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Introduction In recent times, the insurance market, including commercial real estate (CRE) property insurance, has experienced significant turbulence. With rising property values, natural catastrophes, and other factors contributing to increased premiums, RV park owners and buyers are grappling with the challenges of securing cost-effective insurance coverage. This whitepaper aims to provide a comprehensive overview of the current state of the insurance market, drawing from responses shared by RV park owners and additional information sourced online. Background A few weeks ago, an email and THIS article were shared with over 300 property RV park investors. The article highlighted an 18.3% rise in CRE property insurance premiums during the first half of 2023. This increase was largely attributed to multiple severe thunderstorms, resulting in insured losses of approximately $34 billion in the United States alone. I received dozens of responses and consolidated those down into the following whitepaper: Insights from RV Park Owners 1. RV Parks vs. Other CRE Properties One notable observation from RV park owners is that RV parks have been less affected by insurance premium spikes compared to other types of CRE properties. This is largely attributed to the nature of RV parks, which typically consist of concrete pads and primarily require income replacement insurance. 2. Challenges in Obtaining Insurance Owners shared challenges in securing insurance coverage for RV parks: Limited Carrier Options: Insurance carriers are increasingly cautious about underwriting RV parks, with some carriers even reducing their capacity in this space. Extended Quote Timelines: Obtaining insurance quotes for RV parks has become a time-consuming process, often taking 4 to 6 weeks. Variable Pricing: Pricing for RV park insurance can vary significantly, with some owners experiencing premiums double or more compared to existing policies. Business Income Replacement: When underwriting RV parks, it's common for insurers to consider the addition of business income replacement, further increasing costs. 3. Banking Requirements Owners noted that banking requirements play a significant role in insurance costs. Banks often impose strict insurance requirements, which can limit the options available to RV park owners. Finding a bank with more flexible requirements may result in better insurance rates. Strategies for RV Park Owners Shop Around: RV park owners should consider working with experienced insurance agents who can shop the policy to multiple carriers. This approach can help identify competitive rates and coverage options. Build Trust with Agents: Building a trusting relationship with insurance agents is crucial. Trustworthy agents are more likely to go the extra mile to find suitable coverage at favorable rates. Self-Evaluation: Owners should evaluate their RV park's unique characteristics, such as management experience and customer reviews, to present a compelling case to insurers. Additional Considerations Workers' Compensation: Exploring options for workers' compensation insurance can also contribute to overall cost savings. Reinsurance: The availability of reinsurance support has a direct impact on commercial property capacity. Understanding the reinsurance market dynamics can provide insights into insurance availability and pricing. Conclusion In today's insurance market, RV park owners and buyers face unique challenges, but there are strategies to mitigate rising insurance costs. It's essential to understand the specific factors affecting RV park insurance, such as business income replacement and banking requirements. By leveraging experienced insurance agents, building trust, and exploring alternative coverage options, RV park owners can navigate the insurance landscape more effectively. While there is no one-size-fits-all solution, this whitepaper aims to provide valuable insights and strategies to help RV park owners make informed decisions in securing insurance coverage that meets their needs in a challenging insurance environment.

