42 posts tagged “real estate”

The Defense Department's Base Realignment and Closure program has created a flurry of development around the Aberdeen Proving Ground in North-Eastern Maryland. The Department of Defense C4ISR Mission (Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance) is relocating from Fort Monmouth, bringing approximately 8,200 jobs. St. John Properties recently broke ground for a 75,000 sq ft office building for defense contractor Raytheon. According to The Gazette, St. John Properties expects to develop 380,000 sq ft inside the base for the Government and Technology Enterprise, a research and development and technology business park for the government sector and private contractors.

Seeking to meet the increased need for contractor space around the Army base, Corporate Office Properties Trust broke ground in November for a second Class A office building at its North Gate Business Park, near Interstate 95. The first building under development totals 80,000 square feet with an anticipated completion date of fourth quarter 2009. The newest project will reach 85,000 square feet with an anticipated completion date of second quarter 2010. Construction is expected to cost more than $64.8 million and will include about 290,000 square feet of office space.  The complex is designed to meet expectations of 3 million square feet of new office space that will be needed for military and private contractors under BRAC.

For more news and information visit Blumberg Capital Partners.

As many experts start to see a diminishing threat to our economy due to a large-scale recession or depression, the commercial real estate sector is sorting through the ashes and starting to look down the road for signs of life. According to the National Real Estate Investor Online, one indicator that should give us a sense of optimism is a recent slowing trend in the growth available office sublease space, which now sits at 113.1 million square feet nationally.  However, if recovery follows the pattern of the last two economic cycles, employment might lag behind. "It's easily a nine- to 12-month gap between the economy turning, jobs being created and space being [in demand]," stated Hessam Nadji, managing director of research services for Marcus & Millichap. He estimates for the sector to achieve net absorption of space, it will require two quarters of job growth.

A telling indicator in the commercial real estate finance sector will be the successful ventures of Developers Diversified Realty and Vornado Realty Trust which have ambitions to raise CMBS funds through the Term Asset-Backed Security Loan Facility program. "Those deals, once they go through in the fall, will signal the return of the securitization market to the best-quality assets and best-quality net operating incomes," says Nadji. "It's a very limited signal. It's not going to affect the broad commercial real estate market, especially assets averaging $10 million to $20 million in value, which make up most of the market. But it's a start."

For more news and information, visit Blumerg Capital Partners.

California's Silicon Valley took its lumps after the tech bubble burst. Now, according to the Mercury News, the high-tech hub is feeling the force of the nation's recession and, like in most areas, its sagging commercial real estate market is proof recovery is not yet in hand. CB Richard Ellis recently issued a report stating there are 12.6 million square feet of empty office space in the valley and 39 completely vacant office buildings. That includes four six-story office buildings with 427,000 square feet of space in San Jose developed by Legacy Partners and the still-empty Moffett Towers in Sunnyvale.

Local real estate agents still have reason to be optimistic after surviving similarly lean times less than a decade ago. "We were the epicenter in 2003, but this was much more of a global recession which hit us on so many fronts," Phil Mahoney of Cornish and Carey said. As the economy rebounds, agents expect businesses will initiate expansions that have been put on hold. "We're not really oversupplied if we have any normal kind of recovery." During the tech bust, "companies just evaporated," said Mike Field of the Sobrato Organization. "This time, companies have contracted but they haven't evaporated."

For more news and information visit Blumberg Capital Partners.

Chicago-based Bridge Development Partners LLC announced two recent leases at its Chicago suburbs office park dubbed  Bolingbrook Corporate Center II, according to GlobeSt.com. Jacobson Co., a firm specializing in 3rd party logistics, will be occupying 96,000 square feet, with 5,000 square feet devoted to office space. Anthony Pricco, a spokesperson for Bridge, told GlobeSt.com: "For Jacobson, they were looking for space quickly to service their customer, and they have a building down the street so this location works for them." Honeywell International leased 119,000 square feet and Bridge will pay for the build-out of 14,000 square feet of office in the Honeywell space. Andy Sexson of Colliers Bennett & Kahnweiler and Kevin O'Donnell of O'Donnell Commercial Real Estate Inc. represented Honeywell, and Vern Schultz and Peter Bourke of Colliers Bennett & Kahnweiler represented Bridge in the lease transaction.

ReJournals.com reported Bridge partnered with McMorgan & Co. to acquire the property in 2007. The firms transformed the single-tenant property into a multi-tenant facility with 30-foot clear ceiling height, 28 docks and two drive-in doors. About 70,000 square feet remains available for lease in the building, at asking lease rates around $3.95 per square foot net. The available space is currently undergoing the build out of 2,000 square feet of office.

For more news and information visit Blumberg Capital Partners.

The commercial real estate decline, driven by falling production, fewer jobs, and negative return on investment,  appears to be slowing, according to a new report from the National Association of Realtors. Lawrence Yun, NAR chief economist, noted the pace of decline moderated, but the leading indicator has fallen sharply and quickly from the peak, suggesting much lower business opportunities for commercial real estate practitioners engaged in leasing, sales and property management. "The reduction in commercial real estate activity is expected at least through the first quarter of 2010. Any meaningful recovery is not likely to occur before the second half of next year."

