E-Newsletter - July 3, 2013

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    Sacramento Association of REALTORS®

 

  COMMERCIAL REPORT

                          

The problem is not the problem; the problem is your attitude about the problem.

              July 3, 2013

 

Happy 4th of July! 

In This Issue
Regional Events
Education
Legislation
Office Tenants Optimistic
Near-Term Store Opening Plans Increasing
Demand For Climbing Rates Seen Stalling Rise In Values
Capital Region Uses Cheap Electricity
Commercial Connections
Commercial Fundamentals Continue to Recover
Net Lease May Slow Down
Office Recovery Extends to Secondary Markets
China Most Atrractive For Apparel
MORE INFO...

 www.saccommercial.org

 

_______________

  
SAR Commercial Members
Call Tony to schedule your free Advice/Mentoring Session at 916-437-1205
  

NAR SUPPORTS THE CREED ACT

 

by Vijay Yadlapati & Charles Dawson

 

Last month, Senators Mary Landrieu (D-LA) and James Risch (R-ID), Chairwoman and Ranking Member of the Senate Committee on Small Business, respectively, held a markup hearing of S.289, the "Commercial Real Estate and Economic Development (CREED) Act of 2013."

 

This bill, introduced in February, would temporarily (for five years) allow commercial real estate projects to be eligible for the Small Business Administration's (SBA) 504/CDC refinance program. By expanding the types of projects eligible for the SBA 504/CDC refinance program, the CREED Act will alleviate some of the pressure from the nearly $1.3 trillion of commercial real estate loans with balloon mortgages that will mature between 2013 and 2016, by allowing small businesses to refinance certain owner-occupied commercial buildings. It will also provide more time for private capital to return to the market and help prevent commercial financing from becoming a drag on economic recovery.


NAR strongly supports timely passage of the CREED Act, and is encouraged by the diligent work being done by the Senate Committee on Small Business and Entrepreneurship.  


 

WATCH FOR FLEX ALERTS

 

A Flex Alert is an urgent call to Californians to immediately conserve electricity and to shift demand to off-peak hours (after 6 p.m.). When an alert is called, take these three simple steps to reduce electrical load on the grid:

 

1. Turn off all unnecessary lights, computers, and appliances.
2. Adjust your air conditioning thermostat to 78° or higher. Use a fan when possible.
3. Postpone using major appliances and equipment until after 6 p.m.

 

State officials predict that this summer will be especially critical due to high temperatures and the potential for extreme weather. In the event of a power shortage a Flex Alert will be announced through email, social media and the web through both the Flex Alert campaign and network partners. Keep your eyes open for Flex Alert notifications or sign up to receive alerts.

 

 

  

REGIONAL EVENTS

 

Investment Forum

Tuesday, July 9 -- 7:30 a.m. at R.J. Grins Restaurant at the Double Tree Hotel

E-mail for additional information

 

CCIM Luncheon -- Property Radar's California Market Update

Tuesday, July 9 -- 12:00 p.m. at the Sequoyah Country Club in Oakland

Information

 

CREW Luncheon -- Professional Sports Teams: How And Why

Thursday, July 11 -- 11:30 a.m. - 1:00 p.m. at the Firehouse Restaurant

Registration Information

 

Sacramento Real Estate Exchange

Friday, July 19 -- 10:30 a.m. at the China Buffet in Citrus Heights

Call Ben Couch at (916) 989-4652

 

Save the Date!

Sacramento Real Estate Connect -- 2014 Economic Review and Outlook

Thursday, October 17 -- 4:00 - 6:30 p.m. at the McClellan Conference Center

  
  
EDUCATION

 

Third Parties In Real Estate Transactions

Wednesday, September 4 from 10:00 a.m. - Noon

Instructor: Bill Hunter, Esquire

Cost: $15 SAR Members and REALTORS®/$20 All Others 

  

A core element of a commercial practitioner's success is his or her ability to manage third-party involvement.  It's not enough to introduce and advise the parties, i.e., the owner and the buyer or lessee.  Effectively closing any transaction involves third-parties including escrow and title companies, lenders, loan brokers, guarantors, insurers, appraisers and many others. This class will help you navigate the laws associated with third-party involvement and ensure a smooth transaction for all. Registration information coming soon!

