E-Newsletter - April 12, 2013


 
Sacramento Association of REALTORS Commercial Banner
                                  April 12 2013 

  

Always bear in mind that your own resolution to succeed is more important than any other.
Abraham Lincoln
In This Issue
Education
Regional Events
Legislation
Podcasats
Downey Brand Law Firm
Multi-Channel Retail Creating Opportunities For Retail
U.S. Employment Demand For U.S. Office Space Improves
Elk Grove Eliminates Affordable Housing Fees on Commercial
Who's Afraid Of Social Media
CRE Lending Now On The Rise
Construction Industry Jobs Increase
Multihousing Sales Somewhat Slow
Global CRE Grew 8%
Making Money On Uncle Sam's Space
Will Co-Working Erode Demand For Office Space
Proposal Grants FIRPTA Exemptions
Facility Closure & Downsizings
Commercial Connections
Housing Market Recovery Will Lift Commercial
Businesses Stay Cautious About Renting Office Space
Big Players Cash Out of Hong Kong Property

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EXPERTS BULLISH ON OFFICE-RETAIL-HOTEL ELEMENTS OF ARENA 

by Dennis McCoy


Downtown real estate experts say building 1.5 million square feet of office, retail and hotel space as part of Sacramento's latest arena plan makes sense -- even in a market with high vacancy rates.


The location -- on the site of Downtown Plaza, in the city's heart -- plus the momentum and excitement of a sports and entertainment complex would create demand for all that new space, say real estate professionals and others with downtown interests.


If the region wins over the NBA owners next month with its counteroffer to keep the Sacramento Kings from moving to Seattle, Sacramento would work with would-be investors in the Kings to develop other uses around the Downtown Plaza arena site.

 

The development could include 475,000 square feet of office, 250 hotel rooms, 300,000 square feet of retail and 600 units of condos or apartments. All that extra space would be in demand if the arena is built, said Ken Turton, a commercial real estate broker who specializes in Sacramento's central city. Other commercial real estate brokers have agreed.


A new sports and entertainment complex attracting concerts, family shows and conventions -- in addition to Kings games -- would create tremendous interest and excitement, brokers said. Restaurants, nightclubs and national retailers would want to locate nearby. (Sacramento Business Journal)

 

ANEMIC SACTO OFFICE LEASING LAGS BAY AREA  
by Ben van der Meer

Sacramento's office leasing is still lagging behind its neighboring Northern California markets, according to a first-quarter report released recently by Jones Lang LaSalle.

In the first three months of the year, the market in Sacramento itself saw a loss of 128,000 in leased space in Class A office buildings, the largest of any market in either the Sacramento area or Bay Area. Its suburbs gained 564,608 in new Class A space during the same period.

Total vacancy, including Class B office space, is 1.19-million square feet at the end of the quarter in Sacramento, with an additional 8 million-square feet in the suburbs. The suburban area has 200,000-square feet being built or renovated, and Sacramento has none. By comparison, nearly 3.5-million-square-feet worth of new space is being built or renovated in the Silicon Valley suburbs.

Overall, Northern California office vacancy fell to 16.4% in the first quarter. Higher demand in Sacramento's suburbs led to a 3.5% increase in rental rates.

Generally, asking rents for Sacramento and its suburbs are significantly below the Bay Area, with the exception of Oakland. (Sacramento Business Journal) 
EDUCATION -- SAR COMMERCIAL DIVISION

Options to Buy, Extend, Expand And More!

Wednesday, May 1 -- 10:00 - 11:30 a.m.

Speaker: Bill Hunter, Esquire

Cost: $15 SAR Members and REALTORS®/$20 Non-Members

 

This program is all about commercial real estate sale and lease options. Brokers and agents encounter them frequently.  Are they well understood?  Are they well written?  Do you know what to do with them?

