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                                  March 22, 2013 


Never let the fear of striking out get in your way. -- George Herman "Babe" Ruth
In This Issue
Regional Events
NAR's CRE Real Estate Market Outlook
Retail Sales Are Way Up
Conference Center Key to West Sac Plans
How You Can Tell Real Estate Isn't In The Toilet
Fannie Mae, Freddie Mac Reduced Targets
Retail and Waistline Expansion
Commercial Property Ownership Experience
Biggest Banks Eyed For BreakUp
Office, Retail Sectors Gain Jobs
Creating Value For the Retail Property Landlord
CRE Pricing Levels Off In January
Changing Office Trends Hold Major Implications For Future Office Demand
Lack of Seniors Development Due To Caution
Hotel Buyers Have No Reservations
The Slow & Painful Improvement of Shopping Fundamentals
All Options Explored In Quest For Yield
When Will Sustainability Matter
China Crosses Pacific To Buy U.S. Trophy Properties


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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% from 2011, earnings that year were thin. The banks ended 2012 with $5.5 billion in assets, a 7.2% increase year-over-year from 2011.

Massive national banks such as Wells Fargo, Bank of America and Citibank dominate market share locally, but looking at their balance sheets and earnings describes a national picture. Community banks are a direct barometer of the local economy.
Looking at how many loans are going bad is another indicator. (Sacramento Business Journal) Banks Slowly Recovering
by Kelly Johnson

Big-box stores are fading. Restaurants are surging. The Internet is changing the face of your neighborhood shopping center.

Retail centers -- whether neighborhood centers anchored by a traditional supermarket or larger complexes with a Target and a Home Depot -- increasingly emphasize food, services and entertainment to keep shoppers coming, retail experts say.

Consumers are still buying groceries at shopping centers, but they're just as likely also to go there to get a dental checkup or a massage, share a meal with friends, work out and take in the latest horror flick.

Stores that sell goods that easily can be purchased online are closing some locations, shrinking stores dramatically and bulking up their own online sales. "The smart retailers are trying to do both," said Craig Burress, a CBRE retail real estate broker. "You can't hide from the power of the computer right now."
The shift has been gradual. The changes, though, are mounting. "We'll see changes that we can't even imagine," Burress said. (Sacramento Business Journal) Shopping Centers

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.


Options to Buy, Extend, Expand And More!

Wednesday, May 1 -- 10:00 - 11:30 a.m.

Speaker: Bill Hunter, Esquire

Cost: $15 SAR Members and REALTORS®/$20 Non-Members


This program is all about commercial real estate sale and lease options. Brokers and agents encounter them frequently.  Are they well understood?  Are they well written?  Do you know what to do with them?


There are options to purchase fee title; options to extend the term of a lease; options to expand a leased premises; options to match a competing offer; and options designed to disguise a loan transaction.  Mr. Hunter will lead a discussion ranging from the basic legal principles and brokerage practices to the sophisticated and creative use of options.  In his usual style, Mr. Hunter will take questions asked during the presentation.  In addition, he will address the following: 

  • What makes option law unique?  And why?
  • How does every option contemplate two contracts?
  • Is payment by the optionee of a separate consideration required?
  • Can the option price or rent be an amount "to be negotiated"?
  • What are the common mistakes made when exercising an option?
  • How should a right of first refusal or to first negotiate be written?
  • How can a tenant's option to expand its premises be made workable?
  • Can an optionee both exercise the option and propose new terms?  How?
  • What services and products do title insurers offer for option transactions?
  • How transferable are options and other pre-emptive rights?
  • How should an option to extend a lease term be written?
  • How should an option to purchase fee title be written?
  • By what legally binding techniques may "fair value" be determined?
  • When should exercise of an option require more than a mere "notice of exercise"?
  • Can the bungled exercise of an option be promptly corrected?
  • What is a hidden security device?  Why does it matter?
  • What are the legal remedies for breach of an option agreement? 

Don't miss this one-time presentation with the always lively and effervescent Bill Hunter. You will make peace with options and be entertained as well! Registration form or call Brian DeLisa at (916)437-1210.



ACRE -- Broker of The Year Event

Thursday, March 28

Hyatt Regency, Sacramento

This event is sold out


Investment Forum

Tuesday, April 9 -- 7:30 a.m.
R.J. Grins In The DoubleTree Hotel for additional information
CCIM Networking & Ryan Rogers from Greentraks
Thursday, April 11 -- 5:00 - 7:00 p.m.
Downey Brand Law Firm
Contact Blain Hardy

Sacramento Real Estate Exchange

Friday, April 19 -- 10:30 a.m.

