Features

IRR: Moderate, Steady Growth Predicted for Commercial Real Estate in 2018

by Jeff Shaw February 1, 2018

The outlook for the year in commercial real estate is cautiously optimistic, as several signs of excess that cause market corrections begin to amass, according to the 2018 edition of Viewpoint, an annual commercial real estate trends report released by Integra Realty Resources (IRR). Annual job growth dropped from 2.3 percent in early 2015 to 1.4 percent in October 2017, while real weekly incomes rose only 0.4 percent for the 12 months ending in October 2017. Production and non-supervisory workers saw an even smaller rise of only 0.3 percent during this time. These levels were not enough to spur consumption significantly in 2017, with personal consumption expenditures (69.4 percent of GDP) in the third quarter up only 2.3 percent from the prior year. If the market continues in this direction, corrections may be imminent, IRR warns. “In the short term, we find the commercial property markets solidly in their ‘expansion phase’ in most areas of the country, but now is the time for real estate owners and investors to begin thinking about defense strategies,” says Hugh Kelly, veteran commercial real estate economist and contributor to the report. “However, it should be a less severe downside for the commercial real estate industry …

February 1, 2018

Shipping Containers Offer a Creative New Venue for Retailers and Restaurants

by Katie Sloan January 30, 2018

What’s that thing everyone always says about millennials? That they crave new experiences, novel environments and locally produced items that have a story — or at least a little substance — behind them? Yes, that’s it. Ask and ye shall receive. They’ll even ship this request to you. Well, maybe not right to your door, but straight off a boat and into your nearest underused plot of viable land. We’re talking shipping containers, which have become the new avant-garde approach to traditional retail experiences. “I think any time you can find a new creative use for an item or a space it is going to capture interest,” says Hartley Rodie, who is developing the Churchill, a 16-container shopping and dining project on North 1st Street in Phoenix that is scheduled to open in fall 2018. Being a millennial himself, Rodie and his partner, Kell Duncan, both 29, were inspired to undertake this new project after examining what was missing — both within their own lives and within their community. “Neither of us felt fulfilled by our areas of focus, so the question became ‘what’s next?’” he says. “I knew whatever it was going to be, for me, it was important to …

January 30, 2018

Features Multifamily Northeast Pennsylvania Seniors Housing Southeast Top Stories

Berkadia Forecast: Southeast to Garner Bulk of Multifamily Investment, Financing Activity in 2018

by John Nelson January 25, 2018

AMBLER, PA. — Mortgage bankers and investment sales brokers alike expect multifamily markets in the Southeast to record more investment and financing activity than any other region in 2018. In Berkadia’s inaugural poll of nearly 150 staffers across 60 offices, the company reveals that more than one-third (36 percent) of its respondents predict the Southeast would see the most deals take place this year. “Population influx, continued job growth and significant development stabilization will make the Southeast a destination for commercial real estate growth and investor appetite in the coming months,” says Ernie Katai, executive vice president and head of production at Ambler-based Berkadia. For example, the Atlanta metro area is on track to add 2.5 million people over the next 25 years, the equivalent of adding the entire metro Charlotte population, according to the Atlanta Regional Commission. This type of population growth is attractive for employers looking for a new base of operations. This week French car manufacturer Groupe PSA announced that it chose Atlanta for its North American headquarters, and media outlets are reporting that Facebook is interested in building a massive data center complex in the metro area. Atlanta recently made the short list for Amazon’s second …

January 25, 2018

Features New York Northeast Top Stories

Attorney: Owners Need to Investigate Whether Possible Tax Increases from New Tax Law Can be Abated

