Top Cities: Christopher Ludeman

CPE asked a number of investment sales brokerage executives about the cities they recommend that their clients consider. Excerpts of their responses appeared in the September 2013 Special Report. Following is the full response from Christopher Ludeman, President of the Capital Markets, CBRE Group Inc. Be sure to read the full responses of the other executives, as well!

I would not see a radical change in areas of preference relative to U.S. cities for investment from a year ago. The coasts continue to attract greater interest than does the middle of the country, largely driven by the flow of jobs as well as the pace of economic recovery. That said, we have also continued to see a greater pace of broad-based capital interested in Texas, specifically certain parts of Dallas and of course Houston for a variety of reasons. Denver continues to surprise to the good. San Francisco has been a little less active in the CBD, while the valleys continue to be very active and I think the cause in San Francisco is really more around product availability, not as much, but the interest of capital in San Francisco is strong. You have seen a rally around Southern California, particularly Los Angeles, where we believe and we predicted a year and a half ago that those rents would have now gone to a place that they are moving up and the economic recovery is getting firmer in Southern California, so additional capital is being directed toward Greater Los Angeles, certainly West Los Angeles, lots of institutional activity in downtown Los Angeles as well as the surrounding suburbs.

I think the drivers remain the same. Those are, if you will, the pillars on which our economic recovery seems to be while maybe not charging forward, certainly loping forward. Boston, that continues to attract a lot of capital, and how that capital’s being placed in the Back Bay, there’s very little vacancy in the Back Bay so people are moving into the CBD a little bit more. Certainly Seattle continues to be strong. Portland is attracting more capital and it’s really around where is there opportunity that did not exist, like Midtown South continues to be strong with technology and social media. Those factors remain.

Chicago is actually back on a number of capitals’ radar systems and that’s good news for Chicago. So I would say the theme might be more of the same but the radius of that heat, where that capital is attracted is broadening, at least on the margins. Not only the search for opportunity but the search for yield where if you look at how prices have been really with the amount of liquidity that’s in the market including the abundance and low cost of debt, prices in first-tier cities have been pushed pretty darn high and cap rates pretty darn low so it’s very competitive there both with domestic and foreign capital, so you’re starting to see the wave expanding beyond those, which we expected but it’s been a little slower in the development than we anticipated.

Returns have continued to go to 2007 levels in many instances in the core cities, so if you can get 50 to 100 basis points better by looking outside of the core and looking at pretty stable credits and rents rolls as well as high quality product, you’re going to find more takers for it.