Hartman Simons Commercial Real Estate Blog

The Wednesday Wrap: May 15, 2013

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.

• “Malls, Self-Storage Led REITs in First Quarter” by A.D. Pruitt of The Wall Street Journal.

The performance of real estate investment trusts (REITs) exceeded analysts’ expectations in many cases during the first quarter, and REITs focusing on luxury shopping malls and self-storage facilities saw the largest gains, Pruitt reports.

Upscale malls and outlet centers that appeal to a wide range of shoppers haven’t been significantly impacted by online competition, according to Alexander Goldfarb, an analyst with Sandler O’Neill + Partners.

Additionally, self-storage REITs have performed strongly because of rising rents and strong tenant demand, Pruitt notes.

Office and apartment landlords continued to see earnings growth, but at a slower pace than in past quarters because of lackluster employment growth and increased competition, Pruitt reports.

• “Property Values Hovering Around Market Peaks” by Carisa Chappell of REIT.com.

“Five years after the onset of the global financial crisis, bellwether pricing indices indicate that commercial property values appear to have reached — if not surpassed — the market peaks of 2007,” Chappell writes.

According to the Green Street Advisors’ Commercial Property Price Index, commercial property values increased 1 percent in April, putting them above 2007 levels.

Another index showed that the unlevered property values of REIT-owned properties nationwide were almost even at the end of April with their January 2007 levels, Chappell reports.

• “Colliers: Shopping Centers’ National Vacancy Rate Down in Q1” by Marianne Wilson of Chain Store Age.

Shopping centers absorbed nearly 4.5 million square feet in the first quarter, causing the national vacancy rate to drop ever so slightly, from 10.09 percent to 10.06 percent, according to Colliers International’s “2013 Q1 North American Retail Highlights” report.

As the housing and job markets improve, consumers’ confidence is rising, and they’re spending more, the report notes. The six North American markets with the most shopping center leasing activity are also cities that are experiencing significant long-term employment growth and strengthening housing markets, according to the report.  

• “Expect Fed Decisions to Impact Lodging” by John Salustri of GlobeSt.com.

The Lodging Industry Investment Council’s annual member survey shows concern over the impact that sequestration and Obamacare will have on the market. 

Sequestration is “anticipated to negatively impact hotel owners,” the report says. “Fifty-five percent believe that the current government sequestration will cause ADR to decrease 1 percent to 5 percent in markets that rely heavily on government spending.”

Increased labor costs stemming from the new federal healthcare law and the sluggish economy are also expected to affect the industry, Salustri reports.

• “Running to Stand Still: The Office Sector Sees Marginal Improvements” by Brad Doremus and Victor Calanog of National Real Estate Investor. 

With sluggish job growth leading to equally sluggish growth in demand for office space, the national office vacancy rate declined just 10 basis points during the first quarter to 17 percent — the exact amount it declined in the prior quarter, Doremus and Calanog report. More expansive job growth would have a dramatic impact on the rate “since supply additions are virtually nil,” they add.

Asking and effective rents grew by 0.7 percent during the first quarter. “Despite 10 consecutive quarters of rent increases, rent levels are still anchored at benchmarks last observed in late 2007,” Doremus and Calanog report.

Still, tech- and energy-heavy markets are outperforming the national average in terms of asking and effective rent growth, Doremus and Calanog note.

The Wednesday Wrap: May 8, 2013

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.

• “Health-Care Owners Shun Nursing Homes” by A.D. Pruitt of The Wall Street Journal.

Some of the largest owners of healthcare facilities are scaling back their investments in nursing homes because of their growing concerns that the homes will be less profitable in the face of steep Medicare and Medicaid cuts, Pruitt reports.

Ventas Inc. has said it will won’t make any major new acquisitions until the effects of the cuts become clear, while others, like Health Care REIT Inc., say they might exit the sector altogether, Pruitt reports. 

A number of states are reducing Medicaid reimbursement payments to nursing homes, and the federal government cut Medicare rates by 2 percent on April 1 as part of the sequestration, Pruitt notes.

Other firms say they aren’t concerned about possible sequester-induced cuts and that the market risk is overstated, Pruitt reports.

• “Office Demand Still Catching Up With Job, Business Growth” by Randyl Drummer of CoStar.

Modest job growth has prevented a dramatic increase in demand for U.S. office space, and therefore rents have remained at relatively low levels, Drummer reports.

Average office employment is growing at a rate of just more than 2 percent, while demand for space is growing at just half that rate, according to CoStar Group’s First-Quarter 2013 Office Review and Outlook.

In the first quarter, the national office vacancy rate declined 10 basis points to 12.2 percent. The post-recession high was 13.5 percent, according to Drummer.

• “Samsung Opening 1,400 Mini-Shops inside Best Buy Stores across U.S.” by Salvador Rodriquez of The Los Angeles Times. 

Samsung is planning to open hundreds of mini-shops across the country inside Best Buy big-box locations, Rodriquez reports.

The electronics giant already has opened a couple of the shops and hopes to have 900 of them up and running by the end of May and 500 more shortly after, according to Rodriquez. 

Samsung considered opening its own retail locations, but found that partnering with Best Buy would allow it to open the stores more quickly, Ketrina Dunagan, Samsung’s vice president of retail and channel marketing, told Rodriquez. 

• “Miami’s Condo Market Rebounds, Stoking a Building Boom” by Terry Pristin of The New York Times.

Because of the demand of Latin American investors, only about 600 of the 22,000 condos created in downtown Miami during the pre-recession era are still on the market, Pristin reports. Now, developers are building more units, he adds. 

In February, home values rose by 10.4 percent in Miami versus a year ago, while national home prices jumped 9.3 percent, Pristin notes. 

Miami officials are encouraging condo developers to provide easy access to public transportation, street-level retail and underground parking, Pristin reports.

• VIDEO: “Quick Study: REITs Beat Market in April” by Allen Kenney of REIT.com.

In this clip, NAREIT Editorial Director Allen Kenney and Senior Vice President of Research and Industry Information Brad Case discuss the REIT market’s performance in April.

The two discuss how the REIT market performed in relation to the rest of the stock market and which sectors stood out for their performances.

The Wednesday Wrap: May 1, 2013

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.

• “Retail Real Estate Cheer Momentum for Online Sales Tax On Capitol Hill” by Randyl Drummer of CoStar.

Many of those in the retail real estate industry see the advancement of the Marketplace Fairness Act of 2013 as a critical step in equalizing the battle for shopping dollars between bricks-and-mortar stores and online retailers, Drummer reports. 

Last week, the U.S. Senate approved a procedural measure to allow debate to move forward on the legislation. If passed, it would allow states to require Internet retailers with $1 million or more in annual out-of-state sales to collect sales taxes for the state and local governments of the buyers, Drummer reports.

“Why should online retailers be able to take advantage of a tax-free situation?” Greg Maloney, president and CEO at Jones Lang LaSalle Retail, told CoStar.

• “Entertainment Tenants Can’t Save All the Struggling Retail Centers” by Elaine Misonzhnik of National Real Estate Investor. 

As online retailers drive sales away from traditional big-box chains, retail landlords are increasingly looking at entertainment and restaurant tenants to fill vacant space left by closed large-format retailers, Misonzhnik reports.

Landlords are looking for tenants with natural protection against online competition, such as the growing number of dine-in movie theatre chains. These non-traditional tenants offer an experience that landlords say can’t be duplicated online, Misonzhnik reports. 

Movie theaters aren’t expanding rapidly enough to fill holes in every struggling shopping center, however, and a movie theater isn’t enough to make or break a center, Misonzhnik notes.

• “DLA Piper: Executives Feeling Bullish” by Brian J. Rogal of GlobeSt.

Eighty-five percent of the nearly 200 top executives surveyed in April by DLA Piper feel bullish about the real estate market, according to the law firm’s 2013 State of the Market survey. The firm’s previous survey in October 2011 found only 30 percent felt optimistic, Rogal reports.

Although the economy has been slow to recover, executives seem to be encouraged by easier access to capital, according to DLA Piper.

In contrast to the 2011 survey, respondents now see healthcare facilities as the most attractive investment, in part because of the growth of the sector under Obamacare, according to the survey.

• “Home Prices Score Highest Annual Gain Since 2006” by Nick Timiraos of The Wall Street Journal.  

Home prices rose 9.3 percent in February from a year ago, the largest growth rate in nearly seven years, according to Standard & Poor’s/Case-Shiller’s home-price index report.

The index tracks 20 cities across the United States, all of which posted an increase in prices versus one year ago for the second straight month.

The rise in prices was driven by sharp drops in the number of homes listed for sale and the growing demand for home purchases, Timiraos reports.

Atlanta’s prices rose 16.5 percent, the largest increase in that market in the 21-year history of the Case-Shiller series. Prices were up 23 percent in Phoenix, 18.9 percent in San Francisco and 17.6 percent in Las Vegas, Timiraos notes.

• “Private Real Estate Fundraising Declines to 10-Year Low in First Quarter” by Carisa Chappell of REIT.com.

Fundraising for private real estate investment reached its lowest level in 10 years in the first quarter of 2013, according to data from the research firm Preqin.

Private equity funds raised $5.2 billion in the first quarter, the lowest quarterly total since third quarter 2003. This compares to the $22.6 billion raise in fourth quarter 2012, according to the firm. 

Funds with a primary focus on North America raised the most capital in first quarter 2013, Chappell notes.

The Wednesday Wrap: April 24, 2013

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

• “Congress Looks at REIT Tax Exemption” by A.D. Pruitt of The Wall Street Journal.

As part of its comprehensive review of the tax code, the House Ways and Means Committee is reviewing the tax exemption REITs have enjoyed for decades, Pruitt reports.

“Like all other aspects of the code, it is reasonable to expect that REITs would be included in any top-to-bottom review of the code,” said a spokeswoman for the Ways and Means committee. However, because the exemption doesn’t pose a major loss of revenue to the Treasury, industry officials say it is unlikely that REITs will lose their exemption status, Pruitt reports.

Under the current tax code, REITs do not have to pay corporate taxes on their income as long as at least 90 percent of their taxable income is paid in dividends, Pruitt notes.

• “Don’t Look Now But Warehouse Demand Off to Strongest Start Since 2008” by Randyl Drummer of CoStar.

After finishing strong in 2012, this year is proving to be equally strong for the U.S. warehouse market thanks to increases in trade and manufacturing and the recovery of the housing market, Drummer reports. 

Forty-three of the 54 largest U.S. markets posted positive net absorption for industrial space, according to Rene Circ of CoStar’s Property and Portfolio Research (PPR). A recent transaction data survey by PPR showed warehouse new supply and demand at their strongest levels in at least five years.

During the first quarter, developers completed almost 13 million square feet of new warehouse space and 38 million square feet is still under construction, Drummer reports.

• “Hot Hotels: Big Boost Ahead for Lodging” by John Salustri of GlobeSt.com.

If the 2,500 hotel transactions that took place last year are any indication, hotel property asset sales will continue to climb through 2013, according to Gregory LaBerge, national director of Marcus & Millichap’s National Hospitality Group.

Supply was down last year, but demand soared; 2012 posted record room sales at nearly 1.1 billion nights, according to LaBerge. 

LaBerge says international business travel and tourism, along with low interest rates, are contributing to the growth in property sales.

National occupancy will rise 60 basis points to 62 percent in 2013, with ADR and RevPAR rising 4.8 percent and 5.8 percent, respectively, according to the National Hospitality Group’s latest report.

• VIDEO: “Awareness of Environmental Issues is Key for REITs, Farer Says” by REIT.com.

In this clip, Matt Bechard of REIT.com sits down for an interview with David Farer, chairman of the environmental department at Greenbaum Rowe Smith & Davis LLP, during the recent REITWise 2013 conference. 

The two discuss upcoming environmental legislation that will affect REIT development and trends emerging in green building.

The Wednesday Wrap: April 17, 2013

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.

• “Economists Expect Continued Improvement in Commercial Real Estate” by Carisa Chappell of REIT.com.

Commercial real estate industry fundamentals are expected to improve significantly over the next few years, according to respondents in the Urban Land Institute/Ernst & Young Real Estate Consensus Forecast for April 2013.

Equity REITs are projected to post double-digit returns in 2013 and 2014, according to the semi-annual survey.

The foundation for the projected improvement is the expectation that GDP growth will re-accelerate to 3 percent or more in 2014 and 2015 and that the unemployment rate will decline steadily to 6.5 percent in 2015, according to survey contributor and NAREIT vice president Calvin Schnure. 

• “Tax Plan May Provide Boost" by Sarah Krouse of The Wall Street Journal.

As part of his budget proposal, President Obama has proposed changes to the Foreign Investment in Real Property Tax Act (Firpta) that would exempt foreign pension funds from paying taxes on gains in real-estate sales, Krouse reports.

It’s a move the U.S. real-estate industry has been seeking for years and one that would likely lead to more U.S. investments by foreign pension funds, according to Krouse.

However, Congress still has to approve the proposed exemption. As part of a larger package of incentives for infrastructure investment, it would cost $2.2 billion over the next 10 years, according to the 2014 budget.

The move is showing for the first time that the White House understands the impact of Firpta, Jim Fetgatter, chief executive of the Association of Foreign Investors in Real Estate, told The Wall Street Journal.

• “Tied to the Mall, J.C. Penney and Macy’s Need Each Other” by Diane Brady of Bloomberg Businessweek.

As Macy’s and J.C. Penney battle it out in court over their respective deals with Martha Stewart’s retail line, the lawsuit is indicative of the idea that although the two retailers are competitors, they need each other to survive, Brady reports.

The two chains are under the same roof in some 400 malls nationwide, and as anchor tenants, they drive foot traffic to each other. Almost half of Macy’s stores are in malls with a J.C. Penney’s store. A drop in traffic to one store could curb sales throughout an entire mall, Brady notes.

• “Hotels Find Partner in Retail Space” by Hotel Management.

The hotel industry is revisiting the pre-recession trend of building hotels as part of mixed-use developments and master-planned urban lifestyle centers, Hotel Management reports.

Recent examples of the trend include the 140-room Cambria Suites at Rockville Town Center in Rockville, Md., and the 300-room Hyatt Regency at Tysons Corner Center in McLean, Va., both of which broke ground last year, Hotel Management reports.

Successful hotel-retail combinations involve large regional shopping centers that provide a sense of “destination,” according to Jim Butler, founding partner of Jeffer Mangels Butler & Mitchell, which worked on the Tysons Corner Center project.

• VIDEO: “Disappointing Jobs Report At Odds With Other Indicators” from REIT.com.

In this clip, Matt Brechard of REIT.com sits down with Calvin Schnure, NAREIT’s vice president of research and industry information, to discuss the most recent jobs report and its impact on commercial real estate. Schnure also examines the varying reports coming out on the overall economy’s recovery.

The Wednesday Wrap: April 10, 2013

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.

• “Caribou Coffee to Close 80 Underperforming Stores” by The Associated Press (AP).

Caribou Coffee announced Monday it will close 80 underperforming stores and convert another 88 sites to Peet’s Coffee & Tea stores, the AP reports. 

The Minneapolis-based coffee company did not say which stores it would close, but the conversions will occur in the District of Columbia, Georgia, Illinois, Maryland, Michigan, Ohio, Pennsylvania, Virginia and Wisconsin over the next 12 to 18 months, according to the AP.

German investment firm Joh. A Benckiser Group GmbH holds a majority stake in both Caribou and Peet’s, the AP reports.  

• “Uncertainty, Cutbacks Create Tenant’s Market in D.C.” by Robert Carr of National Real Estate Investor. 

Government cutbacks have cooled office leasing in Washington, and tenants now have the upper hand in the city, Carr reports.

The slowdown is a direct result of uncertainty over the federal budget, John Germano with CBRE told National Real Estate Investor.

The Office of Management and Budget has frozen its leasing activity and is requiring other federal tenants to reduce occupancy over the next three years, Carr reports.

Even so, buyers still outnumber sellers of office buildings in D.C., and development is showing up in choice markets, Carr notes.

• “J.C. Penney’s Post-Johnson Options Seen to Include Sale” by Matt Townsend and Jeff Green of Bloomberg.

After hiring Ron Johnson from Apple as its new CEO only a short time ago, J.C. Penney Co. has voted to replace him with his predecessor, Myron Ullman, Townsend and Green report.

Ullman must now decide whether to continue with Johnson’s strategy to turn the chain into a collection of boutiques or return to the more traditional department-store model. The chain was so damaged under Johnson that Ullman will struggle to turn it around, the writers note. 

Because J.C. Penney has the industry’s highest ratio of net debt to market value, a traditional leveraged buyout is unlikely, according to Morningstar.

• “Businesses Stay Cautious About Renting Office Space” by Eliot Brown of The Wall Street Journal.

Occupied office space grew by just 0.12 percent in the United States in the first quarter, reflecting continued caution about the economic recovery, Brown reports.

Asking rents increased 0.7 percent to $28.66 a square foot during the first three months of 2013, while the office vacancy rate fell from 17.1 percent to 17 percent, a mark that is still significantly higher than the 12.5 percent recorded at the office market’s 2007 peak, Brown reports.

Cities with strong technology and energy sectors saw the strongest office markets in the first quarter. These include Dallas, Houston, New York, San Francisco and San Jose, Calif.

• VIDEO: “More Private Real Estate to End Up in Public Hands” from REIT.com.

In this clip, Matt Bechard of REIT.com sits down with Sandy Presant, chairman of the global real estate fund practice group at the Greenberg Traurig law firm, to discuss the chances of large, privately held portfolios of real estate entering the public markets.

The Wednesday Wrap: April 3, 2013

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.

• “Office Confidence Stalls with Lack of Rent Growth” by Carisa Chappell of REIT.com.

Investors are concerned over a lack of rent growth in the office sector, according to a commercial real estate report from PricewaterhouseCoopers (PwC).

Absorption levels and rent growth in the office sector are falling short of buyers’ expectations in many markets and therefore pricing remains steep, according to the report.

Even so, PwC partner Mitch Roschelle said the market is showing signs of improvement, noting demand is starting to creep back into the market as 200,000 new jobs have been added to the economy in the last two months.

Roschelle said the suburban market could show promise for the office sector as the single-family home market improves. 

• “Whole Foods Builds Greenhouse on Store Roof” from Supermarket News.

A rooftop greenhouse at a Brooklyn Whole Foods Market will soon supply fresh produce to locations of the chain throughout the city, Supermarket News reports.

Gotham Greens will design, build and operate a 20,000-square-foot hydroponic greenhouse on top of Whole Foods’ Brooklyn store, which the retailer claims will be the nation’s first commercial-scale greenhouse farm integrated within a retail grocery store.

The greenhouse will enable Whole Foods to sell premium, pesticide-free produce year-round, according to Supermarket News.

• “Macy’s Rethinks Distinction between Clicks and Bricks” by Mark Heschmeyer of CoStar.

Reports of the imminent demise of bricks-and-mortar stores at the hands of online stores may have been exaggerated. A recent survey from the Cisco Internet Business Solutions Group found that 93 percent of products sold in the United States are still bought in bricks-and-mortar locations.

This has retailers such as Macy’s thinking about how the store-based and online shopping experiences can be integrated rather than competing against each other, Heschmeyer reports.

“The way we’re looking at it is sort of the total, and how do we transform our stores to be relevant in a world with all this technology available to her?” said Macy’s CFO Karen M. Hoguet. “I’m not as fixated on the Internet versus bricks-and-mortar. And in fact, this year, we’re not reporting it separately anymore.”

• “Hines Gets Green Light on 100 Northpark” by Amy Wenk of the Atlanta Business Chronicle.

The Atlanta Regional Commission has approved a massive mixed-use project planned at Georgia 400 and Abernathy Road in metro Atlanta, Wenk reports. 

The more than $500 million project is planned to include 1.5 million square feet of office space, 150,000 square feet of retail, 500 units for multifamily development and a 250-room hotel, Wenk reports.

The project still needs approval from the city of Sandy Springs, Wenk notes.

