Monthly Archives: November 2012

Johnson Development to Solicit Projects for 113-Acre Memphis Industrial Complex

By Barbra Murray, Contributing Editor – Commercial Property Executive magazine

Johnson Development Associates has big plans for Aerotropolis Business Park, the 113-acre site it acquired in Memphis, Tenn., earlier this year. The company is making the property available for as much as 1.2 million square feet of speculative development and build-to-suit opportunities and has tapped commercial real estate services firm Jones Lang LaSalle Inc. to spearhead the marketing effort.

Given the current state of the Memphis industrial market, it appears that JDA’s endeavor is kicking off at the right time. Demand for Class A accommodations continued to climb in the third quarter, driven to a great degree by healthcare, retail and third-party logistics companies, according to a report by JLL. For industrial tenants, the attractiveness of the Memphis market is undeniable, due in no small part to the very simple issue of practicality; affordable labor, low cost of living and relatively low industrial rental rates are reeling in renters.

And the attraction to Aerotropolis is likely to prove irresistible as well. The property, which will bloom on the former site of the Mall of Memphis, is not only located in the right city, it’s sited in the right area of the right city. Aerotropolis is within three miles of Memphis International Airport, the second largest cargo airport in the world, and just four miles away from the newly expanded BNSF Memphis Intermodal Facility. And then there’s the park’s close proximity to the Port of Memphis, which holds the distinction of being the fourth largest inland port in the U.S. Additionally, its immediate access to I-240 puts it within easy reach of the third-busiest trucking corridor in the country.

The call for large blocks of premier industrial space in Memphis has been growing louder, as noted in the JLL report. New Breed Logistics recently expanded its presence in Memphis by taking on 404,400 square feet at Southpark Distribution Center O. And in the absence of availability, some companies are creating additional elbowroom for themselves. In October, Nike Inc. revealed that it will invest $301 million in a project that will add 1.8 million square feet to its 1.1 million square-foot facility.

Aerotropolis certainly has its local backers. The City of Memphis contracted MAP Studio Planning and Policy Advisors for an assessment and the firm gave the project solid thumbs-up.

“We support the Aerotropolis [planned development] application because we believe that the JDA group will provide the right mix of project financing, sensitivity to land use issues, attraction of top-notch companies to the site, and commitment to urban revitalization,” Louise Mercuro, president of MAP Studio, wrote in a letter to the City Council.

10 Cities Where Landlords and Renters are Miles Apart on Rents

ByDerek Mearns - MultiFamilyExecutive.com

The first step in the search for a new apartment is very often scouring internet listing services. Among the most important search criteria is usually the price range that an individual is willing to pay.

But how realistic are renters when seeking cheap apartment deals in major urban areas?

According to the newest data from Apartments.com, many Gen Y-ers and other first-time renters are way off on what the going rate is for an apartment in many of the most popular U.S. cities. And the price they are hoping to pay just doesn’t exist in many markets.

Take a look at 10 cities where renters severely underestimate the actual cost of rent when conducting their apartment searches online. Sometimes what someone wants to pay is nowhere close to what they will have to pay. Here’s some of the cities where hopeful renters and market-making landlords were the furthest apart:

City

Difference between actual rental rates and renter expectations

Brooklyn, N.Y.

-50%

Jersey City, N.J.

-47%

Oakland, Calif.

-46%

Boston, Mass.

-42%

New York, N.Y.

-41%

Denver, Colo.

-37%

Los Angeles, Calif.

-36%

Fort Lauderdale, Fla.

-35%

San Francisco, Calif.

-35%

North Hollywood, Calif.

-34%

Economy Watch: Existing Home Sales, Homebuilder Confidence, Stock Market Up

By Dees Stribling, Contributing Editor – CommercialPropertyExecutive.com

Existing U.S. home sales were up to an annualized rate of 4.79 million units in October, according to the National Association of Realtors on Monday. That’s an increase of 2.9 percent from the previous month, and 10.9 percent from October 2011, and on the whole a solid report.

