Hartman Simons Commercial Real Estate Blog

The Wednesday Wrap: Oct. 17, 2012

Each Wednesday, The Wrap presents a compilation of recent noteworthy commercial real estate stories from a variety of publications. Below are five stories that caught our eyes in recent days.

• “Trouble in the Heartland? Rapid Rise in Farmland Values Poses Risk for Investors and Ag Lenders Alike” by Mark Heschmeyer of CoStar.

Farmland has seen a major increase in investor interest over the past two years as buyers look for higher returns, according to Heschmeyer.

Stocks are not getting the double-digit returns they did in the 1990s and 2000s, making a 7 to 9 percent returns on farmland investments more attractive to today’s investors, Jamie Shen of Callan’s Real Assets and Alternative Investments told Heschmeyer.

One factor in farmland’s attractiveness is supply and demand, according to Callan’s research. As the global population continues to rise, it’s likely that demand for land and agricultural goods will also increase.

• “REITs Relying on Technology, Sustainability to Enhance Returns” by Carisa Chappel of REIT.com.

The economic slowdown has hindered traditional growth for REITs, so now they are looking toward technology and sustainability to grow their businesses and save money, according to a new report by Deloitte.

REITs are increasingly embracing technology like cloud computing, mobile applications and social media to reach new customers. They are also turning to more sustainable practices, which can improve the bottom line and stock performances, according to Bob O’Brien of Deloitte. REITs with well-executed green strategies are outperforming other REITs, he noted.

Economic uncertainty, lack of job growth, the U.S. deficit and the European debt situation all have stymied the U.S. real estate industry, O’Brien told Chappel.

• “Online Stores Are Moving into the Real World” by Jessi Hempel of CNN Money.

For a while now, traditional brick-and-mortar retailers have fought for strong online presences to compete with online retailers like Amazon. Now, the trend is reversing, as digital brands attempt to open physical locations as well, Hempel reports.

Examples include BaubleBar, a popular online jewelry seller, which is opening a showroom at its corporate headquarters in Manhattan. The firm plans to open boutiques nationwide that cater to an area’s specific tastes.

There’s also glasses-maker Warby Parker, which has followed suit with showrooms in nine cities and has a retrofitted school bus that acts as an on-the-go store by traveling the country.

It’s even rumored that Amazon may be considering a physical store as well, Hempel notes.

• “Store-Within-a-Store Becomes Expansion Model Dujour” by Elaine Misonzhnik of Retail Traffic.

Retailers are increasingly looking at opening locations within larger stores as a means to cut construction costs and increase flexibility, according to Misonzhnik.

Finish Line plans to open 450 stores inside Macy’s locations, and a number of boutiques are scheduled to open soon within JC Penney stores, Misonzhnik reports.

There is currently no standard for calculating rent for stores within stores, Misonzhnik writes, and in some cases the rental rate could be higher than for equivalent standalone stores. However, a retailer who opens a store-within-a-store has instant access to foot traffic and often has a lease that’s shorter than the standard 10-year term, making it worth the premium in rent, Lew Kornberg of Jones Lang LaSalle told Misonzhnik.

The department stores that are willing to let a store open within theirs are also benefiting because doing so allows them to expand without all of the traditional added costs and risks, according to Matt Winn of Cushman & Wakefield.

• “Here’s a Way to Cut Business Taxes: Tech Firms Become Real Estate Trusts” by Anton Troianovski of The Wall Street Journal.

Some technology companies like American Tower Corp. and Equinix Inc. are looking to convert them to real estate investment trusts (REITs) in an effort to avoid paying taxes, Troianovski reports.

As more companies have pushed to be considered REITs, the total market value of REITs has grown from $9 billion in 1990 to $451 billion in 2011, according to the National Association of Real Estate Investment Trusts.

Some in the real estate industry are worried about the potential political backlash of companies taking advantage of the REIT structure. The IRS has said “inherently permanent structures” like cellphone towers, billboards and data centers qualify for REIT treatment, according to Troianovski.

The Wednesday Wrap: March 28, 2012

Each Wednesday, The Wrap presents a compilation of recent noteworthy commercial real estate stories from a variety of publications. Here are five stories that caught our eyes in recent days:

• “Trepp: $362 Billion of Commercial Real Estate Debt Matures in 2012” – from Citybizlist.com. A total of $362 billion in commercial real estate debt will come due this year, according to a new estimate from Trepp. The figure is an increase from the $346 billion that matured last year.

