Browse Month: May 2012

Commercial Real Estate Lender Ranking Puts Wells Fargo On Top

Finance
Finance (Photo credit: Tax Credits)

In spite of the banking industry’s central role in causing the 2008 meltdown, and its enduring role in prolonging the resulting credit crunch for so much of commercial real estate, new indicators show a market growing once again.  It’s important to understand what the cause and effect relationship is here.  It’s our role — as brokers, agents, investors and reps — to work to create the economic activity and financing demand that brings our bashful pinstriped friends out of their shells.  It falls to us to reintroduce them to their role: capital allocation. And we’ve been doing better.

So which of the banks have been setting aside excuses, getting back to basics and allocating capital to our industry by financing its deals? David Bodamer at National Real Estate Investor wrote a piece summarizing the NREI’s 21st Annual Top Lenders Survey that lines up the big guys and gals moving the billions and ranks them by commercial property portfolio.  That sound of horse hooves you hear is because, according to Bodamer, Wells Fargo tops the list:

Wells Fargo again tops the direct lender list by a wide margin. The firm financed $43.66 billion in commercial real estate loans in 2011—a nearly $7 billion increase over the $36.90 billion in activity it reported in 2010. PNC Real Estate jumped to the number two spot in our list with $11.01 billion in loans, barely edging MetLife’s $11.00 billion figure. The output was up from $4.40 billion for PNC and $8.40 billion for MetLife in 2010.

On the financial intermediary side, HFF more than doubled its volume from $11.90 billion in 2010 to $22.97 billion in 2011. Meridian Capital Group claimed the number two slot by arranging $17.25 billion, edging a trio of firms—Wells Fargo, Eastdil Secured and CBRE Group—that all arranged more than $16 billion in financing in 2011. In contrast, in 2010 only two firms—HFF and CBRE—topped $10 billion on the financial intermediary side.

You can check out NREI’s Top 25 Direct Lenders and Top 25 Financial Intermediaries here for a convenient summary of which banks are most following your lead in reconstituting the national commercial real estate industry.

 

Industrial REIT CEO: E-Tailers Building New Supply Chains, Driving Industrial Property Value

The rise of e-commerce is displacing some traditional retail demand, but it’s also creating new demand on the industrial and warehouse side.

E-commerce has spurred the growth of third party logistics facilities, also known as 3PLs.  The facilities handle the order fulfillment behind the explosive growth of US online retail, expected to grow to $279 billion by 2015.  These enormous warehouses and shipping centers are drivers of jobs and new construction and enablers of a massive and growing trend.

All that adds up to a big investment opportunity, according to Hamid Moghadam, CEO of industrial REIT Prologis.  US warehouse properties figure into his investment trust very heavily, and he stopped by CNBC to discuss the new opportunities in the US industrial property market.

NAR Commercial Real Estate Forecast: Major Improvements Across The Board

NAR Commercial research graphic

The May 2012 NAR Commercial Real Estate Forecast published today brings a bumper crop of good news about the economy and fundamentals in commercial real estate in all its sectors.  Significant job growth, full recovery and growth in the apartment sector lead the report.

NAR Chief Economist Lawrence Yun points to new jobs as driving the recovery: “Ongoing job creation, which is at a higher level this year, is fueling an underlying demand for commercial real estate space, assisted by a steady increase in consumer spending,” he said. “The pattern shows gradually declining commercial vacancy rates, with consequential but generally modest rent growth.”

Jobs Coming Back In The Millions

Yun expects the economy to add 2 to 2.5 million jobs both this year and in 2013, on the heels of 1.7 million new jobs in 2011, assuming a new federal budget is passed before the end of the year. “Although we need even stronger job growth, by far the greatest impact of job creation is in multifamily housing, where newly formed households striking out on their own have increased demand for apartment rentals – this is the sector with the lowest vacancy rates and strongest rent growth, which is attracting many investors.”

