Browse Tag: Xceligent

Cincinnati Warehouse Property in 2017

English: Cincinatti, OH.

Earlier this year, we looked at Cincinnati’s new Amazon air hub. One quarter on from that Cincinnati warehouse announcement, what is the wider economic picture for logistics and warehouse property in “Blue Chip City”?

According to Xceligent’s 1st Quarter Industrial Market Report for Cincinnati, unemployment fell to 5% in January of this year. Coming along for the ride on the wave of economic good news are two markets: Cincy’s industrial and office property markets. When people go to work, you generally have to put them somewhere, and that’s where Cincinnati’s expanding options in industrial and office property come in.

Florence/Richwood Submarket Hot

Of the largest positive industrial transactions in town 1Q2017, the metro’s southern sections of Florence and Richwood claimed the lion’s share of square footage. Warehouse projects in the submarket included over 670KSF of space sold to grocery giant Kroger.That deal came with a sale price of over $33 million. Other large Florence transactions 440KSF leased to shipper UPS and 275KSF of leased space at 10600 Toebben Drive.

Cincinnati Warehouse Leasing Trends: On The Uptick

Higher transactions and lowered vacancy is the trend in the Cincinnati warehouse market.  From the latest Xceligent Cincinnati Industrial Market Report (1Q2017):

Cincinnati warehouse leasing trends 1Q2017

Check out Cincinnati’s industrial, office and multifamily properties for sale or lease

Want a wide and fast analysis of Cincinnati’s commercial real estate markets?

Start by dropping us a line to request free copies of Xceligent’s 1Q2017 Market reports in Industrial, Office and Retail property. 

Next, browse the market live: click onto these live queries of listed properties:

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Latest Federal Reserve Beige Book: National CRE Market Review

The Federal Reserve Beige Book, the national summary of the economy as published eight times yearly by the Federal Reserve Board arrived April 19.  What’s the commercial real estate national market picture at-a-glance?  Here’s an executive overview by district.

New York: Housing markets have improved somewhat except at the high end, while commercial real estate markets have been steady to slacker. […] industrial market continued to strengthen. New construction activity has been sluggish–both on the commercial and residential side. Banks reported that loan demand strengthened, while delinquency rates were mostly steady.

Minneapolis: commercial real estate activity was steady at strong levels.

Boston: Commercial real estate markets were somewhat mixed in the region. [..] Office construction activity continued to be restrained across the District. […]  Apartment construction activity remained significant but the pace of new deliveries slowed and the pipeline of planned projects contracted somewhat amid evidence of slowing rent growth.

Philadelphia: Commercial real estate loan volumes grew notably […]

Richmond: On balance, commercial real estate leasing rose moderately. Industrial and retail leasing and sales activity remained very active throughout the District.  […] Commercial real estate loan demand generally strengthened, but varied throughout the District.

Atlanta: Demand for commercial real estate continued to improve and construction increased from the year-ago level across most of the District. […] Most commercial real estate contacts noted improvements in demand that continued to result in rent growth and increased absorption, but cautioned that the rate of improvement varies by metropolitan area, submarket, and property type

Chicago: The pace of commercial real estate activity increased only a little overall, and the gains were limited to the for-lease segment. That said, a number of contacts reported signs of slowing activity, particularly in the retail segment.

St Louis:  Commercial real estate activity has been flat since the previous report. Local contacts indicated that demand has remained steady for most property types. Contacts noted some concerns that St. Louis office vacancy rates will rise in the near future due to new construction combined with expiring leases of vacant properties. […] Commercial construction activity was mixed.

Minneapolis: […] commercial real estate activity was flat at strong levels. […] Office vacancy rates in Minneapolis-St. Paul have ticked higher after significant new office development. There were reports of more preleasing before new projects move into the construction phase. A Minneapolis-St. Paul source noted that retail vacancies had crept up to 6 percent, but that “is still considered very low. Prime retail areas are very tight and have high rents.”

