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                                  March 8, 2013 

  

Don't bunt. Aim out of the ballpark. -- David Ogilvy
In This Issue
Education
Regional Events
Banks Slow Recovery
Two Men and a Truck
Commercial Rental and Sales
Are You Skipping Over the Commercials?
Rental, For-Sale Markets Buck Odds
Working From Home Option Modified
Tenant Satisfaction Reaches New High
Bifurcated Recovery Continues
CRE Forecast for 2013-2014
Construction Backlog
Will Recovery Spark New Hiring?
Multifamily Poised for Solid Future
Real Estate ipad App
What is the new "normal"
Pension Funds, Endowments Hunger for Real Estate
Private-Equity Investors Play
More Employers Choose Open Offices
Debt Mods On Receivership Now Rare
International Buyers
Transparency

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SELF-STORAGE STEPS UP
by C. William Barnhill, CCIM, and Ben Vestal

Despite the difficult economy and market challenges during the past four years, self-storage as an asset class has continued to provide solid performance and stable returns for investors. Once dominated by mom and pops, or small, independent owner/operators, the self-storage industry has evolved into a top-performing asset class during the past decade.

Though once barely on the radars of major investors, self-storage has taken off among institutional-level investors in recent years. Since 2010, real estate investment trusts have demonstrated an almost insatiable appetite for properties larger than 45,000 net rentable square feet in the top 25 metropolitan statistical areas. In 2011, self-storage REITs boasted a handsome return of 35.4% -- the strongest of any REIT -- for the second consecutive year, according to the National Association of Real Estate Investment Trusts.
  
Despite the changes in the self-storage industry, approximately 83% of these properties nationwide remain in the hands of small, independent investors, according to the 2012 Self-Storage Almanac. Most sellers today are not disposing of their assets to capitalize on the improving market. Rather, sellers are often driven by life events that motivate them to sell at a reasonable price.
  

With affordable capital available through debt and equity providers, small investors are starting to take advantage of self-storage investment opportunities in secondary markets. The nearly historical high spreads between capitalization rates and interest rates in secondary markets have allowed small investors to generate very compelling cash-on-cash returns.

Self-storage has managed to maintain stable occupancies throughout the economic downturn. At year-end 2012, only 4% of self-storage commercial mortgage-backed securities loans were in delinquent status -- the lowest delinquency rate among all major commercial real estate asset classes, according to Trepp data. With cap rates hovering around 7% nationwide, self-storage is in line with other core real estate asset classes, according to the PwC Real Estate Investor Survey, 2Q 2012.


However, the growing institutional buyer focus on properties in the top 25 MSAs has led to overall cap rate compression in these markets. The cost of capital for institutional buyers ranges from 100 to 300 basis points less than the cap rate yield, thus providing a positive return on equity for a leveraged transaction. The availability of capital through CMBS, banks, and life insurance companies provides good debt options with very aggressive terms.(CCIM)  Self-Storage Steps 

 

 

EDUCATION -- SAR COMMERCIAL DIVISION

A Legal Perspective and Review of the California Association of REALTORS (C.A.R) Commercial Property Purchase Agreement

Wednesday, April 3 -- 10:00 - 11:30 a.m.

Speaker: Robert McCormick, Esquire

Cost: $10 SAR Members/$15 Non-Members

 

This class will review the C.A.R approach to commercial purchase and sale transactions embodied in the C.A.R Commercial Property Purchase Agreement (CPA). Bob will provide a practical guide for the use of the C.A.R.-CPA form plus identify the strengths and weaknesses of this form in comparison to the AIR form and custom attorney-prepared documents. 

 

Attendees will get a better understanding of the special aspects of commercial real estate purchase and sale transactions that should be considered when choosing a purchase and sale agreement form and be able to determine when it is appropriate to specifically utilize the C.A.R.-CPA. Call Brian DeLisi to register at (916)437-1210 or use this Registration form.

