It’s time once again for the Commercial Real Estate News Roundup. As we head into the holiday season, we find helpful news on 1031 exchanges in, of all places, Huffington Post, how nonprofits are cashing in on desirable office addresses, the big boom in big box retail, and a question posed to the agricultural land sector: when will the rise in land prices end?
- Strong Outlook for Global Commercial Real Estate Markets for 2014, Propertywire, Dec. 6, 2013
- Five Real Estate Takeaways for 2014 from ULI/PwC Emerging Trends Forum, Silicon Valley Business Journal, Dec. 6, 2013
- Pros and Cons of a 1031 Tax-Deferred Exchange of a Commercial Property, Huffington Post, Dec. 9, 2013
- Nonprofits with Sought-After Buildings Take Advantage of a Hot Market, NYTimes, Dec. 3, 2013
- Job Growth in Certain Sectors Forecasts Future Office Demand, Potential Investment Opportunities, Sacramento Bee, Dec. 5, 2013
- Manhattan Building Purchased Online Shows Boon for Bondholders, Bloomberg, Dec. 9, 2013
- Nixon Peabody’s Quest for a New Kind of Office Space, Washington Post, Dec. 8, 2013
- Big-Box Opportunity Knocks – And it’s a Big, Big Door, NREI, Dec. 4, 2013
- Moreno Valley: Los Angeles Developer Plans Massive New Warehouse, Press-Enterprise, Dec. 6, 2013
- Retail Real Estate Investors Have to Adapt in the Internet Age, Financial Times, Dec. 8, 2013
- Downtown Retail Taking Off, Real Estate Weekly, Dec. 4, 2013
- Retail Landlords Becoming More Active in Adapting Sustainable Practices, NREI, Dec. 2, 2013
- Brian O’Boyle: Multifamily Demand at All-Time High, Sales Setting Records, D Magazine, Dec. 3, 2013
- Life at the Office? Apartments Arise in Old Work Digs, Investors Business Daily, Dec. 5, 2013
- Checking in on New York’s Hotel Market, Real Estate Weekly, Dec. 9, 2013
- Verizon puts West 36th St. Building on Market as Hotel Site, The Real Deal, Dec. 6, 2013
- The Multi-Branded Hotel: New Efficiencies Through Innovation, HVS, Dec. 2, 2013
- When will Farm Country Good Times Stop Rolling? ABA Banking Journal, Dec. 5, 2013
To say the least, we’re living in a technology-heavy era marked by the decline of traditional media and the growth of digital media. So I can’t remember the last time I found a property story where a traditional media company displaced a technology company.
Just goes to show: in New York City, anything can happen.
In Rayna Katz’s piece today in Globe St., we find a reversal of the common transformation of downtown office space: instead of plucky web startups moving in to the former office space of a paper-based media business, it’s the other way around.
Hachette Book Group has signed a 15-year lease on two floors of 1290 Sixth Avenue, taking up nearly 140, 000 sq. ft. once occupied by none other than technology leviathan Microsoft. It will be a kind of homecoming for the publishing company that includes such imprints as Little Brown and Grand Central, as their address in the 90s was nearby on Sixth.
From Rayna Katz:
Neil Goldmacher, a broker with Newmark Grubb Knight Frank, represented Hachette in the deal. Vornado is represented in leasing transactions at the property by Cushman & Wakefield’s Bruce Mosler, chairman, who led the transaction; along with Josh Kuriloff, executive vice chairman;Franklin Speyer, vice chairman and Mikael Nahmias, executive director. Glen Weiss, an executive at Vornado in charge of leasing its portfolio, also helped negotiate the deal.
“We’re thrilled to be returning to the neighborhood, right in the heart of New York City, next to Radio City and Rock Center, providing an easy commute for Hachette Book Group staff,” the spokeswoman says. “The central location puts us close to literary agencies, publishers, and the media.”
State Street Capital took 100,000 square feet in the building earlier this year, Together, that deal and the new lease with Hachette will absorb most of the Microsoft space, a large block of space that initially seemed tough to fill.
That appeared to be an even tougher mountain to climb at the beginning of the year when AXA Equitable—the life insurance company—dumped about 40,000 square feet of its space at 1290 Sixth Ave. onto the market for sublease. The company was offering deeply discounted rents in the $40s per square foot. That move came as hundreds of thousands of square feet of competing vacancies festered on the Sixth Avenue market, creating the appearance of a glut of options on the avenue.