Kansas City:   […] [C]ommercial real estate sector activity continued to rise at a modest pace as vacancy rates declined and absorption, completions, construction underway, sales and prices increased. A moderate expansion in the commercial real estate sector was expected in the coming months.

Dallas:  Apartment leasing activity slowed and occupancy fell in the first quarter. Annual rent growth was solid in Dallas-Fort Worth but moderated in Austin. Rents were flat to down in Houston. Contacts generally expect slower rent growth this year.

Demand for office space was healthy in Dallas-Fort Worth, and office construction continued to be elevated there. In Houston, office demand was mostly weak and office construction tapered.

San Francisco: In some regions, activity in the commercial real estate sector slowed to a modest pace. In Alaska, residential and commercial construction activity declined, as commercial investment stalled and overall economic activity remained sluggish.

REIT Risk: Bank Borrowing Rising

English: US Bank tower in Denver, Colorado. Are banks a source of REIT risk?

The real estate investment trust (REIT) is an investment vehicle with a particular sensitivity to borrowed capital. REIT risk tied to capital source is heightened because the legal structure of a REIT is centered on distributing the vast majority of its earnings to shareholders.  This means the REIT is prevented from holding back significant capital reserves, which in turn means it must borrow to finance its acquisitions and operations.  That borrowing takes the form of credit from bondholders and from banks.

Taken by itself, the REIT structure’s dependency on external capital need not present untoward risk to the REIT, but the borrowing side needs balance to protect the REIT from overexposure to a certain type of borrowing.  Between the two tradition avenues, commercial banks and bond issuance, US REITs are increasingly exposed to bank credit.

According to a new REIT risk report by investment ratings agency Fitch, US REITs have doubled their exposure to bank borrowing over the past seven years. Fitch put the borrowing from commercial banks at 8.5% of total REIT debt in 2010. That figure is now 16.5% as of year-end 2016.

Access to multiple forms of capital is a characteristic of investment-grade REITs, and a weakening in the unsecured bond markets would challenge REITs to tap additional unsecured bank borrowing. Fitch has viewed negatively companies with less mature capital structures that rely on fewer sources of funding. The inability of issuers to obtain cost-effective unsecured funding via the bond or bank market could cause rating downgrades or negative outlook changes.

Two Environmental Factors: Low Interest, High Profile

The changes come as REITs have literally come into their own as an equity investment — 2016 was the year that REITs received their own sector classification from Standard & Poor, taking them out of the wider category of “finance” and into a spotlight of their own.  That move boosted REIT stocks in the investing public’s eye at the same time that very low interest rates have prodded REITs seeking capital toward corporate bond issuance and the risk premiums that go with these bonds.

Both factors have emphasized the viability of REITs as an investment class, but the rise in one kind of vital borrowing that will be sensitive to Federal Reserve interest rate moves, which can almost go nowhere but up — is seen as a signal by Fitch that balance in borrowing sources is something REITs need more of as a class.

(Photo credit: Wikipedia)

Legal Marijuana: What Will The DOJ Do To A Growing Business?

Seal of the United States Department of Justice

US Attorney General Jeff Sessions has gotten to work on clarifying the US Department of Justice’s posture on legal marijuana. The move couldn’t come sooner for the commercial real estate industry supporting this growing sector of the economy.

The enforcement of federal marijuana laws in the face of legalization by 29 states is of considerable concern to commercial real estate markets; based on the latest wave of state legislation passed, nearly 1 in 5 Americans now have access to state-legal marijuana, a figure that encompasses a whopping 68 million people.

In legalized states — and in the states expected to vote in favor of legalizing — the commercial real estate industry is on the march with sourcing and developing the industrial, land and retail property types that support and house the growing, distribution and dispensary needs of the legal marijuana business. But the road has gotten bumpy since the 2016 election.

