LWR Commercial Real Estate
News
Two deals highlight the disparities in current market
Aug 16th
MV Enterprises, a Sarasota company managed by Brian Y. Miller, has sold a 2,588-square-foot retail outlet at 5255 Ocean Boulevard in downtown Siesta Key to Louise and Charlene Khaghan for $850,000.
That’s a $328 per SF price tag.
Now, look at the $33 per SF paid for a Venice warehouse.
Construction Supply Company of Venice, a Venice company that lists Vicki Freeman as its president, has sold a 9,000-square-foot heavy industrial warehouse at 218 Seaboard Avenue in Venice to Seaboard LLC, a company based in Sparta, Michigan, for $300,000.
Construction Supply had at least $270,000 in outstanding loans on the property at the time of the sale.
The loans were originated by Community National Bank of Sarasota and assumed by Stearns Bank after Community National failed in August 2009.
The principles of supply and demand are alive and kicking, with properties in grade-A locations serving high traffic areas with vacationers spending money still worth top-dollar.
Unfortunately, it is going to be a long hard slog for those warehouses which have no real demand for inventories that just aren’t moving.
Heavy equipment leasing company breaks ground on 30,000-square-foot Bradenton facility
Aug 12th
Heavy equipment leasing company breaks ground on 30,000-square-foot Bradenton facility
By Michael Braga (email)
Centec Equipment LLC, a brand new Sarasota company that sells and leases pre-owned and reconditioned bucket trucks, dump trucks, digger derricks and other heavy equipment, has broken ground on a 30,000-square-foot facility at 7120 26th Court East in southern Manatee County.
Centec bought the 12.6-acre tract in February for $1.95 million. Its new building will come complete with a 14-bay service shop, two-stage paint & fabrication center, tire service center and commercial truck wash.
“The owners are thinking outside the box big-time,” said Eric Shumway, a commercial agent with Re/Max Alliance Group who found the land for Centec. “The objective of their site was not to generate walk-in traffic. They are putting their products online and will sell all over the country via the Internet.”
Centec was created in December by Jack Urfer, who has more than 40 years of experience as an auto dealer. His new company’s web site boasts that Urfer has owned and operated a wide variety of dealerships, including American Motors, Subaru, Mercedes Benz, BMW, Infinite, Porsche, Audi, Volkswagon, Landrover, Mahindra and Sports Chasis.
UTC to keep headquarters here, plans to add 23 jobs
Aug 4th
LAKEWOOD RANCH — The Lakewood Ranch-based United Technologies Corp. announced Friday that several divisions of its business unit, UTC Fire & Security, will maintain Manatee County as its headquarters.
Manatee County approved local and state incentives for the company due to concern UTC Fire & Security might choose to relocate several company divisions after United Technologies acquired GE Security earlier this year.
UTC Fire & Security President William Brown announced its three divisions — Global Security Products, Global Fire Products and Fire & Security Services — will maintain its Lakewood Ranch facility off Town Center Parkway and projects it will add 23 jobs to its current workforce of 227.
“We wanted to improve our competitive position and consolidate some overlapping activities that resulted from the GE Security acquisition,” said John Moran, spokesman for United Technologies Corp, which is based in Farmington, Conn.
The 23 jobs will be created over the next two to three years due to anticipated growth in the UTC Fire & Security division, which provides fire safety and security solutions.
The Manatee County Board of Commissioners approved a match for state incentives and a local grant that will total no more than $92,000 over the next five years.
“This ensures that the operations and the jobs associated with the local facility will not only remain, but will grow,” said Eric Basinger, executive director of the Manatee Economic Development Council in a news release.
Read more: http://www.bradenton.com/2010/07/31/2472338/utc-to-keep-headquarters-here.html
Anthony Homer in National News
Jul 9th
Distress? What Distress? 5 Office Markets Attract Top Dollar for Prime Assets – CoStar Group.
The same property and market fundamentals are not as apparent outside of the five markets examined — not even for such major markets as Chicago.
“Chicago has been experiencing declining office rental rates in constant dollar terms since 2001 and declining occupancy rates,” said McKim N. Barnes, senior vice president-research and analysis at Draper and Kramer Inc. in Chicago. “And the job counts in Where Workers Work (put out by the Illinois Dept. of Employment Security) indicate no growth in the Chicago region and in Chicago’s downtown. Without job growth, how will there be rent increases in real terms?”
