June 30, 2018

They Bought At The Top Of The Market

A weekend topic on related bubbles starting with Sparefoot. “A report released recently by Yardi Matrix shows that as of April 30, 2018, Nashville, TN, had more self-storage facilities in the construction or planning stage as a share of existing supply — 27 percent — than any other major U.S. market. Next was Portland, OR (25 percent), followed by Boston, MA (23 percent), Denver, CO (21 percent), Raleigh-Durham, NC (17 percent), and Charlotte, NC (17 percent). The Raleigh-Durham market witnessed a 12 percent year-over-year drop in April 2018 in average rents for a 10×10 climate-controlled unit and a 7 percent drop for a 10×10 non-climate-controlled unit.”

“Meanwhile, Denver posted 7 percent declines in both categories. Across the board, the four major Texas markets saw average 10×10 rents fall anywhere from 4 percent to 8 percent. ‘It’s pretty clear that we are toward the tail end of the development cycle,’ said David Dent, senior analyst at Yardi Matrix. ‘We’re at peak supply levels.’”

From The Villager in New York. “Bleecker St.’s stretch through the West Village continues to be plagued by retail vacancies. Some blocks sport as many as seven empty storefronts total and several in a row. Yet local real-estate experts say that commercial rents on the street have actually dropped dramatically — by more than 50 percent, according to some estimates. Adelaide Polsinelli, senior managing director at Eastern Consolidated noted that there may still be financial difficulties for those who bought in at the height of Bleecker St.’s rates.”

“‘Anyone who bought their property on Bleecker, or in the area, from 2014, 2015, they bought at the height,’ she said. ‘So there has to be a real serious conversation with their financing, their lenders, their investors, what the expectation is going to be. Because anyone who bought with the expectation that rents were rising and they bought at the top of the market is going have a serious problem.’”

From Bisnow on New York. “In the first three months of 2018, Manhattan retail rents slumped almost 20% year over year to hit $653 per SF, according to figures from CBRE. Barely anywhere was left unscathed, with rents declining in almost all of Manhattan’s retail corridors. Landlords and retailers are trying to make sense of a market where retail rents have skyrocketed in the city over the last several years. Colliers International Vice Chairman Brad Mendelson agreed the luxury market is quiet. ‘When rents peak out, tenants pull out,’ he said.”

“C&W Senior Director Alan Napack is marketing a 2K SF retail space, vacant for more than a year now, in Brooklyn’s Park Slope. The landlord had previously had a certain type of tenant in mind, but now says they will take a chance on a less-established operator. ‘Everyone is looking for a national tenant, [but landlords] are now more opening their minds,’ Napack said. ‘Some of them will even take less of [a] security deposit, basically to get their business.’”

“But not all landlords have that option. ‘Some landlords are overleveraged but just can’t make that adjustment,’ said Lee & Associates Executive Managing Director Richard Kave.”

From Successful Farming. “As farmers face the fifth year of a downturn, prices remain mired below the cost of production. ‘It’s a liquidity crisis, but solvency is solid,’ says Michael Langemeier, associate director, Purdue University’s Center for Commercial Agriculture in West Lafayette, Indiana. ‘Many producers are using noncurrent assets like land to infuse liquidity. For others, low liquidity and high solvency leave them very little room to maneuver. Indiana cash rents are flat to 5% lower than 2017.’”

“At the Kansas Ag Mediation Service, Dave Kehler says, ‘Producers do whatever it takes to keep farming. The average Kansas operation can sustain itself, but it can’t handle family living or outside expenses. Banks can encourage farmers to analyze their operations while they still have equity. We’re having some success. Sometimes it’s helping with a dignified exit plan.’ He adds, ‘Farmers need to take a hard look at cash flow and budgets – not just keep doing what they’ve been doing and expect it to be different.’”

From Farm Equipment. “To better understand the manufacturer-dairy farmer relationship, H&S Mfg. Co. President Craig Harthoorn and Product Marketing Manager Ron Zygarlicke sat down with Daryl Sternweis and Heather Heiman (D&B Sternweis Farms) along with Josh Heiman (Heiman Holsteins). The group, all based in Marshfield, Wis. discusses tight budgets, hiring mishaps and rising environmental standards.”

“Daryl Sternweis: ‘In our farm’s situation, we’re almost put into survival mode. Where the prices are, you’d love to go and buy that new piece of equipment, but you’re just pulling the reigns knowing you can’t. You try to get what milk you can out of the cows, and in a way, we’re almost our own worst enemies. We try to increase our milk production because you still need that income, but when the milk price drops, we have to produce even more milk.’”

“Josh Heiman: ‘You’re always looking at input costs. It doesn’t matter if it’s feeds or crops. How can we knock off 12 cents on each cow per day to make that profit margin just a little higher? But with no profit margin, the question becomes, ‘How can we lose less money in a day?’”

From CBS News. “‘Think about trying to live today on the income you had 15 years ago.’ That’s how agriculture expert Chris Hurt describes the plight facing U.S. farmers today. Since 2013, farm income has been dropping steadily, according to the U.S. Department of Agriculture. This year, the average farm’s income is projected to be 35 percent below its 2013 level.”

“Longtime farm advocates see parallels between today’s situation and the farm crisis of the 1980s, when many U.S. farmers struggled economically. ‘The farm crisis was so bad, there was a terrible outbreak of suicide and depression,’ said Jennifer Fahy, communications director with Farm Aid, a group founded in 1985 that advocates for farmers. Today, she said, ‘I think it’s actually worse.’”

From Senior Housing News. “Eric Mendelsohn, CEO of National Health Investors, is a self-professed ‘contrarian investor’ who is bullish on skilled nursing while others view this as a beleaguered sector. He recently sat down with Senior Housing News. Q: ‘Oversupply has been an ongoing concern in senior housing, do you see the situation getting better any time soon? I’ve been hearing that the tide should start to turn around mid-2019?’”

“Mendelsohn: ‘I think we’re starting to see it already. We’re getting lots of calls from developers who have been turned down by banks, and that’s an early indicator. When banks turn off the spigot of money, then developers start looking for secondary sources, either more equity or a REIT or a pension fund, who may not be as savvy as a bank and as regulated as a bank. So, that call volume tells me, and my conversations with other banks tells me, that things are slowing down. So I definitely think by the end of this year we should see a slowdown in construction. All the new product that’s coming on in the next 12 months will probably be the last hurrah.’”

“Q: ‘Do you see opportunities for NHI to acquire distressed properties, where occupancy has suffered due to all the new competition? ‘”

“A: ‘As a REIT, we need to be careful. I love distress as much as the next investor, but we have to be mindful that we have to pay a dividend, so buying a failed development is tricky. We did exactly that in New Hampshire earlier this year, with a loan. So, we have a first mortgage, we’re getting current payments on it, and the property is filling up according to our predictions. But that’s what you’ll likely see more of, more developments that are built, that are half full, with lackluster performance, that can be purchased at a deep discount.’”