According to The Real Deal, Manhattan land sales slowed during the first part of 2016. Data and analytics firm Real Capital Analytics (RCA) shows that there were only $90 million worth of development deals in January and zero on record in February.
What’s going on? Looks like three main factors are at play–stringent financing, lackluster luxury condo sales and the termination of the 421a tax abatement program. Another key factor is that buyers are not willing to pay the high prices sellers are touting. This is having a ripply effect on development sites. Click here for more.
The retail sector has issues. The health care sector has opportunities. Chicago has a few huge commercial real estate projects that might just get off the ground after years of being dormant. These are just a few of the stories we’re tracking:
Photo via NREI Online
- Retail woes: We wrote about retailers struggling to strike a balance between e-commerce and brick-and-mortar stores last week. NREI put together a list of 12 retailers who are in bad shape and have been forced to close physical stores. Radio Shack, Barnes & Noble and J.Crew all make the list. (Via NREI Online)
- Are physical stores better for the environment? While we’re on the topic of retail, a recent study by Simon Property Group indicates brick-and-mortar shopping might actually be more sustainable than shopping online. Assuming consumers purchased the same goods online and in a physical location, the study found that online shopping had a 7 percent greater environmental impact over brick-and-mortar shopping every year. (Via REIT.com)
- Fewer banks are lending a hand: As economic growth in the U.S. slows, it appears that lenders are getting more cautious about funding domestic real estate developments. A six-year recovery has meant good times for investors, but Mark Myers, the head of the commercial real estate business at Wells Fargo & Co., predicts that banks are going to change their approach to be more cautious this year. That could force landlords to look elsewhere for funding. (Via Bloomberg)
The Old Main Post Office in Chicago is currently unused (photo via Wikimedia).
- Playing the odds in Chicago: Crain’s has a fun look at four of Chicago’s biggest (and most controversial) real estate projects. Progress has been made on three of the properties in recent weeks, and all four have massive potential. Personal favorite: imagining what could be done with the Old Main Post Office in the West Loop. (Via Crain’s Chicago)
- Opportunities in health care: John Wilson, president of Chicago-based HSA PrimeCare, outlined the types of properties and markets his company looks for in an interview with GlobeSt.com. Wilson called the health care sector fruitful and said there are even opportunities in secondary markets, provided those markets had strong hospital systems. Cities with universities or state capitals are also good markers. Wilson’s specific examples included Lincoln, Nebraska; Ann Arbor, Michigan; and Columbus, Ohio. (Via GlobeSt)
Nearly every day, we hear news of a new high-end apartment complex being built in a major metropolitan area. But new construction with lots of amenities is not what every renter is looking for, says David Schwartz, CEO and co-chairman of Waterton. His investment firm has spent much of the last few years looking for Class B and Class C value-add apartment properties, and renovating them for middle-income renters seeking affordable housing.
Industry experts see more of this from private investors on the horizon.
One current project for Waterton is the Vida Hollywood, a 25-year-old apartment complex in Hollywood, California. The company is renovating its 345 units, but rents in the building will still remain about $800 less than they would be at a Class-A building in the same area.
Barbara Byrne Denham, an economist with New York City research firm Reis, Inc., urges redevelopers not to interfere with Class B and Class C apartment buildings that are already fully occupied. In areas with high job growth and salaries to match, the existing renters might pay the higher prices to live in the renovated building. But in areas where people are just staying stable in their careers, the tenants looking for affordable housing might move out.
What should they do instead? And, what are investors chasing? Click here for more.
Nordstrom is struggling, and e-commerce (and perhaps shipping costs) might be partly to blame. That’s according to a recent Bloomberg.com story by Shelly Banjo.
The luxury retailer has seen the price of its shares plummet over the past year and missed its fourth-quarter earnings estimates last month. CFO Mike Koppel talked about Nordstrom’s rough stretch with Bloomberg.com, giving some insight into some of the issues retailers face as they split their focus between brick-and-mortar stores and selling products online.
E-commerce isn’t going away. Nordstrom expects that 30 percent of its sales will come online by 2020, compared to just 8 percent in 2010. But retailers don’t have as good a handle on the e-commerce model as they would like.
