Speaking generally and in nationwide terms, the commercial real estate market has been undergoing steady, uneven improvement for at least three years. What are the indicators of this recovery? CIT in association with Forbes Insights has an answer in the form of a handy infographic and report detailing the “cautious recovery” – check it out below. (Click for full-size of the partial graphic, or download the entire report here.)
By Randolph T. Mason, CCIM, SIOR
Let’s face it, no one is going to buy or lease your commercial property unless they know about it. So, when there is a plethora of properties and opportunities for tenants and buyers to look at, how do you make your property stand out? Here are a few tips.
A simple and cost effective way to expose your commercial property is to have a video created. Videos can be as simple or as elaborate as you wish. Well-crafted videos, can show the surrounding area, explain features of the property, and dive into specifics such as: what the interior looks like, condition of the roof, office visuals, warehouse and other areas within the building. If the property looks interesting on video, the prospect may want to physically tour it which would allow you to personally sell and close the transaction. In addition, out of town clients appreciate the visual experience and get a good understanding of potential properties to either purchase or lease saving
time and travel.
Websites can show all of the floor plans which then can be printed in a PDF format and other ancillary bits of information. You can then use a QR code placed to place on signs and other marketing materials.
Once all of the other traditional marketing such as adding a property to the multiple listing services, E-blasting the brokerage community, advertising, etc, it’s important to get people through the property. It’s happened more than once, I have scheduled a time to tour a property with a client and told the listing broker needed to be present, and when we arrived at the property the listing broker was nowhere in sight and the building was locked up-too bad for that property. We moved on.
A simple and effective way to get around that problem is to place a lockbox on the property. My recommendation is to use a combination lock box so that when the listing broker is unable to be at the property during showing time, with multiple buildings on a tour timing can be challenging, the combination can be provided so the procuring representative can get into the property and expose it to the client.
Another way to create buzz for your property is to provide broker incentives to the procuring broker. Ideas can include $50 for a property tour or $100 for a bonafied offer. A very motivated landlord once offered $5 a square foot as a leasing incentive provided the lease was signed within 2 months. The reality is that it normally would take longer than 2 months to consummate a transaction so the landlord had little exposure but it created an enormous amount of buzz amongst the brokerage community. The landlord ended up leasing the property outside of that time frame, and compensating the procuring broker $2 a square foot. Money well invested.
Randolph T. Mason, CCIM, SIOR is the Managing Partner for Commercial Realty Specialists.
Exploding demand for online shopping is the driver behind a Jones Lang LaSalle finding that sophisticated warehousing and logistics space will see a big bump in 2014 according to today’s Craig Meyer piece in REJournals:
“2014 is starting off with high demand from e-commerce and other users who are in the market for large, sophisticated space, and lots of it,” said Craig Meyer, president of industrial brokerage at JLL. “This will make 2014 the ‘year of the distribution center.’ Modern space with proximity to population centers and a robust logistics infrastructure will dominate the industrial real estate sector in 2014.” JLL anticipates the overall national vacancy rate will settle at a cyclical low of 7.5 percent in 2014.
3PL Set To Take Off
Increasingly, traditional warehouse space and portfolios of owned facilities don’t offer what e-commerce needs: build-to-suit of third-party logistics (3PL) facilities are springing up in secondary and tertiary markets stronger than ever, locations hugging rail lines to avoid the rising costs of trucking. In a new report from CapGemini, the revenues for 3PL across the entire US market are shown at $170 billion in 2012, up 6.7% from the previous year. Outsourcing is a major driver of the trend. Cost reductions for inventory and logistics are reshaping the warehousing start picture across the US as facilities are suiting an outsourced operations profile.
Collaborating With Competition
How much outsourcing is sought might be explained by one alarming trend identified by CapGemini: in the hunt for efficiencies and savings, shippers are collaborating with competitors to improve service and cut costs in logistics.
Interest in collaborating with other companies, even competitors, to achieve
logistics cost and service improvements: Slightly more shippers (48% compared
with 41% last year) express interest in collaborating with other companies, even
competitors, to achieve logistics cost and service improvements. Substantially more
3PLs (70%) indicate they are engaging in this type of collaboration. As with gainsharing, it
is likely that this approach is more suitable in certain types of shipper-3PL relationships
than in others.
