Blog

Data Centers’ M&A Activity Increases

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

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

Data centers seem like a pretty safe financial bet for commercial real estate investors.

As most major companies in the country, despite what industry they are in, become tech heavy, the need for data storage is only going to increase. Many offices and industrial buildings aren’t suitable for large numbers of servers, which have significant cooling and power needs that data centers provide.

This need has made the data-center especially attractive and valued, as illustrated in Digital Realty Trust’s $7.6-billion acquisition of DuPont Fabros Technology for 12 data centers in the Chicago area, Northern Virginia and the Silicon Valley. That’s quite a price tag for 12 assets, and it boosts Digital’s cloud-data-storage capabilities.

Just after that deal, CommScope announced the formation of the Multi-Tenant Data Center (MTDC) Alliance, which has partners in 88 countries around the globe, and is a resource for the firms that do business in building and maintaining those facilities. The move comes as more service providers are selling off their data centers to third-party operators.

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Is There Demand for a Major Trump Hotel Chain?

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

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

It’s easy to forget that President Trump has his roots in commercial real estate. After all, his past activities in the industry are obviously overshadowed by the fact that he now leads the most powerful country in the world.

But that hasn’t stopped the Trump Organization from continuing to pursue CRE endeavors.

Trump’s company recently announced that it is starting a hotel chain called American IDEA. The concept, planned to launch in the Mississippi Delta area, targets midscale consumers and will reportedly concentrate on promoting local flair, coupled with “neighborly service.”

Though there are only three locations currently hammered out with partner Chawla Pointe, a family run organization, and MMI Hotel Group, the firm that runs its Chawla’s current portfolio, its sounds as though the Trump Organization has big plans for American IDEA. Eric Danziger, chief executive Trump’s hotel division, told The New York Times that there could be hundreds of American IDEAs eventually. At first, the company plans the concept for small and mid-sized towns that have a strong base of Trump supporters and a lack of midscale hotel options beyond lower-end travel facilities. The first three deals represent renovations of existing hotels under the Holiday Inn and Comfort Inn banners.

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Student Housing Investment, Development Get High Marks

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

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

The student-housing sector experienced a mega deal for this commercial real estate asset class earlier this month that’s indicative of the sector’s strong overall transactional performance.

Mapletree Investments, a Singapore sovereign-wealth fund, acquired a student-housing portfolio for $1.6 billion from Kayne Realty Advisors. The transaction totaled 18 properties across the United States and Canada.

The deal is indicative of how institutional investors are starting to show more interest in a sector dominated more by private firms.

This is on top of a trend that has been building. There was $10 billion spent on student-housing transactions last year, the largest ever on record, according to an ARA Newmark Student Housing Group report cited by Bisnow. Student housing has been favored in the past during downturns in the economy, but that’s not the kind of climate we are currently facing. And like other commercial real estate sectors, investors are getting priced out of class A properties and going for value-added plays.

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Senior Housing CRE Boasts Mega Deals

Julie Sorensen, Director  GRS | Corteq  (312) 476-7658  jsorensen@grs-global.com

Julie Sorensen, Director
GRS | Corteq
(312) 476-7658
jsorensen@grs-global.com
@jsorensen_grs

Senior housing isn’t usually the first thing on investors’ radar when considering a stake in commercial real estate, but a recent mega deal might have them thinking differently.

Sabra Health Care REIT and Care Capital Partners merged in a $7.4-billion deal last month. The combined entity, once the deal closes later this year, will operate just under 560 senior-housing and healthcare facilities across North America. For its part, Sabra announced a $1-billion development pipeline two years ago.

This is not the only significant recent merger in the senior-housing sector. Colony NorthStar was formed last year in a $17-billion marriage between NorthStar Asset Management Group and Colony Capital.

Besides these mega deals, senior-housing transactions in general are on the upswing, according to the National Investment Center. Total purchases of these assets totaled $4.4 billion during the first quarter. Institutions and private buyers are currently leading the way in these deals. Private-equity firm Blackstone alone made two buys totaling about $1.9 billion.

