Art and Condos Side by Side
Last fall Denver opened its 146,000-sf Hamilton Building
addition to the Denver Art Museum, designed by Daniel Libeskind, a
world-renowned architect, probably most famous for his as-yet unbuilt World Trade
Center Tower in New York. Denver is one of a number of secondary markets upping
its cultural ante and spurring downtown development with big-name designed
institutions. But the Mile-High City also boasts a Libeskind-designed
condominium tower adjacent to the museum - which has had no trouble selling
units for more than $500 psf - about $140 psf more than comparable luxury units
in the city, according to the Wall Street Journal.
Tighter Hotel Supply Predicted
Lodging Econometrics reduced its forecast of completed
2006 and 2007 hotel projects by 4,796 and 3,470 rooms, respectively, calling the reduced supply a "silver lining," setting the stage for another
year of "record-breaking revenue and profit." However, investors
should keep an eye on Las Vegas, Miami, New York, Orlando, Fla., Philadelphia,
Tampa, Fla., and Washington, D.C.: "All rely on leisure travel and are
dependent on the discretionary spending of consumers."
Viva Las Vegas!
Las Vegas will gain an estimated 42,000 hotel and
hotel-condo rooms in the next five years, the largest increase the city has
seen in any five-year period, according to Bentley Group Real Estate Advisors.
- After rising 37 percent in 2005, the
median hotel price per room rose 5 percent as of 3Q06 to $76,000; 25 percent of
all hotel sales in the last year were for properties $20 million or more, according to Marcus & Millichap.
- Tampa, Fla., Houston, Portland, Ore.,
Orange County, Calif., and Long Island, N.Y., posted the nation's lowest 3Q06
availability rates, ranging from 3.4 percent to 5.8 percent, according to CB
- North Carolina, Texas, Ohio, Georgia, and
Tennessee topped Site Selection's 2006 State Business Climate Rankings based
partly on a survey of corporate site selectors.
- Dementia care units had the largest
occupancy gain of all senior-housing facilities last year and showed strong
revenue growth in Kansas City, Sacramento, Calif., and Portland, Ore. Overall
cap rates average 9.5 percent, according to Marcus & Millichap.
- Good news for Wal-Mart: Consumers in most
developing countries prefer food shopping at one-stop supercenters instead of
conventional supermarkets, according to Retail Forward's Global Food Drug Mass
Retailing Shopper Update.
"The efficiency of information, the specialization of
capital, the domination by institutions instead of entrepreneurs, all these
things have produced lower risks [in commercial real estate]. If you have lower
risks, you should not expect to get the same returns you got a decade ago. We
will never go back to a 9 percent [cap rate] world."
— Dan Dubrowski, principal of The Lionstone Group,
Downtown office tenants in St. Louis pay 19 percent less rent than their suburban counterparts.
Downtown Office Bargains
In most major cities, class A office tenants pay a
premium for CBD locations, as much as 135 percent in Manhattan to 15 percent in
Los Angeles. But in a number of secondary markets, downtown class A space is a
bargain compared with nearby suburbs. In the following markets here's how much
CBD office asking rents trail suburban locations:
Are Local CEOs Long Gone?
It used to be a well-placed phone call between a
prominent local banker and a local company CEO could get the ball rolling on
just about any civic project. But no more, says a Brookings Institution report,
"Corporate Citizenship and Urban Problem Solving." Today's pool of
local civic leaders tends to be less influential than in the past, says the
report on 19 metropolitan-area business-civic organizations. Corporate mergers
have depleted the ranks of local CEOs, replacing them with more transient
executives who have fewer local roots and less time for civic responsibilities.
And the local banker is a victim of the banking industry's massive
reorganization. Today's regional bank manager has less clout and time and probably
isn't staying in town too long since thriving financial-services careers depend
on promotions to bigger markets. The report found that university, foundation,
and other nonprofit leaders have expanded their local civic roles and that paid
professional managers handle many civic projects. And it wouldn't be surprising
if local commercial real estate executives, who often have strong local ties,
step in to fulfill civic duties.
Retail Real Estate Value
A look at real estate as a percentage of total value.
Rehabbing Mall Parking Lots
"They paved paradise and put up a parking lot,"
Joni Mitchell lamented in 1970, but today, those acres of asphalt surrounding
shopping malls are being torn up and replaced by offices, condos, and hotels,
as regional shopping malls morph into mixed-use developments. Surface parking,
access roads, and landscaping account for about 75 percent of regional malls'
total acreage, according to Shopping Centers Today. Yet most mall parking lots
only fill up 18 days of the year, so leading REIT mall owners are looking at
ways to use the land more profitably. Best-suited for reconfiguration are
well-known urban malls and poor performing malls in markets without a town
center, experts say. The payoff in additional leasing revenues must offset
higher structured-parking costs, but malls such as Arizona Center and Biltmore
Fashion Park in Phoenix and Fashion Square and NorthPark Center in Dallas
already are leading the way.
Lenders' Expectations Decline
Lenders give U.S. economic performance a C through
mid-2007, a drop from more positive ratings last year, according to the Phoenix
Management Services 3Q06 Lending Climate in America survey. Nearly 60 percent
of lenders surveyed expect their loan portfolios to soften and more lenders
said they would tighten loan structures in the coming months, with the biggest
increase in tightening occurring in loans under $10 million.
Property Investment Outlook
Apartment communities such as Westlake Villas in San Antonio, Texas, are good investment choices for 2007.
Hot Industry Trends, 2007-08
• Loan workouts
• Sustainable design
• Infill development
• Increased demand for one-stop service
• Healthcare industry growth
• Rising interest rates
Source: CREW Network Survey