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                                                                                                                                        December 7, 2012 


The happiness of your life depends upon the quality of your thoughts; therefore guard accordingly.
Marcus Aurelius

In This Issue
Regional Events
National Chains Help Lower Sacs Retail Vacancies
Commercial Mortgage Lending Declines
Energy, Healthcare Industries Fuel Construction
Fiscal Cliff and CRE
U.S. Multi-Housing Vacancy Expected to Rise
Office Recovery Will Continue
Construction Industry Worried About Fiscal Cliff
Office Building of the Future
Apartments Drives Recovery
Seniors Housing Keeps Going Green
Will Rise In Homeownership Hurt Multifamily
Rise In Consumer Holiday Spending


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Do you have questions regarding a purchase or lease agreement and don't know where to turn? Or perhaps you have difficulty understanding your local disability building code or are experiencing a title dilemma.


As a REALTOR® member benefit, live, one-on-one legal advice is available from C.A.R. attorneys from Monday to Friday from 9 a.m. - 6 p.m. Call (213) 739-8282 or e-mail   Request an attorney who is familiar with commercial issues and if they can't help you right away, someone will get back to you within 24 hours. The C.A.R. attorneys are happy to help and at no charge to you. Save yourself time, frustration and revenue and take advantage of this superior membership benefit today!



Commercial real estate fundamentals are projected to gradually improve through 2013, according to the National Association of REALTORS® 4Q12 Commercial Real Estate Outlook.


Vacancy rates are forecast to decline 1% for office properties, 0.6% in the industrial market, and 0.2% and 0.1% in the retail and multifamily sectors respectively next year. And after steady gains in 2012, average rents are expected to increase across all sectors in 2013. Rent is projected to rise 2.5% in the office market, 2.2% for industrial, 1.4% for retail, and 4.6% for multifamily.

"The economy is expected to grow 2.5% next year, and with modest job creation, assuming there is no fiscal cliff, the demand for commercial space will gradually rise," says Lawrence Yun, NAR Chief Economist. "The greatest friction that remains is a tight credit environment, notably for smaller properties."


"The primary factor holding back greater job creation has been uncertainty over regulations and associated costs," Yun said. "With the elections behind us and Washington apparently resolved to prevent a fiscal cliff, it's hoped that ambiguity over regulatory issues will clear relatively soon so employers can understand the rules of the game and the layout of the field." (NAR) CRE Outlook



Wednesday, January 16 -- 8:30 - 10:30 a.m.

Instructor: Bill Hunter

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


We're starting the New Year off right with another exciting and invigorating Bill Hunter seminar! This innovative and extremely informative class will address the fluidity (changes) within our business regarding the terminology and definitions used in commercial real estate lease transactions.


Bill will energetically dissect critical words and phrases that are often misunderstood, wrongly used, involve ambiguities or have multiple meanings. To help attendees understand the evolution of these words, audience participation and experiences will be highly encouraged. Time permitting, the following terms and expressions will be covered: 


This is a one-time class. For all those involved in commercial real estate, this is one that you ABSOLUTELY must attend. Bill never, ever disappoints. Increase your knowledge and your professionalism....register today!!!! 

Call Brian at 916-437-1210 to register. Registration form here  



SAR staff and volunteers continually look to increase services and benefits for members who practice or are contemplating commercial real estate. Last month, we met with a group of full time commercial practitioners to get their feedback and solicit ideas for the future of our organization. This focus group was extremely helpful to ensure we are expanding our commercial offerings to bring more value to you.  We certainly appreciate the dedication of their time and talents.


We want to meet with a few of our residential members, who also participate in commercial transactions, to extend the work of this group.  This is important feedback to help further the objectives of the Commercial Division. This brainstorming session will be conducted on Thursday, January 3 from noon to 1:30 p.m. at the SAR office. If you would like to attend, please e-mail Janet Whitney at


We are looking for 8 to 10 individuals to participate and these spots may fill fast.  Please help us to help you and contact Janet today.



Investment Forum
Tuesday, December 11 -- 7:30 a.m.
R.J. Grins In The DoubleTree Hotel
E-mail for additional information

CREW Holiday Event
Wednesday, December 12 -- 4:00 - 6:00 p.m.
Revolution Wines, Midtown
Call Gery Dough at 916-458-6410


Sacramento Real Estate Exchange
Friday, December 21 -- 10:30 a.m.
China Buffet in Citrus Heights
Call Ben Couch at (916)989-4652 for additional information



The Legislative Analyst's Office has released a report entitled "Understanding California's Property Taxes," which provides an excellent primer on the different types of commercial and residential taxation, as well as an explanation of several landmark voter-approved laws, including Proposition 13 and Proposition 8.

