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.
The recently announced Financial Accounting Standards Board changes to lease accounting won’t be in effect for three to four more years, but their potential impact on commercial real estate portfolios could be significant. New business could be the result — moving multi-year leases around on the balance sheet could tip said balances enough to prompt a round of property purchases or consolidations. Complying with the new changes could mean that and more for landlords — and the professional services that go with compliance are sure to be in a bit greater demand as the rules burn into business plans.
Talking a bit about potential impacts and timeframes is NAR Commercial Regulatory Policy Representative Stephanie Spear, who appears in a quick video outlining the changes potentials from the perspective of the commercial real estate industry.
CCIM Professional Education on FASB Lease Accounting Changes
It’s no surprise that CCIM Institute is on the case with instructor-led education on the lease changes and their connections to commercial property. After the jump, check out the course offerings by instructor Peter Barnett, PwC’s Director Of Real Estate.
The recent changes to the Foreign Investment in Real Property Tax Act (FIRPTA) that came with the 2015 Omnibus Spending Bill are making waves in commercial real estate investment circles. Stay on top of what the changes mean to private equity, real estate and mutual fund investors and managers. The ins and outs are many and complex – if a REIT or a RIC (“regulated investment company”) is on your radar screen, the changes to FIRPTA are probably worth knowing about.
Mark the date: on Tuesday, April 12, 2016 at 2:00 pm EST, the National Association of REALTORSⓇ has scheduled a free live webinar on the very topic. Presenters include Evan M. Liddiard, CPA, NAR’s Senior Policy Representative on Federal Taxation. and Linda Monaco, Esq., Legal Education Attorney.
The Protecting American Taxpayers From Tax Hikes Act (PATH), enacted in December 2015, included several important changes to the Foreign Investment in Real Property Tax Act. The Path Act changes mean more foreign investment in U.S. real estate but also some compliance headaches. FIRPTA imposes a withholding tax on foreign persons disposing of real property in the U.S. This webinar will explain the reasons behind the changes and also teach everything you need to know about complying with the new rules. It will discuss recent changes to FIRPTA made by Congress, the tax implications for residential and commercial buyers and sellers, and practical “nuts and bolts” information about how to comply.
To register for this free NAR webinar on April 12, click here.