Browse Month: December 2013

A Drone Of Your Own: The Commercial Drone Era Begins

English: InView Unmanned Aircraft for use in s...
InView Unmanned Aircraft for use in scientific, commercial and state applications. (Photo credit: Wikipedia)

Potential commercial real estate applications for low-flying aerial vehicles abound: these include mapping, surveying, traffic measurements (vehicle and foot), hyperlocal weather reporting, parking availability reporting and competitive research and analysis, just to name a few.  There isn’t a sector in commercial real estate that couldn’t use an eye in the sky at one point or another.

The plummeting price of the drones themselves (note: link is to a hobby device only) plus the steady onset of hardware and software solutions for collection of visuals and presentation of data from those visuals are together creating a new set of tools that were previously available only to governments and militaries.

Drones are a little bit like the internet in that way.

None of which means anybody should run out and buy a drone or a drone fleet tomorrow: there’s the little matter of airspace management to consider. And for that, we have the Federal Aviation Administration, whose work in the area is going to set the tone of the impending era of commercial, private drone traffic.

The good news for drone enthusiasts is the FAA is well underway in researching the issue.  The Baltimore Sun reports that the FAA has selected test sites in six states for the purposes of researching the widespread introduction of private (and law enforcement) drone technology into US airspace:

Drones, best known for their use in war, are expected to transform American life in the coming decades. The FAA has issued more than 1,400 permits for unmanned aircraft since 2007, mainly to police departments and civilian federal agencies; the agency estimates that the number of small commercial drones will grow to 7,500 within five years.

Research conducted at the six test sites will help the agency develop regulations to allow unmanned aircraft to fly safely among manned jets, airplanes and helicopters.

Other countries already are using drones to dust crops and monitor oil spills. Florida is testing a system that can spot mosquito larvae in difficult-to-reach mangrove trees. Amazon CEO Jeff Bezos has described plans to use unmanned aircraft to deliver orders — just as the U.S. military has shipped cargo to troops in Afghanistan.

News organizations have spoken of using drones to produce footage of natural disasters, police chases and crime scenes. Real estate agents want them to take aerial photographs of properties.

Maryland already has established itself as a center of the growing industry. The state is home to several manufacturers. The University of Maryland, working closely with the Navy and NASA, is developing vehicles. And the military has long tested drones at Pax River.

The Association for Unmanned Vehicle Systems International, the main industry group, estimated this year that drones would add 2,500 jobs and $2 billion to the Maryland economy by 2025 — part of an $82 billion impact nationwide.

 

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On Bitcoin And Property Prices: Nowhere Near Ready For Prime Time

The bitcoin logo

The new international digital currency Bitcoin has found itself in the news quite a bit over the past couple of years. The novelty of Bitcoin’s story is attractive — a currency not beholden to any central bank nor any state is something that causes imaginations to run, and makes us review the relationships between the deals we make and the stuff we use to transfer value in those deals. Dollars are, after all, only one (supremely popular) means of facilitating payment.

Beyond that rich area for thought lies the fact that Bitcoin’s value in dollars has, in the long term, climbed sharply. Some see a speculative bubble destined to messily pop, some see the early days of a permanent and true digital currency.  Many lie somewhere in the middle while a whole lot of folks are left wondering what the heck Bitcoin is.

What is Bitcoin?

I don’t want to make anyone’s eyes glaze over, but the fact is, explaining Bitcoin properly requires a lot of computer-nerd vocabulary and experience. As readers of The Source already know, I have a some depth in technology topics.  The question is: can I explain Bitcoin without drowning anybody in jargon?  Let’s try:

The simplest and most useful way to put it is like this: Bitcoin is a “secure” way to carry value on your computer or pad or phone.  You convert dollars to Bitcoins (BTC) using an Bitcoin exchange and you carry around and spend Bitcoins in the same way you carry around files on your computer or send messages such as e-mail or text.

That’s it, for now anyway.  The hows, wheres and whens are all nerd stuff and I’ll be glad to answer any questions in comments.  But for now: Bitcoins are magic pieces of digital information that carry value measured in dollars. Or Euros.  Or Yen, etc.