"I'm encouraged that we're seeing -- albeit one observation -- a stabilization in the decline in prices, coupled with a growing volume of transactions," said Neal Elkin, president of Real Estate Analytics in a Reuters article. "The money is coming in from the sidelines." The report does continue to explain that the activity last quarter was at its slowest in 15 years, and that weakness would persist into 2010, but finds encouragement in  recent actions by the Federal Reserve to improve some flow of capital into commercial lending.

For more news and information, visit Blumberg Capital Partners.

485 Lexington

SL Green Realty Corp., a REIT focused on Manhattan office properties, has entered into a sale-purchase agreement to sell 49.5% interest in 485 Lexington Avenue to a joint venture partnership comprised of Herzliya, Israel-based Optibase Ltd. and Gilmore USA LLC. The JV, Mazal 485 LLC,  will take ownership of nearly half of Green 485 JV LLC, the entity designated as owner of 485 Lexington (also known as Grand Central Square), in exchange for providing SL Green with approximately $20.8 million, as well as a loan of $20 million according to a Commercial Property Executive article.

The transaction results in an implied asset valuation of approximately $504.2 million, or $547 per square foot, and includes $450 million of existing debt, which will remain outstanding.  The implied cap rate of this transaction is 6.25%. SL Green CEO Marc Holliday commented, "This is a first, but significant step towards the sale of interests in 485 Lexington Avenue. If ultimately approved, the transaction would demonstrate that the Midtown Manhattan office market continues to stand as one of the world's top locations and that investor interest is once again on the rise."

SL Green originally acquired the 921,000 square foot office tower in 2004, and immediately embarked upon a $90 million capital repositioning program which included window replacements, installing a new lobby, replacing retail storefronts, and upgrading corridors and elevators. The property is currently 96.8% occupied with tenants including Citigroup and The Traveler's Indemnity Corporation which, together, occupy half the space.

For more news and information, visit Blumberg Capital Partners.

McKnight Realty Partners has acquired Cranberry Woods, the office park that surrounds the company's new hub in the Pittsburgh region, for $89.5 million according to a CoStar article. The sale valued the complex at roughly $198 per square foot, a price that makes the 460,000-square-foot office park at 500-800 Cranberry Woods Drive in Cranberry Township the largest purchase in the region to date this year. The seller, Multi-Employer Property Trust (MEPT), unloaded the property at auction in an effort to re-balance its investment portfolio.

Nicholas Matt with HFF  represented the seller while First Commonwealth and First Merit Bank provided financing for the project. "I'm not aware of any other deal that's this big, nor is any other one on the horizon that I'm aware of," said Matt in a Pittsburgh Business Times report. "You don't see many $90 million deals done in Pittsburgh."

For more news and information, visit Blumberg Capital Partners.

The Moody's/REAL Commercial Property Index (CPPI) results are in for April, showing a return of negative 8.6% for the all properties national index. The index now sits 25.3% below its level from this time last year, and 29.5% below the peak prices measured in October 2007. "Unlike other areas where people are comfortable that the pace of change is positive, in commercial real estate pricing the pace of change is negative," Neal Elkin, REAL president, told CPN. "January was one of the largest changes in pricing ever seen before, but in April prices are deteriorating faster."

The CPPI is a periodic same-property round-trip investment price change index of the U.S. commercial investment property market based on data from MIT Center for Real Estate industry partner Real Capital Analytics, Inc (RCA). Moody's observes that April's negative return partly reflects that most deals closed during this time were negotiated at the end of 2008 and beginning of 2009 when securities markets plunged. "Primary markets are outperforming compared to the others. If you look at the Southern region, industrial properties are down 28.8 percent," said Elkin. "When you look into the numbers you see a return to the premium of primary markets. Prices are falling much faster and farther in secondary and tertiary markets and you're seeing that in other property types."

For more news and information, visit Blumberg Capital Partners.

Barry Sternlicht is starting a mortgage REIT in a time when credit is badly needed to restore market liquidity.

Sound familiar?

This new innovation in the debt markets, which provided high leverage at low rates, without recourse or risk to the borrowers, required other non-securitized loan providers, such as commercial banks, to be competitive and keep up or drop out, further rapidly expanding credit.

As the reaction to the overly abundant credit, initially in the sub-prime residential market, spread to other sectors, in the form of credit market contraction, a price/value decline was set off.

Lack of credit has also dried up capital for the purchase market, currently with transaction volumes at their lowest level in decades.

Historically, its almost always increased capital flows that induce the major crisis in real estate, not recessions.

And the re-establishment of prudent, patient capital flows that cures it.

When capital flows to real estate dramatically increase its often debt, abundant cheap debt, that starts the cycle.

A predictable cycle, that stops only when the effects of over-levered inflated investments are felt.

Those effects are usually in the form of too much capital fueling over building with eventually insufficient demand to keep up (eg the residential markets today),

Because real estate is a lagging re-actor (due primarily to the long time lag in development and the lease renewal lag in commercial assets) the supply/demand reaction is delayed, and the imbalance becomes dramatic.

So does the crash - typical of real estate.

These cyclical problems and solutions are very similar across time.

Barry Sternlicht is a very bright and experienced innovator to real estate structures and I'd give respect to his mortgage REIT direction as one means of restoring capital flows to real estate.