Top Cities: Jay Koster

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 Jay Koster, President of the Americas Capital Markets, Jones Lang LaSalle Inc. Be sure to read the full responses of the other executives, as well!

There simply aren’t enough good investment opportunities available when balanced against the capital that desires to get placed in the real estate space. That continues to drive the core markets. Last year, San Francisco and Seattle were huge. There was less activity out of DC. This year, to a degree, there has been relatively less activity in San Francisco and Seattle, just given that many of the large opportunities that exist to trade in those markets traded last year. There simply aren’t enough necessary sellers in those markets to create volume. DC has bounced back, coming off of a very tough governmental year—you’re seeing renewed activity. Houston, in the last 18 months and particularly the last 12 months—the second half of last year and first part of this year—saw some large deal activity that it has never before seen, particularly in that timeframe. When you look at Houston in the next six to 12 months, the appetite is still there to invest; there just aren’t that many large opportunities left available to acquire there.  Hence, you’re seeing a renewal of big deal activity in New York City because it is one of the few places where you can get big chunky allocations of dollars out the door.

We had started to see some increased evolution in the secondary markets and particularly in the secondary markets where there’s more risk at an asset level. We think that has slowed down a little bit, just given what has happened to interest rates and the cost of debt, predominantly CMBS debt, in the past 60-plus days, and we think that is going to create a bit of a wait-and-see around pricing in the secondary markets. And then one of the things that we started to see late last year going into the first half of this year was an increase in portfolio activity cutting across many secondary markets. That, again, was fueled by very aggressive availability of debt related to those portfolio transactions, which has abated somewhat in the last 60 days, so we expect you may see a little bit of a pullback there as people get their arms around debt pricing, and then we begin to eke back to levels where you actually have a matching of buyer and seller expectations.

Office demand has been very strong in Chicago and New York in the first half of this year, increasing in DC, with some improvement in Boston—though in Boston you’re limited just by the availability of larger opportunities in the marketplace. Atlanta was an example of absent opportunities in other gateway markets. People started to evolve toward core-ish type opportunities in those markets. Hence, you saw a fairly solid uptick of activity in Atlanta in the first half of the year. I think particularly in Atlanta and Chicago, you’ll see more of that continue to increase throughout the year.

Your primary industrial markets remain highly sought after by the main institutional investors, along with the major industrial-focused investors. And that’s Exit 8A; strong Midwest markets; Southern California, particularly the Inland Empire; different pockets in the Southeast, including some strong distribution areas in Florida. Where you get really modern, well-located product, you’re not seeing extraordinary activity but strong demand does exist—it’s simply a matter of the number of available opportunities and desire by those that own it to continue to own it. And then you’ve certainly seen an improvement in demand in secondary markets or for smaller product as the investor universe continues to widen out.