Robert J. Micera is the Chief Investment Officer of Office and Industrial for Cole Real Estate Investments.
HIPP: How do you view the current climate in relation to office and industrial investing today? One year?
MICERA: Current valuations, combined with improving market fundamentals, create a solid buying opportunity that we believe will continue well into 2011. More office and industrial product came to market the last six months of 2010 and we expect volume levels will increase in 2011 based on the following key factors:
»» Sellers, who had been holding off bringing product to market, are now encouraged by the current “compressed cap rate environment” and by the brokerage community to bring their assets to market;
»» The low interest rate environment is facilitating buyers’ ability to acquire quality assets at lower cap rates;
»» More readily available debt, particularly CMBS, is allowing more buyers to return to the market; and
»» A slowly improving economy will allow corporations to grow which should result in increased build-to-suits, saleleasebacks, corporate acquisitions and refinancings, mergers, and expansions – all of which contributes to increased commercial real estate sale activity.
As more commercial product comes to market and diminishes the “2010 scarcity premium,” it would not be surprising to see cap rates stabilize, or even increase, especially if mortgage interest rates continue to increase or remain somewhat volatile. While the overall economy continues to improve and we see more evidence of consistent job growth, companies will consider expansion opportunities. This will lead to an increase in build-to-suits and sale-leasebacks. We have already started to see evidence of this increased build-to-suit activity in 2010. Also, manufacturing production has been increasing which means companies are building inventories again to address increased demand.
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