Perhaps more importantly—at least for driving prices up further—total housing inventory nationwide at the end of October fell 1.4 percent to 2.14 million existing homes available for sale, which represents a 5.4-month supply at the current sales pace, down from 5.6 months in September, the NAR reported. That’s the lowest housing supply since February 2006, when it was 5.2 months. Listed inventory is 21.9 percent below a year ago, when there was a 7.6-month supply.

The Realtors also calculated that the national median existing-home price for all housing types was $178,600 in October, which is 11.1 percent above a year ago. This October marked the eighth consecutive monthly year-over-year increase, and the last time that happened was from October 2005 to May 2006, back in the bubble days. This time around, no one’s calling it a bubble.

Homebuilders Feeling Much Better

Fittingly, the National Association of Home Builders also released a report on Monday, and it found that builder confidence in the market for newly built, single-family homes posted a solid five-point gain so far in November to 46. That’s the closest the index has been to the optimism threshold of 50 since well before the housing bubble popped and the Great Recession decimated the new housing industry.

Two out of three of the index’s component indexes registered gains in November. The component gauging current sales conditions posted the biggest increase, with an eight-point gain to 49, its highest mark in more than six years. The component measuring sales expectations for the next six months held above 50 for a third consecutive month with a two-point gain to 53, and the component measuring traffic of prospective buyers held unchanged at 35 following a five-point gain in the previous month.

“While our confidence gauge has yet to breach the 50 mark—at which point an equal number of builders view sales conditions as good versus poor—we have certainly made substantial progress since this time last year, when [the index] stood at 19,” NAHB chief economist David Crowe said in a statement. “At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets.”

Wall Street was also feeling chipper on the Monday before Thanksgiving, perhaps on hopes that the fiscal cliff boogeyman might actually go away. The Dow Jones Industrial Average gained 207.65, or 1.65 percent, the most in quite a few trading sessions. The S&P 500 gained 1.99 percent, while the Nasdaq advanced 2.21 percent.

Characteristics of Generation Y and Its Effect on Apartment Demand

by  - Property Management Insider

At MPF Research, we are often asked: How can the U.S. apartment market record such strong demand given that employment growth has been lukewarm and that increasing numbers of Generation Y – the key demographic for the apartment industry – are living at home with Mom and Dad?

Recent apartment demand numbers have been far above what anyone likely would have predicted during the downturn in the economy. Since 2009, the U.S. apartment sector has absorbed nearly 800,000 units on net. The last time demand proved remotely comparable over a three-and-a-half year stretch was from 1997 to 2000. The difference, though, is that the U.S. employment market was in substantially better shape back then – expanding at an average annual rate of 2.4%. Since 2009, annual employment growth hasn’t topped 1.6%. That amounts to about 1 million fewer jobs being created per year, of late. And the share of Gen Y living at home with parents has grown from 19% to 24% over the last decade, according to a recent study.

So how can apartment demand be so strong given those headwinds? There are two major demographic trends at work.

Generation Y is Delaying Marriage

Many analysts first point to the nation’s falling home ownership rate. But that’s only part of the story – and perhaps a smaller piece than most people think, given that most families losing their homes to foreclosure end up back in the single-family home market as renters.

There are arguably more important, though less-discussed, factors at play. There are simply more young adults than ever before. And, furthermore, a smaller share of them is getting married, which limits the likelihood that home ownership is their desired living situation.

Let’s do some math. Right now (well, technically as of the 2010 Census), there are 62.6 million people between the ages of 20 and 34. Within this group, 59%, or 36.7 million people, have never been married.

(Some 31%, or 19.4 million people, are married, and another 10%, or 6 million people, have been married at some point in the past but aren’t now.)

Looking back to 2000, the number of 20- to 34-year-olds was modestly smaller at 58.6 million, and the number of never-married folks in the group was much, much smaller at 27.5 million, because the share of adults remaining single through their early- to mid-30s has shifted by a drastic 12 percentage points over the course of the past decade.

