10 Must Reads for the CRE Industry Today (September 2, 2016)

10 Must Reads for the CRE Industry Today (September 2, 2016)

 

  1. Foreign investors still love U.S. commercial real estate “It should come as no surprise to anyone working in the business today that foreign investors look at commercial real estate as one of the smartest places for their dollars. There is plenty of uncertainty across the globe. But commercial properties in the United States, because they are so stable these days, offer overseas investors a safe harbor for their capital. Marcus & Millichap recently released its third quarter foreign investment report, and found that though overseas investment in U.S. commercial real estate has eased from peak levels, it remains elevated when compared to historical norms. One of the more interesting facts from the report? While it’s the large, high-profile investments that garner the most press, the majority of acquisitions that foreign investors make are of smaller assets that these buyers purchase through funds and domestic intermediaries. These acquisitions don’t generate headlines, but they are providing a solid boost to the country’s commercial real estate market.” (REJournals.com)
  2. Industrial Real Estate Sector Enjoying Strong Year “Colliers’ annual report on industrial real estate transactions in North America called 2016 one of the strongest years to date in the sector. Rosenberg noted that the growth in absorption of industrial space has been strong, which has been matched by healthy build-to-suit and speculative construction…‘The demand has been so high that there are 60 million square feet under construction right now for future demand,’ Rosenberg said. He pointed out that in 2011 speculative construction across North America amounted to just 600,000 square feet. Demand drivers for industrial space include e-commerce and the prolonged economic expansion in the U.S., according to Rosenberg. Importantly, e-commerce requires different types of industrial space compared with standard distribution centers, which are designed to ship pallets of goods, he said. Rosenberg also noted companies are working to make their supply chains more efficient, boosting new industrial construction.” (REIT.com)
  3. Student housing ups the ante on amenities “This type of student living is fast becoming standard at large public universities across the country. Residential developers are pouring money into the sector, upping the ante on amenities and seeing occupancy rise. Approximately 47,700 new beds are expected to come to market in privately owned, student housing properties for the fall 2016 semester, with universities in the Southeast the primary target, according to Axiometrics, an apartment research firm….Enrollment is particularly strong at state universities, which are actively recruiting out-of-state students in order to meet higher costs and offset budget cuts. Those students are filling up off-campus housing at a fast clip, and the schools can't afford or even keep up with construction. That is why companies like Chicago-based CA Ventures, a residential real estate developer with student apartments in several states, are getting a fresh look from investors. ‘The interest really started two or three years ago. A lot of the capital — institutional investors — needed to be educated on the space itself and what it meant to be in student housing. We had to do a lot of convincing that it wasn't all 'Animal House' structures, but actually really stable cash flow properties,’ said J.J. Smith, chief operating officer of CA Student Living. ‘Now that we have educated the institutional world, we're seeing a lot of capital interested in these properties.’ Luxury student housing is really in its infancy, and developers like Smith see a long runway ahead. Markets can shift, year to year, as some campuses meet capacity, but there are always others lying in wait. Developers used to focus on more affordable, garden-style apartments farther from campus.” (CNBC)
  4. Low-income shoppers are in worse shape than you thought “During the second quarter, Dollar General said that combined with food deflation, these cutbacks dented its same-stores sales between 0.6 and 0.7 percent. Though a reduction in the number of people enrolled in food stamps did not play a material role in Dollar Tree's comparable sales slowdown, its target consumer "continues to be under a lot of pressure," CEO Bob Sasser said. Yet the picture remains muddy. Like the dollar stores, Wal-Mart leans heavily on low-income shoppers to fuel its sales gains. But unlike its small-shop competitors, Wal-Mart U.S. recorded its biggest comparable sales gain in four years during the second quarter. ‘Everybody's trying to figure this out,’ Joe Feldman, senior managing director at Telsey Advisory Group, told CNBC. ‘I do think that there's something broader than just simply saying Wal-Mart's taking share.’ Indeed, Dollar Tree and Dollar General — which are in the midst of robust expansion plans — are growing their overall sales at a faster clip than the rest of the market. That indicates they're grabbing market share, said Craig Johnson, president of Customer Growth Partners.” (CNBC)
  5. Chicago’s shuttered public schools are being scooped up by developers “In a blog post on Medium, the Chicago Department of Planning and Development (yes, the DPD apparently blogs now) offered a first look at one of these adaptive reuse projects. They offer some details on how the process works: developers express interest in a property, seek landmarking designation for tax credits and waivers, and then begin the renovation. A suburban developer, Svigos Asset Management, is currently working to renovate the Elizabeth Peabody Public School at 1444 W. Augusta Blvd. and the John Lothrop Motley Public School at 739 N. Ada St. — of which both have addresses the highly coveted West Town area. The group is also working on getting landmark status for the Lyman Trumbull Elementary School in Andersonville for an adaptive reuse project there. The developer is renovating these schools and turning them into new residential developments. In their post, the DPD reveals photos of the former James Mulligan School being transformed into apartments. To be fair, the Mulligan School has been shuttered for much longer than the schools that were closed a few summers ago. However, the building is nearly ready to go and the DPD indicates that the building’s new owner is gearing up for pre-leasing.” (Curbed Chicago)
