Browse Month: January 2013

A Giant Plan For Chicago’s West Loop: Burnhamesque

Daniel Burnham's Plan of Downtown Chicago (1909)“Make no little plans, for they do not have the magic to stir men’s souls,” is the famous utterance attributed to legendary Chicago city planner Daniel Burnham.   While he may not have said such a thing, anyone reviewing the enormous scale of Burnham’s 1909 Chicago Plan could be forgiven for assuming the quote was his.  Burnham’s vision of a “Paris on the Prairie” was sweeping and comprehensive, a dance between form and function on the grandest of scales that set the standard for 20th century holistic urban design.  The parts of it that survived the Great Depression to be ultimately implemented serve to earn Chicago its motto “City in A Garden”, as the Burnham Plan integrates parks, lakefront and river in a pedestrian-centric orchestration envied the world over.

In the town most associated with Burnham and Burnhamism, enthusiasm for the large and sweeping construction plan is no less than a family trait. Which is why few here blinked when architect Scott Sarver rolled out his distinctly Burnhamesque vision for Chicago’s near west loop earlier this month.  

That the plan includes covering a three block length of the ten-lane Kennedy Expressway then building eight to twelve acres of public park on top of it — well, we covered the risks of “little plans” already.  Let the soul-stirring commence:

The vision: to create a hub of office developments that attract the businesses of tomorrow.

“Data, fiber, technology, finance — those are the tenancies that are growing now; those are the new spaces,” Mr. Sarver said. “The opportunity for Chicago is to . . . physically embody and personify this transformation that’s happening rather than just to let it happen naturally — to actually be proactive about it.”

Preliminary plans call for eight to 12 acres of public park that would be built over the expressway, bridging the gap between the West Loop and the central business district, said Steven Fifield, president of Chicago-based Fifield. The recreational space would then serve as a catalyst for bringing new office towers, and tenants to fill them, to the neighborhood, he said.

The capping project would cost around $45 million if it were to span the three blocks between Washington Boulevard and Adams Street, and its first phase could be funded with tax-increment financing from the city, Mr. Fifield said. As more tenants move to the area, boosting tax revenue, the project would likely end up paying for itself, he said.

Mr. Sarver also is involved in the design of two 20-story office towers that Mr. Fifield plans to build at 601-625 W. Monroe St. With an infrastructure capable of handling the demands of tech-centric tenants, the towers will have a “new, young and hip” interior with a lobby that resembles a hotel or Starbucks instead of a traditional East Loop office tower, Mr. Sarver said

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Fed: Industrial Production, Capacity Utilization Up

Marked as a “leading economic indicator” in the Federal Reserve Board’s repository of statistical data, the central bank’s report on Industrial Production And Capacity Utilization sticks out amongst the reams of statistics pumped regularly out by the Fed.

It’s little wonder this report is given the spotlight, since counting the national number of items produced (and the capacity to produce them) results in numbers that speak volumes about the current and potential economic health of the country.

More stuff, goes the theory, means more demand, both for the stuff and for the space and infrastructure to move, warehouse and sell the stuff. And of course it’s the job of the industrial commercial property sector to match that demand for that space with supply. As far as Fed utterances go, industrial REALTORS® might not have a more important national report to review than good old G.17 Industrial Production And Capacity Utilization.

Industrial Production: 2007 As Benchmark

As a nod to the peak before the valley of the recession, categories in the industrial production report are expressed as percentages of that 2007 peak.  So, 100=(2007 levels).  Numbers north of 100 mean numbers in excess of 2007 levels and of course numbers south mean a shortfall.

Federal Reserve: Industrial Production And Capacity Utilization

(Click for full-size chart.  Download full report PDF here.)

“Industrial production increased 0.3 percent in December after having risen 1.0 percent in November when production rebounded in the industries that had been negatively affected by Hurricane Sandy in late October. For the fourth quarter as a whole, total industrial production moved up at an annual rate of 1.0 percent. Manufacturing output advanced 0.8 percent in December following a gain of 1.3 percent in November; production edged up at an annual rate of 0.2 percent in the fourth quarter. The output at mines rose 0.6 percent in December, and the output of utilities fell 4.8 percent as unseasonably warm weather held down the demand for heating. At 98.1 percent of its 2007 average, total industrial production in December was 2.2 percent above its year-earlier level. Capacity utilization for total industry moved up 0.1 percentage point to 78.8 percent, a rate 1.5 percentage points below its long-run (1972–2011) average.”

