Posts Tagged ‘commercial real estate’
Wednesday, August 18th, 2010
Although property investment - especially for trophy buildings - is coming back more strongly than industry analysts had anticipated, mid-tier properties are not yet enjoying a similar rebound. According to Real Capital Analytics (RCA), properties valued at $20.6 billion were sold during the 2nd quarter of 2010, an 86 percent increase over last year.
According to Dan Fasulo, an RCA analyst, owners of mid-tier properties are having more difficulty finding buyers. “Eventually the bidders who keep losing out on these competitions are going to readjust their expectations and will start to try other strategies, whether it’s investing in lower-quality property or going into a secondary market. It’s inevitable.”
Declining vacancy rates also could create renewed interest in mid-tier properties, said Ryan Severino, an economist with Reis, which believes that national office vacancy rate will fall from its 17.7 percent peak this year. “A lot depends on what happens to the office sector overall, but we are beginning to see the first glimmer of stabilization,” Severino said. Still, financing for smaller transactions is difficult to obtain - a stark contrast with trophy property deals.
Some smaller community banks are willing to provide capital to owners of mid-tier properties. In the 1st quarter of 2010, approximately 80 percent of mortgage originations refinanced existing projects, according to Randy Fuchs, a principal of Boxwood Means, a real estate analysis firm. In contrast, refinancing comprised just 50 to 60 percent of loan originations in 2006 and 2007.
Tags: Boxwood Means, commercial real estate, Dan Fasulo, mortgage originations, Randy Ruchs, Real Capital Analytics, Reis, Reis Inc, Ryan Severino
Posted in Development, Financing, Office | No Comments »
Tuesday, August 17th, 2010
In Chicago’s - and one of the nation’s — largest commercial transactions of 2010, the 60-story, 1.3 million SF 300 North LaSalle Street skyscraper was sold for a whopping $655 million. That adds up to $500 PSF. The buyer was KBS Real Estate Investment Trust II (KBS REIT II). The LEED Gold certified building, which is 93 percent occupied by such tenants as Kirkland & Ellis, LLP; Boston Consulting Group; GTCR Golder Rauner, LLC; and Quarles & Brady, LLP, is a Class AAA tower completed in the spring of 2009 by Hines Interests.
“This high-quality property, with its strong tenant credit and long-term leases, fits perfectly within our investment parameters to provide long-term cash-flow stability,” said Bill Rogalla, KBS Realty Advisors senior vice president. “It qualifies as one of the newest and highest-quality properties built in the U.S. in Recent years. The building’s features, unmatched view corridors and LaSalle Street address resulted in a rapid lease-up even during the economic turndown. We expect the building’s Class AAA-quality and environmental attributes to contribute to significant tenant retention over the long term.”
The interesting thing about the deal is it’s an indication of the large capital pipeline the REITs have amassed. Also, it proves that assets with long-term leases and high-credit tenants are still trading at historically low cap rates.
Tags: Class AAA, commercial real estate, Hines Interests, Kirkland & Ellis LLP, LEED
Posted in Development, Green, Industrial, Office | No Comments »
Tuesday, July 27th, 2010
Commercial real estate is currently experiencing a perfect storm, one that will utterly change the way corporations utilize their office space in the future. This is the opinion of John Vivadelli, CEO and founder of AgilQuest Corporation and a well respected industry expert in the fields of alternative office environments; real estate metrics and cost management; and business continuity.
Prior to founding AgilQuest, Vivadelli was instrumental in developing IBM’s workplace management system in the 1990s to support the company’s transformational workforce mobility program, creating their “office of the future”. This new workplace strategy resulted in reconfiguring the technology giant’s real estate footprint by shedding millions of square feet that saved hundreds of millions of dollars annually. AgilQuest provides the services and systems necessary for companies and governments to achieve similar results.
According to Vivadelli, this perfect storm is impacting both the supply and demand sides of commercial real estate.