• “Ground Officially Broken On West Coast’s Tallest Office Tower” by Randyl Drummer of CoStar.

Boston Properties and Hines have broken ground on the Transbay Transit Tower, a planned 1,070-foot skyscraper in downtown San Francisco that is expected to be the tallest building on the West Coast, Drummer reports. 

The groundbreaking ceremony came the day after the two firms closed on a $192 million acquisition of the land downtown, Drummer notes. The office tower is set to be completed in 2016, just before the opening of a new transit facility.

“The Transbay Transit Tower and neighboring Transbay Transit Center are powerful individual buildings designed with a common civic purpose — to create the 21st century gateway to San Francisco and state-of-the-art place marker on its skyline,” said Fred Clarke, senior principal of Pelli Clarke Pelli Architects, which was awarded the tower and the transit center contract.

The Wednesday Wrap: March 27, 2013

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.

• “Sporting Gun Stores Aim for Steady Growth with Little Contraction” by Mark Heschmeyer of CoStar.

Strong gun sales over the past few years have driven specialty retailers to expand and other retailers to devote more square footage in their stores to firearms, Heschmeyer reports.

In some cases, specialty retailers like Cabela’s, Big 5 Sporting Goods and Gander Mountain have been able to fill vacant space left by big box stores, Heschmeyer notes.

Big 5 Sporting Goods opened eight stores across the western part of the country last year, ending 2012 with 414 stores. In 2012, Gander Mountain opened eight new stores, mostly in the Southeast, bringing its total to 120 stores nationwide, Heschmeyer reports.  

Recent events have brought increased debate over gun control, but also have driven gun sales as enthusiasts react to potential stricter purchase regulations, Heschmeyer reports. These high sales have made forecasting future sales challenging, according to the retailers.

• “Mixing Bricks with Clicks” from The Economist.

Online retailers are increasingly looking to be “multichannel” by bringing their products to brick-and-mortar stores, The Economist reports.

One example is Kiddicare, an Internet-based retailer of baby products, which has expanded to physical stores because parents often like to handle the products, such as car seats, before buying them, The Economist reports.

For products that don’t need to be displayed in a showroom, online retailers have the advantage. They get to forego the costs of a physical store, but often spend more in advertising to have their digital storefront seen, The Economist notes.

Online retailers are now aiming for the benefits of physical stores without all of the added costs, experimenting with small-concept stores and pop-up shops, The Economist reports.

• “Study Finds Mixed-Use Areas Safer Than Commercial Only” by Emily Badger of Urban Land.

Mixed-use communities have lower crime rates than commercial-only areas, according to a new study published in the University of Pennsylvania Law Review.

Commercial-only areas had crime rates 45 percent higher than similar blocks that included residences, according to the report.

Some say this is because people take more ownership over an area where they both work and live over an area where they would only go to work or shop, Badger reports.

Others say mixed-use communities offer more “eyes on the street” because they have traffic at more times throughout the day, Badger notes. 

• “Micro-Apartments in the Big City: A Trend Builds” by Venessa Wong of Bloomberg Businessweek.

A growing number of single-person households has urban planners experimenting with micro-apartments in North American cities, Wong reports.

Single-person households made up 26.7 percent of the U.S. total in 2010 versus 17.6 percent in 1970, according to Census Bureau data.

Some areas, like San Francisco and Boston, are waiving zoning regulations to allow for smaller apartments, Wong reports. 

“In the foreseeable future, this trend will continue,” Avi Friedman, a professor at McGill University’s School of Architecture, told Bloomberg, noting that more people are opting to live alone and North Americans are learning to live with less space.

• “Net Zero Energy: Making Green Look Passe” by Robert Carr of the National Real Estate Investor.

Buildings that not only reduce energy consumption but also produce enough to offset that consumption, termed “net-zero buildings,” are gaining traction, Carr reports.  

These buildings maximize green features such as natural lighting and efficient HVAC systems while also usually incorporating one or more energy generators like solar panels or fuel cells, Carr reports.

Firms experimenting with net-zero buildings are often choosing warmer climates because there won’t be spikes of energy use that are seen in colder areas. California has been the choice of firms like Hines and HGA Architects and Engineers for their net-zero sites, Carr reports.

The Wednesday Wrap: March 20, 2013

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.

• “Investors Wary of Power Centers, Recommend Hold on All Retail Assets” by Retail Traffic.

Institutional investors are skittish about buying power centers, probably because of the associated lease-up risks, according to the Winter 2013 report from the Real Estate Research Corp. (RERC).

Investors surveyed in fourth-quarter 2012 required average pre-tax yields of 7.3 percent to 9.5 percent for power center properties, while required yields for all retail properties averaged 8 percent. The average going-in cap rate for all retail assets was 6.7 percent, according to the report.

The majority of surveyed investors also recommended holding retail properties rather than selling them, according to the report.

• “Retailers Diverting More Real Estate Dollars to IT” by Mark Heschmeyer of CoStar.

The days of rapid expansion for many retailers are now over, and the money once used for real estate is being diverted to other aspects of business, like technology, Heschmeyer reports. 

One example is Kohl’s, which recently announced that it has opened nine new stores and plans to open just three more this year, down from last year when it opened 20 new stores, 2011 when it opened 39, and 2007 when it opened 112, Heschmeyer reports.

Kohl’s is cutting the money it spends on real estate, and that money is going to technology, including IT resources and the company’s e-commerce business, according to Wesley S. McDonald, Kohl’s CFO.

Big Lots said in its earnings conference call last month that is plans to divert some real estate capital to test initiatives that could provide better return.

“We’ve consistently said that we would not just open new stores to hit a number,” said Charles W. Haubiel, chief administrative officer and executive vice president of Big Lots. 

• “Capital Area’s Apartment Boom Could Fizzle” by Dawn Wotapka and Robbie Whelan of The Wall Street Journal.

The Washington D.C. area has long been seen as recession-proof due to its high number of federal employees that retain jobs whether the economy is good or bad. That reputation had multifamily developers flocking to the area during the recession, but now they could be overbuilding, Wotapka and Whelan report.

Developers are expected to deliver 15,000 new apartments this year, with 11,000 expected in 2014. This compares to the 6,000 unites delivered each year on average over the past decade, according to Delta Associates.

Some are concerned the sequester could impact the number of units sold in the area as federal employees lose their jobs due to budget cuts, Wotapka and Whelan report.

“At some point there [are] simply not enough warm bodies to fill all the units that they’re building,” Anirban Basu, chief executive of economic consultancy at Sage Policy Group, told The Wall Street Journal.

• “What Are the Real Estate Implications of T-Mobile/MetroPCS’s Merger?” by Randyl Drummer of CoStar. 

The Federal Communications Commission (FCC) last week approved the merger between T-Mobile and Metro PCS, which creates the fourth-largest wireless company, and concerns already have arisen over the commercial real estate implications, Drummer reports.

T-Mobile and MetroPCS say the proposed transaction could result in savings of approximately $5 billion to $6 billion. Savings would come from merging the networks into one, decommissioning overlapping cell sites and eliminating of overlapping functions, Drummer notes.

Some worry that this could mean store closings and job cuts. But the two companies have pledged that they have no plans to close domestic call centers or retail stores, and plan to increase their number of overall workers in the United States, according to FCC Commissioner Jessica Rosenworcel.

• “J.C. Penney Advances as ISI Recommends REIT-Like Entity” by Lauren Coleman-Lochner of Bloomberg. 

Per the suggestion of an analyst at ISI Corp., J.C. Penney is considering turning its top 300 stores into a real estate investment trust-like entity that would sublet space to other brands, Coleman-Lochner reports.

“JCP’s most valuable asset is its low-cost real estate, and we believe there are many premium brands that would potentially be interest in subleasing space within the best location,” the analyst, Omar Saad, wrote in a note this week.

The suggestion comes after J.C. Penney’s annual sales dropped by a whopping 25 percent to $13 billion in 2012, its lowest in at least 25 years, Coleman-Lochner notes.

However, J.C. Penney has agreements with landlords that would largely prevent subleasing, which would make the plan challenging to execute, Liz Dunn, an analyst with Macquarie Group, told Bloomberg.

The Wednesday Wrap: March 13, 2013

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.

• “Report: Apartments worth $2.9B to Atlanta economy” by Jacques Couret of The Atlanta Business Chronicle.

Apartment construction and operations contributed $2.9 billion to the Atlanta economy and supported 26,400 local jobs in 2011, according to a new report by the National Multi Housing Council and the National Apartment Association. 

Metro Atlanta has roughly 383,800 apartments housing about 761,300 people, Couret reports.

The report also noted that building permits for apartments fell 82 percent from 2007 to 2011. According to the report, new apartment construction has accelerated lately, but is insufficient to meet current demand. 

• “Survey: U.S. Expansion Is Key Growth Strategy for Retailers in 2013” by Marianne Wilson of Chain Store Age.

Expansion within the United States remains a key growth strategy for retailers, according to a new report from BDO USA, which surveyed 100 retail chief financial officers. 

Thirty percent of the executives said U.S. expansion will be their top growth tactic in 2013, while 24 percent said improving merchandise assortment is their priority, and 22 percent responded that they will focus on e-commerce and mobile commerce, according to the survey.

“The opportunities abroad and online are clear, but retail executives still believe that U.S. stores are a core part of the business,” Ted Vaughan, partner in the retail and consumer products practice as BDO USA, told Chain Store Age.

• “Boston Booms as Workers Say No to Suburbs” by Nadja Brandt of Bloomberg.

In one of the biggest neighborhood transformations in Boston history, commercial development is booming along the South Boston waterfront, Brandt reports.

A growing workforce of educated young adults has fueled the boom in Boston, where the office vacancy rate is among the lowest of the major markets in the United States, Brandt notes.

Construction spending in Boston increased an estimated 37 percent in the year that ended June 30, the most since 2008, according to the mayor’s office. 

As home to 50 universities and colleges, including Harvard University and the Massachusetts Institute of Technology, Boston’s thriving technology and life sciences industries are expected to further facilitate the growth of commercial development in the city, Brandt reports.  

• “Construction That Focuses on Health of Residents” by Joe Gose of The New York Times.

Doctors, social agencies and community groups are arguing that land-use planning can improve the public’s health, and developers are starting to test the theory, Gose reports.

For instance, the housing authority in Denver used a new tool known as a health impact assessment to help encourage physical activity and environmental sustainability while drafting the plans for the redevelopment of a 17-acre site near downtown, Gose notes.

The development will feature geothermal and solar power technologies, centrally located and well-lit elevators, and neighborhood gardens for growing healthy foods, Gose reports.

A typical health impact assessment comprises six steps to identify a project’s potential health impacts and ways to mitigate them, Gose notes.

• “Al Jazeera in Site Hunt” by Keach Hagey and Eliot Brown of The Wall Street Journal.

News network Al Jazeera is looking for a space for its New York headquarters, where it plans to launch a U.S. cable channel, Hagey and Brown report. 

Al Jazeera has taken a look at the former New York Times building and is reportedly working with CBRE Group, the reporters note.

The office space the network considered incorporates the top 11 floors of the former New York Times building, which is owned by the Blackstone Group, Hagey and Brown report.  

The Wednesday Wrap: March 6, 2013

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.

• “Multifamily Development Projected to Reach Four-Year High” by Carisa Chappell of REIT.com.

Analysts are projecting that 2013 will bring the largest wave of new apartment supply in several years, Chappell reports.

This year will be the first since 2009 that the number of new apartment units added will be at a historic-average level, according to estimates from CoStar. CoStar is projecting 140,000 units will be delivered in 2013.

Some markets could see higher vacancy rates as they become saturated with new units, Chappell reports.

Rent growth remains moderate in some areas as income growth is slow and renters are finding housing more affordable, Chappell notes.

• “More Employers Choosing ‘Open’ Offices” by Victor Epstein via USA Today.

Some of the nation’s largest employers are spending billions to transform workplaces into “open offices,” Epstein reports.

Use of open-office design — a style that ditches traditional corner offices and cubicles for collaborative workspaces — is growing at a double-digit pace, experts say. 

Open offices leverage today’s cordless technology for communal workspaces. Cubicle walls are lowered, and private offices are relocated away from windows, Epstein reports.

The green-building movement also has played a role in the new designs as natural light is utilized more, Epstein notes.

“It’s about building the environment that we need to attract and retain today’s knowledge workers,” said Ralph Eucher, who is spearheading the renovation of Principal Financial Group’s offices in Iowa.

• “Rental, For-Sale Markets Buck Odds, Rise Together” by Bendix Anderson for National Real Estate Investor.

Traditionally, apartments and for-sale housing markets directly compete with each other, but today rental demand and housing sales are rising at the same time, according to Walter Maloney of the National Association of Realtors.

During the past few years, growth in the number of households lagged as many adults were living in shared dwellings. But now more people are deciding to live alone, formulating new households and creating demand for both rentals and for-sale housing, Anderson notes.

Because housing inventory has been low for so long, both rental units and for-sale houses are in short supply, Anderson reports. 

• “Regional Mall REITs Face Limited Growth Opportunities in 2013” by Elaine Misonzhnik of Retail Traffic.

Conditions in the regional mall REIT sector will remain about the same in 2013, with few opportunities for acquisitions or development of new properties, according to sector analysts.

The good news is that occupancies and tenant sales should remain strong and rents are expected to rise, Misonzhnik reports. At the end of the fourth quarter, the national vacancy rate for regional malls was only 8.6 percent, according to Reis, while asking rents only rose 1 percent in 2012.

This means regional mall REITs should be able to raise rents as more retailers expand, according to investor Todd Sullivan.

Some regional malls may be able to grow this year through redevelopment and expansion of existing centers, Rich Moore, a REIT analyst with RBC Markets, told Misonzhnik.

• VIDEO: “REIT Investors More Confident in Health Care, Mortgage Sectors in February” by REIT.com.

In this clip, REIT.com’s Carisa Chappell sits down with Brad Case, NAREIT’s senior vice president for research and industry information, to examine the REIT market.

Case discusses REIT performance during February, the increased investor confidence in the healthcare and mortgage sectors, and concern over the influence of federal budget cuts on the REIT market.

The Wednesday Wrap: Feb. 27, 2013

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.

• “Commercial Real Estate Forecast Shows Lower Vacancies, Higher Rents” by Carisa Chappell of REIT.com.

Vacancy rates are trending downward in each of the commercial real estate sectors, according to the quarterly commercial real estate forecast from the National Association of Realtors (NAR).

NAR is projecting positive net absorption and rent growth in 2013 for the office, industrial, retail and multifamily markets, according to NAR's chief economist Lawrence Yun. 

“Overall commercial real estate leasing activity continued to grow in most markets during the closing months of 2012, which is modestly lowering vacancy rates in all of the commercial sectors early this year,” Yun told REIT.com.

• “Office Supplies Merger Likely to Present Challenge to Landlords” by Elaine Misonzhnik of Retail Traffic.

Amid struggling times for office-supply retailers, OfficeMax and Office Depot announced a plan last week to merge the two companies. But market observers are speculating the merger will cause problems for landlords. 

Office Depot estimates that the merger will result in anywhere from $400 million to $600 million in annual cost synergies by the third year, according to a press release. A significant portion of those dollars is likely to come from store closings, according to Morningstar analyst Liang Feng. At least 100 or 200 stores will be closed over the next few years, Feng estimates.

The large spaces left vacant by the closings could be problematic for landlords, as most big-box retailers have been downsizing lately, Lew Kornberg of Jones Lang LaSalle told Misonzhnik.

• “Big Real-Estate Firms Are Going to School” by Dawn Wotapka of The Wall Street Journal.

Some of the biggest names in real estate — from Lennar Corp. to Brandywine Realty Trust — are investing in housing for college students, Wotapka reports.

Real-estate firms are looking to diversify into areas considered less sensitive to economic downturns, Wotapka notes. During the recession, single-family homes declined, and apartment landlords were forced to reduce rent, while student-housing landlords were able to raise rent.

As newcomers come in to the sector, established players are buying up properties rapidly in order to remain competitive, Wotapka reports. 

Analysts are concerned that new investors are unaware of the hidden risks and costs in student housing, which requires more maintenance and management oversight than typical apartments do, Wotapka notes.

• “Self Storage Gains Cachet as Values Rise” by A.D. Pruitt of The Wall Street Journal.

Self-storage facilities are the subject of increased investor interest, Pruitt reports.

Just 10 months ago, cap rates on storage space were near 7 percent, generally several percentage points higher than cap rates on most other types of commercial real estate, according to Green Street Advisors.

But recent activity by Acadia Realty Trust, which sold 14 self-storage properties for about $300 million and a cap rate of 5.5 percent, showed that self-storage cap rates are now quite competitive, Pruitt notes.

Although pinched during the recession, self-storage now has record-high occupancy rates around 90 percent. Landlords have raised rents about 5 percent on existing tenants over the past couple of years, according to Pruitt.

• “Home Prices in 20 U.S. Cities Increase by Most Since 2006” by Michelle Jamrisko of Bloomberg.

The S&P/Case-Shiller index of property values, which measures home values in 20 U.S. cities, increased 6.8 percent in December on a year-over-year basis, the biggest such gain since July 2006. Nineteen of 20 cities in the index showed gains in property values.

Atlanta and Detroit saw their biggest year-over-year gains since 1991, Jamrisko reports. Las Vegas and Los Angeles had the biggest month-over-month gains.

Only New York saw houses losing value, dropping 0.5 percent last year.

The Wednesday Wrap: Feb. 20, 2013

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.

• “Boom in Student Housing Construction Stokes Concerns of Oversupply” by Randyl Drummer of CoStar.

A large volume of student-housing projects have been announced recently during a time of lower-than-expected college enrollment numbers, slowed pre-leasing and rising tuition costs, raising concerns over whether demand will meet supply, Drummer reports.

However, developers say pent-up demographics will drive demand for dorms and off-campus housing in the coming years, according to Drummer.

More than three-quarters of the 13.5 million students now enrolled in four-year undergraduate programs at large public institutions live off-campus, which creates a supply gap of about 1.5 to 2.2 million beds, said consultant Michael Gallis during a Campus Crest Communities presentation.

However, investors and analysts are concerned about the overwhelming amount of supply ready to hit the market between now and 2015. “We’re very concerned in general about student housing,” said Hans Nordby of CoStar’s Property and Portfolio Research. “[T]he amount of student housing supply in this country right now is almost shocking.”

• “CRE Can Help Solve Climate Change” by Rayna Katz of Globe Street. 

During last week’s State of the Union address, President Obama issued a call-to-action to cut energy consumption in homes and businesses in half over the next 20 years, and New York City’s commercial real estate industry could help significantly in this effort, according to a new study by the Urban Green Council.

As the country’s largest city, New York City could feasibly cut its carbon emissions 90 percent by 2050, the study says.  

Technologies like improved insulation, heat pumps and transportation electrification could help reduce carbon pollution from New York City’s buildings and transportation, which together make up 96 percent of the city’s greenhouse gas emissions, according to the report.

• “Houston, Energy Sector’s Peak Nowhere in Sight” by Robert Carr of National Real Estate Investor.

More than half of the top performing office markets in the United States today are primarily technology- or energy-driven, as the country takes steps toward independence from foreign energy sources, Carr reports.

Houston is leading the pack, enjoying an unemployment rate at less than 6 percent. The city’s 195 million square feet of office space only make up 4 percent of the U.S. total, yet Houston accounted for almost 13 percent of the country’s total office absorption in the past year, according to a fourth-quarter report from Jones Lang LaSalle.

Houston is expected to remain the U.S. energy capital for 2013 and beyond. More than 50 percent of the 4.2 million square feet of office space now under construction has been pre-leased, Carr reports.

“Developers just can’t keep up with demand in Houston,” said Rudy Hubbard of JLL. “[T]here’s far more demand for people to own office buildings than supply.”

• “Bill Proposed to Require Online Retailers to Collect Sales Tax” by Allen Kenney of REIT.com.

A bill introduced in the House of Representatives last week is aimed at requiring online retailers to collect sales taxes on purchases, Kenney reports.

