Archive for the ‘Industrial’ Category

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Migration Leads Thousands to Georgia, Arizona, Despite Recession

Monday, March 1st, 2010

Arizona, Georgia and Texas lead the nation in new household formations. Arizona, Georgia and Texas are the growth centers in terms of new residents in the last few years, according to an Associated Press analysis of Internal Revenue Service migration data. The IRS compared the states where taxpayers filed their returns from 2007 to 2008 to arrive at their conclusions.

Texas led the nation, with 62,827 new households; the largest number of families moved there from California and overseas.  Georgia ranked second, with 37,559 new households, many of whom moved there primarily from Florida and New York.  Arizona reported a net gain of 20,300 new households, with the majority relocating there from California and Michigan.

The IRS statistics indicate that Americans are not moving much at present, with the annual migration rate at 11.9 percent - the lowest number in decades.  United States Census Bureau estimates released at the end of 2009 confirm the IRS numbers.  According to the AP analysis, counties with better-educated taxpayers typically see the highest county-to-county migration gains.

“People who move tend to be younger and have lower incomes,” according to William Frey, a demographer with the Brookings Institution.  “Normally, if there is a big influx of young people, that could pull down the income of an area; and if there is a big outflux of young people, that can raise income in an area.”

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Two New Studies: Commercial Real Estate Recovery Seen in 2011

Wednesday, February 24th, 2010

Two major new reports see recovery in 2011. 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.

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Long-Time Chicago Steelmaker Buys 13.3 Acres for $1

Thursday, February 11th, 2010

City of Chicago sells 13.3 acres for just $1; prevents steelmaker’s move to Canada. A long-term steelmaker is not fleeing Chicago for Canada, thanks to a deal in which A. Finkl & Sons Co. purchased six properties adjacent to the Verson Steel site on the southeast side for just $1. Finkl, which has been in business since 1879, will move its headquarters from the western edge of Lincoln Park to 1355 East 93rd Street.  The move will keep 300 factory jobs in Chicago, good news in a city that has seen its industrial base shrink in recent years.

Finkl needs the six vacant properties for storage and to move an existing rail line to buffer the steel plant from nearby residential neighborhoods, according to a report from the Community Development Commission (CDC).  The six parcels for which Finkl paid just $1 encompass 13.3 acres and have been appraised at $934,500.  City officials and Finkl are in discussions over additional financial incentives, including the creation of a tax-increment financing district to sweeten the pot even more.

Founded in 1879 and now owned by German manufacturer Schmolz & Bickenbach A.G., Finkl has outgrown its current plant at 2011 North Southport Avenue.  The Verson property includes 44 acres and eight buildings with approximately 500,000 SF.  Finkl plans to build four new structures totaling 106,000 SF at the adjacent site.

The Chicago City Council still has to approve the sale, a move that is likely to face little opposition.  This is an excellent example of how tax incentives for businesses can save and create jobs.

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Investors Are Choosing London

Thursday, January 28th, 2010

London beats Washington, D.C., as preferred destination for commercial real estate investment.London has overtaken Washington, D.C., as the preferred city for commercial real estate investment,  primarily because investors believe that prices have bottomed out and the time to get into that market is now. The British capital has overtaken the previous favorites of Washington, D.C., and New York, according to a survey conducted by the Association of Foreign Investors in Real Estate (AFIRE).

“London currently offers investors the advantage of a ‘re-priced’ market,” says James Fetgatter, AFIRE’s CEO.  “The re-pricing began sooner than it did in other cities.”  London’s score is 31 points higher than the perennial favorite Washington, D.C., and 40 points ahead of New York City.  A year ago, London occupied second place, ranking four points behind Washington.  The survey of the association’s approximately 200 members was taken in the fourth quarter of 2009 and represents ownership of more than $842 billion of commercial real estate.  Of that, $304 billion is invested in the United States.

London, along with the rest of the United Kingdom, has rebounded with investment rising 56 percent from the first to the second half of 2009.  Property values rose 2.4 percent in November, the largest monthly increase in 15 years.  Savills, the real estate advisory firm, is predicting London will eclipse New York as the fastest growing global financial center.

Despite London’s success, the United States is still preferred as the “most stable and secure real estate investment environment,” according to 44 percent of survey respondents.  This is the first time the United States ranked below 50 percent in the survey.  It ranked 53 percent in 2008 and 57 percent in 2007.  Germany occupies second place with 21 percent.  In terms of price appreciation, the United States ranks first, followed by the United Kingdom and China.

The preferred property for investment is multifamily residential, followed by office, industrial, retail and hotel.

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Half of Commercial Buildings Could Go Green by 2015

Monday, January 18th, 2010

Going green in new and renovation projects is not as expensive as previously thought. 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.”

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Wheels of Manufacturing Restarting

Monday, January 11th, 2010

ISM Manufacturing Index shows better-than-expected performance. Manufacturing is gradually on the upswing, according to the December ISM Manufacturing Index, which rose to 55.9 from November’s 53.6 reading.  A gain to just 54.3 was expected, so the news is encouraging.  In terms of inflation, prices paid climbed to 61.5; an increase to 57.2 was forecast.  This is great news for a sector that saw both the steepest declines in manufacturing and trade inventories since 1949 and the fall of industrial production since 1946.