That means we have 4 million more young adults than we did in 2000 and a whopping 9 million more never-married young adults compared to the decade-earlier figure.

Those patterns clearly are positive for the apartment sector, though the exact impact is tough to quantify. The numbers above shouldn’t be construed as one person, one household. Gen Y has a variety of living arrangements, including living alone, with one or many roommates, or with a partner, which is increasingly common. It is reasonable to assume, however, that with a growing pool of young adults – and, perhaps even more significantly, with fewer of them getting married – the pool of prime prospects for apartments is much, much bigger than it was previously.

So how long can apartment demand remain strong? While many members of Gen Y have delayed marriage, a large number of them will likely tie the knot eventually. And with the economy improving to some degree and with home prices no longer deteriorating in most areas, more of them will look to finally take the home ownership plunge, as well. However, that doesn’t mean apartment demand will taper off.

Generation Y is Living with Mom and Dad

Let’s examine the Boomerang Generation. It’s a catchy moniker given to members of Gen Y who are living with their parents, and it’s been an impediment to apartment demand thus far. However, if the apartment sector starts to see more renters lost to home purchase, it will likely be a byproduct of an improving economy. And a better economy means more jobs – and more of Gen Y leaving Mom and Dad.

Doing some calculations based on Census data and a recent study by Ohio State University, there are about 15 million young adults living with parents, up roughly 3.9 million from the count seen in 2000. It’s safe to assume many of them will eventually end up as apartment renters.

At the same time, the size of the population reaching adulthood will remain at peak levels. The youngest members of Generation Y are still in their mid-teens. An even moderately better economy should translate to fewer 20-somethings boomeranging home to Mom and Dad.

Providence Rents Aren’t Moving Much

by  - Property Management Insider

Northeast apartment markets generally rank as the tightest across the country. Among the 16 metros there that MPF Research counts in our U.S. results for the nation’s 100 largest markets, average occupancy of 96.5 percent is 1.1 percentage points above the norm. And every single metro records occupancy at or above that U.S. average of 95.4 percent.

Providence is a typical occupancy performer for the region. The area’s current occupancy figure of 96.5 percent exactly matches the regional norm, and the rate has been hovering at roughly 96 to 97 percent since the middle months of 2010. There’s very little variation in occupancy results by either product niche or neighborhood.

However, Providence is not doing as well as most other metros in the Northeast when it comes to apartment rent growth. Whereas the annual change in effective rents for new leases is running at 3 percent across the region as a whole, pricing in Providence went up just 1.1 percent between 3rd quarter 2011 and 3rd quarter 2012.

A still-challenged economy that is holding back wage growth appears to be the biggest obstacle that Providence faces in getting rents moving up more significantly. September’s unemployment rate in Providence was 9.8 percent, well above the national norm and tremendously over pre-recession levels that were below 6 percent. The total job count in the metro is still down about 45,000 positions, or 8 percent, from the late 2007 figure.

The latest stats did bring the first real signs of some progress, however. The unemployment rate as of September was down to single digits for the first time since late 2008, and year-over-year change in the total job tally finally was up a little on an annual basis. Some 2,200 positions were added.

Economy Watch: Existing Home Sales See Healthy Increase

By Dees Stribling, Contributing Editor – MultiHousingNews.com

Existing U.S. home sales were up to an annualized rate of 4.79 million units in October, according to the National Association of Realtors on Monday. That’s an increase of 2.9 percent from the previous month, and 10.9 percent from October 2011, and on the whole a solid report.

Perhaps more importantly—at least for driving prices up further—total housing inventory nationwide at the end of October fell 1.4 percent to 2.14 million existing homes available for sale, which represents a 5.4-month supply at the current sales pace, down from 5.6 months in September, the NAR reported. That’s the lowest housing supply since February 2006, when it was 5.2 months. Listed inventory is 21.9 percent below a year ago, when there was a 7.6-month supply.