 

REGIONAL EVENTS 

Investment Forum 

Tuesday, March 12 -- 7:30 a.m.
R.J. Grins In The DoubleTree Hotel
mmurphy@tricommercial.com for additional information

 

Sacramento Real Estate Exchange 

Friday, March 15 -- 10:30 a.m.

China Buffet in Citrus Heights

Call Ben Couch at (916)989-4652 for additional information

 

ACRE -- Broker of The Year Event

Thursday, March 28 

Hyatt Regency, Sacramento

Purchase Tickets

 

BANKS SLOWLY RECOVERY

by Mark Anderson


Following a crash in auto racing, drivers are directed by a caution flag that requires them to slow down. Sacramento-area community banks are still operating under a caution flag.


Their earnings have been improving for three years but at a slow pace. They expect more of the same slow growth through this year. For now, lending appears to be their only revenue stream.

"Business is getting slowly better, but I emphasize the 'slowly.' It is better than it has been in years, but the pace is just so slow," said John DiMichele, CEO of Community Business Bank in West Sacramento. "We used to see all kinds of activity all over the place, and now it is just in little pockets, and those pockets move around," he said.

In the aggregate, local banks in 2012 earned $43.1 million. Although that's up 26 percent from 2011, earnings that year were thin. The banks ended 2012 with $5.5 billion in assets, a 7.2 percent increase year-over-year from 2011. (Sacramento Business Journal) Banks slowly recovering
  

SPONSOR HIGHLIGHT

TWO MEN AND A TRUCK® ARE THE "MOVERS WHO CARE"

Two Men and truckWith more than 230 locations, TWO MEN AND A TRUCK®

is the largest franchised moving company in North America. Founded in Michigan in the mid 1980's, the moving company has established a reputation across the country as the "Movers Who Care®" for its continuous commitment to supporting local non-profit organizations through donated moves and charitable initiatives.


The company's most notable and widespread charitable initiative is its Movers for Moms® program, a campaign working with local schools and other community organizations to collect essential supplies to donate to moms living in shelters on Mother's Day. Started by the moving company's Michigan franchises in 2008, Movers for Moms® has expanded to 31 states in 2013. Last year, more than 115,000 items were donated to over 100 women's shelters across the country on Mother's Day.   

 
Locally, TWO MEN AND A TRUCK® Sacramento donates hundreds of hours of moving each year to assist local nonprofits. The Sacramento location is partnering with WEAVE, a primary provider of crisis intervention services for survivors of domestic violence and sexual assault in Sacramento County, during the Movers for Moms® campaign.

 

From the SAR Commercial Division, thank you to TWO MEN AND A TRUCK®  for contributing to the growth of our organization. If you would like to contact them to donate items (donations are currently being accepted at the SAR office) or to get additional assistance on how they can help you with you commercial or residential real estate relocations, visit the TWO MEN AND A TRUCK® office at 8167 Belvedere Ave Suite D in Sacramento or call (916)852-7411.  

 

COMMERCIAL RENTALS AND SALES 
by Jed Smith

Approximately three to four percent of REALTORS® report a commercial rental every month. On an annual basis, this would be in the neighborhood of 175,000 rental transactions per year. In addition, approximately three percent of REALTORS® report a commercial sale.
  
According to the Commercial Real Estate Quarterly Market Survey, rental volumes are up by 3% on a quarter-over-quarter basis. Rental rates are down by 2%, although the level of downward pressure has been decreasing. For sales, volume is up by 11%, with prices down 3%.Comm (NAR)
   Rent volume
NOTE TO RESIDENTIAL AGENTS -- ARE YOU SKIPPING OVER THE COMMERCIAL?

by Anand Patel


The invention of the DVR was a beautiful thing. According to ACNielson, the marketing research firm, by 2011 more than 40% of U.S. households had DVRs giving families the ability to breeze right over TV commercials and get right back into their favorite shows. Who wants to watch annoying commercials for products and services you have no interest in, right?