Click here for link to the video: https://www.globest.com/2023/06/08/why-net-lease-continues-to-draw-investors/ The net lease retail sector continues to outperform despite changing interest rates, with a growing number of retailers expanding their footprints or developing new properties against a “compelling” cap rate environment. That’s according to Michael Fitzgerald, executive director, head of US Retail, W. P. Carey, who told GlobeSt at ICSC Las Vegas that many retailers are “aggressively expanding” in their markets. “We’ve seen a lot of activity in sale-leaseback and we are bullish on net lease retail,” Fitzgerald says. “The retail sector is enormous – and we’re chasing deals.” Fitzgerald also discusses: The state of retail fundamentals How investors are responding to changing interest rates and economic uncertainty What makes W. P. Carey stand out from its competitors in terms of investment opportunities

Demand for fast-casual outlets that offer healthy eating menus exploded during the pandemic, a wave that keeps growing in the post-pandemic retail environment. Steele Brands is riding that wave with a rapid expansion of its Crisp & Green healthy eating, hand-crafted salad restaurant chain. The company is aiming to open up to 250 new locations in the next two years, including 130 locations in 20 states by 2024, Chain Store Age reported. Steele Brands told CSA that its real estate team has identified more than 1,700 sites that fit the Crisp & Green criteria. The company said it will continue to keep expanding until it has established more than 1,000 units nationwide. The first Crisp & Green in Manhattan is scheduled to open on June 1 in the NoMad neighborhood. Earlier this year, the brand signed a 40-unit development deal with franchise partner Salads and Smoothies, it largest deal to date. Crisp & Green is an entrepreneurial success story that began in 2016, when a fitness industry veteran named Steele Smiley opened the first outlet in Wayzata, Minnesota. When the pandemic hit, Crisp & Green had seven stores. Demand for the chain’s healthy menu items surged during the pandemic, with delivery volumes growing to five times its previous rate, creating record sales volume for the brand. In 2021, Smiley began acting on a strategy of rapid expansion. Since 2021, Smiley has grown the company into three related fast-casual food chains, including a Mexican food brand Paco & Lime and Stalk & Spade, which features a plant-based menu. The first outlets for each of these brands opened in Wayzata. Now, Steele Brands’ restaurant platform now has a pipeline of more than 250 stores, most of which will be Crisp & Green locations. Crisp & Green is known for its nourishing bowls, salads and smoothies that are made with sustainable, “consciously sourced” ingredients. The brand places special emphasis on its commitment to community’ by partnering with local suppliers. In a statement, Smiley said Crisp & Green’s Manhattan opening will be accompanied by a series of “wellness events” it will host on the rooftop of the building it’s restaurant occupies in NoMad. “Entering into New York City is an incredible opportunity to lean into our foundation of hospitality and show this influential community why Crisp & Green is different from other healthy fast-casual restaurants,” Smiley said. “Not only are we introducing our delicious food to active New Yorkers, but we’re creating a unique guest experience through our wellness events hosted on the rooftop of our NoMad location,” he said. https://www.globest.com/2023/05/30/steele-brands-riding-wave-of-fast-casual-expansion-nationwide/

Green Street met with a variety of retail owners and operators this month during the ICSC annual conference and found that sentiment was overwhelmingly positive on fundamentals with tenant demand remaining robust despite macroeconomic and recessionary concerns. However, external growth opportunities are limited, which is frustrating management teams, due to assets for most US REITs trading at material discounts to net asset value. Green Street said it will likely increase its fundamental forecasts “marginally” for malls and strips, but most recent estimates reflect the expectation that: 1) demand should remain resilient; 2) physical occupancy should continue to march higher in the coming years for most companies; 3) and leasing economics are improving, the firm said. Leasing has not decelerated as retailers are taking a longer-term perspective that securing new brick & mortar stores in the right centers and trade areas is a profitable growth avenue with attractive unit economics. A potentially looming recession and trouble in the banking sector have not deterred them. Most expect a moderation in sales. GlobeSt.com last week reported that the momentum of leasing and expansion continues, based on a panel during the ICSC conference. Luxury brands, DTC expansion, and the F&B sector propel retail growth in NYC’s Midtown, for one. Any negatively impacted