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                                                                                                                                               July 20, 2012   


In the hopes of reaching the moon men fail to see the flowers that blossom at their feet. -- Albert Schweitzer

In This Issue
Good & Bad Signs For Sac Real Estate
Regional Events
Commercial REALTOR Survey
Sac Economy Grew Slower Than Most of Nation
Out-of-Town Investors Buy Up Shopping Centers
U.S. Office Rent Growth Lags
Three Long-Term Looks At CRE
U.S. Real Estate Ranked Most Transparent
Home Builders Show Sign of Confidence
Pricing Recovery Broadens Across CRE
Investors Find Comfort in Hotel Market
Kress Building On K Street


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by Mark Heschmeyer

Despite $136 billion invested in U.S. property and plants last year by the 25 biggest corporate spenders, the current economic stagnation may be more of an investment drought than a consumption drought, according to new research from Progressive Policy Institute (PPI).

U.S. business investment largely tanked during the Great Recession and has yet to recover. Last year, non-residential investment remained more than 7% below 2007 levels, adjusting for prices. By comparison, personal consumption in real terms was higher in 2011 compared to 2007.

"The decline and lackluster recovery in business investment has a wide range of causes, including globalization, regulatory barriers and weak demand," claimed the report's authors, Diana G. Carew and Michael Mandel. "Many companies are investing overseas rather than in the United States. Multiple layers of regulation, even if well-intentioned, have the impact of discouraging capital investment and innovation. And the continued weakness in demand at home makes it difficult to justify building new factories."

"But no matter what the reason, this weakness is having an adverse effect on economic growth and is one of the main reasons behind the job drought," the two reported.

That said, the PPI authors' point of the research was to highlight those companies that are still investing domestically in buildings, equipment and software.

Using publicly available financial reports, PPI constructed a list of the top 25 nonfinancial U.S.-based companies ranked by their U.S. capital spending in 2011. PPI called these companies "Investment Heroes."

Half of the leading companies are telecom and energy, but the list also includes tech, retail, automotive and entertainment companies. (CoStar) Corporate Investment


by Sanford Nax


Sacramento commercial realty agents presented a mid-year report this past Wednesday, and it was mixed to say the least.
Some hopeful signs exist -- homebuilders are again looking for land, and some industrial developers are sniffing around for opportunity -- but the office market remains in the doldrums with high vacancies, low rents and little construction planned.
Randall Grimsman of CBRE said homebuilders are enjoying a surge in business as would-be buyers, enticed by low interest rates but turned off by investors snapping up used homes, are turning to new houses. He projects new home sales to reach 2,500 this year, a 35 percent boost from 2011 -- but off substantially from the peak.
Good sign: The sale of 200 lots in Lincoln to a local homebuilder who hasn't made any land purchases since 2005.
Bad sign: In a reversal of fortunes, some developers are selling land to farmers who are expanding their holdings. Richland American Homes, for example, sold acreage in the Natomas area to rice growers, Grimsman said.
Overall, subdivision land and parcels with improvements or maps attached are getting attention from would-be buyers. "The rest of 2012 will be fantastic," he said.
The forecast for offices wasn't as hopeful. The vacancy rate is at a record high, and landlords keep reducing rents or offer concessions to keep their spaces occupied. In some places, rents are below what they were a decade ago. "It is going to be a slow recovery," said Murray Wachtel of Cornish & Carey Commercial Newmark Knight Frank. "I can't tell you when. Maybe it will turn in 2013. Maybe it won't." (Sacramento Business Journal) Sacramento Real Estate



Bill Hunter Seminar -- Tenant Representation

Wednesday, September 12 -- 8:30 - 10:00 a.m.

Instructor: Bill Hunter

Additional Information Coming Soon


CCIM's Introduction to Commercial Investment Real Estate Analysis

September 12 & 13

SAR's Mack Powell Auditorium


CCIM's introductory course teaches you the fundamentals of the commercial investment real estate industry and demonstrates how to apply these skills using real-world case studies. You will have the self-confidence to answer your clients' questions, anticipate their concerns and plan for their needs when you have a solid commercial foundation from which to start.

  • Solve investment problems using a financial calculator.
  • Perform basic mortgage calculations using compounding and discounting techniques.
  • Understand basic real estate investment analysis tools, estimate net operating income and estimate cash flows before tax.
  • Calculate the internal rate of return.
  • Evaluate similar properties, project vacancy rates and estimate absorption figures.  Course Flyer

How To Write A Letter Of Intent

Wednesday, October 3 -- 8:30 - 10:30 a.m.

