Seniors, minorities and millenials push multifamily growth, industrial markets looking very healthy, more companies are moving their headquarters to urban centers, Class B housing on the rise for working class families and more. It’s all here at the Commercial Real Estate National News Roundup for July 27, 2015.
- Economy Watch: Does the Fed Foresee a CRE Bubble?, Commercial Property Executive, July 21, 2015 – Fed reports to Congress that underwriting standards for commercial deals are slipping. A precursor to finally raising the cost of money?
- A Millennial’s Perspective on Commercial Real Estate, National Real Estate Investor, July 21, 2015 – As 20- and 30-somethings join the CRE professional ranks, expect an uptick in information available online and a greater dependence on technology.
- Economy Watch: 3 Economic Trends Affecting CRE, Commercial Property Executive, July 20, 2015 – Residential and multi-family starts up considerably since last year which should mean the need for more retail and office properties.
- Suburb-to-City Migration Here to Stay, GlobeSt.com, July 23, 2015 – Companies who want to stay competitive with a younger urban workforce are abandoning their corporate campuses in the sticks for new downtown digs.
- Support-services Provider Citco Will Take on WeWork with its New Co-working Space, Crain’s, July 22, 2015 – Global financial companies now have access to co-working space in New York City via one of their trusted service providers.
- Class B Miramar Office Triples Value in 30 Months, GlobeSt.com, July 22, 2015 – One Florida market being driven mainly by investors seeking a haven for 1031 exchange proceeds.
- This Deal Shows Atlanta’s Industrial Health, GlobeSt.com, July 23, 2015 – 82% of industrial property under construction is over 500K SF, which is double the pre-recession average.
- Speed Lands Rare Big Box Industrial, GlobeSt.com, July 21, 2015 – To snag prime space in this tight submarket, lessees must act quickly, negotiate and be able to take occupancy quickly.
- US Industrials Ready for Another Record, GlobeSt.com, July 20, 2015 – Based on a survey of 60 markets, average vacancy rate is 7.3% which is lower than pre-recession rates.
- Why Street Stores Still Matter in the Age of Online Shopping, Commercial Observer, July 23, 2015 – A conference in local retail claims shopping is still an “emotional experience”, brick and mortar still best way to get products from retailers to consumers.
- Urbanization Is Retail Development’s Main Driver, National Real Estate Investor, July 23, 2015 – Expansion into densely populated existing nontraditional urban space is creating some very interesting retail experiences.
- How Retail Leasing is Changing, GlobeSt.com, July 21, 2015 – An extremely competitive market means retailers need to be more aggressive, creative and open to more non-prototypical locations and layouts.
- TruAmerica Expands in the Pacific Northwest, Commercial Property Executive, July 23, 2015 – Focus on creating Class B housing for working-class families who are being priced out of Seattle and Portland.
- Urban Institute Predicts Rental Surge Among Millennials, Minorities, Seniors, National Real Estate Investor, July 21, 2015 – Steadily increasing rental interest over the next 10 years for apartments and condos is expected.
- Multifamily Construction Surge Drives U.S. Housing Starts in June, World Property Journal, July 20, 2015 – Millenials continue to push starts in the multifamily markets.
The Building Owners and Managers Assocation (BOMA) International has just announced the updated version of their groundbreaking BOMA Energy Performance Contracting (BEPC) Model to incorporate new best practices into building maintenance. BEPC was originally created in 2008 by BOMA International in a partnership with the Clinton Climate Initiative (CCI), several major real estate companies and energy service companies (ESCOs).
BEPC Is Updated For Today’s Best Practices
Unfortunately, since the initiative started in 2008 there was not much market emphasis on retro-fitting buildings with new energy-saving technology during the crisis of ’07-’09. Now that the market has vastly improved and recovery is well underway, BOMA is updating and sharing their program more broadly with the commercial real estate world.
A standout for best practice from BPEC: investors are well-advised to be proactive in managing their assets so they can make strategic investments to drive rents and occupancy. Exhaustive management of utility expenses has become a best practice, but many of the older buildings have infrastructure that is approaching or at the end of its useful life, limiting potential to get a handle on all the utility usage information that true best practice calls for.