 

There are options to purchase fee title; options to extend the term of a lease; options to expand a leased premises; options to match a competing offer; and options designed to disguise a loan transaction.  Mr. Hunter will lead a discussion ranging from the basic legal principles and brokerage practices to the sophisticated and creative use of options.  In his usual style, Mr. Hunter will take questions asked during the presentation.  In addition, he will address the following: 

  • What makes option law unique?  And why?
  • How does every option contemplate two contracts?
  • Is payment by the optionee of a separate consideration required?
  • Can the option price or rent be an amount "to be negotiated"?
  • What are the common mistakes made when exercising an option?
  • How should a right of first refusal or to first negotiate be written?
  • How can a tenant's option to expand its premises be made workable?
  • Can an optionee both exercise the option and propose new terms?  How?
  • What services and products do title insurers offer for option transactions?
  • How transferable are options and other pre-emptive rights?
  • How should an option to extend a lease term be written?
  • How should an option to purchase fee title be written?
  • By what legally binding techniques may "fair value" be determined?
  • When should exercise of an option require more than a mere "notice of exercise"?
  • Can the bungled exercise of an option be promptly corrected?
  • What is a hidden security device?  Why does it matter?
  • What are the legal remedies for breach of an option agreement? 

Don't miss this one-time presentation with the always lively and effervescent Bill Hunter. You will make peace with options and be entertained as well! Registration form or call Brian DeLisa at (916)437-1210.

 

REGIONAL EVENTS 

ULI Game Night to Support UrbanPlan

Thursday, May 2 -- 5:30 - 9:00 p.m.

The Sutter Club

Secure your property on the game board. Instead of building hotels, you'll be constructing mixed-use buildings! Contact Mary Sater, ULI Sacramento to find out which properties are for sale. Info 

 

Commercial Investment Conference at C.A.R. Legislative Meeting

Friday, May 3 -- 9:00 a.m. - Noon

Sheraton Grand Hotel, Sacramento, Hendricks/Kamilos/Baker room

Flyer

 

Investment Forum

Tuesday, May 14 -- 7:30 a.m.
R.J. Grins In The DoubleTree Hotel
This email address is being protected from spambots. You need JavaScript enabled to view it.  for additional information
  

Sacramento Real Estate Exchange

Friday, May 17 -- 10:30 a.m.

China Buffet in Citrus Heights

Call Ben Couch at (916)989-4652 for additional information 

  
 LEGISLATION 
SB 1186 PROVISIONS - ADA LEASE LANGUAGE
As part of this overall historic reform, a lease language requirement was signed into law which requires property owner and lessor to notify the tenant in the lease form or rental agreement executed on or after July 1, 2013, whether the property being leased or rented has undergone inspection by a CASp, and if so, whether the property has been or has not been determined to meet all applicable construction-related accessibility standards.
  
Here is the actual statutory language which has been added to the Civil Code:
A commercial property owner or lessor shall state on every lease form or rental agreement executed on or after July 1, 2013, whether the property being leased or rented has undergone inspection by a Certified Access Specialist (CASp), and, if so, whether the property has or has not been determined to meet all applicable construction-related accessibility standards pursuant to Section 55.53.

It is strongly recommended that you consult with an attorney or those responsible for drafting leases in your company to assure that you are ready to be in compliance with the law when it kicks in later this Summer.  Click here to read the full bill.
  
AB 1103 BENCHMARKING RESOURCES
The Nonresidential Building Energy Use Disclosure Program kicks in this summer.  This is a mandatory Energy Star disclosure law. The present effective date of the regulations is July 1, 2013 for large buildings (more than 50,000 square feet); January 1, 2014 for medium buildings (more than 10,000, and up to 50,000 square feet); and July 1, 2014 for small buildings (5,000 up to 10,000 square feet).

Basically, anytime you finance, sell, or lease a whole building, you are required to run the Energy Star numbers and provide that information to the other party in the transaction as well as the Energy Commission. The Energy Commission staff is working to provide online resources to help you comply with this new law. Here are several items you can find already online:
Final AB 1103 Regulations
AB 1103 Disclosure Summary Sheet
* Sample Statement of Energy Performance
* Sample Data Checklist
* Sample Facility Summary
  

PODCASTS

Discussing Social Media Strategy -- Download

D. Scott Smith, CCIM, talks to host Steve Lubetkin about his start in commercial real estate and his advice to students on creating and activating a social media strategy.