The Marketplace Fairness Act would help level the playing field between online retailers and brick-and-mortar stores, supporters say. States lost an estimate $23.3 billion in uncollected sales taxes last year, according to the National Conference of State Legislatures.

The bill has garnered support from industry organizations such as NAREIT and even some online retailers, like Amazon, Kenney reports.

• “New Hubs Arise to Serve ‘Just in Case’ Distribution” by Matt Hudgins of The New York Times.

Retailers and logistics companies have altered their supply chains by adding more distribution hubs, creating real estate opportunities in markets beyond traditional seaport hubs, according to CoStar.

The changes come as Hurricane Sandy and other unexpected events have prompted companies to alter just-in-time management to what is called “just-in-case” management.

Just-in-case is a response to the vulnerability of just-in-time supply chains, said Rene Circ of CoStar. Just-in-case planning keeps merchandise available should the supply chain by disrupted by an unforeseen event, such as when ports in New Jersey and New York were affected by Hurricane Sandy.

Companies are looking for a balance between “carrying the minimum inventory possible, yet never running out of things, because inventory equals cost,” Circ told The New York Times.

Retailers looking for competitive edge are now offering fast shipping from nearby distribution centers, Hudgins reports.

The Wednesday Wrap: Feb. 13, 2013

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

• “CMBS Deliquencies Reach 11-Month Low” by Carisa Chappell of REIT.

CMBS delinquencies fell in January to their lowest level in 11 months, according to data from Trepp LLC.

The delinquency rate dropped 14 basis points in January to 9.57 percent, the lowest level since February 2012, when the rate was 9.38 percent. Delinquencies hit an all-time high in July 2012 at 10.36 percent. 

Resolutions had a slight uptick in January, as more than $1.2 billion in loans were resolved with losses; this helped drive the delinquency rate down, according to Manus Clancy of Trepp.

• “Commercial Properties Lead the Charge for EV Stations” by Jennifer V. Hughes of National Real Estate Investor.

Landlords are installing electric vehicle (EV) charging stations at office, retail, hotel and other commercial properties in order to gain a competitive edge and attracts tenants and customers, Hughes reports.

Data shows that EV drivers return to a retail location once a month, while traditional drivers might return once a quarter, and the EV driver also stays twice as long, according to Brian Koontz of ECOtality Inc., the company that manages the Department of Energy’s EV Project initiative to expand EV infrastructure nationwide.

“REITs are always looking at how they can get a competitive edge, how they can strengthen their sustainability, how they can attract key tenants and how they can make their property more attractive to customers,” Koontz told Hughes. “This is one way to do that.”

• “A Hotel-Condo Revival” by Kris Hudson of The Wall Street Journal.

Although they were hit hard during the economic downturn, developments that combine luxury hotels and condominiums have started again, Hudson reports.

Trying to avoid past mistakes, developers are only building in top markets and are incorporating fewer condos into each project.

One such project is Starwood Capital Group’s plan to convert the former Ganservoort Hotel in Miami into a luxury, eco-conscious hotel with 417 hotel rooms and 163 for-sale condos. Starwood Capital and its partners intend to spend more than $1 billion on a total of four luxury hotel-condo projects in the United States.

Another example is Marriott International Inc., which has eight hotel-and-residence projects under planning and construction in the United States and the Caribbean.

• “Are JCPenney Store Closings on the Horizon?” by Elaine Misonzhnik of Retail Traffic.

It’s been more than a year since former Apple exec Ron Johnson took over as head of J.C. Penney Co., and the results so far haven’t been heartening, Misonzhnik reports. It is being reported that the company might announce a new round of layoffs at its headquarters, and analysts are wondering whether store closings will follow.

In third-quarter 2012, same-store sales declined 26.1 percent, and total sales fell 26.6 percent, according to J.C. Penney reports. Fourth-quarter results have not been released.

With 1,102 stores totaling 111.2 million square feet, the company can’t sustain itself with such limited sales, said Howard Davidowitz of the retail consulting and investment banking firm Davidowitz & Associates Inc.

• VIDEO: “Survey Shows International Investors Favor U.S. Commercial Real Estate” by Carisa Chappell of REIT.com.

In this clip, REIT.com’s Carisa Chappell sits down with Jim Fetgatter, chief executive of the Association of Foreign Investors in Real Estate (AFIRE), to discuss the findings of AFIRE’s recent annual survey. Chappell and Fetgatter hit on topics including international investor sentiment about the United States, other markets of interest around the globe and the popularity of the multifamily sector.

The Wednesday Wrap: Feb. 6, 2013

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.

• “Retail Investment Sales Up 20 Percent in 2012” from Retail Traffic.

Investment sales volume in the retail sector rose sharply last year, according to Real Capital Analytics (RCA).

Retail investment sales totaled $52.8 billion in 2012, up 20 percent from 2011, according to RCA. The number of transactions involving significant retail properties rose to about 4,400, also an increase of 20 percent.

New York City, Chicago and Los Angeles saw the greatest volume of retail transactions last year, Retail Traffic reports.

Indicators pointed to emerging retail markets in San Jose, Calif., which saw a 224 percent year-over-year increase in retail investment sales; Orange County, Calif., where sales were up 138 percent; and Cleveland, which saw a 112 percent increase in sales.

• “E-Commerce Plays Major Role in Industrial Sector Growth” by Robert Carr of National Real Estate Investor. 

The e-commerce boom has the industrial market emerging strong this year with declining vacancy and modest rent growth in most markets, Carr reports.

It may be causing destruction to the bricks-and-mortar retail industry, but e-commerce development helped prevent the downfall of the national industrial market, Carr says. As e-commerce continues to expand, demand for new distribution centers is rising, especially around ports and in major population centers, according to Cushman & Wakefield’s 2013-2016 Industrial Forecast Report.

The popularity of online retailer Amazon has inspired companies like Home Depot, Target and Walmart to evaluate their three-to-five-year multichannel strategies, Kris Bjorson of Jones Lang LaSalle told Carr.

These companies already have their industrial supply chains in place, but may need to alter their distribution centers to include trained workers for more automated processes, add parking to meet increased shipping demands and renovate buildings to handle single-item picking, Bjorson said.

• “Emory Point Welcomes Bevy of Phase 1 Retailers” by Josh Green of Curbed Atlanta.

Phase I of the Emory Point development, a collaboration between Atlanta-based firms Cousins Properties and Gables Residential, is now open and nearly 90 percent committed, Green reports.

Phase I opened last week with a group of tenants that includes Jos. A Bank Clothiers, LOFT by Ann Taylor, American Threads, Marlow’s Tavern, Tin Lizzy’s, Bonefish Grill and CVS Pharmacy.

Developers plan to break ground this summer on Phase II, which will include an additional 40,000 square feet of residential and retail space, according to a release by Cousins Properties.

• “Looking for a New F.B.I. Headquarters, the Government Proposes a Trade” by Eugene L. Meyer of The New York Times.

The F.B.I. is ready to relocate from its headquarters in the Hoover building on Pennsylvania Avenue in Washington, D.C., hoping to swap the building for a new headquarters in the suburbs, Meyer reports.

The F.B.I.’s current location sports outdated architecture that would be too costly for the government to demolish and rebuild, but its prime location is attracting plenty of interest, Meyer notes.

The General Services Administration (G.S.A.) is hoping to find a developer to take over the building and in exchange provide a new F.B.I. headquarters in the Washington suburbs. The G.S.A. held an “industry day” last month to discuss the new building, which 450 interested developers, architects, brokers and consultants attended, the largest for any such offering in memory, according to officials.

The F.B.I.’s search for a new headquarters comes as the government looks to dispose of unused or underused properties and is looking for buildings that will cost less to maintain, Meyer reports.

• VIDEO: “Questions Remain About Office Vacancy” by Ian Ritter of Globe St.

The Winter/Spring Allen Matkins UCLA Anderson Forecast, discussed in this video, shows there is still concern in the commercial real estate industry about future office vacancy rates as new product comes to the market.

The Wednesday Wrap: Jan. 30, 2013

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.

• “Retail Leasing Fundamentals Improving at a Glacial Pace” by Elaine Misonzhnik of Retail Traffic.

Retail sector fundamentals showed only slight improvement in the fourth quarter of 2012, and researchers warn that the sector could continue to struggle with the broader U.S. economy showing slow improvement, Misonzhnik reports.

The vacancy rate for neighborhood and community shopping centers averaged 10.7 percent in the fourth quarter, a decrease of 30 basis points from the fourth quarter of 2011, according to Reis. Asking rents only showed a 0.5 percent increase year-over-year, to $19.08 per square foot.

Regional malls saw a 60-basis-point decline in average vacancy rate, to 8.6 percent. Asking rents in those malls rose 1 percent during 2012, to $39.31 per square foot.

• “Retail into Seniors Housing: A Natural Progression” by Robert Carr for National Real Estate Investor.

City officials and developers nationwide are looking at replacing underperforming retail properties with seniors housing, after the latter entered 2013 as one of the top sectors in terms of demand and investment, Carr reports.

The seniors housing occupancy rate has risen consistently for the past 11 quarters, reaching 89.1 percent in the fourth quarter, according to a report from the National Investment Center for the Seniors Housing & Care Industry. As Baby Boomers age, the demand for seniors housing will continue to grow, Carr notes.

“Every community has a dead big box or vacant strip mall that’s often a prime site for seniors housing,” said Georgia Tech professor and redevelopment expert Ellen Dunham-Jones. “This matches the demand, as the seniors are still there in the community, and they don’t want to leave.”

• “A Third of Barnes & Noble Stores May Close in Next Decade, Report Says” by Tiffany Hsu of The Los Angeles Times.

Barnes & Noble, which now has 689 physical stores, will end up with 450 to 500 stores in 10 years, according to Mitchell Klipper, chief executive of Barnes & Noble’s retail group.

As reading habits change and digital publications evolve, the growth rate for Barnes & Noble stores has shriveled, with the company opening only two stores this fiscal year, Hsu reports. 

• “Las Vegas Area Leads U.S. in Home-Construction Gains” by Prashant Gopal of Bloomberg. 

Las Vegas had the biggest increase housing starts in the fourth quarter, despite being one of the hardest-hit cities during the real estate crash.

Construction of single-family homes rose 96 percent in the Las Vegas area, 92 percent in Naples, Fla., and 91 percent in Atlanta, according to a report from Metrostudy. The average U.S. city experienced a 47 percent increase.

Demand is starting to pick up as mortgage rates near record lows and employment improves, Gopal notes.

“The Las Vegas market is coming back, but the percentage gains look astronomical because of low numbers we’ve been seeing up to now,” said Brad Hunter, chief economist of Metrostudy, to Gopal.

• “Some Assembly Required: FCRC Builds Modular Apartment Tower” by Bendix Anderson for National Real Estate Investor.

A residential high-rise tower slated for the Atlantic Yards development in Brooklyn, N.Y., will be largely built in a factory, Anderson reports.

The foundation and steel framing of the tower will be built onsite, but the interiors of the apartments will be constructed at a factory. The factory-assembled modules will include sets of rooms that will be lifted into place by cranes to be attached to the building’s steel frame.

“This will be the tallest building in the world using modular technology,” Bruce Ratner, chairman and CEO of FCRC, told Anderson.

The Wednesday Wrap: Jan. 23, 2013

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.

• “Hotel Buyers To Play Catch Up with Rest of CRE Investment Market in 2013” by Mark Heschmeyer of CoStar.

The hotel segment was the only sector of commercial real estate that did not see a year-over-year increase in sales transactions in 2012, according to new CoStar research.

According to CoStar, the hospitality sector experienced a 16 percent decline in sales from 2011, from $21.7 million to $18.1 billion.

However, it seems buyer groups are showing a renewed interest in acquiring lodging assets, according to Jones Lang LaSalle (JLL). “Inadvertent hotel owners, like banks and receivers, will continue to drive a significant share of hotel product to market,” Mark Wynne-Smith of JLL’s Hotels & Hospitality Group told Heschmeyer. 

• “CoStar Sounds Early Warning On Multifamily Development” by Bendix Anderson for National Real Estate Investor.

Real estate analysts at the CoStar Group say the current rate of multifamily development could eventually lead to an oversaturation of the market, with too much new development coming on line at the same time and driving up vacancy rates.

Apartments currently under construction make up 1.4 percent of the total apartment inventory in the top 54 markets, a much higher percentage than is found in other property segments, according to CoStar research.

It’s uncertain whether apartment construction is “oddly high” or whether the volume of construction in other sectors is ”oddly low,” Anderson notes. With fears that the next wave of development could be too much, CoStar is recommending that developers make sure not to overbuild in certain markets.

• “Amazon Drives Seattle Office Market Surge” by Kristina Shevory of The New York Times

Amazon’s recent activity in the Seattle office market has triggered rent increases and a drop in vacancies in the city, Shevory reports.

Last year, Amazon bought 1.8 million square feet in Seattle for its headquarters, the biggest office purchase nationwide in 2012. The online retailer already leases or owns 2.7 million square feet in Seattle, and plans to more than double that number with the construction of three of its own office towers this year, Shevory reports.

Amazon’s expansion has led to increased activity in Seattle’s office market, with technology companies leading the way; the vacancy rate was 10.7 percent at the end of 2012, down from 12.4 percent in fourth-quarter 2011, according to commercial real estate brokerage Kidder Matthews.

“We’re seeing a lot of companies that want to be closer to Amazon and that synergy,” Jesse Ottele of CBRE in Seattle told Shevory. 

• “Walmart Adds Non-Walmart Retail Space to Midtown Miami Project” by Oscar Pedro Musibay of South Florida Business Journal.

Walmart will lease space in its new 180,000-square-foot store in Midtown Miami to other retailers, Musibay reports

Walmart will use 16,000 square feet of space on one side of the building to incorporate small restaurants and shops. The national retailer is hoping the move will address opposition form local business people concerned that the big-box store will hurt small businesses in the area, according to Musibay.

• “DC Hotels Post Inaugural Bump” by Erika Morphy of Globe St.

Washington D.C.’s hotel industry got a bump this week, as an estimated 600,000 to 800,000 visitors flooded the city for Monday’s presidential inauguration.

“There is no doubt that the DC market outperforms in presidential inauguration years, and we expect that 2013 will be no different, although not as robust as President Obama’s first inauguration,” Robert Webster of Jones Lang LaSalle’s Hotels & Hospitality Group told Morphy.

Webster said that the Washington D.C. hotel market experiences RevPAR growth premiums that are 4.7 percentage points higher that the national average on inauguration years. 

The Wednesday Wrap: Jan. 16, 2013

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.

• “Tech and Energy Gains Lead Slow Office Recovery” by Robert Carr of National Real Estate Investor.

Except for in cities that are energy and technology hubs, growth in the office market will be slow in 2013, according to experts from companies such as Jones Lang LaSalle (JLL) and Cushman & Wakefield.

Cities like Houston, Dallas, Denver and San Francisco are showing high levels of office activity, according to John Sikaitis of JLL, who told Carr that California and Texas alone accounted for 60.3 percent of the country’s total net absorption last year.

However, the sluggish economic recovery is holding back the office market elsewhere, with only about 53 percent of the total jobs lost during the recession having been recovered, according to Cushman economist Ken McCarthy.  

But, “if you’re a tech city or energy city, you’re now exceeding the peak,” he said.

• “Barnes & Noble Store Closings Likely as Chain Faces Uphill Battle with Digital Competitors” by Elaine Misonzhnik of Retail Traffic.

After disappointing holiday numbers, Barnes & Noble may face store closures as it tries to compete with digital retailers like Apple and Amazon.com, Misonzhnik reports.

The book retailer reported that for the nine-week period ending Dec. 29, same-store sales fell 8.2 percent, and even online sales decreased 12.6 percent year-over-year.

Barnes & Noble, trying to survive in an industry that has fundamentally changed since the bookseller began operations, will need to start downsizing in the coming months, according to retail consultants Howard Davidowitz and Jeff Green.

Downsizing is likely to take place in the form of store closings rather than reduced store sizes, since bookstores rely on experiential shopping, consultant Steven J. Montgomery told Misonzhnik.

• “Retail Centers See Modest Growth” by Kris Hudson of The Wall Street Journal.

Despite slight growth for malls and strip centers in the fourth quarter, experts still say 2013 should be a stagnant period for retail landlords, Hudson reports.

In the fourth quarter, the average vacancy rate at malls declined to 8.6 percent, down one-tenth of a percentage point from the previous quarter, according to data from Reis. At strip centers, the average vacancy declined 10.7 percent in the fourth quarter, done from 10.8 percent in the third quarter.

After disappointing holiday retail sales, retail landlords and analysts are expecting little improvement, Hudson notes.

“If we couldn’t muster good sales during the holiday season, that doesn’t say much good about sales going forward and how that will translate into demand” for store space, Ryan Severino, a senior economist at Reis, told Hudson.

• “RADCO Acquisitions Illustrate Growing Popularity of Turnaround Deals” by Bendix Anderson for National Real Estate Investor.

RADCO Cos., an Atlanta-based real estate company focused on buying troubled real estate and then reviving them, spent the last two weeks of 2012 growing its apartment portfolio by nearly 1,000 apartments, or about 50 percent, Anderson reports. 

RADCO’s deals mirror a national trend: apartment investors bought more than $9 billion of properties for renovation and redevelopment last year, up from $7 billion in 2011 and $3 billion in 2010, according to Real Capital Analytics.

“There is a liquidity in multifamily, and the fundamentals make value-add multifamily the perfect fit for us today,” said RADCO President and CEO Norman Radow.

• “Nation’s smallest Walmart to open in Atlanta” by Shannon Mullen of Marketplace.

After spending the past few years working on smaller-store concepts, Walmart is getting ready to open its smallest store in the country on the Georgia Tech campus in Atlanta, Mullen reports.

The store will be 2,500 square feet and will feature a pharmacy, check-cashing services and a small selection of groceries.

Walmart came to Georgia Tech a year ago with the idea for an on-campus store, much like the one already open at the University of Arkansas, Mullen notes.

“The 2,500-square-foot space is the only space we have available,” said Rich Steele, head of auxiliary services at Georgia Tech.

The Wednesday Wrap: Jan. 2, 2013

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

• “Malls Get Facelift to Pull In Shoppers” by Kris Hudson of The Wall Street Journal.

The era of new-mall development is over, at least for a while, as many mall owners are now looking to renovations to help malls compete with online shopping, Hudson writes.

Renovations can offer higher returns on investment than new developments, Hudson notes. One example is Twelve Oaks Mall in Novi, Mich., where owner Taubman Centers says it got a 10 percent return on a $63 million project that added a new wing to the mall.

In their renovations, mall owners are concentrating on movie theaters, restaurants and similar sites to lure shoppers away from their computers, according to Hudson.

Owners are only choosing top-performing malls to upgrade in order to get the highest returns, Hudson notes. Simon Property Group is planning to redevelop 25 percent of its top malls, 10 percent of its mid-class malls and none of its lowest-performing malls, according to real estate research firm Green Street Advisors.

• “Strong Investment in Affordable Housing” by Bendix Anderson for National Real Estate Investor.

Affordable housing properties have maintained high occupancies and strong operating income during the financial crisis, according to a new report from accounting firm CohnReznick. This is in part because affordable housing is in short supply, the report says.

“When it comes to affordable rental housing, this report confirms that we have a critical shortage not only in our major cities, but across the entire country,” according to Fred Copeman of CohnReznick. 

Poor economic conditions have helped keep affordable housing projects occupied, according to the report.

Of the 17,118 properties covered in the report, only 9.5 percent were considered underperforming in 2010, meaning they had occupancy rates below 90 percent or had low debt-service coverage ratios. This compares to the 12.6 percent that were considered underperforming in 2009.

• “Survey Finds CRE Investors Refocusing on Strategy as Fog of Uncertainty Begins to Lift” by Randyl Drummer of CoStar.

As uncertainty eases after the 2012 election, investors are refocusing on opportunities in commercial real estate, according to the fourth-quarter 2012 PricewaterhouseCoopers Real Estate Investor Survey.