by John Nelson January 23, 2018

President Trump’s Tax Cuts and Jobs Act is the first sweeping reform of the tax code in more than 30 years. Signed into law on Dec. 22, 2017, the plan drops top individual rates to 37 percent and doubles the child tax credit; it cuts income taxes, doubles the standard deduction, lessens the alternative minimum tax for individuals, and eliminates many personal exemptions, such as the state and local tax deduction, colloquially known as SALT. While Republicans and Democrats remain divided on the overhaul’s benefits, there is a single undeniable fact: The sharp reduction of the corporate tax rates from 35 percent to 21 percent will be a boon for most businesses. At the same time, employees seem to be benefiting too, with AT&T handing out $1,000 bonuses to some 200,000 workers, Fifth Third Bancorp awarding $1,000 bonuses to 75 percent of its workers, Wells Fargo raising its minimum wage by 11 percent and other companies sharing some of the increased profits with employees. Companies are showing understandable exuberance at the prospect of lower tax liability, but investments many firms are making in response to the changes may trigger increases in their property tax bills. Some companies already are reinvesting …

January 23, 2018

Features Loans Top Stories

Retail Bankruptcies Take Toll on CMBS Lenders, Says Trepp

by Jeff Shaw January 18, 2018

In 2017 alone, over $35 billion in CMBS loans were exposed to risk of default by retailers declaring bankruptcy, according to New York City-based Trepp LLC, which monitors the performance of securitized commercial mortgages. The loans were largely backed by mall properties that had leased space to retailers, many of which are now closing stores. “In the first 11 months of 2017 alone, more than 30 U.S. retailers filed for bankruptcy protection. That news certainly made those in structured finance take notice to the mounting concern surrounding brick-and-mortar retail,” states the report titled “The 11 Largest Retailer Bankruptcies of 2017.” As the “retail apocalypse” continues, with consumers increasingly choosing e-commerce purchases over brick-and-mortar malls, certain sectors have been particularly hard hit. Apparel and footwear sales have largely shifted on line, spurring the string of bankruptcies. The report is quick to note, though, that retail sales have actually been on the rise through 2016 and 2017, and that the “retail apocalypse” is simply a shifting of winners versus losers in a changing economic model. “In step with the rise of e-commerce, the popularity of traditional department store anchors is plunging, and hundreds of malls nationwide have reported dwindling foot traffic,” states …

January 18, 2018

Features Top Stories

M&M: New Tax Law ‘Holds Favorable Prospects’ for Commercial Real Estate

by Jeff Shaw January 16, 2018

The Tax Cuts and Jobs Act — signed into law by President Trump at the end of 2017 — should be a net positive for the commercial real estate industry, according to a special report by Marcus & Millichap. By adding business-friendly provisions and reducing uncertainty, the new law “holds favorable prospects for commercial real estate,” the report states, with “potential to boost space demand and capital flows.” Among the business-positive results are minimal changes to the 1031 tax-deferred exchange system, the mortgage interest deduction for investment real estate, and asset depreciation. Uncertainty over the future of those programs had previously “caused many investors to move to the sidelines,” the report states. “This consistency in tax law will enable investors to move forward with most of their existing investment strategies.” More direct benefits to businesses include “generous tax cuts to corporations,” which may cause investors to use this opportunity to reconfigure portfolios. This, in turn, could boost capital flows throughout commercial real estate. Multifamily Demand Should Rise, but Healthcare Takes a Hit Several of the provisions in the tax bill relate specifically to individuals, but will have residual effects on the commercial real estate industry. Changes to the standard tax …

January 16, 2018

Features Multifamily Top Stories

Reis: Apartment Market Continues to Face Pressure From Added Supply

by Kristin Harlow January 11, 2018

NEW YORK — Over the course of 2017, asking rents for the national apartment market increased 3.9 percent while effective rents grew by 3.3 percent, according to a fourth-quarter preliminary trends release from Reis Inc. Although still representing rent growth, these rates reflect a deceleration in apartment market fundamentals compared to recent years. This deceleration is due in part to the large amount of new supply coming online. A total of 43,769 units were completed in the fourth quarter, raising the year-end total to 213,802 units. The national apartment market has not seen new completions in excess of 200,000 units since 1986, says Reis. “At 4.5 percent, the national vacancy rate increased 10 basis points from 4.4 percent in the third quarter. This represents a 30 basis point increase in year-over-year vacancy,” says the report. “Vacancies have more or less been on an upward march since the middle of 2016.” At $1,364, the national average asking rent grew 0.4 percent in the fourth quarter. This figure is well below the 0.9 percent average quarterly growth rate for the prior six quarters. Effective rent growth of 0.3 percent in the fourth quarter was also below the 0.8 percent average quarterly growth. …