  
Just like fast forwarding television commercials we have no interest in watching, many residential agents pass up on perfect commercial real estate referral opportunities simply because they have no contact (or interest) with the commercial world. Instead of tapping an additional income source, they are skipping right over the commercial. 

If you work exclusively as a residential sales agent, what do you do when your buyer, who just moved to town asks you about commercial real estate because they want to open up a new business? Do you tell them you have no clue and wish them luck in their search? Or, do you have a basic understanding of the commercial market in your area and a great commercial REALTOR® you can refer them to?

In many markets, commercial real estate is picking up. Across the country, we are seeing new businesses enter our market as they are in expansion mode. This is a ripe opportunity for real estate professionals who only work in residential real estate to make referral income by partnering with a strong commercial agent. Here are some ideas:
  1. Attend networking events and introductory real estate educational classes at your local CCIM (Certified Commercial Investment Member) chapter or commercial REALTOR® association. This is a good opportunity to introduce yourself to commercial practitioners and find someone you are comfortable referring business to. More than likely, they don't work residential real estate and may even refer residential leads back to you. These events will also provide the opportunity to network with commercial attorneys and lenders, who are also great contacts to have.
  2. Offer to be a resource to commercial agents. Update them periodically on the residential market; provide some of your tech-savvy marketing tips that they could also apply to their commercial marketing; offer to guest blog on their site and allow them to do the same on yours.
  3. Whatever you do, don't attempt to "wing it" and try to help your customer with their commercial needs if you have no experience in doing so. Commercial real estate is a totally different ball game. If you're interested in exploring a transition into commercial real estate, look for a commercial agent (or your broker) who would be willing to mentor you. Their guidance will be invaluable as you start out.
Just as you have title companies, home inspectors, and lenders that you are comfortable referring business to, now is a good time to find a commercial REALTOR® who you can do the same thing with. So...are you still going to skip over the commercial?  (NAR) 

 

 

RENTAL, FOR-SALE MARKETS BUCK ODDS, RISE TOGETHER

by Bendix Anderson


The apartment and for-sale housing markets usually compete with each other. Historically, the math has been simple and brutal: If the percentage of people who own homes goes up, then the percentage of people who rent goes down. Good news for housing sales often means bad news for the apartment sector, if the number of households that need homes stays stable.


But what's happening today is different, according to the economists at the National Association of REALTORS® (NAR). "Rental demand and housing sales are rising at the same time," says NAR spokesperson Walter Maloney.


What's behind the seeming contradiction? The number of households is growing again after years of lagging behind the growth in the population. For years, graduates have been moving back home or sharing dwellings with roommates. Now, more people are striking out on their own. And this formation of new households is creating strong demand for both rental and for-sale housing.


The housing inventory has also lagged behind the growth in the population for years, so that both rental and for-sale housing are in short supply. A sharp increase in home construction would create more supply, but could also create jobs, new household formation and more demand for housing, according to NAR.


The for-sale housing market is recovering faster than seemed possible just last year. Many economists expected for-sale home prices to drop in 2012, such as the analysts at Freddie Mac. Instead prices rose more than 7% to indexes kept by both Case Shiller and the Federal Housing Administration. The number of sales is also rising quickly, despite the small number of homes on the market.(NREIOnline) Retail Markets
 

 

YAHOO! AND WSJ: WORKING FROM HOME OPTION BEING MODIFIED
Office landlords and managers: if the telecommuting boom and its attendant declines in demand for office space in some markets have got you down, this week has two pieces of good news.

1) Tech giant Yahoo! announced this week that it would no longer allow a telecommuting workforce. New CEO Marissa Meyer rolled out the policy with an announcement from HR head Jackie Reses ending all "remote" work in a memo from to the search company's 11,500 employees:

To become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side. That is why it is critical that we are all present in our offices. Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home. We need to be one Yahoo!, and that starts with physically being together.