Survey respondents expect cap rates to continue to compress in the multifamily sector and begin compressing across all property types, leading to an increase in sales activity in 2013.

Many real estate firms were wary of investment during the time before the U.S. presidential election, but survey respondents seem more optimistic going into the New Year, Drummer reports.

“We’re starting to see good news eclipse the bad news, and that makes us want to invest more capital in CRE assets,” one respondent said.

Still, CRE recovery remains uneven and limited to only certain locations and sectors, Drummer noted.

• “High-Tech and Seniors: No Longer Opposites” by Robert Carr of National Real Estate Investor.

Many in seniors housing are realizing that incorporating new technologies into properties can make them more attractive to potential tenants, Carr reports. 

Michael Schonbrun, founder and CEO of Balfour Senior Living, has found his residents are very interested in using iPads for reading in large print and large-screen televisions set up to use Skype to connect with distant family members.

Seniors housing facilities are also looking at using more monitoring devices to track at-risk individuals as well as sensors than can help detect undiagnosed health problems, Carr reports.

It also seems seniors are getting more comfortable with the idea of using robots to aid in everyday tasks, according to a recent study by Georgia Tech’s Human Factors and Aging Laboratory.

The Wednesday Wrap: Dec. 19, 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.

• “The Rising Cost of Prescription Real Estate” by Mark Heschmeyer of CoStar.

Drugstores continue to be sold at record-high prices, Heschmeyer reports. 

Walgreens stores are particularly popular with investors right now, showing a significant increase in per-square-foot sale prices since late last year, according to CoStar data. Walgreens were going for an average of $374 per square foot in the fourth quarter of 2011, and now are selling for $419 per square foot, Heschmeyer reports. That’s a 12 percent increase.

CVS is also seeing a 12 percent increase in per-square-foot sales prices over the same timeframe. Rite Aid stores are experiencing a 7 percent increase. 

• “Skyscraper? Value of New York Tower is High” by Craig Karmin of The Wall Street Journal.

TIAA-CREF, one of the largest pension fund managers in the United States, has agreed to pay about $250 million to developer Forest City Ratner Cos. for a stake in a Manhattan apartment building currently valued at a record $1 billion. 

The 850-foot-tall tower at 8 Spruce St. in lower Manhattan features penthouse apartments with asking rents of up to $60,000 a month. TIAA-CRE’s stake will cover 49 percent of the building’s equity, according to Karmin.

Even though momentum in the apartment sector is slowing, investor demand remains strong for high-end apartment buildings, Karmin notes.

• “Will Shipping Containers Catch On as Building Products?” by Anna Spiewak of Commercial Property Executive.

As the construction industry is becoming “greener,” shipping containers are now being looked at in a new way: as building material for residential and commercial properties, according to Spiewak.

Shipping containers are strong structurally, said engineer Patrick Beville, who has built six homes out of the containers. Containers also tend to produce small homes that are faster to build, more sustainable and cheaper, Spiewak notes.

Worldwide, shipping containers are being used more frequently in construction, such as in the case of an entire block of apartments in Johannesburg, South Africa. A 36-room hotel made of containers is planned in Detroit, Spiewak notes.

Public acceptance is slow as people wait to see more contemporary designs that don’t have a “trailer-home” feel, Spiewak reports. 

• “French Software Maker Arkadin Puts North American HQ in Atlanta” by Urvaksh Karkaria of the Atlanta Business Chronicle.

Paris-based Arkadin, a communications software maker, has moved its North America headquarters from New York to Atlanta, Karkaria reports.

Arkadin President Mark Alexander told Karkaria that being in the fast-growing Southeast will provide the company significant advantages for long-term growth. Atlanta provides Arkadin better coverage of the United States and better access to skilled talent, according to a company spokeswoman.

Arkadin has leased more than 10,000 square feet in the “Queen Building” located at 5 Concourse Parkway in the Central Perimeter submarket, according to Karkaria.

• “Bank CRE Lending Slows to a Crawl” by Mark Heschmeyer of CoStar.

The third quarter had banks retreating from commercial real estate lending, Heschmeyer reports.

Lending for multifamily properties was up just 1 percent, and investment property lending was up about one-quarter of a percent. Construction and development loans were down 3.3 percent in the third quarter.

Bank lending for refinancing or buying owner-occupied commercial real estate properties dropped two-tenths of a percent in the third quarter, making it the second quarter in a row that the statistic has declined, according to Heschmeyer.

Residential mortgage demand was mostly flat, whereas small-business-loan demand experienced modest growth, Heschmeyer reports.

The Wednesday Wrap: Dec. 12, 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.

• “Regulatory Break for Mixed-Use Projects” by Joe Gose of The New York Times.

 A recent Federal Housing Administration (FHA) rule change allows the federal government to issue mortgages for condos located in mixed-use buildings with commercial footprints of up to 35 percent, up from the previous limit of 25 percent. That has some developers, like those of the Ponce City Market development in Atlanta, more strongly considering condos as opposed to apartments, Gose reports.

The change is part of an overall change in FHA policy aimed at increasing the development of condominiums and mixed-use properties. The agency also recently increased the number of units that investors can own in a development and loosened up personal-liability rules that apply to the boards and officers of condominium associations.

“We’ve learned that the mixing of development makes for a better urban design, so towns and cities are designing codes to encourage it, and the market is showing interest,” John K. McIlwain of the Urban Land Institute told Gose.

• “Blackstone Takes Over 13 Hotels After Sale Process Fails” by Brian Louis of Bloomberg.

Blackstone Group LP has taken control of more than a dozen hotels from Eagle Hospitality Properties Trust Inc. after the hospitality firm was unable to find buyers for the portfolio and pay off debt held by Blackstone, Louis reports.

Monday marked the deadline for sale, but Eagle said it was unable to sell the properties at a price that would satisfy the debt, according to Louis. The portfolio includes 13 hotels, including Embassy Suites in Boston, Denver and Tampa, Fla.; and a Marriott in Cincinnati.

• “Rent Perks for Landlords: Transit-Oriented Apt. Developers Reap Occupancy, Income Premiums” by Randyl Drummer of CoStar. 

High gas prices and heavy traffic have younger workers and Baby Boomers looking toward city life, and multifamily developers are taking notice by starting more projects close to public transportation, Drummer reports.

There’s been a significant shift over the last couple of years toward projects within walking distance of rail and bus lines, and the landlords of such projects collect higher rents and enjoy higher occupancies, according to CoStar research.

Municipal planners also are focused on creating transit-oriented developments (TODs) with a mix of office, shopping and entertainment located closely together.

Forty-two percent of units under construction today are within short walking distance to trains and buses, according to CoStar’s third quarter report on the multifamily sector. 

State and local governments are becoming more interested in TODs because they believe the developments lead to more economically prosperous communities, Drummer notes. Some governments are creating incentives to encourage such growth. 

• “Miami Beach Walgreens Fetches $1,300 Per SF” by Jennifer LeClaire of Globe St.

A 22,857-square-foot Walgreens drugstore in Miami Beach just traded for $30 million ($1,312 per square foot), making it the second-highest price paid for a drug store in the United States and the highest price for a net-leased asset in Miami Beach, according to LeClaire.

The store’s prime location in Miami Beach’s Art Deco District made it especially valuable, according to Sean Shahar Ziv of Marcus & Millichap, who represented the seller.

“Miami Beach’s combination of a substantial tourism base together with a year-round dense population creates an ideal scenario for retail investment,” Anthony Blanco of The Shopping Center Group told LeClaire. 

• “Starbucks Plans Massive U.S. Expansion. Can Its Growth Plan Succeed?” by Elaine Misonzhnik of Retail Traffic.

Starbucks is planning to open at least 1,500 new units in the United States over the next five years, even after closing many locations only four years ago, Misonzhnik reports.

The chain is growing in an effort to maintain its market share as McDonald’s continues to push its coffee line, according to Jeff Green of retail real estate consulting firm Jeff Green Partners.

Over-expanding got Starbucks in trouble in the middle part of the last decade, Misonzhnik notes, and some retail analysts are concerned the new push is too aggressive.

Starbucks risks losing brand appeal if it can be found anywhere and everywhere, Doug Stephens of Retail Prophet told Misonzhnik.

The Wednesday Wrap: Dec. 5, 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.

• “Apt. Building Boom Drives Recovery in Commercial Construction” by Randyl Drummer of CoStar.

Signs point to a significant increase in commercial and residential construction in most regions of the United States, led mostly by development in the multifamily and single-family housing markets, Drummer reports.

In October, builders started construction on the most homes and apartments since July 2008, according to the Commerce Department. Apartment construction rose 10 percent in October when compared to the preceding month. Furthermore, building permit applications for single-family homes rose to their highest level in more than four years in October.

The demand for building design services also saw a boost in October, with the Architecture Billings Index reaching 52.8 (anything above 50 indicates an increase in demand).

• “Fourth Quarter Retail Investment Sales Volume Promises a Spectacular End to the Year” by Elaine Misonzhnik of Retail Traffic.

The fourth quarter is looking to be an extremely strong period for retail investment sales, and this year’s overall transaction volume should represent a significant increase over last year’s, Misonzhnik reports.

In October, there was a 10 percent year-over-year increase in the sale of significant retail properties, according to Real Capital Analytics.

“Fourth quarter is looking outstanding for this industry,” Bill Rose of Marcus & Millichap Real Estate Investment Services told Misonzhnik. “It’s a combination of things: a) the Fed has engaged in quantitative easing for quite some time now and b) real estate is proving to be the favorable investment vehicle over bonds or equities.”

• VIDEO: “Storage, Lodging REITs Enjoy Strong November” by Carisa Chappell of REIT.com.

In this video clip, Brad Case, NAREIT’s senior vice president for research and industry information, discusses the impact of the holiday season on the retail REIT market. He also explains why the self-storage and lodging sectors had strong performances in November, and why mortgage REITs have performed weakly recently. Case also touches on the looming fiscal cliff.

• “Iowa Fields Attract Google” by Maura Webber Sadovi of The Wall Street Journal.

Google Inc. has just invested an additional $200 million in a $300 million data center under construction in Council Bluffs, Iowa, bringing the company’s investment in the state to more than $1 billion since 2007, Sadovi writes.

As the needs of Internet users grow, mega data centers have proven to be a fast-growing commercial real estate niche, Sadovi notes. John Boyd of the consulting firm Boyd Co. projects global annual investments in data centers and their equipment to rise to about $200 billion in two years, as growth in smartphones, apps and streaming video will increase demand.

Government incentives, low-cost power, cheap land and relatively predictable weather make rural areas like Iowa attractive for data centers, according to Sadovi’s report. Iowa was able to entice Google with a $9.6 million package of state-tax incentives.

• “Simon, Tanger to Partner on Two New Outlet Centers” by Robert Carr of National Real Estate Investor.

Simon Property Group and Tanger Factory Outlet Centers have partnered for two new outlet centers in Charlotte, N.C., and Columbus, Ohio.

Charlotte Premium Outlets is set to open in spring of 2014, and the Columbus center, being branded as Tanger Outlets, will open in time for the 2014 holiday season, according to Carr.

Tanger will provide site development and construction supervision for Charlotte Premium Outlets, while Simon will handle management services and marketing. Those roles will be reversed for Tanger Outlets in Columbus. Both firms will provide leasing services for the two centers.

The Wednesday Wrap: Nov. 28, 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.

• “Equity Residential, AvalonBay to Acquire Archstone for $6.5 Billion” by Matt Valley of REBusiness.

Equity Residential and AvalonBay Communities Inc. have entered into an agreement with Lehman Brothers Holdings Inc. to acquire Archstone Enterprise LP for roughly $6.5 billion in cash and stock, Valley reports.

Equity Residential will acquire approximately 60 percent of the assets, and AvalonBay will acquire the remaining 40 percent. Equity Residential will get 78 properties located across the United States. AvalonBay will receive 66 apartment communities, nearly half of which are located in California.

Before the deal was announced, it was thought that Lehman Brothers Holdings would take Archstone public, Valley writes. However, Lehman is liquidating U.S. assets and ultimately decided on the quick sale.

• “Will a Rise in Homeownership Rates Hurt the Multifamily Sector?” by Bendix Anderson for National Real Estate Investor.

The bargain deals available in the for-sale housing market could soon entice renters faced with the increasingly higher costs of renting. However, as of now, many renters are too uncertain about the broader economy to make decisions on buying a home, Brady Titcomb of Jones Lang LaSalle told Anderson.

Young people who bought their first home during the housing boom were often hurt the worst when the market fell, Titcomb said, noting that Generation X homeowners suffered a 59 percent drop in net worth in the crash.

The median home price inched up in October to $178,700, according to the National Association of Home Builders, and the interest rate on the average mortgage fell to an extremely low 3.34 percent, according to Freddie Mac.

However, enticing home prices don’t make up for the fact that inventory is low, and it can be hard for would-be homeowners to qualify for a mortgage, Lawrence Yun of the National Association of Realtors told Anderson.

• “The Coffee Wars Continue” by Jennifer V. Hughes for Retail Traffic.

Starbucks, Dunkin’ Brands and McDonald’s continue to fight for control of the U.S. coffee market, and the net-lease assets and small strip centers that often house the stores are attracting big interest from real-estate investors, Hughes reports.

The latest financial statements show increases in revenue for Dunkin’ Brands and Starbucks, but McDonald’s saw a drop in third-quarter profits as the economy remains fairly weak, according to Hughes. However, all three companies are aggressively pushing to expand. Starbucks is looking to create more drive-through locations for its Seattle’s Best Coffee business and to add more Starbucks sites, while Dunkin’ plans to double its stores in the next 20 years, Hughes adds.

Regional chains like Gloria Jean’s and Peet’s Coffee and Tea are fighting an uphill battle to compete with the industry heavyweights, as developers will want to go with one of the well-known brands, Bill Rose of Marcus & Millichap told Hughes.

• “Affordable Seniors Housing Keeps Going Green” by Robert Carr of National Real Estate Investor.

Developers are finding it easier than ever to incorporate sustainability into affordable seniors housing projects, Carr reports. Costs have been cut as more eco-friendly suppliers have emerged, and the federal government is pushing for more sustainable buildings.

Affordable housing, including senior housing, is usually financed by public funds or nonprofit institutions, and those funding providers are more likely to support sustainable projects, Colin Edelstein of NorSouth Constructs told Carr. Some states even require green features before rewarding tax credits to affordable housing.

Because the rents are relatively low, developers of affordable seniors housing often look for moderately priced environmental features – such as high-efficiency heating and cooling systems – instead of costlier items like solar panels, according to Laura Weyrauch of Pathway Senior Living LLC.

• “VIDEO: Industrial Sector Climbing Back Up” by Carisa Chappell of REIT.com.

In this clip, Hamid Moghadam, chairman and co-CEO of Prologis, sits down during NAREIT’s REITWorld 2012 to discuss the drivers in the industrial sector, its strength and the impact of the supply chain on the sector.

The Wednesday Wrap: Nov. 21, 2012

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

• “Retail Industry Expecting the Strongest Holiday Season in Years in 2012” by Elaine Misonzhnik of Retail Traffic.

The retail real estate sector could be set for a very merry Christmas, Misonzhnik reports. “Judging by early forecasts, the 2012 holiday season might turn out to be the strongest in years, with preliminary surveys showing that consumers plan to spend more on gifts this year than they did in 2011,” she wrote.

In a recent survey conducted by the International Council of Shopping Centers and Goldman Sachs, 19 percent of the respondents said they planned to spend more on gifts this year than last, and 5 percent intend to spend substantially more.

A number of surveys say online shopping will again be a substantial component of holiday shopping this year. In a Discover Financial Services survey, 75 percent of respondents said they would research prices online before making a purchase. Deloitte also predicted that non-store sales — including online, mobile and catalog channels — will grow 15 to 17 percent this year.

Among one of the reasons for the widespread optimism is the fact Black Friday comes a week earlier than usual this year. Still, several retailers aren’t waiting that long to kick off the retail frenzy. Wal-Mart, Target and Sears are among the firms that have announced they will begin the shopping season by opening stores on Thanksgiving evening.

• “Economy Watch: Industrial Production Dips Due to Sandy; Thanksgiving Travel, E-commerce Rise” by Dees Stribling of Commercial Property Executive.

Industrial production in the United States decreased by 0.4 percent in October after increasing 0.2 percent in September, according to the Federal Reserve.

Hurricane Sandy’s lasting effects have resulted in reductions in the output of utilities, chemicals, food, transportation equipment and electronics. Industrial production would have increased during October if not for the storm, Stribling reports. Unemployment claims also spiked as a result of Sandy.

• “Retailers’ Preference for Strongest Locations Complicate Retail Property Recovery” by Randyl Drummer of CoStar.

While the multifamily, office and industrial sectors saw continued growth during the third quarter, demand for retail space remained lukewarm, according to CoStar’s Third Quarter 2012 Retail Review and Outlook.

U.S. retail properties absorbed only 7 million square feet in the third quarter. Large retailers are holding out for the only the best spaces for their new stores, opting in many cases for new space instead of vacant space in existing facilities, leaving the latter sites struggling to find tenants, Drummer reports. Consequently, asking rents are dropping across much of the available retail space, while landlords at shopping centers in prime locations have been able to push rents.

• “Miami Booms Like Never Before on Rental Demand: Mortgage” by Nadja Brandt of Bloomberg.

Hit hard by the recession, the real estate market in Miami is finally booming again, Brandt reports.

The average monthly rent for a two-bedroom apartment increased 6 percent (to $2,568) in the third quarter when compared with the same time last year, according to Condo Vultures LLC. “There’s a boom in Miami that we’ve never seen before,” Stephen Ross of Related Cos. told Brandt. “Miami is probably the hottest real estate market in the U.S. from a residential perspective.”

Most of the city’s unsold condos have been converted into rentals, and the number of multifamily developments is soaring, Brandt says. In other areas of the United States, investor interest in the multifamily sector is starting to wane as low mortgage rates persuade more people to buy homes.

Apartment rents are projected to rise through 2017, with a 4 percent gain nationally expected this year.

The Wednesday Wrap: Nov. 14, 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.

• “Both Job Cuts and New Jobs Increased in October” by Mark Heschmeyer of CoStar.

Downsizing activity reached its highest level in five months in October, when planned job cuts increased by 41 percent when compared with the preceding month, according to a new report by Challenger, Gray & Christmas Inc. The automotive sector led the job cuts, with plans to trim 11,615 workers.

The U.S. economy did, however, add 171,000 net new jobs last month, according to the Bureau of Labor Statistics.

“The final three months of the year tend to see heavier downsizing activity as companies make year-end adjustments,” John A. Challenger of Challenger, Gray & Christmas told Heschmeyer.

Challenger, Gray & Christmas said there has been an uptick in retail hiring as the holiday season approaches, but noted employment gains in the sector were virtually unchanged from a year ago.

• “Echo Boomers Important Multifamily Driver” by Carrie Rossenfeld of Globe St.

The lingering effects of the housing crisis continue to push former homeowners into the rental market, while Echo Boomers are helping boost the sector’s fundamentals as well, Rossenfeld reports.

The Echo Boomer generation of 95 million is transitioning into the workforce and looking for new product in A+ locations, Jeff Meyers of Meyers Research told Rossenfeld.

The national occupancy rate rose to 93.9 percent in the third quarter, and Meyer says the rate will continue to rise in the short term. He also says demand for Class-A+ properties should increase as well.

• “Slow Growth in U.S. Office Sector” by Carisa Chappell of REIT.com.

While office REITs are underperforming when compared with the REIT sector as a whole, they are enjoying much stronger returns than they were one year ago, Chappell reports.

Year-to-date total returns for office REITs as of Nov. 8 were 12.63 percent versus 1.9 percent during the same period last year, according to data from the National Association of Real Estate Investment Trusts.

The office sector currently has its lowest vacancy rate since the end of 2009, according to Jason Lail of SNL Financial. Citing data from REIS, he also noted that national asking rents grew from $28.17 per square foot to $28.23 per square foot in the third quarter on a year-over-year basis.