Jones of Far East National Bank, said he has “noticed no spillover effect to B- and C-level properties in sluggish markets. There, the mindset of buyers/investors is the opposite – no one seems to want to pay the asking price for an asset which is less than the price in a less-than-prime location. They may bid the asking price, but then they’ll find all sorts of ways to negotiate the price down – problems with the property, potential liability issues, etc.”
Anthony Homer, a commercial associate with LWR Commercial Realty in Lakewood Ranch, FL, said there is another reason the activity has not trickled down so far.
“Most of the Class A office properties in smaller markets, like ours, are owned by privately held firms or single owners. There has been a trend among national and local tenants of moving ‘up the food chain’, into the most desirable office properties,” Homer said. “Couple these factors with a lack of comparable investment alternatives and there is little motivation for these landlords to sell performing assets. That’s what we’re seeing in our market and I think the same factors apply in many of the secondary and tertiary markets in Florida.”
CoStar’s Hession says that interestingly enough, the trend is reversed in the struggling Southern markets, with higher-vacancy properties changing hands.
“High-vacancy Southern markets including such markets as Dallas-Fort Worth, Houston, Atlanta, Phoenix, Tampa, and South Florida have yet to see an uptick in investment, and about one in four of this year’s deals in those markets has been distressed,” Hession said. “Properties that last sold during the peak are holding up a bit better, although vacancies are still extremely high compared to the favored [markets]. This suggests that sellers are throwing in the towel and dumping their poorly performing assets in these markets. The buyers of these assets, however, appear to be using their lower basis to buy occupancy. The vacancy rate in these recently purchased assets has been declining since the beginning of 2009, even as properties sold from 2006-07 continue to see occupancies erode.”
“As investors get frustrated with the fierce competition for core assets in the primary markets, they will begin to move out along the risk spectrum, either acquiring higher-occupancy properties in secondary markets or more value-add deals in primary markets,” Hession said. “When the capital train approaches those stops, pricing and competition will rise accordingly, particularly as job growth, leasing, and absorption become more apparent and vacancies begin to crest.”
Commercial Property Owners Brace For Economic Impact of Gulf Oil Spill – CoStar Group
Jun 10th
Read the full story here: Commercial Property Owners Brace For Economic Impact of Gulf Oil Spill – CoStar Group.
Specifically on Florida:
Florida
Of all the Gulf Coast states, Florida has the largest coastline and an extremely fragile ecosystem, which puts it at significant economic risk depending on the migration pattern of the massive oil slick. Florida lacks an income tax and relies heavily on sales tax revenues, particularly those derived from tourism, which has suffered during the current recession. Tourism and recreation spending totaled $65 billion in 2008, resulting in about $3.9 billion in sales tax receipts, or about one-fifth of Florida’s total sales tax revenues.
“Near-term credit risks in Florida appear to be associated with the western Panhandle coastal communities, although there is significant potential for broader statewide impact,” Moody’s said.
The Panhandle area is less densely populated and the immediate economic impact may be manageable, with and expectation of reimbursement of losses from cancelled reservations and local fishing activity.
However, “the longer-term outlook could be much more negative,” Moody’s said. “The state’s high dependence on tourism dollars and jobs is significant, and a gradually worsening disaster associated with any part of Florida’s 1,197 coastline miles could likely have long-term implications even greater than the recent global recession or Hurricane Ivan in 2004.”
Deteriorating Debt Service Coverage Ratios Trouble Trepp
Jun 8th
An analysis of nearly 34,000 fixed-rate loans in U.S. commercial mortgage-backed securities shows that 13.7% have a debt service coverage ratio of less than 1.0 — a strong sign of financial weakness. Based on its findings, New York-based research firm Trepp LLC expects the percentage of CMBS loans in special servicing to continue rising from 11.7% through May to as high as 20%.
If realized, that could result in $75 to $80 billion in troubled loans headed for special servicing on top of the $82.8 billion already occupying that spot. Trepp officials don’t expect the default rate on CMBS loans to peak until mid-2011.
Read the full story here: Deteriorating Debt Service Coverage Ratios Trouble Trepp.
To put it in perspective though, read this portion:
Of the $44.6 billion in loans that are considered current but have a debt service coverage ratio below 1.0, approximately $35.7 billion, or 80%, were generated from 2005 through 2007, a period marked by lax underwriting standards. “During this time, pro-forma underwriting painted a rosy picture of future property fundamentals and valuations,” according to Mancuso.
I can tell you that $35.7 billion being rewritten to 60% of it’s appraised value isn’t nearly bad enough to make me lose sleep at night.