overage rents at ‘A’ malls based on declining sales are incorporated into Green Street’s current NOI forecasts. In the ‘B’ mall space, fundamentals have been surprisingly resilient since COVID-19, especially for centers with less surrounding nearby competition. “Near-term NOI growth for ‘B’ malls should only marginally lag that of other retail property types, which is intriguing given the much higher estimated cap rates on this segment,” Green Street’s report said. Most of the backfills for Bed, Bath & Beyond and Toys R Us stores will be single-tenant users, which is a positive from a cap-ex perspective. Retail transaction volumes are minimal, but there are many interested bidders and ample liquidity for smaller ticket strip center deals. Green Street said that “under $30 million is the sweet spot.” The lowest cap rates in retail real estate are found in grocery-anchored centers on the West Coast and in the Sunbelt at the low- to mid-5% range. Mall deals continue to be few and far between with minimal price discovery for ‘A’-quality malls. “Obtaining permanent financing on malls remains a significant challenge for secured borrowers,” Green Street said. “Short-term loan extensions should continue to be a popular refinancing alternative to both borrowers and lenders in the current environment.” https://www.globest.com/2023/05/30/green-street-finds-retail-sentiment-overwhelmingly-positive/

LAS VEGAS—The retail landscape is undergoing a significant transformation with changing consumer preferences and emerging trends, according to attendees at the recent ICSC Las Vegas event. GlobeSt.com caught up with Christine Deschaine, a Senior Vice President of Kennedy Wilson brokerage, who offered valuable insights into the evolving dynamics of the retail market. Her observations shed light on the growing demand for sit-down dining, quick-service restaurants, and medical users expanding into urban areas. Deschaine highlighted the resurgence of fitness and the shift towards smaller footprints among established retail giants. Her comments showcase a promising future for retail and the continued prominence of mixed-use properties in urban landscapes. Demand for Dining Experiences One of the prominent trends observed by Deschaine is the increasing demand for sit-down dining and quick-service restaurants. “Today’s consumers seek not just sustenance but also the experience of enjoying a meal in a cozy restaurant or grabbing a quick bite on the go,” she said. “This shift in preference has created lucrative opportunities for restaurateurs and entrepreneurs in the food service industry.” Expansion of Medical Users Urban areas are witnessing a surge in medical users who are keen to establish a presence in densely populated locations, she added. Recognizing the potential for growth and accessibility, these medical professionals are actively seeking out spaces in urban markets. “This trend not only caters to the needs of urban residents but also provides medical users with a strategic advantage by positioning themselves closer to their target audience,” she said. The Revival of Fitness Another noteworthy development in the retail market is the resurgence of the fitness industry. Deschaine highlighted how fitness tenants who previously faced barriers to market entry are now presented with enticing opportunities. With smaller gyms downsizing or vacating their premises, larger vacancies have emerged, she said. “These vacancies serve as ideal spaces for fitness-focused businesses to establish their presence, catering to the growing fitness-conscious consumer base.” Adapting to Smaller Footprints Her analysis reveals an intriguing shift among established retail brands with larger footprints. Due to changing consumer preferences, brands are reevaluating their formats and adjusting to smaller footprints. For instance, tenants like the Gap, she says, who traditionally occupied expansive spaces of 20,000 to 30,000 square feet, are now exploring the potential of more compact locations around 10,000 square feet. This adaptation allows them to remain relevant and agile in a changing retail landscape, she says. The Changing Face of Grocers The grocery sector is also experiencing transformations in response to shifting consumer demands. Concepts such as Erewhon and Gelson’s are opting for smaller footprints and seeking a presence in ground floor mixed-use projects within densely populated urban markets, she says. Even major retailers like Costco are embracing a departure from their traditional freestanding concept, she explained. By planning smaller format stores on the ground floor of mixed-use buildings, they are signaling to other tenants that mixed-use properties, incorporating retailers and restaurants, will continue to shape our urban landscape. https://www.globest.com/2023/05/26/retails-growing-demand-for-sit-down-dining-quick-service-and-medical-users/