The manufacture of more stuff, and the accompanying upward pressure on industrial capacity utilization means heightened national demand for industrial property.

 

Apple Store Design Patent: Space Layout As Intellectual Property

English: Apple Store in Munich, Rosenstraße: t...

If you rank retailers in terms of revenue generated per square foot, Cupertino, California-based Apple Computer, Inc.’s nearly 400 Apple Stores sit at the top of the list with over $6,000 per square foot generated. The nearest contender is the venerable Tiffany & Company, who manage about half that figure at $3,017 / square foot.

Apple’s dominant retail formula depends on something the company is phenomenally gifted at: recognizing value in things where it wasn’t obvious before.  Often enough, those things aren’t even things built by Apple.  Its computer products are enabled in great part by software technology developed collaboratively and freely, its game-changing iPod is the world’s preferred personal delivery system for something it doesn’t make: music.

Yet a recent move by the retailing technology giant protects one thing the company undeniably produced itself: Apple has patented the physical layout of its retail stores.

The U.S. Patent & Trademark Office has today published Apple’s latest trademark certificate, which covers the “distinctive design & layout” of its iconic retail stores. The Cupertino company originally filed for the trademark back in May 2010, nine years after the first Apple store opened its doors in Tysons Corner, Virginia.

The trademark consists of two designs, according to Patently Apple, which first discovered the new certificate — one in color and one in black and white. The designs both resemble the typical Apple retail store layout, with wooden tablets in the middle and at the sides where customers can play with Apple products, and a Genius Bar and accessory shelves at the back.

When you put an Apple Store front up against a Microsoft Store front, as in the blog post on the other side of this link, one gets the idea that Apple’s protections aren’t just a case of corporate hubris.

Retailing success is a confluence of real estate, operations and product.  Apple’s leadership in all areas and recent move to trademark more of its own successes leads naturally to questions about what else might be protectable about a retailer’s mix of business aspects.  Can the real estate component – site selection –  be trademarked?

Short answer from this blogger is beats me.  I can’t find any evidence of this having been done.  Any of our counselor friends and readers with any answers are invited to leave a comment and further the discussion.

Retail Layouts Protected As Patent

While I can find no word on the trademarkability of a retailer’s method to select a store site, one wonders how ahead of the pack Apple is in trademarking their retail store layout.  A quick poke through the US patent database at Google reveals only one other retail store design patent.

In the eternal game of follow the leader, could more be far behind?

(Photo credit: Wikipedia)

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Does Your Costal Market Have A Climate Change Action Plan?

seflorida-regionalcompact-climatechangeThe business and economic risk presented to commercial properties by climate change is enormous. Is your costal region addressing these risks?  Is your local commercial property market prepared?

The spectre of climate change in areas most at risk for disaster touches property sales, brokerage, management and development. The design, construction and remediation of commercial buildings increasingly includes planning for risk mitigation, where lessons learned from disasters such as Hurricanes Sandy and Katrina are applied to commercial development.  The increased costs for such planning, sustainability experts counsel, is dwarfed by the cost of failure to plan for rising sea levels.

What can be done?

Southeast Florida Responds

October of last year saw the release of a climate change action plan for Southeast Florida.  “A Region Responds To A Changing Climate” from the Southeast Florida Regional Climate Change Compact Counties (PDF downloadable here).

A collaborative effort from the municipalities, partners and county governments of Miami-Dade, Broward, Palm Beach and Monroe Counties, the plan looks ahead five years and sets forth a set of methods for “mapping sea-level rise impacts, assessing vulnerability, and understanding the sources of regional greenhouse gas emissions” with the aim to “preserve the region’s unique quality of life and economy, guide future investments, and foster livable, sustainable and resilient communities”.