 

Learn How To Navigate Through Commercial Transactions

Wednesday, September 25 -- 10:00 a.m. - 1:00 p.m.

Instructor: Linda Kirios, Esquire

Cost: $45 SAR Members and REALTORS®/$55 All Others

With real estate on the rise, there has never been a better time to incorporate commercial real estate into your business.

Whether you are a commercial broker or agent who wants to learn more about the AIR Commercial Purchase Agreement or a residential broker or agent looking to break into commercial transactions, this is the course for you. It will provide you with an overview of the AIR Commercial Purchase Agreement and other related legal forms required in commercial property transactions. Included in this class:

  • Learn what defines a commercial contract
  • Spot the red flags in a property description
  • Determine if your buying/selling entity is valid and has the authority to act
  • Understand whether your transfer will violate the California Subdivision Map Act
  • Familiarize yourself with ALTA/ACSM survey standards
  • Know the types of due diligence that a prudent buyer should perform
  • Learn about some C.A.R. commercial forms and more

Call Brian DeLisi at 916-437-1210 to register or use the registration flyer

 

LEGISLATION

 

MANDATORY BENCHMARKING REGS POSTPONED
The Nonresidential Building Energy Use Disclosure Program (AB 1103) was supposed to kick in next month, but because ENERGY STAR Portfolio Manager is down, enforcement is being delayed until September 1, 2013.


The law requires that any time 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 Federal Energy Commission.


The effective date of the regulations is now September 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).
 

OFFICE TENANTS OPTIMISTIC ABOUT FUTURE STAFFING, SPACE NEEDS

 

by Randyl Drummer


Despite the recession and changing workplace trends, the walls aren't closing in on office space requirements just yet, according to a recent survey from the Building Owners and Managers Association (BOMA) International.

BOMA found that, as a group, office tenants are optimistic about the future -- more than 75% of respondents in the 2013 BOMA Global Office Tenant Survey plan to increase staffing levels and space requirements, or at least retain their current employee headcounts and office footprints.
  
"Clearly, tenant space configurations are different -- they need to be friendly and collaborative, with such features such as a work bench, a fun room or multimedia room - but the need for more office space is not going away," noted John Combs, principal of RiverRock Real Estate Group, a West Coast-based CRE management and leasing firm providing property management for industrial, office and retail assets.

"Requirements can't shrink too much more," added Combs. "Those companies that are leasing are taking the same or more space. It's reconfigured and it's denser, but many people are hiring." Atlanta-based Kingsley Associates conducted the survey of nearly 1,300 office tenants between March and April, revisiting attitudes, priorities and needs of office tenants for the first time since a January 1999 report by BOMA and the Urban Land Institute ULI. More
  
  

Store opening  NEAR-TERM STORE OPENING PLANS KEEP INCREASING

 
by Elaine Misonzhnik

U.S. retailers continue to up the number of stores they plan to open over the upcoming two-year period, to 83,749, according to National Retailer Demand Monthly Report from RBC Capital Markets. The number represents a year-to-date increase in store opening plans of 2.1%

"National tenants, especially franchises, continue to scoop up vacancy among spaces of 5,000 sq. ft. and under, while large box users are struggling to find sufficient space to satisfy planned store openings," wrote report author and RBC Capital Markets analyst Rich Moore.

Toy stores, men's clothing stores, hobby stores and pawn shops remained at the top of the list for retailers that plan to grow the most as a percentage of their existing store portfolios. Toy stores, for instance, upped the number of their expected store openings over a 24-month period by 17% since December, to 332 from 132.

Among individual retailers whose store opening plans are making a significant impact on retail REIT's property portfolios are fast fashion apparel seller Zara, beauty supplies chain Ulta and women's clothing store Charming Charlie, along with Bed Bath & Beyond, Trader Joe's, Nordstrom Rack, Joe's Jeans, Shopko, Buy Buy Baby and The Container Store. (NREIOnline) Retail increasing

DEMAND FOR CLIMBING RATES SEEN STALLING RISE IN VALUES
              
by Eliot Brown & Al Yoon
 
 The sharp rise in interest rates in recent weeks has raised the specter in the commercial real estate industry that nearly four years of steady gains in property values could come to a halt.

