Commercial Real Estate Trends Remain Same in 2012

Commercial real estate trends and issues that were prevalent in 2011 will continue into 2012, according to Steve Hentschel, managing director and head of Real Estate Banking, Gleacher & Co.

In a video interview with REIT.com at REITWorld 2011: NAREIT's Annual Convention For All Things REIT in Dallas at the Hilton Anatole hotel in November, Hentschel discussed sector fundamentals and recovery.

He said that topics including global economic uncertainty, sovereign debt issues, nervous investors and market volatility, will continue into the New Year.

When it comes to REITs specifically, Hentschel said one of the trends from 2011 that will carry over into 2012 is the trend of REITs owning core real estate.

"People are looking for safety and want to own the highest quality assets," he said. "There will be a continued emphasis on major market 24/7 cities that have global appeal."

In terms of trends that will be different, Hentschel pointed to leverage. He said that currently there's too much of a penalty for REITs with high leverage.

"The pendulum has swung a little too far in the other direction, so I think that gap will close," Hentschel said.

He added that there's going to be more of a focus on debt maturities schedules and less focus on the absolute level of leverage.

"Another thing that's developing is that we are watching more private capitol become frustrated with the low cap rates in high quality assets. The spread has just tightened too much," Hentschel said.

"So I think you are going to see more B quality assets in secondary markets trade from the public into private," he said.

Hentschel added that when it comes to recovery it's more of a tale of two markets. He said while apartment fundamentals are the best witnessed in a generation, the industrial sector faces though headwinds because its fortunes are more closely tied with the global economy.

"Then if you look at the secondary markets, I think there's challenges for office, lower quality retail and lodging," Hentschel said. "And that I think is going to take longer to recover, at least until we get through the election."