Gear To The Ground
You can’t manage what you can’t measure, and when it comes to sustainable ant truly controllable energy usage, that means extra equipment. Technology upgrades will be necessary in order for the buildings to remain competitive in today’s market. Such refits can be large capital projects tending toward the complex, carrying a variety of risks. However, the risk of doing nothing is very real, causing rising maintenance costs, utility costs, increasing complaints from tenants and potential tenants. Left unaddressed – especially in a competitive environment, these costs will negatively impact the owner’s bottom line sooner than later.
BOMA International Chair-Elect, Kent C. Gibson, BOMA Fellow, president of Capstone Property Management, LC. was quoted in BOMA’s press release, “BOMA International is pleased to provide building owners with a valuable resource that can help them increase asset value, improve operational efficiency and demonstrate to tenants a commitment to sustainability.” Among these are investigations into technology applications that will help understand what’s really called for to improve building performance and reap the true benefits.
BEPC Designed To Enhance Performance and Efficiency
The BOMA BEPC was designed to manage risk performance, facilitate projects that enhance building’s performance and efficiency and aid in delivering predictable returns on capital projects. BEPC provides a conceptual framework and supporting template documents to help private building operators develop and execute investment-grade retrofits to enhance the value of their properties. BEPC also provides transparency on performance expectations, pricing and a clear guidelines for managing their retrofit project so that the owners meet their goals and finish their projects within their desired timeline.
Since its beginning, BEPC has facilitated projects in more than twenty cities across five continents. The BEPC Model works with a variety of funding models including ESCO or third party, Property Assessed Clean Energy (PACE) programs and self-financing.
[Guest blogging today is Stephen Schlickman, Executive Director of the Urban Transportation Center at University of Illinois at Chicago. The relationships between property value and infrastructure are studied exhaustively, and UTC’s specialty is the factor of transportation infrastructure in the outcome of property value. Today, Steve explores how real estate development can overcome funding challenges for infrastructure projects using a funding technique called “value capture”. Mr. Schlickman has a law degree from DePaul University and an undergraduate degree from Georgetown University. In 1992, he was named to the prestigious “40 Under 40″ list by Crain’s Chicago Business. -WG]
A reliable, affordable and extensive public transportation system is vital to the continued health and future growth of our nation’s cities. But some of our largest metro areas face this big challenge: A significant backlog of underfunded transit capital projects.
Through a process called value capture, the private commercial property industry can play a critical role in funding transit improvements needed to keep cities strong. In turn, properties can grow in value from proximity to a new rapid transit station or other transit development.
Here’s how the process usually works. Municipalities secure partial funding for transit projects through these two forms of value capture:
- An ongoing tax or fee tied directly to the size and scope of the property. The most common methods are creation of a special assessment district, through tax increment financing or by floor area ratio marketplace factors.
- A pre-determined financial commitment from the developer, such as a joint development or project cost-sharing agreement.
Last year, a research team from the Urban Transportation Center at the University of Illinois at Chicago completed research into value capture practices in four major U.S. metro cities and produced a report, “Value Capture Coordination: Case Studies, Best Practices and Recommendations,”
Two key conclusions were drawn: Value capture practices can be successful if municipalities, transit agencies, community groups and developers agree to terms in the initial stages of the development process; and, if all parties support the concept and employ staff skilled in transit planning and funding.
Researchers prepared funding case histories in Chicago, Washington, D.C., New York and San Francisco and found out that the process was employed differently — often dramatically — in each metro area.
For example, in New York, two independent taxing bodies were created to manage funding and planning for the expansion of the Metropolitan Transportation Authority (MTA) Number 7 line subway to serve commuters and residents in Hudson Yards. The neighborhood, located on the west side of Manhattan, has experienced significant commercial, residential, and retail redevelopment in recent years and is close to the Jacob K. Javits Convention Center. Following negotiations launched in 2005, developers, the city and the MTA finalized three value capture mechanisms – floor area ratio, payments in lieu of property taxes and grants to negate mortgage recording taxes – to fund the $2.3 billion project, now 90% complete.
The process to build the NoMa-Gallaudet U Red Line metro station in Washington took a different, yet successful course. Years before work began on the station, the District’s Department of Housing and Community Development led coordination between area developers and Action 29, a private civic group. A special taxing district was established and $25 million was raised to fund station construction, which totaled $103.7 million. Since completion in 2004, there has been $3 billion in private investment near the station.