Beginning in June, we're asking all employees with work-from-home arrangements to work in Yahoo! offices. If this impacts you, your management has already been in touch with next steps. And, for the rest of us who occasionally have to stay home for the cable guy, please use your best judgment in the spirit of collaboration. Being a Yahoo isn't just about your day-to-day job, it is about the interactions and experiences that are only possible in our offices.

It is left to commercial real estate professionals to conclude wether or not upward lease adjustments for your property's office hallways and cafeterias are justified in the wake of the announcement.

2) The Wall Street Journal has released a Marketwatch video wherein a study is touted that found that work-at-home careers are easily stalled. Telecommuting employees of a Chinese company studied were found to be 50% less likely to be promoted when compared to in-house workers.

Market and technological change is hard to handle or predict, and sometimes a trend truly stalls, then reverses. Do these items constitute a trend against telecommuting? If I had to bet, I'd say no. It's a bit tough to see these two examples -- a B-team search company and a firm situated in a completely different culture than that of the US -- as indicative of much going forward.
  
For commercial properties professionals looking to get in front of the changes, I'd advise looking into the burgeoning shared workspace market rather than expecting technology to stop disrupting traditional office space demand patterns. (Business Journals) 
 

  

TENANT SATISFACTION REACHES NEW HIGH AS 2013 BEGINS

 

Nearly nine out of 10 office tenants in the United States were satisfied with their space in 2012, according to Kingsley Associates' Q4 2012 Office Industry Trends. Almost 88% of tenants rated their overall satisfaction as "good" or "excellent," up from 85.1% in 2011. This represents the highest level of satisfaction ever recorded by Kingsley Associates. 


Tenant satisfaction was higher in 2012 than in 2011 in almost every major office market in the United States. Only in Atlanta did the proportion of satisfied tenants decline during 2012-from 90.1% to 87.9%, a figure that still betters the national average. 


"This unprecedented rise in satisfaction tracks well with what we hear from owners and investors," said Jim Woidat, Principal of Kingsley Associates. "Throughout the recovery, building owners and managers have turned their focus from asset appreciation back toward operations. This has led naturally to better customer service delivery aimed at tenant retention." 


This importance of retention has become especially pronounced because of the sluggish pace of employment growth. Alternative work arrangements are particularly apparent in certain parts of the country. Employees of tenants in Atlanta, Boston and San Francisco are more likely to work from home on occasion, while those in New York have a higher propensity to share workspace. 


Kingsley Associates surveys office tenants representing over 1 billion square feet annually on behalf of its clients. The findings outlined above are based on responses received between January 1, 2012 and December 31, 2012. For additional data and analysis, see Kingsley Associates' Q4 2012 Office Trends.  (CoStar) 

 

SURVEY SHOWS BIFURCATED RECOVERY CONTINUES

Commercial real estate executives are optimistic about the state of the market but remain wary of the repercussions of potential interest rate hikes, lackluster job creation, and the massive U.S. debt, according to Real Estate Roundtable's 1Q13 survey. "As today's survey shows, commercial real estate is on the mend, but it remains a fragile recovery very specific to property type and individual markets," says Robert S. Taubman, President and Chief Executive Officer of Taubman Centers.


Equity, valuations and capital availability for class A real estate in gateway markets have recovered much faster than lower-rated assets in smaller markets. Despite the sluggish recovery in secondary and tertiary markets, 8% of survey participants consider market conditions somewhat better than last year, and 16% predict even better conditions in 2014. However, executives point to future job creation and predictability in public policy as key to prevent looming economic uncertainties from derailing an already bumpy recovery (CCIM). 

 

JLL's COMMERCIAL REAL ESTATE FORECAST UPDATE for 2013-2014

Property ReturnsCommercial real estate continues to improve at a moderate pace, much in line with previous forecasts.
 
The office market enjoyed 11 consecutive quarters of occupancy growth and eight straight quarters of rent increases," according to the Jones Lang LaSalle firm. The length of the expansion is more noticeable than the strength of the expansion. REIS Inc. reported national figures for office vacancy that are only slightly lower than a year ago.