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U.K. Elections Bring Uncertainty, But Not Expected to Derail CRE

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

Businesses, commercial real estate firms among them, are usually not very thrilled about elections. After all, a change in political parties, or newly elected politicians, can have an adverse impact on the economy. At the very least, a degree of uncertainty can give investors pause.

This hesitancy is happening in the United Kingdom with elections taking place today. But it doesn’t seem as if the sky is falling on commercial real estate, especially in London.

CBRE UK points out that just because an election is taking place, there is no reason to think that there will be negativity in the market, and says that during any point in the political cycle, policies could impact commercial real estate. The firm also reports that most commercial real estate investors are very aware that if policies impacting their industry are put into place, they can take a very long time to come to fruition. The United Kingdom is also considered a safe haven commercial real estate, despite Brexit.

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Sears CEO has More than Fake News to Worry About

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

There is a lot of talk these days about “fake news.”

The truth is, the media industry has been guilty of embellishment, sensationalism and over editorializing on certain subjects in forums when it’s supposed to be objective. Back in the late 1800s there was a term called yellow journalism to describe this occurrence.

We’ve obviously heard a lot of politicians complain lately about perceived inaccuracies in the media.

Well, now we have one of the nation’s largest, and most beleaguered, retailers complaining about unfair treatment in the media.

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Look For an Interest Rate Boost After Jobs Report

Jason Jones, Director GRS | Title (480) 428-5580 jjones@grs-global.com

Jason Jones, Director
GRS | Title
(480) 428-5580
jjones@grs-global.com

The May jobs report by the Fed, had both good and potentially negative news for commercial real estate.

The unemployment rate is now apparently at 4.3 percent, the lowest since 2001. And though economists forecasted an increase of about 185,000 new jobs in May, the number came in at 138,000.

What this shows is that office, industrial and retail real estate are doing well, and their facilities are operating, in many locales, close to capacity though there are concerns about mass store closures and how that will impact malls. Health care led the way in all industries with 24,000 new jobs added.

There are conflicting reports, however, how the Fed could deal with interest rates later this month. Obviously, this is a subject that commercial real estate professionals follow closely.

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Detroit Streetcar, Those in Other Cities, a CRE Booster

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

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

Streetcars in the United States used to be ubiquitous modes of street-level transportation, moving people around major cities to and from work. That changed about halfway through the 20th Century, when many of these routes were dismantled, or changed for other uses, due to changes in infrastructure and the widespread use of the automobile.

Metro areas have been bringing them back this century, and Detroit is now the latest major city with a new streetcar system, which debuted last month. Called Q1, the line makes a 6.6-mile loop from the city’s downtown to major cultural, entertainment and sports facilities, among other stops.

In a national atmosphere in which more people are looking to live in urban cores where they can easily access work, shopping and entertainment, these are convenient modes of transportation to shuttle around an area.

They’re also drivers of commercial real estate development.

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NAIOP Awards Highlight Ohio CRE Excellence

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

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

Recently, I attended the annual NAIOP Awards of Excellence, the flagship event for northeastern Ohio’s commercial real estate industry.  Some of the distinguished winners were David Stover, of Hanna Commercial Real Estate for Industrial Broker of the Year; Rico Pietro, of Cushman & Wakefield, for Office Broker of the Year; and Chris Seelig of Colliers International for Retail Broker of the Year.  Other winners of note were Hanna Commercial Real Estate, for Industrial Transaction of the Year; Cushman & Wakefield’s Investment Transaction of the Year; and Colliers International for Office Transaction of the Year.  As in previous years, this event was a success, and brought more than 300 of the industry’s professional together to acknowledge the best and brightest in our industry.  

And the industry looks good in the state’s largest MSA.

