Commercial Real Estate Finance

Archive for the ‘Owners & Developers’ Category

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 »

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 »

Last month, we ran an interview with Rob Odell, chairman of commercial insurance service Odell Studner Group. I asked him what he thought were the biggest changes in his industry, and this was his reply:

In the last 10 years we saw two of the greatest changes affecting real estate clients. First, the terrorism events of September 11, 2001. Prior to September 11, terrorism was never considered by insurance carriers writing real estate domestically. Second, the economic events of late 2008 to January 2009. These events prompted new standards of detailed underwriting unlike anything I had seen in my first twenty-plus years representing real estate owners.

It’s plain to see how the recession impacted members of the commercial real estate industry. We talk about these impacts all the time: a shift in demand from one asset class to another, changing population trends, growing and deteriorating CRE markets, and diminished development and transaction activity are all salient examples of the world’s recent economic troubles.

The first example Mr. Odell cites, terrorism, may have had less of an impact on CRE, but there’s no denying it has affected the balance sheets and strategies of commercial real estate owners and operators–at least indirectly. The industry most affected by this tragedy (other than industries with military contracts) was the insurance business. 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:

Pennsylvania Real Estate Investment Trust

PREIT (NYSE: PEI), a retail and shopping mall investor not far from Llenrock’s offices in Philadelphia, has a good understanding of the opportunities and unique challenges of their sector. Malls, community centers, and other retail assets comprise an enormous segment of America’s commercial real estate inventory, and there are plenty of attractive core and value-add investment opportunities within this market. But retail (like so many other asset classes) has been the victim of overbuilding–not to mention dampened consumer confidence, big-name bankruptcies, and competition from the mighty Internet.

Yes, there are still revenue-producing malls full of high-end tenants and wealthy clientele, and fully leased community shopping centers anchored by Internet-proof businesses like grocery stores, gyms, and popular eateries. But to find the gems in the retail sector, one must sift though a lot of fairly mediocre inventory.

For a major retail REIT, navigating and growing in this challenging sector requires a big-picture strategy and some very selective investments. PREIT seems to have both. In the last few months, the REIT has pared down its non-core assets, selling off properties like Orlando Fashion Square Mall, Paxton Towne Centre and the Phillipsburg Mall, all of these sales part of the company’s ”previously-announced plan to improve the quality of its portfolio by selling certain non-core assets” (according to various related press releases). Read the rest of this entry »

I never took much time to explore Keystone Opportunity Zones–Pennsylvania’s program of tax abatements for those who invest and develop in certain economically depressed neighborhoods. The main reason it’s taken me this long is because I couldn’t think of a decent title for the post–until now. (On a side note, we’re just a couple weeks away from Biggie Smalls’ birthday, so the title is especially fitting. Rest in peace, Biggie.)

Okay. Keystone Opportunity Zones.

The KOZ program started in the late 90s under Pennsylvania governor Tom Ridge. Legislators were looking for ways to spur economic and development activity in cities and neighborhoods suffering from the various symptoms of economic decline: real estate vacancies, unemployment, population loss, crime and blight, etc. As one of the Rust Belt states, Pennsylvania (despite many vibrant industries like healthcare, pharmaceuticals, education and technology) has its fair share of dilapidated former industrial parks and similar sites.

The premise of a KOZ–and the related Keystone Opportunity Expansion Zone (KOEZ) and Keystone Opportunity Improvement Zone (KOIZ)–is fairly simple: encourage developers and businesses to invest in a designated, distressed area and reward them with decreased (or eliminated) state and local taxes.  Read the rest of this entry »

Today, we’re excited to feature Part Two of our video interview with Jane Gol, president of Continental Ventures Realty. She discusses Manhattan’s busy real estate market and her work with New York City’s Planning Commission. (Go here to see Part One!)