LAS VEGAS—In the world of retail, where trends come and go, one thing remains constant: the momentum of leasing and expansion. Brandon L. Singer, the chief executive and co-founder of MONA, a leading real estate firm, shares his optimism about the future with GlobeSt.com during the big ICSC Las Vegas retail event this week. “We are seeing a lot of leasing momentum, and we don’t foresee that will stall anytime soon. Retailers are actively expanding all over NYC–and frankly, around the country–which is refreshing and encouraging to say the least,” Singer affirms. Despite economic uncertainties, the expansion and growth in the retail industry show no signs of slowing down. Singer emphasizes that while they stay informed about economic news like everyone else, the retail sector’s progress remains steady. “Luxury is still expanding, the DTC guys are expanding like crazy, and the food guys are signing a lot of leases in Midtown. It’s been rough the last few years–and slowly but surely we’re seeing that submarket pick up steam,” Singer adds. Singer’s MONA team has recently inked three food and beverage deals in Midtown, specifically at RFR’s 285 Madison, located at the corner of 41st Street and Madison Avenue. These long-term deals demonstrate the positive outlook for Midtown’s resurgence. Singer believes that the return of people to work in the area is a story that many have been slow to recognize. As businesses reopen and employees return to their offices, the demand for retail spaces is expected to increase further. Michael Cody, the co-founder and head of operations and administration at MONA, sheds light on the current leasing landscape for F&B spaces. “Built-out F&B spaces have always been at a premium but because of the supply chain issues people are still dealing with, it’s now even easier to lease out those spaces than it was during the height of COVID,” Cody tells GlobeSt.com. The challenges faced by the supply chain have inadvertently created more opportunities for leasing out fully equipped F&B spaces. However, Cody notes that spaces that require additional modifications for restaurants may pose a slightly tougher challenge. Nevertheless, the overwhelming demand for retail spaces persists, leading to successful deals despite the longer timeline required to finalize them. The allure of the retail industry remains strong, and retailers and entrepreneurs are eager to secure prime locations for their businesses. As retail trends continue to evolve, the leasing momentum remains a driving force in the industry. The expansion of luxury brands, the rise of direct-to-consumer businesses, and the resurgence of the food and beverage sector in Midtown NYC exemplify the positive trajectory of the retail market. With a mix of optimism and perseverance, MONA and other industry leaders are riding the wave of retail trends and contributing to the ongoing growth and transformation of the retail landscape. https://www.globest.com/2023/05/26/leasing-momentum-and-optimism-abound/

Here’s one a reason why car wash properties, along with certain gas stations and convenience stores, saw the highest cap rate spikes in Q1. Their 80% bonus depreciation rate is available in the first year of purchase making them attractive to investors that were already interested in the single tenant net lease asset class. Those sectors were part of a steady rise in cap rates across the board, according to a new report by B+E. Car-wash cap rates rose by 49 basis points between the fourth quarter of 2022 and the first quarter of 2023 to sit at an average 5.77% cap rate. “The price shift is likely due to a dramatic increase in on-market inventory, as more than one new car wash property has been listed each day in 2023,” according to the report. Caliber Car Wash (5.94%) and Zips Car Wash (5.81%) had the highest cap rates in their category. Auto parts (5.54% cap rate) rose by 47 bps; followed by convenience stores (5.12%) and dollar stores (6.05%), which each rose 30 bps. Strickland Brothers 10 Minute Oil Change (6.16%) and Advance Auto Parts (5.95%) had the highest cap rates in this space. Tops in the convenience store category was Quik Mart (6.38%) and for Dollar Store, it was Family Dollar (6.60%). Grocery (5.52%), casual dining/restaurants (5.88%) banks (5.41%), big boxes (5.98%) and pharmacies (5.83%) also had their cap rates elevate in the first quarter, according to B+E. The firm said it expects this cap rate movement to continue upward because of market volatility. “Single-tenant net lease becomes more appealing, especially in assets with longer lease terms, investment grade tenants, and highly passive lease structures,” according to the report. “This makes it an attractive option for investors who are looking for more stable, lower-risk investments in the face of an uncertain market.” B+E showed that specialty assets such as early learning, dialysis, and urgent care saw minimal fluctuations in cap rates. “These assets are less susceptible to economic downturns, pandemics, and e-commerce factors, their resilience making them an enduringly attractive option for investors,” B+E wrote. https://www.globest.com/2023/05/18/car-wash-cap-rates-surpassing-other-net-lease-categories/