Photo Credit: Wikipedia
Along with David Meit of Maryland’s Oculus Realty, web-based course provider Grace Hill, web-based property management software vendor Appfolio, and, representing the property management industry, NAR partner IREM all got together recently for an online webinar presentation covering the hows, wheres and whys of successful property management.
The hour-long video is worth a look for a few reasons. First, it’s not a vendor pitch dressed up as a business conversation. The topic of property management is looked at from the points of view of the presenters, certainly, but also the live polling questions and interactivity in the session make it a special look into the thorny fundamental problem of property management: how do people who sell for a living get their arms around the problem of property operations?
- New York property managers devise survival plans for the next disaster, NYTimes, Jan 28, 2014 – Property managers in the Empire State tackle the problem of disaster preparedness.
- Bullish outlook for Calgary commercial real estate market, Calgary Herald, Feb. 3, 2013 – North of the border, the oil and gas sector is spurring the Calgary property market.
- Real estate giants look to outer boroughs, Crain’s NY, Feb. 2, 2014 – Manhattan development projects becoming Brooklyn and Bronx projects by the inexorable law of space availability.
- Planned Comcast Tech Center raises sights in Philadelphia, NYTimes, Jan. 28, 2014 – Cable TV giant lends name to 59-story Philly technology center. No truth to the rumor that ground will be broken at some time between 8AM and 5PM.
- The health-care law’s real beneficiary, WSJ, Jan. 28, 2014 – When a country insures an additional 30 million of its people, it needs somewhere to deliver the medical care. Are you in the medical office business?
- Industrial vacancy rates shrinking, Press-Enterprise (Riverside CA), Jan. 30, 2014 – Distribution space is taking on a premium in The Golden State.
- Commercial real estate industry targets Minnesota’s warehouse tax, Star-Tribune, Jan. 30, 2014 – With nearly a billion in surplus, tax cuts on industrial property are on the docket in the Minnesota state house.
- SoCal’s Marco Fine Arts goes big on Texas industrial property, LA Business Journal, Jan. 31, 2014 – Big mystery in Austin – what did a Los Angeles art company want with 300K sq. ft. of Texas industrial floor space?
- Union Square retail landlords kissing a few frogs until they find their prince, Real Estate Week, Jan. 29, 2014 - The proposition of retail success near a NYU dorm turns out to not be the no-brainer some might think.
- Year of reckoning for brick and mortar retailers, Forbes, Feb. 3, 2014 – Yet another in a long line of doom and gloom pronouncements for retail. As we’ve seen here before, these tend to get a bit more attention than they’re worth.
- New Study: Almost $4 billion in real estate projects in the works near DART’s rail stations, Dallas Morning News, Jan. 28, 2014 – Tax-supported public infrastructure: just try commercial real estate development without it. Good luck with that.
- Washington apartments remain attractive for national and regional developers, WashingtonPost, Feb. 2, 2014 – Meanwhile in DC, apartment starts proceed apace.
Texas Medical Center (Photo credit: slight clutter)
I’ve written here before about the phenomenon of crowdfunding in the commercial real estate market. A fast-growing new source of investment capital enabled by a last year’s relaxation of SEC regulations, crowdfunding in commercial property might conjure up images of a “wild west”-style marketplace, where dubious solicitations sent to any Tom, Dick or Harriet hide giant risks, buried in promises of glittering payoffs announced over a bullhorn to whoever shows up to participate.
As it turns out, that would be the wrong image, at least in one case. Reaching out to the crowd for capital can go hand in hand with prudence, caution and expertise, as exemplified by a recent equity deal financing a 62,000 sq. ft. shopping center outside of Kansas City.
First a quick video describing crowdfunding in general terms.
Not Just Banging A Drum, Vetting A Partner
One implication of crowdfunding is a new kind of direct relationship between investor and solicitor. No longer bound by regulation governing the qualifications of investors, crowdfunding solicitors and investors now face, it might seem, a lower bar of caution and diligence than before.