 

Lease Accounting Progress -- Download
NAR Treasurer Bill Armstrong updates members about progress on lease accounting, as well as new legislation introduced in Congress to reauthorize terrorism risk insurance for commercial properties.


Prepare Your Commercial Agents for Today's Market  -- Download
Bob McComb, owner of Top Dogs Commercial Real Estate Training, will share some tips on how commercial agents can prepare to be successful in today's market

 

SPONSOR HIGHLIGHT -- DOWNEY BRAND LAW FIRM, ADVANCING YOUR INTERESTS

downey brandDowney Brand is the largest law firm in Sacramento and is ranked as one of California's largest law firms. Nearly 140 attorneys work in offices in California's capital, as well as San Francisco, Stockton, and Roseville, California and Reno, Nevada.

 

The firm's client base is both regional and national, as diverse as the area in which the firm exists. They work with California's Central Valley landowners on flood control and water supplies and provide counsel to California's agricultural companies on issues related to air quality to tax issues
and from pesticide regulation to food safety issues. Their corporate attorneys assist emerging companies with new business ventures, and represent Fortune 500 companies who have business interests in the region. At the same time, they help individuals with family law, property and estate planning needs.


Downey Brand's real estate attorneys are experienced in every facet of law concerning real property. They handle transactions involving the selection, acquisition, use, zoning, development, financing, management, leasing and conveyance of land for a broad range of clients, including developers, investors and landowners. The Group provides advice on financing, ground leasing, land use, the Subdivision Map Act, redevelopment law and other development matters, and in working with federal, state and local agencies.


Their business lawyers are called upon by local and national companies to handle complex business transactions. Downey Brand's lawyers take a pragmatic approach, focusing on what is needed to get the deal done. They assist companies with corporate and general business matters, and supply special expertise in key areas affecting growing businesses in the region.


Like most businesses, only half of the picture is found in the description of their firm. The other half of the picture can be found in the individual attorneys who comprise the firm and the role they play in the community. Their attorneys are encouraged to take part in their active pro bono program and to serve on boards of directors to organizations that are consistent with their interests and talents.

 

A great big thank you to Downey Brand as they support SAR with our educational endeavors and commercial real estate website. 
 

RISE OF MULTI-CHANNEL RETAIL CREATING OPPORTUNITIES FOR RETAIL AND INDUSTRIAL REAL ESTATE
The growth of e-commerce combined with the consumption habits of echo boomers -- the children of baby boomers --will spur the growth of multi-channel retail strategies, according to a new report from CBRE Group, Inc. While the growth of these strategies poses challenges for traditional brick-and-mortal retailing models, it also provides numerous opportunities for retail that will impact real estate markets.

CBRE's "The Future Impact of E -commerce on Industrial and Retail Real Estate" finds that the need for multi-channel strategies will create new opportunities for retailers, such as programs that allow consumers to purchase a product online and pick it up at their convenience at a locker in a local store. Additionally, popular same-day home delivery strategies will likely require that future distribution centers be proximate to consumers, which should create increased opportunities for urban in-fill development. Furthermore, markets near UPS or FedEx hubs are most likely to attract major distribution centers to service e-commerce sales.

"The challenges facing retail real estate markets due to the rapid changes taking place in how and where consumers shop goods are well known but there are also substantial opportunities in this evolving environment," said David Egan, Director, Research & Analysis, CBRE.
Other notable findings from the CBRE report include:
  • The market for urban high-street retail remains robust as prime retail rents, especially in coastal gateway markets have either reached, or are approaching, all-time highs. This can be partially explained by the fact that high-street retail offers shopping-as-entertainment and non-commoditized products.
  • Seasoned e-commerce companies are opting for build-to-suit developments that can provide increased infrastructure, heavy power, higher clear heights, an abundance of land and are located in 24/7 zones.
  • Retailers, particularly apparel chain stores, continue to combat the trend of consumers treating a store as a "show room" for products that may ultimately be purchased online. As consumers are provided more purchasing options online, stores engaged in core e-commerce sectors are now more vulnerable to lower profit margins, likely translating to lower rents for strip and power centers that cater to these types of tenants.
  • The aging of the U.S. population, coupled with the implementation of health care reform, is expected to increase demand for medical uses in retail centers. (CBRE)