Overall, though, third-quarter office REIT earnings provided “mixed to disappointing news,” said Michael Knott of Green Street Advisors. Knott says a lack of tenant confidence is a continuing problem for the sector.

• “Home Depot Profit Tops Estimates as Housing Market Heals” by Chris Burritt of Bloomberg.

Home Depot posted a higher-than-expected third-quarter profit as the retailer benefitted from the recovering U.S. housing market, Burritt reports.

New-home sales are occurring at their fastest pace in two years, and construction starts have reached a four-year high, according to Burritt.

Home Depot stores saw customers visit more often and spent more per trip. The average transaction value in the third quarter rose 2.9 percent to $54.55, and the number of purchases climbed 1.7 percent to 331 million.

In addition to the impact from the improving housing market, Hurricane Sandy provided a boost in sales to home-improvement retailers, Burritt adds.

• “Hotels Predict Revenue Lost to Storm Can’t Be Recouped” by Kris Hudson of The Wall Street Journal.

Hoteliers are predicting they won’t be able to recoup revenue and bookings lost during Hurricane Sandy, Hudson reports.

Many hoteliers say cancellations are outpacing bookings from stranded guests and recovery workers, and little of the revenue lost from canceled conferences is expected to be reclaimed through insurance.

“For the most part, this will be lost business that you're never going to get back,” Ray Martz, chief financial officer of Pebblebrook Hotel Trust, which owns nine hotels affected by Sandy, told Hudson.

Hotels often avoid enforcing penalties on groups that cancel events as those groups might later refuse to host additional events at those facilities, Hudson writes.

The Wednesday Wrap: Nov. 7, 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.

• “CRE Industry Takes Stock of Hurricane Sandy Damage” by Mark Heschmeyer of CoStar.

Commercial real estate firms have begun to release estimates of the property damage caused by Hurricane Sandy in the Mid-Atlantic and Northeast last week.

Insurance risk modeling firm Eqecat Inc. estimates the initial insured loss between $10 billion and $20 billion with an additional $30 billion to $50 billion in total economic damage.

Because the storm was so widespread, this number could change as experts adjust their estimates, Heschmeyer notes.

There also will be significant business interruption losses because of the power outages and flooding that have plagued the areas hit by the storm.

Many commercial real estate firms have had to close business for a number of days, and some – like Ambac Financial - were forced to relocate; Ambac has moved its headquarters from New York City to Kingston, N.Y.

• “Multifamily Market Fundamentals’ Improvement Slows” by Carisa Chappell of REIT.com.

Data released at the end of October shows apartment market conditions have improved for the seventh consecutive quarter, but the pace of improvement has slowed, according to the National Multi Housing Council (NMHC).

High occupancies and increased rental rates have come at a more moderate pace, according to NMHC’s quarterly survey of executives with apartment-related firms. Only 25 percent of respondents reported tighter rental markets, versus 55 percent in the previous quarter, and 14 percent reported a looser market.

• “Are Traditional Grocers in Trouble? Three Innovative Chains Say Yes” by Susan Piperato of National Real Estate Investor.

Grocers must be fiercely competitive in today’s market to survive, according to executives from Trader Joe’s, Aldi and Walgreens who were part of a panel discussion at last week’s National Net Lease Investment Conference.

The trend of traditional grocers acting as anchor stores for shopping centers is changing as companies ranging from drugstores to gas stations have begun to offer groceries, the executives noted.

The economy has forced consumers to be more discerning and to shop around for the best price, which has caused havoc for traditional grocery stores, said Michael F. Mallon of Mallon and Associates Inc.

Trader Joe’s continues to open an average of 25 to 30 new stores per year, focusing on highly concentrated urban areas with educated households.

Aldi has seen its business model change; the company used to take corner locations in low-income and moderate-income areas, but now it is looking for freestanding locations in central areas, Mallon said.

Walgreens has joined a number of non-traditional grocers in offering grocery items and continues to build more stores at any size, according to its vice president of real estate, Michael Krasucki.

• “College Housing Firms Aim Upscale” by Dawn Wotapka of The Wall Street Journal.

Public companies are trying to break into the student-housing market by offering students tired of dorm life private rooms and bathrooms as well as plenty of amenities, Wotapka says.

The industry is seeing growth in cottage-style housing — upscale houses with bedrooms dotted around gourmet kitchens, according to Wotapka.

Developers increasingly are interested in student housing because more than 3 million high-school students are expected to graduate annually until 2018-2019, and universities experiencing budget cuts aren’t supplying enough beds to keep up with the influx of students, Wotapka writes.

• VIDEO: “Uncertainty Impacts Investors in October” from REIT.com.

In this clip, Brad Case, senior vice president of research and industry information at NAREIT, talks about the impact of Hurricane Sandy on REITs. He also explains how uncertainty caused by the presidential election played a big part in the “soft month” experienced by REITs in October.

The Wednesday Wrap: Oct. 31, 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.

• “Hurricane Delays Nearly $3 Billion of Commercial Mortgage Bonds” by Al Yoon of The Wall Street Journal.

Wall Street dealers delayed pricings of almost $3 billion of commercial mortgage-backed securities (CMBS) as Hurricane Sandy closed financial markets in the United States early this week, Yoon reports.

The delays come during a period of increased demand for CMBS. “This will be a minor interruption,” Christopher Sullivan of United Nations Federal Credit Union told Yoon. “There’s nothing that should affect investor sentiment."

This month has been the busiest one for CMBS issuance since 2007, according to J.P. Morgan analysts, with $7 billion of CMBS priced or announced so far. Transactions should be tough to complete for a few days, however, after the early week closures of the bond markets, Yoon writes.

• “Hurricane Sandy Threatens November Retail Sales” by Sapna Maheshwari and Renee Dudley of Bloomberg.

In the aftermath of Hurricane Sandy, clothing and holiday-gift sales could dip next month, but supermarkets and home-improvement stores will benefit from the storm, the authors report.

November same-store sales could drop as much as 3 percent, according to Oliver Chen of Citigroup. Foot traffic could fall 40 percent in affected areas during the first week of November, Chen added.

Supermarkets and home-improvement stores benefited from those stocking up on supplies.

Many retailers along the East Coast were forced to close stores before the storm hit, and the loss of activity will be hard to make up, according to Mark Vitner, economist at Wells Fargo.

Retailers also face possible inventory shortages if trucks are unable to deliver goods due to flooded roads, Maheshwari and Dudley report.

• “Office Market Recovery Continues in Third Quarter Despite Election Year Jitters” by Randyl Drummer of CoStar.

After an unimpressive start to 2012, demand for office space continues to pick up momentum, according to CoStar’s “Third-Quarter 2012 Office Review & Outlook.”

The low levels of new office construction helped the national vacancy rate drop slightly to 12.6 percent in the third quarter, and net absorption rose from 13 to 15 million square feet during that time. However, rents in most markets have not increased.

CoStar’s Walter Page said he originally expected demand to fall a bit in the quarter based on uncertainty surrounding the economy and the upcoming election, but now expects demand to hold as job growth improves.

• “Housing Shortage to Benefit Coastal Apartment REITs” by Carisa Chappell of REIT.com.

Apartment REITs, especially those with properties near the coast, will benefit from a predicted housing shortfall of 1 million homes annually over the next few years, according to Jonathan Litt of Land and Buildings Investment Management LLC.

Starts on new multifamily properties are 60 percent below the units needed to keep up with demand, a good thing for apartments already on the market, Chappell reports.

REITs with a high concentration of apartments on the coasts can especially capitalize on the housing shortage because these areas feature stronger household income growth, limited new construction and high cost of homeownership, allowing landlords to push rents.

• “Survival of the Fittest Starts to Play Out in the Office Supplies Sector” by Elaine Misonzhnik of Retail Traffic.

Big-box office supply retailers are in trouble, Misonzhnik reports.

Today’s consumers need less paper and paper-related products as new technologies emerge. Given these dynamics, the market has too many competitors, according to Doug Stephens of Retail Prophet. He expects at least one retailer to consolidate or leave the market.

Staples has already announced plans to close 290 of its North American stores, Misonzhnik notes. However, Staples is currently the market leader and the least likely to go under, according to Liang Feng, researcher with Morningstar. 

Staples is working to adapt to the new retail environment, cutting retail square footage, linking physical and electronic channels, and working on cutting costs. But Office Depot and OfficeMax are seeing falling same-store sales, Misonzhnik writes.

The Wednesday Wrap: Oct. 24, 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.

• “U.S. Retail Sales Increase for Third Straight Month” by Tim Trainor of CoStar.

Recent economic reports are showing more signs of a gradual economic expansion in the United States, according to Trainor. A new Census Bureau report says the country’s retail sales totaled $412.9 billion in September, the third straight month of increasing sales.

Retail sales from July through September were higher than economists had expected, Trainor adds. 

Other encouraging news includes the drop in the unemployment rate to 7.8 percent after the addition of 114,000 jobs, although many of the jobs added were part-time positions, Trainor reports.

Good signs in the real estate sector include positive numbers in home starts, building permits and construction activity (not including the Northeast), and home sales.

• “More Robust Commercial Real Estate Recovery Projected for 2013” by Carisa Chappell of REIT.com.

Those in the commercial real estate industry are optimistic about its recovery next year as the job market seems to be improving and new construction has been limited, according to the new “Emerging Trends in Real Estate 2013” survey from PricewaterhouseCoopers (PwC) and the Urban Land Institute.

Survey respondents said there should be gains in leasing, rental rates and pricing for all real estate sectors, and also noted that newly added jobs should increase absorption and push down vacancy rates in the industrial, office and retail sectors.

Optimism about commercial real estate could increase investment in the industry as other types of investments struggle, Mitch Roschelle of PwC told Chappell. Investors are also expected to take on more risk in their real estate portfolios, including in secondary and tertiary markets, according to the survey.

• “Are Rising Rents Too Much of a Good Thing?” by Bendix Anderson for National Real Estate Investor.

Apartment rents are rising faster than inflation, meaning more profits for real estate investors, but the trend also comes with risk, Anderson reports.

“Landlords need to be careful,” Brad Doremus of Reis told Anderson. “They can’t raise rents forever if they come up against that budget constraint.”

Competition exists from new rental housing, cheaper rental housing and for-sale housing, making sky-high rents unattractive, Anderson notes.

According to a new report from the Center for Housing Policy and the Center for Neighborhood Technology, the cost of housing rose 52 percent between 2001 and 2010, while household incomes only rose 25 percent in that time.

Transportation costs also rose dramatically in that time, but that could make an apartment community in a place with less expensive transportation more attractive, Scott Bernstein of CNT told Anderson.

• “Traditional MOB Is Becoming Obsolete” by Carrie Rossenfeld of Globe St.

Healthcare reform is coming, and that means a dramatic change for the medical-office sector, according to Gary McKitterick of law firm Allen Matkins.

Specifically, McKitterick believes the traditional medical-office building will soon become outdated. “Providers are reducing cost by pushing services out of the hospital — the highest cost point for delivery — into an outpatient setting,” he told Rossenfeld. “From a real estate perspective, you need to understand what your local hospital is doing to push services out.”

Sanford Smith of Hoag Memorial Hospital Presbyterian says the industry needs to deconstruct the hospital and take out services that would be better located in the heart of a community.

Other innovative ideas in the medical industry that could greatly affect real estate include the idea of time-sharing spaces between multiple physicians and “medical pods,” locations to which doctors travel to see outpatients instead of patients coming to them.

• “Why Pier 1 Is Choosing Bricks over Clicks — and Winning” by Lydia Dishman of Forbes.

The CEO of retailer Pier 1 Imports, Alex Smith, isn’t completely sold on the idea that e-commerce is better, telling Dishman his company offers the experience of seeing a product in person with great service.

Smith is using funds to improve Pier 1’s physical stores through remodels, relocations and merchandising fixtures set up to better display products and keep customers lingering in the store, according to Dishman.

Pier 1 is not totally turning its back on e-commerce, also choosing to focus funds on its website, which was re-launched in July after being shut down five years ago.

“We are trying as much as we are able online to replicate the in-store experience,” he told Dishman.

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: Oct. 10, 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.

• “Apartment Performance Slowed in Q3” by Carisa Chappell of REIT.com.

Momentum in the apartment sector is slowing, and the office and retail sectors are still performing sluggishly, according to a new third-quarter report from Reis.

The national apartment vacancy rate saw its slowest improvement since the recovery began, only dropping from 4.7 percent to 4.6 percent in the third quarter.

The weak labor market has impacted the apartment sector, Ryan Severino of Reis told Chappell. Severino pointed out that job creation has been concentrated in lower-wage occupations, a dynamic that is affecting the ability of 20- to 34-year-olds, the drivers of apartment demand, to afford higher rents.

The job market also is affecting the office sector, with absorption rates and vacancy rates only improving slightly. The retail sector stalled in the third quarter, with regional and super regional malls outperforming neighborhood shopping centers, according to Severino.

• “Class-C Apartments Strengthen” by Bendix Anderson for National Real Estate Investor.

Even as apartment growth slows, effective rents at Class-C apartments are growing faster than those at Class-A and Class-B apartments, according to a new report from Axiometrics.

“We call it the ‘filling-in’ effect,” said Jay Denton of Axiometrics. “Now that occupancies are getting better, Class-Cs are getting some pricing power.”

Average effective rents for Class-C apartments rose 4.1 percent over the last year; in Class-A apartments, they rose 3.7 percent.

Still, while class-C apartments did better in thriving markets like Dallas, they remain weak in markets like Atlanta, Anderson noted.

• “Wal-Mart Tests Same-Day Delivery” by Stephanie Clifford of The New York Times.

Taking a cue from Amazon.com, Wal-Mart is testing same-day delivery at a few of its locations, trying to combine the ease of online ordering with the instant results of shopping in person, Clifford writes.

Wal-Mart’s more than 4,000 local stores, which can act as distribution centers, put it at an advantage over other retailers in offering same-day delivery, Clifford notes.

The tests are in addition to same-day grocery delivery that the retailer has been testing in San Jose, Calif., and San Francisco.

• “Midwest Markets Are on the Mend, But Closing Deals Is No Easy Feat” by Elaine Misonzhnik of Retail Traffic.

Market conditions are improving in the Midwest, but landlords and property investors still have to work extremely hard to close deals, according to attendees at the ICSC Chicago Deal Making conference.

With limited new development and a slowly improving economy, retailers are actively looking for new locations, according to Daniel Taub of DLC Management Corp. But their interest is largely confined to Class-A space in urban cores.

Memories of the recession also have landlords checking prospective tenants’ financials more closely, according to Ginger L. Benz of Cullinan Properties.

The Wednesday Wrap: Oct. 3, 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.

• “U.S. Office Vacancy Rate Falls to Almost Three-Year Low” by Hui-yong Yu of Bloomberg.

Demand in the energy and technology sectors combined with a lack of new construction have dropped U.S. office vacancy rates to their lowest levels since the end of 2009, according to a new report by Reis.

As of Sept. 30, the national vacancy rate was 17.1 percent, only slightly higher than in fourth-quarter 2009, when it was 17 percent, Yu writes.

Energy and technology hubs like San Francisco and Houston are seeing the most demand for office space.

Both asking rents and effective rents rose in the third quarter, the eighth consecutive quarter of positive growth, according to Ryan Severino of Reis.

Additionally, as the office market improves, landlords are starting to end concessions like free rent, Asieh Mansour of CBRE Group told Yu.

• “Apartment REITs Are Outperforming, Says Moody’s Report” by Bendix Anderson for National Real Estate Investor.

Apartment REITs have performed particularly well during the recovery, according to a new report by Moody’s Investors Service. Stock market prices for apartment REITs are more than triple the lows they reached during the real estate crash, and they have grown more quickly than those in the S&P 500 during the recovery, Anderson writes.

Furthermore, according to data compiled by NREI, apartment REITs have outperformed the broader REIT market since 1994.

For the most part, apartment REITs are focusing funds on new development and redevelopment, Anderson writes.

• “Landlords, Retailers Think Out of the Box as Cycle Swings Upward” by Randyl Drummer of CoStar.

Retail real estate executives are optimistic about the recovery of their sector, according to a group of panelists at the recent International Council of Shopping Centers’ Western Division Conference in San Diego.

Among the positive signs cited by the panelists: retailer expansions, rising occupancy rates and low interest rates that should bring sustained investment capital.

“We have issues, but as an industry, our best days are ahead of us,” said panel moderator Patrick Donahue, chairman and CEO of Donahue Schriber. “There seems to be tremendous capital flows into real estate, so there will be tremendous investor interest … [capitalization] rates will likely remain low and maybe go lower.”

Panelists also discussed the best ways for retailers to stay competitive in the face of increasing Internet shopping.

• “Housing Recovery Could Slow Multifamily Growth” by Carisa Chappell of REIT.

The recovering housing market has many in commercial real estate wondering how it will affect the thriving multifamily sector, Chappell writes.

According to Ric Campo, CEO of Camden Property Trust, there is room for both the single-family housing and multifamily markets to thrive and to coexist, as they have done in the past.

Others in the industry say the housing recovery will impact the multifamily market, but add it won’t completely stall the apartment sector’s momentum. Additionally, the housing market should strengthen the job market and that would benefit the multifamily sector, according to Rich Anderson, an analyst with BMO Capital Markets.

“Being in the rental business has been the name of the game lately, but the American dream has not been to rent,” Anderson told Chappell. “We can’t live in a weak housing market forever.”

• “An Experimental New Starbucks Store: Tiny, Portable, and Hyper Local” by Mark Wilson of Fast Co.

As retailers look for innovative ways to grow, Starbucks is taking a new approach to coffee houses, building tiny, highly conceptualized stores that consist of pre-fabricated buildings, Wilson writes.

These stores appear in markets where space is limited and that cannot sustain a traditionally sized Starbucks store. These drive-up and walk-up stores feature just enough space for three- to five-employee operations and are eco-friendly.

The buildings’ exteriors often feature local art, according to Wilson.

The Wednesday Wrap: Sept. 26, 2012

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

• "CRE Holds Tight As S&P Predicts 25% Chance of Another Recession" by Jacqueline Hlavenka of Globe St.

Is another recession on the horizon? A new report from Standard & Poor’s (S&P), citing disappointing U.S. job growth and international financial woes, says there is a 20 percent to 25 percent chance of an economic relapse over the next two years.

Concerns about the economic road ahead have large corporations and businesses holding off on making major real-estate decisions, Kenneth McCarthy, an economist at Cushman & Wakefield, told Hlavenka.

“They are not making decisions unless they have to,” McCarthy said. “Having said that, businesses are in good shape, but they are just not taking risk. Slow growth is the mode we are in, and it is certainly reflected in the real estate business, and the one exception to that story has been the technology sector, which remains extremely active and strong both in terms of economic impact and hiring and in terms of real estate.”

“I’m not surprised that S&P is saying this,” added Peter Kozel, chief economist for Colliers International. “There’s been a lot of talk about the possibility of a recession next year.”

• “Highwoods Closes On Trophy Office Tower in Atlanta” by Finerve Holder of CoStar.

Highwoods Properties grabbed some major headlines in Atlanta recently with its $146.7 million purchase of Two Alliance Center in Buckhead. The 29-story, Class-A tower is LEED Gold-certified.

The building is 92 percent leased with no lease expirations until 2017. Tishman Speyer, the seller, granted Highwoods $6.4 million to pay for closing costs, free rent and other tenant concessions.

• “Location Strategy: Do Downtowns Go With Dentures?” by Robert Carr for National Real Estate Investor.

As the demand for seniors housing increases, developers are looking to use downtown sites in metropolitan areas to build such facilities. But politicians in some of these communities, looking instead to have exciting destination spots in their central business districts, are doing their best to block seniors-housing communities from taking root, according to Carr.

Seniors housing developers like to build in downtowns because it means residents can have access to surrounding restaurants and shopping, but doing so often requires building high-rises, which can pose an issue for seniors.