 

Jones Lang LaSalle also reported that most of the improvement is in Class A space, which confirms the anecdotes heard around the country: the only challenge for tenants is finding large contiguous Class A spaces in downtown areas. DeLoitte's annual commercial real estate survey notes low construction levels in office space, which should bode well for landlords' future occupancy and rent rates.


Before we get too overjoyed, note the limiting factors on the office rebound. First, the pace of economic growth is subdued, with a risk of recession large enough to demand concern. Second, high tech is a growing element of office occupancy. The software industry's preference for putting many programmers in one large room cuts the square footage per worker. It may not be justified on productivity grounds, but the open workspace concept is so established in the software industry that it's not going away any time soon.


Industrial space is starting to expand, with more new deliveries than in recent years. Industrial typically has the shortest development and construction periods and thus is the first sector to complete new projects when the market improves. This trait means that vacancy rates will not fall too far, nor will rents rise too fast. Still, increased volume of rented space will help the large landlords improve their efficiency, though it does little for owners of one or two properties who must compete in a market with growing supply.


Retail space is seeing more absorption than construction, but there's plenty to worry about. Retail spending has only increased 4.4% in the past 12 months; a year ago we saw a 6.2% gain, and a year before that a 7.8% increase. Our recent figure is certainly an increase, but not terribly fast, especially in light of two percent inflation. Looking forward, the end of the temporary payroll tax cut will pinch a number of wallets. (Forbes) CRE Forecast Update

 

CONSTRUCTION BACKLOG UP 3.5%

The Associated Building Contractors Association reports that its Construction Backlog Indicator (CBI) expanded for the second consecutive quarter, up to 8 months in the third quarter of this year, a 3.5% increase from the previous quarter. CBI is measured in months and reflects the amount of construction work under contract, but not yet completed.

"While the nation's nonresidential construction activity is likely to remain subdued as we approach the final months of 2012, the CBI is signaling that nonresidential construction spending will accelerate by mid-2013," said ABC Chief Economist Anirban Basu. "However, this presumes the nation does not tumble over the fiscal cliff-a series of spending cuts and tax increases that kick in at the end of the year.

"Another recession would undermine the momentum of an already struggling construction industry," Basu said. "The recovery in construction backlog, and in overall construction spending, would likely be more rapid today if not for the elevated level of uncertainty facing economic decision-makers.

"What the CBI data tells us is certain industries and geographies will be associated with more robust construction spending recovery, including segments related to energy generation, health care and infrastructure," said Basu. "CBI dynamics also seem to suggest the latter half of 2013 may be associated with more rapid growth in construction spending than the first half of the year." (Associated Building Contractors)  Construction Backlog

 

 
WILL RECOVERY SPARK NEW HIRING?

Hiring by Beth Mattson-Teig

 

Commercial real estate professionals have done their best to ride out the economic storm and the deep real estate recession. The focus for many professionals has simply been staying afloat, as opposed to moving careers forward. However, that tide may be starting to turn as the recovery gains momentum.

 

There is no doubt that the past three years have been extremely challenging for commercial real estate professionals across the board. The industry saw very limited hiring. "There were certainly job changes, but it was more reactive - kind of like a game of musical chairs," says Paige Palmer, CCIM, CPM, RPA, an executive search partner at Search Professionals International in Plano, Texas. "There were not many job opportunities out there. You just had to try to find a seat, even if it was not the right seat."

 

Given the number of people who are still unemployed or underemployed, it is still very much an employer's market. Even industry veterans were displaced during the downturn, as transaction activity ground to halt and companies were forced to cut back on staffing to run more efficiently.

"People would have been more tempted to move out of the commercial real estate industry and change jobs if there was somewhere to go. But, in this particular recession, there was really no place to go because other industries were suffering as well," Palmer adds.