Approximately $1.73 trillion worth of commercial real estate debt is set to mature from 2012 to 2016, Trepp calculates. Ominously, the firm estimates “that as much as 56 percent of the 2016 maturities are underwater by 10 percent or more, reflecting the large volume of 10-year mortgages that were originated at the market peak in 2006,” said Matt Anderson of Trepp’s research team in a statement.

• “Tech Firms Go Far and Wide for Space” – by Eliot Brown and Laura Kusisto of the Wall Street Journal. Almost every industry has decreased its office space in recent years. There is, however, at least one notable exception: the technology sector. According to Brown and Kusisto, “landlords in multiple cities throughout the country – including some that didn’t have a big tech sector in the past – are enjoying the benefits from expanding Internet-focused firms, software companies and other technology employers.”

“Companies in the tech sector accounted for 29 percent of all growth in the U.S. office market in 2011, adding an estimated 10.2 million square feet of space – nearly the size of four Empire State Buildings,” Brown and Kusisto write.

Austin, Texas; Cambridge, Mass.; New York; and Washington D.C. are just a few of the non-Northern California markets to benefit from tech firms’ need for more space.

• “CRE Starting to Embrace the Tweet” – by Miriam Lamey of GlobeSt.com. A new GlobeSt.com poll shows LinkedIn is the preferred social-media network of commercial real estate professionals but also indicates that Twitter is gaining popularity in the sector.

Twitter has something to offer virtually all of the segments of the commercial real estate industry, Robert Krueger, manager of social media outreach and communications for the Urban Land Institute, told Lamey. “If you are in the hotel and hospitality sector, [Twitter] can be used as a way to drive online traffic to your review websites and alert [users] to limited time specials,” he said. “If you are a developer, Twitter can be used to build public support for your project. Building owners and architects can also use it to raise awareness for a project, build their industry reputation and brand themselves as ‘green.’”

• “Don’t Look Now but Investor Interest Reviving in Warehouses” – by Randyl Drummer of CoStar.com. A slowly but steadily improving labor market has increased investor interest in U.S. warehouse properties, says this article by Drummer, based in large part on a new survey from PricewaterhouseCoopers.

Nearly all of the major U.S. industrial markets experienced positive net absorption last year and a few, such as the Inland Empire in Southern California, are in a full-fledged recovery, according to Drummer.

“Combined with limited construction over the past few years, the potential for rent growth in most markets is now a key driver for acquiring industrial assets,” he writes.

• “Six Tips for Leasing a Retail Center Profitably” – by Ben McLeish for REBusinessOnline.com. When leasing a shopping center, the first thing a landlord should look for are tenants whose customers are likely to visit those stores more than once a week. That’s one of six leasing tips offered by McLeish, the director of retail services for Colliers International Tampa Bay.

Another tip: make sure your rental rates remain competitive. “Don’t give space away, but realize that thriving retailers have plenty of choices for space in this market,” McLeish writes. “If you aren’t competitive with retail centers down the street, you won’t get the tenant. It’s that simple.”

Four on Friday: Jeff DeHart

Meet Jeff DeHart, a partner at SJ Collins Enterprises, a retail development company focused in the Southeast and Mid-Atlantic.  Jeff acts as the primary asset manager and managing member of the company’s various projects. Jeff’s previous experience includes time at his own firms, six years at Collins/Goodman Development and eight years with the Portman Companies. Many of you may also know him as RetailJeff on Twitter. Hartman Simons’ attorneys have enjoyed working with Jeff on several projects during the last three years and we are pleased to feature him in this week’s Four on Friday! 

HS:  What are some retail trends you see in the Southeast?

JD:  Right now we are seeing a number of opportunities in adaptive reuse and infill development.  I believe this is a macro trend as retailers seek out proven markets.   Many older shopping centers have a lot of functional obsolescence and simply need to be replaced. We are seeing more retailer demand in the Mid-Atlantic than here at home.

HS:  Any retail predictions?

JD:  There will definitely be some fallout of yogurt stores. We have watched them pop up around Atlanta and the Southeast. I have three teenage sons and two of them work at a yogurt shop! The stores located in areas with no immediate competition and high barriers to entry will be most likely to survive.   Another trend to watch is the effect of internet shopping on Big Box retail.  If you can go into a big box store and price compare from your smartphone, margins will continue to be pressed.  This could bode well for specialty merchants who offer something other than price.

HS: Why are you so active on Twitter?

JD: I’m a Learner by nature. Twitter helps me keep up with the latest news and trends. This is critical to our business because trends and demographics drive everything.

HS: Football Team?

JD: Go Dawgs! I’m a proud, yet sometimes troubled, UGA alum.