Browse Month: July 2012

Summer 2012 Commercial Connections: Making Strides In A Jumpy Economy

The cover of the Summer 2012 issue of Commercial ConnectionsThe Summer 2012 issue of NAR’s Commercial Connections magazine is on the shelves.  And by “on the shelves”, I mean “already in the eager hands of thousands of REALTORS®” and “conveniently on the web”. Aside from a very pleasing, summery shade of periwinkle, what’s in this issue? Essential stuff, including:

  • An in-depth piece on SBA 504 Refinancing program for small business capital, by Barbara Vohyrzek
  • Marwyn Evans’ cover story on the mixed messages in the economy contrasted with the enduring nature of commercial property markets
  • Chere Larose-Senne’s breakdown of the new benefits partnership between Xceligent and NAR
  • NAR Research Manager George Ratu’s pointed examination of our pinstriped friends the bankers in “Growth In Commercial Markets Hampered By Lending”
  • And much more.  Browse the new issue right here.
Enhanced by Zemanta

Demand For Commercial And Industrial Design Rises Even As Architecture Billings Index Slips

Architecture Billings Index chart showing decline in demand for design workWatching commercial real estate for signs of the coming future means keeping an eye on many different indicators.  One such number touted as a leading indicator of construction spending is the American Architecture Association’s Architecture Billings Index.

Used as an indicator for new nonresidential construction going out 9-12 months, the ABI defines nonresidential as “lodging, office, commercial, manufacturing, health care, educational, religious, public safety, amusement and recreation, transportation, and communication.”

The AIA Work-on-the-Boards survey is conducted monthly across a national panel of architecture firms. About 300 architecture firms actively participate, and firms included in this survey provide architectural services as their principal design service offered. Firms may also provide engineering, interior design, landscape architecture, planning, urban design, or related services. Most firms also provide pre-design or construction-phase services (e.g., construction management) in addition to their architectural design services.

June’s number is not looking so hot.  And it appears to be a repeat of a pattern for a springtime activity slump.

So what’s the good news?

Splitting hairs is something we’re forced to do sometimes when analyzing commercial RE, as so many real estate industry indicators include residential right along with our focus in nonresidential.  A little closer look at the Index shows a different story for commercial and industrial properties.   Architecture work commissioned by developers for industrial and commercial property are actually “slightly up”.

“For the second year in a row, we’re seeing declines in springtime design activity after a healthy first quarter,” he said. “This should be an alarm bell going off for the design and construction industry.”

The decline in demand hit nearly all four sectors covered by the index with the biggest drops hitting residential and institutional real estate. The commercial and industrial sectors showed slight gains in demand but the increases were less than in previous quarters.

Is the market in commercial real estate healthy from coast to coast?  No.  But our industry’s projects are sending more professionals to the drawing board, and that’s a bit of good news that easy to miss.

 

Enhanced by Zemanta

Jones Lang: Technology And Energy Leading Commercial RE Market

English: This is my own image.

In 2Q 2012, it’s the west coast technology and energy firms that are leading the national charge in US office recovery.  So says CRE giant Jones Lang LaSalle’s 2Q 2012 US Office Outlook report. The (mostly good) news:

Second-Quarter 2012 Commercial Real Estate Highlights

  • The technology industry accounted for 46 percent net absorption with the energy markettrailing with 23 percent.
  • While in 2010 the East Coast comprised 85 percent of net absorption totals, that level decreased to 23 percent in Q2.
  • Leasing activity is still very depressed. While up nearly 10 percent from Q1 2012 level, it’s down 17 percent year-over-year – as the result of most tenants negotiating leases extensions in depressed markets in 2010 and 2011.
  • Vacancy declined and dipped slightly 17.3 percent, its lowest point since early 2009.
  • For the first time in three years, sublease space upticked slightly in the quarter.
  • Florida, Arizona and parts of Southern California are experiencing a strong rebound, growing at triple the rate of the rest of the U.S. in Q2.
  • Construction remained low across most markets; however, activity has increased in a few cities including Atlanta, Charlotte, Dallas, Houston, New York, Northern Virginia, San Francisco,Silicon Valley and Washington D.C.
Speaking in terms of national scale, it’s worth remembering that the pressure toward retail displacement caused by e-commerce is part of a big-picture balance.  Declines likely relate to a rise elsewhere. When I look at the technology and energy and infrastructure sectors, I think of where they overlap: data centers.

