I stand before you as an unapologetic, lifelong baseball nut, proud to announce that my Chicago White Sox stand today atop the American League behind excellent pitching and regular outbursts of offense courtesy of Todd Frazier, Melky Cabrera and Adam Eaton.
I hear you ask: great, but what in the world does baseball have to do with apartment complexes?
If anybody would make the connection, it would be yours truly.
Come with me to Kansas City. Rewind to 1987. There we will find Kansas City Royals legend George Brett facing contract negotiations with the team’s then-owner, apartment developer Avron Fogleman.
Brett, a twelve-time All-Star third baseman, is just past the peak of his twenty-year career and commands a salary among the highest of his day – over $2 million.
But there’s a very unique wrinkle in this deal: it’s an apartment complex in Nashville called Country Squire Apartments, developed by Fogleman. Still standing today, this 1,100 apartment complex was completed that year.
The contracts, which are linked to Fogelman real-estate projects in Nashville and Memphis, where he lives, are probably the most difficult in baseball on which to place a value. The amount of money the players will receive from the real-estate deals makes them so.
Assessing the contracts on the best information available, however, the three Royals will be among the 10 highest-paid players this year. The values of their contracts for 1987:
Quisenberry $2,293,509 Brett $2,205,000 Wilson $1,935,296 In salary alone, Brett will earn $1.5 million, Wilson $1 million and Quisenberry $800,000. But there are those real-estate deals. Brett’s contract is tied to Country Squire Ltd., a 1,100-apartment complex in Memphis that is scheduled for completion this summer. Quisenberry’s and Wilson’s financial packages are tied to Stewart’s Ferry Ltd., a 700-apartment complex in Nashville that has recently been completed.
Brett is guaranteed a minimum cash flow of $1 million from Country Squire until December 1991. At the third baseman’s choice, the Royals will buy his 10 percent interest in Country Squire for $2 million.
Both the term and the nature of these development-equity driven contracts are very unique both to baseball and to apartment development — but in one sense, it was just another day in the marketplace, matching value in one place (third base) to value in another (Memphis).
Photo credit: Wikipedia
Brokers, property managers and landlords of Los Angeles: be aware that an updated list from the Los Angeles Department of Building and Safety (DBS) has arrived. The list identifies thousands of buildings that may potentially require earthquake retrofitting, including those sporting “tuck-under parking” designs and other popular constructions that are especially susceptible to collapse in earthquake conditions. The list contains over 23,000 addresses.
Buildings that are most vulnerable have been identified with the following criteria:
- Consist of 2 or more stories wood frame construction
- Built under building code standards enacted before January 1, 1978
- Contains ground floor parking or other similar open floor space
How Do I Get The List?
You can get to the list in two ways. The Los Angeles Times has published a searchable website that you can use after the link. You can also obtain the entire list by request to the DBS by contacting the LADBS Custodian of Records at (213) 482-6770, or email LADBS.email@example.com.
Soft Story Construction Targeted
In October 2015, Los Angeles passed an ordinance requiring retrofitting for “non-ductile concrete and soft-story wood frame” buildings. According to law blog JD Supra, inclusion on the list does not mandate retrofitting; it requires only that building owners within one year of receipt of formal notice from DBS prepare a structural analysis showing whether their buildings meet the earthquake standards promulgated in the ordinance. Further, appearance on the list does not constitute notice, says the JDSupra piece penned by Tetlo Emmen and Alfred Fraijo.
This month’s statistics from the American Bankruptcy Institute show a significant climb in commercial bankruptcy filings. 9,208 businesses are reported to have filed for bankruptcy protection in the first three months of 2016, up from 7,483 such filings 1Q 2015, making a year-over-year bump of 24%. The uptick follows a decline in filings lasting over five years. From ABI:
“After 22 consecutive declines in total quarterly filings, the drop-off is tapering as more struggling businesses and households turn to the financial relief of bankruptcy,” said ABI Executive Director Samuel J. Gerdano. “Distress in the energy and retail sectors is represented in the increasing total of business filings, and we are also seeing a rise in individual chapter 11 filings.”