Public transportation improvements yield many benefits. Better transit can strengthen a business district, give workers greater access to jobs, improve accessibility and increase property values. Transit value capture offers commercial real estate developers a viable way to enhance their real property assets and improve livability within the community.
Department of Energy needs your help, options and collaboration remain key in today’s office, brick and mortar retail boom time, multifamily fund surpasses $1 billion and more. It’s all here at the Commercial Real Estate National News Roundup for July 20, 2015.
- Wanted by the Feds: More Solar Panels on Commercial Rooftops, Triad Business Journal, July 15, 2015 – Department of Energy holds a contest to generate ideas for best way to produce energy on commercial rooftops.
- U.S. Commercial Sectors Enjoy Continued Momentum in Q2, World Property Journal, July 14, 2015 – CBRE’s chief economist bullish for second half of 2015, economic growth is expected.
- Oil’s Impact on Commercial Real Estate, National Real Estate Investor, July 13, 2015 – Great news for brick and mortar retail – low oil prices predicted through 2015.
- US Leads Global Commercial Property Sales Growth, Property Wire, July 10, 2015 – Q1 2015 is up 30% in sales making U.S. number one in volume of commercial property transactions in the world.
- Collaboration, Flexible Work Styles Drive Evolution in Office Designs, National Real Estate Investor, July 17, 2015 – Adaptability and mobility are key for today’s workforce.
- Apple Dips into San Jose Market, Commercial Property Executive, July 13, 2015- Apple joins Silicon Valley market where commercial rentals top $28 a square foot due to technology company expansion.
- Best Office Market Since Dot.com Boom, GlobeSt.com, July 13, 2015 – Greater Boston area tallies 9th successive quarter of positive economic activity.
- Coastal Investors Trade Indy Industrial, GlobeSt.com, July 13, 2015 – Secondary market surges because of opportunities to invest in fully leased buildings with strong tenancy.
- Examining SoCal Industrial Valuations, GlobeSt.com, July 13, 2015 – Investment sales surpasses its 2008 peak.
- Cold Storage Buildings Ready for Center Stage, GlobeSt.com, July 17, 2015 – Improving economy expands market for healthy foods and a greater need for year round cold storage.
- New Investor Buys “Old” Shopping Center, Commercial Property Executive, July 13, 2015 – 170,000 square foot center’s current market value is over $41 million.
- Successful Retail Landlords Handpick Tenants, GlobeSt.com, July 13, 2015 – Owner: key to success is to lease to tenants who have a strong image are high quality and don’t directly compete with neighbors.
- Are We Overheating?, GlobeSt.com, July 17, 2015 – 250% appreciation in property value since 2009 may be the sign of an overheating Miami real estate market.
- New York Multifamily Market Roars Past $1B-a-month Mark, Real Estate Weekly, July 16, 2015 – Up 62% in dollar volume, 28% in transaction volume and 4 percent in increase in building volume compared to May 2014.
- Lennar Rolls Out $1.1B Multifamily Fund, GlobeSt.com, July 15, 2015 – Nation’s fifth largest apartment developer attracts international investment to their multifamily fund.
- Multifamily Sales Surpass $1 Billion in May, The Real Deal, July 13, 2015 – New York City’s prices up 40% since same time last year while Bronx sales are up 37%.
- Apple’s spaceship is rising (theverge.com)
- These were the biggest commercial real estate sales of the second quarter (bizjournals.com)
- Commercial Real Estate News Roundup For June 22, 2015 (commercialsource.com)
The good news on the horizon for CRE doesn’t seem to want to stop, the complicated prospects of marijuana legalization, rents up and cap rates down, and here come the German grocers. It’s all here at the Commercial Real Estate national news roundup for July 13, 2015.
- The Upward Climb Isn’t Over Yet, GlobeSt.com, July 10, 2015 – Data on employment, overall consumer confidence, debt ratios and capital flow suggest the US CRE market can move upward and onward for a good long time.