This subject appears to be a hot topic in the next Legislative Session. Full Report (CBPA)



Land that Knockout Punch
This 15-minute podcast covers which skills Commercial Practitioners can use to land that "knockout punch" on closing the deal plus working with difficult people in various situations. Free  Click here


Ross by Kelly Johnson

As retailers enter the heart of their most crucial season, the industry's gradual recovery is beginning to show in the real estate market, researchers and brokers say.

Expansion by grocery chains and restaurants and by national chains such as Hobby Lobby helped lower the region's vacancy rates in the third quarter after a rise in the second quarter.

Other retailers are moving around to better locations, such as Bed Bath & Beyond and Ross making deals to move to Town & Country Village from Country Club Plaza in the Arden-Arcade area. That retail activity, however, merely shifts vacancies.

"We still have a ways to go on the retail front," said Ken Noack Jr., a broker with Cornish & Carey Commercial Newmark Knight Frank. A significant amount of vacant retail space still needs to be absorbed. The region has gone through a significant market reset, so it will take time.
"We are absorbing it slowly but surely," he said. "I'm just encouraged to see the market activity we've had this year."

For the better shopping centers in the stronger parts of the region, it is starting to become a landlord's market, Noack said. But for most retail space, tenants still have the upper hand and will for well into 2013, he said.(Sacramento Business Journal) Lowered Retail Vacancies 



Despite low interest rates, commercial mortgage origination volumes declined in 3Q12, according to the Mortgage Bankers Association. Originations were down 17% compared to 2Q12 and 7% over 3Q11.

The retail sector saw the most drastic change in 3Q12, with mortgage origination volume down 35% year over year. During the same period, multifamily mortgages increased 30%. Year-to-date mortgage activity was up 15%, compared to 2011. Office and industrial originations -- both down 7% -- were the only property types to decline during this period.


Construction activity increased for the second consecutive quarter, according to the Associated Builders and Contractors' Construction Backlog Indicator. The index, which measures the amount of contracted, unfinished construction work, is up 3.5% over 2Q12. Construction activity is expected to continue at a moderate pace in the first half of 2013 and accelerate in the second half, according to the report.

Increased consumer spending, strong demand for technology, and stabilization in the housing market drove up the CBI in the West, Midwest, and East. For the fourth consecutive quarter, the CBI declined in the South, a result of slowing industrial production and low natural gas prices.
"Certain industries and geographies will be associated with more robust construction spending recovery, including segments related to energy generation, healthcare, and infrastructure," according to Anirban Basu, ABC's Chief Economist. (CCIM)



Fiscal Cliff The fiscal cliff has been dominating media outlets since the presidential election. The term "fiscal cliff" refers to expiring Bush-era tax cuts, the payroll tax, Alternative Minimum Tax (AMT), Medicare payments to doctors. These expiring provisions, along with the sequestration (cuts to federal agency budgets) that takes effect Jan. 1, 2013, could cause significant problems for the economy and may push the U.S. economy over the "cliff," resulting in serious fiscal issues felt across the nation.

Current law, stemming from the debt ceiling negotiations of spring 2011, states that if lawmakers do not find a solution to reduce the deficit by $1.2 trillion over the next decade, automatic spending cuts for the federal government would begin. The spending cuts include $64 billion in defense and nondefense programs, as well as a $330 billion tax increase (expiration of " Bush Tax Cuts"). Each fiscal threat is important, but the expiring Bush-era tax cuts are the most relevant to the commercial real estate industry.

Because the Republican and Democratic parties have been quiet in their negotiation plans to the looming fiscal cliff, there is an air of uncertainty over how the crisis will be handled. There are, however, some potential outcomes that can be theorized:

1. Go off the Cliff: Congress does not act by the January 2, 2013 deadline and allows the tax cuts to expire, raising taxes to pre-Bush levels, and cutting government program spending across the board. This could cause consumer spending to shrink, massive job losses, and create instability on Wall Street. This scenario would also create new pressure on the Republican leadership to drop their hard-line approach on voting for tax increases and instead work across the aisle to create different tax systems. This also allows lawmakers to avoid any political repercussions for increasing taxes while reducing the deficit.

2. Postpone Action: Congress could drag their feet and buy more time. There is potential for legislation that would delay the impending tax hikes and cuts to move forward, thus putting off the looming fiscal crisis by a year or so. This would reduce panic on Wall Street and allow for more substantive policy negotiations to take place. This may sound appealing, but it simply delays the problem and further creates more uncertainty for businesses. It also puts President Obama in a difficult position, in that he made a campaign promise to end the Bush-era tax cuts by Jan. 1, 2013, for America's wealthiest citizens.