On the supply side, the United States has approximately 12.5 billion sq. ft. of commercial office space, which carry an estimated $1.2 to $1.4 billion in loans that will come due in the next two years. Many of these loans will not qualify under new reserve requirements. While the average base vacancy rate is currently 17 percent nationally; that statistic does not include shadow space - square feet that are paid for but not occupied - which adds another 5 to 20% to the overall vacancy rate. Additionally, with the upcoming implementation of FASB Rule 13, both owned and leased properties will have to be reported on corporations’ balance sheets. Off-balance-sheet leasing will no longer be an option.
On the demand side, he sees a fundamental shift downward in real estate absorption. The nation’s unemployment rate is approximately 10 percent, with an additional seven percent who have opted out of looking for a job. Some of these jobs will never return. Add to that the number of workers who perform their jobs remotely and stay connected to the office via PDA, cell phone and laptop, and the average actual occupancy rate between 8 a.m. and 5 p.m. is between 30 and 50%. That means over half of all office space across Corporate America is vacant on any given day. Considering that an average of $60 is allocated per sq.ft., that adds up to $360 billion that companies are paying to landlords for office space that is empty and they don’t need. This wastes 1.5 quads of energy and results in 40 million metric tons of unnecessary carbon released every year. As companies recognize the scale of the problem, the real estate industry will see a profound shift in how we use space.
John Vivadelli: The Real Estate Perfect Storm:
Play Now |
Play in Popup |
Download
Tags: AgilQuest, balance sheet, commercial real estate, IBM, John Vivadelli, synthetic leases, unemployment rate, vacancy rates
Posted in Development, General, Industrial, Office, Residential | 1 Comment »
Wednesday, June 30th, 2010
After nearly two years of waiting, watching and hoping, American commercial real estate is finally regaining strength. This is one conclusion of the Reuters Global Real Estate and Infrastructure Summit held recently in New York City. Starting in the fall of 2008, real estate investors feared there would be a wide-ranging sell-off of debt-laden commercial properties after Lehman Brothers collapsed. And while office building and other commercial property values have fallen since the capital markets froze, the anticipated spate of foreclosures has not come to pass. According to James Koster, president of Jones Lang LaSalle’s capital markets group, that is now unlikely to happen.
“We should be in a relatively good position to not have this other shoe drop,” according to Koster. Banks have extended, restructured and modified loans to give the real estate industry the opportunity to regroup. Values also are on the rise once again, although some properties whose loans were securitized are troubled. The percentage of CMBS loans that are a month late in making payments climbed to 8.42 percent in May, according to Trepp, which follows CMBS performance. Koster notes that special servicers who oversee troubled loans are not selling the properties at bargain basement prices. Rather, they are holding onto them and being paid for managing them.
Institutional investors and REITs have the money to purchase good but debt-laden real estate. When those properties hit the market, their price tags will be higher than two years ago. “There is fresh capital coming in. It’s a better market now,” Koster concluded.
Tags: capital, CMBS, commercial real estate, financial crisis, Jones Lang LaSalle, Lehman Brothers, REITS, special services
Posted in Development, Economics, Financing, Industrial, Office | No Comments »
Wednesday, May 19th, 2010
As the 1st quarter 2010 numbers come in, banks across the country are still uneasy about the short-term outlook for commercial real estate - and their portfolios in particular. At the same time, there is a growing sense that the potential for disaster has faded and that problems are being resolved.
In general, banks reported that troubled loan assets were moving through their books. Older construction loans are being converted to term loans, which gives borrowers an opportunity to hang on when cash flow is sluggish. At the same time, banks are reporting that new non-performing commercial real estate loans were coming in at a slower pace. Some loans labeled as non-performing were moving into the real estate owned (REO) grouping, meaning that they will eventually be sold back into the marketplace. The International Monetary Fund’s April 2010 Global Financial Stability Report offers a fairly optimistic point of view for bank losses in the near future, as anticipated write-downs on U.S. bank’s loan and securities books diminished in comparison to late last year.
“These improved short-term losses are due primarily to two factors. First, signs of an improving economic environment have decreased loss expectations,” said Mark Fitzgerald, senior debt analyst for CoStar Group. “Second, some write-downs have simply been pushed forward as external factors, including low interest rates, have enabled banks to push off distress into the future. What are the implications for commercial real estate investors? The banks supply approximately 50 percent of all debt capital to the sector, so lending capital could be constrained for some time. However, there is a bright side. If we continue to follow our current path, and distressed assets bleed slowly into the market over time, then healthy lenders may have enough capacity to meet low transaction volumes (especially with depressed pricing). The large banks that have recently reported healthy earnings (primarily due to their trading and fixed-income operations) are a potential source of capital, and these banks have historically been under-allocated to commercial real estate compared to the overall banking sector.”