But that isn’t the way the above shopping center deal went. Instead, the crowdfunding website that raised a portion of the capital for the South Greystone Center equity deal, Realty Mogul, brought not only the crowd and its wallets to the table, it brought its own business acumen and diligence.
In Emily Behlman’s piece at Wichita Business Journal, we find diligence was baked into the shopping center deal through vetting and partnering.
A group of 23 investors came together on the real estate crowdfunding website Realty Mogul, which got started in late 2012, to invest in the property. The shopping center was acquired by Block Real Estate Services of Kansas City for just under $4 million, with Realty Mogul providing a portion of the equity capital.
I wrote earlier this month about crowdfunding’s potential as a source of capital for entrepreneurs, but at the time, I didn’t consider the financing mechanism as a way to fund real estate deals.
I talked today with Realty Mogul co-founder and CEO Jilliene Helman about the concept.
Her site and a couple others like it allow accredited investors (people with $1 million in net worth or $200,000 in income generally qualify) to join together and invest in real estate deals through loans or equity. The company says its online platform makes investment opportunities more accessible, and the minimum investment, $5,000 on some deals, is much lower than in many traditional real estate investment scenarios.
The company vets partner businesses and properties before making deals available to investors.
In the case of Greystone Shopping Center, the partner business was Block Real Estate. Helman says Realty Mogul ran background checks on all Block principals and studied the company’s track record, among other things. Then, Realty Mogul staff studied the property itself, looking for things like diversification — the center has 18 tenants so it’s not reliant on one — and neighborhood — Lenexa is relatively affluent and growing.
Realty Mogul has invested in 55 properties so far, and it’s done about $12 million in transactions.
An Evolution In Crowdfunding
When I compare the above details to other high-traffic crowdfunding sites such as Kickstarter, what sticks out in this case is that Realty Mogul’s practice here outstrips other crowdfunding models in terms of diligence.
When, for example, an artist or software developer goes to crowdfunding giant Kickstarter to fund a project, there is no similar vetting of the project nor the solicitor’s ability to deliver a completed project. Kickstarter currently stays mum on that issue, and hands all the risk of donation to the donor.
By stepping forward and addressing, rather than ignoring, the risks of deregulated solicitation, Realty Mogul may be showing the way forward for this new commercial real estate capital source to mature — fast.
The US Bureau Of Labor Statistics have issued fresh projections for the positions with the most job growth over the next eight years. These numbers hit the web in December and I caught up with them while doing research on projections for growth in demand for medical properties.
The table from BLS I’ve linked to points to the medical sector growing in the next ten years with very clear indicators. with the largest growth in jobs expected to be in the position personal care aides, followed by registered nurses coming in at number two.
While news like this surely brightens the mood at healthcare REIT offices and at other real estate enterprises meeting the expansion in demand for medical care coming with the greying of the population, health care is not the only sector in the top three of BLS job growth expectations.
At the #3 position we find retail salespersons, currently at 4.4 million jobs and expected to be at 4.8 million in 2022, for a bump of 9.8%.
At #5, food preparation including fast food ( 2.9 million currently, 3.4 million expected in 2022, for a expected bump of 14.2% over next eight years).
Some interesting facts:
- Of the top ten job descriptions, only two (nurses and nurse assistants) needed more training than high school.
- Of the top ten, six require only grade school education.
- The lowest-paying median annual wage on the list, food preparation, ranks fifth on the list at $18,260.
- Four of the top five positions were in health care
Take away what you will from the Dept. of Labor’s tea leaves, but one thing is clear. We can add the BLS to the giant pile of indicators that healthcare is expanding to meet the needs of a newly insured (and aging) populace.
