Archive for the ‘Office’ Category
Monday, January 10th, 2011
Distressed commercial real estate volumes seem to have reached a plateau of $186.9 billion in October, according to a report prepared by Delta Associates that crunched numbers provided by Real Capital Analytics. The trend has been apparent for several months, according to Delta’s CEO Greg Leisch.
Even as the industry breathes a collective sigh of relief, the question remains: When will the amount of distress start to recede? Industry experts believe that is unlikely to happen before 2012. According to Delta, the plateau first came onto the scene in the spring of 2010, though the firm doesn’t expect any consequential progress next year. Leisch says that lenders will continue to extend debt obligations, even as commercial property values stabilize in some markets. 2011 is likely to bring yet more pain, with $300 billion worth of CRE loans coming due. Delta’s report notes that the office sector has the greatest number of distressed assets, valued at $45.6 billion nationally.
There’s also good news in the fact that commercial property values increased 1.3 percent in October, according to Moody’s Investors Service. That’s the second consecutive monthly gain and represents a 3.2 percent increased over the previous year, notes the Moody’s/REAL Commercial Property Price Index. The Moody’s/REAL Index is 42 percent below the high point it reached in 2007.
Robert Bach, chief economist for Grubb & Ellis, Inc., said demand is rising for trophy office buildings in cities such as New York, San Francisco and Washington, D.C. In Chicago, 300 North LaSalle went for $655 million and the Hyatt Center fetched $625 million. Next year, investors may purchase lower-quality buildings in prime markets, and top-tier office towers in secondary markets. “This investor enthusiasm has been confined to core properties in primary, supply-constrained markets,” Bach said. “There’s still a lot of distress out there.” Despite the remaining distress, commercial properties sales doubled to $16 billion during the 3rd quarter when compared with the same timeframe in 2009, according to Real Capital Analytics. East Coast properties averaged a 22 percent increase over 2009, with prices rising 9.1 percent in New York City and 17 percent in Washington, D.C.
Tags: Bloomberg News, commercial real estate, CoStar Group, Delta Associates, Distressed commercial real estate, Globest.com, Grubb & Ellis, Moody’s Investors Services, Moody’s/REAL Commercial Property Price Index, Office sector, Plateau, Real Capital Analytics
Posted in Financing, General, Office | No Comments »
Tuesday, December 28th, 2010
The $625 million sale of the 49-story Hyatt Center at 71 South Wacker Drive is proof that the market is still strong for high-credit trophy buildings; the price represents a 6.1 percent cap rate. The purchaser is Southern California-based Irvine Companies, which plans to close the deal as quickly as possible.
The $419 PSF sales price is even higher than the anticipated $390 PSF when Pritzker Realty Group LLC initially decided to sell the approximately 1,500,000 SF office tower last summer. The Hyatt Center’s sale reflects a national trend where office building deals rose 124 percent in October to $2.1 billion, according to Real Capital Analytics, Inc (RCA). “Office investors focus on visible assets in major markets has resulted in stronger price pressures,” according to the RCA report.
The Hyatt Center was built in 2005 and has an A-list group of tenants that includes the Hyatt Hotels Corporation, law firm Mayer Brown LLP, and investment bank Goldman Sachs Group, Inc.
Tags: Cap rate, Goldman Sachs Group, Hyatt Center, Hyatt Hotels Corporation, Inc., Irvine Companies, Mayer Brown LLP, Penny Pritzker, Pritzker family, Pritzker Realty Group LLC, Real Capital Analytics, Trophy properties
Posted in Development, Economics, General, Office | No Comments »
Tuesday, December 28th, 2010
Approximately half – 47 percent – of American companies whose sales range from $25 million to $2 billion say they will hire more employees in 2011, according to a Bank of America survey of chief financial officers (CFOs). The new number represents a significant uptick over the 28 percent who planned to hire new employees one year ago. The news is not all good – 61 percent of companies who do not plan to hire said there is still reduced demand for their products or services. The survey of 800 firms covered a broad range of industries throughout the United States.
The CFOs are unsure that the economic recovery will last, as well as being concerned about the impact of the healthcare reform law that Congress passed in March of 2010. Their caution is evident in the fact that – on a scale of one to 100 – the CFOs gave the economy a rank of 47. This represents a slight increase over the 44 level recorded last year. An addition 64 percent expect their companies’ revenue will grow in 2011; 55 percent anticipate margin growth.
