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ICSC Western Division Highlights and Net Lease Health

Allen Brown Director, GRS | Title (480) 428-5575abrown@grs-global.com

Allen Brown
Director, GRS | Title
(480) 428-5575
abrown@grs-global.com

Kevin May Director, GRS Group (310) 614-9329kmay@grs-global.com @kmay_grs

Kevin May
Director, GRS Group
(310) 614-9329
kmay@grs-global.com

In an increasingly complicated retail real estate world, GRS Group sent some of its team members to the ICSC Western Division conference to get an update on what people are saying about the commercial real estate sector. We spoke with Kevin May, a business development director with the firm, and Allen Brown, national accounts manager and Arizona operations manager, about what they learned at the conference. They touched on the overall state of the industry, the health of net lease retail and more.

What was the overall tone at the conference?

Kevin May: It appears that retail sales are going to be strong for the holidays. Attendees were very upbeat, but a couple people said that prices are too high, and they think a correction is coming. Tom McGee, the CEO of ICSC, said that retail sales are not losing as much to online as the media would have us believe.

But some people do think prices are inflated and are a little gun shy on the transaction end.

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Expect Multifamily Construction Costs to Rise Post Hurricanes

Amy Regal, Director GRS | Title 216-571-7013 aregal@grs-global.com

Amy Regal, Director
GRS | Title
216-571-7013
aregal@grs-global.com

Hurricanes Harvey and Irma obviously did some major damage to the multifamily markets in impacted areas of Texas, especially the Houston metro area, and parts of Florida. The rebuilding process will be fruitful for construction firms doing work in the area, but could shoot up costs for the rest of the country in the coming months, according to a recent Marcus & Millichap webinar titled: “Post-Hurricane U.S. Apartment Investment Outlook.”

There was approximately $110 billion to $180 billion in damage and lost business as a result of Harvey and $40 billion to $60 billion due to Irma. Harvey’s destruction was mainly due to flooding, making it costlier, while Irma’s culprit was primarily wind-damage.

Though they are both local storms in terms of boundaries, reverberations will be felt across the U.S. construction industry, said John Chang, first vice president of research services at Marcus, pointing out that Harvey could end up being more costly than Hurricane Katrina, which devastated New Orleans in 2005.

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New Hotel Concepts Keep Coming

Mark Halloron, Director  GRS | Corteq (732) 450-8960 mhalloran@grs-global.com

Mark Halloron, Director
GRS | Corteq
(732) 450-8960
mhalloran@grs-global.com

A new hotel chain being proposed by President Trump’s real estate company made several headlines at the beginning of the year.

Nine months later, we are getting some more interesting announcements.

Like Trump’s American IDEA concept, which targets midscale consumers, giant InterContinental Hotels Group (IHG) is launching Avid Hotels, which aims to target guests in a similar economic demographic. IHG, who already owns nameplates from the boutique Kimpton chain to Holiday Inn Express, says that Avid’s room rates will be $10 to $15 less per night, making it on the lower end of midscale. Its planned amenities, though, such as modern design, communal open spaces, as well as free Wifi and breakfast, make it sound relatively upscale for those traveling on a budget.

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ULI Affordable Housing Report: States Should Take Lead on Local Policies

Tony Mueller, Director GRS | Corteq (312) 476-7621 tmueller@grs-global.com

Tony Mueller, Director
GRS | Corteq
(312) 476-7621
tmueller@grs-global.com

It’s no secret that the multifamily sector of commercial real estate has had a very strong run since the Great Recession. Even though apartment supply is increasing, leading to a temporary slight dip in some locales’ fundamentals, overall housing development is well below historical lows over the last several decades.

But there is one area where the multifamily sector has lacked significant traction – affordable housing.

An exhaustive Urban Land Institute report on affordable housing released in September touches on the severity of the problem and some solutions, most of which the organization says can be remedied by changes in state government policies.

For starters, ULI says that one in four renters, or 11.1 million U.S. households, pay half or more of their income on housing. Reports have that number increase by another 1.3 million over the next 10 years.

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Lots to Absorb at ICSC Western Division

Kevin May Director, GRS Group (310) 614-9329kmay@grs-global.com @kmay_grs

Kevin May
Director, GRS Group
(310) 614-9329
kmay@grs-global.com
@kmay_grs

This week part of the GRS Group team will attend one of the largest annual retail real estate events in the country, the International Council of Shopping Centers’ Western Division Conference, in Los Angeles.

