Market Data

Market Trends(4)

1Q08 Loan Originations

2001 quarterly average = 100

Property Type

Origination Volume Index

1Q08–4Q07 % Change

1Q08–1Q07 % Change

Hospitality 308 -90 -60
Industrial 161 -18 -37
Multifamily 132 -40 -27
Office 79 -21 -75
Retail 181 -31 -53
All 132 -52 -53

Source: Mortgage Bankers Association

Energy Star Beats LEED In Green Payoff

Green-certified office buildings produce an 8.5 percent increase in effective rent, which amounts to about $309,000 annually for an average building, according to a study by John Quigley, a professor at the University of California Berkeley’s Haas School of Business. In addition, he found that green buildings are valued at approximately $5.1 million more than traditional buildings. However, Quigley’s study of 694 office buildings in six major U.S. markets indicated that only properties with the Energy Star designation produce higher rents: “Not a single Leadership in Energy and Environmental Design-certified building included in this study produced higher effective rent as a result of its green integrity.”

Briefly Noted

  • Hospitality — Only 43 U.S. hotel transactions closed in 1Q08, compared with 193 in 1Q07, with the average price per room falling from $181,000 to $115,000 during the same time period, according to HVS Hospitality Services.
  • Industrial — With 70 percent of the square footage coming on line year still to be leased, thethis national vacancy rate is expected to take a 70-basis point jump from 9.5 percent to 10.2 percent, according to Marcus & Millichap.
  • Multifamily — More than 4 million Americans will turn 18 every year for the next 12 years, driving demand for student housing and entry-level apartments, according to Global Demographics 2008: Shaping Real Estate’s Future.
  • Office — Overall U.S. office demand fell into negative territory in 1Q08 for the first time since 2004, with suburban markets showing -9.8 million sf and CBD markets -2.9 million sf absorption, according to Cushman & Wakefield.
  • Retail — U.S. shoppers have 450 additional centers to browse this year, bringing the total U.S. shopping center count to 99,000 according to CoStar and the International Council of Shopping Centers. Average vacancy rate for retail is 6.6 percent.

It’s Time to Bank on It

Along with about 2 million unsold homes sitting on the market, the U.S. has an enormous supply of finished and unfinished vacant lots currently in the hands of home builders, banks, and private investment entities, RREEF Research says. As these motivated sellers step up the disposition process, opportunities exist in the next year for residential land investors who know where to buy. RREEF predicts best buys will be found in seven metro areas that are two to three years out from absorbing current housing supply and have healthy predictions for job growth. One caution: Stick close to employment centers as gas prices may quell edge-city demand.

Smart Reads

Art students unite — author Dan Roam proclaims “the MFA is the new MBA,” in The Back of the Napkin, which touts the value of drawing business concepts. Sketching on the back of a napkin is much more powerful than PowerPoint presentations, which, “by virtue of looking finished, they actually turn off people’s desire to constructively comment on them,” Roam says. Instead, take out your Sharpie. When pictures are drawn by hand, “everybody in the room is willing to participate in the process, because the images don’t look finished.”

Women start new businesses at twice the rate of men according to Real You Incorporated: 8 Essentials for Women Entrepreneurs. Male and female readers who can overlook the aphorisms and life lessons will find solid advice for creating and maintaining a brand. Your brand is your passion and your business, says author Kaira Sturdivant Rouda, who started Real Living, a franchised residential real estate company.

A Night at the Rock?

The National Park Service is considering turning Alcatraz’s Building 64 — which used to house guards, not prisoners — into a hotel as part of a preliminary proposal for the Golden Gate National Recreation Area’s future use. The former high-security prison, which boasts spectacular San Francisco Bay views, attracts more than 1.4 million visitors a year.

Photo credit: Jon Sullivan

Single-Tenant Retail Snapshot, 1Q07–1Q08

Asset Price PSF Sales Velocity Cap Rate
Fast-food restaurants $439; down 3.7% -9% 7.0%
Drugstores $342; up 13.2% -17% 6.7%
Convenience stores/gas stations $539; up 12% 1% 7.5%
Grocery stores $128; down 12% -20% 7.3%

Source: Marcus & Millichap

Hotel Investment Outlook

 Top 5 Markets % Change in Value, 2007–2012 Bottom 5 Markets  % Change in Value, 2007–2012
New Orleans  129 Las Vegas -6 
San Francisco  88  Greensboro, NC 4
Tucson, AZ  87 Dayton, OH  
Detroit  84 San Antonio  11
Oakland, CA 83 Syracuse, NY  13

Source: HVS

Hotels Offer Investment Opportunity

If you have financing, now is a great time to buy hotels, according to Stephen Rushmore, MAI, president of HVS, a hospitality consulting firm. But if you already own and don’t have to sell, wait two or three years, he added in a presentation at the New York University hospitality industry investment conference. While the value per room has declined 4 percent this year, Rushmore predicts a value rebound of 8 percent in 2009, which will more than double to 17 percent in 2010. In the next four years, Rushmore predicts a 44 percent increase in U.S. hotel values, equaling about $42,000 per room.