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MBA Tackles GSE Reform, Waiting for Congress

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

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

Last week, the Mortgage Bankers Association (MBA) released a white paper titled: GSE Reform: Creating a Sustainable, More Vibrant, Secondary Mortgage Market, which laid out the association’s vision for a reformed and revitalized Fannie Mae, Freddie Mac and secondary mortgage market.

As the MBA and many members of Congress see things, the structure of the government-backed housing market, specifically Fannie and Freddie, places too much reliance on government support. 

Economists attribute the Great Recession to the housing market and, more specifically, to the fact that the government was such a large backer of the mortgages (via mortgage-backed securities and CDO’s) that derailed the U.S. economy and triggered a worldwide recession.  In response to this market failure, the MBA is trying to take the lead in crafting and implementing reform while they see a window of opportunity to make lasting and beneficial change.  But it must be noted that the MBA can only lay out their vision and try to lobby and push this vision – they will ultimately need Congress to vote, pass and implement the structure, which may never occur, or may dramatically deviate from the vision they are championing.

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Electronics Stores Face a Tough Challenge

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

Things are not going well for electronics retailers right now.

With the advent of online retailing, and the fact that consumers are now more comfortable buying products such as computers, televisions, smart phones and other devices on the Internet, the amount of electronics stores needed across the country has decreased. Additionally, in the brick-and-mortar world, several of these products can now be purchased anywhere, from Walmart to dollar and drug stores.

And now, many major chains in the space are closing stores. Following are just a few examples.

Best Buy

Probably the best-known specialty big-box electronics retailer in the country is Best Buy. It has had its own issues over the last few years. Best Buy has closed upwards of 100 stores since 2016. It was said that the chain was becoming more of showroom than a retail location, where consumers would look at products, leave, and then buy the goods somewhere else online. From an investment standpoint, Best Buy is improving lately, though. But on the other hand, it is also experiencing slightly lagging sales, even after a good quarter.

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Manhattan MF Rental Rates, Transactions Slide

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

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

This didn’t seem like that much of a possibility in the recent past, but the multifamily sector of commercial real estate in Manhattan is facing a bit of a slowdown, albeit CRE professionals in most other major cities aren’t going to feel too sorry for this dip in fundamentals.

Though apartment vacancy rates rose year over year in February, they are still at an extremely tight 2.44 percent, compared to 2.31 percent during the same period in 2016, according to Douglas Elliman, in its most recent market report. Rental price per square foot also dropped 1.9 percent from the same year-ago period, sitting at $64.59.

The most problematic statistic in the Elliman report, though, is that the number of new leases signed fell by just below 28 percent. Supply on the market is on the rise as well, with listing inventory increasing 11.7 percent from the previous period in 2016, the seventeenth month in a row that has experienced a jump. As a result, landlords are offering more concessions to prospective tenants, hitting record highs over the last few months.

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Is Houston Office Closer to Stability?

Diana Lansing, Director GRS | Title (214) 296-2166 dlansing@grs-global.com

Diana Lansing, Director
GRS | Title
(214) 296-2166
dlansing@grs-global.com

Bad things can happen when you put all of you eggs in one basket. That’s been part of the problem the Houston office market has faced over the years – reliance on the energy industry to dictate commercial real estate fundamentals.

Not that Houston, the country’s fourth-largest city, doesn’t have other important industries with significant operations, such as healthcare, but the overall office market there goes hand-in-hand with the performance of energy-related businesses.

As recently as the fourth quarter of 2012, Houston was one of the hottest office markets in the country. Vacancy rates during that period were at 13.8 percent and on the decrease, while rental rates rose and new construction was abundant, according to a Colliers International report.

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Store Closings, As Well as Openings, Across Retail

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

It’s difficult to understand the retail real estate climate right now.

There is a lot of news about store closings right now. But at the same time, there are several chains opening locations, too.

Fung Global Retail & Technology releases a regular retail report that gives a good picture of what is taking place in this sector of commercial real estate. The study has both bad and good news for retail landlords, and also gives insight into what types of concepts are both growing and contracting.

