Archive for the ‘Office’ Category
Tuesday, August 31st, 2010
The nation’s financial system needs significantly more regulation than exists now. The lack of tough regulatory powers strongly impacted the recent financial crash and the Great Recession that ensued. The good news is that the Obama administration is moving firmly in this direction with financial reform legislation a critical item on its agenda. This is the opinion of Anthony Downs, a senior fellow with the Brookings Institution and former President of the Real Estate Research Corporation. In a recent interview for the Alter NOW Podcasts, Downs said that between 1980 and 2007, the value of international capital markets - including bank deposits, assets, equities, public and private debt - quadrupled relative to the world’s GDP, lifting millions of people out of poverty. Although unprecedented, this growth relied heavily on borrowed money to finance higher living standards and highly leveraged loans with limited reserves backing them. In the end, the growth was unable to be sustained.
The financial reform legislation currently undergoing reconciliation by a Senate-House conference committee is not a reinstatement of the 1933 Glass-Steagall Act - which separated investment and commercial banking — because banks will still be allowed to deal with securities. Under the new law, banks will have to register derivatives with some type of formal exchange and maintain records on who is borrowing money and under what terms. This marks a significant change from before the Great Recession, when derivatives were traded with virtually no oversight.
Downs believes that former Federal Reserve Chairman Alan Greenspan contributed to the financial crisis in two ways. In 2001, when Greenspan was informed that there was fraud in the subprime housing market and that he should do something about it, he refused to take action because he didn’t believe in regulation. According to Downs, “that was a terrible mistake and meant that all the horrible loans made in the subprime market could continue unchecked.” Greenspan’s second error was to maintain low interest rates for as long as he did at a time when an enormous amount of capital was coming into the United States economy from overseas. Because investors were avoiding the stock market, they put their money into real estate. That drove the price of properties sky high and destroyed the concept of intelligent underwriting and evaluating the risk before approving the loan.
Anthony Downs On Financial Reform:
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Tags: Alan Greenspan, Anthony Downs, Ben Bernanke, Brookings Institution, derivatives, Federal Reserve, financial crash, financial reform, financial regulation, GDP, Glass-Steagall Act, Great Recession, Obama administration, reconciliation, securities, subprime
Posted in Development, Economics, Financing, Industrial, Office | 1 Comment »
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 »
Thursday, August 12th, 2010
It’s surprising that the AIA still does not endorse LEED standards for green buildings. There has been some progress in forming some kind of strategic alliance, but that is only in the area of advocacy, education and research. There is still nothing concrete. Nevertheless, the Architecture 2030 Bulletin and the AIA 2030 Commitment story are very interesting. The AIA website has many downloadable forms that comprise their own version of building performance measurement. It’s likely that the AIA will step up to form their own rating system to compete with the United States Green Building Council (USGBC), which is a very lucrative non-profit organization that the government chose to use for their own needs to employ green strategies — and when the government chooses a program, everyone else follows.
I hope the AIA will offer an alternative form of measurement to the USGBC. The USGBC’s process requires too many consultants and specialty firms to work independently on hundreds of credit applications. Ideally, the architect and his/her engineering consultants should be able to perform all of the analysis as part of their basic services. As of now, we get huge additional fee requests for the architect/engineers to help fill out LEED forms, and separate fee requests for energy models, LEED consulting, and commissioning services. It costs more than $100,000 in miscellaneous fees just to fill out and upload credit point applications. Many think that $100,000 could be used to improve the building’s performance.
Tags: AIA, Architecture 2030, credit point application, Green, Green buildings, LEED, USGBC
Posted in Development, Green, Industrial, Office | No Comments »
Wednesday, July 28th, 2010
A historic partnership between the states of Illinois and Indiana gave the green light to constructing the Illiana Expressway, a 56-mile superhighway whose goal is to ease traffic congestion, create jobs and promote economic growth. Illinois Governor Pat Quinn and Indiana Governor Mitch Daniels recently signed an agreement to construct a roadway that connects Interstate 55 in Illinois with Interstate 65 in Indiana. An “outer encircling highway” that bypasses Chicago to the south, which was originally proposed in Daniel Burnham’s Plan of Chicago more than 100 years ago, is now closer to becoming a reality.
