Like-kind exchanges get a census, Q2 sales slump, office construction booms in ten markets, an intergovernmental turf war, and what does $12 million get you in Milwaukee? It’s all here at the Commercial Real Estate National News Roundup for August 3, 2015.
- Jim Mc Shane Shares His Thoughts On The Next Generation Of Leaders – REJournals, July 31, 2015 – A giant in spec buildings and leasing muses on the state of leadership.
- Like-Kind Exchanges: Highlights from Arizona -NAR, Economists’ Outlook Blog, July 31, 2015 – NAR article counts some 1031 exchanges and comes up with some interesting figures.
- Sales Growth Slow in Second Quarter – GlobeSt.com – July 27, 2015 – Is lower volume due to higher CAP rates, concern over potentially rising interest rates or something else?
- The 10B Real Estate Class : Lessons from the Case of WeWork – Coydavidson.com – July 30, 2015 – Shared office space matchmaker company snags giant valuation – Coy Davidson muses on the fallout.
- Top ten US markets for office construction from Len Rockwell – Lllenrock.com – July 29, 2015 – Raleigh at number ten and Houston at number one. Where is your market?
- 15 Years for Mega Office Leases – GlobeSt.com – July 30, 2015 – What starts with AutoTrader and ends with Google?
- Cincinnati Industrial Market Hits Historic Low – GlobeSt.com – July 31, 2015 – Just like the Cincinnati Reds 2015 baseball season, industrial markets in the Queen City are similarly slumping.
- Biotech Real Estate Boom Shows No Letup – GlobeSt.com – July 29, 2015 – Biotech growth reaches many corners of the country, says Boston conference.
- Twin Cities Industrial Market Accelerates – GlobeSt.com – July 29, 2015 – Minnesota’s submarket leads industrial growth with 90% new construction in bulk warehouse facilities.
Grandbridge Real Estate Capital Closes $8million Loan for Minnesota Apartment Complex – REJournals.com – July 30, 2015 – Minnesota apartment deal comes in with $8 million in insurance dollars.
Why You Shouldn’t Worry (yet) That Developers Are Bringing Too Many Apartment Units To Your City – ReJournals.com – July 31, 2015 – Apartment markets not saturated yet, says July Matrix survey.
Office of Inspector General Challenges HUD Policy Regarding Public Housing For Over-Income Families – JDOffice of Inspector General challenges HUD, intra-governmental turf war results.
- National Spotlight: Walmart Announces New Small-Footprint Stores in St. Louis – Llenrock.com – August 1, 2015 – Wal-Mart, The largest employer and retailer in the US gets small.
- App-less mobile tool strives to engage shoppers, boost traffic and sales – Retailcustomerexperience.com – July 31, 2015 – Exciting shoppers with apps in a marriage of brick and click.
- Marcus & Millichap sells Wisconsin department store for $12 million– REJournals.com – July 29, 2015 – What does $12 million get you in Milwaukee? Why, a shopping mall, of course.
Scattered retail expansion in Q2 of this year continued due to low interest rates and persistent consumer demand. Nationally, retailers continue to expand, re-tool their business models and test new markets. This, according to at least one market researcher, has added up to increasing demand for new-construction net lease assets that are in turn commanding premium prices due to the scarcity of these types of opportunities.
Lanie Rea, director of research for Chicago-based Stan Johnson Company, a firm specialized on single-tenant net lease properties, says in NREI that the Southeast is currently leading the nation in 4 million sq. ft. of net lease new construction in the pipeline. Apart from the West, the remaining regions are holding strong with an roughly 2.5 to 3.5 million sq. ft coming online.
Cap Rates Staying Low
Cap rates in Q2 of 2015 for single-tenant net least retail have remained unchanged at their historically low rate of 6.4 percent, according to research firm The Boulder Group. The boutique investment real estate firm that specializes in single tenant net lease properties reported that the overall supply of net lease assets was up over 20% in Q2 with retail assets leading all real estate sectors at 23 percent.
Reportedly, some of the rapid retail growth is stemming from drugstores, grocery stores, restaurants and discount stores including Dunkin’ Donuts, Walgreens and Dollar General . According to Crittendon Reseach, Inc., a national analysis and forecasting firm also cited aggressive growth in 2015 especially from retailers such as Dick’s Sporting Goods, Aldi, GNC, Advance Auto Parts and others.
According to industry expert Jonathan Hipp, President and CEO of the Calkain Group and author of “The Little Book of Triple Net Lease Investing”, the most active states for net lease activity from Q1 of 2015 were 1. California, 2. North Carolina & tied for 3. Florida/Arizona. The figures for Q2 haven’t been published yet, but based on the flurry of retail growth we’re waiting to see where this upward trend leads.
CCIM reports in their July-August 2015 issue of CIRE magazine that many factors including seller hesitation will help to limit the amount of available inventory in the retail net least market. See here for their synopsis.
While retail’s national economic health picture remains mixed with the commercial real estate recovery applied unevenly across the land, recovery stories are appearing that demonstrate what could yet be for the national retail property market as a whole.
In Yorkville, IL fifty miles west of Chicago stands a 600,000 sq. ft. shopping center named Kendall Marketplace. Kendall is a shadow of the original development plan of 800K sq. ft., a plan that ran into the historic buzzsaw of the 2007-2008 financial crisis. The development opened amid that chaos, trimming expectations for the intervening years.
The project lies at the extreme edge of suburban metro area, a gamble, ultimately, on sprawl. The trends of recent years leading back toward downtown living interest and development haven’t done Kendall any favors.
But seller representative Jones Lang Lasalle has the immediate surrounding area pegged for 13% growth during the next five years. Which in turn has Kendall’s owners, Greenwood Global Inc, doubling down on suburban lifestyle by buying residential zoned land surrounding Kendall. Brian J. Rogal writes for Globe St.:
“This is the area that was supposed to be the next to develop,” Alex Berman, founder of the Northbrook, IL-based [Greenwood], tells GlobeSt.com. The center’s developers originally planned to have about 800,000 square feet, but “the sales, while decent, were lower than expected and it wasn’t entirely built. Growth is returning and we will be happy to complete the project, although it may take time.”
Kendall Marketplace currently has about 590,000 square feet, which includes space occupied by shadow anchors Super Target, Home Depot and Kohl’s. Berman’s group bought 192,000 square feet of existing retail space anchored by Dick’s Sporting Goods, Marshalls and PetSmart, in addition to several vacant outparcels and adjacent residential land zoned for 192 single-family homes and townhomes. The price was not disclosed.
“We’re not a residential developer,” Berman adds, “but on the other hand, we think that as the property matures, the retail component will benefit the residential portion and the residential will benefit the retail.” Greenwood may eventually build the homes, or bring in a joint venture partner to help, but regardless of the route it takes, as demand for new housing in the area begins to swell again, Berman believes it’s important for the company to control this land.
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.