 

LIKE U.S EMPLOYMENT, DEMAND FOR U.S. OFFICE SPACE IMPROVES -- BARELY

by Ilaina Jonas


The U.S. office vacancy rate fell only slightly during the first quarter, as a lack of significant job growth continued to impede demand for space, according to a quarterly report released this week.


At the same time, U.S. office construction during the first quarter reached a 14-year low as developers remain spooked by soft demand and meager rent growth, according to real estate research firm Reis Inc.


Persistent lackluster U.S. job growth was behind the 0.1% point U.S. office vacancy rate decline. Demand for office space hinges on hiring workers to fill it. Although hiring in February reached 236,000, that level has not yet been consistent enough to convince employers to commit to leasing more space. In areas where the growing technology and energy industries are dominant employers, rents are increasing much faster than the national average.


The first-quarter vacancy rate stood at 17% compared with 17.1% in the fourth quarter, according to preliminary figures from Reis. The vacancy rate was down a scant 0.30%the prior first quarter. "It's really in line with our expected trends, given that hiring hasn't accelerated," said Victor Calanog, Reis' vice president of research. "It's so indicative of weak demand in the office sector that quarterly construction figures are at a historic low and yet vacancies are not really cratering."
Much of the vacancy decline can be attributed to a lack of new supply and not a strengthening of demand for space. (Reuters)  U.S. Employment
 

ELK GROVE VOTES TO ELIMINATE AFFORDABLE HOUSING FEES ON COMMERCIAL DEVELOPMENT
At a recent Council meeting, the Elk Grove City Council voted to eliminate affordable housing impact fees on commercial development. There has been great support for the elimination of affordable housing fees due to the belief that commercial development creates jobs not poverty. Below are some quotes from the Council:
  • "Elk Grove is laser focused on job creation and we practice what we preach with this fee reduction. Elk Grove will become the most jobs aggressive, business friendly city in California!" - Mayor Davis
  • "In a continuing effort to make Elk Grove the most competitive city to do business with in the Sacramento Region and to create more quality jobs in Elk Grove to close the gap on our job to housing imbalance, I am very excited that we slashed our affordable housing fees with a 100% reduction for the new office fee from to $1 to $0 per square foot and a 50% reduction for the new homes fee from $4600 to $2800 per unit" - Vice Mayor Detrick
  • "I am happy that the council voted to show a true commitment to economic development by lowering the affordable housing fee across almost every development category. It was especially meaningful that my colleagues accepted my suggestion to defer the fee for office uses entirely." - Councilman Hume
  • "Actions speak louder than words. Elk Grove is committed to creating a strong economy for our city to thrive. The Council voted to reduce fees because we want to make Elk Grove a destination city for economic development." - Councilman Cooper (Region Builders)
WHO'S AFRAID OF SOCIAL MEDIA? CRE GROWING INCREASINGLY COMFORTABLE, SOPHISTICATED USING ONLINE NETWORKS 

Social Media by Mark Heschmeyer


It hasn't taken commercial real estate practitioners long to shrug off their aversions to "social media" platforms. In fact, over the course of the past year, they've quickly moved beyond the basics of the "social" aspect of the term to the more leading-edge -- and more nuanced -- "media" aspect that includes real time information sharing across multiple platforms to multiple audiences.


And as more of us are quickly learning the ins and outs of new tech tools, the most adept have also shifted beyond merely information gathering and putting a corporate or personal presence "out there" to implement strategies to become more nimble in their online interactions and generate interest by producing fresh content on an ongoing basis.