REO Saturation Dropping in Housing Market
Jun 7th
Detroit, Mich. landed the top position among the lowest performing major markets this month. However, Detroit’s -10.7 percent quarterly price change is a substantial improvement over last month’s -14.4 percent quarterly change. Detroit is indicative of the overall improvement among the entire set.
All of these markets improved their quarterly losses from last month’s report, this month averaging a -4.9 percent price change compared to -11.1 percent last month. Additionally, thirteen improved their yearly numbers, and twelve improved their REO saturation rates. And the exceptions were modestly off, with yearly prices falling 2.7 percentage points in Oklahoma City, Okla., and only 0.2 percentage points in Tampa Fla. REO saturation rose only 0.6 percent in both Bridgeport, Conn. and Baltimore, Md.; while New Haven, Conn. held steady.
Memphis, Tenn. — last month’s lowest performing major market — moved down to fourteenth position, helped by a 5.7 percentage point reduction in REO saturation, and largest quarterly price improvement among this group.
Multifamily Housing Developers Inch Back Into Market – WSJ.com
Mar 3rd
Multifamily Housing Developers Inch Back Into Market – WSJ.com.
In St. Petersburg, Fla., close by Tropicana Field, an unusual structure is emerging from a construction site: a rental apartment building.
The work in progress on the Fusion 1560, a 325-unit upscale project in one of the states hit hardest by the housing crisis, is a sign that developers of multifamily housing are tiptoeing back into the business. This year, real-estate investment trusts, or REITs, are expected to start close to $1 billion in new multifamily projects, according to real-estate research firm Green Street Advisors. While that still is less than average, it is a significant increase over the $100 million of development starts in 2009.
![[MULTIFAM]](http://sg.wsj.net/public/resources/images/MI-BB806_MULTIF_NS_20100302210423.gif)
Analysts caution that the increase in construction doesn’t mean there has been an improvement in the business. Apartment vacancy is at a record and unemployment, essential to the sector’s health, remains elevated.
But operators are betting that limited new supply, combined with an improving economy, will lead to ideal market conditions nationwide starting in 2011 or 2012. From then until 2015, “apartment REITs may generate the best property net operating income growth that they’ve seen in a very long time, maybe ever,” said Haendel St. Juste, a REIT analyst with Keefe, Bruyette & Woods Inc.
To be sure, there are risks. Given the multiyear construction window, companies have to start now to be ready in time. If the economy weakens further and recovery is delayed, landlords may be forced to keep rents low or offer free rent to get leases signed.
“There’s an element of risk,” said Andrew McCulloch, an analyst with Green Street. “But if you were to go back a year, the outlook is much more clear today. Their confidence level in that eventual recovery is much higher.”
Owners said the rent declines appear to have bottomed out in some areas and concessions are moderating. In New York, Equity Residential said it has stopped paying broker fees for certain unit types. In better times tenants pay that fee, typically one month’s rent.
The gap between new and renewal leases has narrowed from about 10% nine months ago to about 5% today, a sign of confidence as landlords have to give up less to sign new tenants, Mr. St. Juste said.
Landlords also are excited about demand. The 20-to-34 age group, prime renting age, is expected to increase by five million in the next decade, according to Hessam Nadji, managing director of Marcus & Millichap, a real-state-investment brokerage firm. People who moved home or who bunked with roommates during the downturn also might ink leases as the economy improves.
Moreover, construction costs “have fallen rapidly in the last two years,” said Tom Toomey, chief executive of apartment owner UDR Inc. A unit that would have cost $300,000 to build two years ago could now be built for as little as $220,000, Mr. Toomey said.
Lumber prices have been cut 15%, while concrete prices are down 10%, he said. Labor costs have fallen as much as 15%. Starting development now “is starting to become an easier decision,” Mr. Toomey said.
The sector’s optimism was apparent in January’s housing starts. Construction of multifamily dwellings rose 9.2%, the Commerce Department said.
At Humphreys & Partners Architects LP in Dallas, which designs apartments, inquires and job counts have more than doubled from a year earlier, said Chief Executive Mark Humphreys. “This time last year the financial world had come to an end,” Mr. Humphreys said. “Everybody was frozen in time; they were just stunned. The phone was not ringing. Well, the phone is ringing now.”
Developers said they are avoiding Las Vegas and Phoenix, which were overbuilt during the housing frenzy, in favor of more stable markets, including Washington, Boston and San Francisco.
