Browse Month: September 2012

Podcast: REALTORS® Expo Sneak Peek, RPR Commercial Debut, Credit Union Merger

The most recent monthly podcast by NAR Treasurer Bill Armstrong is packed with important news for commercial practitioners.  You can listen to the cast for full details — a quick summary is below:

NAR 2012 Conference And Expo

  • It might surprise some that the grand total of cross-border investment in US commercial real estate adds up to a $23.2 billion market.  Fully understanding and maximizing the opportunities available in this market is a challenge that the 2012 Conference and Expo will help you meet.
  • NAR Senior Economist Lawrence Yun will unveil his industry forecast for the coming year.
  • The Expo floor is where you can find out firsthand about all the products and services from leading vendors, as well as talk one-on-one with conference speakers at the Commercial Pavilion.
  • New this Expo: You’ve probably heard of speed dating.  Have you ever heard of speed networking?   It’s the speed dating concept applied to professional networking.  In our speed networking session, you’ll introduce yourself, pitch properties and exchange information with as many colleagues as possible in one hour. Ready, set, go!

REALTORS® Property Resource (RPR) Commercial application debuting November 1

The RPR Commercial application is coming.  Years in the making, RPR is a huge NAR project devoted to collecting and indexing unheard-of levels of detail on properties.  The RPR Commercial application is a new and powerful application that will be available only to NAR members and will give REALTORS® the competitive edge in market research, reporting and impressing clients.  Get details at RPR’s blog and at the RPR Blog Commercial page.

REALTORS® Federal Credit Union Merger with Northwest Federal Credit Union Now Complete

  • The new merger means that the credit union offers:
  • Virtual banking
  • 4,600 brick-and-mortar service centers around the US
  • Thousands of ATMs nationwide
  • Money to lend at competetive rates
  • A number of unique financing options for owner-occupied commercial real estate
  • All without a prepayment penalty

Join the REALTORS® Federal Credit Union in ten minutes at RealtorsFCU.org

Check out Bill Armstrong’s full podcast at Realtor.org.

 

EPA Lead Paint Rulemaking: Delayed Three Years

Environmental Protection Agency SealThe Environmental Protection Agency has further delayed its plans to propose and then finalize a Lead Renovation Repair and Painting (LRRP) rule for potential lead-based paint hazards in commercial and public buildings.

By Dec. 31, 2012:  EPA will announce a public hearing to gather info on renovation activities and possible lead hazards in commercial buildings, and will hold the public meeting by July 31, 2013.

NAR’s efforts thus far, through letters to EPA and oversight from the Hill, have resulted in a significant delay in EPA’s issuance of new regulations — particularly because NAR has stressed the point that the agency lacks data on the nature and extent of lead-based paint hazards unique to commercial buildings.  EPA had been under a deadline to issue a proposed LRRP rule for exterior commercial renovations by June 15, 2012.  With a new settlement agreement, EPA has delayed issuance of a proposed LRRP commercial by nearly 3 years – until July 1, 2015.  And, any final rule with regulatory impact is not expected for well over 4 years – until Dec. 31, 2016.

A few other points are noteworthy from this Settlement Agreement:

  • Previously, EPA had been on two separate paths that would have bifurcated LRRP commercial rules for exterior versus interior building renovations.  Under the latest Settlement Agreement, the exterior and interior renovations rules are now on the same regulatory deadlines.
  • To date – and as allowed by the Toxic Substances Control Act (TSCA) – EPA said it would consider LRRP Rules for commercial and public buildings regardless of the date of their construction.  In contrast, TSCA and EPA residential LRRP rules are focused on pre-1978 “target housing.”  It now appears that EPA is operating under the same pre-1978 cut-off for public and commercial buildings as well.  NAR and our coalition partners have argued that – assuming any commercial LRRP Rules are appropriate at all – the pre-1978 cut-off for “target housing” should also apply to commercial buildings.  We will be following up to confirm whether EPA has, indeed, changed course and decided to restrict the scope of any possible LRRP commercial rule to pre-1978 structures (as it has done for “target housing”).
  • Under TSCA, EPA is required to first study and report to Congress on lead-based paint hazards in commercial buildings before it issues any new LRRP rule for those structures.  It still has not done so, and the Settlement Agreement is silent on this subject.  Assuming EPA continues down the path to develop new regulations, we will continue to press EPA to meet the statutory “report and study” requirement prior to EPA’s issuance of any proposed LRRP commercial rule.
  • Paragraph 2 states that, unless EPA concludes that “renovation activities in pre-1978 public and commercial buildings do not create a lead-based paint hazard,” EPA will continue to develop regulations in this arena.  EPA sets forth a process for it to gather information regarding any “hazard” determination:
  • By Aug. 29, 2014:  EPA will have completed the oversight process required by the Small Business Regulatory Enforcement Fairness Act (SBREFA), including the convening of an SBAR panel.
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Podcast: Avoiding Litigation In Leases