3. Make a Deal: Republicans and Democrats work frantically to create a long-term deal. This would require enormous compromise and discussion from both Speaker Boehner and President Obama. This deal would have to address both tax cuts and tax increases in the lame-duck session, which would be a significant task in such a short period of time. House Republicans have passed H.R. 8, whereas Senate Democrats have passed S.3412. These bills tackle the fiscal cliff in very different ways and would require significant negotiations on both sides. President Obama supports the Senate version.


The U.S. multi-housing market vacancy rate is expected to rise modestly in 2013, according to a new analysis from CBRE Group, Inc. The increase will be driven by new construction completions and a slight tapering off of demand from historically robust levels in recent years.


"It is a great time to own multi-housing properties: apartment demand is benefiting from the slowly recovering economy as well as rapidly expanding pool of renter households," said Gleb Nechayev, Senior Managing Economist, CBRE Econometric Advisors.  

Rents have now surpassed previous peaks in most markets and vacancy rates are below historical averages.  The market entered an expansion phase in late 2011 and since then fundamentals have continued to improve steadily. New supply has also picked up considerably as a result of strong fundamentals. Completions are on track to return next year to the 1998-2008 annual average of about 190,000 units. At the same time, CBRE anticipates that growth in demand will slow leading the vacancy rate to tick up back to its historical average of 5.3%.

CBRE forecasts that top-performing multi-housing markets will be those with heavy concentrations of high-tech employment, such as San Francisco, Denver, Austin, and Atlanta well as those markets where total employment has already surpassed pre-recession peaks. Strong cyclical recoveries in rents are also expected to begin in some of the markets hit hard by the housing bust. These markets will lead the nation in rent growth. (CBRE) Multi-Housing Report 



The U.S. office market vacancy rate will continue to decline moderately next year, falling to 14.9% by the end of 2013, according to a new analysis from CBRE Group, Inc. Improvement in office market will begin to accelerate in 2014 with the vacancy rate expected to drop to 13.8% by year's end. The office vacancy rate in Q3 2012 was 15.5%, down 130 basis points from its peak of 16.8% in Q2 2010.


"Although concerns remain about the recovery in the face of headwinds both at home and abroad, we have seen consistent improvement in broader markets and believe that the economy is slowly gaining traction," said Arthur Jones, Senior Managing Economist, CBRE Econometric Advisors, "Businesses remain healthy and continue to hire, and we have seen significant improvement in the housing market, which should provide the impetus for stronger growth by the middle of 2013. As a result, we expect office fundamentals to continue their slow, but steady, recovery throughout the next year."

CBRE notes that uncertainty had caused businesses to pull back somewhat over the summer months affecting hiring decisions, but this is starting to reverse. Office-using employment remains below its pre-recession peak, but the gap continues to narrow.

CBRE anticipates that office-using employment will have recovered to its pre-recession peak by the end of 2013, setting the stage for more substantial demand for office space. As a result, CBRE projects that average rents will increase by 3.5% in 2013, before accelerating to 4.4% rent growth in 2014. (CBRE) Office Recovery



Construction by Sanford Nax
All major construction segments experienced upticks in October, but industry officials are worried about tumbling off the fiscal cliff.

 "Widespread gains in spending in October, along with hefty upward revisions to estimates for the previous two months, show that construction has finally come out of its long slump," said Ken Simonson, Chief Economist of the Associated General Contractors of America.

Private residential spending was the highest since November 2008. Private nonresidential spending edged up 0.3% for the month and 11% over a year period. Public construction increased 0.8% but fell 1% year-over-year.

Whether that continues remains to be seen. "Without greater certainty on tax rates and federal spending levels, both private and public construction will quickly reverse recent gains, throwing newly hired workers back into unemployment," said Stephen Sandherr, the association's CEO. (Business Journal) 


by Mark Heschmeyer

Social forces and advances in communications technology are driving changes in how and where people work. Corner offices and cubicles are giving way to a kind of 'Mixed-Use 2.0' -- workspaces that are infinitely flexible, with options for focused, individual work and also fully equipped to support collaborative groups, team projects and social interaction.

That's the vision presented by the four respected architects selected in NAIOP's inaugural Office Building of the Future design competition. Judges evaluated the design submissions from earlier this year and selected concepts they felt promoted the most efficient and welcoming environments and met space utilization trends of the future. The winners were: Hickok Cole Architects; Gensler; The Miller Hull Partnership; and Pickard Chilton.

The winning designers identified several common themes that could drive changes in how we "office" in 2020. Perhaps the biggest driver for change is personal technology, which has untethered workers from their office, enhancing efficiencies by providing the capability of completing service and information-based tasks from wherever they choose. An individual with a laptop can work from home, or at a wi-fi equipped location, or even on the road using the latest wireless 'puck' devices.

