Content Partner

Kenneth Salzman of Lee & Associates says Last-mile distribution centers are fetching rental rates of $35 to $50 a square foot in the New York metro area on a triple net-lease basis — generally double or more than typical warehouses.

Last-Mile Access to Customers Drives Distribution Center Conversions

by Jaime Lackey August 20, 2019

E-commerce has been driving demand for industrial real estate for several years, but steadily increasing online sales coupled with growing consumer expectations for speedier delivery continues to put pressure on merchants to bridge the last mile to their customers. Considering that these projects are located in densely populated areas where land and available product are typically scarce, developers are increasingly converting obsolete warehouse and other properties into fulfillment centers. For space that matches their needs, tenants are less price-sensitive than they have been historically, says Kenneth Salzman, SIOR, executive managing director and principal for commercial real estate service provider Lee & Associates. But tenants are avoiding taking more space than they need just to have it available in the future, he adds. “It’s less a space race and more that businesses want to reach their customers more quickly,” explains Salzman, who is located in the company’s New York office. “And the demand is not just coming from Amazon and other online retailers — traditional companies want to be able to ship their products to their customers more quickly because they’re competing with online resources, as well.” Online retailers and shippers are typical tenants of the buildings — even the U.S. …

August 20, 2019

Content Partner Features Hospitality

Hospitality Lending: Whose Market?

by Jeff Shaw June 20, 2019

As the economy continues its upward trajectory, hotels are enjoying the benefits of strong demand from both personal and business travel. Despite these solid operating fundamentals, many lenders are apprehensive about the record length of the current economic expansion and the impact that a future downturn may have on room rates and occupancy levels. In response to these growing fears, many capital sources have either tightened their lending criteria or decided to cease hospitality lending all together. As traditional sources of financing retreat, hospitality owners have had to look far and wide for lenders that remain receptive to this asset class. This has created opportunities for lesser-known sources of capital, like Chicago-based Alliant Credit Union, to finance high quality properties. By going against the trend and utilizing internal specialization, Alliant has been able to exercise a level of selectivity that a more crowded field prevented until recently. This has resulted in loans on well-located properties with demonstrable operating results that are run by highly experienced owners with the financial resources to withstand a downturn. The emergence of non-household name lenders has enabled an accomplished subset of borrowers to access needed liquidity and obtain favorable loan terms in light of the …

June 20, 2019

Content Partner Features Self-Storage

The Stability of Self-Storage

by Taylor Williams April 5, 2019

Through economic ebbs and flows, the self-storage sector continues to prove its strength. Although real estate industry players are wary about labeling any sector as recession-proof, the self-storage sector tends to be a stable asset class during economic booms and downturns, according to Paul Letourneau, manager of commercial real estate lending with Chicago-based Alliant Credit Union. And over the last decade, self-storage facilities have become more flexible spaces, which is driving greater demand for the product. Across the country, these facilities are being used in novel ways, such as short-term product warehousing for small businesses; incubator space; personal workspaces; and wine storage in climate-controlled units. These new uses, coupled with traditional storage needs, create increasing demand and stability in the self-storage sector. According to Letourneau, self-storage facilities have adjusted to urban environments and their residents’ needs with multi-story climate-controlled properties that feature customer lounges and high-tech monitoring and security systems. Meanwhile, suburban markets show greater demand for traditional single-story self-storage facilities with space for RV and vehicle storage. However many suburban facilities are adding climate-controlled units and more security to meet customers’ needs. “The bottom line is that customers — from baby boomers and millennials to small business owners — …