- Why Marijuana Legalization is Good for the Real Estate Market & Other Industries, Realty Today, July 8, 2015- Legalization boosts demand for secure industrial properties and provide hemp to manufacture more eco-friendly and cost affordable building materials.
- CBD Office Prices Soar Above Other Sectors, GlobeSt.com, July 9, 2015 – Moody’s reports national prices steadily heading up and cap rates heading down, especially in large markets.
- US Office Economy Shows Promise in Q2, GlobeSt.com, July 7, 2015 – Leasing activity up 17% from Q1 to @2 in 2015.
- Distribution Facility Demand Up Thanks to Port Activity, GlobeSt.com, July 9, 2015 – Increased new home construction drives activity at distribution centers.
- What’s the payoff when it comes to data centers?, Crain’s Cleveland Business, July 5, 2016 – Data centers indirectly bring jobs to their neighborhoods.
- Retail Expansion Translates into Net Lease Construction, National Real Estate Investor, July 9, 2015 – Scarcity drives high prices and demand for new retail net lease construction across the US.
- Aldi and Lidl Are Ready To Invade the U.S. Beware Walmart and Target!, Forbes, July 8, 2015 – The Germans are coming — to bring the US no-frill shopping at the right price.
- Don’t Expect Multifamily Rents Alone to Catalyze Higher Inflation, National Real Estate Investor, July 9, 2015 – Massive wave of supply of new units coming available by 2017 will push against rental rate increases.
- Chicago Apartments Sell Like Hot Cakes, Commercial Property Executive, July 6, 2015 – Renovation and high occupancy of Chicagoland apartments will most likely inspire more needed redevelopment.
Private equity real estate fund, Bell Partners, Inc. Fund V will invest in quality apartment complexes in highly desirable locations with value-add potential in the Western United States, across the East Coast and in the Southwest.
Bell Partners, Inc. founded in 1977 is now the 11th largest apartment operator and 7th largest apartment renovator in the United States according to the National Multi-Housing Council.
Bell Partners, Inc. has completed their final round of funding for $425 million total equity commitments. Bell Partners is considered to be one of the highest “top performing, consistent” real estate fund managers for the second year in a row by the 2015 Preqin Global Real Estate Report.
Jon Bell, president of Bell Partners, Inc. said in a press release, “We are very pleased with the reception that Fund V received from domestic and international investors. The positive investor response to the Fund demonstrates confidence in Bell’s strategy, management team, and vertically integrated operating platform, as well as recognition of our strong track record. We are confident that this investment opportunity will generate attractive current income and provide strong total returns.”
Since 2002, Bell Partners Inc. has invested $10 billion of apartment investments on behalf of its investors. Bell invests in multifamily properties in targeted areas and some transitioning areas that can through renovation create high-quality communities in supply-constrained submarkets near major employment centers and other amenities.
National Association of Realtors’ latest Commercial Real Estate Outlook offers overall projections for four major commercial sectors: multifamily markets, industrial, retail and office developments. Historic data for several metro areas were provided by REIS, Inc., a source of commercial real estate performance information.
In “The Tyranny of the Abutter” at JDSupra, Boston attorney Robert Ruzzo muses on a way Massachusetts has proposed to streamline and better democratize the process of court challenges to land use.
Land owners have a lot of power when the land is adjacent to a proposed use. In the eyes of the law, this classifies them “abutters” – because their land abuts, or touches the land in question that has the new proposed use. Abutters have an extra say in what goes on in a community by leveraging their legal status as owners, and can challenge a permit for a particular use on abutting property in court.
But is this the best way to express property rights? Does it place too much power in the hands of landlords who just seek to tie up a competing development for years, hoping that future market shifts will kill the proposal ultimately? That’s the question Russo kicks around in a thoughtful piece that looks at what one state is doing to look at the problem of frivolous challenges to state permitting processes.
Last year, the Massachusetts Housing Partnership (MHP) handed in a legislative proposal that contained an idea that originated with the Mitt Romney gubernatorial administration. Why not, the proposal goes, establish a three-person permit appeal review council, and have parties submit briefs to the council on the merit of a given permit appeal? As Ruzzo puts it:
The proposal, while intriguing, is not entirely radical. First, no one actually loses their right to a day in court. The costs of bringing a less than meritorious appeal are simply increased. According to MHP, the concept of screening out “frivolous” medical malpractice lawsuits by using a tribunal has been in play since 1976. The requirement to post a bond in order to bring an appeal is also a part of our existing Smart Growth law (Chapter 40R). Moreover, Massachusetts has for a number of years countenanced the notion that certain litigation may be against public policy.