"Our industry has definitely joined in strategically implementing social media into our marketing plans," said Ilene Jablonski, Vice President of Marketing of the multi-billion dollar, publicly held office REIT, Mack-Cali Realty Corp. "There are already more than 2,000 groups on LinkedIn, spearheaded by companies and individuals alike that are focused on discussing topics in the CRE realm.


"Over the past few years we've extended our influence not only to Linkedin and expanded our presence to include Twitter, Facebook, and Foursquare, alongside other platforms," Jablonski said. "It is important as a business to stay relevant and provide useful content to our audience on a consistent basis."


In what amounted to a huge stamp of credibility, the U.S. Securities & Exchange Commission recently gave its blessing to social media streams and other emerging means of communication as outlets for companies to announce information to their investors. In other words, if social media streams haven't supplanted traditional media as a communications medium, they certainly have stepped into their territories. (CoStar) Social Media

 

COMMERCIAL REAL ESTATE LENDING NOW ON THE RISE FOR 2013

A new enthusiasm and growing ability for lenders to lend on new commercial projects is increasing in 2013.


What development projects are favored in financing? Those with an excellent location, strong pre-leasing, and a unique value proposition for the lender. Commercial developers are expecting the trend to gain momentum throughout 2013 as expansion driven by tenant needs increases, says Terry Robinson, President of Off Market Association.


"Projects in prime locations are finding it much easier to secure capital in the past months. Now is the time to get started on those projects that investors have been putting off due to lack of lending," said Robinson.


As the Urban Land Institute Emerging Trends in Real Estate 2013 report points out: "Plenty of capital is available for people who can earn it." Earning it means presenting well-planned projects with incredible locations -- and significant pre-leasing.


There is pent up demand caused by lenders who have been very conservative over the past 4 years or who were unable to lend due to bad debt on the books or reserve requirements. Banks, credit unions, insurance companies and other providers of capital have remained on the sidelines for long enough. Capital is starting to flow into the starving real estate sectors begging for a cash infusion. This is turn will help provide stability, one other thing that markets have needed for some time.

(ULI) 

 

CONSTRUCTION INDUSTRY JOBS INCREASE IN 35 STATES

Posting its highest one-month gain in more than five years, the construction industry created 48,000 jobs nationwide in February. The industry expanded in 35 states during the same period, according to an Associated General Contractors of America and U.S. Bureau of Labor Statistics report.


Utah posted the largest increase of 5.3%, which translates into 3,700 construction jobs. Mississippi and Oklahoma followed, each with 4.7% increases, comprising 2,200 and 3,200 jobs respectively. However, the state of Texas had the largest total employment gain, adding 15,700 construction jobs between January and February.


A total of 12 states and Washington, D.C., saw construction jobs decreases last month, while three states saw no change. AGC officials warn declines may become more widespread as federal spending cuts begin to affect the industry."There are strong indications that the expansion will continue for residential and private nonresidential construction, but investment in infrastructure and public buildings is likely to shrink further," says Ken Simonson, AGC chief economist.(Associated General Contractors of America) Read the  complete report

 

MULTIHOUSING SALES SOMEWHAT SLOW
by Ben van da Meer

 

Through the first part of 2013, the multifamily housing market in the Sacramento region is still seeing the trends outlined in a 2012 review, but sales transactions are fairly slow, said a director with Cushman & Wakefield's multifamily advisory group.

 

"One thing to watch this quarter is sales transactions," said Jason Parr of Cushman & Wakefield. He said he just listed a 69-unit property in the region and promptly got 84 confidentiality agreements, suggesting there's a good market for complexes with between 50 and 100 units. "Typically, we wouldn't get that many agreements."

 

Some of that could be because what he called the fundamentals of multifamily housing - rising rents, tight supply of available units - are continuing to grow, a trend Cushman & Wakefield saw emerging last year.

 

It could also be that complexes of that size hit the sweet spot for Bay Area investors, who may be priced out of buying units there and turn their attention to the Sacramento market as an alternative, Parr said.