Independent Living Occupancy Declines

Supply of seniors-housing independent-living units has exceeded demand and is driving occupancy rates down, according to the National Investment Center for the Seniors Housing & Care Industry. Average occupancy rates have fallen from 93.8 percent in 1Q07 to 92.1 percent in 1Q08. During the past year, more than 4,000 units have been absorbed, with 19 of 31 markets still experiencing positive absorption.

Greatest Occupancy Declines in Independent Living

Market  1Q08 Occupancy (%) 1Q07 Occupancy (%) Change (BPS)
Riverside, CA  89.7 93.6 -390
Denver 91.2 95.0 -380
Chicago 89.0 92.4 -340 
San Francisco 91.4 94.6 -320 
Philadelphia 93.0 96.1 -310 
Miami 90.1 93.2 -310 

Source: NIC

Parting Words

Dale Anne Reiss, Ernst & Young’s global director of real estate, is retiring after a long career as one of the best-known voices in commercial real estate. In an exit interview with the Wall Street Journal, Reiss left the industry with these final thoughts on today’s market: “There are going to be issues with repayment on commercial construction loans and land loans. … I don’t think we’ve had all the pain. … My quote this time is ‘Begin again in 2010.’”

Holding Strong

These markets have the lowest percentage change in transaction activity.

Market Total Transaction Volume
(in billions)
% Change from 1Q07 to 1Q08
  1Q08 1Q07  
Houston $1.7 $1.8 -6%
Raleigh/Durham, NC $0.8 $1.1 -24%
Dallas $1.2 $2.1 -39%
Phoenix $1.4 $2.7 -47%
Chicago $3.5 $7.4 -52%

Source: Jones Lang LaSalle, Real Capital Analytics total transaction volume (in billions)

Location Key to Renter Satisfaction

Just like investors, renters also consider property location and appearance when deciding where to live, according to Kingsley Associates multifamily research. Unit features, floor plans, and community amenities also rate high among new renters. Thinking of renovating a property? Current apartment residents said they would pay 10 percent more in rent for updated kitchen appliances, a quality fitness center, or new carpet. Low on the list of renters’ must-haves were apartment communities’ green policies, and dead last in amenities was Internet access.

BSA Looking for a Home

Do you have 5,000 scenic acres with lake access for sale, lease, or donation? The Boy Scouts of America might want to talk to you. The scouting organization is searching for a permanent national jamboree home. Location isn’t a big factor but logistics are: The site must be 25 miles from a major highway and within 150 miles of a regional airport. Held every four years, jamborees attract about 200,000 visitors per event. BSA plans to spend about $100 million to prepare the site for its next jamboree in 2013, as well as use the site year-round for adventure and leadership training events. For more site selection details contact www.mccallumsweeney.com.

Mexico Moves Up the Economic Ladder

From 2001 to 2004, Mexico’s maquiladora plants shrank by 28 percent, threatened by China’s low-cost manufacturing prowess. In response maquiladoras gradually shifted from producing low-cost value-add goods to high-cost value-add goods for export to primarily the U.S., according to a ProLogis report. The result has been a full recovery among maquiladoras, with Mexico increasing its high-value technical exports in aeronautics, electronics, pharmaceuticals, and automobiles.

  • Mexico is the 10th largest producer of cars and is expected to rank fifth by 2011;
  • Mexico is the world’s No. 1 producer of computer and television screens;
  • Aviation and aeronautical exports from Mexico totaled $1.2 billion in 2006; and
  • Mexico is the world’s 10th largest pharmaceutical industry.

21st-Century MBAs Trade Money for Ethics

Just in time to restore one’s faith in human nature: In a survey of 759 graduating MBAs from 11 top business schools, new grads indicated a willingness to reduce their salaries by almost $15,000 in order to work for a socially responsible company. Stanford Graduate School of Business professor David B. Montgomery and University of California Santa Barbara professor Catherine A. Ramus found that newly minted MBAs expected to earn an average of $103,650 a year at their first jobs. Nearly all of them — 97.3 percent — said they would sacrifice an average of $14,902 a year to work for a company that exhibited social responsibility in the form of ethical business conduct, environmental sustainability, and caring for employees and community members.

U.S. Parking Bargains

5 lowest daily parking rates

City Daily Rate Monthly Rate
Greenville, S.C. $6.00 $67.35
Memphis, Tenn. $6.00 $57.00
West Palm Beach, Fla. $6.00 $80.00
Bakersfield, Calif. $6.50 $40.00
Santa Rosa, Calif. $7.50 $55.00

Source: Colliers International

Older Cities on the Rebound

New U.S. Census figures reveal a modest population uptick last year for many older cities, especially those located in the Midwest, according to a Brookings Institution report. While Sun Belt and Southern cities still attract the most residents, among big cities, Chicago, San Diego, and Los Angeles showed gains instead of losses in the past year, while Houston, Phoenix, San Antonio, and Dallas all registered reduced growth levels. Among smaller cities, Boston was the Northeast’s fastest-growing city last year, reversing its population loss trend. In addition, 30 of 44 Midwestern cities either gained more or lost fewer people from 2006 to 2007, with Wichita, Kan., doubling its growth rate, and Minneapolis and Fort Wayne, Ind., registering substantial growth.

Minneapolis is one of 30 Midwestern cities that reversed population declines last year. Photo credit: Minneapolis CVB

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