The discussion of a review panel to pre-screen abutter appeals should continue. A few observations: (a) the composition of the panel should continue to be examined; (b) an exemption for neighboring municipalities is warranted; and (c) the proposal should have a built in reporting mechanism which would track the ultimate disposition (or non-pursuit) of the appeals that come before it. It will be essential to know and closely monitor the panel’s track record. If appeals subjected to a bonding requirement are ultimately successful on the merits in great numbers, the legislation would need to be revisited.
Obviously, one party’s frivolity could easily be another party’s diligence — and when a conflict of substance arises in land use, we always have the courts, expensive and lengthy as they tend to be, to settle such questions. In the end, it is true that the right to develop property needs protection — or at least a second look — given by local civic structures who can best make a determination on wether to err on the side of NIMBY concerns or not.
REITs cautious because of possible interest rate hikes, offices surge in some secondary markets, good news and bad news about Atlanta’s CRE, industrial property will be hot for the rest of 2015. It’s all here at the Commercial Real Estate national news roundup for June 22, 2015.
- The Promising Future of Real Estate Crowdfunding, HuffingtonPost.com, July 3, 2015 – Investment funds on a steady upward trajectory from $2.7 billion in 2012 to well over $10 billion in 2014.
- What REITs Tells Us About the State of the US Real Estate Market, BisNow.com, July 2, 2015 – Profit’s up, interest rates remain low and REITs are holding strong.
- Are Office Tides Rising In Secondary Markets?, GlobeSt.com, July 1, 2015 – Assumptions about secondary markets disappear as demand rises.
- Beating Back Building Obsolescence In Office, GlobeSt.com, July 2, 2015 – Panelists discuss cost per useable seat and how to update office buildings to meet modern worker’s needs.
- North American Industrial Absorption Rate High, Industry Experts See Continued Growth For Remainder 2015 – REJournals.com, June 30, 2015 –
- Massive Tampa Industrial Site Up For Grabs, GlobeStreet.com, June 29, 2015, Could this be the next logistics and distribution center for the South East US?
- The REIT Option For Retailers: Not So New, GlobeSt.com, June 30, 2015 – REITs go in and out of vogue and it’s about that time for retailers.
- Good and Bad News For Atlanta Retailers, GlobeSt.com, July 2, 2015 – Bidding wars for restaurant space while retail development is stagnant.
- McKinley Finds Niche Renter in Baby Boomer Women, Multifamilyexecutive.com, July 2, 2015 – Healthy lifestyle is high on the list for baby boomer women when considering housing options.
- This Orland MF Submarket Is White Hot, GlobeSt.com, June 29, 2015 – Forbes 2014, “#1 City in the Country For Job Growth” is demanding more multifamily development.
- Industrial vacancy hovers below 10 percent even with new buildings in the mix (bizjournals.com)
- Washington moves up the green office space ladder (bizjournals.com)
- CyrusOne Kicks Off Third Massive Phoenix Data Center (datacenterknowledge.com)
- ARI: Growth Ahead for Commercial Real Estate REITs (investorplace.com)
Property managers, landlords, tenants wrestling with improvements, regulators, buyers and sellers — take note. Solar is absolutely the energy future for the United States.
Last month the Obama administration put a significant amount of federal muscle behind the push to modernize buildings in the United States with energy solutions that get away from fossil fuels. What’s new in this development is the funding for training a whopping 75,000 solar workers – using veterans in large part to expand that workforce.
Veterans are an excellent source of expertise for this program for a special reason. The Defense Department has long understood that dependence upon fossil fuels creates a national strategic liability. It’s an ironic (and happy) fact that the people charged with protecting the US and its energy sources just don’t listen to the endless right wing noise machine that casts solar as some kind of elite tree-hugging plot instead of what it is — the future of energy.