Public/Private Collaboration

The plan represents a collaborative process involving nearly 100 subject matter experts from a host of professions representing the public and private sectors, area universities, and not-for-profit organizations. “These stakeholders brought to the table the knowledge of their “craft” as well as information on successful initiatives  already underway locally or in other communities. Many of the
recommendations build upon best practices sprinkled throughout  our region, such as regional collaboration on transportation planning  and land use criteria that foster walkable and healthy communities.  Others delve into “new” frontiers in calling for the integration of  climate change into planning and decision-making processes in ways  that no local government has yet implemented.

Land Use And Development Under The Plan

Under the plan, land use requires new development and redevelopment projects to be designed to promote transit oriented development and transit use, which mixes residential, retail, office, open space and public uses in a pedestrian-friendly environment.  Rerouting of roads and directing of development to areas not vulnerable to flood or to limit potential flood damage is also included as part of the plan.  Included also is a laundry list of critical requirements such as water storage, climate change monitoring, aquifer recharge, and zoning / building code revisions that better address the risk of flood.

Plans similar to Southeast Florida’s can be expected to be produced in most coastal regions; is one underway in yours?

 

Fed’s Beige Book: Commercial Property Markets A Mixed Bag

federal-reserve-photo-20120606Eight times a year, the Federal Reserve publishes a volume of “anecdotal information on current market conditions” from each of the twelve Federal Reserve System districts across the US.  They call it The Beige Book, which is what passes for a snappy title in governmental economic data publishing.

The latest edition of the Beige Book paints an unclear national picture of the commercial real estate market:

“Though a little weaker than residential real estate, reports on sales and leasing of nonresidential real estate are still mostly positive – described as modest on average. The  Boston District reported a drop in leasing beyond normal seasonal trends; contacts cited  fiscal cliff uncertainty as a factor. Minneapolis and Kansas City reported increased  demand and tightening commercial real estate markets. Philadelphia, St. Louis, and Dallas all reported more modest increases in nonresidential real estate activity. Nonresidential construction is weaker than residential, with only slight to modest growth. The Boston District reported that demand for commercial real estate loans appears to be  softening and that the pipeline for new construction projects has diminished significantly  since the last report. Dallas reported that construction was expected to pick up in the  commercial real estate sector in 2013.”

A quick sampling of the commercial real estate statements and projections:

  • Boston District: Commercial real estate contacts are somewhat downbeat; office leasing is slow and demand for commercial real estate loans and pipelines for commercial construction activity are weaker than in recent reports. Residential real estate markets continue to recover, with both sales and prices in November above  year-earlier levels. In all sectors, most respondents are holding their selling prices level. Contacts say their  hiring depends on demand growth; as a result, most firms are doing little to no hiring, but some firms are  expanding headcounts substantially. Notwithstanding ongoing concerns with uncertainty, contacts  generally expect continued modest growth in 2013.
  • New York District:  Office markets were relatively stable in the final months of 2012. A commercial real estate contact reports that the recovery from Sandy in Lower Manhattan has been slow, as a number of buildings in the flood zone remained out of service at year end. More broadly, leasing and sales activity across Manhattan were sluggish in November but picked up in December. Vacancy rates II-3 have been steady, while asking rents have edged up, led by brisk gains in Midtown South. Strong  demand from the new media and advertising sectors and some pickup from legal services have offset  weak demand from the financial sector. Elsewhere in the region, vacancy rates were little changed in the fourth quarter, though asking rents fell noticeably in northern New Jersey.
  • Philadelphia District:  Demand for business credit was steady or down slightly since our last report. Some contacts cited a rise in the number of applications for commercial real estate loans and refinancings, but on balance, demand was little changed across sectors and product categories.
  • Minneapolis District:  Commercial real estate markets continued to tighten. A major commercial real estate firm forecast that Minneapolis-St. Paul area office vacancy rates will dip to 17.7 percent at the end of 2012 compared with 19.1 percent at the end of 2011. The same firm forecast industrial vacancy rates to drop to 9.9 percent from 11.2 percent. Residential real estate market activity increased. Home sales in November were up 20 percent from the same period a year ago in the Minneapolis-St. Paul area; the inventory of homes for sale was down 29 percent, and median sale prices rose 17 percent. In the Sioux Falls area, November home sales were up 20 percent, inventory was down 14 percent and the median sale price increased 9 percent relative to a year earlier.