Locking down financing on purchase deals for property remains tough, even as steady recovery in commercial real estate continues. Commercial mortgage brokers and bankers are common sources of capital, but are they always the best ones? Are there other ways to finance the deal?
Kurt Chilcott, CEO of CDC Small Business Finance, suggests the options that a certified development company can present to clients at the financing stage can make a giant difference. Things a banker typically shies away from, such as a fixed interest rate, once introduced can open the door to an entirely different deal on a fast track.
As Kurt puts it:
“Commercial mortgage brokers and bankers typically can assess the financial prospects of any clients interested in buying a commercial building, but certified development companies (CDCs) with expertise in Small Business Administration (SBA) financing also can bring experience and a helpful perspective to the table.
Many times, bankers are quick to recommend conventional financing, or in some cases, an SBA 7(a) loan. It’s understandable, as they may make more in fee income from the small-business owner with these products compared to an SBA Real Estate Advantage (504) Loan (REAL), which is designed for commercial real estate purchases and long-term machinery and equipment. Conventional and SBA 7(a) loans are not always the best products for the small-business client, however. Commercial mortgage brokers looking to finance a purchase deal may want to look more closely at REAL loans.
In brief, a REAL loan package can provide:
- Total financing for as much as $10 million
- 90 percent financing
- Fixed interest rates* (which have been less than 6 percent for nearly two years)
- Amortization terms of as many as 20 years
- No balloon payments
Many small-business clients eventually must determine whether buying or leasing their facility is the best business strategy. A REAL loan can make purchasing attractive because the downpayment required by the owner is typically only 10 percent — far less than with standard commercial loans. Many REAL loans are for office, retail or industrial buildings, but these loans can finance virtually any type of business. In addition, there are long-term tax and equity benefits.
REAL loans do have a specific structure, however. CDCs participate with lenders to structure the project accordingly:
- The client provides 10 percent down.
- The CDC (the SBA-guaranteed portion) provides 40 percent of the total project costs
- The bank or other lender provides 50 percent* of the total project costs.
With their expertise in REAL financing, CDCs can assist brokers in many ways, including pre-qualifying clients, educating clients about REAL financing and helping to structure the projects to secure quick SBA approval. In addition, CDCs can query banks that may want to partner on the REAL financing package, or they can work with a client’s lender of choice. Reputable CDCs maintain relationships with a variety of banks and know their credit parameters. CDCs also can help monitor the
financing process and ensure the deal closes in a timely manner.
Commercial mortgage brokers who know about the options that the REAL loan can provide can help their clients get deals done. Get ready, get REAL!”
Weighing The Anchor
When Safeway’s Chicago chain Dominick’s announced its closure and pullout in October, the history of the Chicago supermarket took a notable turn as 66 Dominick’s stores were to shut down at once, creating a metro-wide absorption problem in the anchor store space not seen before. Two million square feet of mostly leased space (Safeway owns only about 15 buildings), based on an average store size of 62,000 sq. ft. landed on the market with a deafening bang, leaving landlords anchorless, pondering cutting rents or rethinking grocery’s traditional anchor role.
Even though California-based Safeway remains solvent, meaning rent payments on empty store leases won’t be interrupted, the shopping centers stuck with vacant grocery stores face more than just a financial problem. Traffic loss looms large over rent negotiations and the symbolism of such conspicuous closures means economic health of entire neighborhoods might be at stake.
Mariano’s Steps Up (For A Few Locations)
Led by former Dominick’s CEO Bob Mariano, the namesake grocer chain stepped into the breach, announcing plans to buy 11 of the 66 stores in locations it prized. In a $36 million cash deal with Safeway, Mariano’s will undertake conversion of 11 stores, the majority located in suburbs.
That isn’t likely to be the last expansion of the Mariano’s brand into Chicago, for two reasons. As Bob Mariano told investors, the city and suburbs can support 50 stores. The second reason is the developer interests in the wake of Safeway’s exit.
Inland On Both Sides
Inland’s been on a buying tear to get behind the Chicago expansion of Mariano’s, a subsidiary of Milwaukee-based Roundy’s, Inc., racking up nearly $90 million in recent acquisitions. Since 2011, Inland, a broker/developer/landlord/REIT owner, has booked acquisitions and undertaken a joint venture to develop a Mariano’s-anchored shopping center with an option to buy.
Yet that activity is also defensive from Inland’s point of view, because as reported by Chicago Real Estate Daily, the firm owns seven properties leased to the shuttered Dominick’s as well as three shopping centers anchored by the chain.