“We are partners,” Quinn said as the two governors signed the agreement at a location on the Illinois/Indiana state line. “”They’re our allies, and we’ll work together for the betterment of both of our states and the whole region.” The Illiana Expressway is expected to create 14,000 new jobs in Illinois and enhance access to growing freight and trucking facilities in Will County.
Illinois’ and Indiana’s transportation departments will choose a consultant to begin environmental impact studies and evaluate the optimal routes later this year. A final plan should be recommended by 2015. Also under consideration are four-, six- and eight-lane configurations, including one that includes four truck-only lanes.
The Illiana Expressway will be convenient to two Will County land sites that Alter 360° represents in unincorporated Wilmington, IL. One is 30650 Route 53, a 7.98 acre parcel in unincorporated Will County at the corner of Route 53 and New River Road. Currently there is a 14,668 SF, 30-year-old industrial building on the south eastern corner. The asset is just five miles from Interstate 55 and the Centerpoint Intermodal center. The second is a three-parcel, 21.14-acre site on the northeast corner of Indian Trail Road and Peotone Road, just six miles from Interstate 55. Both sites are approximately 17 miles from the proposed South Suburban Airport.
With the ink barely dry on the bi-state agreement, no start date has been set for construction of the Illiana Expressway.
Tags: Alter 360, Centerpoint Intermodal, Chicago, Cook County, Daniel Burnham, IDOT, Illiana Expressway, Illinois, Indiana, Interstate 55, Interstate 65, Mitch Daniels, Pat Quinn, Will County
Posted in Development, 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:
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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 »
Thursday, July 22nd, 2010
Debt-laden European governments seeking ways to raise money are considering the possibility of selling public properties such as office buildings. Countries considering selling assets include Germany, the U.K., France and Greece, all of which were hit hard by the global banking crisis.
“It is clear that several European governments are looking to secure disposals on a large scale,” noted Richard Holberton, a CB Richard Ellis director. Although Holberton says it’s not clear what effect these sales would have on government funds, “their impact on real estate markets could be a lot more significant.” Government-owned assets comprised between two and 2 ½ percent of all European public sales since 2006. That could double this year, according to CBRE, and could account for four percent of the €100 billion — $125 billion - that will be sold this year.
Although some properties are expected to attract significant purchaser interest, some government buildings won’t sell so easily. Surplus office buildings could be in undesirable locations, for example. Prime assets that are still occupied by government offices will have far more appeal to investors. “Where assets are well located, of good quality, and continue to produce income from occupation by a public-sector tenant, this generates an income stream that is attractive to investors,” Holberton said.
Tags: CB Richard Ellis, debt, Europe, France, Germany, Global banking crisis, Greece, UK
Posted in Development, Economics, Office | No Comments »
Monday, July 19th, 2010
The Council on Tall Buildings and Urban Habitat (CTBUH) recently announced the finalists for its 2010 “Best Tall Building” awards. The annual awards recognize exceptional tall buildings from each of four geographical regions and are chosen for their design and technical innovations, sustainable attributes, and the enhancement they provide to their cities and the inhabitants.
The 55-story Bank of America Tower in New York was hailed for its commitment to sustainability, which has made human health and corporate responsibility a priority. Its exceptionally high indoor environmental quality results from hospital-grade, 95 percent filtered air; abundant natural daylight; an under-floor ventilation system; and views through floor-to-ceiling glass curtain wall.
This 51-story Pinnacle at Duxton includes 1,848 public housing units in central Singapore. It redefines urban high-density living by weaving continuous Sky Gardens on the 26th and 50th stories through the seven tower blocks. Multiple access points to the Sky Gardens also mean that they are an ideal evacuation strategy. Because they are connected, the seven tower blocks share three sets of water tanks and pumps and one building maintenance unit.