Understanding pricing of any kind in CRE — properties, building, insurance, financing — has become extremely difficult. Lowered transition volumes and quickly changing economic and financial factors have made the process incredibly difficult. But when it comes to seeing how investors are pricing opportunities, Trepp suggests looking at an investment’s spread-to-Treasury bonds. There is a deep sense in that as Treasurys are so often part of calculating a risk-adjusted return. They are the typical measure of safety. Vivek Denkanikotte at Trepp points to a pair of spread indices that are applicable to CRE and real estate capital markets. The first is the comparison of AAA-rated senior commercial mortgage-backed securities (CMBS) bond trading on secondary markets to Treasurys. The second is CRE loan spreads quoted by portfolio lenders. Spreads increase when perceived risk increases, a self-fulfilling prophecy. If investors think risk is greater, they want more money for taking the risk, which means a broader spread. And, as follows, when perceived risk decreases, spreads decrease. Investors of course would like to keep the extra money when things are safer, but given the nature of markets, others will come in and take a deal away with better terms, something akin to a Dutch auction, when the price keeps dropping until someone takes the bid. “Since CRE loans compete for capital with other risk assets such as corporate bonds, lenders will often use yield spreads for bonds traded on the secondary market to help set pricing for loan quotes, even if the loans will be held as part of a portfolio rather than securitized,” Denkanikotte wrote. For example, as a few banks failed and investors become understandably concerned, the spread between AAA CMBS bonds and Treasurys expanded from the 100s of basis points to upwards of 170, a jump that Trepp pegs at 30 to 40 basis points. The spreads have calmed some but are still elevated. Regarding CRE loan spreads from portfolio lenders, Trepp has seen the results in its work tracking lending spreads by portfolio lenders by property type. “Of the four property types covered by Trepp-i, it is no surprise that office loans have seen the largest increase in spreads, increasing almost 25 basis points from the beginning of March through mid-April,” Denkanikotte wrote. “Interestingly enough, loan spreads for multifamily, previously seen as the most stable property type, have also widened quite notably increasing by 20 basis points over the same period.” Retail and industrial spreads were up by about 14 basis points over the same period. https://www.globest.com/2023/05/17/understanding-where-investors-are-by-examining-spreads/

NNN Pro Group, which separated from Marcus & Millichap earlier this year, entered 2023 on the heels of a banner year that netted $5.6B in net lease investment sales, including $1.5B in car wash sales and $1B in quick-service and casual dining restaurants. The newly independent firm also amassed $3B in transactions involving a spectrum of assets including automotive repair outlets, pharmacies, convenience stores and a kaleidoscopic array of specialty use product types—everything from veterinary clinics and bowling alleys to amusement parks and funeral homes. The dramatic slowdown in STNL transactions in the first quarter as the rising cost of debt pushed cap rates up towards 8%—STNL investment sales plunged 42% in Q1 compared to Q4 2022—is being caused by a “disconnect” between sellers and buyers on deal pricing, NNN Pro Group CEO Glen Kunofsky told GlobeSt. “There’s a disconnect between what sellers are willing to sell for vs. what a buyer’s willing to pay and what a bank is willing to do,” Kunofsky told us. “The developers want last year’s cap rate. That’s why inventory is building up. A lot of them just aren’t priced to where they’ll sell.” While many merchant developers aren’t transacting on the glut of properties they’ve listed—until they’re forced to do so by looming construction loan due dates—owner/operator tenants of net lease properties are flocking to sale-leaseback deals to improve their balance sheets and finance continued growth of their businesses, Kunofsky said. “It is a very good alternative for a tenant to get these assets off their books at an accretive rate alternative to corporate debt,” he said. “It’s permanent capital that they never have to pay back—and they can control the asset for between 20 and 100 years with options.” “What most tenants care about is what their occupancy cost is long-term and how much cash flow they’re going to make in their operating business. They want to pour their cash back into their existing business,” he added. NNN Pro Group won’t have to adjust its strategy to meet the demand for STNL sale leasebacks—the company is the industry