The office building of the future will also be expected to be more affordable to build and operate, thanks to advances and cost reductions in construction materials and systems. Also, a greater degree of sustainability will be attainable and become more financially feasible. Net-zero buildings will meet the corporate demands of tenants as well as the improved building performance sought by building owners and developers. (CoStar) Mixed-Use 2.0



by Randyl Drummer 

A host of new data and leading indicators show that commercial and residential construction is gaining significant strength in most regions of the U.S., led almost entirely by a surge in development activity in the multifamily and single-family housing markets.

In more evidence that the single-family housing recovery is strengthening, U.S. builders in October started construction on the most homes and apartments since July 2008, according to Commerce Department numbers. Apartment construction, more volatile from month-to-month than single-family building, rose 10% in October to an annual rate of 285,000.

Building permit applications, an indicator of future construction, fell 2.7% to 866,000 after jumping 12% in September to a four-year high. But applications to build single-family homes still rose to their highest level in more than four years.

Multifamily starts are continuing to ramp up and have increased by twofold since the low levels of 2010, hitting the 50,000 threshold for the first time since 2009, according to the Third Quarter 2012 Multifamily Review and Outlook presented recently by CoStar Group.

"Apartment developers aren't going to slow down anytime soon," said Erica Champion, Senior Real Estate Economist with CoStar Group's Property & Portfolio Research (PPR) division, who presented the report with Luis Mejia, Director of Research/Multifamily, and Real Estate Economist Francis Yuen. "Next year will be the first year of supply additions at historically normal levels since 2009. So, the 'reprieve' in supply has come to an end." (CoStar) Apartment Building Boom



Green Seniorby Robert Carr

Going green has never been easier in the seniors housing industry, with affordable properties leading the charge.

More companies supplying sustainable projects have emerged, setting costs lower for all of seniors housing, but the real catalyst for the industry has been the federal government getting behind the green movement. Many states require all new affordable projects, including seniors housing, to add some level of green features. As the expected wave of new retirees needing cheaper living will hit sometime in the next 10 years or so, the facilities to house them are getting smarter and cheaper to run-though there are still some concerns in the industry, experts say.

Colin Edelstein, Director of Savannah, Ga.-based NorSouth Constructs, says that it is easier to add green features to affordable housing, including seniors housing, because of the way the projects are being financed. Affordable projects are usually built on the back of public funds or nonprofit institutions, so these civic-minded groups are more likely to support or even add funding when sustainable features are being implemented.

"In a market-rate project, it's more challenging to do green features," Edelstein says. "You have to keep the investor happy, and the more money you spend, the more equity they have to provide, and the narrower the yield."

Conversely, affordable projects gain more tax credits the more money is spent, creating higher yield. Also, most of the state agencies that control the tax credits require green features before awarding the incentives. "The conventional world may have gotten a head start on analyzing how green features would best benefit a building, but the affordable world got a head start on adopting them," Edelstein says. (NREIOnline) Green Seniors



by Bendix Anderson

Times seem good for the business of owning and managing apartment properties. Vacancy rates are low and rent growth relatively high. What could go wrong?

For one, renters could start shopping for bargains on the for-sale housing market-especially as the cost of renting continues to rise while home prices remain flat. For now, doubts about housing markets and the broader economy are keeping many generation X and older generation Y renters from shopping for homes. But that uncertainty won't last forever.

"Uncertainty is keeping people from making home-buying decisions," says Brady Titcomb, Research Manager for the multi-family capital market group for Jones Lang LaSalle.

Titcomb sees strength for multifamily markets for 2013, thanks to growing populations of adults under the age of 35 and over 55. He points to the 50 million gen Y adults now living through their prime renting years. The memory of the housing crash is likely to make many of these younger renters hesitate before shopping seriously for a home, he says.

During the housing boom, more young people than usual dipped their toes into the home market and bought for-sale housing, only to get burned. Generation X homebuyers suffered a 59 percent drop in net worth in the crash, says Titcomb. (NREIOnline) Home Ownership


ShoppingApproximately 25% of consumers are willing to spend more or substantially more this holiday season versus 2011, according to the International Council of Shopping Centers-Goldman Sachs 2012 Holiday Spending Intentions Survey. This year marks the largest year-over-year increase in potential consumer spending since 2004.

When asked what they plan to purchase this year, consumers cited gift cards (21.3%), apparel (14.1%), and toys and games (14.1%) as the top three items.

With the traditional Thanksgiving to Christmas shopping season spanning 32 days this year, about 21% of survey respondents hope to complete their holiday purchases in November. Approximately 19% plan to complete their shopping the first week of December, 27% plan to finish the second week of December, 20% expect to be done shopping by the third week of the month, and 3% hope to finish by Dec. 24 or later. (CCIM)