To get the full Federal Reserve Beige Book, download the PDF here or view an HTML version here.

(Photo credit: LA Times)

Commercial Real Estate Mortgage Lending In 2013: Capital Comeback?

Universal Life Insurance Company

New numbers from the Mortgage Bankers Association (MBA) tell a tale of heightened loan origination from commercial banks and life insurance companies to commercial property in 2012.  Will 2013 mark the return of pre-recession levels of capital to commercial property markets?

Commercial/Multifamily Mortgage Bankers Originations Index published by the MBA shows commercial banks produced their highest loan origination volumes since second quarter 2008.  Life insurance companies as a class “have origination volumes greater than before the recession while other lender types are still at below-recession levels” according to a National Real Estate Investor report.

[Many] market observers believe that both banks and life insurers will have closed 2012 with year-over-year increases in commercial/multifamily originations. A December report from Marcus & Millichap Real Estate Investment Services notes that portfolio lenders have been doing more commercial real estate transactions in 2012 than in 2011. Banks, including national, international and regional companies, accounted for roughly 25.5 percent of all commercial real estate loans closed last year, according to research by Marcus & Millichap and Real Capital Analytics, while life insurers were responsible for 18.1 percent of all loans.

When NREI spoke to Dave Clark, senior vice president of real estate with Northwestern Mutual last January, the Milwaukee, Wis.–based life insurer had a goal of increasing its commercial real estate originations by $500 million, to a total of $5 billion in 2012. The firm managed to close 2012 with nearly $5 billion in new transactions, Clark says.

“Our mortgage loan account has done wonderfully well through the downturn, with essentially no losses,” he says. “People are very happy with that performance. Combine [that] with interest rates that are low enough to be attractive to borrowers but are still higher than what you could get on corporate bonds, and I would speculate that life companies will continue to seek relative value in mortgages. This year, our origination goal would probably be 10 percent higher” than in 2012.

(Photo credit: Thomas Hawk)

 

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Multichannel Retail Is Remaking Distribution Networks

Some big-box retail stores are over-illuminated.

Last month’s holiday season brought the seasonal retail push.  Coast to coast, goods moved at peak volumes, as they do more or less every year. But the radical change brought to retail by online shopping technology has, more than ever, redrawn the landscape in all areas of retail, from customer-facing to logistics and everywhere in between.

A recent Jones Lang LaSalle report put the number of retailers selling online at 92 percent, with 68 percent operating brick-and-mortar retail stores.   The past five years have seen increases in online sales for 80 percent of retailers, and some of those are pegged at 25 percent increases.

The pre-internet retail distribution network is undergoing a significant reorganization as e-commerce and its younger sibling m-commerce (mobile) are commanding ever greater shares of the pie.  The bedrock retail conception of store location itself is breaking down.   Shopping is increasingly located in every customer’s pocket, hours of business now 24/7.  The retail business depends less and less upon square footage as time goes on.

Combating “Showrooming”

The translation in square footage almost certainly means two things: first, for some, it will mean smaller physical stores. Retailers will want to pay less for space to avoid supporting the consumer behavior of “showrooming” where the shopper visits the expensively kept, heated, lit and staffed store merely to try out products, then order the product from the lowest-priced online retailer.

The major operations tactic used by retailers to combat showrooming is to have customers order online to then come to the store for pickup. According to Forbes, 7 out of the top ten retailers provide in-store pickup for e-commerce orders.  Completing purchases in the store means ending the customer’s impulse to research prices; retailers successful at this get that way by maintaining consistent pricing in e-commerce and mobile channels.

More Logistics Centers, And A Drive To Separate Real Estate Costs 

The retail ecosystem, while likely to lose customer-facing square footage in the coming years, still must handle product inventory for fulfillment.  This has set the stage for the sharply rising market in third party logistics (3PL) facilities.

The 3PL proposition as a pure real estate deal is not easy to find.  Commercial practitioners are often called upon to have logistics experience, because real estate costs are often bundled with logistics agreements in comprehensive service agreements for major clients using 200,000 sq. ft. and higher 3PL facilities.