 

Hiring gained momentum in the second half of 2012. In particular, activity has picked up on the East and West Coasts and is now expanding into other markets in the rest of the country, notes Palmer. "There is not any one area that is really hot. We are seeing a wide range of opportunities, which is a good thing," she says. New hiring in transaction-related positions such as leasing, acquisitions, and development have been virtually nonexistent in recent years. But even those positions are starting to return. "There might not be many, but they are coming back," adds Palmer. (CCIM)  Will Recovery Spark Jobs

 

MULTIFAMILY STILL POISED FOR SOLID FUTURE
For several years now, the multifamily sector has been the golden child of commercial real estate. While other property segments such as office and retail have struggled, the apartment market has seen vacancies basically evaporate, rents climb and investor interest soar.

The red-hot performance of the sector has left some to wonder how long the good times can last. When we look into the crystal ball, we see a strong 12 to 18 months ahead for the apartment sector, a time period that will be marked by high occupancy levels, growing revenues and continued demand from buyers of commercial real estate.

Here are the main reasons for this sanguine forecast:
  • An Improving Economy -- The economy has been slow to pick up, and it may not catch fire in the near future, but it's headed in the right direction, and that's a good thing for the apartment market. More people with jobs means a larger pool of renters, and an improved job market also would lead to those who are already renting being willing to pay more for larger and nicer apartments.Even in the face of modest expectations for the 2013 economy, apartment research firm Axiometrics is forecasting the national effective rent rate to grow by 3.6% this year. That would be a dip from 2011's increase of 4.8% and last year's rise of 3.9%, but historically it's still a very impressive number. The firm also says the national occupancy rate should rise about 60 basis points to 94.9% in 2013.
  • Attractive Financing -- Apartments have proven extremely attractive to investors because not only have the properties enjoyed high occupancies and rent growth, but also historically low interest rates have made financing their acquisition fairly cheap. All indications point to interest rates remaining low for a while, at least through the end of this year and likely beyond that as well. But even if they begin to climb, that doesn't spell doom for investor interest in apartment acquisitions. Rising interest rates would be the result of an improving economy, and, as noted above, an improving economy should lead to greater rent collections - an attractive offset for higher financing costs.
  • Sensible New Construction (Biz Journals) Multifamily Poised For Solid Future  
CASSIDY TURLEY LAUNCHES REAL ESTATE IPAD APP

by Kelly Johnson


Move over laptop. Cassidy Turley Northern California is giving those looking for commercial real estate information another reason to rely on the iPad. The brokerage rolled out its own iPad app last week that gives users the ability to easily compare markets  -- functionality that's not so easy on the website.


Cassidy Turley launched its app with its Bay Area reports, said Garrick Brown, who is research director for Cassidy Turley Northern California and for the company's Terranomics retail division. Reports for Sacramento will be added in a couple months, he said.


In addition to market reports, Cassidy Turley's iPad app eventually will offer podcasts, links to news stories and blogs, and comparisons to markets nationally, Brown said. The app will allow users to easily compare markets with one click on the same screen. From a laptop, one would have to go back and forth from numerous open windows on the browser. "I've got to get myself an iPad now because our department went out and created an app," Brown said. "I've been a hold out."


Companies and business professionals are increasingly using tablets. "As an industry, commercial real estate is behind the curve on that," Brown said. He expects over the next year or so most of the major commercial real estate brokerages will have iPad apps. He's heard that several other brokerages are working on their own iPad apps.


CoStar Group Inc., a commercial real estate information company that is the go-to resource for brokerages and was ahead of the digital curve, launched its robust iPad app in 2011. Its functionality is so dramatic that some brokers won't even go to CoStar on their laptops, Brown said. (Sacramento Business Journal) Commercial iPad app


  

WHAT IS THE "NEW NORMAL" IN COMMERCIAL REAL ESTATE ENVIRONMENT

A new annual report produced jointly by Real Estate Research Corporation (RERC), Deloitte, and the National Association of REALTORS® (NAR), entitled "Expectations & Market Realities in Real Estate 2013 -- Turn the Page", indicates that commercial real estate investors have been frustrated over the past five years and are ready for things to return to normal. The problem is, the current environment is the new normal and commercial real estate investors will need to adjust to the new reality if they expect to profit moving forward. 