 

Cushman & Wakefield's 2012-in-review report noted there was little new multifamily construction expected to be built this year, and Parr said that's still the case. An expected boost in single-family homebuilding could have an effect on the best apartment properties because people may opt to buy rather than rent, he said. "But the supply really needs to increase first," he said. "The demand for multifamily housing is really strong." (Sacramento Business Journal)

  
GLOBAL COMMERCIAL REAL ESTATE GREW 8% IN Q1

GlobalCommercial real estate continues to rank high on the list of acquisitions for investors around the world as preliminary global real estate investment volumes in the first quarter of this year reached $94 billion, according to Jones Lang LaSalle capital markets research from 60 countries. The real estate investment volumes in the first quarter represented an 8% increase over the same quarter in 2012.


According to Jones Lang LaSalle, all regions show increases over a year ago. Growth in the Americas was driven by increases in the U.S. and Canada, at 20% and 6% growth, respectively. The Asia Pacific region's volumes were driven higher by a 30% increase in Japan year over year and stronger investment volumes in Singapore and Hong Kong. Germany was the driving factor in Europe, recording investment volumes almost 40% higher than a year ago.


"Volumes of almost $100 billion in the first quarter of the year -- in what is historically a quieter period -- demonstrates the desire investors continue to have for direct real estate investments," says Arthur de Haast, Head of the International Capital Group at Jones Lang LaSalle. "Encouraged by a slowly improving global economic environment and rising property values, especially in core cities, the number of assets for sale continues to increase." (Jones Lang LaSalle) 

  

MAKING MONEY ON UNCLE SAM'S SPACE

by Jennifer Duell Popovec


Generating a decent yield today is an elusive task. As competition has crowded the market and driven up prices, savvy investors have begun to look beyond the assets that they find most familiar.


For net lease investors in particular, this is a key question as cap rates have dropped on core assets. To generate additional yield, some players are straying from vanilla single-tenant office, retail and industrial deals and exploring government assets as a potentially lucrative investment opportunity. The reason: "Most government building trades at 6% cap rate and the highest-quality net lease deals trade at a 5% cap rate," notes Nathaniel A. Sager, Vice President with Chicago-based Mesirow Financial, which was involved in more than $100 million in Government Services Administration deals in 2012.


But the competition is beginning to heat up. As a result, cap rates on government assets have compressed as much as 100 to 150 basis points over the past 12 to 15 months, Sager estimates.
Single-tenant properties occupied by the GSA are attracting a wide variety of investors, from wealthy individuals to institutional investors like REITs and pension funds. The organization, which acts as the federal government's landlord, owns or leases 9,600 assets and maintains an inventory of more than 362 million sq. ft. of space, according to a report issued by the Republican leaders of the House Transportation and Infrastructure Committee.


"We created this company because we believed there was a niche in the public REIT space for a company with very high credit quality tenants that had a very high renewal probability, which translates into a very safe dividend and reasonable growth opportunities," says David M. Blackman, president and COO of Government Properties Income Trust, a REIT that owns roughly $1.7 billion of office properties with approximately 10 million sq. ft. located in 31 states and Washington, D.C. (NREIOnline)  Uncle Sam's Space
 

WILL CO-WORKING ERODE DEMAND FOR OFFICE SPACE? 

by Beth Mattson-Teig


Co-working --t he latest trend in workplace strategies -- could be the catalyst that shakes up the staid office market.


The tradition of "one worker, one desk" may soon be a thing of the past. Companies across industries are eliminating offices, private work stations and cubicles in favor of team-oriented and shared workspaces.


"I think there is going to be a dramatic shift in how we use space," says Chris Zlocki, Managing Director of Strategy and Innovation for corporate solutions at Colliers International in Denver.
Despite employees' ability to work from anywhere, companies, especially knowledge-based companies, are refocusing on the importance of collaboration to foster ideas and innovation.