Read the rest of this entry »

Week in Review for April 27 – May 3

• Infrastructure Investor (requires free registration) reports that public-private investment partnerships are gaining traction in the Mid-Atlantic U.S. Last month, Maryland’s legislature passed the Transportation Infrastructure Investment Act of 2013, with which the state will fund two light rail projects to be developed over the next seven years. These two projects will serve the Baltimore and D.C. markets. Their combined development costs are estimated to exceed $4 billion.
• According to distressed real estate data service NewAcre, the month of April saw increased numbers of distressed properties throughout the U.S. This rise in distressed listings includes most asset classes, including multifamily. Florida listed the highest number of distressed properties in April.
• At the DLA Piper 11th Global Real Estate Summit in Chicago, industry executives report continued growth in the capital markets, including an overall recovery for CMBS. The event’s panelists include executives from Equity Residential (NYSE: EQR), Ventas, Inc. (NYSE: VTR) and Vornado Realty Trust (NYSE: VNO).
• In Fort Washington, a suburb of Philadelphia, pharmaceutical giant Bristol-Meyers Squib leases 45,000 SF in the Fort Washington Executive Center. The company will move into its new, Class A office space at the end of this year, reports CoStar.
• In Northeastern Pennsylvania, Equilibrium Equities closes on a 249,000-SF industrial property in the Keystone Industrial Park. The acquisition is near Interstate 81 in the Scranton area. Equilibrium, an investment and development firm based in the Philadelphia area, plans a number of capital improvements for this property. Read the rest of this entry »

As you can tell from the cheesy clip-art, today we’re talking about gift-giving. Gift-giving of the “ulterior motive” variety.

For many in the business world, gifts play an essential role in attracting business, creating brand awareness, and ultimately completing transactions. This sort of “light bribery” has become a widely accepted practice (unless you’re a politician or NCAA athlete).

Ultimately, gift-giving is about relationships. And relationships, in this case, are about mutual benefits. Casinos comp gamblers’ hotel rooms, pharmaceutical companies give doctors fancy pens (and whatever else it takes), and deal-makers take their clients to nice restaurants, not food courts.

Real estate developers, on the other hand, give dirt. As in ground–acres of it.

Read the rest of this entry »

I’m starting my own REIT.

We’ll specialize in urban infill developments, with a particular focus on residential and mixed-use properties. It will be the most environmentally friendly REIT ever. While others may develop properties to achieve the LEED Platinum certification, my REIT will take greenness to a whole new level: our properties will be made out of plants!

If I call my company “Chia REIT,” will that get me in trouble with the people who do Chia pets?

Of course, energy efficiency and environmental impact have become important concerns in many commercial real estate sectors. Green development is not only appealing to potential tenants, but may offer some (long-term) economic benefits as well. It’s gotten to the point that residential developers are now specializing in luxury homes with absolutely no carbon footprint. Even drug store chain Walgreens has gotten in on this by developing its own net zero location.

The concept of “biophilia” adds a new dimension to a property’s place in the environment by merging man-made structures with natural elements like vegetation and abundant daylight. If you take a look at the image below, you’ll see a rather extreme example of what biophilic design can look like. While this approach may sound like something they invented at last year’s Burning Man, there are some practical benefits to buildings and cityscapes that incorporate elements of the natural world. In addition to its energy conservation, biophiles argue, these designs may have workplace productivity and psychological benefits–not to mention increased market value.      Read the rest of this entry »

The U.S. has long been a popular target for CRE capital from other countries. Even though individual markets like London are perennially popular, the U.S. seems to hold the most opportunities for international investors (at least according to AFIRE‘s international investor survey). When we consider the relative stability of the U.S.–and particularly the various asset classes in its gateway markets–it’s no surprise. The recent global economic crisis, from which we’re still experiencing aftershocks in one form or another,  may actually be one of the conditions spurring foreign institutions to invest within our borders. The general decline in real estate values has created new opportunities for yield in CRE’s nascent recovery.

One of the biggest investors in U.S. real estate is our neighbor to the north. By and large, Canada avoided the wrath of 2008-09′s economic crisis (at least someone was making good financial decisions…), but its economy, however solid, still needs new investments. Real estate is a fairly limited asset class in Canada; there are only so many opportunities within its borders. So where should Canada’s REITs and intitutional investors deploy their capital? The U.S. is an obvious choice.

According to CoStar, New York City contains more office inventory than the entire nation of Canada. Read the rest of this entry »