Based on data from the report, investors are now coming to this realization and are now looking for the best ways to participate in this new commercial real estate environment to maximize their profitability and yields.


"It is time to stop waiting for the economy and the investment environment to get better. This is it -- this is the new normal -- and we need to turn the page on the past and make the adjustments needed to be successful for the balance of this decade," stated Kenneth Riggs, Jr., Chairman and President of RERC. "Investors are facing the challenges ahead, and commercial real estate continues to be an attractive investment for a variety of reasons in this economic climate."


Genesis President Terry Robinson agrees. "Things changed dramatically in 2008, and many thought we would get back to normal in a year or two," Robinson said. "This hasn't happened and there has been a shift. Genesis addresses the change through our off market approach, but we do see that not all buyers or sellers have faced reality yet."


In the recent study, the three contributing organizations drew on their individual strengths and expertise in the commercial real estate markets to provide an assessment of the commercial real estate markets in light of capital availability, the economy and existing trends. The report is an analysis of this data that provides an outlook for commercial real estate in the U.S. for 2013 and beyond. (PRWeb) What is the new normal 

 

PENSION FUNDS, ENDOWMENTS HUNGER FOR REAL ESTATE ASSETS

Pension

by Elaine Misonzhnik

 

Last May, the California State Teachers' Retirement System (CalSTRS) paid roughly $800 million for a majority interest in LCOR, an investment, management and development firm whose portfolio includes 7,400 multifamily units, 7.7 million sq. ft. of commercial space and multiple development projects.


In June, the California State Public Employees' Retirement System (CalPERS) plunked down $100 million for one-third of Bentall Kennedy, a real estate investment advisor with $8.4 billion in U.S. assets under management.


These deals, and many more, have come just a few years after pension funds lowered return expectations for commercial real estate investments and revamped the criteria for qualifying the success of a buy to include measures such as potential liabilities and future cash flows. But with fundamentals improving across property types, institutional investors, like everyone else, want to take advantage of microscopic interest rates when placing their money.


Today, U.S.-based public pension funds have 6.8% of their total assets, or an average of $758 million, allocated to commercial real estate, according to London-based research firm Preqin. Private pension funds have 5.2% of their assets, or an average of $434 million, tied up in real estate investments. Endowment plans have allocated 6.1% of their money, or $143 million, to commercial property. (NREIOnline) Pension Endowments

 

PRIVATE-EQUITY INVESTORS PLAY THE "YIELD COMPRESSION GAME"

The quest for bigger returns is prompting private equity investors to expand their target markets and move away from the relative "safety" of core properties in major metros and top secondary markets.


"The trend is that the money all started with a very narrow fairway, and now it is widening both from an asset class and different markets that people are willing to invest in," says James Tramuto, Managing Director, of Jones Lang LaSalle's Capital Markets in Houston.


The challenge to place capital is driving buyers to adopt more creative strategies and take on more risk. Some big investors are playing the yield compression game-pursuing property types such as suburban office, strip centers and limited service hotels that have yet to see cap rates decline.


"Those are the property sectors that have not to date seen the massive amount of cap rate compression as office CBD and apartment properties," says Dan Fasulo, Managing Director at New York-based Real Capital Analytics. Buyers are gambling that they can boost returns by getting in ahead of declining cap rates as occupancies and rents improve.


More investors have recently started to realize that core property investments may be fully priced, if not overvalued, and that the cap rates being paid for these properties are placing too great a premium on the value of cash flows, notes David Rubenstein, founder and senior managing principal at Rubenstein Partners. "The question becomes where else to turn? Our belief for a while has been that there is a great opportunity in value-added office," he adds. (NREIOnline) Private Equity Yield

 

  
MORE EMPLOYERS CHOOSE OPEN OFFICES
by Victor Epstein

Equality is rearing its head in an unlikely place -- the corridors of U.S. corporate power.