 

Yahoo brought the issue front and center when it announced earlier this year that it would call its remote workers back to its company offices. Other tech companies, such as Google and Apple, have thrived on the mantra that "innovation doesn't happen in isolation," says Richard Kadzis, a vice president at CoreNet Global, an Atlanta-based association for corporate real estate professionals.
Businesses across industries are opting for office space that allows for greater interaction among workers. For example, management consulting firm Accenture completely revamped its offices in Minneapolis last year, replacing cubicles with a flexible floor plan that includes shared workspaces. It also increased its number of meeting rooms and added a café, all to increase collaboration between its employees. In the process, the firm downsized its Minneapolis office from about 70,000 sq. ft. to 41,000 sq. ft.


Such examples raises question as to whether this new trend has staying power, and if so, how it will impact office tenants' real estate decisions. Industry data shows that the physical footprint for office workers is shrinking. The amount of dedicated space per office worker has dropped from about 225 sq. ft. in 2010 to 176 sq. ft. in 2012, according to CoreNet Global. "We have seen a trend toward what companies call a smaller, but smarter workplace," says Kadzis. (NREIOnline) Co-Working Erode Office Space?

 

CRE GROUPS BACK PROPOSAL TO GRANT FIRPTA EXEMPTIONS TO FOREIGN PENSION INVESTORS 

FIRP

by Randyl Drummer

 
For many years, the Foreign Investment in Real Property Tax Act (FIRPTA) has been a major irritant for U.S commercial property owners and investors trying to source cross-border capital.


Critics say the law, first passed in 1980 by Congress to limit foreign control over U.S. farmland, unintentionally serves to discourage foreign investors from buying U.S. property by requiring them to pay a 10% U.S. tax on any gain realized when they dispose of the asset, along with significant bureaucratic hurdles facing both the foreign seller and the buyer, who is responsible for withholding taxes.


However -- in what could prove to be a significant boon for commercial real estate -- President Obama last week proposed a broad package of infrastructure projects that includes a measure exempting the gains of foreign pension funds from federal taxes under FIRPTA, placing these entities "on an approximately equal footing" with U.S.-based investors.


"Foreign investors, including large foreign pension funds, regularly cite FIRPTA as an impediment to their investment in U.S. infrastructure and real estate assets," Obama said. "With U.S. pension funds generally exempt from U.S. tax upon the disposition of U.S. real property investments, the Administration proposes to put foreign pension funds on an approximately equal footing."


CRE groups which have sought to amend or repeal the law during virtually every session of Congress in recent years applauded the proposal -- although they still want FIRPTA repealed or at least expand the exemptions to sovereign wealth funds and other investment entities. (CoStar) 
FACILITY CLOSURE & DOWNSIZINGS: COST CONTAINMENT STILL TOP PRIORITY FOR PRIVATE FIRMS 

by Mark Heschmeyer

 
Most private companies (84%) have taken substantial cost-containment measures over the past several years, with 89% of those companies seeing sustainable savings as a result, according to PwC US's Trendsetter Barometer survey. Nor do they plan to relax their vigilance over costs. 


Nearly three in four private companies (74%) rank cost containment among their top three business priorities (almost one-quarter rank it as the top priority). 


Indeed, 44% of private companies are planning to implement a new wave of cost-saving measures in the next two years, anticipating that these steps will result in an estimated 7.4% cost reduction. They intend to concentrate more on paring future operational spending than on decreasing capital spending, consistent with their focus on enabling growth rather than tabling it. 


"Optimal cost containment allows companies to maintain an efficient cost structure as they grow with the market," said Ken Esch, a partner with PwC's Private Company Services practice. "By focusing on long-term scalability instead of near-term cost reductions, companies can stay nimble, capitalizing on opportunities. With this in mind, private companies are moving from tactical cost trimming to a more transformative approach, one that increases their organizations' resilience and creates better value for customers, employees, and other key stakeholders." 


The following provides a breakdown of private companies' goals for the next wave of cost containment: 

  • Decrease operational spending 93%
  • Increase cash flow 85%
  • Improve productivity 82%
  • Make innovative use of technology so that the company can do more with less 78%
  • Reduce waste 78%
  • Free up resources to focus on growth activities (which might entail increased capital/operations spending) 66%
  • Decrease capital spending 51%  (CoStar) Facility Downsizings

  

COMMERCIAL CONNECTIONS
Commercial Connections
According to the 2012 NAR Commercial Member Profile the median age of a full time commercial real estate professional is 57, but don't tell these professionals.
  