leader, with $4B in sale-leaseback transactions in 2022—but challenging market conditions are requiring maximum creativity in the structuring of new deals, Kunofsky told us. “A tenant has the opportunity to change the lease structure. If there are tiers of inflation and they want to keep their cap rate lower, we can put bigger bumps in the lease that we’re marketing so they can print the lower cap rate but have bigger escalators in the lease,” he said. “Some tenants are comfortable with bigger bumps because of their business growth, some are doing a split on CPI, it just depends how low they want the initial cap rate to be,” he said. “The bigger the escalators in the lease, the lower the initial cap rate will be.” “If you have 3% annual bumps, you might be 60 bps better in the initial cap rate, while 10% bumps every five years might sell at a 7 cap,” Kunofsky said. NNN Pro Group is doing a brisk business in one its most creative offerings, he said: reverse build-to-suit sale-leaseback deals with tenants who have land—but have yet to build anything on it. “A traditional sale-leaseback is where a tenant finds the land, they build the property themselves and then we sell it subject to a lease being completed,” Kunofsky explained. “In a reverse sale-leaseback, we’re selling the land and the tenant is putting up the money for the building. The tenant is still entering into the lease but the building isn’t built yet. The investor is getting a higher yield because they’re putting up the money to get the construction done,” he said. “It’s attractive to both the buyer and the seller. The tenant/seller doesn’t have to bridge the timeline to go and put up the money to build it and the new investor is getting a higher rate for doing it beforehand, so it’s been very popular,” Kunofsky said. “We’ve gotten a lot of these done in this quarter, both in the institutional and private markets.” In one recent build-to-suit transaction involving a Bay Area tenant planning to build a 100K SF K-12 school, NNN Pro structured the deal with a total cost (including the price of the land and the cost of the project) of $65M, a 7.5% cap rate and a 20-year triple net lease with 2% annual escalators. Reverse sale leasebacks also have been popular with car wash owners and operators. Car washes were a red-hot commodity in 2022 due to the tax breaks for car wash development that were included in the 2017 tax reform bill enacted by Congress. Although the bonus depreciation dropped this year, Kunofsky told us NNN Pro is on track to sell another $1.5B in car washes this year. “Car washes are still a hot commodity. The only thing that’s changed is that it went from 100% bonus depreciation to 80%,” the NNN Pro Group CEO said. “They’re still a very desired property from a cap standpoint and a bonus depreciation standpoint, and they can still get the bonus depreciation from a reverse build-to-suit.” https://www.globest.com/2023/05/16/reverse-build-to-suit-sale-leasebacks-is-a-hot-stnl-commodity/

LAS VEGAS—The retail market is experiencing significant changes as cap rates continue to rise while values decrease, causing a decoupling of NNN returns from benchmark returns. This has piqued the interest of many investors in the single tenant market, including Chris Lomuto, Northmarq Associate Vice President, who spoke with GlobeSt.com about the topic in anticipation of the ICSC Las Vegas conference next week in Las Vegas. Lomuto noted that cap rates have been rising at an average of 5-6 basis points per month, leading to a compression in the spread between NNN and benchmark returns. The sustainability of this trend remains to be seen and may depend on investor expectations about the macro-economy, he notes. If investors anticipate a turnaround in benchmark returns, they may become more comfortable with lower cap rates, assuming that higher rates were a temporary phenomenon. However, if investors believe that elevated benchmark rates and inflation are here to stay, NNN cap rates may continue to drift higher. This uncertainty has created challenges for buyers and sellers in the single tenant market, as they attempt to navigate the shifting landscape. It remains to be seen how long this trend will continue and what impact it will have on the retail market as a whole. As Lomuto noted, the market is constantly evolving, and investors will need to stay informed and adapt their strategies accordingly. https://www.globest.com/2023/05/15/a-retail-market-shift-as-nnn-returns-decouple-from-benchmark-returns/