Download the entire report from Jones Lang here.

 

Enhanced by Zemanta

Charter Schools: Commercial Property Lessons Learned

classroom
(Photo credit: cayoup)

The marketization of public education is a trend gaining traction across the country. Commercial real estate transactions and investments in the charter school space are following suit.  What happens when expert commercial real estate investors take on the task of displacing the public interest in education with shareholder interest?

In at least one case, some tough business lessons were learned.

A.D. Pruitt’s piece in the Wall Street Journal tells the cautionary tale of one expert in commercial real estate and its foray into charter school property deals. Entertainment Properties Trust is a movie-theater REIT owning 112 theaters in 35 states.  Entertainment Properties got into the charter school building market, adding 37 charter school properties to its portfolio n exhange for about $72 million.  Most of these schools are operated by a for-profit charter-school operator.  The outcome?  Vacant buildings, lost contracts, and most sadly, poorly served kids.

But the investment into charter schools has gotten bad marks of late. In the past few months, [for-profit school operator] Imagine lost its contracts to manage seven schools in Missouri and two in Georgia due to criticism about poor test scores and financial mismanagement. Those schools were owned by Entertainment Properties, which was then in a pinch to fill the vacant buildings.

Those nine schools represent a $72 million investment for Entertainment Properties and one-third of the number of leases the company has signed with Imagine, which currently operates about 75 schools nationwide.

The turn of events has revived concerns among investors that Entertainment Properties is veering too far from its expertise in the theater business.

“I think the Street is going to be a little hard on the stock” until the company resolves the issues that it faces with Imagine, said Rich Moore, an analyst at RBC Capital Markets.

Indeed, since the Missouri Department of Elementary and Secondary Education revoked the charter for Imagine Schools in St. Louis in mid-April, Entertainment Properties’ stock has declined 12.9%, while the broader REIT market is basically flat.

The story’s about more than one commercial property portfolio’s setback while moving to profit from the marketization of public education.  Entertainment Properties isn’t taking its ball and going home; CEO David Brain sees “an increasingly favorable political climate for alternative education,” and expects to continue its foray into charter school property.

The wider story is about fundamental changes in communities.  The United States was the world pioneer in mass education, first in primary education in the 19th century, then secondary in the 20th.  The resulting enormous power of the country’s economy speaks directly to that commitment to public education. Competition, profit and private interest were not drivers of that commitment; access and society-wide insistence on quality education were.

While it’s not clear that charging rent to school boards will improve educational outcomes; it is clear that the marketization of primary education presents risks to CRE investors as well as to kids and to the future they represent.

Enhanced by Zemanta

NAR Commercial Practitioners: Call For Brief Survey

Logo of NAR's MVP participation rewards programAttention commercial REALTORS®: From July 16-31st 2012, NAR commercial members are called to participate in a brief survey by NAR’s Research Department.

As part of the NAR’s Member Value Plus (MVP) Program, where REALTORS® earn rewards for participation in actions geared to improve our industry, today’s call is for a brief survey of your business activity and what you see in your marketplace. This survey is an extension of the monthly REALTORS® Confidence Index Survey and annual Member Profile, meaning results will of course be shared with members and in other venues.

To participate, you must have a valid NRDS ID number and e-mail address.

The Reward

In exchange for participation, NAR is offering a reward of a free download of the 2012 NAR Member Profile.  What’s in it? Plenty of valuable intelligence and networking:

Who are REALTORS®? Economic, demographic, education, tenure, agency relationship and compensation of REALTORS® are broken down. In addition, this report takes an in-depth look at office affiliation, type of firm, as well as the use of the Internet and technology. This unique tool provides the answers in a user-friendly format, designed to allow easy comparisons with previous studies, using a mix of charts, graphs and tables.