- Fall of REITs put their rhythms in doubt - REITs lagged stocks last year. Why? Don’t blame rising interest rates, says NAREIT. (WSJ, Jan. 14, 2014)
- Real Estate investment a major factor in city success - Shirk your city’s real estate market at your peril, advises industry leaders to the Davos forum. (WSJ, Jan. 21, 2014)
- Silicon Valley’s commercial real estate market expected to surge - The tech boom showing no signs of bust on the ground. (San Jose Mercury News, Jan 23, 2014)
- BlackBerry to divest majority of its Canadian real estate - Mobile device maker favored by attorneys (Does anybody know why every time I see a Blackberry, it’s in a lawyer’s hand? I can’t figure it out.) announces it’s cutting loose its portfolio of property in the Great White North. (Reuters, Jan 21, 2014)
- Swedish builder puts its hooks in US office market - Developer Skansa of Sweden played the office market bottom in Massachusetts and won big. (WSJ, Jan. 21, 2014)
- Time Warner nears deal to sell headquarters - $1.3B Manhattan deal pulls is Abu Dhabi money. (WSJ, Jan. 15, 2014)
- LA’s creative office hotspots for 2014 - Meanwhile, tech companies producing content are staking claims and building new studios in LA. More like offices than traditional studios, these new facilities may portend a new commercial property future for Tinseltown. (Hollywood Reporter) Jan 22, 2014
- Real estate’s least sexy sector is red hot - Anybody who says warehouse isn’t sexy hasn’t seen the juicy lease cashflows. (CNBC, Jan. 22, 2014)
- Higher sales activity boots Honolulu’s industrial real estate market - Yes, they manufacture and store stuff in Hawaii, too. (Pacific Business News, Jan. 17, 2014)
- Chains infiltrate European shopping meccas - Eurostyle meets Yankee merchandising. (WSJ, Jan 14, 2014)
- Hudson’s Bay sells Toronto property for C$650 million, WSJ, Jan 27, 2014
- Kansas shopping center sale an early example of real estate crowd funding - 23 investors get together on a crowdfunding website and buy a Wichita shopping center. Enabled by SEC deregulation for the win. (Wichita Business Journal, Jan. 22, 2014)
- Despite pressures, multifamily still a hot property - Capital managers share their take on the apartment market. (GlobeSt., Jan. 23, 2014)
- Multi-family sales head to new heights - Gross consideration numbers shooting the moon in the Big Apple. (Real Estate Weekly, Jan. 22, 2014)
- Apartment revival: Multifamily housing market cautiously coming back - Pacific Northwest multifamily gets back on its feet. (Tacoma News Tribune, Jan. 26, 2014)
The commercial property market in central Indiana has had an exemplary recovery in 2013 and 2014 appears to promise more of the same.
In Colliers’ 2013 year-end report on the Indiana region, the low-tax, low-services state is highlighted with many big industrial property deals in and around Indianapolis. These include:
- An 809,000 s.q.f renewal for Hachette Books in Lebanon, IN
- Chrysler’s single-tenant purchase of 781,000 sq. ft. in Tipton
- the 446,000 sq. ft purchase of the Hillsdale Technical Center in Indianapolis
Race To The Bottom (Of Tax Rates)
Indiana has long subscribed to the idea that economic activity needs to be shepherded by state policy favoring production. The state has a reputation for being aggressive in keeping its low-tax appeal to business, but it’s possible that limits are being encountered in that campaign. One example of the priorities on display: Indiana is one of ten US states that does not have state-funded preschool while at the same time its state legislature is considering foregoing a further billion in tax revenue for schools and local governments by eliminating a property tax on business equipment.
The picture for 2014 politically is less clear than the state’s track record has been: the tax cut proposal from Governor Mike Pence (R), addresses the burgeoning industrial sector, but is getting little traction in the state house Republicans and concern from local mayors.
Cassidy Turley Report: Hot Spec Construction Continues
CRE national firm Cassidy Turley sees strong fundamentals in the Indianapolis area, issuing a raft of positives at a recent event.
The Cassidy Turley report — and State of Real Estate event — had plenty of positives to say about the industrial market in central Indiana. Cassidy Turley reported that in the fourth quarter of 2013, the vacancy rate in the Indianapolis industrial market stood at a low 4.9 percent. The market absorbed more than 1.9 million square feet, according to the report. The best news from Cassidy Turley regarding this market? Spec construction was strong in the industrial sector in 2013. It should be just as strong in 2014 as developers race to provide space for new tenants hoping to move into the Indianapolis market.
In terms of property markets, the Hoosier State’s recovery in 2013 looks terrific in the rearview mirror. Can the state maintain a rosy horizon? Only time will tell.