Mortgages: Reno Better Than Manhattan for Buyers Demanding Yield

According to Bloomberg,

Commercial real estate investors are moving to smaller markets and buying suburban properties as they search for higher returns after snapping up the most desirable buildings in the biggest U.S. cities.

Reno Better Than Manhattan for Buyers Demanding Yield: Mortgages (Bloomberg)

Reno Better Than Manhattan for Buyers Demanding Yield: Mortgages (Bloomberg)

Demand for office buildings, retail centers and warehouses in cities such as Reno, Nevada; Greensboro, North Carolina; and Louisville, Kentucky, is surging as yields shrink for real estate on the coasts and in larger cities. Properties on the outskirts of major metropolitan areas also are attracting interest, with prices for suburban offices rising faster than downtown real estate, according to an index compiled by Moody’s Investors Service and Real Capital Analytics Inc.

“There’s plenty of capital for real estate,” said Jim Sullivan, a managing director at Green Street Advisors Inc., a Newport Beach, California-based property-research company. “If investors are in search of bargains, they do need to move a bit further out on the quality spectrum.”

Buyers competing for top-tier buildings fueled a real estate rebound in cities including New York and San Francisco, then moved on to secondary markets such as Houston and Portland, Oregon, and now are shifting their attention to smaller areas. The “low-hanging fruit” in the biggest cities already has traded hands in recent years, said Hessam Nadji, chief strategy officer at Marcus & Millichap Real Estate Investment Services.

“Yields in those markets have compressed pretty quickly,” he said in a telephone interview. “Investors seeking higher yields are going to secondary and tertiary locations.”

Wider Swath

A survey released yesterday by PricewaterhouseCoopers LLP and the Urban Land Institute on trends for 2014 showed a rising level of confidence in markets outside of major areas as banks, insurers and private-equity firms prepare to increase financing to the sector. Wall Street may issue more than $100 billion in commercial mortgage-backed securities next year, which would be more than any period except the boom years of 2005 through 2007.

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