Aside from the usual networking opportunities with old and new clients, there are some specific educational sessions that our associates will have their eyes on.

Those attending the conference on Monday will have the chance to gain some intel on leasing open-air centers from Richard Wolf, senior vice president of leasing at Madison Marquette.  He will discuss leasing to new tenants and retaining current users in today’s environment. Attendees will reportedly “learn how to avoid the pitfalls of leasing to the wrong retailer, escape the boring repetitiveness of current trends, and create something truly sustaining.” Madison Marquette executives have built several innovative projects across the country, the newest being The Warf on the Washington D.C. waterfront, which will open later this month.

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CMBA Western States CREF Tackles Macro, California Issues

Jeff Coyne Director, GRS | Corteq (510) 962-9534jcoyne@grs-global.com

Jeff Coyne
Director, GRS | Corteq
(510) 962-9534
jcoyne@grs-global.com

As GRS Group does frequently, we had a team of professionals at what is always an important annual conference, the recent CMBA Western States Conference, which took place in Las Vegas, for its 20th straight year.

There were several informational and educational sessions at the show, but we want to focus on two specific meetings for which slides were provided.

First off, on a macro level, there was a presentation by Mary Ludgin, of Heitman, that had a lot of promising data, as well as a few concerns.

She pointed out that the industrial market, in no small part due to e-commerce, is having its best year since 2000. Additionally, Ludkin said that the multifamily fundamentals are still strong as well.

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The Rise of “Grocerants”

(858) 433-0441 scanty@grs-global.com

Steve Canty, Director
GRS | Corteq
(858) 433-0441
scanty@grs-global.com

They say to never go grocery shopping on an empty stomach. Well, grocers have found a way to cash in if you do.

There are several “grocerants,” at chain stores and independent locations, that now have full-service restaurants and bars where consumers can taste the products they will be shopping for, or maybe in some cases, a hunger pain from seeing far too many appetizing items.

Though it likely took place well before in downtown locales of major global cities beforehand, a cornerstone of this example is the Mario Batali-nameplate, among other owners, Eataly, which opened in Manhattan in 2010. It has now grown exponentially in a short period of time.

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Manufacturing Jobs Growth a Boost for Industrial CRE

Matthew McGovern, Director  GRS | Corteq (646) 760-0851mmcgovern@grs-global.com

Matthew McGovern, Director
GRS | Corteq
(646) 760-0851
mmcgovern@grs-global.com

The commercial real estate industry is very aware of how strong the industrial sector is right now, mainly due to the development of major warehouse/distribution facilities by Amazon and other companies fulfilling the ever-growing consumer demand for e-commerce.

Now it looks like the manufacturing sector is flexing its muscles.

The Bureau of Labor Statistics’ (BLS) August job report was not all good news, but it did bode well for manufacturing employment, which has been playing catchup since the Great Recession.

But The New York Times recently reported that manufacturing positions were added in August at a faster pace than any month in the last four years. Factories are said to have lost more than two million jobs during the recession, but since 2010, one million more jobs have been added.

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Best Buy Q2, Nordstrom Rumors, Equal a Weird Retail World

Tom Woodard, Director GRS | Corteq (561) 325-9857 twoodard@grs-global.com

Tom Woodard, Director
GRS | Corteq
(561) 325-9857
twoodard@grs-global.com

The ship has sailed for those expecting any normality in the retail real estate industry.

For years, landlords have dealt with mass store closures and the pressure posed by online shopping, most significantly Amazon, but now things have gotten strange to the point of complete inconsistency.

Several years back, Best Buy seemed headed for major trouble because of consumers reportedly using it for “showrooming,” where customers would look at products in stores and then turn around and buy them on Amazon for cheaper. With the online giant’s insane growth, why would that change?

Well somehow Best Buy has seemed to buck the trend with a strong second quarter. It’s same-store sales rose a very strong 5.4 percent year over year, due to a reported increase in demand for consumer electronics, and net earnings came in at $209 million, above the $198 million during 2016’s second quarter.

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Could Glamping Become a CRE Trend?

Nathan D. Vongunten Director, GRS | Title 330.267.4405 nvongunten@grs-global.com

Nathan D. Vongunten
Director, GRS | Title
330.267.4405
nvongunten@grs-global.com

Since the summer is near closing time, GRS Group thought it would be good to focus on the needed rest and recreation that those in the commercial real estate industry need before they hit the busy fall conference and networking season.