Until recently, the low-rate environment had been fueling the rise in property values, even while rents and occupancies generally remained below peak levels amid sluggish growth. Lowering borrowing costs enabled buyers to pay more. Also, low rates increased demand for property from investors who felt yields were too low in the bond market.

Analysts warn that higher rates likely will put downward pressure on prices and demand even as the recovering economy keeps giving gradual rise to rents and occupancy rates.

"We think that rising rates will largely cancel out rent growth and stall out values," said Tad Philipp, director of commercial-real-estate research at Moody's Investors Service.

Seeing the changing environment, investors in publicly traded real-estate investment trusts have been big sellers recently. Since the stock market's May 21 high, the Dow Jones Equity All REIT Index has fallen 14%, compared with a 4.9% decline by the Standard & Poor's 500.

The higher rates also have clobbered the market for commercial mortgage-backed securities, or CMBS, a major source of debt in the commercial property industry. Rates being charged to borrowers have gone up more than a full percentage point, and the value of the bonds have sharply declined in market trading. (Wall Street Journal)

  

CAPITAL REGION USES CHEAP ELECTRICITY TO WOO BUSINESS 

 

by Dennis McCoy

Sacramento and Roseville enjoy a little-recognized yet significant advantage over much of Northern California when it comes to luring industrial employers: cheap electricity.

Sacramento Municipal Utility District and Roseville Electric - both public agencies - boast rates well under those of investor-owned Pacific Gas & Electric Co., which serves the vast majority of cities and counties in Northern California. Rates vary dramatically depending on many factors. But the overall average cost of power from SMUD, for example, is 12.1 cents per kilowatt-hour. PG&E's cost is 15.0 cents.

Add that to the capital region's proximity to the Bay Area, relatively low cost of real estate and low risk of earthquakes and you have potent tools for attracting companies - particularly power-hungry tech manufacturers or data centers.
"Cost is a major factor. People who use as much power as we do really need to consider how much we pay for it," said Doug Adams, head of marketing with RagingWire Data Centers Inc. in Sacramento. RagingWire is one of the single largest users of electricity in Sacramento, though the company declines to say exactly how much. (Sacramento Business Journal)
  
COMMERCIAL CONNECTIONS: THE RETURN OF COMMERCIAL REAL ESTATE
Commercial Connections
  
  
Download this issue of Commercial Connections, which covers a stronger U.S. economy, improving market fundamentals and an influx of capital are signaling investors to the purchase of commercial real estate. Included in this issue: Connecting on the National Smart Grid; The Return of Commercial Real Estate as a Valued Asset; Sales Off to Fast Start in Q1; and The Lowdown on Carried Interest.
  

 

  
COMMERCIAL FUNDAMENTALS CONTINUE TO RECOVER -- SO WHERE ARE ALL THE DEALS?              
 
by Randyl Drummer

A recent analysis of data from the CoStar Commercial Repeat Sale Index (CCRSI) finds that commercial real estate investment transaction activity has progressed much like the overall economy, showing steady but painfully slow improvement.
 
While prices have recovered from the trough of the Great Recession in all major markets except Jacksonville and Northern New Jersey since mid-2010, the current environment is definitely of the half-full/half-empty variety, with half of the top U.S. markets showing improved liquidity over the past two years, and half not yet showing, according to the analysis of value-weighted CCRSI data by Senior Financial Analyst Xiaojing Li with Property and Portfolio Research (PPR), CoStar's economic forecasting company.
 
Among the most noteworthy of the findings may be the percentage of properties sold within the first six months of hitting the market. That benchmark has remained flat during the uneven and spotty recovery, even as market fundamentals have improved and bank lending has strengthened considerably. As a result, overall pricing for commercial real estate has appreciated since mid-2010. 