Does Mariano’s have the punch to restore to landlords and communities what the Safeway/Dominick’s pullout takes away?Maybe. As Micah Maidenburg reports in CRE Daily:
Safeway’s impending exit has likely unsettled some real estate investors who have long viewed grocery chains as stable investments. Yet Mariano’s is seemingly gaining acceptance among investors. Parent company Roundy’s had net sales of $3.89 billion in 2012, even if it had a net loss of $69.2 million. The Mariano’s unit, which leases all of its stores, has 13 locations in the Chicago area, with plans for five more in 2014.
“As the local footprint here for Mariano’s continues to grow and there’s more historical reference to their unit-level performance being sustained, you’ll continue to see investor demand grow,” said Brandon Duff, regional director in the Chicago office of real estate brokerage Stan Johnson Co. who has handled Mariano’s transactions [...]
Patrolling the media for the latest in commercial real estate news, it’s the Commercial Real Estate Industry Weekly Roundup:
- Sturdy Outlook for Seattle Real Estate - The Emerald City’s rain-moistened commercial property market is looking stronger, says the Seattle Times.
- Commercial Real Estate Certification Ensures Rare Level of Expertise and Experience - The benefits of professional certification get a look in Atlantic City.
- Learn by Doing: Social Media in Commercial Real Estate – Houston Business Journal lets us know how social media ramp-up works by doing.
- Crowdfunders Eye Commercial Real Estate – NuWire on the recent SEC rules changes that are unleashing crowdfunding for commercial real estate deals. Think Kickstarter for commercial property.
- LG Pushing Contested Office Space – Electronics giant wrestles with its new headquarters deal in New Jersey
- Storied Providence Skyscraper, Now Empty, Seeks a Future - Rhode Island office tower looking for a new tomorrow
- Federal Space Reduction Leaving Mark on DC Office Market - “Big Government” somehow getting smaller, at least in square footage
- Florida Mall’s New Neighbor: 109,000 SF spec building - Central Florida sees 100,000 sq. ft of industrial space go online
- Perot Partnership to Invest $1 Billion in Warehouses – Hillwood Investments, the Perot family concern, goes for warehouse space in a big way
- Liberty Property Trust Breaks Ground on 200,000 SF building – South Jersey’s economy and location make sense for a major warehouse spec deal
- Storage Sector Primps for Uptown Approval – The stick-stuff-in-storage-units business looks for a fit in central business districts
- How to sink Chicago’s retail property market – Grocery retailer’s pullback in Chicago creates huge absorption problem
- Retail Landlords Gain Upper Hand – The benefits of ownership, told to NuWire
- Multifamily Market Growth Stable – Apartments show national attractiveness, says NuWire
- Multifamily remains frontrunner in REIT sector – The trusts trust in apartments, according to a recent piece in Housing Wire
- Have high-rise apartment rents peaked? – Crain’s Chicago Business ponders a glass ceiling for the high-rise apartment market
- Dallas Apartment Developer Builds his Company One Small Deal at a Time – Plucky Texas startup gets into the neighborhood-making business
- New Marina del Rey Apartments are Tailored to Tech, Media Workers – The new media economy’s workspaces are forcing changes in living space designs
- Burkle’s Bid Puts Morgans in a Bind – Hotelier fends off interested buyers in a New York City tale of takeover
- $1 Billion Foxwoods Casino Goes to a Vote Tuesday in Milford – A Massachusetts casino development is put before the people
- As Dormant Construction Market Stirs, Tahoe Seeks to Reinvent itself – Meanwhile in Lake Tahoe, stalled building projects are sputtering back to life
- Devil of a Stadium Plan – Arizona State University wants a stadium. But is that all they want? The Wall Street Journal takes a look.