Instructor: Sheryl Smith, CCIM

Additional Information Coming Soon



Investment Forum
Tuesday, August 14 -- 7:30 a.m.
R.J. Grins In The DoubleTree Hotel
E-mail for additional information

Sacramento Real Estate Exchange
Friday, August 17 -- 10:30 a.m.
China Buffet in Citrus Heights
Call Ben Couch at (916)989-4652 for additional information 

Sacramento CCIM Chapter Luncheon
Thursday, September 13 at Downey Brand Law Firm
Call Blain Hardy at (360) 393-2494


The California State Legislature is on summer recess until early August. Here is a synopsis of some of the issues currently standing that may affect you and your business:


ADA reform effort - SB 1186 (Steinberg & Dutton) continues to move forward. This bill provides an opportunity to reduce the number of frivolous lawsuits.
Split Roll & Tax Propositions. In the November elections, three major tax proposals will be on the ballot:  the Governor's proposal, which would raise sales and income taxes; the Munger Proposal, which would raise virtually all income taxes; and a third proposal which would increase taxes for "green building" projects for five years, then be re-directed to the General Fund.
Parking Bill -- AB 904 (Skinner; D-Berkeley). This bill would reduce parking requirements for affordable housing projects in certain urban areas.  It could have a negative impact on existing and future retail/office/industrial projects by spillover of parking from residential projects without enough parking.  The California Business Properties Association is working with the League of Cities and the author to work out amendments to the bill to address impacts on commercial real estate.
Loan Program for Energy Efficiency - SB 1130 (de Leon; D-San Francisco). This program would allow the bonding ability of the state to provide an option for property owners to tap into low cost loans for energy efficiency.  The bill is in the second house and continues to move forward.
Parking Lot Donation Box Standards - AB 1978 (Galgiani; D-Tracy). A measure that helps property owners deal with unwanted "donation boxes" that are left in parking lots.  Clarifies the property owner or representative is the only one who can authorize placement. (CBPA)


Presented by CCIM

Congress has created another fiscal crisis for us, according Mark Dotzour, Chief Economist and Director of Research for the Real Estate Center at Texas A&M University. He explaines that if Congress doesn't address the impending capital gains, dividend, estate, and other tax increases, along with the reduced payroll deduction, it could have a 3.5 percent negative impact on economic growth in 2013. Listen to the podcast here


REALTORSŪ are looking for information about your commercial market activity.  Your responses help inform members and markets about the direction of commercial markets, sales, pricing, and leasing activity. 

Please take a few moments to respond to the brief Commercial Real Estate Market Survey, covering 2nd Quarter 2012 sales and leasing activity.  The survey takes about 5-7 minutes.  Your individual responses on these important issues will remain completely confidential. 

Please click here by July 27, 2012.  The results of this survey will be emailed to respondents in an advanced report before its official release. If you have any questions, please contact NAR Research at (202) 383-1033.


Economyby Sanford Nax 


Sacramento's economy is bigger than Cuba's, but the metropolitan area was among the slowest growing of the nation's 100 largest last year, a new report concludes.
A study prepared by IHS Global Insight for the U.S. Conference of Mayors, meeting earlier this week in Philadelphia, concludes that the nation's largest cities account for more than 90% of the nation's gross domestic product and 86% of its jobs.
The fastest growing metro economy in 2011 was that of San Jose, at 7.5%, the report concluded. With a decline of .3%, Sacramento ranked 8th from bottom among the 100 largest metro areas. Modesto, with a decline of 1.7 % was last.
At $93.3 billion, Sacramento's gross metropolitan product would rank No. 96 in the world among national GDPs, ahead of Cuba and Angola but behind Slovakia and Morocco, the report concludes. In 2012, the study authors predict, the average metro economy will grow 1.8 % and Sacramento's will grow 1.9%.
Among other conclusions of the report: population growth and congestion will create a drag on city economies unless the nation invests more heavily in transportation and infrastructure improvements. (Sacramento Business Journal) 




by Kelly Johnson


When the Laguna Pavilion shopping center in Elk Grove recently changed hands for $18.75 million, it was no surprise that the buyers were not local.


Most of the Sacramento region's big shopping centers are owned by out-of-towners, and that's been the case for decades. But when the real estate market tanked several years ago, those out-of-town investors bypassed Sacramento in a flight to buy only in the nation's largest cities.

Now they're back. In particular, investors who are getting priced out of the Bay Area are turning their sights to the capital region, where there's more risk but better deals given that Sacramento's economy has been slower to recover, commercial real estate brokers say.