January 11, 2018

Features Heartland Feature Archive Midwest Multifamily Top Stories

Aided by Tax Credits, Adaptive Reuse Pays Off for Developers

by Kristin Harlow January 9, 2018

Transforming older, historic buildings into apartment rental units opens myriad opportunities for developers beyond simply saving a neighborhood building. The process enables them to create unique floor plans and hip spaces that resonate with many of today’s renters and lease up quickly. These adaptive reuse projects are often costlier than new construction and fraught with challenges, but the consensus among developers is that the reward is worth the risk. “It’s economic development,” says Nick Anderson, a developer with Plymouth, Minnesota-based Dominium. “Converting these historic structures into apartments is very labor-intensive, so the projects generally create a lot of construction jobs. The properties themselves become their own little communities and can have a catalyzing effect on the surrounding neighborhood.” Preserving history Dominium completed construction of Millworks Lofts in Minneapolis in July of this year. The 78-unit affordable housing property was 100 percent leased prior to opening its doors in August, says Anderson. The building, which dates back to the 1920s and was formerly home to Lake Street Sash & Door Co., is on the National Register of Historic Places. Dominium purchased the vacant building in 2016 and financed the project using both federal and state historic tax credit equity. All major …

January 9, 2018

Features Retail Top Stories

What Are the Prospects for an Amazon Merger With Target? Analysts Weigh In

by Jeff Shaw January 4, 2018

When Gene Munster, managing partner of Minneapolis-based venture capital firm Loup Ventures, predicted that e-commerce giant Amazon (NASDAQ: AMZN) would buy department store chain Target (NYSE: TGT) this year, he knew such a declaration would make waves. In a New Year’s Day post on the Loup Ventures website titled “8 Tech Predictions for 2018,” Munster admitted it was his “boldest prediction.” “Seeing the value of the combination is easy. Amazon believes the future of retail is a mix of mostly online and some offline,” wrote Munster. “Target is the ideal offline partner for Amazon for two reasons: shared demographics and a manageable-but-comprehensive store count.” Business websites and magazines were quick to respond with skepticism, authoring headlines such as “Stop The Insanity Amazon Will Not Be Buying Target” (TheStreet), “Amazon Buying Target Isn’t as Likely as One Tech Analyst Seems to Think” (Adweek) and “No, Amazon Isn’t Buying Target in 2018” (Forbes). Garrick Brown, vice president of retail research for the Americas with Cushman & Wakefield, says “the rumor’s been floating around for a while” that Amazon is looking to buy Target. He estimates the odds of the deal happening at between 25 percent and 33 percent. Jeff Green, president and …

January 4, 2018

Features Retail Texas Texas & Oklahoma Feature Archive Top Stories

Retail Landlords Struggle With the Logistics of Backfilling Vacated Space with Entertainment Concepts

by John Nelson January 2, 2018

As 2018 gets underway, retail real estate finds itself at an odd juncture. According to CNN, more than 6,700 stores either closed or announced plans to close in 2017, leading many to consider last year to be the beginning of the end for brick-and-mortar shopping. Yet a new report from Tennessee-based retail advisory firm IHL Consulting Group notes that for every company that closed stores in 2017, there were nearly three companies opening new stores to offset it. Whether you believe retail is dying or evolving, there’s no arguing that the inability of certain tenants — mainly apparel-based department stores — to compete with e-commerce has caused millions of square feet of retail real estate to be returned to the market. Owners of these properties face the challenge of backfilling these spaces with tenants that aren’t likely to share the same fate — restaurants, gyms and entertainment concepts. But when it comes to backfilling a big box or anchor space with an entertainment concept, merging the existing space with the design requirements of the tenant can be a major headache for landlords. With 58 million square feet of project designs under his belt, Randy Stone, associate principal at Dallas-based architecture …

January 2, 2018

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