Blog

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

Print

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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A Wave of Bankruptcies, Store Closures Hurt Apparel

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 not a rosy time for the specialty-apparel sector of retail.

Though there are some upsides to retail commercial real estate, it’s hard to ignore what is happening to this part of the industry’s landscape.

Here are a few of the latest examples:

– BCBG Max Azaria Group is closing 120 stores, most of them domestically, representing about a third of its locations in the United States. The company is apparently also close to filing for Chapter 11 bankruptcy.

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2016: A Choppy Year for the Net-Lease Sector

From time to time, GRS Group likes to highlight its clients and industry associates that are thought leaders in commercial real estate. For this installment, we have a guest column by Daniel Herrold, a senior director with Stan Johnson Co., who weighs in on the net-lease sector.

Daniel Herrold Senior Director Stan Johnson Co.

Daniel Herrold
Senior Director
Stan Johnson Company

In the net lease marketplace, volumes were down in 2016 as compared to the previous year. According to Stan Johnson Company, net lease volume for 2016 was approximately $52.5 billion, down nearly 18 percent as compared to the previous year. There were a several variables that gave investors pause last year.

For one, the institutional buyer pool is a significant buyer in the net lease marketplace. Institutions are constantly evaluating where interest rates and cap rates are heading, and they adjust their buying and selling patterns accordingly. In the first half of 2016, institutions were net sellers; aggressively disposing of assets within their portfolio that weren’t performing well or those assets that contained a tremendous amount of extractable value. Most real estate investment trusts (REITs) were effectively selling, attempting to take advantage of the aggressive cap rate market.

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New York City Goes Downtown…Large

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

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

There are few places in the United States that have dealt with more challenges than New York City’s Lower Manhattan, between 9/11 and the recession.

But things are definitely changing.

One World Trade Center is now a reality, and the city’s tallest building. The major office and retail mixed-use development, which takes up 16 acres is transforming the neighborhood, which is arguably the financial center of the world.

According to Colliers International, Lower Manhattan leasing activity has decreased recently, but that doesn’t mean the neighborhood hasn’t changed significantly, and the downturn is likely due to strong year-on-year comparisons.

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Cleveland’s Downtown Is Rising Up

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

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

Downtown areas across the country, like Cleveland’s, are thriving. There is a wave of Millennials and Baby Boomers moving to city centers because of close proximity to work, entertainment, public transportation and shopping.

Cleveland is no different, and the downtown office market is getting stronger as a result, according to a recent JLL report. Since 2010, vacancy has steadily decreased in the area. At 4.2 million square feet of empty space that year, it has fallen to 3.1 million square feet as of last year’s fourth quarter. By 2020, it is forecast to hit 2.2 million square feet.

JLL points out that part of the reason for this is due to the conversion of about 15 poorly performing office assets into multifamily buildings. This shows that there is a demand for more downtown living.

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Things Are Bright in South Florida

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

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

South Florida didn’t seem like a strong market anymore during the recession. Construction on high-end condos had abated, with many structures left unfinished scattered around Miami.

That has changed, and now the market has improved tremendously because of revitalized population and job growth because people will always want to live in that locale.

As Colliers’ fourth-quarter reports come in about various markets, we are finding that the news largely remains good in this region of the state.

On the retail front, Miami did take a bit of a vacancy rate hit in the fourth quarter, with a 40-basis-point increase year over year over the period. However, activity in the Miami-Dade area was very strong during 2016’s other three quarters.

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PHX Retail and Industrial Vacancy Rates Improve

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

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

Colliers had some good news with its fourth-quarter reports on two sectors of the Phoenix commercial real estate market: retail and industrial. Vacancy rates for both property types are apparently decreasing.

On the retail front, Colliers says Phoenix retail vacancy rates dropped by 10 basis points during the quarter, leaving the market at a healthy 9.5 percent. There was 545,000 square feet of net absorption during the period, which turned out to be the best quarter of the year. Though asking rents slipped during the quarter, for the full year they increased 1.6 percent over 2015, meaning there was still plenty of improvement during 2016. The downside is that retail real estate transactions dropped year over year during the quarter by 13 percent, but that’s not unusual, considering trepidation about the election and interest-rate increases.

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A Look at the Economy’s Future

Andy Brownstein is CFO & General Counsel at GRS Group

Andy Brownstein is CFO & General Counsel at GRS Group

Last week I attended a Richmond Real Estate Group event, where the keynote speaker was John Jung, a senior managing director at BB&T Capital Markets, whose presentation was entitled “Making America’s Economy Great Again.”

He told us what we might expect in the early days of the Trump Administration. While his presentation was to a group of real estate professionals, it wasn’t directly about the industry, but more about the economy as whole.

Jung made it clear he wanted to focus on facts and not political opinions. Though a lot of things could improve, his opinion based on the data is that the general economy is in pretty decent shape.

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2016: A Year of Retail Mergers

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

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

Consolidation in the retail industry was as pronounced as ever over the last 12 months.

The latest mega deal that we’re absorbing is the proposed sale of 865 Rite Aid pharmacies by Walgreens Boots Alliance to Fred’s Inc. for $950 million. This is part of a larger acquisition by Walgreens of Rite Aid that is set to close in 2017. This follows CVS’ purchase of 1,600 pharmacies within Target stores.