In the newest NAR Commercial Intelligence Briefing podcast, attorney Jim Hochman discusses the anatomy of a lease, avoiding litigation and more. As a partner at Coman & Anderson, Mr. Hochman represents many commercial real estate brokerage firms, receivers, landlords, tenants, and real estate investors by assisting in commercial and residential real estate transactions. He is also a member of the NAR Commercial Signature Series Speaker Bureau.

  • Covered in the podcast:
  • The anatomy of the exclusive listing agreement
  • Considerations of using agreements written for one state in another state
  • Things brokers should watch for — are you dealing with the property owner of record, or do you just think you are?
  • Anatomy of a purchase and sell agreement
  • Tips for brokers on how best to work with and seek lawyers
  • What mistakes lead to litigation again and again
  • Common misrepresentations
  • Broker lien rights
  • License portability and doing interstate business
  • Broker negotiation tips
  • And more!

Listen to Jim’s wisdom at the NAR Commercial Intelligence Briefing podcast.

Subscribe to the NAR Commercial Podcasts on iTunes

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Data Center Retrofit? The First 13 Questions To Ask

Hutto Co-Op - Interior 3

The continued revolution in distance working / telecommuting is fundamentally altering commercial real estate’s traditional office space measures of economic health.  Once, vacancy rates and square footage outlays per employee were widely assumed key indicators of performance.  Today, the economic power of the office worker is being spread out around the globe.  This is contributing to stubborn vacancy rates, but it is also driving explosive demand for data centers.

Found in your client’s portfolios is probably vacant space aplenty.  Can any of that space be retrofitted into a data center?  Complicated topic, as the questions could be endless.  But you have to start somewhere — here are the first thirteen questions to ask:

  • Is the area isolated from contaminants and liquid leaks?
  • What is the general layout of the area?
  • Is there enough room for required equipment?
  • Is there adequate access for moving in and rotating large equipment?
  • What is the proximity of the area to chillers and condenser units?
  • Where will HVAC units be placed? Inside the area? Outside?
  • What are the access control possibilities?
  • Is there any room for future expansion?
  • Can walls be removed without creating structural instability?
  • Can walls be added?
  • Can a raised floor be added?
  • Is the floor-to-ceiling height adequate for a raised floor, ceiling plenum, and equipment height?
  • Will the existing subfloor be able to handle the weight load?

When High Vacancy Rates Persist Even As The Economy Recovers

Jim Garringer, CCIM, SIOR

Speaking in national terms, employment growth is tepid, and the pace of economic recovery is not what anybody would consider ideal.  These trends apply unevenly across regions and markets, meaning that in some places, recovery is presenting a “new normal” of economic growth that nonetheless includes a commercial property hallmark of economic recession: high vacancy rates.

The disconnect between national trends and some local realities is easily found: national declines in vacancy for office, retail, industrial and apartments are loudly touted  but not as prominent are reports (taking southwestern Florida only as a handy example — apologies to any Gators) of office vacancy rates mired in the high-mid teens. 

