Abandoned Construction: A Leading Indicator For Economic Change?

4th lock on the canal, abandoned in constructi...

The commercial real estate data ecosystem is an exciting place where study of routine market phenomena promises to expose new knowledge and improve our perception of market trends. When it comes to routine phenomena in the CRE industry, construction permitting and construction abandonment are great examples. Abandoned construction can follow permit issuance, even though issuing a permit reflects a milestone in a commercial property development where forward-looking diligence, commitment and optimism on the part of the underwriters, the developer and local government are all at high enough volume to actually break ground on a project.  What can the data on construction permitting and abandoned construction show us about that area?

Of course, getting past an important milestone does not ensure a completed project. When construction is permitted and begins, but does not complete, it’s a sign that something went wrong in the typical arenas: financial (scheduled funding does not materialize), legal (neighbors, competitors or government catch up to the plans), collaborative (partnerships/joint ventures stress and fracture),  insurance, construction — you name it, it can go south.

Beyond being bad news for individual development and developers, abandoned construction also projects ills onto the surrounding area, effectively serving as a highly visible advertisement for the area’s potential for uncertainty and failure. Is it possible that counting and analyzing an area’s abandoned construction projects can produce a leading economic indicator?

That’s the premise behind the report at BuildFax.com, a real estate data analytics team based who looked at the linkage between construction project abandonment and wider economic change in the related areas. The findings are fascinating and the relationships might surprise you.

You can download a free copy of the BuildFax report “Is Abandoned Construction An Early Signal For Economic Change?” at this link.   The study finds a tight association among its sample between abandoned construction and wider economic bad news for sample areas. The study blends fifteen years of construction data with current data, so the model isn’t fit for prediction today. But without a doubt, the study can make an impact on the thinking around abandoned construction and the full range of what failed projects can add up to for communities, businesses, and all stakeholders.

Photo credit: Wikipedia

Marijuana Real Estate: The Business Impact Of Legalization

English: Discount Medical Marijuana cannabis s...

Today’s guest post is by Steve Golin, SVP, Strategic Accounts at Xceligent.

The 2016 election season bought another crop of nine states joining Colorado, Washington, Oregon, Alaska and Washington DC in approving recreational and medicinal marijuana sales at the retail level. While the growth and occupancy of storefront retail establishments is the most conspicuous sign of a burgeoning industry, the behind-the-scenes marijuana real estate uses of cultivation, manufacture and processing have proven to be the most impactful on the supply of industrial real estate in markets where cannabis has been legalized.

Legalized cannabis generates huge cultural and social impact plus wealth generation, with commercial real estate a key benefactor. The marijuana real estate impact for each market’s industrial property base will vary by state based on product growing climate and existing real property base inventory. Let’s notice the historical trends in Denver, one of the earliest civic adopters of medical and retail marijuana.

In 2012 Colorado voters passed Amendment 64 legalizing recreational use of marijuana. By mid-year 2016, 62 of Colorado’s 271 municipalities and 22 of the state’s counties had created rules and regulations governing recreational marijuana use. With interstate distribution of a controlled substance still prohibited at the Federal level, each state and the associated market forces were compelled to create the environment necessary to manufacture, distribute and regulate product.

At a state level, regulations now provide for licensing of cultivation facilities, product manufacturing facilities, testing facilities, and retail stores. Local governments were put in the position of allowing or prohibiting related facilities at the whim of their voters. Many cities and counties opted to not allow for either retail dispensaries and grow operations, leaving the City and County of Denver controlling the lion’s share of the market. Translating this opportunity for a commercial real estate industry suffering through the 2009 financial crisis reveals a staggering result. Absorption of older Class C industrial properties skyrocketed through the recession of 2010 – 2014 to the tune of 4 million SF. Since 2014, according to Xceligent Market Trends Reports, Denver added another 2 million square feet in industrial absorption. In 2016, occupancy numbers for cannabis related grow and distribution activity now totals 8 million SF statewide plus another 1.5 million in greenhouse operations.

“Colorado’s marijuana industry is a mature business having already been through 2-3 business cycles with significant inflection points”, according to Jason Thomas of Avalon Realty Advisors, a leading industry professional services firm. “While each state is building its own machine to adapt to the new industry dynamic, Colorado is the model and leader of regulation for the industry” adds Mr. Thomas*.