A perpetual challenge to smooth real estate investment and to property sourcing is market uncertainty, and the Trump administration has been doing the legal marijuana industry no favors on that score. Since his confirmation as AG, Sessions, who as recently as April 2016 made the statement that marijuana users aren’t “good people”, has introduced quite a bit of national uncertainty into the legal marijuana business.  First pointing to Congress as the responsible party for a final decision, Sessions this week got a memo out to 94 US Attorney’s offices and DOJ heads that appears to take greater ownership of the impasse in legal marijuana enforcement.

The memo (read the full memo here)  addresses a newly created Task Force of Crime Reduction and Public Safety and tasks them with the following:

Task Force subcommittees will also undertake a review of existing policies in the areas of charging, sentencing, and marijuana to ensure consistency with the Department’s overall strategy on reducing violent crime and with Administration goals and priorities. Another subcommittee will explore our use of asset forfeiture and make recommendations on any improvements needed to legal authorities, policies, and training to most effectively attack the financial infrastructure of criminal organizations. 

Gone is any mention of Congress, and the singling out of marijuana in a sentence concerning itself with consistency reads (to these eyes, anyway) as a signal that the AG is looking for ideas from his bureaucracy. If I had to guess, at least some of the feedback Sessions receives will mention in no uncertain terms that violent crime and the legal marijuana business are distinctly different phenomena in at least 29 states of the union.

The deadline for response from the memo recipients is July 27th of this year.

Tampa Office Market Analysis: Amgen Moves In

Picture of Amgen office and flag

The $25 million dollar office investment biotech giant Amgen has made in the Westshore business district of Tampa is touted to bring over 400 high-paying jobs to the Sunshine State. The California-based company’s plan to open a “capability center” — a kind of business support and operations facility — will occupy four floors of Corporate Center One, at 2202 N. Westshore Blvd., taking up over 125KSF.  The facility will open in October of 2017.

What made up the Tampa office market environment that Amgen’s property professionals liked? Competitors, talent and options. On the competition front, other biotech and pharma giants have digs in Tampa, including Squibb, Bristol-Meyers and Johnson & Johnson. Surely the location of so many highly-trained pharma and tech professionals living in and around Tampa metro sweetened the deal for Amgen.

Westshore: Market Snapshot

On the office property front, Tampa’s CBD is marked by options in Class A and B properties, plus a sliding vacancy rate, as specified by Xceligent’s 4Q2016 Tampa Office Market Report. The report shows the Westshore submarket where Amgen settled to be the largest source of deal activity.  The submarket sported five of the top eight lease transactions in the quarter, with inventory for the submarket adding up to over 14M SF, the largest number on offer in Tampa. Westshore’s vacancy rate is pegged at 8.4%, according to the report.

CommercialSearch: Properties listed in Tampa’s Westshore Submarket

Check out the office and industrial properties listed today at CommercialSearch.com located in the Westshore submarket of Tampa by clicking the link.  Total number today: 113 listings on offer, ranging from A, B and C class properties.

As always: to obtain a free copy of the latest Tampa Office Market Report from Xceligent, click here to drop us a line.

(Photo credit: BizJournals.com)

Milwaukee Industrial Real Estate Market

Map of the Milwaukee area including the Milwaukee industrial market

 

The Milwaukee industrial market is a healthy one, offering midwestern location, pre-recession market characteristics and a high level of cooperation among commercial real estate practitioners.  In Brew-town, brokers share data easily and in doing so, drive transaction counts across the whole market. Shared data means more options for making client needs fit inventories.  A quick sampling of recent listings and deals includes:

What’s behind Milwaukee’s industrial market? We ask veteran broker Brian Parrish

Specialist in the sale and lease of industrial property in Milwaukee, Brian Parrish has been building expertise in the market for fifteen years. Currently President and CEO of PARADIGM Real Estate, Brian took a few minutes to share his expert perspective on what makes this market tick.