But there is still some time left before that to relax. One of the great options that hospitality consumers who want to be close to nature, yet not go through the extra work of pitching a tent and the other aspects involved with traditional camping, is called glamping. The concept is to have tent-like pods with beds and nearby bathroom and recreational access.

Companies involved in commercial real estate have realized a desire for this type of property.

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China-Based Investors Don’t Care About Brexit

Andrew Chisholm Managing Director GRS | Capital & Provincial achisholm@grs-candp.com

Andrew Chisholm
Managing Director
GRS | Capital & Provincial
achisholm@grs-candp.com

There has been a lot of talk about how Brexit will impact commercial real estate in London. GRS Group already reported that it hasn’t shied buyers away from the European metropolis.

Now investors based in China have upped the ante.

In the first six months of 2017, commercial real estate transactions from firms, mostly based in Hong Kong, have hit $5.1 billion, according to CBRE. That has already surpassed the entirety of last year, which came in at roughly $3.5 billion.

The most major example is the acquisition of the 34-story “Walkie Talkie” office building, as well as another skyline fixture called the “Cheesegrater.”

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Home-Rental Market Gets Major Lift

Michael Gerard is Marketing Director at GRS Group(949) 272-0022mgerard@grs-global.com

Michael Gerard is Marketing Director at GRS Group
(949) 272-0022
mgerard@grs-global.com

Commercial real estate’s multifamily market gets plenty of coverage and analysis for its continued success over the last decade. But the single-family rental market has not received as much attention.

That has changed with the $10.7-billion merger between Blackstone Group’s Invitation Homes and Starwood Waypoint Homes. The combined company will have 82,000 assets in 17 metro areas. The second-largest competitor is reportedly American Homes 4 Rent, with 49,000 locations.

This deal involving Blackstone, one of the world’s largest commercial real estate investors, shows that there is increased interest in this asset class, as homeownership fails to pick up at a rapid pace.

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Multifamily, 1031 Sectors Not Happy With Tax Reform

(804) 486-9465sfrancis@grs-global.com

Steve Francis, Director
GRS | Title
(804) 486-9465
sfrancis@grs-global.com

Some major commercial real estate organizations are unhappy with the current direction tax reform is headed.

The National Association of Realtors is reportedly saying that proposed changes to the personal tax code could lead to another housing crash. It could negatively impact home buildings as well as mortgage lenders. And we saw how well that worked out for the commercial real estate industry during the Great Recession.

As Bisnow reported in May, the National Apartment Association and the National Multifamily Housing Council joined forces, forming an effort called Protect the Lease.

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Messin’ with Sasquatch… in Cleveland!

Alec Pacella Senior Vice President NAI Daus (216) 455-0925 apacella@naidaus.com

Alec Pacella
Senior Vice President
NAI Daus
(216) 455-0925
apacella@naidaus.com

One of the most interesting pieces of American folklore is the nation’s infatuation with Bigfoot. Although the idea of a creature that is half man and half ape dates back to the 1800s, most of us think of that famous 1967 footage showing a grainy ape-like creature somewhere in the Pacific Northwest. Clevelanders have their own version of Bigfoot – it’s called IKEA. Rumors have swirled for nearly 30 years, with “sightings” ranging from North Olmsted to Beachwood. But before we talk about what could be, let’s first talk about what we know.

The Netherlands-based retailer offers a variety of household items. Although it is most noted for trendy, affordable and built-it-yourself furniture, it also carries kitchen items, bedding and office furniture, among other items. They operate over 400 stores worldwide, including 40 stores in the US. The facilities aren’t small, averaging around 300,000 square feet. Clevelanders infatuation with the chain dates to 1989, when IKEA opened a store in Pittsburgh. It was their 4th US location at the time but Clevelanders quickly took notice and within a few years,

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Split Estates: The Impact of Mineral Rights on Property Values and Use

The Big Picture: Do you know what you really own?

Reprinted with permission.  Authored by John Childs and Joshua Cook

A basic understanding of mineral rights can be important to evaluating your property. One common source of confusion when buyers or landowners contemplate value is the concept of the split estate.   “Split Estate” refers to the separation of surface and mineral ownership, whereby two or more individuals own separate rights in the same land. Split estates are quite common throughout the American West, and many landowners do not even realize that their homes, businesses, or ranches are subject to the mineral rights of third parties. Understanding the relative rights of split owners, knowing where mineral ownership may be uncovered, and understanding how to investigate the likelihood of mineral development can help landowners negotiate risks and properly assess land values.