You have until August 31st, 2012 to claim your Reward in the REALTOR.org/Store. You will receive a promotional code to utilize in the Store to receive your reward via e-mail within 48 hours.n in-depth look at office affiliation, type of firm, as well as the use of the Internet and technology. This unique tool provides the answers in a user-friendly format, designed to allow easy comparisons with previous studies, using a mix of charts, graphs

The Survey
Got your NRDS number handy? Is it before July 31st 2012?  Ready to earn a reward?  Then begin filling out the survey here.
Enhanced by Zemanta

SBA Financing For Small Business Office Purchases

 

Loan
Loan (Photo credit: Philip Taylor PT)

Today’s wariness of banks and private lenders to finance commercial real estate transactions is widely reported as this industry’s leading challenge as it comes out of the recession.  There are many reasons given why bank lending volume isn’t where it should be, but at the core, credit availability depends on lenders being good at assessing risk. It’s not as if the country’s largest banks have earned the most sterling reputations when it comes to evaluating, securitizing and financing real estate risk — the recession itself speaks here.

No matter how the times got tough, it is absolutely critical to maintain the flow of credit during and following an economic downturn.   That’s one role of the Small Business Administration’s SBA 504 program: to provide access to capital and to shoulder risk when our pinstriped friends find themselves otherwise concerned with problems of their own making.

Can Your Clients Benefit From SBA Lending?

In the Associated Press piece “Small Business Boom Spurred By Government Support”,  the issue of capital access through SBA in rough economic seas is laid out in plain terms:

Since 1959, the SBA 504 program has been offering a form of government support to small business and to banks simultaneously by reducing the risk assumed by the bank.  The result is credit available to the small business during those times when it is needed most.

The amount of small business loans under the SBA 504 has risen 16% per year in the three years following 2009, adding up to $4.5 billion. “Small business” is for the most part defined as businesses having fewer than 500 employees and less than $5 million in income.   Business owners are required to put up a down payment of just 10 percent, compared with the 25 percent to 40 percent demanded in a commercial property loan.

Commercial real estate practitioners should know that the SBA option exists simply as part of diligence on behalf of clientele; and in financially trying times, it might even make the difference between deal or no deal.

Occupancy Requirements Mean One Size Does Not Fit All
The terms of these SBA 504 loans protect against default by providing approval requirements that owners are the primary occupier of their space.  Owners that occupy are more likely to pay back the loans, as opposed to investment properties where if a tenant leaves, the hunt for a new tenant creates pressure that elevates default to just another strategy available to the owner.

Further, the 504 program loans are made available through Certified Development Companies (CDCs), SBA’s community based partners for providing 504 Loans.

These requirements constitute a focus on long-term occupancy and community — promoting greater community stability.  The program highlights the difference between sustainable economic development and the kind of slash-and-burn approach to commercial real estate (and much else) that ended up being such poison to commercial property’s market for credit.
Full Details At SBA.Gov
The SBA 504 program details are all available at SBA’s website. 
Enhanced by Zemanta

Why TV Might Not Be The Best Place To Learn About Data Center Property

It’s not exactly fair to say CNBC’s foremost investment guru Jim Cramer touches on commercial real estate very often.  As is usual with folks following equity markets on TV, publicly traded REITs come into his view only every now and then, he makes his pronouncements, slaps a button to make a sound effect and moves on to the next sector with nary a pause.

That said, nobody twists Mr. Cramer’s arm to give investment advice on TV.  So when he consistently gets a sector wrong, it’s worth noticing.  If it’s a hugely successful and growing commercial real estate market, all the more worth noticing. And Jim Cramer couldn’t get data centers more wrong than he has.

Over at DataCenterKnowledge.com, Rich Miller was the first to notice the wild misses in Cramer’s pessimistic prognostications about data centers.  The following chart says it all:

A chart showing Jim Cramer's mistakes in data center stock picking

Again, these are only stock picks and shouldn’t be treated as more than that.  But it does show that a very widely regarded analyst of all things financial has blown it when analyzing a key commercial real estate sector.  If he can, so can many others.

It wouldn’t be the first time. CRE is complex, highly local and intimately intertwined with many economic, regulatory and social factors.  Yet, here, Mr. Cramer is missing a very simple point about technology and floor space when he says “I think the data center industry is in decline. I see an industry that’s about to be brought low by new technology, so I think you should sell, sell, sell.”

With technology, it can be difficult to tell where limits are.   In our lifetimes, we have seen such massive changes, and such radical miniaturization of powerful business technologies, that we may simply guess that every physical need related to technology’s march will simply continue to shrink.  Apply that guess to data centers as a commercial property investment — in other words, believe that a new technology is coming that operates in thin air, without roofs or power or physical security —  and you might, as Cramer does, come up bullish.

