Commercial Real Estate Finance

This will probably be our last retail-focused Top 10 for a while–it’s time to look at some other asset classes. Since we already counted down the Retail Markets with the Highest Quoted Rents, let’s look at which retail markets are seeing the most improvement in their rents. Once again from Colliers’ 2013 Retail Outlook for North America (PDF), here are the Top 10 Retail Markets for Rent Growth:

10. Dallas/Ft. Worth, TX (1.83%)

9. San Jose/South Bay, CA (1.87%)

8. Omaha, NE (2.06%)

7. Houston, TX (2.18%)

6. Boston, MA (2.51%)

5. Boise, ID (2.65%)

4. Westchester County, NY (3.04%)

3. Miami-Dade County, FL (6.51%) Read the rest of this entry »

Mensch 

Noun, informal. A decent, upright, mature and responsible person. 

Schlemiel 

Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser.

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Mensch of the Week:

Todd Schuster, Ares Commercial Real Estate

Ares Commercial Real Estate (NYSE: ACRE) has been busy. The mortgage REIT, which focuses on mid-market multifamily loans, recently announced the acquisition of AREA Property Partners in a move that quadruples the company’s capital to $8 billion, according to Commercial Property Executive. Last week, ACRE bought EF&A Funding (better known as Alliant Capital LLC) for almost $63 million while also announcing a new co-CEO, Todd Schuster.

Mr. Schuster is a board member with both ACRE and an Alliant Capital affiliate, which makes him ideal to lead the unification of these these two companies. This appointment is also an extremely high-profile one and likely pleasing to investors. Read the rest of this entry »

Why do cats love to curl up in boxes? Every time I leave an empty box on the floor, my cat is inside it within minutes. If the box is too small, she’ll still try her best. (If no boxes are available, she’ll go with suitcases, desks, important paperwork and that keyboard you were trying to type on.)

That’s just one type of “self-storage.” Since we talk about commercial real estate, though, I want to talk about self-storage property investment. Specifically, I want to look at the “Big Four” (which is to say, the only four) of the publicly traded self-storage REITs: CubeSmart (NYSE: CUBE), Extra Space Storage (NYSE: EXR), Public Storage (NYSE: PSA), and of course Sovran Self-Storage (a/k/a Uncle Bob’s) (NYSE: SSS).

The REITs recently released their first quarter reports, and it looks like the recent trend of exceptional growth has continued into 2013. Here’s a breakdown from Inside Self Storage (check out their article for a more in-depth discussion of Q1 results):

• CubeSmart reported FFO [funds from operations] per share of $0.20, a 25 percent year-over-year increase. Same-store net operating income (NOI) at its 328 facilities grew 7.6 percent year over year. …The same-store physical occupancy was 85.7 percent as of March 31.
  
• Extra Space Storage: Same-store revenue increased 7.5 percent and NOI rose 10.8 percent compared to the same period in 2012. FFO was 46 cents per diluted share, resulting in 39.4 percent growth compared to the first quarter the previous year. … Same-store occupancy grew by 290 basis points to 88.6 percent…
• Public Storage: Revenue for same-store facilities increased 5.4 percent, or $21.1 million…
• Sovran Self Storage: Total revenue increased 17 percent over the previous year’s first quarter, while property operating costs increased 14.9 percent, resulting in an NOI increase of 18.1 percent. 

A great way to start the year.

If you look at CoStar’s recent article, 25 REITs Most Likely to Sell You a Property in 2013, you’ll see all the major asset classes represented: hospitality, office, retail, industrial, and even multifamily and healthcare. But self-storage is conspicuously absent. It seems the consensus is that this market and asset class have room to grow. The value of storage facilities is yet to peak. Read the rest of this entry »

Rina Cutler, Philadelphia’s Deputy Mayor of Transportation and Utilities, discusses the growth of the city’s real estate market, resurgent neighborhoods, and the latest innovations in urban planning. (This is Part II of Llenrock’s latest video interview. Visit our YouTube channel to see the rest of her fascinating interview!)

Read the rest of this entry »

Once again, we’re excited to feature a guest post from our friends at Integra Realty Resources! From their own commercial real estate blog, IRR on Real Estate, here is IRR Senior Analyst Robin Brady to discuss strategies to navigate the complex, post-recession real estate market. Many thanks to IRR and Robin Brady for the contribution!

Risky Business: 3 Pain Points for Commercial Real Estate Developers

Over the last couple years, the development market has returned to fundamentals. The wounds of the downturn are still fresh, and investors, developers, and banks are more cautious, putting their money behind only what looks like a sure thing. As a result, we’re seeing more tenant-driven development and less speculative development. For example, in the Boise area, we have seen two significant projects break ground in the last year: Eighth and Main (a high-rise office building) and Village at Meridian (a retail lifestyle center). Both projects were over 75 percent pre-leased prior to going vertical. We’re also seeing a lot of owner-user product being developed, such as automotive dealerships.

Speculative, capital-driven projects that don’t fit an existing market need are just one risk that developers should avoid. As more developers return to fundamentals, here are three ways projects can go wrong and how to avoid them.