Xceligent data shows combined vacancy rates for the industrial market in Milwaukee have held at 4.2% from 1Q 2016 to 4Q2016. Does what you're seeing 'on the street' match with this finding?
Brian: Yes, we are back to pre-recession levels. The only reason it isn’t lower is that some new construction has come onto the market and is in the process of being absorbed.  It is common to hear brokers and buyers lamenting about lack of inventory, so to the street it may feel like even less is available. Quite a bit of the vacancy at this point constitutes larger and older buildings that require some repurposing. Nonetheless, this is still an attractive proposition compared to the increasing costs of new construction.

Another marketplace factor is that bank financing is readily available for industrial users (buyers). Much of the vacant space tends to be in properties for lease, where a sale is not possible.  As interest rates rise and users become more frustrated with inventory, the pendulum should swing towards leasing again.

Talk a little about your most recent transaction. How long was it in the pipeline?
Brian: PARADIGM recently represented General Capital in the purchase of a 135,000sf former Sam’s Club on 76th Street near Good Hope Road in Milwaukee. The deal took about 8 months from beginning to close, and involved rezoning the property from retail to industrial. The building has been leased on a long term basis to Sellars Absorbent Materials. It is a great example of how a vacant building can be repurposed from one economic driver to another, continuing to provide employment to the local community.
What do you think the big story in 2017 will be in Milwaukee industrial property?
Brian: Milwaukee — particularly Downtown — is truly experiencing a renaissance. Every day a new construction project gets announced, so it is hard to contemplate a story that would draw more buzz than the noteworthy projects we already have in town.  With that said, I think we will see some more speculative development in the north and the west submarkets of southeastern Wisconsin where such has lacked over the last several years.

Get the latest Milwaukee industrial market numbers from Xceligent

Click here to request a free copy of Xceligent’s latest Market Report for the Milwaukee industrial market.

 

Stadium Finance: Wins On The Field Can Mean Wins For Investors

Panorama of Dodger Stadium in Los Angeles (tak...
Panorama of Dodger Stadium in Los Angeles  (Photo credit: Wikipedia)

As Spring Training for the 2017 Major League Baseball season gets underway, our attention turns to stadium finance, a strange intersection of finance, athletics and real estate that leverages competition on-field and off.

Stadium development in the US is often subsidized by the public, meaning development risks are often shared by taxpayers in various ways, from tangible environmental impacts (parking availability, foot traffic) to the borrowing of already-strapped municipalities aiming to improve the business fitness of the areas surrounding the stadium.

That borrowing – typically performed by issuing municipal bonds – is rated by bond ratings agencies, allowing comparisons to be made in a bond market matching lenders and borrowers.  But which sport throws off the most data to use for investment comparisons?  It’s baseball.

Baseball Is The Handiest Test Case

Of the major sports, only Major League Baseball puts the “business fitness” argument behind stadium development to its greatest utilization test. Unlike football, basketball or hockey, (major league) baseball hosts a whopping 81 home games a season. From April to September, baseball stadium utilization when the team is in town is a nearly-every-day-of-the-week affair, whereas other sports make their home appearances only a handful of days of a season-week – or only one day, as in football.

It’s in part because of this high utilization that the finances of stadium development can be deeply affected by the performance of the team on the field.  In an amazing post at Commercial Observer by Terrence Cullen, exactly how on-field performance can affect financial performance underwriting a development is shown by a long look at the New York Mets and Citi Field. From “How Batting Averages Can Affect A Stadium’s Bond Rating”:

“There are two ways to argue for a new stadium,” he said. “One is, ‘Our team sucks, we need a new stadium so we can be good again.’ Which usually doesn’t work very well, because if your team sucks, nobody cares. Or, ‘Our team is great. If you don’t give us a new stadium, you’ll never see this again.’”

The latter option, he added, is often the better route. “This is very, very common,” he said. “If you’re trying to get a new stadium you compete that one year.”

