California Centers

SEP 2018

California Centers Magazine serves retailers, developers, shopping center owners, investment sales brokers and tenant representation firms throughout the state of California.

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34 California Centers Magazine | September 2018 C C A s we enter the last quarter of 2018, the question is what will the remainder of the year look like for investment sales and what can we expect in 2019. Shopping Cen- ter Business sat down with Southern California-based Hanley Investment Group Executive Vice President Bill Asher and President Ed Hanley to dis- cuss their take on five issues impact- ing retail real estate investors. SCB: Interest rates have increased, but the 10-Year Treasury rate has been steady for the last six months. How have interest rates and the 10-Year Treasury rate impacted investors? ASHER: Projected rising interest rates have caused buyers to pause or be more cautious in their purchasing de- cisions this year. However, since Feb- ruary 1, 2018, the 10-Year Treasury rate has fluctuated but remained steady from 2.77 percent, as of February 1, 2018, to 2.86 percent, as of August 17, 2018, going as low as 2.72 percent and as high as 3.11 percent during that time period. In one of the Federal Reserve's most recent statements, U.S. econom- ic growth was characterized as strong for the first time since 2006. In the previous June statement, the econom- ic growth was described as 'rising at a solid rate.' Although buyer interest and offer activity has been slow and inconsistent in the first half of 2018, the stability of overall macroeconomic conditions and lack of major volatility should increase buyer demand head- ing toward the end of the year. HANLEY: The Fed revealed its inten- tions for two more rate increases this year — one in September and one in December. The Fed's rate increase on June 13, 2018, was expected and baked in to markets as there was no major market volatility. It's probable that capital markets will respond similar- ly in September, likely leaving the 10- Year Treasury rate static and borrow- ing rates similar to the range they've been in year-to-date, providing a continued clear runway for buyers to know what to expect when financing an acquisition and taking action on more purchases. SCB: Is there a wait-and-see attitude among investors? In 2018, transaction volume in California is down year- over-year. What about sales and cap rates? ASHER: In general, we are in a tran- sitional market with more optimism than pessimism. Fears about online retailing — specifically Amazon — undermining sticks-and-bricks retail are overblown. However, the industry is rapidly moving further toward val- ue and convenience, tied to the chang- ing lifestyle of the average American. Activity among retail investors has slowed down in 2018 and is reflective in the sales data. Per CoStar Group, overall transaction velocity and sales volume are down and cap rates have moved up. HANLEY: According to CoStar Group, comparing data from August 2016 through August 2017 to August 2017 through August 2018, for all retail sales above $1 million in California, sales volume and the number of trans- actions decreased. We see that 1,108 properties traded hands between Au- gust 2016 and August 2017 compared Hanley Investment Group completed the sale of Natomas Shopping Center in Sacramento, California, in an off-market transaction. The 50,168-square-foot shopping center sold for $10.3 million, representing a 6.29 percent cap rate. INVESTORS PRESSING PAUSE OR PLAY? Retail investors have pumped the brakes in 2018 but are poised to accelerate into the end of the year. Interview by Randall Shearin

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