The first quarter saw a continued lack of institutional transaction velocity while private transactions in the sub-$10 million range proceeded at a typical pace. The collapse of Silicon Valley Bank and Signature Bank in March spooked an already anxious market. On a positive note, the Ten Year Treasury finished the quarter at 3.40%, down 80 basis points from its peak in October of 2022. Actual borrowing costs have remained stable in the 5.75%-6.25% range. This, in many cases, is indicative of growing bank spreads.
Perhaps the most important story of the first quarter is tightening credit conditions, especially in the wake of March’s bank failures. When buying property, expect LTVs in the 65-70% range and personal guarantees. Lack of funding for development deals is quietly threatening the large pipeline of industrial, life sciences, and residential projects that were entitled during the first quarter.
During the first quarter, TKG launched exclusive marketing processes for three stabilized industrial buildings, all of which received multiple offers during the first month of marketing. Users, investors in 1031 exchanges, and private investors remain active in the market. All three of these listings happened to feature primarily small tenants occupying sub-5,000 SF spaces. Investors had a particular interest in this product as the smaller spaces are easier to lease regardless of market conditions. We remain extremely bullish on this product type across a variety of markets.
We also launched industrial land sites in West Boylston, Raynham, and Goffstown, NH. While extremely high construction costs have made it difficult for investors to build sub-80,000 SF facilities, users continue to be interested in sourcing land. Outdoor storage, low lot coverage, and specialized buildings are being proposed by users on the land that we are working with.
We congratulate our sellers and buyers on the four transactions we closed during the first quarter. Price records are continuing to be set in the New England industrial markets. The window to obtain peak pricing for your sub-$10 million industrial building has not closed. Despite headwinds, a supply/demand imbalance continues to create leverage for sellers.
As 2023 proceeds, we are closely watching interest rates and increasing credit availability. Rumors of slowing leasing activity are permeating our community which will likely result in slowing or stalling rent growth. We’re all hoping for a soft landing while cautioning investors to prepare for a recession. Those with a long-term outlook and conservation positioning will survive and thrive on the other end of this volatile market.
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