Recent Retail Rainouts
Facing challenges including internet retailing, overindebtedness, and decades of flat wages holding back consumer buying power, the retail sector has been buffeted by a wave of reorgs and closures sending instability into shopping center management and ownership nationally. Most recently, the 600-store activewear retail chain Pacific Sunwear filed for Chapter 11, planning to transfer significant equity to shareholders in a deal with its private equity investors.
PacSun’s troubles come on the heels of similar announcements this year by Sports Authority, Hancock Fabrics, Wet Seal, and the Vestis Retail Group, which includes Eastern Mountain Sports, Bob’s Stores, and Sport Chalet.
The unwinding of these operations is of concern to every professional working to add value in the retail property sector, from landlord to manager to tenants trying to avoid splash damage from nearby closings. Are these retail busts a speed bump in the wider commercial property markets, or are they something worse pointing to fundamentals in the economy? History, as always, will have the final word.
Quarter to quarter, week to week, day to day, the price of capital fluctuates. The changing cost of money has a lot of say in what’s possible for any given commercial real estate development, so getting indebtedness exactly right is an essential, foundational job. Who’s refinancing commercial properties and where? Let’s take a quick look at the recent national scene.
- Meridian Capital Group Secures $4.8MRefi for Mixed-Use Property In L.A. – Drew Anderman and Sean Robertson of Meridian secured the seven-year, fixed-rate loan on behalf of the borrower.
- New Lenders Stepping Up To Refinance Debt – NAREIT podcast talks wave of debt maturities in CRE.
- Highpoint On Columbus Commons in Ohio gets $40M Refinance – 300-unit 7-acre development goes once again to the refi well.
- HFF Secures $9.75MRefi For Redevloped Shopping Center in Metro Atlanta – 100KSF retail center in Roswell goes floating-rate for the new deal.
- Northmarq Capital Secures $14M Refi for Publix at Summerfield Crossings – 10 year loan, 30 year amortization schedule for employee-owned supermarket chain.
- Grandbridge Real Estate Capital closes $67.5M refi for 3 multifamily properties in Dallas covering nearly 1000 units.
- Commercial Lending Conditions Tighten in REALTORS® CRE Markets – Wherein NAR’s own quant research guru George Raitu spells out the shifting picture of the financing market in CRE.
- Meridian Capital Does Manhattan – $160M Refi for 1926 26-story tower at 245 Fifth.
- Brickell City Tower Closes $61 Refi – Iconic 33-story Miami tower rewrites its loan.
- Miami Neighborhood Shopping Center Gets $6.5M Refi Deal – Team worked around an anchor grocery unwilling to commit to longer lease.
Realtors Property Resource (RPR) is the National Association of REALTORS® member benefit that provides a parcel-centric, national view of the commercial real estate market. It’s a database filled with an incredible amount of insight into an area’s commercial fitness for any given investment criteria, producing for its users an exclusive combination of commercial demographics, deep information on property histories, and more.
Using RPR standalone is only one option for users. It was designed from the get-go to be a source of intelligence to users of many different software tools, from MLS/CIXes to the more recent vintage of apps designed for mobile devices. The way RPR gets to these platforms is called Advanced Multi-List Platform – or RPR AMP™.
What’s RPR AMP™?
Learning about the RPR ecosystem underscores that choice and flexibility are what brokers and agents want. While MLS/CIX systems represent a bedrock foundation to the commercial industry’s need for effective search, the technology world has moved on far beyond the point when these tools were created. RPR is a platform that allows existing applications such as MLS and CIX to integrate RPR’s deep-dive information into the presentation du jour. RPR AMP™ is the engine that works within existing MLSes — as well as drives best-of-breed modern mobile applications.
Free Webinar To NAR Members: Learn About RPR AMP™
Bob Bemis, RPR Vice President of Business Technologies, will lead a workshop on May 3rd 2016 on the topic of RPR AMP™ and how it can improve your MLS. The workshop will feature Jeff Young, RPR Chief of Operations and special guests who will discuss their thoughts on the benefits of AMP™ for their MLSs.
This exclusive online presentation of the Advanced Multi-list Platform™ (AMP™) will highlight how and why an AMP™ partnership could benefit your MLS, with topics ranging from:
- What is AMP™ and why is RPR creating it?
- How will AMP™ benefit my Association or MLS?
