Commercial Real Estate Finance

Posts Tagged ‘Hospitality’

While having brunch with my family in our hometown of Sioux Falls, South Dakota, I had the surprising good fortune to enjoy a slice of the best raisin bread I’ve ever had. So good in fact that I asked the server for information about the bakery that supplied it–only to discover it wasn’t made by a bakery but a local guy working in his mother’s garage-turned-commissary.

After several phone calls and a long lunch, I realized that this baker represented more than just an advisory engagement opportunity for me.  After determining his options for a sustainable business platform, I quickly realized that this young man (and his uncanny baking skills) represented something more profound: the endangered demand for quality products in lieu of convenience.

David Napolitano is making incredible bread and supplying a small local specialty grocer along with two or three eateries in town, but the demand for his product is sure to outpace his ability to produce it. In order for David to continue making bread at a profit, he is forced to either

a.) Charge a price beyond what the market will bear.

b.) Outsource the production to a larger-scale manufacturing facility—in which case product quality will suffer

or c.) Collaborate with a complimentary concept (such as a restaurant, super-luxury hotel or bulk olive oil retailer) with both a scaleable platform and significant financial resources.

Gone are the days where local artisans and craftsman line the streets with their shops: specialty bakeries, coffee roasters, etc. Granted, more and more are popping up in major US cities. But outside those densely packed urban areas, suburbanites are driving to lifestlye centers and super-grocery chains. For most, there is no alternative to mass-produced, lower-quality products from corporate retailers. Read the rest of this entry »

Week in Review for April 20 – 26:

- Thanks to looser regulations and increasing economic strength, China’s international CRE investment activity soars to $4 billion in 2012, reports CNBC. At their current pace, Chinese investors will invest $5 billion in foreign real estate in 2013. According to analysts from Jones Lang LaSalle (NYSE: JLL), this would make China one of the most important players in the international CRE market.

- One Chinese investor, Soho China, is in the process of buying a 40% stake in Manhattan’s General Motors Building for $3.4 billion. (That’s right, $3.4 billion will only buy a portion of this property…)

- High-end home goods retailer Williams-Sonoma increases its presence in South Brunswick, New Jersey by leasing 751,000 SF of under-construction industrial space to use for warehousing, distribution, and other purposes. The company already leases over a million SF feet next door to the future facility. Cushman & Wakefield represented the landlord in this deal.

- The U.S. Commerce Department announces first quarter economic growth of 2.5%, an improvement over most of last year. Still, this number falls short of analysts’ expectations. Over the course of its 4-year recovery, the economy’s rate of growth has averaged around 2%, says the LA Times.

- As the CMBS market recovers, NOIs for properties tied to these bonds rise closer to pre-Recession levels. After examining a sampling of 2007 vintage CMBS loans, CoStar Group reports that their properties’ NOIs in 2012 far exceed those of 2011.

- Philadelphia-based Brandywine Realty Trust (NYSE: BDN) releases the report for its first quarter, which includes the sale of $221 million in assets. The REIT, which previously focused on office properties, is currently involved in joint ventures with Toll Brothers (NYSE: TOL) and Campus Crest Communities (NYSE: CCG) to develop multifamily and student housing, respectively. Read the rest of this entry »

When my daughter Catherine was just over a year old, she placed the frame of a United States foam puzzle over a Dr. Seuss book and exclaimed, “Look Daddy! I made a city!”

I’m not saying the evolution of America’s middle market is going to be that fast or that simple, but the growth in South Dakota (were I live) and of the Midwest in general has been both exponential and inevitable.

With both coasts of the country growing on top of themselves, it’s only a matter of time before increasingly mobile generations drive an economic overflow into the middle of the country (as earlier generations did when they moved to America from the Old Country). After all, you can’t have sprawl into the ocean.

Another driving force behind the Midwest’s growth is what I like to call “The Delaware Factor”: the creation of a tax-friendly environment for corporations. The opportunity to thrive in such a place will lead corporations, even Fortune 500 companies, to relocate their corporate headquarters and attract other businesses for the same reason. This creates more jobs, more rooftops, more retail, and finally, more advanced medical and educational development (take note, Obama).

In the last three years, the population of Sioux Falls alone has gone from 75,000 to almost 180,000. From 2010 to 2011, the departures and arrivals from the airport (which you pull into like a lifestyle center) doubled, prompting the construction of two additional terminals and an initiative to establish Sioux Falls as an international hub. In the first quarter of 2012, the number of flights has already doubled the total amount of flights in 2011. 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:

The City of Denver

After single-family, office real estate was one of the asset classes most hurt by the financial crisis of 2008-09. The factors that created the precipitous drop in office demand were something of a perfect storm: widespread corporate cutbacks (and outright closures) decreased the number of tenants, while changing workplace trends and more efficient technology limited the office footprints of many other companies.

Recent news of increased activity and values in the office sector is one clear indication of the overall economic recovery. Once again, companies have the confidence to expand and lease.

But the office recovery is more noticeable in certain markets, such as our Mensch of the Week: Denver, Colorado. According to research from CBRE (NYSE: CBG), the Mile High City enjoyed the greatest decline in vacancies among the top office markets surveyed in the first quarter.

Denver ended 2012 with a 15.1% vacancy rate but ended the first quarter of 2013 with a rate of 14.5%. While this pales in comparison to, say, downtown San Francisco, it shows strong improvement for the local market and looks especially positive when compared to the dismal national average (which has been hovering around 17% for quite some time). Read the rest of this entry »

Secondary markets host plenty of economic and real estate activity, but much of this progress fails to gain national attention. I’m sometimes puzzled by the bandwagon mentality that brings real estate investment to a select few gateway markets. New York, San Francisco, and Washington, D.C. certainly offer great stability and high demand, but what about yield? What about new opportunities?