“Secure” Doesn’t Mean “Stable”

While Bitcoin is by design secure, meaning the amount of BTC you have and spend is protected against a wide variety of theft, (theft from your machine, theft in transit, theft during transaction) Bitcoin is not by any means stable.  By that, I mean the predictability of the dollar value of BTC is a very different beast than the dollar value of, say, the Euro or the Yen, just to take a couple of examples.

The rate at which dollars are traded for BTC is determined by markets, the oldest and most famous of which is based in Japan, called Mt. Gox.

A quick look at the charts of trading in BTC will show what I mean by avoiding calling BTC “stable”.  Unlike traditional currency markets, BTC can see radical loss in value in just one trading day.   These crashes are eye-popping, the latest having lost nearly 50% of the “currency”‘s value.

The most recent crash was spurred by an announcement that the biggest Bitcoin startup in China, called BTC China, would no longer accept deposits in Chinese currency (the yuan).

In other words, Bitcoin is money that could be worth half what it was yesterday around the world if one country decides to enforce capital controls.

Property Transactions Using Bitcoin: Seller And Buyer Beware

From where I”m sitting, using a crash-prone currency to conduct real estate business seems to be risky, risky stuff.  Yet, all that observation does is prove that my appetite for risk is always going to be less than somebody else’s.

Today, that somebody else is a home seller in Southampton, NY who says he will accept the $799,000 sale price in Bitcoin

Cash-strapped buyers eyeing a particular four-bedroom home in Southampton need not fear: the seller will also accept Bitcoin for the $799,000 asking price.

That may be a tricky price to nail down however, as the digital currency’s value has been all over the place in the past 12 months. Philipp Preuss, who is selling the home, told the Wall Street Journal that with this transaction, the Bitcoin price will be determined by the average exchange rate on the day the sale closes.

He would also accept a combination of Bitcoin and cash, he told the Journal.

“There might be international buyers, or a younger computer whiz who came into a little bit of coin overnight,” Preuss told the Journal. By opening up the sale to accept the digital currency, he said he is “expanding my buyer base.”

Preuss said he had to give his broker, Amadeus Ehrhardt of Brown Harris Stevens, a crash course in the currency.

“Aside from what I hear on the news about it here and there, I didn’t know much about Bitcoin,” Ehrhardt told the Journal. “But people are always interested to see what’s new and people like options.”

Prime Time: Not Yet

Obviously it’s early in the history of Bitcoin and in digital currencies more generally.  But I feel safe saying that the financialization and stability requirements of commercial real estate transactions — transactions that rope together so many skill sets and variables as it is — mean this industry isn’t likely to embrace Bitcoin with the same enthusiasm that other business sectors might.  A currency that sheds half its value overnight just doesn’t make the grade.

 

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Commercial Real Estate Industry News Roundup: December 17, 2013

Wrigley Building, the headquarters of the Wrig...

Happiest of holidays, Source readers! After you run out of boughs of holly, consider decking the halls with Commercial Real Estate News.

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Office


Industrial

Retail

Multifamily

Hotel


Land

WaPo: 91.4% Of Retailing Takes Place In Physical Stores

ecommerce

Shopping centers vs. e-tailing has been a big storyline for nearly fifteen years. Surely, displacement of retail by web-based shopping is a significant thing, but a recent study by BoA Merrill Lynch Global Research, published by Washington Post suggests that the high drama of the conflict may have been a teensy bit oversold.

Make no mistake: the study’s numbers do point to e-tailing’s power.  The total online retailing business done is today 8.6%, up from 5.2% five years ago.

These two data points made me curious.  When might the total percentage of retail done online grow higher than 10%?

When I extrapolate that trend quickly (and sloppily), it suggests that the percentage will cross the 10% threshold at some point in 2015.  My chart is below. (Note: I am not an economist –  I’m just drawing out a trend line from a mere two data points and seeing where the line goes, given bare minimum information. What I’m saying is: don’t quote me.)

Sloppy projection of etailing trend line

Old School Still Rules

All that said: brick-and-mortar retailing is still the overwhelming favorite over online retail, according to BoA Merrill’s study.  Among what the study deemed “applicable” items – total retail sales excluding autos, gas and food services, online shopping takes up not yet 9% of the total pie.

To put it another way: square footage remains retail’s key enabler by a huge margin.