- What are the risks of trying AMP™ in my market?
- What has been the reaction from the system vendors?
- When will AMP™ be delivered and when can we see it?
The most recent report from the Urban Land Institute (ULI) does a great job exploring the dependencies and interconnections between the growth of real estate value and the provision of active transportation options, e.g. walking and bicycling. A collection of case studies, the 61-page report details built environment projects that significantly affect local economic development by way of integrating walking and bicycling into the economic patterns of the area.
Projects include the following office and multifamily developments:
- Bici Flats: Des Moines, Iowa (link)
- Circa: Indianapolis, Indiana (link)
- Flats at Bethesda Avenue: Bethesda, Maryland (link)
- Gotham West: New York, New York (link)
- Hassalo on Eighth: Portland, Oregon (link)
- MoZaic: Minneapolis, Minnesota (link)
- Ponce City Market: Atlanta, Georgia (link)
- Silver Moon Lodge: Albuquerque, New Mexico (link)
- 250 City Road: London, United Kingdom (link)
- Westwood Residences: Singapore (link)
Download The Report
Download the entire ULI Report “Active Transportation And Real Estate: The Next Frontier” here.
Yesterday, the latest edition of the eight-times-annually published Federal Reserve Beige Book arrived (or, as the kids say, dropped). What lies within its muted brown pages and cream-tone cover*? Good news for the state of the commercial real estate industry.
Construction and Real Estate
Construction and real estate activity generally expanded in late February and March, and contacts across Districts maintained a positive outlook for the rest of the year. Residential real estate activity strengthened, on balance, with robust growth in San Francisco, Cleveland, and Boston, but more mixed reports from Dallas, Kansas City, and Atlanta. Several Districts credited a mild winter for stronger home sales, and the pace of home price increases picked up in a number of Districts. Multi-family construction remained strong in most Districts. Chicago, Cleveland, and St. Louis also noted some improvement in demand for single-family home construction, and a contact in San Francisco reported backlogs of more than six months for new single-family units. Commercial real estate activity generally increased, with leasing activity and rents rising in many Districts: particularly strong leasing was noted in retailing in Chicago and in the industrial sector in Dallas. Vacancy rates either moved lower or were unchanged in most Districts. Most Districts reporting on nonresidential construction said that demand increased. Contacts in Boston said the education, health care, hospitality, retail, and office sectors all contributed to its recent construction boom. Nonresidential contractors in Cleveland cited broad-based demand, with particular strength in education and healthcare projects, where several builders expressed concern about their capacity to take on additional projects. In contrast, Chicago noted continued weak demand for industrial construction, and Philadelphia reported fewer starts of new nonresidential projects.
The Federal Reserve Beige Book gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector. An overall summary of the twelve district reports is prepared by a designated Federal Reserve Bank on a rotating basis.
* The Beige Book is not colored beige, nor is it a book.
In order to continue to influence the discussion in Washington, DC about the real estate industry’s use of drones for photography and survey of property, the National Association of REALTORS® recently participated in the Federal Aviation Administration’s Micro UAS (Unmanned Aircraft Systems) Aviation Rulemaking Committee (ARC). Last week the committee’s recommendations were released and you can download the entire report here.
Membership In The ARC
Joining the Aviation Rulemaking Committee discussion beyond NAR were several interest groups representing constituencies and industries who hold a keen interest in the FAA’s regulatory decisions concerning drones going forward.
● 3D Robotics (3DR)
● Academy of Model Aeronautics (AMA)
● American Institute of Aeronautics and Astronautics (AIAA)
● Air Line Pilots Association (ALPA)
● Aircraft Owners and Pilots Association (AOPA)
● American Association of Airport Executives (AAAE)
● Association for Unmanned Vehicle Systems International (AUVSI)
● Alliance for System Safety of UAS through Research Excellence (ASSURE)
● ASTM International
● Consumer Technology Association (CTA)
● Experimental Aircraft Association (EAA)
● General Aviation Manufacturers Association (GAMA)
● GoPro, Inc.
