Commercial Real Estate Finance

Archive for the ‘Economy’ Category

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!)

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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 »

Take a look at this ranking of the Top 10 Most Transparent Real Estate Markets in Asia, which we originally published at the end of last year. This ranking comes from the Global Transparency Index published by Jones Lang LaSalle (NYSE: JLL) (here’s the PDF). Note that the increasing lightness of the text indicates greater overall transparency (clever, right?).

10. Indonesia

9. Philippines

8. China (Tier 1)

7. Taiwan

6. Japan

*5. Malaysia

4. Singapore

3. Hong Kong

2. New Zealand

1. Australia

Malaysia is an interesting place. As you can see from the ranking above, it is one of the better Asia-Pacific markets when it comes to the availability of reliable comps and other market information. Home to Petronas Towers–two of the highest skyscrapers in the world–and an increasingly global economy, Malaysia is seeing an increasing influx of foreign CRE capital. Still, transparency-wise, Malaysia isn’t in the highest tier of markets in the region (Australia and New Zealand) and is only considered “transparent” (as opposed to “highly transparent”) by the analysts over at Jones Lang LaSalle. On a worldwide ranking of market transparency, Malaysia appears at #23 (between Austria and the Czech Republic), while Hong Kong and Singapore are much higher.  Read the rest of this entry »

Not all pension funds are equal. Just consider this list of the Top 10 largest pensions in America: all but two–IBM and General Motors–are public funds. We see a great disparity between the state and federal pensions and the majority of private (single- or combined-employer) pensions. This difference may account for levels of risk, whether we’re talking about an annual loss or all-out failure. However, though private pensions in the U.S. don’t draw from nearly as many salaries as their public counterparts, they do have one advantage over their larger peers: non-capital alternatives.

Take a look at this fascinating New York Times article published last weekend. It explore an unusual method by which cash-strapped companies pay into their employees’ pension funds: substituting capital with large amounts of whatever commodity the company owns, makes, or sells. As a result, some private pensions hold very unusual assets, such as:

• $92 million worth of cheese (40% of a dairy company’s inventory)
•  Two million barrels of whiskey
• Obscure real assets like water rights in a desert, a slaughterhouse, and oil wells
• A brewery, tree farms, golf courses, spas
• and even a lien on an airport terminal

Value is value. Since employees and fund managers are ultimately interested in steady returns, it may not matter how conventional an investment may be. If a well-aged cheese or whiskey fetches a nice profit a year or two from now, that’s what counts. Read the rest of this entry »

Like the Top 10 list we looked at last Saturday, this one shouldn’t be read as a definitive ranking. The data behind this list comes from an Ernst & Young/EIU survey of European investors’ outlooks in early 2013. The numbers are available on page 10 of this PDF published by Ernst & Young. Here are the Top 10 European Markets by Anticipated Transaction Volume in 2013:

E&Y/EIU’s respondents answered the following question:

Do you agree with the following statement: overall, transaction volume in 2013 will exceed the levels seen in 2012.

10. Germany (Agree 19% / Disagree: 81%)

9. Belgium (20% / 80%)

8. Russia (33% / 67%)

7. France (35% / 65%)

6. Sweden (41% /  59%)

5. Netherlands (43% / 57%)

4. Ukraine (45% /55%)

3. United Kingdom (47% / 53%) Read the rest of this entry »

That title is a little deceiving.

In fact, this ranking from Ernst  & Young’s “European Real Estate Assets Investment Trend Indicator 2013″ (here’s the PDF) isn’t so much a ranking of “attractive” as a ranking of markets that think they’re attractive. So bear in mind that the European CRE professionals surveyed for this report may be a little, you know, biased. With that said, here is a list of the Top 10 Most Attractive European CRE Markets in 2013 …according to themselves:

Respondents were asked if they thought their market was “Very Attractive,” “Attractive,” or “Less Attractive.”

10. Austria (Very Attractive: 33% / Attractive: 48% /  Less Attractive: 19%)

9. Russia (23% / 64% / 13%)

8. Poland (45% / 45% / 10%)

7. UK (28% / 63% / 9%)

6. Switzerland (32% / 60% / 8%)

5. Belgium (23% / 70% / 5%)

4. Germany (41% / 58% / 1%) Read the rest of this entry »

Have we learned our lesson? Here’s what our readers said…

See our previous polls here.

The writers of the Simpsons are running out of ideas. This famous family has visited New York, Brazil, China, San Francisco, alternate dimensions, and the future. Now, they’re running out of places to visit. On one episode, after the Simpsons have been kicked out of Florida, they struggle to find a U.S. state that hasn’t yet banned them. Their last resort?

Delaware.

“I want to visit Wilmington!” Lisa exclaims.

Thus, the great state of Delaware and one of its largest cities are reduced to a punchline on an episode of the Simpsons.

To be honest, being made fun of by the Simpsons has become something of an honor. Still, this highlights the “second-class city” image some metropolises face–especially when they’re close to a much larger city (just ask Newark).  Though they are smaller, and offer smaller-scale economic drivers, such small- to medium-sized cities deserve a closer look, both from CRE investors and businesses looking to expand.

Last month, I discussed Baltimore, Maryland in a similar context. Baltimore offers a great deal of potential, more affordable CRE, and a large workforce. Unfortunately, CRE developers often pass over Baltimore for other larger cities. The same holds true, to a great extent, for Wilmington (granted, it’s a fraction of Baltimore’s size). Read the rest of this entry »

Sorry for all the ellipses in the title. I had all these extra dots lying around and had to get rid of them.

You’re lucky it wasn’t a surplus of semicolons.

Let me start over.

In a couple recent posts, I’ve pointed to certain asset classes–hospitality, retail, office, and especially single-family–as ways to gauge the overall economic recovery. Since these sectors saw a sharp decline in the 2008-09 economic fiasco, their improvement, however gradual, signals an overall improvement in the country’s employment growth, consumer confidence, and lending markets. The frenzy of multifamily activity in recent years has been a positive side effect of the recession, but certainly not a sign of general economic recovery.

I can add one more asset type to the above list of crucial property types: condos.

Since the recession began, the term “multifamily” has typically been used as short-hand for “multifamily rentals.” The abundance of high-end condo developments left under-leased, vacant, or even unfinished has left this property type on the fringe of the CRE recovery and impossible to finance.

One sure sign of a strengthening local economy is an increase in multifamily buyers. Nashville, Tennessee is one of the metros enjoying an uptick in this generally challenging sector. Read the rest of this entry »

Once again, today’s ranking is based upon data published by Colliers in its 2013 National Retail Outlook (click here for the PDF). Drawn from a selection of the United States’ largest retail markets, here are the Top 10 Retail Markets for New Supply:

10. Philadelphia, PA (341,178)

9. Seattle/Puget Sound, WA (359,259)

8. Westchester County, NY (382,794)

7. Oakland/East Bay, CA (413,797)

6. Milwaukee, WI (413,803)

5. Denver, CO (414,564)

4. Orlando, FL (416,855) Read the rest of this entry »