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Dr. Peter Linneman With the economic downturn battering investors, positive real estate news has been relatively sparse. Yet, seniors housing is emerging as potential bright spot for firms with available capital. A push by industry leadership for greater financial transparency over the last several years has given institutional investors greater confidence to evaluate seniors housing for their portfolios. As with other types of real estate, seniors housing demand tends to track the economic recovery, both nationally and regionally. While recovery of the sector has been modest, the number of seniors housing transactions is rising with property and portfolio sales totaling $27.4 billion trading in 2011, according to NIC MAP Data & Analysis Service. This figure is a substantial increase from $6.3 billion in 2010. Recent M&A activity includes Genesis Healthcare’s acquisition of Sun Healthcare in June for more than $273 million. With an ever-aging American population, long-term investors should not overlook seniors housing. Historical perspective Seniors housing was far from immune to the economic downturn that began in 2008. At the low point of the recession, independent living and assisted living posted year-over-year occupancy rate declines in excess of 250 and 150 basis points, respectively. Construction came to a grinding …

Savannah Duncan During the past 12 months, sales of branded select-service, limited-service and economy hotels jumped 84 percent, according to Marcus & Millichap’s third-quarter hospitality research report. Southeast Real Estate Business spoke with Gregory LaBerge, national director of Marcus & Millichap’s National Hospitality Group, to find out why hotels are such a hot buy for investors. Southeast Real Estate Business (SREB): Why has there been such a strong uptick in hotel sales? Gregory LaBerge: In the market segment in which we operate — the $1 million to $10 million flagged, select-service, limited-service and economy hotels — there has been a significant rise in hospitality sales among private investors. One reason there has been such a big jump in sales of these properties is that we are coming off a period of very little activity. In the most recent round of reports, I tracked nearly 600 sales of these properties nationwide, compared with slightly more than 300 in the preceding period. In 2009, at the peak of the recession, there were fewer than 200 sales nationwide as financing dried up and property performance plummeted. In addition, the hotel sector has been in recovery since 2010. Investors continue to seek opportunities to …

Nellie Day SAN DIEGO — Most attendees at the recent ICSC 2012 Western Division Conference in San Diego agreed that both cautious optimism and capital have returned to the retail market. While this is certainly good news, it also means that competition has re-entered the retail space. “The market volume is higher than last year,” said Michael Marino, a capital markets panelist and executive vice president and division manager for Wells Fargo Bank in Los Angeles. “Our market share was enormous in 2010 and 2011. Now the pie is bigger, and competition is coming back.” To stave off this competition, many retail players are looking to differentiate their centers and tenants, according to attendees. “For a while, people just looked continuously at what that NOI [net operating income] drove,” said Kelley Maher, senior vice president of Madison Marquette and capital markets panelist. “They were interested in taking money out of these centers as opposed to putting it back in.” Maher adds that for a long time, renovations didn't get the attention they deserved. “But now, with retailers growing their stores and several shopping opportunities in every market, you have to differentiate yourself and show you're keeping current with consumers.” Maher's …

The level of commercial/multifamily mortgage debt outstanding decreased by $10.4 billion, or 0.4 percent, in the second quarter of 2012, as the balance of loans in CMBS, CDO and other ABS issues continued to decline, according to the Mortgage Bankers Association (MBA). The $2.37 trillion in outstanding commercial/multifamily mortgage debt was $10.4 billion lower than the first quarter 2012 figure. Multifamily mortgage debt outstanding rose to $826 billion, an increase of $5.4 billion or 0.7 percent from the first quarter of 2012. “CMBS loans paid-off, paid-down and were liquidated at a far faster pace than new CMBS loans were originated during the quarter,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “The drop in CMBS balances more than offset the increases in holdings by Fannie Mae, Freddie Mac and FHA, banks and life insurance companies.” The analysis summarizes the holdings of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (and which appear in this data under “Life Insurance Companies) and in commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDOs) and other asset backed securities (ABS) …

Savannah Duncan Single-tenant drug stores are flying off the market. Investor demand for higher quality properties in this asset class, such as Walgreens, CVS/pharmacy and Rite Aid properties, outweigh demand for the entire net lease sector, according to The Boulder Group’s Net Lease Drug Store Report. “National drug stores are trading at a 50 basis point premium compared to the rest of the single tenant net lease market,” says Randy Blankstein, president of The Boulder Group. “This can be attributed to a limited supply of assets and quality tenants with lease terms more than 20 years. The aging demographics in the U.S. are increasing the use of pharmaceuticals and that has been very positive for the retail pharmacy sector.” In the second quarter of 2012, median asking cap rates for single-tenant drug stores compressed by 20 basis points on a year-over-year basis. In the second quarter of this year, the median asking cap rate for Walgreens was 6.45 percent, compared to 6.8 percent a year earlier. CVS/pharmacy had an asking cap rate of 6.7 percent in the second quarter, compared to 6.9 percent this time last year. Rite Aid had the highest asking cap rate at 9.2 percent, down from …