● Helicopter Association International (HAI)
● Horizon Hobby
● ICON Aircraft
● Intel Corporation
● National Agricultural Aviation Association (NAAA)
● National Association of REALTORS® (NAR)
● National Association of State Aviation Officials (NASAO)
● News Media Coalition
● Professional Aerial Photographers Association, International (PAPA)
● Small UAV Coalition
● Toy Industry Association
Report Identifies Usage Categories
Categories of UAS (drone) usage have emerged, using definitions that are likely to hold going forward as the issue is approached by regulators. The report (download PDF here) defines four categories of use and is filled with helpful definitions and comparisons that will doubtless assist any real estate professional in developing UAS-related business plans going forward. At 19 pages, it’s a recommended read.
Quick, no Googling – on what does the US spend more on energy? Transportation or buildings?
Every year, $400 billion goes to energy to buildings, a sum that adds up to roughly 40% of the total US annual energy expenditure. That makes energy to buildings is the largest single sector in US energy consumption, including transportation.
With a figure that large, and with so much commercial property inventory having been built decades before serious energy efficiency features occurred to architects, owners and developers, you can bet that opportunities to save energy dollars in commercial property are huge.
Along with huge opportunities to control costs and rewrite operation and development plans, local government sustainability policies figure greatly in the bottom line of new and existing commercial property development. Getting to the actual policie, so as to know what flies in one state and doesn’t fly in another presents a challenge.
Building Energy Policy Briefs Aplenty
BuildingRating.Org is operated by the Institute for Market Transformation, a DC-based nonprofit dedicated to promoting energy efficiency in buildings, has done a service by collecting and making available an ever-growing archive of sustainable energy building policies for local jurisdictions across the US. Check out the most recent collection at these links today — and get a handle on how energy efficiency savings and local government relate with programs, policies and case studies.
- District of Columbia
- Austin, Texas
- Washington State
- New York City
- San Francisco
- Montgomery County, Md.
- Cambridge, Ma.
- Berkeley, Calif.
- Portland, Ore.
- Kansas City, Mo.
- Boulder, Colo.
A pair of Chicago-based brokerages have reported that all-time lows in cap rates for net leased industrial properties are a harbinger of greater demand for the property class. In its Net Lease Market Report for Q1 2016, net lease commercial real estate firm Boulder Group has identified the see-saw linking low cap rates top high price points for net lease single-tenant industrial properties. From the report, authored by Boulder VP John Feeney:
Cap rates in the first quarter of 2016 for the single tenant net lease retail and industrial sectors reached a new historic low rate of 6.18% and 7.10% respectively. During the same timeframe, cap rates for the office sector increased by 20 basis points to a cap rate of 7.20%. Cap rates for retail assets continue to decline and trade at much lower cap rates than that of net lease office and industrial properties due to their preference amongst private and 1031 buyers. Private and 1031 investors typically pay lower cap rates than institutional investors, especially for retail assets. Private and 1031 buyers are more familiar with retail tenants, prefer the lower price points and understand the general business practices of these tenants when compared to industrial or office tenants […]
After the decision was made in the December Federal Reserve meeting to raise key interest rates, the 10 Year Treasury plummeted to its lowest point since February of 2015. Since that time, the 10 Year Treasury has trended upward, however remained lower than its sudden increase prior to the Federal Reserve’s decision to increase rates in December 2015. The net lease market is expected to remain active in 2016 as investor demand and allocated capital for this asset class remains strong. With the volatility of the 10 Year Treasury effecting capital markets, investors will be monitoring the capital markets and adjusting their bids accordingly. 1031 and private investors will be less effected by the volatility of the financing markets than institutional investors. This can be attributed to their acceptance of lower returns when financing or all cash closings due to their 1031 timing and tax consequences.
Stan Johnson reports that the average cap rate for the entire net lease market fell to 5.79 percent in the first quarter, from 6.24 percent over the past 12 months. The average price per sq. ft. went up about 10 percent, to $169.
The overall supply of product in the net lease sector declined by 3.0 percent since the fourth quarter of 2015, The Boulder Group reports, as new construction has remained limited.
“New construction properties are in the highest demand amongst 1031 and private buyers as they typically have the longest lease term,” the firm’s researchers write. “The limited supply has kept cap rates low for all three sectors despite the volatility in the 10-year treasury over the past year.”
Download a complete copy of NREI’s Net Lease Trends report here.