Some are beginning to look more closely at secondary markets in their search for yield. Some are beginning to challenge the notion that investment capital should only flow to the so-called “safe harbors.” With some searching and a little creativity, one may find a strong value-add opportunity in a market with higher cap rates or older inventory.

To discover a market’s CRE opportunities, we have to look to its overall economic activity. What industries are growing? Which submarkets offer the best opportunities? Is the market bringing in more professionals, students, tourists?

Atlanta, Georgia is a perfect example. Atlanta is one of the biggest and most prominent cities in the South, yet its real estate market has languished behind others in its recovery from the recession. In fact, a Jones Lang LaSalle report listed Atlanta as one of the “Top 10 Hospitality Markets in which to Sell.” This shows how crucial tourism will become to Atlanta’s growth.

Last fall, I discussed a new attraction coming to Atlanta: the College Football Hall of Fame. Such a unique, nationally known attraction is essential to a market’s ability to attract residents, visitors, and capital.

The challenge, as always, is funding. Read the rest of this entry »

Executive Interview:

David E. Arnold

Co-President & Chief Executive Officer – East

PKF Consulting

David Arnold is Co-President and Chief Executive Officer – East with Colliers PKF Consulting USA.  He is in charge of the firm’s Eastern Region and its Philadelphia office. He has more than 25 years experience in hospitality and real estate development planning. Mr. Arnold has earned a national reputation as a consultant within the conference center industry. He is the original author of The Conference Center Industry: A Statistical and Financial Profile, the most comprehensive publication dedicated to that industry. He is one of the founders of the International Association of Conference Centers (IACC) and serves on its board of directors.

Mr. Arnold has conducted and directed economic feasibility studies, marketing strategies, corporate strategic planning studies, and financial analyses for numerous clients in the hospitality and real estate industries. He has expertise in hotel operations, marina operations, and development planning for hotels, conference and convention centers, golf courses, retail mixed-use projects, office and residential property.

He served for 12 years on the Recreational Development Council, Commercial and Retail Development Council and the Hotel Development Council of the Urban Land Institute. He was a principal author of the Hotel/Motel Development Handbook, published by the ULI.

Previously, Mr. Arnold served as the National Director of Management Advisory Services for Laventhol & Horwath and was Chairman of that firm’s International MAS Committee.

He holds a Bachelor’s Degree in Hotel and Restaurant Administration from Cornell University and is a past president of the Philadelphia Chapter of the Cornell Hotel Society. He is a recipient of the Distinguished Service Award from the IACC.

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Q: In the last year or so, have you seen conditions change in the hospitality or tourism sectors?

As we all well know, 2008 and 2009 had a devastating impact on the industry, cutting operating income by 40 percent. We’ve been clawing our way back ever since, but we’re only halfway there. Today, we are getting to the point that we’re seeing occupancy numbers approach those of 2007, but rates are still languishing behind pre-recession rates. The exceptions, of course, are New York, San Francisco, and Boston.

The hospitality industry still faces a lot of uncertainty in 2013, since we’re vulnerable to many different factors: gas prices, political questions, companies reluctant to expand, airline mergers, and so on. We think most of this volatility should settle down by 2014, and if 2013 remains flat, we can expect an uptick next year. Read the rest of this entry »

From an article published last year in BusinessReviewUSA, here is a (largely subjective) ranking of the Top 10 Convention Centers in the U.S.: 

10. San Diego Convention Center (Exhibit space: 615,700 SF)

9. Anaheim Convention Center (800,000 SF)

8. Moscone Center, San Francisco (700,000 SF)

7. Phoenix Convention Center (312,000 SF)

6. Georgia World Congress Center (1,500,000 SF)

5. Dallas Convention Center (1,000,000 SF)

4. Walter E. Washington Convention Center, Washington DC (undergoing expansion) Read the rest of this entry »

Once again from Jones Lang LaSalle Hotels (NYSE: JLL), here are the Top 10 International Hospitality Markets for New Developments:

10. Bangalore

9. Chengdu

8. Seoul

7. Manila

6. Taipei

5. Mumbai

4. New Delhi

3. Rio de Janeiro Read the rest of this entry »

In Saturday’s list of the Top 10 International Markets for Hospitality Acquisitions, which I shamelessly pilfered from Jones Lang LaSalle (NYSE: JLL), I glossed over one of the more striking markets on the list. For 2013, say the investors responding to JLL’s survey, the number one international market for hospitality investment is Vancouver, British Columbia.

Vancouver, Wikipedia tells me, is a city in Canada. Canada, Wikipedia tells me, is the country above ours.

Indeed, while the U.S. commercial real estate industry has fixated on investor favorites like New York City and Washington, D.C., and newly thriving CRE markets like Austin and Houston, this cosmopolitan city on Canada’s west coast has seen increasingly strong activity among a variety of asset types. Obviously, hotels (especially of the high-end variety) are looking especially promising to foreign funds and investors, which means such properties are yet to reach an expected peak in valuations. But other property classes are looking quite strong as well. Read the rest of this entry »

From Jones Lang LaSalle Hotels (NYSE: JLL) and its Investor Sentiment Survey, published last month, here are the Top 10 International Markets for Hospitality Acquisitions:

10. Philadelphia

9. San Diego

8. Montreal

7. Los Angeles

6. Miami

5. Istanbul

4. Boston Read the rest of this entry »