But that guess couldn’t be more wrong.  The growth of the internet, the launch of every new service, of every new startup, means a directly heightened, not lowered, demand for data center capacity, and therefore for all the real estate features:  roofing,  power, physical security, etc.

Every story you see of, say,  user growth at Facebook or about the new record number hundreds-of-gazillions of Google searches translates into heightened demand for data center capacity.  Electronic commerce and telecommuting is displacing traditional commercial real estate buildout formulas, certainly, but that displacement must have a destination – and the consistently heightened demand for data centers is it.   Each of those individual users – the telecommuting worker, the online shopper, the social media maven –  have to connect to something somewhere when they wield their smart phones, pads or laptops.   That somewhere is a data center.

Obviously, picking stocks and picking a commercial property sector to patrol in your CRE career aren’t the same thing.  But let it be known data centers are the commercial square footage that drive every internet application.  They are affecting your market far beyond the primary cities — from Apple’s $1 billion data center investment in secondary-market Reno, NV to the surprising server farm projects that, well, are being built on farmland. 

Let the guy on TV do his thing.  We have to do ours.

Enhanced by Zemanta

Agricultural Land Brokerage Course Announced By REALTORS® Land Institute

Education Program at Realtors Land InstituteAs part of its Land U program, REALTORS® Land Institute has announced its Agricultural Land Brokerage and Marketing Hybrid Course.  This is one agricultural hybrid not related to a crop: the no-travel course focuses at two subjects at once: land brokerage and land marketing.

Trillion Dollar Market

The agricultural investment land market is estimated at a trillion dollars.  This RLI course delivers the knowledge it takes to work this market, and more:

“To tap into this market, the land professional needs to know what market forces impact the value of agricultural land; the importance of soils and how they determine the highest and best use of the land; why land is an investment that attracts investors from around the world; how to analyze the income potential of agricultural land and estimate probable selling prices and costs; and how to market properties through online, print, electronic media, and RLI marketing sessions.  This course counts as an elective toward earning the Accredited Land Consultant (ALC) Designation. ”

How To Register

Once you’ve registered, all you need to take the course is a computer and a phone.  Check out the details of the RLI Agricultural Land Brokerage and Marketing Hybrid course at RLILand.com.

 

NAR Smart Growth Grants: Get Smart About Commercial Property In Your Community

NAR Database Growth 2007

Smart Growth is important stuff.  The commercial property market and the land use decisions that go with it loom very large in the balance of a community’s economic health.  Growth needs to be managed intelligently to maintain that balance, and that takes experts in commercial property engaging the community at large, shaping that balance among stakeholders.

The range of member benefits to REALTORS® now includes grants in support of Smart Growth efforts in your community.  Each year, the Smart Growth Action Grant Program makes available $120,000 to state and local REALTOR® associations to support engagement with communities toward effecting public policy intelligently.   How do you get started with Smart Growth?  Let’s first look at how it works in multifamily.

Smart Growth in Multifamily

If you’re in the multifamily market, download and read NAR’s White Paper on Short-Term Rental Housing Restrictions.  Commissioned by NAR and conducted by Robinson & Cole, LLP, this report discusses three often-used regulation techniques and provides commercial real estate practitioners with ways to counter them in the public policy discussion.  In addition, the report highlights “best practices” approaches to short-term rental housing that can guide engagement with local government.

Explore the Smart Growth Action Grants

Raising the profile of commercial REALTORS® in the conversation about land use is a main goal of NAR’s Smart Growth Action Grants. Members of state and local REALTORS® associations can take advantage of three levels of support, ranging from sponsorship of educational programs and speakers to seed funding that enables a local association’s initial efforts to guide their community’s Smart Growth, to support in-depth projects with multiple funding sources, including Charettes.

What’s a Charette?

Think of a Charette as a extended sit-down with all of the community stakeholders.  Property owners, commercial practitioners, government, volunteers, and others are invited to a multi-day collaborative process over the issues of land use.  As communities develop transit links, population evolutions and other social and economic effects, it makes sense to be the expert voice sounding the call for a huddle about these complex issues. A NAR Smart Growth grant can help make that process a reality in your market.

Commercial practitioners are invited to explore the full range of NAR Smart Growth Program resources, including toolkits for transit, infrastructure and schools.