“Despite the challenging economic climate, many CFOs have growing confidence that their companies have weathered the worst of the storm and are poised for expansion,” Laura Whitley, Bank of America’s global commercial products executive, said. “Although concerns about the economy remain, the increase in CFOs who expect to hire employees could be crucial to improving the nation’s unemployment rate. It’s exciting to see a more positive mood.” Yet, she noted, the recovery has been slower than expected. “When talking with businesses we hear it all the time.”
Tags: Bank of America, CFOs, congress, economy, Healthcare costs, Healthcare reform law, hiring, jobs, manufacturing, Margin growth, Revenues, Services
Posted in Development, General, Office | No Comments »
Tuesday, November 30th, 2010
With the Patient Protection and Affordable Care Act now the law of the land, commercial real estate executives are waiting to see what impact the legislation will have on their business. Consensus is that the new healthcare law changes crucial demand drivers for real estate by introducing alternative models to deliver medical services. The potential to impact commercial real estate lies in the fact that as many as 32 million additional Americans will receive coverage when the law becomes fully implemented in 2014. They will need a place to receive healthcare.
In a white paper written by Kenneth Meyer and Rob Grossman, Principals with Deloitte Consulting LLP, the authors note that “Using an industry multiplier of 1.9 SF required per patient to estimate the net effect of additional patients on space utilization, it can be estimated that 64 million SF will be required to meet the increased demand. Since the demand for additional medical space will begin almost immediately, the industry cannot afford a long wait due to development of new medical office buildings, nor can the industry continue to thrive by building more square footage without addressing current square foot absorption.”
To fill growing demand, retail locations are becoming increasingly important to healthcare, especially wellness centers, preventive care clinics and urgent care clinics -a new and emerging trend. As of February of 2010, there are approximately 1,200 retail clinics in the United States. “CVS leads the market with 569 retail clinics in 25 states and the District of Columbia,” according to the authors. “Recent changes in healthcare legislation should help to drive demand and support profitability. Retail space dedicated to health education could see a boost in the near future.”
Healthcare providers present diversity in a tenant mix and can protect the owner against shifting market conditions. “A recent study of Fitch-rated Real Estate Investment Trusts (REITs) in the U.S. further illustrated the strength of the healthcare real estate sector,” according to Meyer and Grossman. “In 2009, Healthcare REITs were the only property type that did not receive a downgrade by Fitch. In fact, during that same time period two Healthcare REITs actually received ratings upgrades.”
Tags: commercial real estate, healthcare reform, Medical office buildings, Patient Protection and Affordable Care Act
Posted in Development, Financing, Office | No Comments »
Monday, October 18th, 2010
Who’s right about the state of the economy and commercial real estate – the bulls or the bears? Robert Knakal, chairman of New York-based Massey Knakal Realty Services, weighs both sides to help us cut through the mixed messages.
In a recent interview for the Alter NOW Podcasts, Knakal noted that the bulls like to cite the best back-to-back GDP growth since 2003 – 5.9 percent in the 4th quarter of 2009 and 3.2 percent in the 1st quarter of 2010. Bears, on the other hand, believe that weak consumer spending will cause the GDP to grow at an anemic two to three percent for the rest of the year. Knakal views this is an interesting dynamic because of the growing number of economists who back the bears’ position – numbers that are well below the trend coming out of a recessionary period.
Knakal, a graduate of the Wharton School of Business, also writes StreetWise, a nationally syndicated real estate industry blog, is concerned that many loans made by community and regional banks are five-year loans, which will mature in 2011 and 2012. These loans raise the loudest alarms, because many are still performing thanks to very advantageous interest rates – possibly in the form of interest-only loans or with interest reserves that are carrying the property. When these loans – which now could have an interest rate as low as two percent – mature, it will be renewed at a 5 ½ or six percent interest rate that will require a de-leveraging process. Some $10 billion banks are carrying half of all their commercial real estate exposure in Small Business Administration (SBA) loans.