Colorado’s dramatic absorption of light industrial real estate from 2010 through 2016 can be directly attributed to State regulatory oversight of “seed to sale”. How will this develop in other states? The depth of development will correlate directly to the regulatory, business and geographic climate in each state. Certain economically troubled cities and towns will look to grow operations as business reality for their functionally obsolete industrial and land base.  Adelanto, CA, for example has taken a leap of faith and tied itself to the industry. Dozens of land deals there potentially aggregating over 100 acres of development rights are whispered to have occurred. This could portend California experiencing staggering absorption in outdated industrial inventory and land once the transition from Medical to Retail is regulated. 

For the CRE investor, owner and developer valuing and trading properties with cannabis related occupancy is rife with conflicts even as the industry matures. Class C properties that once sold for $20.00 or 30.00 dollars per square foot, now have $200.00 in new improvements and may be leasing for $12.00-$16.00 NNN. Valuations must take into consideration rent, improvements, function, tax, legal concerns (federal forfeiture, etc.). Given these considerations, cap rate values based on income generally range from 11% to 13% according to some industry professionals.

The risk to landlords from existing federal statutes may still control investment decisions. Marijuana is still illegal and classified as a Schedule I Controlled Substance. Federal marijuana charges still pose risks including the risks of being charged with maintaining drug-involved premises, racketeering/RICO, money laundering, significant fines, forfeiture of property and/or jail time.  

Regardless of inherent risks, I think future investment and development of marijuana industry infrastructure and logistics is here to stay. Market conditions for related commercial real estate activity rest with each state’s independent climates for regulation, licensing, cultivation, processing and growing. For instance: the Bay Area in California has little developable land, so marijuana real estate investment there will be in warehousing. Riverside / San Bernardino has a huge industrial base, but it is significantly institutional, so the majority of warehousing will be through private ownership.

Once the initial tranche of investment takes place, the industry will look to alternative regional areas, like Adelanto in California or Pueblo in Colorado. Any supply-and-demand dynamic creates absorption of a certain class of real estate that will put upward pressure on rents and property valuations as the industry develops and matures. The commercial real estate industry gained enormous experience in Colorado over the past 7 years and will use that insight to evaluate opportunities for each market in the coming wave. Hold on tight,

Special thanks to James R. Thompson, Esq. Of Counsel, Miller & Law, P.C., Littleton, CO for his contribution on statutes impacting landlords.

(Photo credit: Wikipedia)

Browse Properties Near The New Las Vegas Raiders Stadium Site

A screenshot showing CommercialSearch.com's listed commercial properties surrounding the site of the proposed Las Vegas Raiders stadium site
Quickly search a walkable zone around the new Las Vegas Raiders stadium site.

The Las Vegas Raiders stadium land deal has crossed a major milestone. On May 2, 2017, the Associated Press was the first to report the activation of a sale deed for a 60+acre site near the Strip in Las Vegas for the construction of a stadium to house the NFL franchise Oakland Raiders when the team completes its move to Las Vegas in 2020.

The land deal, which includes two vacant parcels, came in at $77 million, significantly below the $100 million price tag that had been assigned by a public board overseeing the $1.9 billion stadium project. The NFL team owners voted one month ago to approve the move from Oakland to Las Vegas for the storied football franchise, and AP reports that the team has taken 40,000 $100.00 refundable deposits on “personal seat licenses” from fans.

The combined parcels are bordered on the east by I-15 with a view of the Las Vegas strip, on the north by Hacienda Ave., on the west by Polaris Ave. and on the south by Russell Road.

Browse Properties Walkable To The Proposed Las Vegas Raiders Stadium

There’s an easy way for site selection professionals and analysts who are interested in getting in on the economic impact of the Las Vegas $1.9 billion stadium project to get a quick sense of nearby commercial property availability. Click to find dozens of  properties near the proposed Las Vegas Raiders stadium at CommercialSearch.com.  The search query draws a walkable rectangle around the stadium site and includes retail, land, office, industrial and multifamily properties for sale or lease in that rectangle.

Get A Free Copy Of The Latest Las Vegas Market Report from Xceligent

If you need more Las Vegas market background from the city’s top commercial real estate professionals, you can get it for free. Click to request copies of the latest (1Q2017) free Las Vegas Market Reports (specify Retail, Office or Industrial) from Xceligent.

 

How To Find A Food Desert

Grocery store preventing the existence of a food desert

The food desert is that stretch of town or region where no grocery stores are operating, forcing residents into leaving the area to shop for basics, or worse, subsist on junk food for lack of better choices.  In social and health terms, food deserts are a serious problem, but in economic terms they can represent commercial real estate opportunity.  CRE investors seeking to profit from filling local needs can do much worse than finding highly populated areas that are underserved by grocery stores. These areas cry out for the development of food stores to fill the gap.  Tools to find these areas are very helpful for acquisition and site selection – but where can one find these tools?