In all areas of commercial real estate, indicators are in the green, according to the forecast:

Office Space Vacancy Projected To Fall

  • Vacancy rates in the office sector are projected to fall from 16.3 percent in the second quarter of this year to 16.0 percent in the second quarter of 2013.
  • The markets with the lowest office vacancy rates presently are Washington, D.C., with a vacancy rate of 9.3 percent; New York City, at 10.0 percent; and New Orleans, 12.6 percent.
  • Office rents should increase 2.0 percent this year and 2.5 percent in 2013.  Net absorption of office space in the U.S., which includes the leasing of new space coming on the market as well as space in existing properties, is forecast at 24.7 million square feet in 2012 and 48.0 million next year.

 

Retail Markets: Rents and Absorption Up
  • Retail vacancy rates are forecast to decline from 11.3 percent in the second quarter to 10.7 percent in the second quarter of 2013.
  • Presently, markets with the lowest retail vacancy rates include San Francisco, 3.7 percent; Fairfield County, Conn., at 4.0 percent; and Long Island, N.Y., at 5.0 percent.
  • Average retail rent should rise 0.8 percent this year and 1.3 percent in 2013.  Net absorption of retail space is projected at 8.0 million square feet this year and 21.9 million in 2013.

 

Industrial Markets Manufacturing Demand 
  • Industrial vacancy rates are likely to decline from 11.0 percent in the current quarter to 10.7 percent in the second quarter of 2013.
  • The areas with the lowest industrial vacancy rates currently are Orange County, Calif., with a vacancy rate of 4.7 percent; Los Angeles, 5.0 percent; and Miami at 7.2 percent.
  • Annual industrial rent is expected to rise 1.6 percent in 2012 and 2.4 percent next year.  Net absorption of industrial space nationally is seen at 44.1 million square feet this year and 62.4 million in 2013

 

A Boom In Multifamily

The numbers here seem to be the other shoe dropping concerning the pent-up demand for apartment housing we wrote about here at The Source in January:

  • The apartment rental market – multifamily housing – is likely to see vacancy rates drop from 4.5 percent in the second quarter to 4.3 percent in the second quarter of 2013; apartment vacancy rates below 5 percent generally are considered a landlord’s market with demand justifying higher rents.
  • Areas with the lowest multifamily vacancy rates currently are New York City, 2.1 percent; Portland, Ore., at 2.3 percent; and Minneapolis at 2.4 percent.
  • After rising 2.2 percent last year, average apartment rent is expected to increase 4.0 percent in 2012 and another 4.1 percent next year.  “Such a rent increase will raise the core consumer inflation rate.  The Federal Reserve, in turn, may be forced to raise interest rates, possibly as early as late 2013.”
  • Multifamily net absorption is forecast at 215,900 units this year and 230,300 in 2013.

 

Interested in more numbers?  Over the coming days, additional analyses will be posted at http://economistsoutlook.blogs.realtor.org/.

 

New NAR Commercial Numbers: Transactions, Income Up In 2011 For REALTORS®

Pictures of raised thumbs

It’s official.  2011 was better for NAR Commercial member practitioners.

REALTORS® who spend some or all of their activity in leasing, commercial sales, brokerage, industrial space, land development, office space, multifamily, retail and property management answered the NAR’s 2011 Commercial Member Profile survey, reporting a rise in their median gross income as well as an increase in transactions.

Five Becomes Seven

How many transactions and in what kind of patterns?  The survey says REALTORS®  a median of seven transactions in 2011, up from 2009 and 2010 when the typical agent had five transactions.  The survey further found a large majority of commercial members work at least 40 hours a week. More than half reported they spend 75 – 100 percent of their time on commercial real estate activity. Sixty-four percent derived 50 percent or more of their income from commercial real estate activity in 2011.

Details About Deals

According to the survey, 2011’s median sales transaction volume (including those members without transactions) was $1,058,300. When those members who had no transactions were excluded, the median transaction volume was $2,010,500. Brokers typically had higher sales transaction volumes than agents, and 22 percent of commercial members had no transactions with sales volume. The median dollar value of sales transactions was $414,300 and the median square footage was 9,600. In both instances, brokers typically had higher median dollar value of sales transactions, as well as sold larger spaces when compared to sales agents.

A Long, Hard Road

“The commercial real estate market still has a long way to go before full recovery, yet Realtors® are reporting positive trends that give us hope that the market is on its way to becoming healthy again,” said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami. “Realtors® who practice commercial real estate help build communities by facilitating investment and promoting the sale and lease of commercial space, which supports millions of jobs nationwide. They are hopeful that the market will strengthen and their business will help spur the nation’s economic recovery.”