But Sacramentans shouldn't get too excited and think this means we're returning to the glory days. "Has there been a massive influx of money back in the market?  No," said Scott Crowle, a commercial real estate investment broker with Cornish & Carey Commercial Newmark Knight Frank.

But nationally there's a lot of investors -- including pension funds and insurance companies -- looking for a place to put their money, and "real estate is still a safe bet," Crowle said. Besides, for investors needing to borrow some money for their purchase, credit markets have loosened up. And investors are eager to lock in these unprecedented low interest rates - say 4% for 10 years - before rates rise. They also hope that rents will eventually rise. (Sacramento Business Journal) Out-Of-Town Investors



By Randyl Drummer

Although rising levels of office absorption and a falling U.S. vacancy rate signal a strengthening market, the gains have yet to translate into meaningful rent increases for office landlords in most markets, CoStar Group reported this week in the company's Second-Quarter 2012 Office Review & Outlook.

This week, CoStar analysts drilled deeper into the office market numbers in a report on the national office market at midyear 2012 presented to CoStar clients. And while they see encouraging signs in the broader CRE market, specifically in the office and industrial sectors, they cautioned that the recovery is likely to be slow and dependent on the rate of job growth.

"Overall for the office market in terms of demand, it's a pretty good story," said Hans Nordby, Managing Director of Property and Portfolio Research (PPR), CoStar's analytics and forecasting division.


Although office job growth slowed on a year-over-year basis to 1.9% from last quarter's 2.8%, it's still growing at a much stronger rate than the broader U.S. economy, which remains a nagging source of concern to economists. (CoStar) Approaching A Tipping Point



There's no doubt we see many signs of recovery in the national commercial real estate market. But as with any gigantic, inter-related collection of localities, sectors and instruments, it's tough to know with any certainty what to expect long-term. As always, there's plenty of room for disagreement about what lies beyond the horizon. Here are three conflicting looks at the CRE market long-term:

The Good: At this month's NREI's Strategic Real Estate Investment Conference in New York, panelist Arthur Mirante, Principal and Tri-state President of Avison Young painted a sunny picture of commercial investment, noting its steady attractiveness when compared to stocks. While he points out that knowing the market means mastering complexities, he believes that long-term, commercial real estate is the better value.

The Bad: When a big bank issues a new CMBS -- that is to say, when a bank gets into the selling of the mortgage debt of commercial properties, the length of term of these bonds helps to tell us how much risk the bond issuer thinks is present with the underlying commercial mortgages. Shorter terms means a perception of higher risk. And JP Morgan Chase's latest CMBS issue includes fewer 10-year notes and more 7-year notes, meaning they are "bowing to duration risk", or, finding less happiness in the long-term CRE picture than you or I might.

The Not-So-Ugly: Then again, if giant banks were any good at evaluating mortgage risks, high or low, the country wouldn't be in the hole economically now, would it? Jeffrey I. Friedman, CEO of Associated Estates, a multifamily REIT with much midwestern apartment property in its portfolio "sees a lot of runway left" for apartments with a mixed forecast. Most interestingly, he thinks it's a misconception to see job growth as the driver for apartment demand. Instead, he says, it's family formation. (NAR)




As the global commercial property market evolves, it is marked by two kinds of growth.
First, the sources of investment capital grow in number around the world. Then comes growth in the number of destinations for such capital. Buyers and investors in commercial real estate are increasingly international, so investments and returns have to make long trips to get where they're going. When that's true, the demand for clarity, predictability, reliable measurement and sustainability -- known collectively in commercial real estate as transparency -- becomes increasingly important.

The 2012 Global Real Estate Transparency index released by real estate services firm Jones Lang LaSalle this week places the United States on the top of the list when it comes to transparency in real estate. The study looked at nearly 100 real estate markets worldwide and at nearly as many different factors:  


Among key findings from the report:   

  • The United States ranks as the world's most transparent real estate market in 2012, followed by the United Kingdom and Australia. Also ranking as 'Highly Transparent': Canada, Netherlands, New Zealand, France, Finland, Switzerland and Sweden.
  • The MIST growth markets (Mexico, Indonesia, South Korea and Turkey) are significantly improving in transparency, with Turkey leading the way.
  • Looking at regions, Latin America shows the strongest progress in transparency.
  • Environmental sustainability and energy efficiency has emerged as an important transparency factor with the United Kingdom, Australia and France the most transparent markets in terms of real estate sustainability. The UK has a long history of building energy efficiency system and introduced the world's first Green Building rating system. Australia has been the test bed for new environmental laws, regulations and incentives. (CommercialSource) Most Transparent



Sanford Nax

The mood at last week's Pacific Coast Builders Conference in San Francisco was the most upbeat in five years, according to industry folks who attended.