April 5, 2019

Content Partner Features Lument RED Capital Group Western

RED Capital Group: The Northwest Enters 2019 with Strong Momentum, Rising Risks

by Jeff Shaw February 1, 2019

For decades, the Pacific Coast has defined the American avant garde. From the Beats and Hippies of the Fifties and Sixties to today’s coders, gamers, software engineers and social network titans, the West Coast has set the standard for contemporary cutting edge social and life-style evolution. Lately, the region has emerged as a global economic leader as well. The rise of Big Tech operations in the five Pacific Northwest metro areas we cover — the East Bay, Portland, San Francisco, San Jose and Seattle (the “Pacific 5”) — has altered their economic landscapes profoundly. From 2014 to 2017, nominal metropolitan GDP per capita increased more than three times faster than the national average, and personal income per capita — already considerably higher than the U.S. mean — increased at an 80 percent faster rate than the metropolitan norm. Wealth creation and income growth on this scale fueled commensurate demand for rental housing space, especially the luxury infill product favored by investors and developers. Total Pacific 5-occupied apartment stock increased at a 2.4 percent annual rate over the three years ended in 3Q18 (Reis) — 20 percent faster than the balance of the RED 50, RED Capital Research’s large market peer …

February 1, 2019

Content Partner Features

E-Commerce Logistics Impact Industrial Property Loans

by Amy Works January 8, 2019

The evolution of retail logistics is cultivating a new industrial landscape. “With the explosion in popularity of e-commerce, logistics models have shifted from hub-and-spoke organization to a product-to-consumer model,” says Casey Martin, commercial real estate commercial loan underwriter with Chicago-based Alliant Credit Union. The traditional hub-and-spoke distribution model features a central warehouse supporting a few large distribution centers, allowing product to move within a day’s drive from facility to facility to storefronts. Product-to-consumer models seek to satisfy purchasers that expect one- or two-day shipping, which has become the norm with many online retailers. This expectation is driving retailers to seek non-traditional properties that are close to high-demand consumers to serve as distribution facilities. The old real estate adage “location, location, location” takes on new meaning with each evolution of the retail industry. Retailers are utilizing smaller in-fill industrial properties in land-constrained markets in an effort to meet consumers’ increasing demands for faster delivery, notes Martin. He adds that older facilities or properties with atypical warehousing clear heights are of interest to smaller retailers who want their products to be closer to consumers. Retailers Compete on Delivery Guarantees The Federal Reserve Economic Data shows that the inventories-to-sales ratio of total business …

January 8, 2019

Content Partner Features Lument Multifamily RED Capital Group Texas

RED: Texas Multifamily Performance Moderates in 2018, While Economy Booms

by Jaime Lackey December 14, 2018

With a preference for low taxes and business-friendly regulation, Texas is America’s proving ground for free market economic theories — a crucible in which the benefits of economic liberty are tested. While the long-term impact of the Lone Star State’s experiment remains an open question, it is hard to gainsay its impressive accomplishments to date. Texas recorded the fastest GDP growth among the 50 states (6.0 percent) in second quarter 2018, and the third-fastest compound annual GDP growth rate since the Great Recession (3.1 percent). By way of population growth, Texas ranked second among states since 2010, trailing only Utah. In terms of the 20- to 34-year-old “renter cohort” Texas was the leader, posting a robust 2.1 percent annual rate growth rate. Powerful economic and population growth go hand in hand with multifamily performance. Indeed, the five Texas markets that we model econometrically — Austin, Dallas, Fort Worth, Houston and San Antonio — posted stronger fundamentals in the current decade than the balance of our RED 50 large market peer group in nearly every category. The “Texas 5” occupancy increased by an average of 564 basis points over the period (Reis), nearly three times as much as the non-Texas component. …

December 14, 2018

Content Partner Features

Relationship Advice from a Commercial Real Estate Lender

by Amy Works December 11, 2018

To underwrite and successfully close a loan, a lender must have an intimate understanding of the principals involved, the collateral and the marketplace specific to the property. Principals play a key role in ensuring an efficient vetting process by providing accurate and in-depth information during the initial financial request — before the due diligence research delves into further detail. Providing lenders with a clear and concise case for a financial package is an easy first step to securing a loan. The more details provided, the better, according to David De Bauche, manager of Commercial Credit Lending Administration at Alliant Credit Union. Ideal Borrower? There is rarely a model borrower or financial package, De Bauche says. Each package and borrower has its own strengths and weaknesses, and it’s up to the lender to decide if the separate pieces join together to create a successful financial package. “What is considered a green-light package with one lender may carry too many risks for another lender,” he says. “At Alliant, we’re open to considering most financial proposals. If we’re presented with a clear, concise proposal with details upfront — it catches our eye.” Borrowers that are transparent with lenders about potential weaknesses — past …

