build-to-core deal is one in which an investor finances development of a core asset, and upon project stabilization, it purchases the asset from the developer on pre-arranged terms. Although the strategy itself is not new, it is gaining momentum in the industrial sector as institutional investors with long-term hold strategies face increasing difficulty in securing core assets.

While institutional investors have grappled with an increasingly competitive environment for years, the trend is expected to further escalate in 2016 due to a projected increase in activity from foreign investors. The buyer pool will expand following last December’s modification to the Foreign Investment in Real Property Tax Act (FIRPTA) that waives certain taxes, thereby making it more lucrative for foreign pension funds to acquire U.S. real estate. Foreign pension funds are now being treated the same as their U.S. counterparts, which certainly will appeal to cross-border investors with few attractive options for long-term capital preservation. Foreign investors were involved in a record-high $91.1 billion in direct property purchases in 2015, which accounted for 17 percent of all deal volume for the year according to Real Capital Analytics.

Demand for industrial properties is placing the asset class on the center stage for investors — both foreign and domestic. The top six foreign investors were active in purchases of mega-deals in the industrial sector in 2015. And industrial demand by U.S. institutional investors has steadily increased in certain markets over the past two years, further elevating the competition for warehouse and distribution space. For example, in the Miami market, Real Capital Analytics reported the percentage of industrial properties acquired by institutional investors increased from a negligible amount in 2013 to 10 percent in 2014 and to 14 percent in 2015.* Build-to-core is extremely appealing in markets like Miami, where owners tend to hold product for the long-term, limiting the number assets available for purchase.

The build-to-core model is attractive as it can be more profitable for the investor. By pre-arranging the acquisition before a building is developed, the buyer ensures it will not have to compete against the open market and risk a second-

Jeff Knowles Managing Director Transwestern Development Co.

transwestern.com

“U.S. investors that rely on leverage will

enjoy an extended period of low interest

rates with which to acquire assets.”

transwestern.com

Q1 2016

13

Investment Strategies Revisited in New Environment

Commercial real estate investors are facing a new capital markets climate as a result of economic and regulatory changes on the horizon. While some anticipated changes could limit investment opportunities, institutional and private owners that devise a strategy to accommodate the shifts will successfully navigate the 2016 environment. Three agents of change on the radar include: the future of commercial mortgage-backed securities (CMBS); a possible reversal of interest-rate policy by the Federal Reserve; and a potential need to alter capital deployment strategies.

The circumstance positioned to trigger the biggest change pertains to CMBS lending. New risk retention regulations set to take effect in December 2016 are expected to upend the CMBS market, making it more expensive and complicated for lenders to structure deals. Clearly an active sector in the capital markets in 2015, CMBS deals accounted for approximately $110 billion of debt placement in a market that experienced $533 billion in total sales. In light of the regulatory changes, we could see a significant drop in CMBS deal flow. There’s a perception that in anticipation of the rules change, CMBS lending will begin to slow mid year, a trend that would have a definite impact in the value-add and opportunistic space. The changes will not impact deals involving core properties and lower leverage, such as those funded by life companies.

A decrease in CMBS lending would create a void in financing options for many buyers, and a number of outcomes could play out in the market as a result. Initially, we could experience a rush to lock in debt early in the year before the regulations go into effect. After the December change, some owners will have a difficult time refinancing properties due to more stringent underwriting policies that might require additional equity investment. This dynamic, in turn, could prompt another increase in sales volume if unprepared owners become motivated to sell, and it could create additional equity investment opportunities across the country.

The capital markets also will be influenced by the actions of the Federal Reserve, which is widely expected to back down from its pledge to raise interest rates as many as four times in 2016. Economic fundamentals in the U.S. have softened for a number of reasons, including a mix of unfavorable global economic developments. Therefore, we anticipate the Federal Reserve will only raise rates one more time during this calendar year. The consequence? U.S. investors that rely on leverage will enjoy an extended period of low interest rates with which to acquire assets, and more investors may join their ranks as people seek alternatives to an underperforming stock market. In addition, foreign investors have reduced the amount of capital they are deploying around the world due to volatility in financial markets and concerns regarding China and the Middle East, precipitating an increase in foreign investment in U.S. real estate and further driving up competition for the best buildings.

To counter the anticipated increase in competition, we advise investors to evaluate and expand upon current capital deployment strategies. Current data and market insight are crucial when targeting new markets because preferred product types vary from city-to-city and submarket-to-submarket. As prices continue to rise on core product in the top six U.S. markets, investors with a long-term hold strategy have been exploring acquisition opportunities in the suburbs of those markets or looking at geographic alternatives. Institutional capital already is shopping in

Steve PumperExecutive Managing Partner Capital Markets Transwestern

transwestern.com

non-coastal markets, such as Austin and Denver, which continue to recover and are forecasted to have strong job growth for the foreseeable future.

However, with limited inventory as compared to larger metros, there may be a dearth of deal flow in those two cities, which is why a comprehensive view of market opportunities is so important. Sales of office, industrial, multifamily and retail properties also are doing well in South Florida, Dallas and Atlanta. Other markets seeing increased investor appetite include Minneapolis and Phoenix, where buyers are considering all asset classes, dependent upon submarket performance and outlook.

As experience has taught us, owners that prepare for the changing debt environment and modify their investment strategy accordingly will be the most successful. Whether it’s re-entering a particular market or negotiating an amended debt structure on an existing property, savvy investors will be ready to adjust course when the need arises to achieve long-term objectives.

Steve PumperSteve.Pumper@Transwestern.com 972.774.2559

“Owners that prepare for the changing

debt environment and modify their

investment strategy accordingly will be the

most successful.”

Q1 2016

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Q1 2016

15

transwestern.com

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