Brick-and-mortar stores might seem increasingly old fashioned, but retailers knew how to plan for that model. You build your store. You train your staff. Once you paid off those initial overhead costs, the profits flow in–ideally!
Selling online brings the benefit of low overhead (less of a need for labor and physical stores). But the more retailers like Nordstrom sell online, the more they have to spend to collect and ship the goods to customers. It all adds up!
Nordstrom is trying to catch up to e-commerce competitors like Amazon. But it’s finding that e-commerce isn’t always as profitable a business as physical stores. Nordstrom – and other retailers – will need to figure out the model soon.
Origin Investments and Randolph Street Realty Capital hit it big for investors this week with the $35 million sale of Lux24, a 73-unit condominium project they repositioned after the condo meltdown.
The JV purchased the project out of bankruptcy in 2013, after its original developers ran into financial troubles. With a $19 million total investment, the team converted the property at 24 S. Morgan into a rental building, tapping into the hot downtown apartment market and the West Loop’s revitalization.
As reported in Crain’s, the team invested about $2.3 million to finish construction, reconfigure unfinished units, and move the fitness center. They also bought back a few condos that had been sold and leased up the ground floor retail space.
This project shows:
- Buying right is important, but creatively repackaging an asset can help create tremendous value
- Timing is everything and a great location doesn’t hurt
- The West Loop/Fulton Market just keeps on going
It’s a good time to be in the Atlanta commercial real estate market. Research shows the southeastern hub enjoyed a prosperous 2015, with strong industrial and office absorption figures pushing vacancy rates in those sectors down to levels not seen since the turn of the century.
Clearly the Atlanta market is gaining momentum. Here are a few Atlanta-focused stories and trends worth tracking:
- Another good year for industrial: Atlanta’s industrial market performed particularly well in 2015, absorbing the third-most square footage in the United States. That’s according to research from Colliers International, which also found that the industrial vacancy rate dropped to its lowest point since the first quarter of 2001.
- The office sector’s perfect storm: The mix of high absorption activity with minimal deliveries helped Atlanta achieve its best office market results since 2000 last year. Colliers found that Atlanta’s office absorption totaled 4.8 million square feet, the highest annual total in 15 years.
- Benefits of build-to-suit: Atlanta, with its strong industrial market, is one of the cities that has seen a rise in build-to-suit projects in recent years. With more tenants seeking new technologies and specialized buildings, this isn’t a trend that’s likely to go away anytime soon. (Story via GlobeSt)
- The future of cars: What would Atlanta look like if there were cars, but no drivers? That was the subject of a recent program called “Evolving Transportation and the Future of Commercial Real Estate” hosted by the Urban Land Institute. Industry experts debated the potential impact of this technology, looking at how it might change variables like parking for current (and future) developments. (Story via Curbed)
Cross-border investors target industrial properties in 2015. (Photo via GlobeSt)
Cross-border investors seized a larger share of the U.S. market in 2015, continuing a buyer spree that has fueled the market for several years.
Research from Real Capital Analytics’ latest U.S. Capital Trends Report found that deal volume for cross-border investors rose 123 percent from 2014 to 2015. That gave that class of investors a 16 percent share of the deal activity in the market.
RCA found that cross-border investors targeted properties in both gateway cities and secondary markets. JLL reported similar findings in its latest U.S. Investment Outlook report. According to JLL, foreign investment in the U.S. broke a seven-year-old record high by more than $30 billion.
As Steve Collins, international director and president of JLL Capital Markets—Americas, told GlobeSt, “While we’re seeing volatility and uncertainty in parts of the financial markets, the relative strength of economic and leasing fundamentals continues to position the United States as an attractive, healthy and transparent market for cross-border investment.”
GlobeSt has a close look at the reports from Real Capital Analytics and JLL.
Other highlights from RCA’s report include:
- Overseas buyers dominated U.S. industrial assets, purchasing more than any other group.
- Institutional/fund capital sources represented 35 percent of apartment, office and hotel portfolios in 2015.
- Digging deeper, those buyers accounted for 43 percent of apartment portfolio sales, a leap up from 24 percent in 2014.