But while lease negotiations for 3PL providers are often combined or “bundled” with logistics and management agreements, the prevailing retail e-commerce trend is raising demand for service from such facilities.  Development of new facilities takes time, but operators and clients don’t want to wait. Operators are looking for ways to unbundle such deals in order to gain the flexibility to service a range of clients under one 3PL roof.

Commercial practitioners working the retail sector would do well to notice that any general decline in customer-facing square footage strongly suggests a matching rise in 3PL demand.

Sacramento Association Of REALTORS® Commercial Mentor Hotline

Sacramento Association Of Realtors LogoKudos to 2012 NAR Commercial Innovation Grant recipients Sacramento Association Of REALTORS® for their Commercial Division’s successful operation of their mentor/advice service for SAR members involved in commercial property deals.

As described in the Innovation Grant program’s Executive Summary, the SAR program addresses the need commercial practitioners have for decision support in the commercial real estate business.  It’s a member benefit designed to allow SAR member dealmakers to benefit from cost-free advice of experienced hands in commercial practice on topics such as marketing, leasing, business ownership, acquisitions, dispositions of real property, and of course, sales.

Dialing Up Decision Support

Large commercial real estate firms huddle often over prospective deals, ensuring the benefit of the firm’s many combined years of experience in commercial practice is made available to any of its brokers.  Working outside that large corporate model can present challenges to the commercial practitioner member in getting to that reservoir of experience at the right time. Key question and answer sessions can make the difference between success and not-quite-success, so alternative means of granting access to and spreading business knowledge need to be created.

That’s exactly what SAR has done with its mentor/advice service.  Private and confidential sessions are facilitated by phone between members, linking a well-tenured and experienced broker with advice seekers, cost-free.

The Particulars

SAR found a well-seasoned, well-rounded and highly respected commercial practitioner on the verge of retirement and ready to conduct the mentoring sessions.  After determining the individual, a reasonable consulting fee was negotiated for his services.  He then signed a contractor’s agreement designed by SAR’s attorneys.  The program proceeded into marketing, where the member benefit was communicated and the sessions began.

To get the executive summary of SAR’s program, download the PDF from Realtor.Org here.

 

Adding Value

With the mentoring program, SAR  hopes to be viewed as an industry leader, providing relevant benefits for its members, prospective members and the community at large.  Congrats to SAR for its exemplary innovation in commercial real estate practice!

 

Industrial Remediation: Adding Up The Costs

Doylestown, Pennsylvania

Some industry pollutes, and some property owners and operators in potentially polluting industries pollute more than other operators.  Most pollution has costs that are ultimately assessed not only to property owners, but to the community at large.  This basic reality is what Republican President Richard Nixon had in mind when he created the Environmental Protection Agency in 1970.

 

In industrial property markets, contaminated sites are sticky problems, generating costs in all kinds of ways.  The discovery of pollution on a property can lock it out of the market for decades, no matter how fit for a purpose or well-located. Once discovered, pollution can create a chain of legal liability for the health problems of neighbors that leads to the property owners or operators, which drives health and legal costs.  These costs are externalized, meaning markets just don’t work in settling the ultimate cost levels and responsibilities – hence the EPA and state agencies stepping in to that role.

 

It’s not often that we get to see these costs reported upon with any degree of clarity, but when a contaminated industrial property is located across the street from a newspaper office, interesting numbers arise.

 

This week’s story by Christina Kristofic in the suburban Philadelphia Intelligencer newspapers focuses on a former electroplating site located across the street from the Intelligencer offices whose pollution cleanup at the hands of federal and state agencies has climbed into the millions.

 

The basic cost of hauling away and sequestering 3600 cubic yards of cancer-causing dirt and replacing with “clean” dirt?  In one case, at least $625 per cubic yard:

 

The Environmental Protection Agency has decided to remove 3,600 cubic yards of contaminated dirt from the site of a former electroplating factory on Broad Street in Doylestown.

 

Then they will replace it with “clean” dirt.

 

Officials expect the process to take about 50 days and cost about $2.25 million, according to the EPA’s record of decision. But they don’t know yet when they will get the money and start the 50-day clock.

 

“Our preference would be that the starting date was tomorrow,” said Doylestown Borough Manager John Davis.

 

“Our understanding is that this is not a terribly expensive project as far as these remediations go and this is not a terribly complicated or lengthy process. It’s digging and removing fill dirt, and replacing it.”

