Posts Tagged ‘CRE investment’
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 »
There’s an ongoing competition among urban multifamily developers to create the most upscale, desirable residential properties in their market. In cities throughout the country, especially those with active central business districts and growing populations, they’re constantly one-upping each other to see whose ground-up or converted residential property has the best exterior, nicest amenities, most elite brand, and wealthiest clientele.
In the last few months, developers have announced or broken ground on a number of high-end residential projects in the Northeast. Here in Philadelphia, a joint venture is converting a historical landmark at 16th and Walnut Street into a 206-unit luxury multifamily building with a private deck, media rooms, yoga studio, pet grooming service, quartz countertops, etc. The project is being branded “ICON,” which sounds about right…
Across the river in University City, Brandywine Realty Trust and Campus Crest Communities are building an upscale student housing high-rise with a rooftop swimming pool, 24-hour fitness center, and “hotel-like amenities.” That’s right, hotel-like amenities in a student housing tower.
In Manhattan, meanwhile, developers have announced a luxury residential project at 432 Park Avenue. When completed, it will be the third tallest building in Manhattan (and the tallest residential property this side of Dubai).
Whenever I hear about these projects, my first thought is always, Sweet! But then the bleeding-heart populist in me thinks, But what about those of us who aren’t ultra-wealthy? Read the rest of this entry »
Week in Review for May 4 – 10:
- As the Pennsylvania Gaming Control Board deliberates over which proposed casino will receive Philadelphia’s second casino license, community groups from South Philadelphia protest the three casinos planned for their neighborhood. Two other casinos have been proposed for Center City and one other for Philadelphia’s Fishtown neighborhood. Meanwhile, representatives of Sugar House, currently the only casino in the city, voice concern that a second casino would harm their business.
- Last year, Pennsylvania overtook New Jersey as the state with the second-highest annual gaming revenue in the country (after Nevada).
- PERE News reports that private equity groups such as Blackstone (NYSE: BX), Carlyle Group (NASDAQ: CG), and KKR (NYSE: KKR) are becoming increasingly dominant CRE investors in Asia, overshadowing investment banks in the region.
- A joint venture begins renovation of a historic high-rise at 16th and Walnut Streets in Philadelphia. Federal Capital Partners, Cross Properties and Alterra Property Group have announced they will convert the building into a luxury residential property to be called “ICON,” reports CoStar Group. The building dates back to 1929. Developers anticipate occupancy will begin in early 2014.
- Also in Philadelphia, the Cradle of Liberty Council of Boy Scouts of America prepares to vacate its regional headquarters, which is located on city-owned land. The city has worked to evict the organization since 2008 because of the Boy Scouts’ anti-gay stance. The building is valued at $1.1 million, reports Curbed Philly. 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?).
8. China (Tier 1)
3. Hong Kong
2. New Zealand
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 »
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?
“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 »
Noun, informal. A decent, upright, mature and responsible person.
Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser.
Mensch of the Week:
Dan Gilbert, Bedrock Real Estate Services
Like many other cities (Flynt, Michigan; Gary, Indiana; Chester, Pennsylvania; et al), the city of Detroit has come to symbolize the decline of America’s 20th century city. Thanks to de-industrialization, decades of corporate incompetence, and a legacy of political corruption culminating in the conviction of former mayor Kwame Kilpatrick, Detroit is the poster child for urban decline.
In a Top 10 list we published last year, the Top 10 Ghost Towns in the U.S., Detroit came in at #4 with a rental vacancy rate of 16.9% and a homeowner vacancy rate of 1.7% (1.7% doesn’t sound bad at all, until we consider the possibility that no one in Detroit can sell their homes).
Dan Gilbert, the Quicken Loans billionaire and Detroit native, hopes to change that. Read the rest of this entry »
Week in Review for April 6 – 12:
- In Philadelphia, the Pennsylvania Gaming Control Board holds a hearing regarding a potential new casino for the city. The board hears testimony from developers, residents, architects, and union members. A number of different designs, brands, and locations have been proposed for the city’s second casino.
- Also in Philadelphia, co-developers PMC Property Group and Lubert Adler mull the sale of an in-progress multifamily development at 2040 Market Street, reports BizJournal’s Natalie Kostelni. The property, formerly an underperforming office building, is still under construction, but many suggest its prime location will fetch a record price even before its completion.
- CoStar group reports that some are concerned the CRE lending market is heating up too quickly. The article’s author, Mark Heschmeyer, describes a trend of relaxed lending standards that has emerged in the last couple of years. This discussion follows a recent Morgan Stanley (NYSE: MS)/Bank of America (NYSE: BAC) CMBS offering. The conduit’s loan-to-value (LTV) is rated as 98.8%, significantly higher than other recent offerings.
- In Flint and Genesee County, Michigan, RACER Trust struggles to repurpose and sell large plots of land formerly used by General Motors. RACER Trust was formed to divest some of GM’s industrial properties following the car maker’s bankruptcy. Read the rest of this entry »