Jim Garinger, CCIM, SIOR, and Managing Director of Colliers International SW Florida has thought through what these challenges mean to landlords and tenants. Jim sees employers reducing space outlay per employee — a observation no doubt supported by the explosion in telecommuting and shared-workspace employment expectations of the internet-enabled millennial generation that we’ve written about here plenty of times.  In Jim’s article “Commercial Connections: Companies Are Downsizing For Higher Quality, Lower Cost”, he spells out ways the vacancy realities can and should affect the negotiations over commercial occupancy.

Historically, office occupancy rates have a positive correlation with office sales and leasing activity, but in this economic recovery there’s a twist. After companies have been able to keep their heads above water and generate profits, they are either looking at smaller spaces that are a higher quality, or at smaller spaces to cut overhead costs.

Either situation has companies “increasingly packing more employees into less space, a trend that is helping cause U.S. vacancy rates to linger at high levels even as employers add jobs in the slowly expanding economy,” said the Wall Street Journal in a recent article.

These factors present a unique situation for tenants seeking space, with a significantly lower amount of Class A office space available in Southwest Florida compared to B and C. According to the CoStar Southwest Florida Office Market Report for 2011, of the existing vacant space, 16 percent is Class A, 64 percent is B and 20 percent is C. The national vacancy average reflects the same trend, with 35 percent being Class A space, 49 percent Class B and 16 percent Class C.

[…]

[Landlords should] avoid losing a potential tenant by making an offer to build out dead space if you need to. With companies downsizing not only in amount of employees, but the amount of space each employee gets, consider being flexible with the space. For example, consider building out a space to create two spaces rather than keeping one large area that would only appeal to a large company.

[Tenants should] think creatively and don’t be scared off by unusual spaces that have potential to be used for a different purpose. These landlords are often struggling with finding a tenant or a solution to their space, and will offer an attractive rate for someone willing to reconfigure the space for their needs. For example, Fort Myers Preparatory and Fitness Academy recently leased a former Robb & Stucky warehouse, and while the 65,000-square-foot building required a renovation to create 33 classrooms and a cafeteria, the Landlord was able to recycle and sell a significant amount of shelving which offset some costs.

Check out Jim’s full post here.

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Amazon’s Landlord Puts Tech Giant’s HQ On The Market

Amazon HQ For Sale

Amazon’s HQ is on the market.  The 11-building campus in Settle South Lake Union area has no set asking price, but area comps suggest the property could move for about a billion dollars, once somebody adds it to their shopping cart and clicks “check out”.

In 2012, new Seattle office properties including 1918 Eighth, The Russell Investments Center, and 818 Stewart each have set the pace in the area by selling for between $525 and $558 per square foot. If the Amazon buildings go for $550 a square foot, the price of the 1.8 million sq. ft. campus adds up to $990 million. Marc Stiles’s piece in the Puget Sound Business Journal paints a picture of market factors coming together to prompt the landlord to take a closer look at their portfolio.  Specifically: historically low interest rates and very healthy valuations for leases to Fortune 500 companies.

The Amazon.com headquarters is 1.8 million square feet, with Amazon in 1.7 million square feet. Restaurants and retailers rent the rest of the space that Healey said is 93 percent occupied.

If the buildings sell for $550 a foot, the sale price would be $990 million.

Peter Shorett, executive vice president of Valuation Advisory Services for commercial real estate brokerage Kidder Mathews in Seattle, said he would not be surprised if the Amazon property sells for “north of $500 a foot.”

The price will depend on how long Amazon’s lease is, and what the rental rate is.

Healey said Amazon’s leases run for between 14 and 16 years. Amazon began moving in several years ago and will move in later this year to the final phase of the property, which is under construction.

[…]

Vulcan Real Estate, the real estate investment arm of Seattle-based Vulcan Inc., is selling for two reasons, [Vulcan VP] Healey said.

The first is to rebalance the company’s portfolio. This will reduce Vulcan’s exposure to having so much space leased to Amazon.

In addition, interest rates are at historic lows, and the value of top-tier assets leased to Fortune 500 companies with strong credit is high.

“We want to take advantage of the confluence of these events,” Healey said. “In other words, it’s a good time to sell.”