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Spirit’s REIT Spinoff SpinCo Shows Net Lease Confidence

Allen Brown Director, GRS | Title (480) 428-5575abrown@grs-global.com

Allen Brown
Director, GRS | Title
(480) 428-5575
abrown@grs-global.com

The net-lease sector of commercial real estate has been strong throughout economic cycles, and now there is more evidence of perceived investor interest in these types of assets.

Major net-lease REIT Spirit Realty is splitting off part of its portfolio into a separate real estate investment trust called SpinCo.

At the root of this transaction is retailer Shopko, which has about 370 mass-merchandise stores based in the Midwest and West Coast. The retailer, which is privately held by private-equity group Sun Capital Partners, has been opening stores over the last couple of years, according to a press release from 2016. Shopko stores average between 15,000 and 35,000 square feet.

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Staples and the Death of Big-Box Competition

Kevin May Director, GRS Group (310) 614-9329kmay@grs-global.com @kmay_grs

Kevin May
Director, GRS Group
(310) 614-9329
kmay@grs-global.com
@kmay_grs

It wasn’t long ago when there were several large national big-box retail chains that sold a singular category item, such as books, electronics, toys and even men’s formalwear.

You can potentially add office supplies to that list.

There are reports that Staples could be selling off all of its 1,500 stores to competitor Office Depot. This is only one month after the retailer was acquired by private-equity firm Sycamore Partners for $6.9 billion. Meanwhile, Office Depot, which already merged with competitor OfficeMax in 2013, has fewer stores than Staples, at about 1,400.

This seems like a continuation of what has happened in retail for the last several years.

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CMBS Experiences a Q2 Climb

Matthew McGovern Director, GRS | Corteq (646) 760-0851mmcgovern@grs-global.com

Matthew McGovern
Director, GRS | Corteq
(646) 760-0851
mmcgovern@grs-global.com

Good news for commercial real estate borrowers came from CBRE recently.

Commercial loan closings rose 27 percent year over year during the second quarter, reported the commercial real estate services firm.

Much of this had to do with a spike in CMBS issuances, which hit $38.8 billion year to date, a jump from $30.7 billion over 2016’s first half. CMBS reportedly accounted for 36 percent of commercial-loan issuances during the second quarter, a spike from only 16 percent in the first quarter.

And all of this happened with two interest-rate increases by the Fed this year.

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2028 L.A. Olympics a CRE Game Changer

Michael Gerard is Marketing Director at GRS Group(949) 272-0022mgerard@grs-global.com

Michael Gerard is Marketing Director at GRS Group
(949) 272-0022
mgerard@grs-global.com

The announcement of Los Angeles securing the 2028 Summer Olympics is definitely big news for the metropolis in general, but there is little doubt that it will be a major booster for commercial real estate in the city.

Reports at the beginning of the year said the economic impact of the L.A. Olympics could hit $11 billion, and that was if it had won the 2024 bid, which was handed to Paris.

First of all, it is bound to boost hospitality construction, with a projected 3.3 million visitors to city over the Games’ course. Los Angeles is already experiencing some of the strongest RevPAR (revenue per occupied room) growth in the country. On top of this hotel construction in Los Angeles has boomed as of late, with new and coming additions such as Wilshire Grand, Metropolis and Oceanwide Plaza. Most of this new development has taken place downtown, but expect a flood of new construction around venues surrounding the city center, possibly near the Rose Bowl, in Pasadena; the L.A. Forum, in Inglewood; and other locales.

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Starbucks’ Tea Party Is Over

Tony Mueller, Director GRS | Corteq (312) 476-7621 tmueller@grs-global.com

Tony Mueller, Director
GRS | Corteq
(312) 476-7621
tmueller@grs-global.com

It’s well known that for a warm pick-me-up drink, coffee is the leader in the United States.

But for tea enthusiasts, Teavana is a cool, mainstream alternative to an independent specialty store where one can try a variety of different flavors and blends, not to mention the ability to purchase of a variety of drinkware.

Well Starbucks, the owner of Teavana, is shutting all of its 379 locations. Poor sales are reportedly the main culprit and the concept’s predominant presence in malls.

It’s a bummer for tea lovers, as well as Starbucks, presumably. The coffee giant spent $620 million to purchase Teavana in 2012. At the time, Reuters reported that Starbucks founder Howard Schultz said: “We will do the same for tea as we did for coffee.”

This obviously did not transpire.