The Realtors also calculated that the national median existing-home price for all housing types was $178,600 in October, which is 11.1 percent above a year ago. This October marked the eighth consecutive monthly year-over-year increase, and the last time that happened was from October 2005 to May 2006, back in the bubble days. This time around, no one’s calling it a bubble.

Homebuilders feeling much better

Fittingly, the National Association of Home Builders also released a report on Monday, and it found that builder confidence in the market for newly built, single-family homes posted a solid five-point gain so far in November to 46. That’s the closest the index has been to the optimism threshold of 50 since well before the housing bubble popped and the Great Recession decimated the new housing industry.

Two out of three of the index’s component indexes registered gains in November. The component gauging current sales conditions posted the biggest increase, with an eight-point gain to 49, its highest mark in more than six years. The component measuring sales expectations for the next six months held above 50 for a third consecutive month with a two-point gain to 53, and the component measuring traffic of prospective buyers held unchanged at 35 following a five-point gain in the previous month.

“While our confidence gauge has yet to breach the 50 mark—at which point an equal number of builders view sales conditions as good versus poor—we have certainly made substantial progress since this time last year, when the [index] stood at 19,” NAHB chief economist David Crowe observed in a press statement. “At this point, difficult appraisals and tight lending conditions for builders and buyers remain limiting factors for the burgeoning housing recovery, along with shortages of buildable lots that have begun popping up in certain markets.”

Wall Street was also feeling chipper on the Monday before Thanksgiving, perhaps on hopes that the fiscal cliff boogeyman might actually go away. The Dow Jones Industrial Average gained 207.65, or 1.65 percent, the most in quite a few trading sessions. The S&P 500 gained 1.99 percent, while the Nasdaq advanced 2.21 percent.

The 5 Best and 5 Worst Cities for Rents in October

By Derek Mearns - Multi-Family Executive Magazine

While rent growth didn’t fluctuate too much from September to October in 2012, there were still winners and losers. During the month, eight metro areas had annual effective-rent growth above 7 percent. Unfortunately, there were plenty of cities in the red, too.

Here’s a list of the top five metro areas for annual effective-rent growth and the five cities at the bottom of the barrel:

 

Metro Statistical Area (MSA)

Annual Effective-Rent Growth, 10/12

Occupancy Rate, 10/12

San Francisco

8.3%

95.8%

Naples, Fla.

8.0%

95.9%

Louisville, Ky.

7.9%

95.5%

Corpus Christi, Texas

7.8%

96.1%

Oakland, Calif.

7.4%

96.8%

Virginia Beach, Va.

-0.7%

92.9%

Las Vegas

-0.8%

91.2%

Tacoma, Wash.

-1.1%

93.7%

Mobile, Ala.

-1.3%

92.1%

Savannah, Ga.

-1.9%

94.4%

 

Bring the Dry Cleaners Inside with DashLocker

Article found in MultiHousingNews.com

Sometimes a fantastic amenity is not a space, but a service. While the dry cleaner has always been a popular choice for ground floor retail as it is a service, I have always found it inconvenient to pick my clothes up during normal business hours. The exception of course is Saturday, when I would rather be off doing…well, just anything else really. But what if you brought that laundry service (not the actual plant) into your building, and it was open every minute year round?

You just might want to consider incorporating DashLocker, a 24/7 drop off/pick up locker-based dry cleaning and laundry service, in your next mid- or high-rise asset. The company, which offers revenue sharing agreements for building partnerships, will also make your apartment complex more competitive as the virtual concierge service is an amenity (albeit one that comes at no extra cost to the residents and management). Dashlocker even covers the installation costs and will maintain and support all lockers and handle all customer inquiries.

But just how does DashLocker work? Your renters drop off their dry cleaning, laundry or shoes into a secure locker any time, day or night. DashLocker picks up the items overnight and then services them with an eco-friendly dry cleaning partner. The clothes and/or shoes are returned next day for pickup at the resident’s convenience. Best yet, the registration is free and doesn’t require a monthly minimum.