- Public investors fell back in the past year as volume dropped five percent.
90 North Real Estate Partners made big news this week with its purchase of the Saint-Gobain North American headquarters in suburban Philadelphia. The $123 million purchase was made with investment partner Arzan Wealth.
The move continued a strategy 90 North has favored since it opened its Chicago-based North American headquarters in 2014: Target safe, long-term investments in strong office markets. More often than not, that strategy has led 90 North to focus its attention on the suburbs.
90 North is now in suburban Philadelphia, and its growing U.S. portfolio also includes the following properties:
- A 351,425-SF, Class A office building in Deer Park, Illinois, leased long-term to Continental Automotive Systems, Inc.
- A 175,155-SF, Class A office building in Denver that houses the FBI headquarters for Colorado and Wyoming
- The 67-acre Lenovo Enterprise Campus in the Research Triangle Park, Raleigh, North Carolina. The two-building, 450,000 SF complex is fully leased long-term to Lenovo’s Global Server division
The Reserve at Deer Park, purchased by 90 North in 2014
All three properties have strong tenants that will allow 90 North to safely weather any economic downturn. The Saint-Gobain property had the added bonus of a strong international tenant that had recently signed a long term lease and spent millions renovating their complex– very good signs for any investor.
As Daniel Cooper, partner and head of North America for 90 North, told GlobeSt.com this week, “The point we’re trying to make is that the suburbs are not dead.”
When it comes to shopping, U.S. consumers aren’t being swayed by snow, nor rain, nor … well, you get the idea.
The month of January brought bad weather for much of the country. But that didn’t stop consumers from heading to brick-and-mortar stores or online retailers in droves. The fact that overall retail sales grew in January is remarkable considering the volatility in global markets and overseas economies. The rise in retail sales is in line with other indicators of growing economic strength.
Still, it’s a small sample size, right? Well, last month actually stands as part of a greater trend. Total retail sales jumped 3.4 percent over the 12 months that ended Jan. 31, according to research by Marcus & Millichap.
There are two factors most responsible for the growth:
- The price of gas is low enough that consumers find themselves with more money to spend.
- Consumers have proven themselves willing to spend that money.
Spending in categories like food and drink (as well as more frivolous pursuits) is up across the board over the last 12 months. Further evidence of consumer confidence comes in the form of a rise in sales on larger, long-lasting items. Building materials and furniture sales rose over the past 12 months. Marcus & Millichap projects U.S. retail vacancy to drop 30 basis points to 5.9 percent in 2016.
It appears consumers are taking advantage of stable employment outlook and loosening up a bit. That’s great news for retail sales.
The Wall Street Journal has the latest on Open Slate client 90 North Real Estate Partners and its $123M acquisition near Philadelphia. Based in the UK, 90 North is known for its deep understanding of the global investment market and focus on stability and long-term value.
The 320K SF, two-building campus includes office and research and development space. 90 North and a unit of Arzan Financial Group of Kuwait bought the 65-acre campus in Malvern, PA, outside Philadelphia. Dan Cooper, head of North America for 90 North, had this to say about their strategy for buying the Saint-Gobain corporate HQ:
“We look for assets that can weather any industry or market cycle” — As global investors, 90 North looks at properties in the US and abroad and is drawn by assets that have the security of strong tenancy and the stability that the US market affords. “At the end of the day, we need to know that the asset will perform well and can weather any cycle or market downturn,” Cooper says. “When you have a tenant that has committed millions of dollars into renovating a building and then signs a long term lease, that’s what helps us sleep at night.”
“It is a validation that suburban marketplaces remain extremely viable — The Saint-Gobain campus is 30 minutes outside of Philadelphia and is a sizable campus within a submarket known as the High Tech Corridor. With immediate access to the entire area—including downtown Philadelphia, the submarket is home to numerous innovative technology, medical, and pharmaceutical firms as well as excellent schools and residential neighborhoods.
“This type of scenario is playing out in many cities across the country,” Cooper says. “We saw it in Raleigh when we purchased the Lenovo Campus last year and we see it in cities such as Austin, Denver, Chicago, Atlanta and Dallas.”
Check out the Wall Street Journal story here.