 

Davis and Doylestown Council President Det Ansinn said they now intend to reach out to the borough’s representatives in Congress to see if they can help the EPA get the money it needs for the project.

 

The state Department of Environmental Protection and the EPA have been monitoring the site at 330 N. Broad St., which is across the street from The Intelligencer’s office, since the 1960s when it was the Chem-Fab electroplating factory.

 

The Bucks County Department of Health and the DEP cited the factory several times in the 1960s for spills and release of industrial waste from above-ground storage tanks, underground storage tanks and the catch basin to Cooks Run.

 

Another company acquired the Chem-Fab site in the late 1970s and used it for disposal of chemical wastes generated by other companies.

 

The EPA found the groundwater near the site to be contaminated with trichloroethylene (TCE) and tetrachloroethylene (PCE) in 1987. High levels of TCE may cause liver, kidney or lung cancer if inhaled, ingested or touched, according to the Agency for Toxic Substances and Disease Registry.

 

 

 

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NAR Treasurer Bill Armstrong Podcast: 2013 Look-Ahead


National Assciation of Realtors, Washington, D...
NAR Offices, Washington DC

NAR Treasurer Bill Armstrong’s 2013 look-ahead podcast summarizes 2012’s achievements for commercial REALTORS® while at the same time looks into the tea leaves for 2013.  The highlights:

  • Amid modestly improving commercial market fundamental, NAR expects vacancy rates to decline in all 4 major commercial sectors – office, retail, industrial, multifamily.
  • In June 2012 NAR was able to successfully gain a full year extension for the National Flood Insurance Program. This program provides access to affordable flood insurance for millions including many business owners.  It’s the culmination of a successful multiyear campaign, and means business owners will continue to have acces to the flood insurance and not be forced to take their chances in the virtually nonexistent private flood insurance market.
  • NAR made significant progress on lease accounting issues in 2012 by holding back a rules proposal from the Federal Accounting Standards Board (FASB) and the IASB.  The proposed rules would have forced the frontloading of assets and liabilities arising from lease contreacts. Ultimately, this would hurt the bottom line of many businesses, especially in commercial real estate. NAR  built a strong coalition of  other industrial organizations and we got many members of Congress to contact FASB and IASB to ask them to reconsider their proposal.  Because of NAR’s actions the two accounting boards listened and withdrew the proposed rules.  “We plan to keep ourselves in the middle of the conversation on lease accounting rules as it takes place,” said Bill
  • Because tight lending has been hurting the CRE market. NAR has been working vigorously to regularly meet on Capitol Hill to reiterate the need to increase liquidity in the marketplace  NAR continues to beat the drum and encourage new sources of capital. One example is increased lending by credit unions. Friend to NAR,  Senator Mark Udall (CO) introduced a bill will increase the cap on credit union member business lending from 12.25% to 27.5% percent of total assets for well-capitalized credit unions. NAR will continue to urge the switft passage of this legislation.

What can NAR commercial members expect in 2013? NAR action in the following areas and more:

  • Bill said lease accounting rules could be taken up again in this year’s second quarter.
  • Congress may also vote to extend the Transaction Account Guarnatee Program for two years.  This program will help to increase liquidity available to community banks.

2012 also brought exciting new member benefits, said Bill.

  • In November,  we saw the launch of the RPR Commercial application.  “I truly believe it is a valuable benefit for our members. It gives REALTORS and only REALTORS an edge when viewing and searching properties, viewing property detail, analyzing markets and creating reports for your clients all in one place. I urge you to see it all for yourself at blog.narrrpr.com/commercial.”
  • 2012 marked NAR’s new partnership with Xceligent “This will provide a suite of commercial real estate info services and preferred pricing exclusively for NAR members.  For the first time, REALTORS in the commercial sector will have a prowerful alternative to when it comes to how you research and market properties.
  • 2012 saw the merger of the REALTORS Federal Credit Union with Northwest Federal Credit Union. They offer vitral banking, plus access to 4600 brick-and-mortar service centers and thousands of  ATMs nationwide.  They have money to lend at extremely comepetitive rates for owner-occupied CRE.  To join online today go to realtorsfcu.org

 

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