By: Justin Laub
I spent the past week attending meetings and discussion forums in San Francisco at the annual Urban Land Institute (ULI) Fall Meeting. Each year, ULI announces a list of the nation’s top investment locations for commercial real estate. This year, the number 1 spot went to Dallas/Ft. Worth. As a Dallas-based real estate investment banker, the news was good. And just so I don’t get accused of stretching the truth, I’ve posted the source chart above. It’s plain for everyone to see. The top real estate minds around the country – from investors to developers to lenders and financiers – agree that the Dallas-Ft. Worth Metroplex is currently the single best real estate investment market in the country.
The list of top investment locations is derived from an extensive survey of nearly 1,500 of the nation’s leading commercial real estate professionals. There are a few usual suspects in the above top 10 list, including San Francisco, Los Angeles and new kids on the block, Austin and Denver. Conspicuously absent are major markets like New York, Boston and Washington D.C., a sign that the nation’s institutional investment professionals believe these markets are too richly priced relative to the returns, job growth, population growth, etc.
Investor sentiment has turned squarely in the direction of the nation’s secondary cities, such as Dallas, Austin, Denver and Nashville. This suits me just fine, as Metropolitan Capital Advisors is based in Dallas, has an office in Denver and is a close flight or drive from Austin. I do almost all of my business in markets not located in the primary cities of New York, Boston, D.C., LA or San Francisco. It’s nice to know that capital will continue to flow into the markets where I am most active, and that it is set to ramp up even more during the next couple of years.
For some, it is hard to believe that even more capital is justified coming into the commercial real estate space. Values have already appreciated since the Great Recession, cap rates have compressed rapidly and there is no shortage of debt or equity capital for good deals. But we live in a globalized world where information moves rapidly and institutional investors are increasingly turning over every pebble to find yield in today’s market. Commercial real estate in the U.S. continues to be a highly attractive asset class.
The U.S. economic engine seems to have stabilized (despite everyone’s continued anxieties) and is chugging along at a steady clip, albeit a bit slower than normal. Outside of the U.S., the rest of the world is a crapshoot. China is having its first major economic hiccup (long overdue and expected), and the rest of the so-called BRIC countries (Brazil, Russia, India and China) are having their own unique struggles. Western Europe has growth problems, so does Japan, and the Middle East remains a tinderbox. In short, the U.S. is, somewhat surprisingly, the one major bright spot in the world, and commercial real estate has come roaring back as an even more desirable asset class than it was pre-recession.
From my vantage point, it appears that the flood of capital into U.S. commercial real estate will continue unabated. Capital sources that previously restricted themselves to the confines of primary cities are now pivoting toward secondary and (good heavens!) tertiary cities in search of incremental yield. That’s all music to my ears. Rest assured, I’ll be here carefully guiding these capital sources towards my client’s developments, acquisitions, etc., over the next few years.
If you are in search of capital for your next commercial real estate investment, you can reach Justin Laub, Senior Director, at email@example.com. Or visit the Metropolitan Capital Advisors website at http://metcapital.com.