- Training 75,000 Solar Workers: The Department of Energy (DOE) is announcing a goal to train 75,000 people to enter the solar workforce by 2020, some of whom will be veterans. This is an increase from the previous goal of training 50,000 solar workers by 2020 announced in May 2014. The new goal builds on the tremendous progress of DOE’s SunShot Initiative’s Solar Instructor Training Network, which includes 400 partnering community colleges across the country and has trained more than 1,000 certified solar instructors and nearly 30,000 students nationwide in the last five years.
- Launching a Solar Ready Vets Program: DOE, in partnership with the Department of Defense (DOD), is launching a Solar Ready Vets program at 10 military bases across the country, including at Hill Air Force Base in Utah, which has already taken leadership by installing solar panels onsite. The program also includes participation from Camp Pendleton in California, Fort Carson in Colorado, and Naval Station Norfolk in Virginia, all which announced pilot initiatives earlier this year and are serving as a model for the Solar Ready Vets program.
- The Solar Ready Vets program will train transitioning military service personnel to enter the solar workforce by joining with SunShot’s Solar Instructor Training Network and leveraging the DOD’s Skillbridge transition authority authorized by Congress in 2012. Consistent with the Vice-President’s job-driven training agenda, the program is based on the specific needs of high-growth solar employers, is tailored to build on the technician skills that veterans have acquired through their service, and incorporates work-based learning strategies. Service members will learn how to size and install solar panels, connect electricity to the grid, and interpret and comply with local building codes. This accelerated training will prepare them for careers in the solar industry as installers, sales representatives, system inspectors, and other solar-related occupations.
- Utilizing the GI Bill for Solar Workforce Training: The Department of Veterans Affairs is committing to working with DOE and State Approving Agencies to achieve approval for GI Bill funding for DOE’s Solar Ready Vets initiative. Over time, this approval will enable more veterans across the country to use their GI Bill benefits to participate in this job-driven training program through local community colleges, where they will quickly learn the skills needed for good-paying jobs in the solar industry. Adding Solar Ready Vets will expand the existing network of programs providing service members and veterans opportunities to gain skills to enter the solar workforce through their GI Bill.
The Urban Transportation Center at the University of Illinois at Chicago released a study this year that suggests the construction of an inland port may have driven industrial property value higher along its service area.
The April study looked at areas along high capacity trucking highways in Will County, Illinois, centered upon a development of an inland port or Intermodal Logistics Center (ILC) in Elwood, IL, a town south of Joliet.*
The report, “Intermodal Logistics Centers and Their Impact on Transportation Corridor Industrial Property Value,” was completed by researchers at the Urban Transportation Center (UTC) at the University of Illinois at Chicago.
Researchers used tax assessment, truck volume and U.S. census data from 2002 to 2007 to analyze patterns and property value changes of industrial property along trucking and waterway corridors close to CenterPoint, a master-planned inland port located on 6,500 acres 40 miles southwest of Chicago. Located in Elwood, CenterPoint was built between 2000 and 2002 with tax increment financing from the Village.
Those roadways studied as part of a treatment group showed an increase in equalized assessed value (EAV) per square foot by $0.25 over properties studied in a control group. The treatment group, located on the west side of Will County, was comprised of properties on or near Interstate 55, Interstate 80, State Route 53, and a waterway — the Des Plaines River/Chicago Sanitary Ship Canal. Properties studied in the control group, located on the eastern side of the county, were on or near Interstate 57, State Route 50 and U.S. Route 45.
The study, while finding a correlation between the construction of the ILC and the nearby bump in property values may not have uncovered a cause — the researchers note that it’s possible that speculation in industrial property in the time leading up to the ILC’s construction might be responsible. Additionally, in Illinois, studies of assessments means studying a number called EAV, or equalized assessed value, a multiplier that fluctuates values in an attempt to more tightly bind market value to tax levy calculation.
Also mentioned in the full study’s (available here) summary: the economic benefit of techniques of value capture – where special taxes or predetermined grants from developers are used to fund developments that are shown to produce economic benefit.
“In accordance with these findings, planners should consider value capture tools along trucking corridors,” the report stated. “Increases in industrial property value [should be] considered with projects that [involve intermodal logistics centers].”
* Fans of the 1980 film The Blues Brothers will no doubt recognize these town names as those of Joliet Jake and Elwood Blues.