- Einhorn Claims Victory in Fight over Florida Land – Hedge fund head manages to sell almost 400,000 Florida acres to the Mormons at the price he wanted
- Nearly 23,000 homes, shopping planned in Palm Beach County – Another deal for dirt in the Sunshine State
Our guest blogger today is Dan Wagner, Vice President Government Relations with The Inland Real Estate Group of Companies, Inc. located in Oak Brook, IL. (And NAR Commercial Sponsor)
Shopping centers hire four employees for every $1 million in incremental sales. Online retailers add just one!…86% of consumers would prefer the convenience of paying sales tax on online purchases at the time of sale!…From 2011 to 2012 total retail sales grew by 4.9%, while ecommerce and mail-order sales grew by 14%. Internet retailers should not be given a competitive advantage over brick-and-mortar retailers that serve as the backbone of our communities. All retailers deserve to compete on a level playing field through business attributes like product selection, customer service and convenience. Shipping costs are an attribute that a company can choose to waive; however, sales taxes are mandatory for local retailers to collect. Local retailers should not be forced to compete on this government-imposed mandate especially when the tax collections for a brick and mortar story is 10 to 15% and internet retailers are not required to collect this tax. States should have the ability to enforce sales tax laws across all retailers, and only Congress can restore that right. The Marketplace Fairness Act of 2013 has passed the United States Senate S.743 by a vote of 69-27. The House version, HR 684 awaits consideration by the Committee on the Judiciary. Please contact your House of Representative members and urge them to pass the bill out of committee and have a vote on the House floor.
Our guest blogger is Dan Wagner, Vice President Government Relations with The Inland Real Estate Group of Companies, Inc. located in Oak Brook, IL. Find out more at InlandGroup.com
Alex Ruggieri hosts Barry M. Wolf, VP of Investments with Marcus & Millichap in Ft. Lauderdale, FL. Barry’s an attorney with a long history in commercial real estate and serves as director of both Marcus & Millichap’s National Retail Group and its Net Leased Properties Group. His focus on transactional aspects of real estate and active membership in ICSC (International Council of Shopping Centers) gives him in a rare perspective on the intersection of the law, commerce and real estate investment.
The key takeaways of this month’s podcast:
- Two Six O’Clocks In Every Day: In his youth, a basketball coach imparted to Barry a simple, beautiful idea about how to manage your time at the office. Check out the podcast for the story.
- Striving to add value to clients and prospects. Describing the benefit to clients and justifying fees and commissions is an ongoing process that can even precede the listing of a property.
- The 5% of the people who are listing properties now are where all the competition is – the 95% who aren’t will remember the help and value you added before they had specific expectations – beyond just placing properties into listing platforms.
- Being a service provider – market information or market data – being there to bounce idea off the wall.
- Putting the seller’s interest first, not just pocket listing properties to your own buyers.
- Qualifying buyers, analyzing the offers understanding the brokers, seeing who is most probable to get to the finish line
- Avoiding retrades, price negotiations, getting deals to successful closings
- In reality there are no business secrets – look at what clients are doing successfully and apply it to your own business
FROM SHANGHAI TO YOUR SHELF: ADDED BROKER VALUE TO THE NEW SHIFTING WORLD OF LOGISTICS AND SUPPLY CHAIN
Rob Nahigian, FRICS, SIOR, CRE, MCR
There are potential pending shifts of the logistics and supply chain market in the next two years. How do the shifts impact how a real estate decision is developed including site selection? What are the new metrics besides rent per square foot or occupancy cost per square foot? What new value can an industrial broker bring to clients?
The pending shift is driven by the completion of a third canal for the Panama Canal to accommodate larger ships that currently cannot make it through the canal due to size. Ships have become longer, wider and deeper in order to carry more containers from Shanghai to your shelf.
Wal-Mart ships over 700,000 containers per year while Walgreens might only ship 15-20,000 containers per year. Older ships hold 5,000 containers so multiple trips from Shanghai to your U.S. shelf is expensive. Ships are longer and wider and there lies the problem for the east coast. Long Beach is situated right on the Pacific Ocean. The area has wide turning radius for ships, harbor depth for the bigger ships and no real bridges that ships have to squeak under. The Long Beach port states that it handles 40% of the U.S. imports.
The Panama Canal realized that it was losing business. The Canal decided a few years ago that it had to build a third canal to accommodate larger ships. This third canal is under construction and is planned to be completed by 2015.
This is great news for the east coast if shipping decisions are made to skirt Long Beach and dock somewhere along the east coast. But the east coast ports are as old as the Panama Canal and do not have the depth or bridge clearance to accommodate the larger ships. East Coast ports are spending billions of dollars to dredge harbors and raise bridges with taxpayer’s money. Will the business shift from the West Coast to the East Coast?
The real answer does not lie with the shipping company. People who market their properties or ports to the shipping companies are missing the mark. The customers of the shipping companies that pay for the container deliveries is the key to understanding if any shift will occur. In theory, the industrial market along the east coast (not just ports but inland locations that are 200 miles away from a port) could be robust. It is this anticipation of a renaissance that many distribution developers are planning sites before the Canal and ports are prepared.