Commercial Real Estate Industry News Roundup

News

It’s time once again for the Commercial Real Estate News Roundup.  As we head into the holiday season, we find helpful news on 1031 exchanges in, of all places, Huffington Post, how nonprofits are cashing in on desirable office addresses, the big boom in big box retail, and a question posed to the agricultural land sector: when will the rise in land prices end?

General

Office

Industrial

Retail

Multifamily

Hotel

Land

 

Book Publisher Uses Microsoft Office (The Floor Space, Not The Software)

hachette2

To say the least, we’re living in a technology-heavy era marked by the decline of traditional media and the growth of digital media. So I can’t remember the last time I found a property story where a traditional media company displaced a technology company.

Just goes to show: in New York City, anything can happen.

In Rayna Katz’s piece today in Globe St., we find a reversal of the common transformation of downtown office space: instead of plucky web startups moving in to the former office space of a paper-based media business, it’s the other way around.

Hachette Book Group has signed a 15-year lease on two floors of 1290 Sixth Avenue, taking up nearly 140, 000 sq. ft. once occupied by none other than technology leviathan Microsoft.  It will be a kind of homecoming for the publishing company that includes such imprints as Little Brown and Grand Central, as their address in the 90s was nearby on Sixth.

From Rayna Katz:

Neil Goldmacher, a broker with Newmark Grubb Knight Frank, represented Hachette in the deal. Vornado is represented in leasing transactions at the property by Cushman & Wakefield’s Bruce Mosler, chairman, who led the transaction; along with Josh Kuriloff, executive vice chairman;Franklin Speyer, vice chairman and Mikael Nahmias, executive director. Glen Weiss, an executive at Vornado in charge of leasing its portfolio, also helped negotiate the deal.

“We’re thrilled to be returning to the neighborhood, right in the heart of New York City, next to Radio City and Rock Center, providing an easy commute for Hachette Book Group staff,” the spokeswoman says. “The central location puts us close to literary agencies, publishers, and the media.”  

State Street Capital took 100,000 square feet in the building earlier this year, Together, that deal and the new lease with Hachette will absorb most of the Microsoft space, a large block of space that initially seemed tough to fill.

That appeared to be an even tougher mountain to climb at the beginning of the year when AXA Equitable—the life insurance company—dumped about 40,000 square feet of its space at 1290 Sixth Ave. onto the market for sublease. The company was offering deeply discounted rents in the $40s per square foot. That move came as hundreds of thousands of square feet of competing vacancies festered on the Sixth Avenue market, creating the appearance of a glut of options on the avenue.

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Better Finance For Commercial Purchase Deals: Kurt Chilcott, CDC Small Business Finance

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Locking down financing on purchase deals for property remains tough, even as steady recovery in commercial real estate continues. Commercial mortgage brokers and bankers are common sources of capital, but are they always the best ones?  Are there other ways to finance the deal?

Kurt Chilcott, CEO of CDC Small Business Finance, suggests the options that a certified development company can present to clients at the financing stage can make a giant difference.  Things a banker typically shies away from, such as a fixed interest rate, once introduced can open the door to an entirely different deal on a fast track.

As Kurt puts it:

“Commercial mortgage brokers and bankers typically can assess the financial prospects of any clients interested in buying a commercial building, but certified development companies (CDCs) with expertise in Small Business Administration (SBA) financing also can bring experience and a helpful perspective to the table.

Many times, bankers are quick to recommend conventional financing, or in some cases, an SBA 7(a) loan. It’s understandable, as they may make more in fee income from the small-business owner with these products compared to an SBA Real Estate Advantage (504) Loan (REAL), which is designed for commercial real estate purchases and long-term machinery and equipment. Conventional and SBA 7(a) loans are not always the best products for the small-business client, however. Commercial mortgage brokers looking to finance a purchase deal may want to look more closely at REAL loans.

In brief, a REAL loan package can provide:

  • Total financing for as much as $10 million
  • 90 percent financing
  • Fixed interest rates* (which have been less than 6 percent for nearly two years)
  • Amortization terms of as many as 20 years
  • No balloon payments

Many small-business clients eventually must determine whether buying or leasing their facility is the best business strategy. A REAL loan can make purchasing attractive because the downpayment required by the owner is typically only 10 percent — far less than with standard commercial loans. Many REAL loans are for office, retail or industrial buildings, but these loans can finance virtually any type of business. In addition, there are long-term tax and equity benefits.