As it turns out, the federal government is one place to look.  Enter the Food Desert Locator, a website run by the US Department of Agriculture.  It’s an interactive web application that takes reams of real estate, economic and demographic data and provides an easy-to-use mapping interface to cut through the clutter to get to the sites that really cry out for grocery stores.

The mapping application allows you to select areas based on income and access to grocery stores, as well as compare trends across years to find areas that have seen changes in access. Subpopulations are also selectable, allowing a range of site selection criteria.

Of course the final step in conducting this research is to use CommercialSearch.com to browse the retail property and land listings that lay in the areas you define with the Food Desert Locator.

With this one-two punch, site selection can be easy, quickly bringing you one step closer to a high-foot-traffic, only-game-in-town investment play in grocery store development.

Cincinnati Warehouse Property in 2017

English: Cincinatti, OH.

Earlier this year, we looked at Cincinnati’s new Amazon air hub. One quarter on from that Cincinnati warehouse announcement, what is the wider economic picture for logistics and warehouse property in “Blue Chip City”?

According to Xceligent’s 1st Quarter Industrial Market Report for Cincinnati, unemployment fell to 5% in January of this year. Coming along for the ride on the wave of economic good news are two markets: Cincy’s industrial and office property markets. When people go to work, you generally have to put them somewhere, and that’s where Cincinnati’s expanding options in industrial and office property come in.

Florence/Richwood Submarket Hot

Of the largest positive industrial transactions in town 1Q2017, the metro’s southern sections of Florence and Richwood claimed the lion’s share of square footage. Warehouse projects in the submarket included over 670KSF of space sold to grocery giant Kroger.That deal came with a sale price of over $33 million. Other large Florence transactions 440KSF leased to shipper UPS and 275KSF of leased space at 10600 Toebben Drive.

Cincinnati Warehouse Leasing Trends: On The Uptick

Higher transactions and lowered vacancy is the trend in the Cincinnati warehouse market.  From the latest Xceligent Cincinnati Industrial Market Report (1Q2017):

Cincinnati warehouse leasing trends 1Q2017

Check out Cincinnati’s industrial, office and multifamily properties for sale or lease

Want a wide and fast analysis of Cincinnati’s commercial real estate markets?

Start by dropping us a line to request free copies of Xceligent’s 1Q2017 Market reports in Industrial, Office and Retail property. 

Next, browse the market live: click onto these live queries of listed properties:

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Latest Federal Reserve Beige Book: National CRE Market Review

The Federal Reserve Beige Book, the national summary of the economy as published eight times yearly by the Federal Reserve Board arrived April 19.  What’s the commercial real estate national market picture at-a-glance?  Here’s an executive overview by district.

New York: Housing markets have improved somewhat except at the high end, while commercial real estate markets have been steady to slacker. […] industrial market continued to strengthen. New construction activity has been sluggish–both on the commercial and residential side. Banks reported that loan demand strengthened, while delinquency rates were mostly steady.

Minneapolis: commercial real estate activity was steady at strong levels.

Boston: Commercial real estate markets were somewhat mixed in the region. [..] Office construction activity continued to be restrained across the District. […]  Apartment construction activity remained significant but the pace of new deliveries slowed and the pipeline of planned projects contracted somewhat amid evidence of slowing rent growth.

Philadelphia: Commercial real estate loan volumes grew notably […]

Richmond: On balance, commercial real estate leasing rose moderately. Industrial and retail leasing and sales activity remained very active throughout the District.  […] Commercial real estate loan demand generally strengthened, but varied throughout the District.

Atlanta: Demand for commercial real estate continued to improve and construction increased from the year-ago level across most of the District. […] Most commercial real estate contacts noted improvements in demand that continued to result in rent growth and increased absorption, but cautioned that the rate of improvement varies by metropolitan area, submarket, and property type

Chicago: The pace of commercial real estate activity increased only a little overall, and the gains were limited to the for-lease segment. That said, a number of contacts reported signs of slowing activity, particularly in the retail segment.

St Louis:  Commercial real estate activity has been flat since the previous report. Local contacts indicated that demand has remained steady for most property types. Contacts noted some concerns that St. Louis office vacancy rates will rise in the near future due to new construction combined with expiring leases of vacant properties. […] Commercial construction activity was mixed.