 

PHOTO CREDIT: Anthony Bolante, Puget Sound Business Journal

Terrorism Risk Insurance Act House Testimony From NAR Commercial Committee Vice-Chair

In 2002, Congress passed and President Bush signed into law the Terrorism Risk Insurance Act, a bit of federal insurance market subsidy aimed at maintaining access to sufficient insurance coverage for owners and borrowers/buyers of commercial property.  Private insurers, faced with a radically expanded scale and scope of terrorism after 9/11, had been leaving the market in droves, finding it beyond their ability to quantify the risk of terrorism coverage.  The destabilized market for private coverage settled down after TRIA was passed, but the jitters — and rising coverage costs — resurfaced in 2005 and 2007 when Congress debated extending TRIA, past its original expiration date.

At the time, the impact on commercial property mortgages became clear; property owners could be in risk of default on mortgages if private insurance carriers ceased offering the now-required terrorism risk coverage on their properties. The program was extended to 2014, but the debate on continued extension has picked up again now.

The coverage is not in any way limited to showcase properties in primary markets; some reports indicate 85% of commercial mortgages carry the coverage required by lenders.

Appearing earlier this week before the House Subommittee on Financial Services for the TRIA debate was Linda St. Peter, the operations manager of Prudential Connecticut Realty in Wallingford, Conn., and vice-chair of NAR’s commercial committee.  Ms. St. Peter’s testimony recommending lawmakers extend the program before the market again becomes nervous about the program’s continued authorization.

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What Does It Mean On The Ground When Netflix Moves To The Cloud?

Image representing Netflix as depicted in Crun...

Staying informed about the operations space needs of technology companies gets harder as technology evolves.  Let’s take a look at a recent announcement for a recognized tech brand and try to process what it means in terms of commercial real estate and data center space.

Netflix is a movie rental and media powerhouse that has, over the past few years, moved the bulk of its business from DVD rentals-by-mail to streaming movies across the internet on a subscription basis. In an announcement today, the company said it was going to “gut” its data center and shift its operations to “the cloud”.

Netflix no longer wants to run a data center in support of its in-house corporate IT services. It is shifting internal applications to Amazon’s cloud, as well as using software-as-a-service (SaaS) providers for business services.

Mike Kail, vice president of IT operations at Netflix, said he wants to move as much as 95% of Netflix’s corporate IT services, now run in an in-house data center, to the cloud, but the goal is 100%, he said.

These corporate IT operations are separate from the Netflix streaming service, which operates from Amazon’s cloud.

The intent is to focus IT operations on providing services to the business, and not managing hardware, said Kail. “Part of my charter is to reduce my data center footprint as much as possible,” he said.

The bolding above is mine.  I point it out because this affects Netflix’s floor space requirements radically going forward. In order to operate — that’s just internal operations, not even counting the need to send streamed movies to customers —  Netflix has until now needed to operate thousands of servers – about 2,500 are mentioned in the piece.  Operation of rack after rack of servers means heavy duty power, cooling, physical security, redundancy and scaling all needed to be carried on Netflix’s commercial property portfolio as an irreducible cost of doing business.

Technology has a funny way of redefining the word “irreducible”.  With the announcement, Netflix has become an even bigger customer of its cloud provider, Amazon.  This means Netflix no longer needs the physical space they once did, and the accompanying reduction in square footage comes off of their books in the near future.

But where does it go?

No Magic In Data Centers

The fact is those 2,500 servers Netflix will soon no longer need to put a roof over represents a data processing capacity that endures beyond the deal.  That capacity is what is moving from Netflix to Amazon.  Which means that in terms of commercial square footage, Netflix’s decline in demand is now Amazon’s rise in demand.  Not necessarily at a 1:1 ratio, but not terribly far away.  No matter what, when data needs processing, the hard requirements never omit space, power, security, scalability and redundancy.

Amazon’s cloud services are growing in space need roughly at the minimum rate corporate property owners who are reducing their footprint like Neflix are jettisoning square footage.  I say minimum, because much of the business Amazon sees is not conversions/migrations from existing, owned data centers, but rather enterprises that were born using cloud computing service and will likely not use another method in the foreseeable future.