Tags: 2010 Global Financial Stability Report, Comerica, commercial real estate, CoStar Group, department of treasury, Fifth Third Bank, International Monetary Fund, KeyCorp, Mark Fitzgerald, Mercantile Bank Corporation, Monthly Treasury Intermediation Snapshot, PNC Financial Services Group, Sterling Bancshares, Wells Fargo, Zions Bancorporation
Posted in Economics, Financing, Industrial, Office | No Comments »
Wednesday, February 24th, 2010
Commercial real estate will begin its long-awaited recovery in late 2011 or 2012, according to the fourth-quarter Korpacz Real Estate Investor Survey, which questioned more than 100 real estate investors, including REITs, pension funds, private equity firms and insurance and mortgage companies. Confirmation is provided by a PricewaterhouseCoopers survey, which notes that Washington policymakers are increasingly tweaking the strings that impact pricing.
According to the Korpacz survey, “Rental rates will continue to decline until strong, consistent job growth resumes. With $1.4 trillion of commercial real estate debt maturing by the end of 2012, some property owners will not be able to survive the downturn. Problems related to refinancing that debt could further delay a recovery in the sector.”
Government and regulatory policy will have greater impact on pricing than occupancy levels or rents, according to Real Capital Analytics, Inc. “Policymakers control what happens to commercial mortgages in default,” Robert White, the president of Real Capital Analytics, wrote in a report. They “have encouraged loan modifications and extensions even in cases where loans are above a property’s current value. Tax policy, meanwhile, has made it easier for special servicers to negotiate with borrowers, a move meant to prevent a wave of maturity defaults and property fire sales. Keep rates low and easing restrictions on foreign capital will also influence industry prospects.” Real Capital Analytics notes that commercial mortgage-backed securities (CMBS) hold 42 percent of distressed loans; American banks 31 percent; and foreign banks 13 percent.
Tags: CMBS, commercial real estate, Pricewaterhousecoopers, Real Capital Analytics Inc, recession, recovery
Posted in Development, Industrial, Office | No Comments »
Wednesday, February 3rd, 2010
Washington, D.C. office leasing is on the upswing for the first time in a year. Not surprisingly for the District, the rise in leasing activity is driven primarily by expanding federal agencies. A study by CB Richard Ellis of fourth quarter leasing activity showed that the private sector is again leasing space they had subleased in late 2008 and early 2009, a sign that they might be on the verge of rehiring laid-off employees. According to the report, the amount of vacant space shrank 715,384 SF during the fourth quarter. That is a major change from the third quarter, when vacant space grew by 375,558 SF.
Vacancy rates reached a high of 11.8 percent last year, thanks to the region’s net loss of 24,000 jobs and new office buildings coming on line. Now, commercial real estate brokers are seeing new interest from law firms, associations and financial service firms wanting to lease space. Some are planning for future growth, while others are taking advantage of large discounts being offered to attract new tenants. “We have clients call and say maybe this is the time to go into the market and see what’s available,” said Ernie Jarvis, managing director of CB Richard Ellis’ Washington office.
Approximately 32 percent of commercial leases are with the federal government, an increase over the 21 percent reported in recent years. In normal years, the government has three of the top 10 transactions in the region; that rose to eight in 2009. These include 802,000 SF leased by the Department of Health and Human Services in Rockville, MD; 503,000 SF leased by the Drug Enforcement Administration in Pentagon City, VA; and 360,000 SF leased by the Nuclear Regulatory Commission in North Bethesda, MD.