Minneapolis: […] commercial real estate activity was flat at strong levels. […] Office vacancy rates in Minneapolis-St. Paul have ticked higher after significant new office development. There were reports of more preleasing before new projects move into the construction phase. A Minneapolis-St. Paul source noted that retail vacancies had crept up to 6 percent, but that “is still considered very low. Prime retail areas are very tight and have high rents.”

Kansas City:   […] [C]ommercial real estate sector activity continued to rise at a modest pace as vacancy rates declined and absorption, completions, construction underway, sales and prices increased. A moderate expansion in the commercial real estate sector was expected in the coming months.

Dallas:  Apartment leasing activity slowed and occupancy fell in the first quarter. Annual rent growth was solid in Dallas-Fort Worth but moderated in Austin. Rents were flat to down in Houston. Contacts generally expect slower rent growth this year.

Demand for office space was healthy in Dallas-Fort Worth, and office construction continued to be elevated there. In Houston, office demand was mostly weak and office construction tapered.

San Francisco: In some regions, activity in the commercial real estate sector slowed to a modest pace. In Alaska, residential and commercial construction activity declined, as commercial investment stalled and overall economic activity remained sluggish.

REIT Risk: Bank Borrowing Rising

English: US Bank tower in Denver, Colorado. Are banks a source of REIT risk?

The real estate investment trust (REIT) is an investment vehicle with a particular sensitivity to borrowed capital. REIT risk tied to capital source is heightened because the legal structure of a REIT is centered on distributing the vast majority of its earnings to shareholders.  This means the REIT is prevented from holding back significant capital reserves, which in turn means it must borrow to finance its acquisitions and operations.  That borrowing takes the form of credit from bondholders and from banks.

Taken by itself, the REIT structure’s dependency on external capital need not present untoward risk to the REIT, but the borrowing side needs balance to protect the REIT from overexposure to a certain type of borrowing.  Between the two tradition avenues, commercial banks and bond issuance, US REITs are increasingly exposed to bank credit.

According to a new REIT risk report by investment ratings agency Fitch, US REITs have doubled their exposure to bank borrowing over the past seven years. Fitch put the borrowing from commercial banks at 8.5% of total REIT debt in 2010. That figure is now 16.5% as of year-end 2016.

Access to multiple forms of capital is a characteristic of investment-grade REITs, and a weakening in the unsecured bond markets would challenge REITs to tap additional unsecured bank borrowing. Fitch has viewed negatively companies with less mature capital structures that rely on fewer sources of funding. The inability of issuers to obtain cost-effective unsecured funding via the bond or bank market could cause rating downgrades or negative outlook changes.

Two Environmental Factors: Low Interest, High Profile

The changes come as REITs have literally come into their own as an equity investment — 2016 was the year that REITs received their own sector classification from Standard & Poor, taking them out of the wider category of “finance” and into a spotlight of their own.  That move boosted REIT stocks in the investing public’s eye at the same time that very low interest rates have prodded REITs seeking capital toward corporate bond issuance and the risk premiums that go with these bonds.

Both factors have emphasized the viability of REITs as an investment class, but the rise in one kind of vital borrowing that will be sensitive to Federal Reserve interest rate moves, which can almost go nowhere but up — is seen as a signal by Fitch that balance in borrowing sources is something REITs need more of as a class.

(Photo credit: Wikipedia)

Legal Marijuana: What Will The DOJ Do To A Growing Business?

Seal of the United States Department of Justice

US Attorney General Jeff Sessions has gotten to work on clarifying the US Department of Justice’s posture on legal marijuana. The move couldn’t come sooner for the commercial real estate industry supporting this growing sector of the economy.

The enforcement of federal marijuana laws in the face of legalization by 29 states is of considerable concern to commercial real estate markets; based on the latest wave of state legislation passed, nearly 1 in 5 Americans now have access to state-legal marijuana, a figure that encompasses a whopping 68 million people.

In legalized states — and in the states expected to vote in favor of legalizing — the commercial real estate industry is on the march with sourcing and developing the industrial, land and retail property types that support and house the growing, distribution and dispensary needs of the legal marijuana business. But the road has gotten bumpy since the 2016 election.

A perpetual challenge to smooth real estate investment and to property sourcing is market uncertainty, and the Trump administration has been doing the legal marijuana industry no favors on that score. Since his confirmation as AG, Sessions, who as recently as April 2016 made the statement that marijuana users aren’t “good people”, has introduced quite a bit of national uncertainty into the legal marijuana business.  First pointing to Congress as the responsible party for a final decision, Sessions this week got a memo out to 94 US Attorney’s offices and DOJ heads that appears to take greater ownership of the impasse in legal marijuana enforcement.