The data suggests that uneven liquidity remains an important force to be reckoned with among the myriad of adverse factors weighing on CRE value recovery, especially for non-institutional-grade properties or assets in non-prime markets. (CoStar) CRE Fundamentals


  
AS INTEREST RATES RISE, NET LEASE MAY SLOW DOWN

 

by Mike Janssen 


The tight and highly competitive net lease market may see a slowing of activity due to a recent rise in interest rates, a trend that some expect to continue for some time to come.
 

The rate for the 10-year Treasury note has been rising since mid-May, swaying the dynamics of net lease transactions. In the past few decades, hikes in rates have been relatively rare and brief. The most recent increase "clearly impacts single-tenant net lease transactions," says Bill Hughes, senior vice president and managing director at Marcus and Millichap Capital Corp. in Irvine, Calif. The impact is more pronounced on the pricing of investment-grade properties that have lower cap rates, Hughes says, though other properties may also see prices move.
"You may see a slowdown in investment grade for a few weeks until both sellers and buyers accept the new world," Hughes says of the upswing in rates. "I think they will come back together."


Effects of the rate hike may spread throughout the network of net lease stakeholders. Developers may see profits fall, and "you've got to wonder whether the economic dynamics for those companies will remain the same and whether they'll continue to be as aggressive in developing properties and expanding their product line," says Hughes.


Eventually, buyers and sellers will come to absorb the impact, and landowners and the construction industry will feel ripples as well. "It's going to have some multiplying effect on the market," Hughes says. (NREIOnline) Interest Rates Slow Down

 

 

OFFICE RECOVERY EXTENDS TO SECONDARY MARKETS

 

Though the early office recovery was mostly restricted to strong energy and technology markets such as San Francisco, Boston, and Houston, improvements in fundamentals are emerging in more secondary markets, according to Marcus & Millichap's 2Q13 National Office Outlook.

 

Office vacancy rates tightened in most markets from 1Q12 through 1Q13, driving the national vacancy rate down to 16.5%. In addition, net absorption increased 41 percent year over year in 1Q13. Secondary and tertiary markets also offer good investment opportunities, according to the report.

 

Office sales volume last year rose 30% over 2011, with the largest percentage increase in the $10 million to $20 million segment. This trend is likely to continue throughout this year. In addition, office capitalization rates in primary markets have fallen 130 bps since the downturn but are still 90 bps above 2007 cap rates.

 

Secondary and tertiary markets' cap rates are 150 and 229 bps, respectively, higher than the market peak. Commercial mortgage-backed securities financing is helping to fuel acquisitions outside of primary markets, with 2013 issuance totaling $34.7 billion through May. (CCIM)


  

SURVEY NAMES CHINA THE MOST ATTRACTIVE NEW FRONTIER FOR APPAREL SELLERS BUT BRAZIL TAKES FIRST PLACE FOR RETAIL OVERALL
              
by Elaine Misonzhnik 

Are you a specialty apparel retailer looking to expand overseas? China might be your best bet, according to the 2013 A.T. Kearney Global Retail Development Index.

The global consulting firm placed China in the number one spot for apparel sellers due to its huge population and strong growth in apparel sales. United Arab Emirates took second place in overall market attractiveness, followed by Chile, Kuwait and Brazil.

The annually published index analyzes three key components: apparel market attractiveness, which encompasses clothing sales and sales growth, population size and the presence of international retailers within the country, retail development growth and country risk. The latter looks at political and financial risks, as well as the level of crime and corruption in each country.

The rankings differ slightly from A.T. Kearney's 2013 Global Retail Development Index, which measures the attractiveness of emerging markets for all retailers. In that survey, Brazil and Chile took the number one and two spots respectively for the second year in a row due to the growing middle classes in both countries, under-control inflation, sustained economic growth and a stable political situation.
  
China and United Arab Emirates took the number four and five spots in that Index, with China falling one place from 2012's rankings and UAE rising two spots.
India has also fallen in the Global Retail Development Index, to 14th place from last year's fifth, not even making it into the top 10. The country has felt the effect of the global economic slowdown, according to A.T. Kearney researchers, with retail sales growth slowing across all segments. In addition, the cost of finding affordable retail spaces in India continues to be a challenge for international chains. (NREIOnline)
  
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