A key design element of the 23-story Broadcasting Place in Leeds, England, is the irregular elevations, tailored to optimize daylight and reduce solar penetration. An innovative analysis calculates the optimum quantity and distribution of glazing/shading at all points on the façade to ensure high levels of natural day lighting but without overheating.
The unprecedented height of Dubai’s 163-story Burj Khalifa required rethinking design techniques, building systems, and construction practices to create a practical and efficient tower. The building’s shape references regional architecture in the pointed ends of the “Y” which are reminiscent of Islamic archways. As the tapering tower rises, setbacks occur at the end bay of each wing in an upward spiraling pattern that decreases the tower’s mass as the height increases. These setbacks minimize wind forces.
The best tall building of 2010 will be announced at the CTBUH’s awards ceremony in October.
Tags: Bank of America, Broadcasting Place, Burj Khalifa, Dubai, Leeds, New York, Pinnacle, Singapore
Posted in Development, Office | No Comments »
Monday, July 12th, 2010
Three years after an EF5 tornado tore apart tiny Greensburg, KS, the town of approximately 900 is making a conscious effort to rebuild itself as a green community.
City officials, residents and business owners are leading by example, making Greensburg a national model for environmentally conscious living.
For example, a wind farm five miles south of town now provides the majority of Greensburg’s energy. Newly rebuilt houses supplement the wind power with dedicated solar panels. Streetlights use LED lighting, which cuts energy use, operating and maintenance costs by approximately 70 percent. Cisterns capture rain, which is used to water the town’s plants and trees. The construction of zero energy homes and high-performance modular homes is encouraged to further Greensburg’s quest to become a green town.
This is the nation’s first project of its kind and is a key element in developing eco-tourism, a vital element in Greensburg’s successful comeback following the tornado’s devastation. By partnering with local builders, Greensburg is providing educational opportunities to contractors and homeowners alike who can spread the message of what they have learned in going green.
Tags: cisterns, eco-friendly, eco-homes, FEMA, Green Town, Greensburg, Kansas, LED lighting, modular homes, solar-panel, Steve Hewitt, tornado, wind farm
Posted in Development, Green, Industrial, Office, Residential | No Comments »
Thursday, July 8th, 2010
A new accounting standard could alter the way tenants lease space, a move that carries serious implications for commercial real estate. The Financial Accounting Standards Board (FASB) has been cooperating with the International Accounting Standards Board to combine its generally accepted accounting principles (GAAP) with international standards.
According to Russell G. Golden, the FASB’s technical director, the change is intended to put a halt to “significant off-balance-sheet activity for leases.” Barry M. Gosin of Newmark Knight Frank notes that “We are busy preparing clients to make them aware of the changes and help them analyze how it might impact them. There are so many complicating factors that will make this an administrative nightmare”. Because the new standards remove many of the differences in the way companies account for buildings that they own and lease, firms may move towards purchasing properties rather than leasing them. Shorter leases could be another byproduct. “If you have a 10-year lease, it will mean putting twice as much debt on the balance sheet as a five-year lease, so some companies may want to go short term,” said Dale F. Schlather, executive vice president of Cushman & Wakefield and chairman of CoreNet Global’s New York chapter.
Office and industrial building owners will see new accounting treatments as well. Golden notes that as the new rules were written, landlords would record the obligation to provide space as a liability and record the rents they receive as an asset. Because landlords currently book all of their revenue as rental income, the rents will be recorded partly as interest income and partly as a reduction in the obligation to provide space under the new standard.
Tags: CoreNet Global, Cresa Partners, Cushman & Wakefield, Financial Accounting Standards Board, GAAP, Grant Thornton, International Accounting Standards Board, Jones Lang LaSalle, Newmark Knight Frank
Posted in Development, Economics, Financing, Industrial, Office | No Comments »