First, the bad news. Hhgregg, a relatively large electronics retailer, is liquidating and closing all of its 220 stores, a majority of which are big-box locations. On the apparel end of the spectrum, former mall stalwart The Limited is closing all of its stores, of which there were 250. Additionally, GameStop is shutting 190 units, and RadioShack will close 187 stores. And all of this is on top of the highly publicized major Macy’s, Sears, and JCPenney shrinkage.

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Toyota Factory Shows the Power of U.S. Industrial

Barry Bain Director, GRS | Centaur (630) 690-4335bbain@grs-global.com

Barry Bain
Director, GRS | Centaur
(630) 690-4335
bbain@grs-global.com

As GRS Group has pointed out, the industrial sector of commercial real estate is faring well lately.

Politics aside, there is evidence that this will continue in the foreseeable future. Most of what is discussed in commercial real estate forums in relation to the presidential-administration change is talk of tax reform and how that will impact the industry.

Whether or not there are political implications involved in the process, Toyota is spending just over $1.3 billion on a factory in Kentucky. It will obviously assist the construction industry and reportedly employ an additional 700 workers.

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Industrial Real Estate Going Strong, Assets Growing

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

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

While the commercial real estate industrial sector continues to improve and evolve, properties in the asset class also continue to grow… in height.

Bisnow recently highlighted a CBRE report that says the heights of industrial buildings have increased.  The average warehouse height was 33 feet in 2016, and that number should continue to grow as Ecommerce users convert upper clear heights into mezzanine space – which, in turn, adds shadow square footage to the asset. This recent evolution shows why newer assets have a distinct competitive advantage.  Older standard heights, specifically 24 feet, established in the 1960s, are lagging behind when it comes to this particular need for vertical space.

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Raider Nation Could Bump Up Las Vegas CRE

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

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

So, the NFL’s Oakland Raiders, which did a stint of time in Los Angeles from 1982 to 1994, are now the Las Vegas Raiders.

This will surely have a major impact on the commercial real estate market in the Las Vegas metro area. Specifically, there is talk about how the Russell Road neighborhood in Vegas will be impacted by the new stadium being built.

The 63-acre plot, where the new Las Vegas Raiders stadium is to be built, has not yet reportedly been purchased by the parties involved in the deal. But a 65,000-seat NFL stadium in one of the largest tourist markets in the country will definitely boost commercial real estate in that part of the metro area.

The main components of CRE that will be impacted are likely to be retail and hospitality because the area will be a major draw for people across the Raider Nation.

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Sears’ Situation Gets Even Worse

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

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

Sears Holdings is probably not very popular with retail real estate landlords nowadays. 

The company, which owns its eponymous chain, as well as Kmart, has had problems for well over a decade now.

There has been hope, over the years, that Sears executives would figure out what was happening and turn things around, but that has been to no avail. There have been years of lagging sales and profit declines, as well as major Sears and Kmart closings.

Now it looks as though Sears Holdings is near ready to thrown in the towel. The company said, in its annual report, that there is “substantial doubt” about the retailer’s ability to continue as an entity.

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Drones Flying Around CRE…and IN Walmart Soon

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

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

It isn’t new news that drones can impact commercial real estate.

There are several reasons for this that are very relevant for all sectors of the industry. Amazon is now using drones for delivery, through its Prime Air service, which will have a strong impact on industrial commercial real estate because of the frequency that facilities will be utilized will jump.

Also, commercial real estate owners and brokers are using drones increasingly to market their buildings. This is especially helpful when you need overhead images, of offices and other types of assets, where potential investors and renters need to see a building from above.

Well, instead of outdoor drone activity, Walmart is up to something else.

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Despite Brexit, London CRE Seems Good

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

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

Foreign capital seeking to invest in U.S. commercial real estate is something many firms are doing right now from overseas, as a safe haven for their investment choices.

But despite concerns of the Brexit issue, it seems as though London is doing very well, according to several reports.