[…]

Gerstner pointed to the instance in which the San Diego Padres leveraged its All-Star roster to secure financing in the late-1990s to build what is today Petco Park. The Padres boosted their roster for the 1998 season, making it all the way to the World Series that October (the Yankees swept the team). The following month, voters went to the polls to determine whether the team could build the stadium. The city invested $300 million into the project, while the Padres invested $115 million, according to news organization Voice of San Diego.  

Following the approval, however, the Padres traded away key players and lost others to free agency, Gerstner noted. The team finished fourth in its division with a 74-88 record.

Read the entire post at Commercial Observer here. And don’t forget to Play Ball!

 

Downtown Cleveland’s Key Center Sells For $268M: What’s The Market Like?

Key Tower in downtown Cleveland, Ohio
Key Tower in downtown Cleveland, Ohio (Photo credit: Wikipedia)

The cornerstone of Cleveland’s skyline has sold this week for $268M to a local owner.  What does it mean for the local office market?

The Key Center, a 1.3M SF office tower sporting 57 stories and Class A status has been sold by national office REIT Columbia Property Trust to a Cleveland-based multifamily property and development firm. Built in 1991, the Key Center anchors a deal that includes a nearly 1,000-space parking garage as well as a ten-story bank building.

The anchor tenant in the tower is a regional banking power. KeyCorp, a holding company that owns the 18th largest bank in the US, lends a significant chunk to the tower’s 95% occupancy at sale time. The new owner, Ohio’s Millennia Companies – a group of real estate operations and development firms – intends to move operations into the tower, further bolstering the Cleveland CBD strong net absorption numbers, reported in Xceligent’s 4Q2016  Cleveland Market Report as the city’s leading absorption submarket with over 75KSF absorbed.

A Peek Around The Neighborhood

The deal takes place against Cleveland’s backdrop of declining office vacancy and modest levels of new construction. From Xceligent’s most recent Market Report:

  • During the 4Q 2016 the Cleveland office market has absorbed 104,105 square feet (sf) of space.
  • At 12.0% the regional vacancy rate has continued to decline, showing improvements from the 4Q 2015 at 13.1%.
  • The Cleveland CBD submarket observed the greatest positive net absorption totaling 75,222 sf during the 4Q 2016.
  • The Cleveland Office development pipeline had 67,000 sf under construction during the fourth quarter

Cleveland, In Fact, Rocks

If nothing else, the Key Center deal is a strong show of local commercial confidence in the face of a city’s commercial history that has suffered from capital flight, at times resulting in “rust belt” perception. It’s the duty of CRE professionals to look past such cliches, however. Industry players who might shadow the principals in this deal — such as financial support services or real estate service companies who have or seek profiles in the Midwest — can indulge their interest in low-barrier office markets such as Cleveland’s with a quick and easy look at Cleveland CBD’s comparable and nearby office properties.  To view a live query at CommercialSearch of office properties listed for lease or sale in the shadow of the Key Center,  click here.

Get Xceligent’s 4Q Cleveland Office Market Report

To get your own copy of Xceligent’s latest (4Q2016) Market Report on the Cleveland Office Market, click here to drop us a note today.

New Amazon Air Hub and the Cincinnati Warehouse Market

Amazon’s latest step in its apparent plan to take over its own supply chain is an announced $1.5B cargo hub outside of Cincinnati. The hub, slated to be placed in Cincinnati/Northern Kentucky Airport (CVG) is expected to enable the company to fly its Amazon Prime cargo jet fleet into and out of a healthy property market blessed with what Amazon’s SVP of Worldwide Operations Dave Clark called “a large, skilled workforce, centralized location with great connectivity to our nearby fulfillment locations and an excellent quality of living for employees.”