The lockers themselves are easy to install and require little space. DashLocker typically supplies one locker for every 10 units. Each locker is 15” wide and 22” deep. Some quick math shows that a 100-unit asset would only require about 13 feet of wall space. It is hard to image an apartment building that doesn’t have 13 feet of underutilized wall space (sorry if I offended any architects). Furthermore, the system is tried and true as the concept already operates in several hundred buildings in San Francisco.

For more information be sure to check out DashLocker’s website. The video below explains a bit more on the details, though it is tailored more for a standalone  DashLocker location, two of which recently opened in Manhattan

How Does Obama’s Second-Term Win Affect CRE?

By Gail Kalinoski, Contributing Editor – Commercial Property Executive Magazine

With an acrimonious and seemingly endless presidential campaign finally completed, CRE experts are watching to see how newly re-elected President Barack Obama and Congress deal with a host of financial issues impacting the real estate market, including the budget deficit, debt and spending, tax rates, capital gains taxes and job creation.

They are also hopeful that the uncertainty which had been hanging over the business world, including commercial real estate, has been lifted.

“The main thing right now from the corporate America standpoint is people are just looking for some semblance of certainty,” said John Sikaitis, director of Americas Office Research Markets for Jones Lang LaSalle.

“The fact that we have someone and we now know where they say they will go goes a long way toward creating more confidence,” said Ken McCarthy, global chief economist for Cushman & Wakefield. “Over the last six months we didn’t know what the policy environment was going to be like. That’s the worst. Knowing who’s going to be president will be an important factor for the real estate industry and for the economy in general.”

Sikaitis said the President is going to have to extend an olive branch across party lines with the Congress that is going to remain split with the Republicans controlling the House of Representatives and Democrats continuing its majority in the Senate. He also said Congress needs to be less partisan to get legislation moving to help the overall economy.

“We need a Congress that actually legislates and compromises across the party lines,” Sikaitis told Commercial Property Executive. “This is currently the least effective Congress in history. This Congress has produced less legislation than any other Congress in 75 years.”

Charles Achilles, vice president of legislation and research for the Institute of Real Estate Management, a Chicago-based association representing property managers, also said compromise will be needed in Congress but noted that gridlock historically results when different parties are in power.

In his acceptance speech early this morning, President Obama pledged to work across the aisle in his second term.

“Tonight you voted for action, not politics as usual,” he told a cheering crowd at Chicago’s McCormick Place convention center. “You elected us to focus on your jobs, not ours. And in the coming weeks and months, I am looking forward to reaching out and working with leaders of both parties to meet the challenges we can only solve together — reducing our deficit, reforming our tax code, fixing our immigration system, freeing ourselves from foreign oil. We’ve got more work to do.”

That work will begin immediately as the President and lame duck Congress will have to tackle the “fiscal cliff,” which includes a series of tax breaks expiring at the end of the year and deep cuts to agencies such as the Department of Defense and entitlement programs like Medicare that were agreed upon during the debt ceiling deal reached in 2011.

The potential spending cuts, also called “sequestration,” have already depressed the Washington, D.C. metro office market because so many government agencies or federal contractors have not been increasing long-term leasing, noted Sikaitis. He took it a step further by stating that tenant demand in the Metro D.C. market is tied strongly to Congressional activity. JLL research found that over the past 20 years, the office market in the region is strongest when passage of legislation is at its highest. For example, positive net absorption was at 52.4 million square feet between 1985 and 1988 when there was a record amount of legislation passed. During the past four years, the market saw cumulative absorption gains of 4.5 million square feet.

The CRE executives pointed to possible changes in the capital gains tax structure sought by President Obama as an imminent problem for the industry.

“Owners who have a significant capital gain may want to sell before the tax increase. There could be some tax-driven activity,” McCarthy said.