Too many services of adult beverages can land a person in a hangover the next morning. In a way, that is the U.S. capital trend that MSCI sees in its 2023 Q1 report. Except that the overdoing for the CRE industry was a “period of excess liquidity” that is requiring a downward adjustment. It reports that deal activity shrank by 56% in the first three months of the year compared to a year ago. At the same time, cap rates rose across all major property types by 30 basis points to 60 basis points. “Deal volume is down at double-digit rates from a year earlier, prices are in retreat and cap rates are ticking upward,” the firm wrote. “Uncertainty abounds amid ongoing questions about the status of financing with the turmoil at regional/local banks and the viability of certain office and retail properties. Combine that uncertainty with the high levels of construction for the apartment and industrial sectors in recent years, and it is understandable that some would take the view that calamity is ahead.” However, conditions aren’t necessarily bad. Even the drop in transaction volume was a comparison to a raucously busy base. MSCI says that deal volume is “still at healthy levels.” “Investment sales averaged $87.8b across every first quarter period from 2005 to 2019, putting the $85.0b in sales for the first quarter of this year broadly in line with historical averages,” they said. “Granted, there is a difference in what is transacting in the first quarter of this year versus the asset classes that investors sought over the last 15 years or so.” And the first quarter in 2022 was still hot because the Federal Reserve hadn’t started on inflation-fighting interest rate hikes. For example, multifamily transactions were at $25.4 billion, but that was down 64% from more than $45.3 billion in the same period of 2022. Nevertheless, the amount was still 9% ahead of average activity for first quarters between 2005 and 2019. Prices are down 10.3% year over year, or 23.1% on an annualized basis. Industrial, which was the other big winner during the pandemic, hit $18.5 billion in the first quarter, which was 54% lower from the year. But office sales were down 68% year over year to $10.7 billion and last 12 months lower by 43%. Hotels were off by 55% at $5.9 billion and for a 25% 12-month drop. “Commercial real estate prices are falling, with the industry expecting this decline for months,” the firm wrote. “The price components of the MSCI USA IMI Core RE indexes that measure performance in the REIT markets are generally down at high double-digit rates since the end of 2021. That scale of decline has not yet hit the pricing seen for asset sales, but the declines are accelerating.” However, according to MSCI, prices have a way to go before investors decide to start buying.

MSCI recently covered overall CRE activity in Q1: deal activity down 56%, cap rates up 30 basis points. In addition to more detail by property type, the firm also looked at alterative CRE sectors, including medical office, manufactured homes, life science/R&D, self-storage, student housing, age-restricted, cold storage, and data center. In 2020 Q2, they were 12% of CRE sales. Now they compose 8%, losing a third of their percentage representation. These other choices for investors and developers and operators were supposed to open opportunities in part because the most popular types were overly popular with cap rates that were moving down. It makes some business sense that at more difficult times, they might take more of a hit than standard categories. “There was a relative paucity of large portfolio and M&A deals at the start of 2023, in contrast to recent quarters, though a multibillion-dollar deal is in the pipeline,” the report said. “Megadeals in aggregate only made up 28% of total alternative investments in Q1 2023, bringing the megadeal share closer to levels seen before the pandemic.” All alternative CRE categories posted double-digit sales drops since the previous year. So did the more regular types, however the ranges were different. For the office, retail, industrial, hotel, apartment, and seniors housing and care, the smallest drop was 8%, while the biggest was 68%. For alternatives, the year-over-year transaction volume change ranged from 16% to a whopping 92% for data centers. Only medical office, life science/R&D, and self-storage saw transaction volumes of more than $1 billion. The last two saw some large megadeals that pushed up the numbers. “Cap rates in the self-storage sector came in below those of apartment in the first quarter of 2023, a first for the period covered by our self-storage hedonic cap rate series,” the firm said. “Yields for self-storage, as measured by the RCA Hedonic Series, have been little changed over the last year, leveling out a little under 5%. Apartment cap rates, on the other hand, steadily rose in 2022, crossing above 5% in early 2023.” However, multifamily pricing has been recently hurt due to rate hikes and more stringent lending standards. What is unknown is how self-storage and multifamily changes are related. They should respond to “similar demographic forces.” “What is unknown is if the lack of increase in self-storage cap rates is a sign of a delayed response to the challenges seen in apartments or if investor preference is preventing an increase.” https://www.globest.com/2023/04/21/alternative-cre-assets-took-a-bigger-hit-than-traditional-ones-in-q1/