The end-user is researching site selection based on its customer base location. For instance, if you are selling 45% of your products in the northeast U.S. then why dock in Miami? The key to understanding site selection has now gone beyond the importance of a building’s rental rate or overall cost. Reliability and timeliness to the market has become a more critical issue for end-users. If a site allows an end-user to deliver goods to its customer base quicker than any other site, then it may be more valuable. In the popular program that has been running with NAR Commercial this year (From Shanghai to Your Shelf), the new real estate modeling has been heavily discussed. Three new models shared by corporate end-users have been exposed to brokers to site selections that are solely beyond real estate costs. New and different metrics are being incorporated in a real estate decision including turn ratios per trip and 16 other metrics.
In conclusion, for the industrial broker, the added value that he/she can bring is the following:
1. Identify areas near ports or main rail
2. Have contacts with rail service
3. Have knowledge about logistical hubs and infrastructure
4. Know about external hubs
5. Support “Intellectual Property”
6. Become certified or involved in the new field of “Logistics property brokerage business”
Rob Nahigian, FRICS, SIOR, CRE, MCR is Principal of Auburndale Realty Co., Newton, Mass. and served as the New England SIOR Chapter President and National Ed Chair. His focus is corporate representation, advisory services and expert testimony in office and industrial real estate. He is a Real Estate Instructor at Boston University, SIOR, NAR Commercial, CoreNet Global and RealtorU. He conducts a program on Logistics and Supply Chain real estate decisions for SIOR Chapters. Rob was awarded the 2012, 2004, 2003, 2002 and 1994 SIOR National Real Estate Instructor of the Year.
Introducing this year’s ACE Award Winners-
The following Commercial Services Accredited Associations have earned this year’s ACE Award.
ACE award winners have demonstrated that they have gone beyond their accreditation benchmarks to be leaders in engaging their members and the high quality of the services provided.
In the underground commercial real estate market — a genre one might call “natural roof” commercial real estate – development starts at the ground and proceeds downward instead of upward. Using underground structures — some naturally occurring, some dug or bored — has long been associated with special-purpose building projects including military and scientific uses. But increasingly, business is joining the rush for subterranean space, drawn by the many unique benefits of going underground.
There is probably no more eye-popping US example of underground commercial real estate development than Kansas City’s SubTropolis. Billed as “The World’s Largest Underground Business Complex”, SubTropolis is a mixed industrial-office-warehouse facility sporting a stunning 55 million square feet — and growing. Dug into an active limestone mine and reaching depths of 160 feet beneath the surface, the property contains almost seven miles of illuminated, paved roads, plus several miles of railroad track.
As the complex’s pitch says:
Move to SubTropolis and enjoy these standard benefits:
- Low lease rates — 30-50% less than above ground facilities
- Low utility costs — 50-70% savings in total energy costs
- Constant temperature and humidity levels — protect your products and make your employees more productive
- Maximum flexibility — for expansion and seasonal surges
- On-site services — management, maintenance and 24/7 security so you can run your business, not your building
- Sustainability — you’re more sustainable without the upfront costs (Check out our green statement.)
Data Center Digs In
Sustainability, energy savings, low utility costs — if the benefits list of this unique property seems to you like a good match for data center location, you’re not alone. As reported in NREI Online, SubTropolis’s developer is working with Iowa-based LightEdge Solutions to install a new data center by spring 2014. LightEdge is taking occupancy of 20,000 square feet with a deal to ultimately occupy 60,000 sq. ft of the facility’s monster footprint.
“Masterson says his firm already has agreements to host carriers such as AT&T, Surewest, TW Telecom, Time Warner, Unite and Windstream. The company plans to provide network connectivity up to 10 gigabits per second. Masterson says the underground facility will provide benefits that are just not achievable with above-ground construction.
“The flexibility aspect is amazing, we can expand into new space within 90 days,” he says. “Also, Subtropolis is laid out in grid fashion, we don’t have to work around weird-angled wall space. The best aspect, of course, is how secure the structure is against weather or instability.”
Other underground facilities across the country have been reaching out to start commercial data hosting. Iron Mountain Inc., one of the most well-known data storage firms, has been leasing underground space to the U.S. government for years, and this year decided to open its underground facility in Boyers, Pa. for colocation. The former limestone mine is positioned 220 feet below ground, with ambient temperatures in the mid-50s and geothermal cooling. Marriott already leases 12,500 sq. ft. there for disaster recovery purposes.”