The Colorado-based Smashburger chain is expanding to 135 stores in Arizona, New Mexico, New Jersey, Oklahoma, South Dakota, and Texas. The company is looking for locations on restaurant rows with 50,000-car traffic counts and average household incomes of $60,000.
HOSPITALITY — While hotels always have been an active mixed-use component, look for fewer pairings of luxury hospitality product and for-sale residential units and more combinations of limited-service hotels with office space and rental apartments, says Ernst & Young.
INDUSTRIAL — Industrial demand will remain weak well into 2010, according to Torto Wheaton Research. By year-end 2010, more than half of the largest industrial markets will see vacancy surpassing the 2003 peak of 11.7 percent.
MULTIFAMILY — In the five most overbuilt markets — Atlanta, Los Angeles, Las Vegas, Miami, and Phoenix — 4Q08 occupancy drops ranged between 2.6 percent and 4.8 percent and rents dropped between 0.6 percent and 4.9 percent, according to M/PF Yieldstar.
OFFICE — In the next 12 months, nine to 10 million sf will join the current 9 million sf of CBD office shadow space left empty by financial, legal, and insurance office-using sectors, says Cushman & Wakefield. Hardest hit markets include New York, San Francisco, Orange County, Calif., and Dallas.
RETAIL — Net lease retail properties sold in 4Q08 posted an average cap rate of 7.5 percent, according to Boulder Net Lease Funds. Of the 11,388 net lease retail properties currently on the market, nearly 30 percent are listed at a cap rate under
(YTD % change) Rooms under
Midscale w/ food & beverage
food & beverage
(4Q08) 2008 new
product (SF) 2009 estimate
Source: Marcus & Millichap
London Tops Global Opportunities
Among the first to fall in 2007, London could be the earliest recovering commercial real estate market worldwide, according to Jones Lang LaSalle. Investors from the Middle East, Europe, and Japan are searching the city for assets in the 4 percent to 6 percent capitalization rate range, and they may just find them. The city offers a number of niche opportunities with low leverage and strong cash flows. Recent transactions have shown 8 percent to 9 percent yields while internal rates of return are in
the mid- to upper teens, helped in part by the weak British currency.
Multifamily owners and landlords shouldn’t give up on renovations in this economy but should focus on strategies that result in at least “20 percent (a five-year payback) on incremental dollars invested,” according to MultiHousing News. Stratified renovations that create two price points within a property is one strategy, as is focusing on amenity upgrades such as lobbies, fitness rooms, and business centers. In a recession, renters are more likely to use and value such services. After improving fundamental systems, “the greatest return on investment dollars comes in improving the common areas,” says Rob Rosania, CEO of Stellar Management, which owns and manages more than 20,000 units nationwide.
“The more diverse your clientele, the less likely you will be without sufficient income. Remember to market for growth. Don’t simply cater to your existing customer base, but rather, open your business aperture to include non-traditional potential clients. Those customers represent growth and prosperity.
Do not put all your eggs in one basket.”
— Suzanne Caplan, founder of www.womenetcetera.com
CBD Office Rent Forecast
Rental rates ($/psf)
Source: Cushman & Wakefield
What’s It Listed At?
A look at...
retail net lease properties
130 S. College Ave.
Fort Collins, Colo.
15,000 sf, free-standing building on 7,000-sf lot in CBD
100% occupied $2,999,000
1 year on lease
Cortez Pointe II
9,438-sf strip center on 1.15-acre lot in retail district
86% occupied $2,471,000
5 years on lease
Florida Commercial Property
Bowling Green, Ky.
8,140-sf net leased to national chain in city of 53,000
17 years on lease
Sperry Van Ness
Yachats River House
5,140-sf building on 17,120-sf lot leased to upscale restaurant
in coastal town $825,000
3 years on lease
Compass Commercial Real Estate Services
Is LEED Worth It?
A December 2008 survey of green building professionals showed a decline in the perceived value of pursuing Leadership in Energy and Environmental Design property certification. While almost all 900 professionals surveyed thought building green was worthwhile, only two-thirds thought certification was necessary. Reasons could vary from the economic crisis to competing certification programs and increased regulation at the local level. However, green building is still growing: The value of green construction has grown from $10 billion in 2005 to $50 billion in 2008 and is forecast to reach $150 billion by 2013, according to McGraw Hill Construction.