The memo (read the full memo here)  addresses a newly created Task Force of Crime Reduction and Public Safety and tasks them with the following:

Task Force subcommittees will also undertake a review of existing policies in the areas of charging, sentencing, and marijuana to ensure consistency with the Department’s overall strategy on reducing violent crime and with Administration goals and priorities. Another subcommittee will explore our use of asset forfeiture and make recommendations on any improvements needed to legal authorities, policies, and training to most effectively attack the financial infrastructure of criminal organizations. 

Gone is any mention of Congress, and the singling out of marijuana in a sentence concerning itself with consistency reads (to these eyes, anyway) as a signal that the AG is looking for ideas from his bureaucracy. If I had to guess, at least some of the feedback Sessions receives will mention in no uncertain terms that violent crime and the legal marijuana business are distinctly different phenomena in at least 29 states of the union.

The deadline for response from the memo recipients is July 27th of this year.

Tampa Office Market Analysis: Amgen Moves In

Picture of Amgen office and flag

The $25 million dollar office investment biotech giant Amgen has made in the Westshore business district of Tampa is touted to bring over 400 high-paying jobs to the Sunshine State. The California-based company’s plan to open a “capability center” — a kind of business support and operations facility — will occupy four floors of Corporate Center One, at 2202 N. Westshore Blvd., taking up over 125KSF.  The facility will open in October of 2017.

What made up the Tampa office market environment that Amgen’s property professionals liked? Competitors, talent and options. On the competition front, other biotech and pharma giants have digs in Tampa, including Squibb, Bristol-Meyers and Johnson & Johnson. Surely the location of so many highly-trained pharma and tech professionals living in and around Tampa metro sweetened the deal for Amgen.

Westshore: Market Snapshot

On the office property front, Tampa’s CBD is marked by options in Class A and B properties, plus a sliding vacancy rate, as specified by Xceligent’s 4Q2016 Tampa Office Market Report. The report shows the Westshore submarket where Amgen settled to be the largest source of deal activity.  The submarket sported five of the top eight lease transactions in the quarter, with inventory for the submarket adding up to over 14M SF, the largest number on offer in Tampa. Westshore’s vacancy rate is pegged at 8.4%, according to the report.

CommercialSearch: Properties listed in Tampa’s Westshore Submarket

Check out the office and industrial properties listed today at CommercialSearch.com located in the Westshore submarket of Tampa by clicking the link.  Total number today: 113 listings on offer, ranging from A, B and C class properties.

As always: to obtain a free copy of the latest Tampa Office Market Report from Xceligent, click here to drop us a line.

(Photo credit: BizJournals.com)

New Moapa Solar Plant Outside Of Las Vegas: Sold

View of Moapa Peak from near the Carp-Elgin ex...
Moapa Valley, NV

Demonstrating a state of the art in pollution- and water-free, photovoltaic (PV) energy generation is a new fully operational solar plant 30 miles north of Las Vegas. The Moapa Southern Paiute Solar Project will generate enough voltage to power well over 100K homes, but Las Vegas isn’t the target of all that juice — every watt will be sent 270 miles away to serve Los Angeles. What’s more, the project was sold after an impressively brief ten days of operation, in a deal to private asset manager Capital Dynamics. Terms of the Moapa Solar deal were not disclosed.

Free Report: Moapa Solar’s light industrial neighborhood shows low rents, high construction

The Moapa Solar Project takes advantage of the Las Vegas market’s northeast Clark County area. The site is located in the Moapa Valley, where the market quadrant offers the Las Vegas industrial market’s second lowest rents. The most recent Las Vegas industrial market report (4Q16) from Xceligent spots the northeast area ‘s weighted average asking rents at $0.46 per square foot (on a triple net basis).

The NE Clark County area also offers the market’s biggest volume in new construction by a significant margin. At over 2M square feet of new construction, the area nearly doubles the second place market (Henderson). Vacancy rates for the overall market are improving — year-over-year totals have dropped from 6.1% to 5.4%. Flex properties have had the most significant positive change in vacancy with rates improving from 10.1% to 7.4%. If you’re interested in obtaining a free copy of Xceligent’s latest Las Vegas Industrial Market Report, drop us a line here.

Live Query: Moapa Valley land and industrial properties listed on CommercialSearch.com

To check out a live query at CommercialSearch of land and industrial properties in the Moapa Valley northeast of Las Vegas, click here now.

(Photo credit: Wikipedia)