Darrell Smith When it's all said and done, the value of a building will be gauged by how well it achieved its design goals, especially in environmental and utilization terms. Developing a design that suits those goals is the time-honored profession of the architect. Constructing those plans falls to the builder. Ideally, there is a seamless interplay between plans and a finished building, whether new or a renovation. Once construction gets under way, what happens if there is a major disconnect between the design plans and the actual “constructability” of those plans in terms of budget, time or just feasibility? After all, construction usually occurs months or even years after the plans are drawn. Markets can evolve, material prices will always change and even project goals can require rethinking. If these disconnects emerge during construction, they can stall out a project, costing time, money and, ultimately, require compromise on design to accommodate shortfalls elsewhere. BRING IN THE HARD HATS FROM THE START The solution to divergence between original plans and actual construction is summed up in the strategy called “constructability counsel.” This form of counsel brings highly skilled, design-build expertise into the planning phase from the very start. This counsel …

Matt Valley WASHINGTON, D.C. — For sectors of the labor market most vital to commercial real estate, the nonfarm payroll jobs report for August proved to be a mixed bag. “The news was good for the office and hospitality markets, poor for the industrial market and neutral for retail,” says Bob Bach, national director of market analytics for Newmark Grubb Knight Frank. Employers added 96,000 net new payroll jobs in August, short of the 125,000 expected by analysts and shy of the 148,000 monthly average that has persisted since the beginning of 2011. The U.S. Bureau of Labor Statistics also revised the data for June and July lower by a combined 41,000 jobs. A closer look under the hood by Bach shows the following breakdown for commercial real estate on the jobs front: • The office-using sectors of professional and technical services, information, and finance together added 36,800 jobs in August, up from 26,000 in July. • The sectors of the economy most important for the industrial market — manufacturing, wholesale trade, plus transportation and warehousing — lost 1,400 jobs in August, down sharply from the 42,400 jobs gained in July. • Retailers added 6,100 positions last month compared with …

Ronald Fieldstone, Esq. The EB-5 program has generated a unique opportunity for real estate developers and operators to supplement traditional financing sources and provide debt funding to projects and businesses that otherwise qualify under United States Citizenship and Immigration Services (USCIS) guidelines. The program provides needed capital, job creation and the migration of wealthy foreigners to the U.S. To date more than $3 billion of capital has been funded under the program. The program involves the investment of $500,000 of capital (or $1 million if the reduced investment amount is not applicable) in a commercial enterprise whereby 10 direct and indirect jobs that last for a period of at least two years are created. The typical transaction involves the formation of a limited partnership or limited liability company where foreign investors pool their funds to make a loan to a real estate project that is typically secured either by a first or second mortgage or mezzanine-type financing on the project. Virtually every type of real estate product has been utilizing EB-5 capital throughout the U.S., with a concentration in the states of California, New York, Florida and Texas. A substantial majority of the investors come from Asia, with China leading …

Adam Darowski Imagine being heavily penalized for unwittingly going into business with a landlord or tenant with a sordid past. Sadly, this is a reality for businessmen and women who pay hefty fines for associating with undesirable individuals or businesses in lease transactions, even if he or she did so unknowingly. $622,985,023 million is a large amount of money by any standard. This is the dollar amount of fines and penalties levied by the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury against companies for doing business with individuals or entities on OFAC’s “Specially Designated Nationals and Blocked Persons” list (i.e., the guys you are not allowed to do business with). And $622,985,023 million is not the all-time, cumulative total. It’s only the amount of fines and penalties levied by OFAC so far this year. The calendar year total for 2011 was $91.65 million. The calendar year total for 2010 was $200.73 million. The foregoing dollar amounts illustrate the economic impact to businesses for knowingly or unknowingly violating laws and regulations restricting commercial transactions with prohibited persons. How does OFAC compliance apply to commercial leasing transactions? What can landlords and tenants do to ensure they …

Savannah Duncan After hitting peak effective rent growth of 5.32 percent in July 2011, the apartment market has started to stabilize. Year-to-date effective rent growth in July was 4.42 percent, up .54 percent from June, according to Axiometrics. “Since the tear the apartment market was on in July of 2011, there has been a gradual moderation in both effective rent and occupancy growth, though we are still near historical highs for both,” says Ron Johnsey, president of Dallas-based Axiometrics. Corpus Christi, Texas, posted the most improved market, with annual rent growth from 3.22 percent in July 2011 to 7.74 percent in July 2012. On the other hand, several of the bottom markets, such as San Jose, continue to post overall positive annual growth but were unable to maintain strong year-over-year gains. San Jose’s rate fell from 15.17 percent last year, to 9.17 percent this July. Axiometrics says that REIT properties, which account for 12 percent of the company’s database, continue to outperform the broader national market. REIT properties posted 6.46 percent effective rent growth in July 2012, compared to 6.35 percent this time last year. However, the report states that in 2011, REIT properties lowered rents each month from August …