Another major deal was the merger of arguably the two largest outdoor mega chains, Bass Pro Shops $4.5-billion purchase of Cabela’s.  Now that transaction is coming under scrutiny, though.

Meanwhile, grocery retail has been in the acquisition mode for several years now, and department stores were doing the same just after the turn of the decade.   

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CRE Gender Bias Still Prevalent

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

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

Believe it or not, we still live in a world when, sometimes during a conference-room work meeting, the lone woman in the room, even if she is an executive, is expected to grab coffee for the others!

This and other findings are detailed in the Commercial Real Estate Women (CREW) Network’s 10th annual white paper on women in the Commercial Real Estate  industry, called “Closing the Gap: Addressing Gender Bias and Other Barriers for Women in Commercial Real Estate.” Besides the expectation of women getting meeting beverages, 65% of professionals  (1100 surveyed with 88% women) have personally experienced or observed gender bias against women in their commercial real estate workplace in the past 5 years. 

Following the release of the 2015 Benchmark Study Report: Women in Commercial Real Estate, CREW Network focused on digging deeper into issues that persist and stymie women’s advancement in commercial real estate in its 2016 white paper. The paper details both statistical data and personal accounts previously unmeasured and unrecorded in our industry – and largely unaddressed.

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Can Affordable Housing Supply Meet Demand?

Mark Halloron, Director GRS | Corteq

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

In the multifamily sector of commercial real estate, one of the biggest roadblocks cited when forecasting the future, is the potential for the overbuilding of apartment complexes in certain areas.

The fear is that the sector, which has performed exceptionally well coming out of the recession, is starting to overheat, and developers’ building plans might be overzealous in certain areas where the demand could wane with more product on the market. This could lead to a dip in occupancy and rental rates.

But on a different side of the spectrum, there is a problem just as, if not more, dire.

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Hotel Supply Up, While Demand Wanes

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

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

The lodging sector of commercial real estate, which enjoyed a pretty strong run right after the recession, is finally cooling off. A lack of supply that the hotel industry faced for several years has been fulfilled in many areas, and now demand is starting to taper off for hotels, mostly as a result of macroeconomic factors.

Demand for hotel rooms is expected to increase 1.6 percent this year over 2015, which is exactly how much expected growth is forecast to take place, according to PwC. Next year is predicted to have more of a gap, with a 1.9-percent increase in supply, a 13.8-percent jump in new room starts, but only a one-percent rise in demand. Occupancy is forecast to remain flat this year and decrease by 0.9 percent in 2017. Hotels in both the upper-end and economy sectors could suffer the most, while independents and midscale venues are supposed to fare better.

Macroeconomic worries seem to be the main culprit for the slowdown. They include, among other factors, uncertainty about the coming president-elect’s policies, a slowdown in the growth of corporate profits, and concerns about Brexit and the overall international economy.

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CMBS Worries Take Forefront Again

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

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

Projections on the CMBS market for the coming year are being released by several organizations, and as usual, they are mixed, depending on the source of information.

Last month, CMBS delinquencies reportedly rose to 5.03 percent nationally, according to research firm Trepp. This represented an increase of five basis points from October, but year over year, the rates were still 10 points below November 2015, and some commercial real estate sectors, such as retail, saw rates actually drop.

Looking toward next year, S&P Global Ratings recently said that of the $92 billion of loans maturing in 2017, about $12 billion could default and face special servicing. Though defaults have declined annually since 2011, they have crept up so far this year because of the volume of 2006 and 2007 loans maturing from now through 2018.

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Retail’s Reality Gets More Complex

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

This is a difficult year to get a pulse on how the retail industry will perform going forward.

On the one hand, overall, the segment has been performing well. On the other, there is concern and uncertainty, maybe more than in the recent past, about some major retailers shutting stores in early 2017 due to a poor holiday performance.

Here’s the good news: Black Friday was a success for the most part, with an 8.6-percent increase at physical stores from the same period in 2015, even though online retail sales are increasing at a much faster pace.

Retail sales have been upbeat, as calculated by the Commerce Department, too. Minus auto sales, retailers saw sales rise 0.8 percent during October. Last month, they rose one percent, after the Commerce Department revised its previous report of 0.6 percent. Dick’s Sporting Goods, TJX Cos., Nordstrom and others all saw their share prices jump as a result.

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E-Commerce Activity Gives Industrial a Boost

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

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

A few weeks ago, I attended the RealShare Industrial conference in Dallas.

Commercial real estate professionals got to find out during the various panel discussions why the industrial sector is doing so well as of late.

One of the biggest drivers in the space right now is warehouses for e-commerce firms and brick-and-mortar retailers that also have a strong online presence. Since the convention was set in Dallas, there was a lot of talk about activity throughout the state, which has so much CRE diversity, it mirrors the country as a whole. In the case of e-commerce, Amazon completed an 855,000 square feet warehouse in Austin, which is known as the state’s tech hub. With the increased traffic of online shopping, more deals like this are bound to take place across the country. For every $1 billion in e-commerce sales, there is a demand for an additional one million square feet of industrial space on the market, according to a PwC analyst. And now these developments are being built closer to large cities, in order to do same-day delivery more efficiently.

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