In 2011, AvalonBay Communities Inc. plans to complete six projects with more than 2,100 units in locations including Walnut Creek, Calif., New York and West Long Branch, N.J. The rents will average more than $2,000 a month, according to securities filings.
Equity Residential, meanwhile, plans to deliver 111 units in New York’s Chelsea neighborhood in late 2011.
Developers also are using conservative projections when planning projects. Zaremba Group, which is building Fusion 1560, is targeting rents between $925 and $2,300 a month in 2011, when it hopes to be fully leased. Mr. Zaremba said that matches the current market.
“We’re not banking on [rent increases],” he said.
Sam Zell’s Realistic Forecast for 2010
Feb 4th
Real estate mogul billionaire Sam Zell looked past 2010 and made predictions for 2011 and — in the case of new development — laid out a forecast all the way to 2015.
The outlook?
Well, it wasn’t necessarily good. Some would only go so far as to say it was “positive,” or “cautiously optimistic.”
With exception for development — in which case, Zell zinged, developers may as well use the next five years to study in medical school.
Zell, the co-founder and chair of Equity Group Investments, gave his lively talk Friday at the Burnham Moores Center for Real Estate University of San Diego 14th Annual Real Estate Conference.
During his hour-long keynote, Zell chided the federal government for “changing the rules,” took a swipe at President Barack Obama’s 2,200-page health care overhaul, and, no stranger to colorful language, said, “To say we’ve come through a decade of spending too much fucking money would be an understatement.”
Oh, and, he delivered a thorough, some say spot-on look at what’s ahead in commercial estate, noting, “Reports of the demise of real estate have been greatly exaggerated.”
In his forecast, Zell predicted:
– Investors will make deals with commercial real estate owners, using investment capital to pay down an underwater mortgage in return for a favorable equity position in the project. “If there are opportunities in distressed real estate, it’s in buying the debt in return for equity,” he said.
– Occupancy rates will continue to improve, albeit slowly, and at 20-30 percent lower rental rates;
– Multi-family markets will continue to grow and improve through 2011. Zell said on some apartment complexes late last year Equity Residential had more than 40 bidders . “There’s a food fight today to buy assets,” he said;
– The retail and industrial markets will continue to be “survival of the fittest,” and “lifestyle center” – mixed use commercial developments – might as well be “converted into churches, on the theory there’s a lot of space, and based on (Zell’s) assessment, they’re very cheap”;
– New development is a very long way off. “Construction loans are not available today, and they’re very unlikely to be available tomorrow,” he said; and
– A single family market at equilibrium. “The number we see now are much greater impacted by very serious pockets of excess (overdevelopment), as opposed to the broad malaise that occurred a year ago,” he said. Also, he noted, regions including South Florida and cities like Davis, Stockton and San Diego, may see slower recovery, based on excessive inventory. “I don’t think the U.S. housing dream is over,” Zell said, “but if you look back over the last 40 years, every single time the percent of single-family home owners exceeded 62 percent, we got ourselves in trouble. This time, courtesy of subprime loans, we were up to 69 percent. Now we’re at 66 and we need to get to 63, 64 percent before we have a sustainable, affordable single-family market.”
Zell kicked off the event with harsh words for the Obama administration and the Federal Reserve, saying there is a tremendous amount of uncertainty in large part because they are “changing the rules.” And, in order for full recovery, Zell said, “You need a clear concise understanding of what the rules are.”
“Today we find ourselves in the position where the definition of economic policy is designing new forms of bailouts, rather than focusing in on, and in effect, helping the economy grow,” Zell said. “This administration is picking winners and losers.”
Dr. Mark J. Riedy, executive director of the Burnham Moores Center for Real Estate, said he thought Zell’s forecast was “spot-on” and that “uncertainty is clouding things and inhibiting decision making.”
Riedy said he wasn’t the only one who agreed with Zell’s take.
“Generally, the people who approached me afterward said, ‘You know, Sam Zell hit it right on the nail,’” Riedy said. “Not that it was good news, but I like to say he was being realistic.”
Dr. John C. Ferber, director of commercial real estate at the center, said Zell has an “uncanny” knack for forecasting.
“I couldn’t find anything where I disagreed with him,” Ferber said.
Ferber called the prognosis “cautiously optimistic.”
“I thought there was some hope there,” he said.
Joseph Peña is the business editor for San Diego News Network. He can be reached at joseph.pena(at)sdnn.com. Follow him on Twitter @josephpena [1].
