From the Editor
BY JENNIFER E. GARRET T, EDITOR Beyond Our Borders
On the back of a stable macroeconomic environment and
a smooth transition of political power earlier this year, the
World Bank expects Kenya’s economy to grow by 5. 7 percent this year and by 6 percent in 2014, well above the 4. 7
percent growth rate seen in 2012.
Kenya is infamous for corruption, however, which has kept
economic gains from trickling down to rein in the country’s rampant poverty and skyrocketing unemployment.
This year, Kenya ranked as the world’s fourth most corrupt
country by Transparency International. The unemployment
rate is estimated at 40 percent, although official figures
set it at only 10. 5 percent.
Still, Kenya is an attractive destination for foreign investors. This past September, Africa’s richest man, Nigerian
billionaire Aliko Dangote, announced that Dangote Cement, Africa’s largest cement manufacturer, would invest
$400 million to build a cement plant in Kenya, according
In addition, Nairobi is turning into a regional commercial hub in sub-Saharan Africa thanks to the new
routes opened up by Kenya Airways this past year. This
move lured many corporations to shift their regional
headquarters from Johannesburg to the Kenyan capital
city. As a result, the office market has changed from a
position of oversupply to stability, according to a report
from Knight Frank.
The retail market also is thriving with the entrance of several major players and the opening of a number of malls
in Nairobi and secondary cities, like Mombasa, Kisumu,
Eldoret and Nakuru, in the past year. Occupancy rates remain high, with good rental growth across the sector, the
Nairobi’s prime retail rents averaged $31 per square
meter per month this past year, according to data from
Tourism, Kenya’s leading source of foreign currency, has
been struggling, however. In the first five months of this
year, arrivals fell 15 percent year over year because of concerns over trouble around this past March’s elections and
attacks by Somali militants, according to Reuters.
per sq. m.
The shadow of inTeresT-raTe increases
seems To be hanging over The real
Increases in rates don’t necessarily mean a slowdown for the commercial real estate market, however.
Although the Federal Reserve has pulled back on earlier statements that the bond-buying program that
has anchored interest rates would begin to taper off
soon, there is still uncertainty in the market. Of course,
interest rates cannot remain at these historically low
levels forever, and eventually, rates will go up.
Although higher rates typically mean lower property
values, they also indicate a stronger economy — and
a stronger economy supports a vital commercial real
estate market. Odell Murry of the California Mortgage Association explains why
increasing rates aren’t necessarily cause for alarm, and he examines the various
factors that play in favor of commercial real estate investors. Read more on Page 23.
Clopton Capital’s Jake Clopton also takes a look at the effect of increasing interest
rates and the strategies that commercial mortgage brokers can employ to help clients
get the most out of their deals. On Page 52, discover how you and your clients can
look beyond today’s rates.
As many continue to try and lock in deals at the available low rates, interest in the
commercial real estate market isn’t waning — it’s growing. According to the Mortgage Bankers Association (MBA), through the first half of this year, sales of commercial properties are running 24 percent higher than they were in first-half 2012. Credit
also is becoming more available. According to the MBA, the level of commercial/
multifamily debt outstanding increased by $24.5 billion from this past first quarter to
this past second quarter. A recent survey from the Federal Reserve also showed that
underwriters are starting to loosen their standards for commercial real estate loans
and credit availability is increasing.
As markets begin to move, commercial mortgage brokers must keep an eye on which
property sectors are starting to heat up. Multifamily is continuing its strong showing,
and apartment sales for the first half of this year increased 54 percent over first-half
2012. In the same time frame, office sales were up 24 percent, and industrial-property
sales were up 12 percent.
Another sector to watch is hospitality. As the economy improves, budgets will loosen,
and business and leisure travel likely will pick up. First Financial Bancorp’s Rick Tobin
takes a look at the six major factors influencing the hospitality industry on Page 30.
Although core commercial real estate deals are often the easiest to find — and to
finance — commercial mortgage brokers should consider going off the beaten path to
find a niche with untapped opportunities, like natural resources. Developments and
projects related to natural resources often are considered too specialized, but there
is potential for hidden treasure. Find out more from Commercial Mortgage Exchange
Inc.’s Milton Franklin on Page 33.
Lastly, deviating from the norm also is sometimes necessary when it comes to securing financing for clients. Construction and development loans continue to be some
of the toughest to come by in today’s market. The Sabal Financial Group’s Tom Farrell
takes a look at the alternatives that are available for homebuilders on Page 42.