December 11, 2018

Content Partner Features Lument RED Capital Group

RED: Florida 2018 Multifamily Performance Shines, Despite Rising Supply

by Jaime Lackey November 15, 2018

Florida markets typically perform well during flush economic times and the current cycle isn’t an exception. Blessed with the fastest growing population east of the Rockies and a business-friendly tax and operating cost environment, Florida is one of the first alternatives multifamily developers and investors look to when the primary markets begin to feel crowded. True to form, Florida experienced record investment sales volume in each of the past two years, and 2018 is shaping up to meet or exceed last year’s total. Acquisition cap rates continue to track lower, with asset prices reaching new highs. By the same token, the supply pipeline is building and occupancy is beginning to erode at the margin. Nearly 70,000 units in 300 projects are under construction across the state and another 375 or more projects are proposed. At least 40,000 new units will be delivered this year, and vintages of similar magnitude can be expected in 2019 and 2020. Can the Sunshine State property performance and investment returns continue to sizzle under these conditions? Strong Job Growth in Jacksonville and Tampa Keep Apartment Markets on Even Keel To date, Jacksonville and Tampa have exhibited the greatest resiliency among the six Florida markets that …

November 15, 2018

2018 Mid-Atlantic Multifamily Rent Growth - RED Capital

Content Partner Features Lument RED Capital Group

RED: Mid-Atlantic Region 2018 Multifamily Performance Update

by Jaime Lackey October 18, 2018

As the real estate cycle enters the late innings, multifamily investors increasingly are seeking alternatives to high-cost coastal metros but remain unwilling to sacrifice the property market liquidity found in the primary markets. Many are finding the right balance of opportunity and liquidity in the Mid-Atlantic States, where cap rates are often higher than in the “favored five” markets and value-add opportunities in strategically located Class B properties abound. RED Capital Research (RCR) performance models suggest that the Mid-Atlantic’s season in the sun has longer to run. Philadelphia Apartment Market Ranks Second Among the Top 50 U.S Markets for Risk-Adjusted Returns Sales of Philadelphia apartments topped $2 billion during the 12-month period ending in June, a 125 percent increase over the year-earlier period. Fund and trust buyers dominated trade, concentrating on urban mid-rise and suburban garden value-add plays at mid-5 percent to low-6 percent cap rates. Investors penciled IRRs in the mid-6 percent range for Class A assets, and the low-7 percent area for value-adds. The metro economy has performed well since 2015 — and posted accelerating gains in the spring and summer. RED Research models forecast further above-trend payroll job creation through 2019, before higher interest rates curb growth. …

October 18, 2018

Content Partner Features

A Peek Behind the Industrial Lending Curtain

by Amy Works October 17, 2018

Mastering the puzzle of a successful commercial real estate loan requires more than due diligence on the borrower. To execute a solid loan transaction, shrewd originators make sure all of the existing pieces fit together — and consider how future pieces might fit into the equation. Beyond the Borrower While the history and financial health of a borrower are top concern for originators, there are many more factors at play. “Having a strong borrower is important, but it’s also critical to research the current tenants, the leasibility of the property, the desirability of the location and the long-term activity of the market,” says Peter Margolin, commercial loan originator with Chicago-based Alliant Credit Union. He describes a recently closed loan to show how lenders analyze some of the underlying factors that drive financing packages. In April of this year, Alliant provided a $6.4 million loan to refinance a 64,637-square-foot industrial building located on Statesville Road in Charlotte, North Carolina. The borrower was a REIT that focuses on single-tenant R&D and industrial properties throughout the Southeast. Husqvarna North America, a producer of outdoor power equipment, utilizes the property as a research and development facility. Terms of the 10-year loan include five years …

October 17, 2018

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