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Real Estate

The overall real estate market is in a state of flux with tightening credit markets, stricter underwriting standards, and increasing concern over a slowing national economy. Yet, US commercial real estate market fundamentals are remaining fairly stable.

The commercial real estate market has been going full-throttle for several years with easy money and low interest rates that drove some segments into questionable lending practices and highly leveraged spending. National and regional banks which fueled aggressive underwriting face especially large risk. 

Our Real Estate Investment Banking services includes:

  • Debt and Equity Capital Raising
  • Acquisition Financing 
  • Joint Venture Advisory Services
  • Recapitalizations
  • Industrial & Mixed (Commercial / Office)
  • Healthcare & LT Care Facilities
  • Hospitality & Lodging
  • Gaming
  • Diversified

During economic uncertainty, commercial markets often shift to the advantage of buyers.  The key investors will be those with liquidity, continued faith in US real estate and those foreign sources who benefit from the cheap dollar. As well, financing costs will continue to edge upward and underwriting standards will remain tight. Pension funds, REITs, insurance companies and foreign investors will step up investment activity.

Another continuing trend will be more risk-averse investors backing off new projects as commercial development slows. A year ago, most hotel projects could easily be financed. Now equity requirements are being increased as the market tightens.

The fundamentals of the US lodging industry continue to exhibit stable indicators albeit slower growth in the sector because of soaring fuel prices and a generally tighter economy. Relatively small hotel transactions are getting completed, while the industry's ability to structure larger, institutional grade hotel sales has been limited by capital market conditions.

In today's environment, capital is predominantly available for sponsors with proven track records of success in the highly specialized field of hotel ownership and management. Yet, there is still a significant amount of capital on the sidelines and lifecycle hotel investors know how to make money during all economic phases. Purchasers of US hotels will need to rely more on "buying right" when approaching opportunistic investments.

Fundamental performance benchmarks in commercial real estate, such as vacancy rates, provide strong market indicators. As demand for office, industrial and retail space wanes, vacancy rates go higher and property prices go lower. Cap rates, which are net operating income divided by the value or sales price, rise. While the increases have been relatively modest, the current credit environment will likely send vacancy and cap rates even higher.

Property owners and investors are facing greater scrutiny from their lenders as well, which will make refinancing more difficult as well as restrict new purchases.  While commercial real estate investment set a new record in 2007, transaction volume is likely to decline with some investors taking a wait-and-see attitude.

International trade continues to play a pivotal role in industrial real estate as industrial activity remains strong in port and distribution hubs, with relative weakness around many manufacturing centers.

The housing crash domino affect fueled by the sub-prime mis-step has also started to reflect in consumer spending as well, and thus in turn, has weakened the retail store industry. With the supply of new retail space being held in check, secondary markets may see growth because new space often follows population growth.

During uncertain times, there is also a lag factor in the office market to backfill space by tenants who moved into newly constructed space.  The cause-and-effect is that some tenants put expansion or relocation plans on hold presenting a challenge to timely and cost-effective lease space in older office buildings.

The multifamily housing market is still attracting risk-averse institutional investors who are paying high cap rates. Of the record $98.6 billion spent in this sector in 2007, 40 percent of acquisitions were from institutional investors such as pension funds and life insurance companies. Private investors were equally active, accounting for another 40 percent of transactions.

Even with the current challenges, small, simple commercial real estate transactions will be able to find capital. That said, larger more complex deals, at premium prices, may face more challenging times. Yet even with scarcity of capital, looking up-stream, institutional-quality properties, priced correctly, will continue to spur opportunistic investments.

Lexington focuses equally on both the debt and equity markets. This affords us a unique perspective on every transaction, enabling us to offer structuring alternatives to address rapidly changing markets and ensures in-depth coverage of traditional lenders as well as emerging sources of capital - from the conventional to the creative.

At Lexington, our real estate investment banking professionals provide the essential combination of fundamental real estate knowledge and a complete range of investment banking capabilities needed to structure and implement real estate-related transactions which meet our clients' specific strategic and financial needs.

We look to sponsor attractive, well located, institutional-quality properties; office, industrial, hospitality and lodging, commercial mix-use, multifamily income properties in major markets and in areas with high-barriers to entry for major new developments. We particularly favor segments of the lodging industry, from limited service to five-star, super-luxury hotels.

The accomplishments of our professionals are exceptional and the sophisticated knowledge they provide to the firm is an invaluable resource to our clients. In real estate alone, the dedicated professionals at Lexington average over 20 years of experience in the commercial real estate industry and have participated in the acquisition, financing, asset management and disposition of more than $10 billion of real estate and real estate operating companies through several real estate cycles spanning over three decades.

The nature of the firm's real estate investment banking work is private. We believe that regardless of assignment, confidentiality should be the hallmark of our business.

(Statistical and market forecast information provided by The National Association of Realtors)