Nov. 6, 2015
Much has been made of an economic slowdown in China this year, but what remains to be seen is how — if at all — the U.S. commercial real estate market will be affected.
Cornerstone Realty Advisers recently published its Global Listed Property Review, concluding that China’s impact on the U.S. market could be minimal.
“It’s true that the slowdown has little day-to-day direct impact on the U.S. economy, certainly not U.S. real estate,” Dave Wharmby, a managing director of Cornerstone, said in this GlobeSt.com article.
Since little of the U.S. economy depends on trade with China, Wharmby said that any lag would likely be the result of cautious business owners seeing the slowdown in China as a reason to put off purchases.
Still, while the slowdown in China should be monitored, Chinese growth remains relatively strong at between 6 and 7 percent. And, Wharmby said the U.S. might actually benefit from uncertainty abroad. “From a real estate perspective, you’re certainly seeing capital flow into what are perceived as pockets of strength; London and much of the U.S. in particular.”
CRE Veteran Weights in
Walgreens’ announcement that it would buy Rite Aid—for $9.4 billion— will set off a few ripples in the triple net lease arena, but there’s more to the story from a commercial real estate view, says Avison Young’s Tim Henry.
According to Henry, a principal in the firm’s national retail advisory services group, it will impact the commercial real estate market with:
- Regulatory issues—As Walgreens looks to take over approximately 4,600 Rite Aid stores, regulators will have to weigh in on how much is too much. Many investors will adopt a wait and see attitude. (Walgreens has since said it is open to selling some stores).
- Increased investor demand—for Rite Aid stores due to the financial strength of Walgreens.
- A need for real estate advisors—to help Walgreens sort out their holdings, evaluate leases, etc.
See the full story in GlobeSt.com.
Moving from Single to Multi-Tenant Office
Who: 90 North Real Estate Partners
What: 351K SF Class A office building; 60 percent leased to Continental Automotive Systems, Inc.
Where: The Reserve at Deer Park, 21440 W. Lake Cook Rd., Deer Park, Ill, Northwest Suburban Chicago
When: Construction is scheduled for completion in Q4 2015
90 North started a comprehensive redevelopment of The Reserve at Deer Park to transition the building from single to multi-tenant use. The top three floors, totalling 145,000 SF, are available for lease, through NAI Hiffman.
The renovations include:
- A new gateway entrance, separate parking lot and stand-alone building entrance to give new tenants their own entrance and a more efficient path through the building.
- A new management office and lobby.
- Expanded parking capacity.
- A two-story gateway marquis entrance, designed by GMA Associates and under construction by ARCO Murray.
- A complete landscaping plan to improve aesthetics and reduce water consumption. Plants that are indigenous to the region are being added.
“These renovations will create a cohesive traffic flow into the development and through the building,” said Daniel Cooper, Head of 90 North’s operations in North America. “This will greatly enhance the tenant experience and help us take this building to full occupancy.”
UK-based 90 North purchased the building in late 2014 with partner, Arzan Wealth (DIFC) Limited, a Dubai-based advisory firm. 90 North has closed on more than $250 million in office properties in the US in the past year.
The Latest on the Retail Front
The Galleria, a retail complex in Houston
Regional mall REITs are looking at old school ways to grow earnings—rental increases versus the constant push to develop properties or merge, says
National Real Estate Investor. Rich Moore, a REIT analyst with RBC Capital Markets, explains why ground-up development, mall acquisitions and M&As aren’t viable growth vehicles.
This Globe Street story cautions retailers against getting “Ubered” by consumers and their quest to find a better deal online. Instead, work to keep customers in the store and avoid customers “showrooming” or looking at items in a store and then finding them for a better price online.
Near Cincinnati, developer Steiner Associates is going big with a $120M addition to its $350 million lifestyle center. Liberty Center in Liberty Township will include a 200,000 square foot Dillard’s, an 80,000 square foot Dick’s Sporting Goods and a 16-screen Cinebistro. Read more here about the new development, which Steiner calls a big roll of the dice. Read more
This micro-housing concept as designed by Studio G Architects
Micro-housing is hot, particularly in markets with a high barrier to entry for renters on a small budget, says National Real Estate Investor in “7 Things You Need to Know About Micro-Housing Investment.” Here’s what the experts see as the latest trends in multifamily development:
What is micro-housing and who wants it?
Studio micro-housing units are usually between 250 and 400 square feet. One bedrooms vary more by market, but are generally defined as units up to 600 square feet.
First-time renters who haven’t yet acquired a lot of money (or stuff) are big renters of these units. Seniors looking for a pied-a-terre in an urban location or vacation spot are also driving micro-unit rentals.
- Why invest in micro-housing?
- Renters are willing to pay a premium, sometimes up to 20% more per square foot, for well-located micro-units near where they want to work or play.