“It really depends on the downtown if they have these friendly neighborhoods, but the seniors love to take in what a downtown has to offer,” Todd Spittal, whose company Provision Living has two seniors housing properties in downtown St. Louis, told Carr. “It is hard to understand why a downtown would turn down an elderly facility to make it move five to six miles down the road.”

The Wednesday Wrap: Sept. 19, 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.

• “IPO Performance May Have REITs Waiting to Go Public” by Carisa Chappell of REIT.com.

The poor performance of REITs’ initial public offerings (IPOs) over the last three years may be keeping other real estate companies from going public, the author reports.

“Typically, you expect a company when they become public to have growth plans and buy-in from the investment market,” Keven Lindermann, managing director with SNL Financial, told Chappell. “You would expect a stronger performance that that if a company feels like there’s enough investor interest to successfully execute an IPO.”

However, Lindermann also noted that REITs that investors are expecting to go public soon could be successful and motivate a wave of companies to join the market. “There are a number of companies that are ready to tap the public markets when the market is ready for them,” he added.

• “Boston, Houston and Los Angeles Will Experience Rent Increases for Class-A Space in 2013” from Retail Traffic.

U.S. cities expected to show the greatest rental hikes for Class-A space next year include Boston, Dallas, Houston, Los Angeles and San Francisco, according to a recent report by Cushman & Wakefield and the International Council of Shopping Centers (ICSC).

Rents in Dallas, which are currently at $125 per square foot, are expected to rise to $145 per square foot next year, and those in Houston, currently at $135 per square foot, should jump to $150 per square foot, the report predicts.

Meanwhile, rents in Washington D.C., the New York tri-state region, Chicago and Las Vegas are expected to remain flat.

• “AIA: Economic Downturn Cut Architecture Firm Revenue by 40 Percent” from Citybizlist - Washington D.C.

Architecture firms have seen revenue drop by 40 percent and have had to cut employees by a third since the start of the recession in 2008, according to the new 2012 AIA Firm Survey.

The steep decline in construction spending has resulted in architecture firms’ gross revenue declining from $44 billion in 2008 to $26 billion in 2011. The subsequent employee layoffs have also shifted the staff makeup of many companies, creating large losses in technical and support staff.

• “Gwinnett Place foreclosure: $39 million” by Douglas Sams of the Atlanta Business Chronicle.

An affiliate of mortgage servicer C-III Asset Management foreclosed in August on Gwinnett Place Mall, located in the Atlanta suburb of Duluth.

The mall was foreclosed on for $39 million, a huge cut from the $115 million value of the loan, according to Trepp LLC. Gwinnett Place has been performing poorly for years due to newer malls built nearby that competed for the same stores.

The mall is just one example of the great number of struggling shopping centers in suburban Atlanta, Sams notes.

• “Growing Restaurant Chains Flock to Malls” by Julie Jargon and Kris Hudson of The Wall Street Journal.

One good sign for malls: vacancies left by retail store closings during the recession are being filled by restaurant chains doing well despite slow overall economic growth.

Examples include Olive Gardens moving into closed supermarkets, Circuit City stores and motels; LongHorn Steakhouses taking over former Blockbuster and Borders Group stores; Buffalo Wild Wings converting old Sears sites; and Chipotle using former Starbucks stores closed during 2008 and 2009, Jargon and Hudson write.

As online shopping continues to gain popularity, landlords like adding restaurants because of the foot traffic they attract, the authors note. However, concerns like parking and retrofitting retail spaces for food service still pose challenges.

The Wednesday Wrap: Sept. 5, 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.

• “Occupancy Rates Stabilize, Rent Growth Slows” by Bendix Anderson for National Real Estate Investor.

As a result of affordability in the for-sale housing sector and a sluggish job market, apartment rent growth has slowed ever so slightly since peaking in the summer of 2011, Anderson reports.

Annual effective rent growth dropped to 3.73 percent in July from 3.83 percent the month before, the article notes. Still, average apartment rents will steadily improve over the next few years, Jay Denton, vice president of research for the data firm Axiometrics, told Anderson.

On another positive note, occupancy rates remain high. The national occupancy rate dipped in July from 94.36 to 94.33 percent, but the rate is still up 71 basis points year over year, according to Axiometrics.

• “Small is New Order for Struggling Malls” by Kris Hudson of The Wall Street Journal.

When it comes to struggling shopping malls, “small” is the new name of the game, Hudson reports.

Smaller real-estate companies are buying up cheap, low-performing malls and finding ways to improve them, sometimes reducing their size before starting other turnaround strategies like upgrading tenants.

Roughly 300 of the 1,000 enclosed malls in the United States are considered subpar, meaning they generate less than $300 in sales per square foot, according to Green Street Advisors.

Although the purchase prices for challenged malls can be low, plenty of challenges and risks come with investing in these properties. “These mall transactions show that investors now are interested in higher risk but potentially higher yielding retail investments in the U.S.,” Ben Carlos Thypin, Real Capital’s director of market analysis, told Hudson.

• “As Tech Office Boom Rolls into Third Year, Can Growth Maintain Impressive Pace?” by Mark Heschmeyer of CoStar.

The high-tech sector’s strength over the last two years has pushed rents and occupancy higher in tech-oriented office markets across the United States. Now, investors are wondering if that momentum will continue.

High-tech service jobs grew by 9.9 percent between 2009 and mid-2012, according to a report by CBRE Global Research and Consulting. By comparison, non-farm jobs overall rose by just 1.7 percent in the same timeframe. Office rents have increased over the past two years in 15 of the top 20 tech-oriented markets.

Analysts are saying, however, that the high-tech industry may be starting to cool and that it could enter a period of slowing employment growth and earnings, according to Jones Lang LaSalle’s newest industry outlook. 

“The pipeline … indicates that several million square feet of gross absorption is ahead for the industry, but with many large deals already completed in the last 12 months, the tech industry may be approaching its peak,” JLL said in the report.

• “The Commercial Real Estate Industry Tries to Update Its Identity” by Elaine Misonzhnik of National Real Estate Investor.

The commercial real estate industry is slowly becoming more diverse, Misonzhnik reports. The change is in part due to the changing demographics of the United States, where non-whites make up a third of the population, and women make up half of it, according to the author.

In the past, the exclusive nature of the industry made it unattractive to outsiders, Misonzhnik writes. Today, diversity is looked upon by the industry fondly, but it’s been a slow road to get there.

“I think that the days of women being excluded from the decision-making process just because it was a clubby environment are behind us,” Michael P. Kercheval, CEO of the International Council of Shopping Centers, told Misonzhnik. “More often, companies are eager to get diversity, but until you get women or people of different racial and ethnic heritage in senior positions, it’s hard to get other people to see it as a possibility.”

• VIDEO: “Lack of Supply is Impacting CRE Financing” from Globe St.

In the clip below, Michael Derk of Marcus & Millichap sits down during the RealShare Orange County 2012 conference to discuss commercial real estate financing. He discusses the lack of inventory in the market, demand across all product types and the effect of supply on cap rates.

The Wednesday Wrap: Aug. 29, 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.

• “Grocery Chains Buy Up Shopping Centers in a Defensive Play” by Jennifer Popovec for Retail Traffic.

Grocery chains are taking defensive action to protect themselves and control their futures by buying the shopping centers they anchor, Popovec reports.

Large grocery chains in the United States have invested nearly $450 million in grocery-anchored centers in the last year, according to Real Capital Analytics. Publix has been the most active and now owns 17 shopping centers and 170 of its stores overall. Kroger, Safeway and Wal-Mart also have followed suit.

The centers typically end up being good investments for the grocery chains, Popovec notes, because they already understand the centers and gain control over things they normally wouldn’t have had, like parking lot conditions.

• “Health Care REIT Acquiring Sunrise Senior Living Portfolio for $1.9 Billion” by Mark Heschmeyer of CoStar.

Health Care REIT Inc. will purchase Sunrise Senior Living Inc. for $1.9 billion. The firm will pay $950 million in cash, Heschmeyer reports.

Health Care REIT will gain Sunrise’s 20 wholly owned seniors housing communities and its interest in join ventures for 105 other projects. The wholly owned communities mostly reflect Sunrise’s “mansion” prototype and are concentrated in New York, Los Angeles, San Francisco, Washington D.C., Philadelphia, Boston, Chicago and London.

• “Start-Ups Shake Up Office-Leasing Space” by Laura Kusisto of Wall Street Journal.

Office-leasing business is going online, led by up-and-coming Internet companies looking to modernize the brokerage business, according to Kusisto.

Some sites allow tenants to bypass brokers altogether and go straight to landlords for small deals. One, called CompStak, offers access to a database of confidential details about leases in exchange for similar information, challenging the control of information employed by brokerage firms like CBRE Group and Jones Lang LaSalle and data companies like CoStar, Kusisto writes.

Brokers insist that they continue to offer services that technology can’t replace, Kusisto notes.

• “U.S. REITs Enjoy Strong Access to Capital” by Carisa Chappell of REIT.com.

U.S. equity REITs have experienced strong funding and access to capital in 2012, according to a report from Fitch Ratings that Chappell details.

REITs are taking strategic advantage of the approximately $43 billion in funding that has been raised in the first half of 2012. “Typically, they are using the capital to fund development pipelines, pay down lines of credit, fund acquisitions and, to a lesser extent, fund expiring debt maturities,” Steven Marks, managing director with Fitch, told Chappell.

The retail sector has been the most active this year, whereas the industrial sector has done the worst in terms of raising funds.

Fundraising activity is expected to be strong, but factors like an economic slowdown and the upcoming election could cause volatility in the capital markets, Marks noted.

The Wednesday Wrap: Aug. 22, 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.

• “Store Opening Plans Reach Four-Year High, Report Claims” by Elaine Misonzhnik of Retail Traffic.

U.S. retailers’ store-opening plans hit a four-year high in July, according to the latest “National Retailer Demand Monthly” report from RBC Capital Markets and Retail Lease Trac.

Over the next two years, the retailers in RBC’s database are expected to open a total of 78,325 stores. That’s an 11 percent increase over store openings expected at the end of 2011, Misonzhnik reports.

Notable companies that plan to aggressively expand include discount stores like Dollar General and Family Dollar and restaurant chains Subway, KFC and Five Guys Famous Burgers and Fries.

With tenant demand rising, the question of when the development of new retail sites will take off arises, Misonzhnik notes.

• “In Texas’s Capital, Construction on Many Corners” by Matt Hudgins of The New York Times.

An unlikely city — Austin — finds itself at the center of residential and commercial development in Texas, as the city’s diversifying business center and popular entertainment scene bring more residents downtown, Hudgins reports.

Gen-Y workers are drawn to more urban areas in cities across America, and that’s certainly the case in Austin. Five hundred apartments are under construction in the city, and more are in development. Apartment rents, at an average of $1.10 a square foot, are the highest in the state.

There’s also an influx of office development, geared towards high-tech companies such as Facebook and Google that have moved into the central business district.

• “Are Clicks Cannibalizing Bricks?” by Mark Heschmeyer of CoStar.

As retail begins to recover from the recession, many companies are shutting down brick-and-mortar stores to focus their resources online. That may be a mistake, Heschmeyer notes.

The American Marketing Association recently took a look at whether stores hurt or help a retailer’s online sales. Its verdict: the stores help.

“In the long run, sales in both the online and catalog channels benefit from the presence of retail stores,” Dr. Jill Avery, lead author of the analysis, told Heschmeyer. “The physical presence of a store attracts new customers to the direct channels and encourages existing customers to buy more.”

• “VW Adds $27 Million Center to Aid Expansion in U.S.” by Alan Ohnsman of Bloomberg News.

Volkswagen certainly is doing its part to help the nation’s industrial sector. The European automaker opened a $27 million testing center in Oxnard, Calif., on Monday as part of a $4 billion program aimed at boosting its sales in the United States.

The center will initially be staffed by 50 engineers and technicians, and 250 additional employees from VW’s other brands also will eventually use the center.

Last year, VW, whose U.S. division is based in Virginia, opened a $1 billion auto-assembly plant in Tennessee. It also has facilities in Michigan and Arizona.

VW is pushing to be the world’s largest automaker by 2018. In the United States, its sales trail those of foreign automakers Toyota, Honda and Hyundai.

• VIDEO: “REITs Proceed with Caution in Regards to Financing” from REIT.com.

In this clip, Andrew Nicholas, head of global property securities with Colonial First State Global Asset Management, shares his views on how deal making has changed since the recession. He also shares his expectations for REITs in the second part of the year.

Visit REIT.com to view the clip.

The Wednesday Wrap: Aug. 15, 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.

• “July Retail Sales Rose 0.8%, Well Beyond Expectations” by Reuters.

U.S. retail sales rose in July by the largest amount in five months, according to the Commerce Department.

Sales grew 0.8 percent in July when compared to the previous month. June marked three straight months of declines, the longest stretch of decreased sales since the fall of 2008.

A separate Labor Department report said overall wholesale prices also increased, though modestly, in July. A sharp rise in food prices stemmed from the dramatic increase in the price of corn due to severely dry weather in the Midwest.

• “The Heat Is On for Grocery-Anchored Retail” by Mark Heschmeyer of CoStar.

Heat waves and the subsequent drought across much of America’s farmland will likely deal another blow to grocery store-anchored shopping centers, already feeling the pain from the sale of food by nontraditional grocers, such as supercenters and warehouse club stores.

This year’s drought already is affecting retail sales, but will show an even bigger impact next year, according to Garrick Brown, director of research for Terranomics. Food makers will see soaring prices in corn, which is used in the production of everything from soda to beef.

“A strong rise in food prices could be catastrophic next year for a number of grocery chains,” Brown told Heschmeyer. “A squeeze in grocery pricing will only further benefit the discounters, wholesalers/warehouse clubs and the large, non-unionized chains.”

• “Investors Look to Secondary and Tertiary Markets for Multifamily” by Bendix Anderson for National Real Estate Investor.

A recent acquisition of an apartment building outside Savannah, Ga., could be an example of things to come, as multifamily investors begin to look to secondary and tertiary markets, Anderson says.

Panther Properties just bought the Effingham Parc Apartments, a Class-A property about 13 miles northwest of Savannah. The property is in a suburban area, but one that is only a short distance away from a city with a major port and one of the country’s fastest-growing employment centers.

As the site has a vacancy rate of only 4 percent, Panther is planning on pushing rents at the apartment complex. The firm also says it will look at investing in other secondary and tertiary markets across the Southeast.

• “Déjà Vu All Over Again? CRE Whipsaws Up and Down In Face of Economic Uncertainty” by Randyl Drummer of CoStar.

Less than three months out from the U.S. presidential election, national investor surveys and recent leading indicators show confused sentiment and uncertainty on how the election could affect the commercial real estate market.

 There is some good news, Drummer notes. Construction spending — fueled by demand for industrial facilities, hotels and retail projects — is expected to rise by 4.4 percent this year for nonresidential projects, according to the American Institute of Architects. The growth is expected to continue into 2013 as well.

But the looming election and possible changes in federal tax and spending policies are causing uncertainty that is reflected in investors’ expectations across all sectors, Drummer notes.

• VIDEO: “Valuations Expected to Climb in Second Half” from REIT.com.

Paul Whyte, managing director with Credit Suisse, gives his predictions for REIT investment in the second half of the year. He examines valuations, the trend of “flight to quality,” which sectors are showing greatest demand and what challenges the commercial real estate industry could face during the ongoing recovery.

To view Whyte's remarks, click here.

The Wednesday Wrap: Aug. 8, 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.

• “Grocery-Anchored Shopping Centers No Longer the Safest Bet in Retail” by Elaine Misonzhnik of Retail Traffic.

In response to the recession, real estate investors fled to necessity-driven markets, including grocery-anchored properties. But the number of retail operations adding grocery products to their shelves and the growing pool of upscale supermarkets is creating strong competition in what was once considered a “safe” market, Misonzhnik reports.

“Everywhere you look, people are selling consumables, so if you don’t have a good reason for people to choose your store, you’ve got a problem,” John Rand, senior grocery analyst with Kantar Retail, told Misonzhnik.

Traditional mid-market grocers like Food Lion and Safeway are struggling, while high-end grocers like Whole Foods are expanding. Little to no growth in mid-market grocers is reflected in the vacancy rate for neighborhood shopping centers, which was the highest among all retail property types in the second quarter, according to CoStar statistics.

• “Work Resumes on Scaled-Back Buckhead Project” by Greg Bluestein of Atlanta Journal-Constitution.

Construction started again this week on the long-delayed Buckhead Atlanta project, an ambitious development that once called for the construction of five-star hotels and luxury shopping in an area previously known as the epicenter of Atlanta’s party scene. The project stalled in 2009.

The new developer, OliverMcMillan, has scaled back the project to a mixed-use property that will include 370 apartments, 100,000 square feet of office space and 300,000 square feet of high-end retail.

OliverMcMillan plans to piece together the pre-existing unfinished buildings and complete the project by late 2013 or early 2014, said the project’s development director Hunter Richardson.

• “Apartment Market Continues to Tighten” by Carisa Chappel of REIT.

The apartment sector showed favorable conditions for the sixth consecutive quarter, according to data from the National Multi Housing Council (NMHC).

Demand for apartments continues to outstrip new supply, said NMHC chief economist Mark Obrinsky, and therefore the rental market is tighter than last quarter, with lower vacancies and higher rents.

• “Why Wal-Mart Shut its South Side Convenience Store” by Brigid Sweeney of Crain’s Chicago Business.

Wal-Mart Stores has been actively introducing its new concept, the more compact Express store, to targeted urban markets, so it was surprising when one of the Express stores on Chicago’s South Side was abruptly closed after only a year in business, Sweeney writes.

Wal-Mart is claiming the store was too close to one of its newer supercenter stores, but analysts are predicting that the shift into the urban market isn’t going as well as Wal-Mart had planned.

“The supercenter was supposed to be the place for once-a-month big trips, and the Express would be for convenient fill-in trips during the week,” Leon Nicholas, director of insights at Kantar Retail, told Sweeney. “They weren’t supposed to cannibalize each other, so the fact that it didn’t work indicates the strategy was wrong.”

• VIDEO: “Retail REIT Sees Growing Tenant Interest” from REIT.

Dennis Gershenson, president and CEO of Ramco-Gershenson Properties Trust, sits down during the NAREIT’s Investor Forum to discuss shopping center fundamentals, how retail landlords can protect themselves in case of economic downturn and acquisition opportunities in the market.

Click here to view the video.

The Wednesday Wrap: Aug. 1, 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.

• “Multifamily Strength Enticing Banks Back into CRE Lending” by Mark Heschmeyer of CoStar.

More banks are moving back into commercial real estate lending, according to comments from bank executives in their second-quarter earnings conference calls, and the white-hot multifamily sector is generally serving as their jumping-off point.

However, their interest in other sectors appears to be growing. “We're not going into [the commercial real estate] market with just a bet that we're just doing multifamily,” said Kirk W. Walters, senior executive vice president and CFO of People's United Financial Inc. “Certainly multifamily will be in the mix, it will be one of the things we'll be doing, but we'll be doing all types of commercial real estate.”

Heschmeyer also writes banks are looking to finance more new construction rather than just existing properties.

• “Seniors Housing Investors Focus on Smaller Deals in 2012” by Jennifer V. Hughes for National Real Estate Investor.

After last year’s blockbuster deals in the seniors housing industry, experts are saying the sector will see smaller transactions in 2012.

There are still plenty of good opportunities in the market, just at a more modest level, Bob Kramer, president of the National Investment Center for Seniors Housing and Care Industry (NIC), told Hughes.

This year is showing far less activity in portfolio sales and much more activity in the buying of single and smaller properties, said Matthew Whitlock, senior vice president and managing director with CBRE’s Senior Housing Services Group. Whitlock expects the trend to continue until there is more property development in the market.

But as occupancy rates continue to rise, investors are drawn to senior housing. It has been one of the strongest sectors during the recession because of its need-based nature, said Chuck Harry of NIC.

 • “Social Security to Close 5 Field Offices” by Sean Reilly of Federal Times.