 

 

Retail Space: Less About Products, More About Brand Experience

Image representing Amazon as depicted in Crunc...

We’ve written on the various impacts the e-commerce wave has had on the retail space industry. Usually, the trends point to a general future decline in demand for brick-and-mortar as the growth in  e-commerce shows no signs of slowing.

But not every trend and development is bad news for traditional retail. It’s possible that internet retail’s growth does not always come at the expense of traditional retail.

Amazon.com, whose revenues have been rising an incredible 30-40% per year are a huge part of the internet retail picture, a $200 billion market expected to reach a 9% share of total retail by 2016. With numbers like these, it might be surprising to learn that Amazon is planning to open brick-and-mortar retail anywhere. But they are.

Industry analysts say Amazon’s planned Seattle retail store could be inspired by the runaway real estate success of another technology giant, Apple Computer.

There’s a lot to be inspired by. Apple’s business model relies heavily on commercial real estate, sporting more than 300 retail stores in 11 countries. 13% of Apple’s overall sales were due to retail in 2011, and that includes 21% of its flagship laptop products. It’s Retail division claims 30,000 “full time equivalent” employees, and most eye-popping to retail experts, Apple claimed in 2009 that its stores brought in $4,300 per square foot.

Apple’s singular success in meshing technology and bricks might be leading Amazon into a wisdom about retail that is often overlooked: the customer is there for goods, to be sure, but not only goods. Brand experience draws people into retail too – the entirety of their experience, from personal customer service, to amenities, trying out items, to all the intangible expectations that come with that brand.

Finding the right balance between brand experience and goods availability is the trick. Will a customer base brave traffic, parking, crowds and lines for a radically reduced set of on-the-shelf items? Amazon might be put into the position to try to prove that the brand experience can trump physical offerings if their strategy will rely on Amazon’s flagship gadget, the Kindle Fire.

Amazon’s impact on national commercial real estate is growing far beyond its retail test: the company sports 69 enormous warehouses, 17 of which came online in 2011. That kind of growth could encourage experimentation and might give the giant the conceptual space it needs to tinker with a retail formula to rival Apple’s. If they get it right, it can only be good news for shopping centers across the country.

 

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Is Student Housing The Leading Commercial Property Development Today?

NYMC Student Housing

When the question “what kind of commercial property is hot” comes up,  the eternal qualifier applies: all real estate is local, your mileage may vary.

That said, there are widely felt economic trends concerning college education that are making the development of new student housing shine a little brighter than other kinds of development these days.  One reason is the general trend of privatization — the blurring of the line between between the public, tax-supported institution and the private investor.  This trend is showing up in all corners of the economy, turning public services into markets and supporting cash-strapped local governments with valuable investment capital without which they could not meet the expanding needs of the public.

In higher education, this translates to the reduction of state budgets driving universities toward a private development route in student housing. A recent piece by Jeniffer Duell Popovec in NREI highlights the situation by looking at the recent development activity of the largest and oldest real estate investment trust in the student housing space.  Business is booming in student housing:

The student housing development activity is driven by a number of factors in addition to the obvious supply-demand dynamic within the industry, according to Jamie Wilhelm, executive vice president of public-private transactions for American Campus Communities Inc. (ACC). He says higher education budget constraints, coupled with lengthy procurement and contracting processes, compel state-supported universities and colleges to seek out third-party development partners. Student housing REITs are involved with these schools to develop on-campus and off-campus housing.

ACC has largest development pipeline of all three student housing REITs, which makes sense given the fact that it’s also the largest and oldest REIT in the space. It has $593.4 million in owned development projects currently under construction with deliveries scheduled this fall and in 2013.

The developments are all core class-A assets close to campuses in their respective markets and on track to meet previously announced development yields in the range of 7 to 8 percent. ACC’s 11 new owned development projects scheduled to open this fall, which represent an investment of $385.4 million, are preleased at an average of 76.3 percent for the upcoming academic year as of April 20, 2012. Six of those assets leased above 90 percent.