Builders are reporting more traffic at subdivisions, and sales are picking up. Nationwide, lumber shipments are up, and residential construction activity is increasing significantly.

Builder Magazine just reported the following, which is based on U.S. Census data: private residential construction spending in May totaled $261 billion, a 3% gain over April and an almost 7.5% gain from May 2011. The biggest boost was in apartment construction, which posted a "jaw-dropping" 50% increase, although single-family construction increased 15% from May 2011.

Locally, John Orr, CEO of the North State Building Industry Association  in Sacramento, said new home sales totaled 149 through the first three weeks of June, which tops the 130 in all of June 2011. Through May, new home sales in the region totaled 1,052 versus 611 during the same five months in 2011. (Sacramento Business Journal) Home Builders Confidence



by Randyl Drummer 

Commercial real estate pricing continued to recover through May 2012 at a fairly surprising pace across the board given the disappointing level of U.S. job growth and other economic factors, with gains expanding from the best institutional-grade buildings to smaller and more general quality properties.


The two broadest measures of aggregate pricing for commercial properties within the CCRSI that comprise the equal-weighted U.S. Composite Index, which tracks investment grade and general commercial sale prices, each posted gains in May over year-ago levels, based on 853 repeat sales recorded during the month and more than 100,000 repeat sales since 1996, according to July's CoStar Commercial Repeat Sale Indices (CCRSI) report.


In another promising sign for the investment market and prospects for firmer pricing, the percentage of commercial properties selling at distressed prices in May was the lowest since mid-2009. Rising occupancy levels in most markets and increasing rents in the multifamily sector have dampened the overall level of distressed trading, helping lift commercial property pricing.

Both the U.S. Value-Weighted Composite Index and the U.S. Equal-Weighted Composite Index posted year-over-year growth in May, a sign that the pricing recovery is reaching across all size and quality categories within U.S. commercial property. (CoStar) Pricing Recovery Broadens



by Anita Likus 


With continued economic turbulence in the euro zone and lackluster performance elsewhere in Europe, the search for investment havens has alighted on an unlikely asset class: hotels.

The European hotel industry may be sensitive to economic fluctuations, but hotel values, which suffered less during the 2008-2009 financial crisis than those of shops or offices, have recovered and investors now appreciate the sector's resilience and cash generation, industry experts say.

As the euro has slipped in value against other major currencies amid the economic woes, the euro area has become attractive as a holiday destination for Asians and Americans, boosting occupancy rates and the market for hotel real estate.

Hotel property transactions in Europe, the Middle East and Africa reached 11.24 billion in 2011, up 14% from the previous year, according to property-services company Jones Lang LaSalle.

And 2012 is likely to be even stronger, Jones Lang LaSalle said. Four-star hotels accounted for 45% of the €2.5 billion in transactions in the first quarter of this year, compared with 27% a year earlier.

There is some skepticism about how long the trend will continue. Some market-watchers expect distressed sales to cause the market to soften again. (Wall Street Journal)



Kressby Sanford Nax

With new owners, the historic Kress building on K Street is undergoing a facelift that, if successful, could bring more life to a troubled part of downtown Sacramento.

It's one of several downtown projects underway or near completion that, in keeping with the still-sour economy, seek to reuse -- rather than replace -- downtown buildings. Other makeover projects downtown include the former Greyhound terminal and the Hotel Berry.

K&R Development of Sacramento bought the five-story building at 818 K St. out of foreclosure in April 2011 and is preparing the inside for office space that can be leased or sold. Retail is proposed for the ground floor. The renovation is expected to be completed by mid-August. K&R declined to say how much it paid for the property, but according to Colliers Urban Properties Division it was nearly $1.8 million.

The 54,745-square-foot building was built in 1931, and was part of the Kress five-and-dime department store chain. It later became office space for the state until being vacated in 2008.
K&R principal Kevin Petrosyan said he bought it in part because it is close to a light-rail line, is structurally sound and can capitalize on other proposed revitalization efforts in the area. He says the apparent collapse of the downtown arena plans is troublesome, but he is proceeding, hoping for more housing and development in the area. "I see some movement," he said. "They opened K Street for cars, and that brought some activity." (Sacramento Business Journal) Kress Building