REITs Have Plenty of Cash, Scarce Opportunity
Feb 4th
FROM THE WSJ – By ANTON TROIANOVSKI
For public real-estate companies, spending money has turned out to be harder than raising it—even as some signs point to a pickup in big property deals.
Real-estate investment trusts sold $24 billion in new stock last year, raising hopes the companies would be able to profit from commercial-property distress by picking up high-quality real estate at bargain prices.
But publicly traded REITs bought only $4.6 billion of property in 2009, a 67% decline from the previous year, according to research firm Real Capital Analytics.
![[REITCASH]](http://sg.wsj.net/public/resources/images/MI-BB192_REITCA_NS_20100202182416.gif)
With few deals happening and REIT shares now trading at twice their March lows, some executives regret last year’s money-raising binge.
“Today I’m sitting with $125 million in cash that I can’t find investment for,” Stephen Richter, chief financial officer of Weingarten Realty Investors, said in an interview. “If I would have known the markets are where they are today, I certainly wouldn’t have sold a third of the company.”
Weingarten, which owns shopping centers and warehouses in 23 states, sold about $380 million in stock last April, a time its shares were trading at less than half their value of a year before.
REITs are having difficulty doing deals partly because there is a dearth of product on the market. With commercial-property prices some 35% off their peak, most building owners are keeping their best assets off the market. Those properties that do go on the block are attracting a herd of buyers looking to snap up cheap real estate.
Many REIT executives and investors expected the volume of distressed buildings on the market to surge as owners defaulted and lenders foreclosed on property. But while the number of problem loans has been growing, so far this hasn’t translated into many fire sales. Banks have been willing to extend loans rather than foreclosing, and the firms that oversee commercial mortgages bundled into securities have also been slow to sell off distressed assets, market participants say.
“The volume of the properties that are truly distressed and will be sold in a distressed fashion will be significantly less than had initially been thought,” said Bob Steers, the co-chief executive of REIT investor Cohen & Steers Inc.
The scarcity of “for sale” signs has particularly roiled the market for “blind pool” REITs, which raise money from investors in order to build a new portfolio of real estate.
Last week, Terreno Realty Corp., which sought $200 million from investors to snap up warehouses on the cheap, postponed its initial public offering. Research firm Green Street Advisors recommended clients not participate in the offering because the ability “to acquire properties at discounts to underlying fair current-market value is likely to be limited” for industrial real estate. Through a spokeswoman, Terreno Chief Executive Blake Baird declined to comment.
Another prospective blind pool sputtered in December when shareholders in a blank-check company balked at turning their cash over to a management team that would use it to buy strip malls. “People, I think, fundamentally were concerned that we wouldn’t be able to generate the volume of acquisitions or investment opportunities to justify the investment in a blind pool,” said Bill Gerrity, who would have headed up the REIT. Instead, the $288 million blank-check company, Global Brands Acquisition Corp., said it would return its investors’ money.
The best opportunities for REITs may lie in sales of large portfolios by private investors who can’t access capital as readily as public companies. The bigger the portfolio and higher the price tag, the less the competition from other buyers.
In the biggest deal by a REIT since the downturn, mall landlord Simon Property Group Inc. in December said it would buy Prime Outlets, another shopping center owner, for $700 million. The sale gave Prime’s closely held parent, Lightstone Group LLC, cash to address the capital needs of its Extended Stay Hotels chain, which is now in bankruptcy protection.
In another big deal with a private owner, apartment giant Equity Residential on Monday announced a $475 million deal for three Manhattan buildings owned by debt-burdened New York City developer Harry Macklowe. One analyst said Equity Residential may have acquired the apartment buildings for half of what they would have gone for a few years ago.
“The advantage of access to capital will stay around for a while,” said Ross Smotrich, a REIT analyst at Barclays Capital.
But Equity Residential’s other recent deals show bargain-basement prices for high-quality real estate are rare even today, amid the worst commercial-property downturn in a generation. Chief Executive David Neithercut said the company would soon announce the acquisitions of two apartment buildings in the Washington, D.C., area and one in California. He declined to reveal the price paid but said the deals came in at less-eye-popping discounts than the Macklowe buildings.
The reason: Many others—from foreign buyers to private investors with cash to spend—also want to get in on the action.
In October, Equity Residential paid $100 million for a 326-unit apartment complex in Arlington, Va.. The property drew 160 interested parties and 40 offers, a level of interest that Alan Davis, a broker who represented the seller in the deal, said he couldn’t recall in several years of shopping multifamily properties in the Washington area.
Write to Anton Troianovski at anton.troianovski@wsj.com