The REIT says it has identified more than 200 markets and approximately 80 specific sites within these markets as potential future development opportunities. Its current business plan contemplates the development of approximately five to seven new student housing properties per year.

Has retail taken a backseat to the dormitory?  Are office buildings playing second fiddle to new campus amenities in the competition for development dollars?  One way to answer that question: student debt is federally guaranteed debt, and is credit extended to promote social mobility, e.g. the American Dream.  Does your local proposed shopping mall or office complex get to use that narrative when seeking financing and buy-in?

Probably not.

New REALTOR Benefits® Partner, Xceligent, Creates Competitive Advantage

WASHINGTON (May 14, 2012) – The National Association of Realtors® announced today a strategic alliance with Xceligent, Inc., a leading commercial real estate information services provider.  Xceligent recently acquired ePropertyData from NAR’s strategic investment fund, Second Century Ventures, to create a competitive national alternative in commercial real estate information.

As part of the REALTOR Benefits® Program, Xceligent will be the exclusive provider of commercial real estate information services, including Xceligent’s flagship Premium Research Platform, which will cover the major U.S. markets; a National Public Search Service for marketing properties; and the two commercial information exchange products gained through the ePropertyData acquisition, which are the Basic Broker Loaded Platform and Basic Research Platform. This strategic alliance ensures preferred pricing for Realtors®.

“As a Realtor® who conducts commercial real estate transactions, I am proud NAR has entered into a game-changing partnership for the commercial real estate industry,” said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami. “Competition in this marketplace will greatly influence the way commercial real estate professionals conduct business long into the future and grow the industry as a result.”

“Xceligent is excited to partner with NAR at this ground-breaking moment in our industry’s history,” said Doug Curry, Founder and CEO of Xceligent. “Providing Realtors® specially priced access to Xceligent’s proactively researched market information and our new National Public Search platform will energize their businesses and increase their efficiency, allowing them more time to be in front of their clients instead of their computers.”

“This strategic alliance with Xceligent represents the power of partnership within the real estate industry, and more importantly, reinforces how Realtors® benefit from NAR’s REALTOR Benefits® Program,” said Bob Goldberg, NAR senior vice president of Marketing, Business Development and Strategic Investments, and Commercial Services. “With the acquisition of ePropertyData, Xceligent is poised as a truly competitive alternative in the commercial real estate information services market.”

Details of the program will be released in coming weeks.

Xceligent, Inc., a leading provider of commercial real estate information services, is based in Independence, Mo., and has 210 employees. Leveraging an efficient, research-focused model, Xceligent provides commercial real estate professionals with accurate and timely information on commercial real estate availabilities. Xceligent currently provides information services in 30 major U.S. metropolitan markets and has begun the national roll-out to cover the top 65 U.S. markets in 36 months with premium research services per the recently issued Federal Trade Commission consent decree allowing the CoStar/LoopNet merger to proceed.

NAR’s REALTOR Benefits® Program offers practical solutions for Realtors® on the products and services they use every day. The program includes offerings in a variety of categories from nearly 30 companies recognized as leaders in their respective industries.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

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George Lucas Uses The Force (Of Property Rights)

A portrait of George Lucas, Pasadena, Californ...

May the Force be with you, goes the eternal line from Star Wars.  When it comes to commercial property development, sometimes the Force is exactly what you need.

For 25 years, filmmaker George Lucas, creator of Star Wars, has been embroiled in a struggle over his commercial real estate project.  Owner of a stretch of North Marin County land near San Francisco, the filmmaker has been trying to build a complete film studio on his property. He’s proposed and studied and modeled no small plan: 300,000 sq. ft. of modern filmmaking facility, complete with a restaurant, retail, parking for 200 cars. He’s been fighting to bring $300 million of economic impact to the area. In other words, it’s the kind of think-big commercial development our industry generally likes to see.

But sailing has not been smooth.  Luke Skywalker didn’t triumph overnight, and neither has Lucas.  The past quarter-century has pitted him against his Marin County neighbors, who have opposed the project on the grounds that it would do exactly as Lucas says: bring a lot of economic impact, and with it, foot traffic and activity they don’t see as conducive to residential property value.

In some ways, it’s a classic struggle — not between good and evil to be sure, but between the rights of property owners to use the force of property rights to build what they want. That’s our system, and commercial interests don’t always win out over residential ones.  This week, Lucas announced he was ending his battle to develop the land into a studio.

