Commercial real estate companies see increased activity resulting from rise in home prices

Positive home value appreciation forecasts are beginning to reap benefits for commercial real estate companies.

Commercial companies are beginning to feel the effects of continued improvements in home property values.

The Sacramento Business Journal reported that commercial real estate is finally starting to reap the benefits trickling down from the significant housing recovery. David Brennan, senior managing director for CB Richard Ellis, said that it is happening slowly, but it is happening, as companies seek more office and industrial properties. The prospects are especially good for areas where housing has made a big come back. As people move back in, there is an instant need for services and commercial goods nearby. 

"You'd like to have a third leg, but we don't," Brennan said. "But those two legs are starting to firm up a little bit."

Brennan's sentiment is supported by the data. April saw the biggest rise in home prices since 2007. According to Peter Rothemund, an analyst at Green Street Advisors, strong financial market performance coupled with low interest rates have been the primary engines powering the appreciation of home values.

He noted that, in lieu of recent increases to mortgage rates, they are still low enough to support continued appreciation. Currently, home prices have, in some regions, actually risen a few percentage points above 2007 valuations. In May, the Green Street Commercial Property Index rose by 3 percent, as reported by Globe Street.

Catching a comet by the tail
As showcased by Bloomberg, one commercial construction company is taking advantage of optimistic forecasts. HD Supply Holdings, a construction-supply company, has plans to go public. In its initial public offering, with 53.2 million shares up for grabs, the company hopes to generate $1.33 billion. 

"This is an opportune time to go public based on the momentum of the U.S. housing recovery," Neil Frohnapple, a building-materials analyst at Northcoast Research, told Bloomberg. "There is a lot of interest from investors in companies with housing recovery exposure and HD Supply will provide investors with another avenue to play this recovery."

With access to capital, contractors are scrambling for supplies to meet the high housing demand as recovering prices buoy buyer confidence. That equates to good news for HD Supply. The IPO will rake in gains for equity firms involved in HD Supply's takeover during the housing crisis, including Bain Capital and Clayton Dubilier & Rice.

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