As part of a continued effort by federal government agencies to rein in spending by reducing real estate space, the Social Security Administration (SSA) has announced it will close five field offices by the end of September.

The five are in Biloxi, Miss.; Ketchikan, Alaska; Louisville, Ky.; Washington, D.C.; and Clinton, Iowa. Eight other field offices have closed since January.

The offices are being consolidated and workers are not losing jobs, SSA spokesman Mark Hinkle told Reilly. Those opposed to the closings say they could leave citizens without direct access to benefits information and service representatives.

• “CMBS Delinquencies Increase for the Fifth Consecutive Month” by Jacqueline Hlavenka of Globe St.

The CMBS delinquency rate has risen for the fifth straight month, according to the latest monthly report by Trepp LLC.

The CMBS delinquency rate rose to 10.34 percent in July, up from 10.16 percent in June. The recent climb in the delinquency rate began in February, as 2007 loans that were not refinanced reached their balloon dates in the first part of 2012.

The loans are not getting resolved as quickly as Trepp had anticipated, but the firm still says the delinquency rate will level off in the next couple of months.

• “Apple Got Special Treatment for Grand Central Lease, Audit Says” by Freeman Klopott of Bloomberg.

Apple Inc. was given inside information by the Metropolitan Transportation Authority (MTA) that helped it win a lease for a store in Grand Central Terminal, according to an audit by New York Comptroller Thomas DiNapoli.

The audit was performed as a follow-up to a 2010 audit that found the MTA real-estate division didn’t always use a competitive process to market rental properties. The most recent audit said that MTA gave Apple an unfair advantage by negotiating the lease with Apple for more than a year before asking for proposals from companies to fill a space that was occupied by a restaurant. Before asking for proposals, Apple had already entered a buyout pact with the restaurant.

MTA Chairman Joseph Lhota said that DiNapoli’s opinion was “worthless” and insisted the deal with Apple was completely lawful. 

The Wednesday Wrap: July 25, 2012 (with video)

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.

• “Approaching a Tipping Point? U.S. Office Rent Growth Lags Despite Rising Tenant Demand” by Randyl Drummer of CoStar.

Rising office absorptions and falling vacancy rates in the United States have done little to increase rents for office landlords in most markets, CoStar Group reported in its Second-Quarter 2012 Office Review and Outlook.

Year-over-year office job growth has slowed since the first quarter, but is still outpacing the broader U.S. job market. Net absorption increased from 8 million square feet in the first quarter to 18 million square feet in the second quarter.

Office demand is increasing as the job market improves, but the vacancy rate is only slightly down as tenants fill shadow space left by massive job losses before they look to lease additional space.

Rents have only increased 0.7 percent from this time last year, but landlords in top markets are starting to pull back on rent concessions, tenant improvement allowances and other tenant perquisites, CoStar reported.

• “Jamestown puts 999 Peachtree building on the market” by Douglas Sams of Atlanta Business Chronicle.

Jamestown has put its Midtown Atlanta office tower 999 Peachtree on the market. The investment firm bought the building in 2007 for $127 million and has increased its occupancy rate to 94 percent, Sams reports.

Jamestown is seeking a target sale price above $160 million for the 28-story tower, which houses law firm Sutherland, Oxford Industries and the Empire State South restaurant.

• “Pension Board Invests $355M in U.S. Apartments” by Robert Carr of Globe St.

The Canada Pension Plan Investment Board says it is investing $355 million into seven U.S. multifamily properties in the San Francisco, Chicago and Dallas markets.

The pension board, which covers about 18 million Canadian contributors and beneficiaries, finds the U.S. multifamily market an attractive sector because of the limited supply, current demographic trends and declining home ownership in the country, according to Peter Ballon, vice president and head of the board’s real estate investments for the Americas.

• “Manufacturing slows in June, construction spending up in May” by Paul Davidson of USA Today.

Manufacturing activity shrank last month for the first time in three years, according to a survey by the Institute of Supply Management. Both indexes for factories and new orders fell, raising concerns about job growth and the overall economy, according to Davidson.

The unusually warm winter inflated growth in the first quarter, causing a temporary snap-back effect in June as factory activity dropped, said economist Daniel Meckstroth.

Other forces like the economic slowdown in Europe could harm manufacturing for the rest of the year, Meckstroth said.

The Wednesday Wrap: July 18, 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.

• “Retail Sales Cap Sluggish Quarter” by Neil Shah and Jie Jenny Zou of The Wall Street Journal

Retail sales dropped again in June, marking the first time that sales have fallen for three months in a row since 2008.

Economic concern due to the weak job market, uncertainty about U.S. tax policy and global economic turmoil have consumers cutting back, said Guy Berger, economist at RBS Securities.

Retail sales are a strong indicator of economic growth, fueling two-thirds of the economy. June’s disappointing numbers have economists reining in growth predictions and could push Federal Reserve officials toward taking additional actions to boost growth.

• “Big Sales, Public Offerings Spotlight Hot Summer For Hotel Investors” by Randyl Drummer of CoStar

Major deals in the hotel industry seem to confirm forecasts by industry analysts that investment in hospitality and lodging space will be strong in the second half of 2012.

 Average daily rates and RevPAR (revenue per available room) are rising in the national hotel sector, according to Marcus & Millichap’s second-quarter Hospitality Research report.

Revitalized asset performance coupled with the low supply of incoming hotel stock continues to push investors to acquire properties, according to the report.

Industry analysts expect transaction volume to increase through the end of the year. But like much commercial real estate investment, investors generally are focused on hotels in major markets with strong local economies and demand drivers, Marcus & Millichap reported.

• “REITs Outperform Broader Market in Q2 and First Half” by Ron Kuykendall of REIT.com

U.S. REITs significantly outperformed the broader equity market in the second quarter, first half of the year and the past 12 months, according to the National Association of Real Estate Investment Trusts.

All REIT market sectors with the exception of apartments showed strong returns in the first half of 2012. The retail sector did particularly well, with a total return of 21.15 percent for the first half. Industrial and office REITs also performed well in the first half of the year.

 REITs also provided stronger dividend yield at the end of the first half than the broader market.

“The requirement that REITs pay out nearly all of their taxable income to their shareholders as dividends makes them attractive to investors as a strong generator of income in both up and down market environments,” said Michael Grupe, executive vice president of research and investor outreach at NAREIT.

• “A Clean Life for Grimy Gas Stations” by Ronda Kaysen of The New York Times

Thousands of gas stations closed in the last 20 years due to the rising price of oil, leaving empty spaces that mar the aesthetic appeal of business districts across the U.S.

Gas stations are often built at busy intersections, making them prime locations for new businesses to be built.

But the opportunity to build at these desirable intersections doesn’t come without challenges, Kaysen notes.

The lots are often on ground contaminated by leaking fuel, and federal regulations require the new owners to pay for cleanup.  The added costs make it hard to get developers on board with investing in a project on a former gas station site.

There’s also community backlash as many of these former mom-and-pop stores are considered historic landmarks in some towns. Developers deal with building constrictions as they attempt to preserve certain historic qualities of the gas stations. 

• VIDEO: “CRE Cap Rates Lower than Estimated” from REIT.com

Paul Curbo, portfolio manager with Invesco, gives his analysis on cap rates. He explains that cap rates are lower than analyst estimates and how cap rates are affecting the apartment sector. Curbo also touches on improved fundamentals in the office sector.

 

 

The Wednesday Wrap: July 11, 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.

• “Blackstone to Shed Office Empire” by Eliot Brown and Craig Karmin of The Wall Street Journal.

Seeking in part to take advantage of increasing institutional demand for mostly leased office properties in good locations, private equity firm Blackstone Group LP is preparing to sell its office portfolio, Brown and Karmin reported late Tuesday night.

The portfolio includes more than 100 buildings and totals about 50 million square feet of space. In addition to rising institutional demand for office properties, Blackstone also is motivated by a need “to return money to investors in funds that typically liquidate after seven to 10 years,” Brown and Karmin write.

The value of the office portfolio could be as high as $22 billion, according to the article. During a February analyst conference call, Blackstone CEO Stephen Schwarzman remarked that if his firm decided to sell the office portfolio, “my expectation is that we will really crush it and we will really do extremely well.”

• “King and Queen Project Go Under Contract” by Douglas Sams of The Atlanta Business Chronicle.

Speaking of breaking news, it looks like Atlanta’s Concourse Corporate Center, featuring the famed “King” and “Queen” office towers that loom over the intersection of Georgia 400 and I-285, is about to find its new owner. Sams reported late Tuesday that Atlanta’s Regent Partners has formed a partnership with Chicago private equity firm GEM Realty Capital Inc. to buy the 2.1 million-square-foot center.

Current owner TIAA-CREF put Concourse up for sale earlier this year. “Regent and GEM are said to have the mixed-use project under contract and would buy it for just north of $300 million, according to people familiar with the process,” Sams writes. “The deal could close sometime in the third quarter.”

• “U.S. Shopping Center Rents Climb Amid Little Development” by Brian Louis of Bloomberg.

Rents and occupancies at U.S. shopping centers rose during the second quarter as precious little new property came online, according to a new report by research company Reis. The second quarter recorded the third-highest spike in occupied space in neighborhood and community shopping centers since first-quarter 2008. 

Vacancies are falling from a recent 12-year high as a low level of shopping center construction has limited space availability, Reis says.  The second-smallest amount of new space came online this quarter since 1999.  Meanwhile, effective rents averaged $16.55 a square foot, up from $16.49 a year earlier.

Reis economist Ryan Severino said that although the results are “heartening,” he remains “cautious about pronouncing a turnaround until we observe a couple more quarters of improvement.”

• “Capital Markets Have a Long Way to Go” by Jennifer Popovec for National Real Estate Investor.

Given concerns about the global economy, commercial real estate lenders are only looking to finance quality assets in major markets owned by strong sponsors, Popovec writes.

“There’s been no meaningful job growth and uncertainties with U.S. debt and Europe just won’t let people believe the situation will be better six months or a year from now,” Steve Holle, a regional director with Northwestern Mutual, told Popovec.

John Pelusi, managing director at HFF, agrees, saying that other than for multifamily transactions, life companies and major banks have stayed away from secondary and tertiary markets since the credit crisis started in 2008. 

Tom Melody, executive managing director of Jones Lang LaSalle’s capital markets group, says that there are some promising signs in the construction sector.  More capital is available for construction projects in select markets, and banks are willing to commit to larger loans, he said.

• "VIDEO: REIT Office Sector Still Struggling" from REIT.com.

Michael Knott, managing director with Green Street Advisors, offers his analysis of the office sector. He touches on why he’s more bullish on high barrier markets, his view on office fundamentals and his outlook for the sector’s recovery. Click here to view the clip.

Thursday Edition of the Wednesday Wrap: July 5, 2012

Since yesterday was a holiday (we hope you had a happy and safe Fourth of July, by the way), we waited until today to present the weekly Wednesday Wrap. 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.

• “Rents Increase as Vacancies Dry Up” by Dawn Wotapka of Wall Street Journal.

The nation’s multifamily sector continues to roll. Apartment rents recorded record highs and vacancy rates hit their lowest point in more than a decade during the second quarter, Wotapka reports.

Real estate data firm Reis recorded record average rents for 74 of the 82 markets it tracks. The rising rent prices were fueled by the national vacancy rate, which fell to 4.7 percent, the lowest since 2001.

In uncertain economic times, more and more people are attracted to renting over buying, due to tighter home lending standards and concerns over job security.

Although many are optimistic that apartment values will continue to rise, the apartment sector could weaken if another dip in the economy leads tenants to move into other households or leaves them resistant to rent increases. Other risks include an over-saturation of the market by eager developers and homebuilders marketing more affordable houses, Wotapka notes.

• “Green Building Industry Marching Forward, but Facing Some Uncertainty” by Randyl Drummer of CoStar.

The rising interest of the commercial real estate sector in sustainability doesn’t mean the green building industry isn’t facing some significant challenges. That was the take of the participants of CoStar’s recent “Current Trends in Green Real Estate” webinar.

For example, the U.S. Green Building Council recently postponed the vote on the newest version of LEED certification standards because of stakeholder concern about the changes, and adhering to the wide variety of local green building codes can prove time consuming for building owners and operators with facilities in multiple jurisdictions.

“You’re finding a lot of variation in adoption between jurisdictions,” said Peter Morris, director with Davis Langdon.

Additionally, the federal government’s interest in green building is clashing with fiscal realities, Drummer writes. The General Services Administration is cutting back on new construction and sustainable building alterations. For fiscal year 2012, Congress has even prohibited agencies from spending money to achieve LEED Gold or Platinum certification.

• “The Student Housing Opportunity” by David Lynn for National Real Estate Investor.

Rapid growth in university enrollment growth and state budget woes are presenting a great opportunity for private, off-campus student-housing developers, Lynn writes.

The demand for a college education is spreading, and college populations are expected to continue to grow about 1 percent annually through 2020. With state budget cuts, universities and colleges have had a hard time keeping pace with the influx of students needing housing, and outdated on-campus housing is boosting demand for new facilities with modern amenities.

Lynn notes that student housing has significant operating challenges, such as a shorter leasing period, higher maintenance and significant annual turnover.

• “Not Your Parents’ Student Housing” by Amy Wolff Sorter of GlobeSt.com.

Lynn’s article isn’t the only student-housing-related piece that caught our attention this week. This article from GlobeSt.com details the rising quality of amenities in such facilities. Simply put, student housing no longer means cinder-block walls with an uncomfortable bed and a tiny desk, Wolff Sorter writes.

At many student housing projects, luxury amenities are offered to beat out strong competition within the industry. Amenities like dog parks, clubhouses and tanning beds are being offered not only to satisfy trend-conscious students but also their parents.

Parents are “spending a lot of money on tuition today, and the feel that, if they’re going to spend the money, they want the kids to have it good,” Terrell Gates, founder and CEO of Virtus Real Estate Capital, told Wolff Sorter.

• “Developers Adapt Strategies to Fit Dynamics of Mature and Emerging Markets” by Beth Mattson-Teig for Retail Traffic

Shopping center developers are handling volatile but mature markets very differently than how they are tackling emerging markets, Mattson-Teig writes. While they’re playing it safe in mature markets such as the United States and Western Europe, they’re acting much more aggressively in markets such as China and India.

In the United States and Western Europe, given the economic woes in both regions, developers are avoiding new construction, instead working on the redevelopment or expansion of existing shopping centers located in top markets.

Meanwhile, development in emerging markets in some areas of the Middle East, Asia and Latin America is “very active,” according to Mattson-Teig. Still, developers in these areas aren’t “throwing caution to the wind.” Developers are focusing their efforts on Tier 1 cities like Jakarta in Indonesia, where the population explosion offers plenty of opportunities for expansion.

The Wednesday Wrap: June 27, 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.

• “Malls Compete Harder as Economy Recovers, Says Moody’s” by Bendix Anderson for National Real Estate Investor.

Dominant malls continue to draw retailers away from their weaker counterparts, according to a report entitled “US CMBS: Growing Gap between Strong and Weak Malls” from Moody’s Investor Services.

In a mall market challenged by online merchants and other retail formats including outlets, power centers and lifestyle centers, retailers are increasingly attracted to malls that are the dominant or only mall within a trade area, have four or more anchor department stores, and have high occupancy and tenant sales rates, Anderson writes.

The report also notes that the national retail vacancy fell to 10.9 percent in the first quarter, the first decline since 2005.

• “Bank Downgrades Won’t Impact CRE Lending—Yet” by Jacqueline Hlavenka, Natalie Dolce and Robert Carr of Globe St.

Moody’s downgrades of 15 major banks last week are not a concern to many of those in the commercial real estate industry, according to this GlobeSt.com report.

Industry leaders say they expect little impact from the downgrades, as they were expected for some time and that they take little stock in the rating agencies anyway. “They’ve lost a lot of credibility, especially after they missed the collapse,” said Joel Ross, principal with Citadel Realty Advisors. “Major investors today are smart enough to do their own analysis. The rating is just one minor part of it.”

• “Commercial Real Estate Recovery Far From Complete, Says NAREE Panel” by Matt Valley of REBusinessonline.com.

The commercial real estate market is not out of the water yet. That was the general consensus of a panel discussion at the National Association of Real Estate Editors Conference in Denver last week.

Although the panel was titled, “Commercial Real Estate: The Crash That Never Happened?” most of the panel members agreed that the market did indeed crash.  Furthermore, Bill Hoffman, CEO of Trigild, said the potential for a relapse is there because $1.4 trillion in commercial real estate loans will come due over the next three years, and the resulting sales of troubled assets could lower prices again.

Panel members also showed concern over rising multifamily valuations.  Bob Jacobs, chief investment officer for The Broe Group, said developers are willing to assume high risks for new construction but most sites will likely have only a “very modest return scenario.”

• “Investors Plow Equity Into Projects” by Eliot Brown and Craig Karmin of The Wall Street Journal.

Developers increasingly are looking past the debt markets and turning instead to equity to finance high-risk projects in major U.S. cities, according to Brown and Karmin. Most developers pursuing such projects – such as speculative office towers in Chicago and San Francisco - are relying on outside equity but some are using their own capital.  

Increased reliance on equity reduces potential gains but “the returns still look good to investors in an environment of low interest rates and turbulent stock markets,” Brown and Karmin write.

• “Macro Concerns Weighing on Commercial Real Estate” by Carisa Chappell of REIT.com.

The country’s REITs have been able to improve their balance sheets in recent months, but the looming crises in Asia and Europe are casting shadows over their future, Tony Kenkel, portfolio manager with Principal Global Investors, told Chappell.

“I think the unfortunate thing is we continue to be in a very macroeconomic-driven world,” Kenkel said. 

Kenkel said the multifamily market has strong operating fundamentals, but he expects demand will drop when the emerging new supply hits primary markets.  He also said hotels are typically sensitive to a slowing GDP, but that the sector is currently “defying gravity,” which will soon change if unemployment rates don’t improve, he added.

The Wednesday Wrap: June 20, 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.

• "Class-A Office Leasing Picks Up, Mostly in Gateway Markets" — by Elaine Misonzhnik of NREI.

The wide gap between the demand for office properties in central business districts and those in suburban areas continues as businesses concerned over current economic turmoil are holding off on large-scale expansions, Misonzhnik reports. Those firms that do expand are choosing space in the downtown areas of gateway cities.

Even as the office sector shows positive net absorption for the fifth straight quarter and asking rents have increased slightly, the national vacancy rate of 17.2 percent is still nearly five percentage points higher than its most recent low in 2007.

One major worry for businesses is the economic crisis in the eurozone. “Everybody is pretty nervous right now about what’s going on in Europe and companies are reluctant to take on expansion space,” Robert Bach, senior vice president and chief economist for Grubb & Ellis, tells Misonzhnik. “Vacancies are declining; rents are flat for the most part, but increasing modestly in the best buildings in a few markets. But overall, the office market is not setting the world on fire right now. It’s a half-speed recovery.”

• "Big-Box Space Remains Hard to Fill" — by Kris Hudson of The Wall Street Journal.

Vacancies caused by the collapse of Borders have been hard to fill for many shopping centers, causing high vacancy rates, falling rents and debt defaults at many sites, Hudson reports.

According to Colliers International, one-third of closed Borders stores are still vacant. When landlords finally find replacement tenants, they’re leasing at rates about 30 percent lower on average than what Borders paid, resulting in weaker cash flows. Many landlords also are facing discontent among other tenants due to lessened traffic, Hudson notes.

As most big-box retailers continue to struggle because of the economy and current shopping trends, some developers are abandoning the big-box concept all together. “Some industry watchers believe that big-box centers are facing problems that go beyond a weak economy,” Hudson writes. “Rather, they suggest that these shopping centers are going to suffer long-term declines because Internet shopping offers more choice and greater ease.”

• "Pace of Recovery Accelerates For Lower-End CRE Properties" —by Randyl Drummer of CoStar.

Commercial real estate investors are looking outside primary markets and the best buildings for their purchases, according to this month’s CoStar Commercial Repeat Sales Indices report. The data shows that the price recovery originally felt by the largest and most expensive buildings is now broadening to the rest of the commercial real estate market.