He would instead use the land to develop…low-income housing.  In a statement, Lucas turned his neighbors’ objections on their head: “If everyone feels that housing is less impactful on the land, then we are hoping that people who need it the most will benefit.”

The local homeowners association has been such a thorn in Lucas’ side that he’s decided to abandon the studio construction entirely, issuing this official statement about Lucasfilm’s withdrawal of the new studio:

The level of bitterness and anger expressed by the homeowners in Lucas Valley has convinced us that, even if we were to spend more time and acquire the necessary approvals, we would not be able to maintain a constructive relationship with our neighbors.

We love working and living in Marin, but the residents of Lucas Valley have fought this project for 25 years, and enough is enough.  Marin is a bedroom community and is committed to building subdivisions, not business.  Many years ago, we tried to stop the Lucas Valley Estates project from being built, but we failed, and we now have a subdivision on our doorstep.

So what is George Lucas going to do with his property now that he’s tired of his rich neighbors putting up a not-in-my-backyard stink? He wants to transform the property into low-income housing, naturally, ending their official statement with this zinger, “If everyone feels that housing is less impactful on the land, then we are hoping that people who need it the most will benefit.”

He’s working with the Marin Community Foundation to instead construct affordable housing for either low-income families or seniors living on small, fixed incomes. In order to smooth along the development, he’s already given them all of the pricey technical studies and land surveys Lucasfilm spent years conducting.

Property rights.  Gotta love ’em.

 

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New Unemployment Claims Down, Industrial And Warehouse Property Demand To Rise

NAR Chief Economist Lawrence Yun blogged the latest Economic Update, wherein the research staff analyzed recently released economic indicators pertaining to unemployment and imports and exports.

For commercial practitioners, the news is encouraging, particularly in the international trade indicators.  In March, imports and exports climbed.  Compared to a year ago, imports rose 8.4% over last year, while exports hiked 7.3%.

Imports and exports are perceived as a leading indicator for leasing and purchasing demand in industrial and warehouse properties.  The general idea being that you can’t service heightened demand for exports without more industrial and warehouse capacity.  On the reverse side, meeting heightened demand for imports requires more access to warehouse space along major trade routes.

(Readers interested in ideas as to where these routes will grow might be interested in Sam Fisher’s talk on the future of Warehousing, where the head of industrial practice at Jones Lang LaSalle addressed the NAR Commercial audience at the 2011 convention.)

Lawrence Yun goes on to describe the role of international trade in broad terms applicable to CRE:

  • Though the widening trade deficit will hold back current economic growth by a few decimal points, the broad increases in international trade is critical to a long-term rise in standard of living.  Extra international competition always forces companies to shape up and drive towards efficiency while consumers are exposed to better products.
  • The falling international trade in 2008 and 2009 were due to the harsh economic recession, when the U.S. economy lost 8 million jobs and the number of people filing for unemployment checks skyrocketed.  The Great Depression of the 1930s was also associated with a major collapse in international trade.  Many European countries after the First World War sunk into terrible economic hardship as many newly created small-sized countries started to impose foreign tariffs (say between Croatia and Austria) which previously had not existed as part of the Austrian-Hungarian Empire.  The disintegration of Soviet Union and its equivalent of the Great Depression in the 1990s was also associated the sudden collapse in border trade, say between Ukraine and Russia.  In a more recent example, North Korea today is one of the poorest countries in the world because it believes principally in domestic production without foreign competition.
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NAR’s Second Century Ventures Announces Sale of ePropertyData

Second Century Ventures, the strategic investment arm of the National Association of Realtors®, has sold ePropertyData (ePD) to Xceligent to create a competitive national alternative in commercial real estate information.

Xceligent will leverage ePD’s commercial information exchange (CIE) solution to help expand its existing coverage of fully researched commercial real estate information into the largest U.S. markets. ePD provides commercial real estate information in markets across the country and powers NAR’s current national public commercial real estate search  platform, which already contains more than 200,000 active lease and sales listings. ePD’s research tools will be enhanced and incorporated into Xceligent’s research center.

Read the full release on Realtor.org

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