Despite the bears’ lack of confidence in the commercial real estate markets, capital is available to credit-worthy users chasing high-credit projects. The amount of available private equity is currently estimated at approximately $173 billion. Public REITs raised more in common stock offerings in 2009 than they did in the previous nine years. Non-public REITs are expected to raise $10 billion this year. Sovereign wealth funds are said to have access to an astonishing $3.5 trillion. What Knakal cautions us to recognize is that these often represent the same pools of equity and to draw the distinction between capital that has been promised and that which is actually available.
Robert Knakal on the Bulls vs. the Bears - Who Do You Trust? :
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Tags: capital, CMBS, deflation, Fannie Mae, Federal Housing Administration, Federal Reserve, Freddie Mac, GDP, inflation, job market, REITS, Small Business Administration, Sovereign wealth funds, TARP money, unemployment
Posted in Development, Economics, Financing, General, Office, Residential | No Comments »
Thursday, October 14th, 2010
Who is the recipient of the inaugural Mayor Richard M. Daley Legacy Award for Global Leadership in Creating Sustainable Cities? It’s none other than retiring Chicago Mayor Richard M. Daley himself.
Writing in the Chicago Tribune, architecture critic Blair Kamin said “Chicago’s lame-duck mayor, famous for his green thumb and his iron fist, will receive the award at the annual Greenbuild conference in Chicago this November, the U.S. Green Building Council (USGBC) announced.”
The Greenbuild Conference & Expo will be held in Chicago at McCormick Place West November 17 – 19. Roger Platt, Senior Vice President of Global Policy and Law for the USGBC, said “USGBC is incredibly honored to be part of Mayor Daley’s legacy as a world leader in demonstrating how a nurturing and sustainable city can be the highest service to a community. This award is in recognition of the Mayor’s visionary and planet-changing leadership that has created the amazing legacy of a green city. We are looking forward to bringing our Greenbuild conference back to one of the world’s most sustainable cities.”
Chicago holds the honor of being one of the first cities in the United States to adopt LEED certification for its public buildings. Additionally, the city boasts the largest number of LEED-certified buildings in the nation. “During Daley’s 21-year reign as mayor, according to city officials, Chicago has planted more than 600,000 trees, constructed more than 85 miles of landscaped medians and built more than seven million SF of planted roofs – more than any other city in America,” Kamin said.
Tags: Blair Kamin, Chicago, Green, LEED, LEED certified buildings, Mayor Richard M Daley, sustainability, U.S. Green Building Council
Posted in Development, Office, Residential | No Comments »
Tuesday, October 12th, 2010
Chicago’s downtown office market started its long-awaited recovery in the 3rd quarter, with a slight decline in the vacancy rate reported following seven consecutive quarters of decline. According to statistics provided by CB Richard Ellis, the vacancy rate fell to 17 percent from 17.3 percent across all property types. Class A space has the lowest direct vacancy rate at 14.2 percent, and totals 6,900,000 SF. Class B vacancies total 15.9 percent, or 8,900,000 SF. Class C space reports a 15.3 percent vacancy rate, or 3,500,000 SF.
This is cautious but good news for building owners. “Armageddon has passed us,” said John Dempsey, a senior vice president with CB Richard Ellis. “We’re not happy about how things are today, but we’re looking down the road and seeing things are getting better.” He noted that electronic trading firms are currently dominating the market, with companies looking at upper tier Class A office buildings. During the 3rd quarter, demand – measured by net absorption – was positive for the first time since the end of 2009. A couple of significant deals completed during the 3rd quarter helped the market, such as the Getco LLC lease to double its space in the former Apparel Center at 350 North Orleans Street.
Tags: armageddon, CB Richard Ellis, Chicago, class A office building, Colliers International, office vacancy rates, sublease space
Posted in Economics, Office | 1 Comment »
Wednesday, October 6th, 2010
Although foreign investment in United States commercial real estate doubled in the 1st half of 2010 compared with 2009, activity is still sluggish, thanks to the slow economy and a lack of trophy properties offered for sale. Currently, the United Kingdom is the hottest international destination for investment, according to Jones Lang LaSalle research. So far this year, $7 billion of foreign money has been invested in British properties, compared with just $4.3 billion in U.S. real estate.