Tags: Capital Riverfront, Cassidy & Pinkard Colliers, CB Richard Ellis, commercial real estate, Department of Health and Human Resources, Drug Enforcement Administration, NoMa, Nuclear Regulatory Commission, vacancy rates, Washington DC
Posted in Development, Office | No Comments »
Thursday, January 21st, 2010
A Federal Reserve official predicts that 2010 will see a continuing moderate economic recovery with
interest rates kept “exceptionally low” to encourage job creation. Elizabeth Duke, a Fed governor, said “In the current environment, the Federal Open Market Committee (FOMC) continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Such policy accommodation is warranted to provide support for a return over time to more desirable levels of real activity and unemployment in the context of price stability.”
The Fed slashed interest rates to nearly zero in December 2008 in reaction to the worst recession in 70 years, and created other emergency lending facilities. Speaking to the Economic Forecast Forum in Raleigh, NC, Duke pointed out that recent data on production and spending indicate that economic activity increased at a “solid rate” during the 4th quarter of 2009.
Duke was quick to point out that credit remains tight for businesses; she believes that continued growth is dependent on additional progress in fixing financial markets and re-establishing the flow of credit to households and small businesses. The Fed will adjust policy if any changes occur in economic conditions. According to Duke, the Fed has “a wide range of tools for removing monetary policy accommodation when that becomes appropriate.”
Tags: commercial real estate, economic forecast, Elizabeth Duke, federal funds rate, Federal Open Market Committee, Federal Reserve, interest rates, price stability, unemployment
Posted in Economics, Financing | No Comments »
Wednesday, January 20th, 2010
Foreign banks, American private equity firms and a leading Chinese sovereign wealth fund have been investing in commercial real estate in the United States in the hope that interest rates stay low.
This increasing interest from investors could be a sign that the market is experiencing some stabilization. According to Bob Steers, co-chairman of Cohen & Steers, a real estate investment firm, “We believe the real story is that capital is ready to buy, even though it may not be so visible today.” As one example, the state-owned China Investment Corporation has enlisted several investment firms to identify commercial real estate opportunities in the United States.
Another sign of incipient recovery is the fact that Colony Capital won a Federal Deposit Insurance Corporation (FDIC) auction for $1 billion worth of commercial property loans previously held by banks that had failed. The transaction valued the loans at 44 cents on the dollar and is structured so the FDIC put up $136 million owns 60 percent of the equity. Los Angeles-based Colony put up $90 million for a 40 percent share. Colony’s founder, Tom Barrack, said the investment is “an implicit bet that rates stay low.”
In another example, JPMorgan Chase raised $625 million for Inland Western, which put $500 million into CMBS. The deal was significant because it closed without assistance from the Term Asset-Backed Loan Facility (TALF).
Tags: Bank of China, China Investment Corporation, CMBS, Colony Capital, commercial real estate, Federal Deposit Insurance Company, Inland Western, interest rates, private-equity firms, recession, recovery, SL Green, Sovereign wealth funds, TALF
Posted in Development, Economics, Office | No Comments »
Monday, January 18th, 2010
By 2015, green buildings could constitute approximately half of all commercial space, according to a study by Good Energies, Inc., a New York venture capital firm. Although sustainable initiatives were perceived as a niche market just 10 years ago, developers now realize that going green in new and renovation projects is not as expensive as previously thought.
According to Greg Kats, senior director of climate change for New York-based Green Energies and the study’s author, he applied the U.S. Green Building Council’s Leadership in Energy Environmental Design standards - which encompass such categories as energy and water use, site location, landscaping and proximity to mass transit and shopping - to define what qualifies as a green building. LEED certification was not required, though buildings had to adhere to the standards.
Similarly, a McGraw-Hill Construction study released last October found that the share of the green retrofit market could grow to 20 or 30 percent over the next five years. That translates to market opportunities for major projects totaling $10.1 to $15.1 billion. At present, green building practices are incorporated into five to nine percent of building retrofits. The market opportunity for major projects - those costing more than $1 million - could total as much as $2.1 to $3.7 billion a year.
“We now have a large enough, detailed enough body of data to say that the presumption is ‘why wouldn’t you do a green building?’” Kats noted. “It’s very cost-effective and it reduces risk in a number of areas including health, exposure to energy and water prices and obsolescence.”
Tags: Aria Resorts & Casino, commercial real estate, Good Energies, Green buildings, LEED, LEED standards, USGBC
Posted in Development, Green, Industrial, Office | No Comments »