  6. Sealy & Co. Nabs 1.5 MSF Industrial Portfolio in DallasSealy & Co. has acquired an 18-building portfolio consisting of 1.48 million square feet of functional industrial space located in four prime industrial submarkets of Dallas. The assets were acquired as part of the Sealy Strategic Equity Partners LP portfolio. ‘The industrial portfolio acquisition is a fitting addition to the current SSEP portfolio, providing functional properties and further tenant diversification,’ Scott Sealy Jr., Sealy & Co.’s vice president of business development, said in a prepared release. ‘Sealy will continue to create value by executing a tailored investment strategy, rolling below market rents to market, and will hold or sell the properties opportunistically.’ According to a recent industrial market report published by Colliers, the Dallas industrial market continues to ride a rising tide of increasing rents and strong demand in the second quarter of 2016, propelling the area to the highest levels of construction in the nation. So far in 2016, over 2.9 million square feet of spec ‘big box’ warehouses have been delivered, and these properties are 55 percent leased.” (Commercial Property Executive)
  7. Gramercy Closes $207M Office Portfolio Sale “Gramercy Property Trust has closed on the sale of three single-tenant office buildings in Princeton, N.J., Burlington, Mass., and Bloomington, Minn., and one single-tenant industrial facility in Phoenix, Ariz., for a total of $206.7 million. The weighted average remaining lease term for the four sold properties was 10.1 years at closing, and the blended exit cap rate was 7.4 percent on the next 12 months NOI. With these latest dispositions, part of the company’s previously announced plan to dispose of select non-core assets following the merger with Chambers Street Properties, Gramercy Property Trust has now sold approximately $1.3 billion worth of single- and multi-tenant assets in the U.S. and Europe so far this year, including properties in Phoenix, Virginia and New Jersey. On a recent earnings conference call, Gordon DuGan, Gramercy Property Trust CEO, said that acquisitions will drive the balance of Gramercy’s activity for the rest of the year, noting he “expects the company to be a net acquirer” of assets and especially so in the fourth quarter of 2016.” (Commercial Property Executive)
  8. Flushing developer refis LIC skyscraper project with $100M from Bank of China “Chris Jiashu Xu refinanced a Long Island City development site with a $100 million loan from the Bank of China, property records show. The Flushing-based developer plans to build a 79-story, 779,000-square-foot mixed-use tower at 23-15 44th Drive. Rising 984 feet, it is slated to be the neighborhood’s tallest tower. Xu bought the site from Citigroup last year for $143 million.  The new mortgage replaces a Ladder Capital acquisition loan. Dubbed Court Square City View Tower, the building will feature 660 apartments and 100,000 square feet of commercial space, according to the developer’s website. Xu’s United Construction & Development Group filed plans for the project in February. They have yet to be approved.” (The Real Deal)
  9. Experts predict city's midtown east rezoning plan will depress the value of air rights “The city's plan to rezone midtown east will devalue air rights in the area, according to real estate experts. Last week, the city released a preliminary proposal to rezone the area, bounded by East 39th and East 57th streets to the north and south, and Madison and Third avenues to the east and west. The idea is to foster the creation of new office towers by allowing developers to build bigger in exchange for making improvements to transit and public spaces. A key component of the rezoning hinges on allowing landmarked property owners to sell air rights to any property owner within the district. The change would send a flood of air rights onto the market, causing their price to plummet as interested buyers are faced with more options. Currently landmarked property owners are able to sell rights only to owners on the same block or across the street, with little success so far. By opening up the possibility of selling to a wider pool of buyers, the city is also making air rights more plentiful, according to Bob Knakal, chair of New York investment sales at commercial brokerage Cushman & Wakefield. According to the city, 3.5 million square feet of air rights in midtown east will be up for grabs. ‘All of a sudden there will be a significant supply,’ he said.” (Crain’s New York Business)
  10. Racing against the recession “At the beginning of 2013, Joseph Chetrit and David Bistricer set the city’s real estate circles abuzz when they outbid 21 competitors to buy the Sony Building on Madison Avenue for an astonishing $1.1 billion. The team planned to convert the massive 850,000-square-foot office tower into luxury condos, a hotel and retail space. The cherry on top of the 37-story building, it was later revealed, would be a record-shattering $150 million penthouse. ‘It’s 2007 all over again,’ Dan Fasulo, the former head of research at Real Capital Analytics, told the New York Times at the time, adding, ‘It’s a real trophy in a great location, but that’s a big number for a transitional asset.’ Turns out the price tag may have indeed been too big. This past April, amid ever-heightening concerns about the state of the luxury condo market, the duo pulled the plug on the project, electing to sell the building for $1.4 billion to a partnership led by the Olayan Group. The Saudi family-run company is planning to maintain the Sony tower as an office building. In a phone interview last month, Bistricer told The Real Deal that it was ‘a lot easier to transact’ than to move forward with a condo conversion. But he added that there would ‘always be a market’ for high-end luxury in the city. Market watchers, of course, took a more skeptical view.” (The Real Deal)
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