“The rise in cross-border transaction volume also shows a real estate return in the major markets, and an encouraging 176 percent increase year over year in the United States, which had the greatest fall in cross-border investment during the downturn,” said Steve Collins, managing director, Americas, for Jones Lang LaSalle’s International Capital Group. “Demand is especially robust for well-leased, core-style product in gateway markets such as New York and Washington, D.C., whereas demand remains much weaker for the non-gateway cities markets.”
Another obstacle to foreign ownership of American real estate is the 1986 Foreign Investment in Real Estate Property Tax Act (FIRPTA), which gives the government the ability to tax gains earned when an overseas company sells a property. Opponents say that law blocks the flow of foreign capital into the United States; an attempt to overhaul FIRPTA this summer failed in Congress. Representative Joseph Crowley (D-NY) has introduced legislation that will increase the percentage of foreign ownership in publicly traded REITs from five to 10 percent before proceeds are taxed under FIRPTA. Although the legislation passed the House by a wide margin, the Senate has not yet acted on it.
“It’s certainly not what we hoped for. It’s really just a start,” said Jim Fetgatter, CEO of the Association of Foreign Investors in Real Estate (AFIRE), “It may encourage a little foreign investment, but it’s only going to impact foreign investors who are already investing in REITs, allow them to take a bigger piece of a company. But there are a lot of countries in the Middle East and Germany that don’t invest in REITs. They’re direct investors and the new law won’t have any impact on them.”
Tags: commercial real estate, congress, foreign investors, Jones Lang LaSalle, Middle East, REIT
Posted in Development, Economics, Financing, Industrial, Office | 1 Comment »
Tuesday, October 5th, 2010
Real estate professionals who had been expecting a worst-case scenario – an onrush of distressed commercial properties coming onto the market – are still waiting for that to come to fruition. Ben Johnson, writing in the National Real Estate Investor, notes that “Keep on waiting/lurking seems to be the prevailing view. According to New York-based researcher Real Capital Analytics, the default rate for commercial real estate mortgages held by the nation’s FDIC-insured depository institutions did increase by nine basis points to 4.28 percent in the 2nd quarter, up from 4.19 percent in the 1st quarter. For those of you keeping score on a historical scorecard, at its cyclical low in the 1st half of 2008, the commercial mortgage default rate was 0.58 percent. A mere pittance. Year-over-year, the tale is more striking, with the commercial default rate up by 139 basis points.”
Instead of accelerating, Johnson says that the negative drift seems to be slowing. “Year-over-year increases had been accelerating for 13 consecutive quarters through the end of 2009, but have moderated more recently,” he said. The dollar volume of commercial mortgages in default recorded the smallest increase since the 2nd quarter of 2007. Approximately $46.2 billion of bank-held commercial mortgages currently are in default, an increase of $547 million from the 1st quarter of 2010.
Tags: Ben Johnson, commercial real estate, default, distressed assets, mortgage, Real Capital Analytics
Posted in Financing, General, Industrial, Office | No Comments »
Monday, October 4th, 2010
Although construction in the United States has been slow since the financial meltdown of 2008, there is one niche segment that is thriving – green construction. According to McGraw-Hill Construction, green buildings now comprise one-third of all new construction, an increase of two percent over 2005, a surprise in an industry that is historically slow to change.
A case in point is the new Silver LEED-certified Ross School of Business building at the University of Michigan. The environmentally friendly building incorporates technologies such as dual-flush toilets, which use 0.8 gallons of water instead of 1.6 gallons. Firm in the knowledge that LEED certification is worth the money, the University of Michigan is now committed to going green on all new construction projects that cost $10 million or more.
Terry Alexander, Executive Director of the university’s Office for Campus Sustainability, notes that the added cost of LEED certification is actually a small percentage. Because the university already saves energy and water in its new buildings, the extra cost on a $100 million Silver LEED project would be just two percent. That includes the hard cost of eco-friendly features as well as soft costs for the paperwork required to achieve LEED certification. Alexander says that Michigan is confident that the LEED plaque sends a message about the university’s environmental priorities and that it increases the school’s prestige with students and employees.
Tags: Construction, Environmentalists, Green, LEED, sustainability, United States Green Building Council, USGBC
Posted in Development, General, Green, Industrial, Office, Residential | No Comments »