Construction of the facility is sure to have some follow-on effects as vendors and customers consider the Airport submarket’s nearly 31 million sf of inventory.  A recent arrival of new space allows plenty of options, boosting total vacant space to 1.4 million. Here’s a quick look at Queen City’s market as published this week in Xceligent’s 4Q2016 Cincinnati Industrial Market Report:

  • During 4Q 2016 the industrial market has absorbed just over 538,504 square feet (sf), with a year to date absorption of just over 5.2M sf.
  • As a result of just over 4.6 million sf of newly delivered space, industrial vacancy has risen from 3.7% in 2Q 2016 to 4.3%.
  • The Tri-County submarket has posted the highest positive net absorption for two consecutive quarters, closing 4Q 2016 with just over 676,000 sf. This positive movement was offset by the Airport submarket which posted a negative net total of 750,000 sf.
  • The weighted average asking rent has increased year over year from $3.56 per square foot (psf) to $3.96 psf. This increase can be attributed to an increased demand with limited warehouse availability.

Industrial Property Search: CVG Airport Cincinnati

Click here to take a look at live property data centered on CVG Airport/Covington at CommercialSearch.com.

Taking To The Skies

The location choice of CVG Airport by Amazon has the company striking while the iron is hot; the airport itself has been the beneficiary of ready warehouse inventory nearby. Its growth in freight handling has been in the double digits year-over-year for the last five years. If the extra freight loads Amazon represents seems a good fit for an airport with a record of expanding capacity in a sustained push, that may be part of the company’s interest in taking to the air: their designs for floating warehouses and plans for drone delivery are far more likely to arrive than it might at first seem. If there’s one thing Amazon does, it’s deliver.

If Trump Targets Dodd-Frank, What Are the Commercial Real Estate Impacts?

While we find ourselves in the early, frenetic days of the Trump administration, it’s far from clear exactly what to expect from a White House that has single-mindedly pursued its own private list of policies without much concern for fallout or for some campaign promises. In what appears to be a intentional pattern of confusion, some of the President’s campaign promises have been confusingly dropped by the Oval Office, only to picked back up within hours. The very latest example of this pattern over the past 24 hours being his pledge to negotiate with the pharma industry to achieve lower drug prices.  This was a promise apparently dropped only to be picked back up hours later the same day.

So when the President announced yesterday that he intended to “do a big number” on the Wall Street reform package called Dodd-Frank, we got a warning something might (or might not) happen to key regulations on risk retention that deeply affect the commercial real estate industry.

Regulation, Risk and Reminders

President Trump severely criticized the Dodd-Frank law yesterday, calling it a “disaster” and promising to “do a big number” on the law soon. If the President does actually follow through with gutting Dodd-Frank, what could change for commercial real estate?  Whatever changes that stick will affect at least one of these areas:

  • The Credit Risk Retention Rule – Forces issuers of bonds comprised of performing commercial real estate properties to hold a percentage of the offering.  Affects CMBS marketplace significantly, as written about here.
  • Credit Rating Agency Reform – Rules that prevent the complicity of risk ratings agencies (Moody’s, Fitch, S&P) in mislabeling bond offerings to obscure systemic risk.  Affects CMBS and REIT share markets as well as the wider debt market transparency.
  • Legislative proposals to wind down the Government Sponsored Entities such as Freddie Mac that originate a great deal of capital for apartment building projects
  • The Volker Rule – Prevents banks from engaging in trading in certain kinds of investments. Affects: proprietary trading, disallows banks from owning or investing in hedge funds or private equity funds. If struck down, may increase availability of capital from banks to exotic or alternative financing vehicles serving the CRE industry.

Unclear (Still)

Guessing at impact is tough, because Dodd-Frank rules are a moving target — rules are still being designed and implemented with a time schedule that reaches into 2019 and beyond.  While the President signed an executive order this week compelling the elimination of two regulations for every one invoked, a move that tends to support speculation that the President sees regulations as intrinsically bad things, nobody should claim to know exactly what’s on the Donald’s mind before a) he announces it himself  and b) we wait a little bit for the dust to settle.