1. Misreading the market. Never assume that there’s more demand for your proposal than there actually is or act as if the trends from the last couple years will last indefinitely. Pursue projects driven by a market need rather than one pushed forward by capital in search of a return. Before starting a project, know exactly what you’re going to build based on your target market. Know who the users (buyers or tenants) will be, what rent or price level they can pay, and what design features they want. Know your competition, not just vacancy rates but also how much new product is coming to market. And, while this might sound self-serving, do a market study to get a critical, objective look at your project’s potential absorption rates and rent levels to get a clear sense of the project’s feasibility. Read the rest of this entry »

Week in Review for May 11 – 17:

- CoStar Group releases a list of 25 REITs “Most Likely to Sell You a Property in 2013.” The list includes many well-known public REITs, and just about every major asset class is represented, including multifamily and healthcare properties.

- Post Brothers, an up-and-coming multifamily developer in Philadelphia, begins listing apartments for its latest development, a conversion of a former industrial property on the outskirts of Center City.

- In developing this property, Post Brothers had a tense stand-off with the city’s labor unions in response to their use of non-union workers.

- JW Pepper & Son acquires a 43,000 -SF office building in the Stone Ridge Corporate Center in Exton, PA, a suburb of Philadelphia. They acquired the property for $5.1 million ($118/SF), reports CoStar.

- In Los Angeles, Hines REIT sells the One Wilshire building, an office and retail property, to GI Partners for $437.5 million, as well as one other property for $112.5 million.  Read the rest of this entry »

Looks like the public is divided on this one. If I gambled, I would bet the license goes to The Provence…

See our previous polls here.

Thanks in part to Hollywood, developers have a reputation as the “bad guys”–the greedy corporate bulldozers whose plans always run counter to the will of the community and woodland sprites. This certainly isn’t the case in many locales. Here in Philadelphia, long-abandoned row homes, overgrown lots, and industrial facilities are being converted to town homes and multifamily properties–and I’m yet to hear anyone complain (except maybe a few union members not hired for the project). Often, developers–whether it’s just a couple local guys or a major firm like Trammel Crow or Toll Brothers (NYSE: TOL)–receive resounding approval from community members who appreciate the economic growth that comes with new projects.

Sometimes, however, new residential and commercial projects, no matter how feasible from a market perspective, meet vocal resistance from members of the community. And the fear of losing green space and a nice view is only one of the many reasons residents will fight a proposed development or commercial tenant. Here are a few other businesses and commercial projects that have struggled with public opposition:     Read the rest of this entry »

Following our ranking of the 10 Most “Absorbent” Retail Markets, here’s a list of the Top 10 U.S. Retail Markets with the Highest Rents, based on data published in the Colliers 2013 Retail Outlook for North America (here’s the PDF). This ranking is based on shopping center stats from the end of 2012 for the country’s biggest retail markets (with the exception of New York City).

10. San Diego, CA (Quoted rent per SF: $20.28)

9. Oakland/East Bay, CA ($21.04)

8. Washington, DC ($22.25)

7. Los Angeles, CA ($22.41)

6. Orange County, CA ($22.70)

5. Long Island, NY ($23.35)

4. Miami-Dade County, FL ($23.55)

3. San Jose/South Bay, CA ($26.15) Read the rest of this entry »

Mensch 

Noun, informal. A decent, upright, mature and responsible person. 

Schlemiel 

Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser.

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Mensch of the Week:

Curbed

For sheer entertainment value, my favorite real estate website (or really, family of sites), is Curbed. This site (which has local pages for many major markets) seems to go for more fun or unusual news from the world of development, real estate policy, and related issues, which can be a nice break from the more dry, data-driven stuff we usually see. You won’t get a market-by-market analysis of cap rates by asset class, but you will find out about the house Kelsey Grammer put on the market, or get a slide show of the coolest works of architecture in the U.S.

The site’s emphasis of architecture, both historic and recent, is what makes it especially interesting to me, and their recently announced “Curbed Young Guns 2013″ Competition makes them our Mensch of the Week.  Here are a couple snippets from the announcement:

…we’re excited to announce the launch of Curbed Young Guns, our search for the next wave of up-and-coming architects, developers, and interior designers. …Now we don’t necessarily mean we’re looking for the next Frank Gehry (though obviously we’ll take him). We’re also looking for the junior architect who’s the rising star of a start-up, the designers dreaming up yet-unbuilt schemes, and the decorators creating the next big thing in interiors. The rules are simple: nominees must be under the age of 35 and they must be based in the United States.

Best of all, it’s a totally democratic voting process; a nomination form can be found on their site.

Even though we mostly talk about the financial and economic sides of the commercial real estate industry, I like to touch on issues related to architecture and design now and then. Despite it’s glamorous reputation, most of the architecture industry’s members toil in obscurity, working on projects with far less profile than the latest Frank Gehry or Cesar Pelli masterpiece. Granted, a non-glamorous design gig (a no-frills affordable housing project, a future Walgreens) is still appealing to many in the industry who’ve struggled to find work in the recent development drought. Read the rest of this entry »