Some of the nation's largest white-collar employers are spending billions of dollars to transform their workplaces into more collaborative, congenial and productive settings by embracing the "open office" style of design.

Experts say the use of open office design elements is now growing at a double-digit pace, heralding the death of the traditional corner office and the infamous high-walled cubicle lampooned in the comic strip "Dilbert" and the film "Office Space."

"There's less hierarchy in the modern workplace, and this trend toward open office design reflects that," said Ken Wilson, a principal at the Perkins + Will architecture firm in Washington, D.C. "The traditional Dilbert cubicle where you are staring at the wall is dead." (Wall Street Journal) 
   
DEBT MODS ON RECEIVERSHIP NOW RARE
by Carrie Rossenfeld

While receivership properties can and do sell, lenders who are hoping that debt will be modified and assumed by buyers once the properties are in receivership are having their hopes dashed by the reality of the lending climate.
  
Pat Galentine, a principal with Coreland Cos., tells GlobeSt.com that many lenders had thought putting distressed properties into receivership would enable the debt to be modified and handled by future buyers, but with the current low-interest-rate environment, this hasn't become a growing trend. "I've only done one receivership sale where the debt was actually modified," Galentine says. "Most are finding that it's too long and cumbersome a process and doesn't make sense."

He adds that there has to be some reason to sell a property in receivership, such as physical issues or timing from a lender perspective. "That can be a little bit of a misnomer because it can be difficult to sell a receivership property quickly -- you have to find the right buyer, one willing to take it or leave it. You need buyers willing to step up and close quickly in that environment, and they are out there. They tend to be all cash and more sophisticated; they usually have a real estate background and understand receiverships and how they're buying it from the get-go."

Galentine says the market is going to see more of these receivership sales, "but not in the volume that everybody thought it was going to be. It was a big hot topic two to three years ago, and it's still out there, but it's more on a one-off basis -- there aren't volumes and volumes of them."
Selling out of receivership comes down to a distressed asset, he adds. "The hotter product types don't really need to sell out of receivership -- it isn't that much of a benefit to them." (Globe Street)
  
INTERNATIONAL BUYERS -- A SIGNIFICANT PART OF REAL ESTATE SALES
International by Jed Smith
 
NAR has estimated residential sales to foreign buyers at $ 82.5 billion for the 12 months ended March 2012, approximately 8.8% of the total residential market by dollar volume

Data for estimated commercial real estate sales to foreigners are more limited. Real Capital Analytics provides information for transactions greater than $2.5 million. RCA has reported the total market for larger U.S. commercial property sales over 2001-2012 at approximately $2.8 trillion, with purchases by foreign buyers in the neighborhood of $212 billion, or 7.7% of total sales.
  
Although commercial real estate sales to foreign buyers are relatively concentrated in 13 U.S. markets, foreign investors have actually made purchases in a large number of other cities. (NAR)
TRANSPARENCY
by Anne Thoraval

Transparency is Corporate Real Estate (CRE) executives' key issue when expanding into developing and emerging markets, as answers to the Jones Lange LaSalle Global CRE Survey 2013 illustrate. Other complications such as lack of suitable real estate offers, high start-up costs or lack of unified real estate standards are deemed less challenging.

What is the main issue when expanding into developing and emerging markets?
* 19% real estate market transparency
* 18% political transparency
* 17% economic transparency
* 10% lack of suitable real estate offer
* 7% start-up costs
* 7% lack of unified real estate standards
The lack of real estate transparency is a major issue for companies based in India (33%), while the lack of political transparency comes first for those based in Japan (32%) and Australia (17%), and the lack of economic transparency for companies based in China (43%).

Western multinationals in these countries do not share the same concerns as domestic corporations. In particular, the lack of real estate market transparency is a clear #1 issue for a majority of Indian (56%) and Chinese (50%) domestic companies. (Jones Lang LaSalle)