Amazon has physical facilities in at least a dozen locations worldwide and they are but a single player in the cloud business.  Consumers of data center square footage are proliferating, driven by the shifts toward cloud computing.

So the next time you see a story where a company has discontinued its data center, remember that computing capacity has to go somewhere.  Demand for space didn’t evaporate into the cloud — it only moved to another location.

 

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Grubb Goes Olympic, Hands Out Job Recovery Medals

Okay, not actual physical medals.  But commercial real estate titan Grubb & Ellis had a neat idea the other week.  As part of their “Good News Friday” series, they decided to take a look at the Bureau of Labor Statistics data on job recovery and then award gold, silver and bronze medals to the top three metro areas in each of the nine census divisions.  The results are heartening and a little surprising.  On top and awarded with the gold,  you’ll find Omaha, Pittsburgh, Austin and Boston with some eye-popping numbers — Austin especially.  Cue the Olympic theme music!

Chart of Grubb & Ellis's Job Recovery Olympics

For commercial real estate, job growth is one of the most important indicators to consider in the decision on where to buy or invest.  G&E research says the west and south will continue to grow at a faster pace than the northeast and midwest, “but strong contenders for investment capital can be found in all regions of the country.”

Need more info?  Contact G&E’s National Director for Market Analytics Robert Bach. 

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Preparing your Property for an Emergency- Assembling a Response Team

The following is an excerpt from “Before and After Disaster Strikes,” by Debbie and Dave Mistick.   This publication will be available from the IREM bookstore shortly. 

Assembling an emergency management team is critical to emergency planning, as the emergency management team will be called upon to carry out your property’s emergency procedures plan.

When putting together your team, follow these steps:

Establish duties team members

Each team member should be assigned and trained on specific duties, which should be explained in the property’s emergency procedures manual. Remember that not all team members will be available when an emergency arises, so each person should understand the entire emergency plan.

A team leader should be identified.  The team leader will direct the actions of the entire team and will need to know what actions to take for each type of emergency, including what tasks need to be assigned to various team members. During an emergency, all communications should flow from the leader.

Train the team

After the emergency procedures for the property have been written and the team has been assembled, train the team to carry out the plan.

Firstly, take your team on a property tour.  While touring, focus on the following features prominent in emergencies:

• Overall layout of the property

• Configuration of individual floors

• Location of stairwells, entrances and exits

• Roof and basement access

• Mechanical equipment

• Emergency equipment

• Stored chemicals and hazardous waste which are listed on the material safety data sheet (MSDS)

• Location of essential keys

• Telephones and other communications equipment

• Life-safety equipment

Invite representatives of the fire and police departments to participate. Training should also be provided on specific emergency procedures—that is, how some procedures, including evacuation, may differ because of the type of emergency.

Conduct Practice Drills

Scheduling practice drills enables the team members to instinctively respond to emergencies and builds confidence within the emergency management team and among the building’s occupants. To start, practice drills should be announced in advance. Later, the leader can schedule surprise drills to evaluate the team’s performance—separate drills can be scheduled for building occupants and the emergency management team.

Review Drill Performance

Immediately after an emergency drill, the emergency management team should review the team’s performance. Consider the following questions:

• Do members of the emergency management team understand their respective responsibilities?

• Have new team members been adequately trained?

• Are there problem areas and resource shortfalls? If so, they must be identified and addressed.

• Is the plan reflecting structural changes in the facility (including the leased premises)?

• Are photographs, blueprints of the property and other records and documents up to date?

• Are the names, telephone numbers and responsibilities of the team members up to date?

• Does the plan consider ongoing changes in the occupant profile?

Encourage everyone to speak freely. If parts of the plan did not work effectively, the plan should be revised and the staff should be retrained accordingly.

Learn more about emergency preparedness and meet the Misticks at the Global Business Practices Forum on Wednesday, October 17 from 1:00 pm – 2:30 pm at the IREM Fall Leadership Conference.

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