Achilles said an increase in capital gains tax rate up to 20 percent from 15 percent for people making over $200,000 and couples making more than $250,000 could take away incentives for some people to invest in real estate.

He also said the Democratic plan to tax carried interest as regular income would have a big impact on his association’s members.

In addition to the probable ending of the Bush era tax cuts, new taxes to fund the Affordable Care Act (Obamacare) are set to begin in 2013. With Republican Gov. Mitt Romney losing the presidency, the Obamacare policies will continue to be implemented, which some say could impact job creation.

Also moving ahead will be regulatory changes to banks and financial institutions under the Dodd-Frank legislation passed during President Obama’s first term. Jeffrey DeBoer, president and CEO of The Real Estate Roundtable, said his group’s members have concerns about the impact of the Dodd-Frank regulations, particular those governing the commercial mortgage-backed securities (CMBS) market and the proposed Volker Rule, which he said could unintentionally impede real estate capital formation.

“The industry will continue working with national real estate trade groups to encourage a more robust recovery of the CMBS market, which will ensure a broader recovery in commercial real estate markets while strengthening financial institution balance sheets,” Deboer said.

Both DeBoer and Achilles said the Basel III capital accord that requires increased capital reserves by financial institutions could make it even more difficult for loans and mortgages to be made.

Achilles said CRE financing is still often difficult to get. He is particularly concerned about a program for small businesses that allows them to refinance loans on an annual basis. He said it expired in September and Congress has not extended it. The association’s web site noted that an estimated $360 billion of commercial mortgage debt is due within the next year and that many small business owners would like to turn to the Small Business Administration’s 504 refinancing loans for salaries, rent, utilities, to pay off or down credit debt and other financial obligations.

“What’s best for the country are those things that encourage small business,” Achilles said.

Hurricane Sandy Likely to Stimulate Economy in Medium Term

By Keat Foong, Executive Editor – MultiHousingNews.com

Concerns about possible higher capital gains tax next year may be causing more investors to sell properties.

According to Sam Chandan, president and chief economist of Chandan Economics, commercial property financing volume has increased by 25 percent in the first few weeks of the fourth quarter compared to the same period in the previous quarter. Most of the increase is composed of financing for property sales, said Chandan.

Acquisition financing is up “very strongly,” added Chandan. He attributed the increase to concerns about higher capital gains taxes in the new year. There is a possibility for moderate or full increase of capital gains taxes to be passed under tax reform or new budget in the new Congress next year.

Chandan was speaking via webcast during a third quarter debt markets briefing this week.

4,200 commercial property financing transactions were tracked by Chandan Economics for the third quarter of 2012. Chandan said there were lower borrowing costs overall, and a slight narrowing of spreads in the third quarter. The most significant trend in the third quarter was the easing in underwriting standards, he said, as measured by increase in loans with initial interest-only and cash-out refinancings. He also noted there are more refinancings occurring before the term is due, and this trend could be attributed to the expectation that interest rates will not fall much further.

Meanwhile, in the apartment sector, financing may be becoming even more aggressive, Chandan suggested. Apartment financing is showing less pricing differences for properties and locations of different quality.

Differences in risks between say, Manhattan, and secondary markets are real, said Chandan. However, he said he is not seeing those differences in risks being reflected in differences in loan pricing and sizing. That risk pricing, he said, has “disappeared” in the third quarter even compared to the second and first quarter.

Meanwhile, regarding the economic effects of Hurricane Sandy, Chandan said early loss estimates are for $40 billion to $60 billion. He said in the short term, the immediate impact is “strong” and there will be a significant decrease in economic activity.

However, in the medium term, as insurance, reconstruction, and aid dollars start flowing into the affected areas, the economic effects of the Hurricane will be stimulative to the economy, noted Chandan. Indeed, the greater the damage to property and infrastructure, the greater the stimulative impacts on the economy. “The higher the initial cost, the more significant the medium-term bump,” he explained.

In the long-term, Hurricane Sandy is not expected to have an effect on the U.S. economy, according to Chandan.