Foreign investment is actually increasing in the city, especially from China-based investors. Apparently a weaker sterling pound is not scaring the appetite of investors from that country, which are already among the biggest commercial real estate investors in the world. Last year investors from China reportedly spent $3.75 billion on real estate in London’s city center alone. There were several transactions that ran north of $200 million for office buildings.

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Foreign Investors Still Hungry for U.S. CRE

Mark Halloron, Director GRS | Corteq

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

It looks like the desire by investors, in general, to put money into U.S. commercial real estate has not waned. Despite that craving, and likely higher US interest rates in 2017, there is major capital in the waiting unspent on CRE.

A big part of that interest in real estate is coming from foreign investors, as illustrated in a recent Bisnow article, and there are billions of dollars looking for investment deals.

Partially due to Brexit, and other factors involving international uncertainty, three of the top five markets for foreign commercial real estate investment are in the United States, according to the Association of Foreign Investors in Real Estate (AFIRE). Number one is New York City. Los Angeles falls in fourth while, San Francisco is fifth (London and Berlin fail in between).

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MBA CREF17 CONFERENCE REPORT: Bright Future for Life Companies’ Health

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

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

Recently, I attended the Mortgage Banker Association’s CREF 2017 multifamily conference in San Diego (MBA CREF17) along with some other GRS Group professionals.

The conference was a great opportunity to meet with client and peers, reconnect with professionals from all over the country, and sit in on meetings and information sessions covering a wide variety of property, lending and borrower types. This blog will focus on a single session I attended of particular interest – specifically, the importance of life-insurance companies in the current commercial real estate lending environment.

The session, titled “The Future of Companies in Commercial Real Estate,” had panelists from a range of lenders including Stancorp Mortgage Investors who loaned out $1.7 billion last year, PPM Finance (who reportedly completed $2.3 billion of transactions) and Metlife who financed over $14 billion in deals in 2016.

My notes follow:

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MBA’S CREF REPORT: What if Fannie and Freddy Go Away?

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

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

Steve Canty, a business development director at GRS | Corteq, and some other members of the GRS team, recently attended the Mortgage Banker Association’s CREF 2017 multifamily conference in San Diego. Here are his thoughts on where this sector of commercial real estate is headed in the future.

Was the conference upbeat or was there hesitance about how things are moving forward due to the new presidential administration?

Canty: In general, people are extremely upbeat. They really don’t see the Trump Administration as having the industry on its radar over the next year. Fannie Mae and Freddie Mac privatizing is not going to happen very soon under this administration, because he has other issues on the table. People said that as far as 2017 goes, it probably won’t be impacted by the new president.

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Digging Down Into ESA Phase II

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Editor’s Note: Our columnist for this segment is John Burkart, who has recently joined the GRS | Corteq team as director of Phase II and remediation services. John explains to us the basics of Phase II environmental assessment and will further provide remediation information , and how it’s making an impact on the industry in the future.

Once an Environmental Site Assessment (ESA) is completed and a Recognized Environmental Condition (REC) is identified the owner, the lender or seller may want to investigate further to determine the magnitude of impact. The impact may be associated with Underground Storage Tanks (USTs), historical operations, dry cleaners, spills or the release of harmful material on site.

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Medical Office Grows by Getting Smaller

Julie Sorensen, Director  GRS | Corteq  (312) 476-7658  jsorensen@grs-global.com

Julie Sorensen, Director
GRS | Corteq
(312) 476-7658
jsorensen@grs-global.com

There is plenty of growth in the medical-office sector, but it’s not because developers are building large assets. Hospitals are now looking to reach patients beyond their main locations in efforts to provide more convenience to a population that is both aging and more insured.

This means having smaller stand-alone buildings that have become more attractive to various types of investors, such as the net lease community.

There was a recent article in Bisnow highlighting “micro-hospitals.” Bisnow interviewed Vic Schmerbeck, executive vice president of strategy and development with Emerus, an operator of these facilities. He says it’s indicative of convenience retail.

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