News & Insights

As published in the Los Angeles Daily Journal

Real Estate Forecast Good News For Lawyers

Commercial property transaction volume set to soar by 2016, according to survey

Wednesday, April 2, 2014

By Alexandra Schwappach
Daily Journal Staff Writer

A U.S. real estate forecast released Tuesday by the Urban Land Institute predicts a positive future for the industry, including steady growth in commercial real estate and improvements in hotel and office occupancy rates.

The Consensus Forecast, based on a survey of 39 of the industry’s leading economists and analysts, projects that commercial property transaction volume will reach $430 billion by 2016 – exceeding results near the top of the market in 2006. The study indicates steady growth for the U.S. economy, strength in the real estate capital markets and improvement in commercial real estate and the housing sector.

While recovery is still happening, many real estate attorneys said their practices echo the study’s optimistic sentiment. They said their practices are busier, deals are larger, and clients are bullish.

Thomas B. Crosbie, a commercial real estate attorney with San Diego-based Crosbie Gliner Schiffman Southard & Swanson LLP, said real estate opportunities have broadened and become strong across all market types.

“This is the beginning of a good cycle for the broader real estate market,” he said. “Everything we are seeing is positive and people are generally optimistic.”

For the last couple years, Crosbie said he’s seen an increase in purchase and sale deals for existing hotels, as well as a rise in new hotel construction. The Consensus Forecast anticipates that hotel occupancy rates will continue to strengthen, rising to 63.1 percent this year and 63.6 percent in 2015.

“It seems like everything is fundamentally pretty solid at this point,” Crosbie said. “To us it feels like this is really good time to be in real estate.”

Apartment vacancy rates are expected to rise slightly to 5 percent in 2014 and 5.2 percent next year, according to the survey results. Apartment rental growth rate is projected to be moderate over the next two years.

Justin X. Thompson, a real estate partner at Manatt, Phelps & Phillips LLP, said that many who left their homes for apartments during the real estate crash are now able to afford mortgages again and may be looking to move back into single-family housing developments.

The renting frenzy has died down, and there is now a good balance between the apartment market and housing market, Thompson said.

“There are certain pockets where apartments are still in super-high demand,” he said. “But there’s definitely been a cooling off of the apartment craze.”

Thompson also said that growth in the industrial warehouse sector also seems to be picking up pace, especially in areas like San Bernardino County.

According to Tuesday’s report, the issuance of commercial mortgage-backed securities is expected to continue its rebound with consistent growth through 2016 – good news for the commercial real estate sector.

Philip N. Feder, chair of the global real estate practice at Paul Hastings LLP, said growth in the commercial real estate market is evidenced by the success story of downtown Los Angeles. His clients are increasingly interested in condominiums, apartments and office buildings in the downtown area.

In October, Feder represented Paul Keller, CEO of L.A.-based real estate and development company Mack Urban, in the acquisition of six acres in downtown Los Angeles’ South Park district. Keller and partner AECOM Capital purchased the property for $80 million from EVOQ Properties.

“The world is pretty calm right now and the market is relatively focused,” Feder said. “It’s as active a market as I’ve seen in 10 years.”