According to the ISM report, “At 55.9 for December, the index not only surpassed expectations of a rise to 54.3, but also posted its strongest reading since April, 2006.  The gains in the components were broad-based with new orders rising to 65.5 in December from 60.3 in November, marking its strongest reading since December, 2004.  Production rose to 61.8 from November’s 59.9, while the employment component increased to 52.0 from the prior month’s 50.8, marking the third consecutive month in expansionary territory.  We expect the Fed to help both sustain the recovery and heal labor markets by leaving the Fed Funds rate at its current low level until the final quarter of 2010.”

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Two New Studies: Commercial Real Estate Recovery Seen in 2011

Thursday, January 7th, 2010

Two major new reports see recovery in 2011. 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.

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CB Richard Ellis’s Incentives Rankings Are Realistic

Monday, January 4th, 2010

I was recently asked to comment on CB Richard Ellis‘ recent “EIG State Incentives Ranking Report“  as an Certified Economic Developer who has been practicing in Illinois for nearly 30 years.CB Richard Ellis’ recent “EIG State Incentives Ranking Report” has some interesting results.

Click on the link and take a look at the map and state rankings list that’s generated.  Illinois, Indiana and Iowa are marked “competitive.”  What’s interesting is that CBRE ranks Wisconsin as “noncompetitive” because many of the border commercial parks near Illinois (e.g., Kenosha, Pleasant Prairie) have almost always been able to out-incentive northern Illinois.  And my broker colleagues at CB Richard Ellis, when trying to close a transaction, are quick to point out Wisconsin’s advantages.

Next, look at the “Aggressive” dark green states, which now include Michigan.  Most are in the south, but Ohio and the Central Plains states have also moved into the aggressive category.  These state economic development programs are traditionally market-focused and easy to do business with.  The older rust belt states, with high unemployment, have had little choice but to increase their competitiveness to just retain jobs.

Chris Manheim is a guest blogger for Alter NOW.  He is the President of Manheim Solutions, Inc., a consulting firm specializing in community, workforce and small business economic development programs.

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Manufacturing Firing Up the Engines Again

Thursday, December 10th, 2009

Manufacturers are feeling sunnier, according to a new Price Waterhouse Coopers poll. The poll, which queried senior executives at 60 industrial manufacturers between mid-July and mid-October, found that 48 percent sense optimism about the American market compared with last year an improvement over the second quarter.  In light of this cautious optimism, 23 percent expect their businesses to regain strength before June, although another 45 percent believe their businesses will not improve until the second half of 2010.

In the same vein, a report from the Institute for Supply Management (ISM) indicated increases in several of its manufacturing indices, which suggest that industrial property owners might soon see a demand for space.  During the same timeframe, the Department of Commerce reported a one percent increase in bookings for durable goods during September.  This represented the first increase in the GDP since the second quarter of 2008.

A significant finding is that the number of companies anticipating growth in revenue over the next year recorded an even larger increase compared with the second quarter, with 57 percent responding positively in the third quarter.  Only 25 percent plan to hire new employees in the next year, and 37 percent plan to make capital investments.

ISM notes that October is the third consecutive month of manufacturing growth.  The most promising change reported by ISM is a surge in the production index, which rose 7.6 points to 63.3 percent during the third quarter.

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Warren Buffett’s Riding the “Atchison, Topeka and Santa Fe”

Wednesday, November 18th, 2009

Warren Buffet hedges his bet on America’s future, buys the BNSF. Omaha billionaire Warren Buffett’s purchase of the Burlington Northern Santa Fe Railroad (BNSF) is a $34 billion bet on the future of the nation’s economy.  BNSF’s acquisition by Berkshire Hathaway, Inc. is significant because it is the country’s second largest railroad and the primary hauler of food and coal, which makes it a barometer of the nation’s economic health.  Analysts believe that Buffett is staking his claim in an industry that is expected to grow as the economy stabilizes.  If approved by two-thirds of shareholders and antitrust regulators, the transaction will be Berkshire Hathaway’s largest-ever acquisition.  Berkshire already owns large stakes in the Union Pacific and Norfolk Southern railroads.

Buffett currently owns 22 percent of BNSF and will pay $100 a share in cash and stock for the remainder of the company.  “Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry,” according to Buffett’s statement.  “Most important of all, however, it’s an all-in wager on the economic future of the United States.  I love these bets.”

According to Art Hatfield, an analyst with the investment firm Morgan Keegan, “Buffett is buying at the trough - things aren’t going to get much worse.  He’s getting in at a good time.”  Hatfield believes that BNSF has been more progressive than its competitors in developing new technologies to enhance profitability.  Railroads have cut costs during the recession by slashing jobs, idling railcars, improving train speeds and other efforts to make their operations more efficient.

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