REAL loans do have a specific structure, however. CDCs participate with lenders to structure the project accordingly:

  • The client provides 10 percent down.
  • The CDC (the SBA-guaranteed portion) provides 40 percent of the total project costs
  • The bank or other lender provides 50 percent* of the total project costs.

With their expertise in REAL financing, CDCs can assist brokers in many ways, including pre-qualifying clients, educating clients about REAL financing and helping to structure the projects to secure quick SBA approval. In addition, CDCs can query banks that may want to partner on the REAL financing package, or they can work with a client’s lender of choice. Reputable CDCs maintain relationships with a variety of banks and know their credit parameters. CDCs also can help monitor the
financing process and ensure the deal closes in a timely manner.

Commercial mortgage brokers who know about the options that the REAL loan can provide can help their clients get deals done. Get ready, get REAL!”

Visit CDCLoans.com

 

Developer’s Long Shopping List In Chicago Supermarket Shakeup

A Safeway before opening time. (This is NOT a ...

In the wake of grocery giant Safeway’s recent exit from the Chicago area market, Oakbrook, IL-based Inland Real Estate Group of Companies has gone to the market to pick up a few things.

Weighing The Anchor

When Safeway’s Chicago chain Dominick’s announced its closure and pullout in October, the history of the Chicago supermarket took a notable turn as 66 Dominick’s stores were to shut down at once, creating a metro-wide absorption problem in the anchor store space not seen before.  Two million square feet of mostly leased space (Safeway owns only about 15 buildings), based on an average store size of 62,000 sq. ft. landed on the market with a deafening bang, leaving landlords anchorless, pondering cutting rents or rethinking grocery’s traditional anchor role.

Even though California-based Safeway remains solvent, meaning rent payments on empty store leases won’t be interrupted, the shopping centers stuck with vacant grocery stores face more than just a financial problem.  Traffic loss looms large over rent negotiations and the symbolism of such conspicuous closures means economic health of entire neighborhoods might be at stake.

Mariano’s Steps Up (For A Few Locations)

Led by former Dominick’s CEO Bob Mariano, the namesake grocer chain stepped into the breach, announcing plans to buy 11 of the 66 stores in locations it prized.   In a $36 million cash deal with Safeway, Mariano’s will undertake conversion of 11 stores, the majority located in suburbs.

That isn’t likely to be the last expansion of the Mariano’s brand into Chicago, for two reasons.  As Bob Mariano told investors, the city and suburbs can support 50 stores.  The second reason is the developer interests in the wake of Safeway’s exit.

Inland On Both Sides

Inland’s been on a buying tear to get behind the Chicago expansion of Mariano’s, a subsidiary of Milwaukee-based Roundy’s, Inc., racking up nearly $90 million in recent acquisitions. Since 2011, Inland, a broker/developer/landlord/REIT owner, has booked acquisitions and undertaken a joint venture to develop a Mariano’s-anchored shopping center with an option to buy.

Yet that activity is also defensive from Inland’s point of view, because as reported by Chicago Real Estate Daily, the firm owns seven properties leased to the shuttered Dominick’s as well as three shopping centers anchored by the chain.

Does Mariano’s have the punch to restore to landlords and communities what the Safeway/Dominick’s pullout takes away?Maybe. As Micah Maidenburg reports in CRE Daily:

Safeway’s impending exit has likely unsettled some real estate investors who have long viewed grocery chains as stable investments. Yet Mariano’s is seemingly gaining acceptance among investors. Parent company Roundy’s had net sales of $3.89 billion in 2012, even if it had a net loss of $69.2 million. The Mariano’s unit, which leases all of its stores, has 13 locations in the Chicago area, with plans for five more in 2014.

“As the local footprint here for Mariano’s continues to grow and there’s more historical reference to their unit-level performance being sustained, you’ll continue to see investor demand grow,” said Brandon Duff, regional director in the Chicago office of real estate brokerage Stan Johnson Co. who has handled Mariano’s transactions […]

 

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