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Sale-Leasebacks Now Relevant for Hospitality

Kevin Baumgartner, Director CLS GRS | Corteq (561) 325-9857 kbaumgartner@grs-global.com

Kevin Baumgartner Director
CLS, GRS | Corteq
(305) 547-9879
kbaumgartner@grs-global.com

The sale-leaseback sector of commercial real estate is mostly associated with retail pad sites, such as a drug, convenience store or quick-service restaurant. It can also be associated with sectors like office and industrial, but now another one is getting some attention.

Hotels are on now on the sale-leaseback menu, according to an interesting GlobeSt.com article. Reportedly sale-leasebacks for hospitality assets are a common occurrence in Europe but becoming more recurrent in the United States.

The example that GlobeSt. points to is Germany-based Deka Immobilien purchasing the Hyatt Centric hotel in downtown Chicago for $110 million. The original developer, Murphy Development Group, will continue to operate the facility.

So how common are hospitality sale-leasebacks?

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NYC Multifamily Transactions Bounce Back

Mark Halloron, Director  GRS | Corteq (732) 450-8960 mhalloran@grs-global.com

Mark Halloron, Director
GRS | Corteq
(732) 450-8960
mhalloran@grs-global.com

It’s hard to imagine, with rents so high in New York City, that the multifamily market could have challenges. Apparently, that was the case in the first quarter of this year, when transaction volume was down, according to Aerial Property Advisors.

However, activity picked up in the second quarter, as highlighted in a recent report by the firm. Between the first and second quarters, there was a 42-percent jump in transactions, hitting $1.93 billion.

Much of the problem during the first quarter was reportedly hesitancy surrounding the presidential election. Though there was still some weakness in April, it was apparently the best quarter for the number of transactions seen in the city since last year’s third quarter.

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CMBS Situation Better Than Anticipated

Matthew McGovern Director, GRS | Corteq (646) 760-0851mmcgovern@grs-global.com

Matthew McGovern
Director, GRS | Corteq
(646) 760-0851
mmcgovern@grs-global.com

There was concern about the CMBS maturities hitting the market, reported by Bisnow, based on information from an Avison Young executive. There were several originated in 2006 and 2007 that are now coming to maturity, prompting supposed worry that another wave of payment-delinquent landlords could face serious problems.

Well, those fears have been largely abated.

National Real Estate Investor reports that the worries about potential CMBS delinquencies are being taken in stride, based on data from Trepp. Though they rose 28 basis points, hitting 5.75 percent in June, this is by no means a crisis that the commercial real estate industry has anticipated over the last decade.

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GRS | Corteq Approved for Freddie Mac Multifamily Green Advantage Program

Jeff Coyne Director, GRS | Corteq (510) 962-9534jcoyne@grs-global.com

Jeff Coyne
Director, GRS | Corteq
(510) 962-9534
jcoyne@grs-global.com

Freddie Mac has approved GRS | Corteq as a preferred provider for its popular Multifamily Green Advantage program deliverables.                  

Under the Freddie Mac Green programs, if a borrower has a property where they are planning energy-saving improvements for either an acquisition or refinance they can save on financing in a few ways. The Freddie Green Advantage Program works in conjunction with the current Freddie Mac Conventional, Targeted Affordable and Seniors Housing products.

The Freddie program for green mortgage loans essentially runs on two tracks – Green UpSM, or Green Up PlusSM. Under the programs, borrowers must qualify for, and commit to implement, property changes geared toward reducing EITHER energy or water consumption by a minimum of 15% property wide.  Borrowers who qualify have the ability to choose the upgrades they want to implement to meet both the 15% energy/water savings threshold while also spending a minimum dollar amount per unit (currently $350/unit).  If the property is eligible for the program, and the property/borrower is able to meet these thresholds, the borrower may qualify better pricing and more funding to make the green enhancements.

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Infrastructure Improvements Seem Tabled for Now

Michael Gerard is Marketing Director at GRS Group(949) 272-0022mgerard@grs-global.com

Michael Gerard is Marketing Director at GRS Group
(949) 272-0022
mgerard@grs-global.com

Despite what has happened with the political turmoil in this country and the polarity the U.S. presidential election, there is one thing nearly everyone in the commercial real estate industry could agree upon — President Trump’s promise of a $1-trillion plan to improve the infrastructure in this country would be a good thing.

Nothing about his presidency would make more sense for commercial real estate than to apply upgrades to the nation’s roadways and transportation hubs, many of which have been in dire need of repair for some time. After all, the transportation of goods in a timely manner and workers more easily accessing their jobs, among other pluses, could only help the success of office, industrial and retail assets.

But it’s never that easy.

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