In this issue of Commercial Connections ask some young agents who have made an impact in the commercial world how they have been able to learn from and keep up with their more experienced colleagues. Download
HOUSING MARKET RECOVERY WILL CONTINUE TO LIFT COMMERCIAL REAL ESTATE
TD Economics released a special report today indicating that recovery in the housing market augers for continued improvement in U.S. commercial real estate over the next two years.

Despite challenges -- including gradually rising interest rates and government spending cuts -- the outlook for commercial real estate is positive. The U.S. economy is expected to grow by 1.9% in 2013 and accelerate to 2.8% in 2014. This growth will spur the creation of 4.8 million jobs over the next two years. As job growth accelerates, so too will demand for commercial real estate, leading to continued improvement in vacancy rates.

"The key difference between the initial recovery in commercial real estate and future growth will be the contribution of interest rates," says James Marple, TD Senior Economist and the author of the study. "As interest rates rise, the spread between commercial real estate yields and government Treasuries will narrow. Prospects for price growth will then depend on improving economic fundamentals."

Fortunately, there is every reason to believe this transition will take place. While economic growth will be held back by fiscal austerity over the next year, this will also reduce the risk of a major spike in interest rates that could set back the recovery in commercial real estate. "Rising interest rates are manageable as long as they are caused by faster economic growth. This is exactly what we anticipate," says Marple. (Marketwatch)

  
BUSINESSES STAY CAUTIOUS ABOUT RENTING OFFICE SPACE 

SluggishBusinesses moved slowly to fill office space in the first quarter, reflecting continued caution about the economic recovery.


An additional 4 million square feet of office space was leased during the quarter, increasing the amount of occupied space by just 0.12%, according to real-estate research service Reis Inc. Asking rents increased 0.7% to $28.66 a square foot annually, while the national office vacancy rate fell to 17% from 17.1%.


The vacancy rate is still well above its 12.5% level at the office market's peak in 2007. Employers today occupy about 101 million square feet less than they occupied then, according to Reis, which tracks 79 markets. At the current rate of growth-which is about one-third the pace of the recovery that followed the dot-com bust last decade-it would take more than five years to return to that peak level.
 
Such a sluggish pace of recovery is largely attributed to slow employment growth at corporations, many of which are reluctant to sign leases expanding into more space. "There just isn't much demand for office space, because we aren't hiring people," said Victor Calanog, Reis's chief economist.


The cities with the strongest office markets in the first quarter continued to be those with robust technology and energy sectors. The San Francisco area had the fastest-growing office market in the country, with rents sought by landlords rising 6.8% over the past 12 months. The city was followed by New York, Houston, San Jose, Calif., and Dallas. (Wall Street Journal) Cautious Office Space Rentals

  
BIG PLAYERS CASH OUT OF HONG KONG PROPERTY
hong kong
by Isabella Steger

With the government growing confident that it has halted the meteoric rise in property prices, some of this city's biggest real-estate investors are getting out.

Several of Hong Kong's wealthiest families are planning initial public offerings of hotels, offices and other real-estate assets in coming months, while others are lowering prices on luxury apartments to entice buyers.

"Developers are selling assets at the very top of the market, when appetite is big, and interest rates are low," said Christopher Wong, senior investment manager at Aberdeen Asset Management in Singapore.

Fueled by low interest rates and a flood of money from wealthy Chinese, Hong Kong's real-estate market has boomed, with residential prices up 120% and commercial real-estate prices up 90% since the start of 2008, according to government data.

Among the sellers is New World Development Co. Ltd., a conglomerate run by the Cheng family with interests ranging from hotels to offices to jewelry stores. The family hopes to raise up to $1 billion in an offering of some of its hotel properties, people familiar with the matter said. The company owns the city's Grand Hyatt and other well-known hotels, but it's not clear which properties would be included in the offering. (Wall Street Journal)  Hong Kong Property
  
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