The CoStar report also comments on a number of other trends in the industry: the share of commercial property purchases by European buyers has almost tripled in the last year; time on the market prior to sale is decreasing; and the sale of distressed property is also declining.

• "Seniors Housing Vital Signs Will Continue to Strengthen, Says M&M" — by Matt Valley of REBusinessOnline.com.

Certain segments of the seniors housing market are improving, according to a new research report by Marcus & Millichap Real Estate Investment Services. Both average occupancy and rents for independent living properties, the segment hit the hardest during the recession, are expected to rise.

“As nationwide occupancy for traditional apartments has soared over the past two years, rents have climbed to a level where traditional apartments are no longer a major substitute for independent living units,” Gary Lucas, director of the National Seniors Housing Group at Marcus & Millichap, tells Valley. “A short time ago, the independent living sector was the weakest, but now it is the second strongest and still has room to strengthen.”

Demand for senior housing is expected to grow as the economy recovers and the number of Americans over the age of 75 continues to swell.

• "Promising Signs for Commercial Real Estate" — by Carisa Chappell of REIT.

Those in the REIT industry are optimistic about their sector’s performance for the remainder of the year, according to a new survey by PricewaterhouseCoopers and the Urban Land Institute.

REITs generally are reporting healthy returns so far this year, a trend they expect to continue for the second half of 2012. REIT leaders also noted big improvements for the industrial sector, which showed gains in manufacturing, and added that the multifamily and retail sectors both appear stronger.

Europe’s financial crisis, however, casts a shadow over those in the REIT sector and the larger commercial real estate market. “The failure and break-up of the eurozone and a Greek default would be pretty dark scenarios that are weighing on investor sentiment,” Arthur Jones, an economist with CBRE Group Inc., tells Chappell.

The Wednesday Wrap: June 13, 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.

• "USBC Postpones, Renames New LEED Standard" – by Randyl Drummer of Costar.com.

While the popularity of LEED certification continues to grow, the implementation of new LEED standards continues to experience delays. The U.S. Green Building Council recently announced the vote to approve the new standards could be delayed until as late as June 1, 2013.

Even though LEED committees have been working on the new version — formerly called LEED 2012 but now referred to as LEED v4 — for more than three years, building industry professionals want more time to prepare for the changes, Drummer reports.

“This is 100 percent in response to our members’ desire that we give them a bit more time to absorb the changes in this next version of the rating system,” USGBC President and CEO Rick Fedrizzi tells Drummer. “We want to do everything we can to ensure that the market can fully embrace LEED v4 because it represents significant progress on carbon reduction and human health.”

• "Demographics, New Assumptions Drive Commercial Real Estate" - by Susan Piperato of NREI.

This isn’t your grandfather’s – and maybe not even your father’s – commercial real estate industry. The assumptions that once drove the commercial real estate market have shifted, according to a recent panel discussion at the Strategic Real Estate Conference in New York.

Echo Boomers (those born between 1982 and 1995) want to live in more urban, walkable areas than previous generations of young people, and they require less living space. “They like to live in cities, and if they don’t live in New York they like to live in cities that behave like New York — like Austin or Denver,” said Gunnar Branson, president and CEO of the National Association of Real Estate Investment Managers.

Meanwhile, Baby Boomers also are challenging previously held ideas, often retiring later than 65 and no longer flocking to retirement communities as they once did, preferring to stay near family and more affordable housing, other panelists noted.

• "Tenants Continue to Rule the Market" - by Mark Heschmeyer of CoStar.com.

Job growth numbers released by the U.S. Department of Labor for the month of May were disappointing again, meaning tenants continue to have the upper-hand in negotiating lease rates.

"Landlords are keenly aware of the limited tenants in the marketplace and the need to maintain occupancy in a highly competitive market,” Carl Concellor, principal of NAI Desco, tells Heschmeyer. “Landlords will continue to be aggressive in structuring leases to capture tenants as early as possible, while blocking them from the competition."

"We are still seeing activity from medium to large tenant requirements but the bread-and-butter transactions are lacking," says Mark H. Fowler, senior vice president of Weichert Commercial Brokerage Inc. “I am not sure that demand will worsen as a result of the numbers but we probably face a long, slow summer.”

• "CRE Values Up, but Treasury Troubles Loom" - by Jacqueline Hlavenka of GlobeSt.com.

With limited new construction in the commercial real estate market these days, property values for existing buildings are rising, according to speakers at the Urban Land Institute’s second annual “Real Estate Finance and Investment” conference in New York.

“The most important thing are fundamentals: net operating income, rental level growth and occupancy. NOIs are actually moving upward quite nicely, and they will continue to move up nicely unless we hit a traumatic double-dip recession,” said keynote speaker Stephen J. Furnary, chairman and CEO of Clarion Partners.

Jacques Gordon, global strategist at LaSalle Investment Management, said his firm experienced a 48 percent higher transaction volume in the first quarter compared with the same time last year, but he remains wary of U.S. treasuries. Gordon noted that a rise of the historic low interest rates is something to “worry about big time,” citing the adverse affect an increase would likely have on property values.

• "Feds Report Stronger Demand for Commercial Real Estate Loans" - by Michelle A. Samaad of Credit Union Times.

Atlanta’s commercial real estate market has taken a beating over the past several years, but a report from The Federal Reserve Board provides an indication that things are improving at last. The Fed’s recently released Beige Book says the demand for commercial real estate loans picked up in Atlanta in April and May when compared with the preceding two months.

Most of the Fed’s other 12 districts – which include Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, Va., San Francisco and St. Louis – reported improving loan demand as well.

“Given the woes from the past couple of years, whether intellectually or emotionally perceived, the reports should be seen as good news for the industry,” Brian Turner, director and chief strategist at Catalyst Strategic Solutions, tells Samaad.

The Wednesday Wrap: June 6, 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.

• “Apartment Upturn Lifts Post Properties” – by Dawn Wotapka of The Wall Street Journal.

What a difference a few years has made for apartment REIT Post Properties. In 2008, the firm unsuccessfully put itself up for sale and its shares dropped below $10. However, a focus on fixing its balance sheet and recent trends in homeownership have turned the company around, Wotakpa reports.

Under a weakened economy, millions of people were no longer willing or able to be homeowners, significantly boosting the rental market. Analysts and investors told Wotapka they’re confident the firm will continue to thrive when the housing market inevitably improves, in part because Post’s communities have the kinds of amenities that appeal to younger workers, who will continue to look to rent instead of own.

The good news for Post was that it had already started building new rental communities before many competitors decided to as well. “We expect they’re going to have their properties out of the ground faster and be able to capitalize on this upswing,” said Brendan Lee, a portfolio manager with TIAA-CREF’s Real Estate Securities Fund.

In the meantime, Post’s stock price is now near $50, and the firm carries one of the apartment sector’s lowest debt loads.

• “More Room for Ideas in a Smaller Office” – by J. Michael Welton of The New York Times.

In an effort to reduce office space costs in a tighter economy, many companies are looking to reconfigure their offices to use less square footage. Often, this means reducing the number of private offices for a more open layout.

The result? According to Welton, companies are reporting not only a reduction in office expenses, but higher collaboration and efficiency among employees.

One example he cites is the ad agency 22squared in Atlanta, which previously had three floors of space, but decreased to two floors with the help of architecture firm Gensler and commercial real estate services developer Carter USA. Walls were torn down in favor of less private offices, and collaborative work areas now dot the space. Glass walls for writing were constructed, and natural light is utilized across the space. According to Gensler’s Workplace Performance Index, collaboration has increased by 22 percent at the firm since the renovation.

• “Fast Times for Student Housing” – by Bendix Anderson for National Real Estate Investor.

States aren’t building new dorms fast enough for today’s rising college student population, says “Surging Student Populations Stress On-Campus Housing,” a new white paper from the National Multi-Housing Council (NMHC).

“That presents a huge opportunity for private developers,” said Jim Arbury, vice president of student housing for NMHC.

According to a report from College Planning & Management magazine, 42 percent of campus housing officers reported too little housing for students.

Anderson’s article cautions developers to not rush into the student-housing market but to make sure they are aiming for schools with strong demand and little supply available or in the pipeline.

• “Industrial Sector Is Silver Lining in Subpar May Jobs Report” – by Matt Valley of REBusinessOnline.

Employment numbers for May overall were not as strong as expected, but last month showed a healthy increase in jobs in the industrial sector, Valley reports. The manufacturing, wholesale trade, and transportation and warehousing sectors added 63,500 jobs in May versus 3,600 in April.

“The surprising surge in jobs important to industrial real estate indicates the continued health of the manufacturing sector and the strong volume of goods flowing through corporate supply chains,” Bob Bach, chief economist for Grubb & Ellis, told Valley.

Overall, though, nonfarm payroll jobs counted 69,000 additions last month, way below the expected 150,000 jobs, pushing the unemployment rated up to 8.2 percent. Economists had predicted a slowdown in job creation, but not this quickly, said Victor Calanog, director of research for Reis.

May is now the fourth consecutive month in which payroll job growth has slowed.

• “Retail Recovery Boon for Atlanta Architects” – by Jennifer LeClaire of GlobeSt.com.

Atlanta’s recovering job market is encouraging expansion by retailers and restaurants, LeClaire writes. According to Marcus & Millichap’s latest Retail Research Market Overview, retailers like Publix and Kroger are looking to open new stores, not just renovate existing ones, while Walmart is looking at introducing its smaller concept stores in the area. Restaurants like Dunkin’ Donuts, McAlister’s Deli, Taco Mac and Newk’s Express Café are also looking at expanding.

However, while Marcus & Millichap is very optimistic, Kevin Cantley, president and CEO of Cooper Carry, says the retail market is still relatively quiet. He says some property owners are looking at renovating shopping malls and building some new single-tenant retail sites as well.

The Wednesday Wrap: May 30, 2012 (with video)

Each Wednesday, The Wrap presents a compilation of recent noteworthy commercial real estate stories from a variety of publications. Below are five items that caught our eyes in recent days. You'll notice a heavy emphasis on pieces from the 2012 ICSC RECon conference and trade show, which concludes today.

• RECon 2012: A Return to Normalcy by David Bodamer of National Real Estate Investor/Retail Traffic.

Last week’s ICSC RECon stood as a heartening example of how far the retail real estate market has come since bottoming out in 2008 and 2009, Bodamer reported in his show wrap-up.

The conference was marked by a sense of optimism, he wrote, as attendance rates were up and companies reported deals in the works. Retailers were looking for new spaces, and landlords reported finally having some leverage in lease negotiations.

“It’s been a slog to get here,” Bodamer wrote. “But by all accounts, ICSC’s RECon 2012 marked the first time since the commercial real estate market peaked in 2007 that the conference felt like it did during the boom years. There was optimism. There were full halls. And, most importantly, deals were getting done.”

Another reason for the sprightlier mood, attendees said, is that the last few years have given companies a chance to work on their balance sheets and portfolios to create safeguards against future dips in the economy.

• Retailers Really Are Looking 'Outside the Box' for Opportunities by Nellie Day of REBusinessOnline.com.

As a result of the ever-increasing popularity of Internet sales and finicky consumer bases, big-box retailers are having to “think outside the box” to create appealing destinations for shoppers. This according to a big-box panel discussion at RECon 2012.

“A number of companies are turning their attention away from the mega spaces to provide more personalized, intimate shopping experiences,” Day wrote.

Panelist Car Muller, vice president of real estate and design for Walmart, noted his company’s smaller Neighborhood Market stores, of which there are now 200 nationwide, and its testing of Walmart Express stores as examples of the turn to more intimate shopping. Also, Edward Hogan of Brookfield Office Properties noted his firm’s partnership with Target to develop a City Target in a downtown Los Angeles shopping center.  The store is 90,000 square feet instead of Target’s typical 150,000 square feet and is geared to intown dwellers.

• Permits Climb as Developers Up Their Bets by Laura Kusisto of The Wall Street Journal.

Here’s another good sign for the commercial real estate markets: construction activity in Manhattan is starting to pick up. The New York City borough experienced a 169 percent spike in new building permits during the first four months of this year.  The city issued 35 construction permits for Manhattan projects in the first third of the year, up from 13 during the same period in 2011.The permits cover hotels, apartments, an affordable-housing complex and an art gallery, Kusisto reported.

“The latest spike in permits reflects developers’ growing confidence in certain sectors, especially demand for rental housing and hotels, even while demand for office space lags,” Kusisto wrote.

Because of the lack of new space to come on line in recent years, “we feel that the market is very good right now and ripe for new condominium projects,” Michael Namer, chief executive of Alfa Development, which has broken ground on a 51-unit condo project on 21 Street, told Kusisto.

• Owners Report Scattered Leasing Success in Q1 by Mark Heschmeyer of CoStar.com.

The start of the year showed improvement in office occupancy for many landlords, according to Heschmeyer’s detailed analysis of the first-quarter reports of 15 publicly traded real estate firms. However, the reports paint a picture of continued overall softness in the office market and indicate the firms aren’t wildly confident about the road ahead.

“While expectations for a continued slow recovery should result in expected hiring and improved leasing demand later this year, they acknowledge that economic uncertainties could drag down any success they might have been expecting,” Heschmeyer wrote.

“Many of the firms reported that office leasing was strongest among technology and life science firms, while government leasing activity was soft,” Heschmeyer added.

The Wednesday Wrap: May 23, 2012 (with video)

Each Wednesday, The Wrap presents a compilation of recent noteworthy commercial real estate stories from a variety of publications. Below are five items that caught our eyes in recent days. You'll notice a heavy emphasis on pieces from the 2012 ICSC RECon conference and trade show, which concludes today.

• "Retail Industry is Optimistic, But Still Wary" – By Susan Piperato of Retail Traffic.

“Cautious optimism.” That’s how Piperato described the mood at the 2012 ICSC RECon conference and trade show.

A survey of the 350 attendees of the show’s CBRE Capital Market Luncheon revealed that 58 percent agree with the statement “Things are better than last year, but not great,” Piperato reported. Thirty-two percent agreed with the statement “Things are better than last year [and] we’re out of the woods.”

“There’s no euphoria, but at the same time it’s not the opposite either,” said Spencer Levy, executive managing director of capital markets for CBRE and the luncheon’s moderator.

Daniel Mullinger, an executive vice president of PNC Real Estate, told Piperato his firm is seeing increased transaction volume but also noted retail developers remain somewhat “tentative.”

“[Developers are] telling us they need to have [leasing levels that] are higher than they were in the past. … We’ve had clients that said they want to be 70 percent or 80 percent leased before they start,” Mullinger said. “That’s higher levels than [in] 2006 and 2007.”

• "Retail Landlords Sigh in Relief as Leasing Activity Gains Momentum" – By Elaine Misonzhnik of Retail Traffic.

While retail development has yet to get fully back on track, landlords attending RECon reported a heartening uptick in the leasing of their existing properties, Misonzhnik reported. Retailers in the dining, specialty apparel, department store and entertainment segments have all shown growth recently, RECon attendees said.

The resulting drop in vacancies means that prime shopping locations can finally be more aggressive with rents, Misonzhnik noted. However, one area of the market that is still struggling is small-shop space, which has not seen as promising gains in rent.  The major holdup? It’s hard for mom-and-pop retailers to get financing.

Another “good sign that retailers are seriously looking at expansion is that a lot more retail CEOs and CFOs are attending this year’s RECon than in the past,” Misonzhnik wrote. “The C-level executives have become much more involved in real estate decisions since the downturn.”

• "RECon Panelists: Social Media Key to Driving Retail Concepts" – By Natalie Dolce of GlobeSt.com.

Social media is more than just a means for checking up on your ex-boyfriend or girlfriend. It’s a technology that can provide tremendous benefits to retailers and retail managers and help them overcome current market challenges, according to an ISCS RECon 2012 panel discussion detailed by Dolce. Panel members included property and asset managers.

According to Bill Goeke, senior vice president and director of Weingarten Realty Investors, social media outlets like Twitter and Facebook are outstanding marketing tools because they are free and give both consumers and possible investors constant updates on company news.

The panel was quick to note, however, that social media requires effort and a plan. Gregory Carbone, director of property operations at EDENS, said that in order for social media to be an effective resource “you have to be dedicated to it and see the value in it.”

• "CRE Price Recovery Continues Despite Seasonal Volatility" – By Randyl Drummer of CoStar.com.

Things aren’t exactly booming in commercial real estate (other than the multifamily sector) but property pricing continues to improve. CoStar’s U.S. Composite Index ended the first quarter 4.3 percent higher than it was at the same point one year earlier.

Price recovery is also moving into non-core and secondary markets, according to Drummer.

“As fundamentals have continued to improve, the Office Index has shown sustained pricing growth over the past year,” Drummer wrote. “Office prices are up 13.1 percent over year-ago levels, the largest annual increase among the five primary property types.”

The Wednesday Wrap: May 16, 2012 (with video)

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

• “Slip In First Quarter Warehouse Demand Tied to Slowing U.S. Economy” by Randyl Drummer of CoStar.com. The first quarter of 2012 brought both some good news and some not-so-great news to the U.S. industrial real estate sector. First, the good news: aided by a continued lack of new supply and retailers’ demand for distribution space, the sector’s national vacancy rate dropped 20 basis points to 9.4 percent, according to Drummer’s summary of new CoStar data.

Now, the not-so-great news: although net absorption remained positive in the first quarter, it declined by about 33 percent when compared to fourth-quarter 2011.

Still, Rene Circ, director of industrial research for Property and Portfolio Research (PPR), CoStar’s analytics and economic forecasting division, didn’t seem too concerned. “We definitely saw a slowdown in demand during the first quarter of this year," she said. “[But] It was a slight slowdown and we do expect it to pick up."

• “Clash of the Titans: Regional Mall REITs Fight for Limited Outlet Development Opportunities” - by Elaine Misonzhnik of National Real Estate Investor. While many retailer spots are struggling in the current economic climate, outlet centers have held their own, capitalizing on consumers’ recession-fueled desire for discounts.

However, most areas can only support one outlet center, meaning retail REITs now find themselves in intense competition to acquire the land and the tenants for new developments, Misonzhnik reports. Developers like Taubman and Simon find themselves aggressively competing for the biggest names in outlets, such as Saks Fifth Avenue OFF 5th, Coach, Polo and Neiman Marcus Last Call. These key stores attract other retailers, making or breaking a prospective outlet development, Misonzhnik says.

• “How Florida is Adapting to the Changing Retail Landscape” by Carrie Smith of Franklin Street for REBusinessonline.com. Florida is experiencing a particularly slow economic recovery, and that has forced shopping center owners and commercial real estate developers to adjust to the state’s “new normal,” Smith writes.

With the state’s unemployment continuing to hover above 9 percent, consumers are predictably cautious about spending their disposable income. However, chain restaurants with recognizable brand names and discount retailers are doing good business, and landlords are anxious to sign these tenants, according to Smith.

Retail landlords also are reducing leasable space and have become more discriminating in the tenants they choose, preferring to sign national retailers and even medical office tenants. Smaller, independent retailers are viewed more suspiciously by shopping center owners and must therefore look to Class B and C spots.

Like so many other states, Florida is also experiencing the urban infill trend, and retailers are looking to lease space in centrally located, walkable environments.

• “Novare Plans New Midtown Tower” - by Douglas Sams of the Atlanta Business Chronicle. More evidence of the continuing popularity of urban, mixed-use properties emerged recently in Atlanta, where developer Novare Group unveiled its proposal for a 23-story apartment tower in the city’s Midtown district. The tower would include up to 320 apartments. 

“Midtown is one of the most prominent cosmopolitan centers in the Southeast, where people, business and culture come together to create a true live-work-play community providing a quality of life very dear to its residents,” said Jim Borders, president of Novare Group, in a press release.

This project would capitalize on the evolving “rentership society” in the United States, wherein more people, especially those in their 20s and 30s, are looking to rent and live within the city, rather than own a home in the suburbs, Sams writes.