Source: 3rd annual Allen Matkins/CTG/Green Building Insider “Green Building Survey”
Slightly more than 40 percent of corporate real estate executives surveyed in fall 2008 plan to open these types of new facilities in the next two years:
Source: Area Development.com’s 23rd annual corporate survey
“The largest industrial markets of Virginia, West Virginia, and Ohio located along the Heartland Corridor, which extends from Norfolk, [Va.,] to Columbus, can expect a healthy increase in demand for warehouse space from new businesses seeking access to the ports.”
— New Age of Trade: The Americas white paper by NAIOP Research Foundation and Cushman & Wakefield
A three-year project raises vertical clearances on 28 Heartland Corridor rail tunnels between the Port of Hampton Roads, Va., and Chicago to provide a faster route for double-stack containerized freight trains. Three new and expanded intermodal terminals along the route will increase international trade opportunities and stimulate adjacent industrial development.
Reality Check: Market in Action Now
An Ernst & Young survey of 2,300 global real estate executives in fall 2008 revealed that nearly 73 percent planned to be in the market as buyers in the first half of 2009. Nearly 45 percent said they were buying as of last fall, another 28 percent planned to go active after January 1, and the final 27 percent planned to enter the market after June. And 65 percent expected commercial lending to improve this year.
Warehouse Rent Growth Forecast
average annual rent growth (%)
rent growth (%)
Source: TWR Spring 2009 Industrial Outlook XL
On a per capita basis, these states will benefit most from the
$787 billion American Recovery and Reinvestment Act.
Total jobs created/
per capita 4Q08
12,000/1 job per every 49 people
8,000/1 per 67
34,000/1 per 76
23,000/1 per 78
8,000/1 per 78
index (2001 average
quarter = 100) Percent
4Q07 to 4Q08 Average
Life insurance companies
Fannie Mae/Freddie Mac
Source: Mortgage Bankers Association
2009 GPD growth
Source: Cushman & Wakefield
People Staying Put
The appeal of the Sunshine State has clouded over somewhat, causing Florida to lose more residents than it gained for probably the first time in its history, according to the Brookings Institution. The U.S. Census Bureau reports that from 2007 to 2008, 48 of Florida’s 67 counties showed reduced in-migration or greater out-migration, due in most part to the falling housing market. Overall, U.S. migration levels dropped sharply through July 2008, with only 11 million people crossing county lines, compared with nearly 16 million earlier in the decade. While hot housing markets in the Sun Belt are suffering from this decline, older metros are gaining. New York, Los Angeles, Cleveland, and Pittsburgh lost fewer people, and Chicago and Boston actually gained residents.
Commercial Real Estate Debt Market Snapshot
Mortgages to mature 2009–2011
Source: Foresight Analytics
Student Housing May Deteriorate
Capitalization rates on student-housing properties have increased 100 to 150 basis points from 2Q08 to 1Q09, nearly half the rise in conventional multifamily cap rates, leading some experts to think that student housing may not be as recession-proof as once thought, according to a report by Hendricks & Partners. Since students sign yearly leases in September, this year’s occupancy has remained unchanged; however, lack of financing for education as well as tighter family finances may translate into lower student-housing occupancy at major universities this fall. And falling college attendance due to fewer students being able to afford tuition could send student-housing property owners into a tailspin, leading to a price-deteriorating selling spree in late 2009.
The Scion Group is completing a $17 million expansion of the 2040 Lofts student housing near the Marquette University campus in Milwaukee. This upscale student housing includes well-appointed common areas as well as loft-style apartments with granite countertops and flat-screen high-definition TVs. Apartments vary from one-bedroom units to four-bedroom suites and rent furnished from $520 to $1,150 per person per month.
Top 5 Migration Losses
In metros over 500,000
Change in migration
2006–07 to 2007–08
Riverside-San Bernardino-Ontario, Calif.
Atlanta-Sandy Springs-Marietta, Ga.
Las Vegas-Paradise, Nev.
New Orleans-Metairie-Kenner, La.
Source: U.S. Census Bureau