- There is consistent demand for multi-family and rental housing, and younger renters will demand micro-units out of necessity if they are priced out of larger units.
- But there aren’t a lot of comps yet, so micro-housing lending can be challenging
Shown is the Avenir in Philadelphia
What’s the future of micro-housing?
In several cities, micro-housing buildings are keeping waiting lists due to their popularity.
High-priced metro areas with tight housing stock, like Los Angeles, New York City, San Francisco, Seattle, San Jose and Washington, D.C will see continued interest in micro-units.
Both supply and demand are up in the Chicago multifamily markets. Midwest Real Estate News reports that 5,000 new units will come on the market in the city in 2016, but vacancies will remain tight, falling to 3.71%. Will demand slow? Click
here for more. (Pictured: Jeff Jack Apartments in Chicago)
Globe Street reports that outstanding multifamily commercial mortgage debt rose 1.4% during Q2. That means borrowers owe about $1.2 trillion on apartment assets across the U.S., and rising property values are supporting this increased debt. Who’s holding the loans? Click here for more.
New construction starts dropped 11% in August, according to this MultifamilyBiz story. Declines were seen in each of the three main sectors – nonresidential building, housing, and nonbuilding. According to Dodge Data & Analytics, the activity dropped to a seasonally adjusted annual rate of $554.5 billion. Read more
Rates to stay the same, but it’s just a matter of time. What does it mean for #CRE?
GlobeSt tell us what it means to investment, capital flow and debt maturing.
Marcus & Millichap provides an in depth look and says it will likely spark a new round of questions about the strength of the US economy.
Reuters says an increase won’t be enough to cool the hot NY CRE market.
Marketwatch.com looks broadly at whether interest rate changes can forestall asset bubbles. Did moving too slow cause previous financial turmoil?
Wealth Management looks at how it will affect investment, particularly REITS.
And, in the UK, the Wall Street Journal says an increase by the Bank of England would mean an end to the property boom there.
Amenities: More Over-the-Top Than Ever
Attempts to one-up other management companies to gain new student tenants have reached new heights, says the Wall Street Journal. Landlords are now partnering with corporations like Uber, Best Buy and bike-sharing service Zagster to offer promotions and discounts to students living in their buildings.
Good or bad approach? Some management companies love the way this helps them compete at a low cost, while others are skeptical of interfering with students’ consumer relationships. Where is this all going? Find out
Photo: Al Payne of A.F. Payne Photographic Inc.
Should We Scale Back?
National Real Estate Investor interviewed several student housing owners to analyze trends. While most say student housing is gaining value and becoming a more mainstream asset, Campus Apartments CEO David J. Adelman notes that high-level amenities often increase construction costs and only appeal to high-income students. Find out more here. Read more
From hotels to bowling alleys, many U.S. beach locales are getting CRE upgrades and new developments. News from South Florida and the Jersey Shore.
South Florida’s development projects expand up and past Miami Beach. Developers migrate to beachfront locations like Hallandale, Hollywood, and Fort Lauderdale for better deals as Miami Beach property becomes scarce and pricey. Construction projects include hotels, retail spaces, mixed-use and residential living spaces that are beginning to make these locales more than just retirement towns. Click here for more.
Big redevelopment plans for Jersey Shore. Real estate investment company iStar has major development plans for New Jersey’s Asbury Park.
The company anticipates adding at least 2,100 homes and 300 hotel rooms to the waterfront town amongst other commercial developments. Projects include:
- A 34-unit condominium
- A 110 key independent hotel called The Asbury
- A renovation of famous music and bowling venue called Asbury Lanes
iStar has already built a 28-townhome project which sold out on its first day of offering. Click here for more.
E-commerce sales continue to grow—by an estimated 4.2% in the second quarter—while overall retail sales grew just 1.6%, according to the Commerce Dept. Online sales still only make up 7.2% of total sales; however, this shifting in consumer behavior and supply chain usage has retailers and CRE developers rethinking how to reach those powerful consumers. Here’s a look at current trends:
Third-party logistics providers see strong demand due to changes in the supply chain. 3PLs are in big demand right now for transportation, warehousing, and fulfillment services, particularly in the next-day and same-day delivery arena. 3PLs are in the highest demand in dense metro areas like Chicago, New York, Dallas, and New Jersey. Click here for more on where this is headed.
E-commerce boosting sales of traditional retailers as some successfully tap into the supply chains. Big U.S. retailers such as Home Depot, Target, and Wal-Mart are building fulfillment centers to package and ship goods to consumers more productively and profitably. Home Depot and Target saw their online sales grow by 25% and 30%, respectively, in the second quarter. Click here for more.
Bricks and mortar retail redevelops to compete. Westfield Corp. will spend millions on LA’s Century City Mall to compete with local retailers and the rapid growth in e-commerce. Click here for more on their attempts to make the mall an irreplaceable “lifestyle center” (which cannot be duplicated online).