China Buffet in Citrus Heights

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


ULI Game Night to Support UrbanPlan

Thursday, May 2 -- 5:30 - 9:00 p.m.

The Sutter Club

Secure your property on the game board. Instead of building hotels, you'll be constructing mixed-use buildings! Contact Mary Sater, ULI Sacramento to find out which properties are for sale. Info 


Federal Budgets: Get It While They're Hot

National coverage of budget proposals is hot. Reviewing each proposal makes the future outlook cold. There are several differences between the House budget, led by Rep. Paul Ryan, and the Senate Democrats' budget. The good news is that the two budgets are $2.75 trillion away from each other when it comes to spending cuts over the next ten years. That's within negotiation territory, right?

Senate Democrats propose no changes to Medicare or Social Security. Ryan's budget proposes to repeal sections of the Affordable Care Act from 2010. Also notable is the focus on economic growth or stimulus in the Senate's proposal, which includes a $100 billion investment in infrastructure and job creation. Both plans offer spending cuts as the alternative to forced sequestration across-the-board cuts that went into effect on March 2, 2013.

Review a side-by-side comparison of the Ryan budget and the Senate Democrats' budget here.


OutlookThe Commercial Real Estate Outlook (CREO) is NAR's flagship commercial research publication. It is produced quarterly and includes the latest market information on five major commercial real estate sectors - industrial, office, multi-family, retail and hospitality real estate.

The publication includes national and metropolitan data from the respected research firms of CBRE Econometric Advisors and Real Capital Analytics, along with in-depth analysis from NAR Research. The full report is available only to NAR members, and the summary report is open to all visitors.
Read the press release with details here. See the forecast table here.


by Neil Irwin

When Congress allowed payroll taxes to rise at the start of 2013, ensuring that all American workers' after-tax pay would fall (most by two percent), it was reasonable to worry that the consumer-driven economy would take a damaging blow.

Never mind. February retail sales were released Wednesday morning and it's hard to imagine how the numbers could have been stronger. Overall retail sales rose 1.1 percent in February, more than double the 0.5 percent gain analysts had expected. January retail sales data was revised upward, to an 0.2 percent gain from 0.1 percent. Even excluding volatile food and auto sales, the February number was up 0.4 percent, double the 0.2 percent forecast.
On one level, this is a shock: Consumers who are seeing smaller paychecks should, by all rights, be holding fast to their wallets. It was just a few weeks ago that we were all fretting over leaked internal Wal-Mart e-mails in which one executive pondered "Where are all the customers? And where's their money?"
Well, it turns out (as Wal-Mart made clear in its earnings call shortly thereafter), they were just waiting a bit until they received their delayed tax refund checks. The underlying state of consumer spending seems to be strong.
But beyond what that tells us about the consumer, think about that in the context of other recent evidence. Friday's jobs report was quite good, and it followed a series of solid jobs numbers. Employers didn't sweat the fiscal cliff in December. They didn't sweat the sequester in February. Housing market indicators-construction, prices, sales-are all pointing up. Put it all together and it's hard to escape the conclusion that the U.S. economy is finally starting to gain some traction. (Washington Post)
by Mark Anderson

A $28 million city-funded conference center is described as the keystone to a project that would add a Marriott Hotel, a parking structure and some 136 apartments to the West Sacramento waterfront near the Tower Bridge.

The $101 million hotel would be built with private construction financing. The conference center would be built with $28 in public financing, and an additional $2 million of city money would go toward the parking garage.

The primary investor into the hotel and the parking garage is Dallas-based Encore Enterprises Inc., which will also develop the conference center. The hotel would be the first commercial project built in the Bridge District since Raley Field was built in 2000.

The city's investment into the hotel conference center would be paid back by Conf centerincreased room taxes and increased property taxes to the city from the project, plus there would be an additional 2 percent surcharge only the rooms in this project.

Marriott Hotels & Resorts has long wanted to have a full-service hotel near the Capitol. (Sacrameto Business Journal) Marriott Hotel Conference West Sac  



by Ben van der Meer

When asked about his sense of whether the economy, and commercial real estate, is on the rebound, Bob Kuhl cites an obscure metric: The poo factor.

Kuhl, named this week as the new senior vice president in brokerage for DTZ in their Roseville office, said he goes by the number of portable toilets his son has leased out at a any given time.
"If he's got 300 in the field and 100 come back in a given month, that's a bad sign," Kuhl said, explaining because such toilets are a requirement at many new construction sites, how many are leased out is a good way to see how much building activity is in the market.

Kuhl, who has 37 years of experience in commercial real estate, said the poo factor and other indicators give him a mixed outlook on his sector. While residential real estate prices are high and inventory is low, he said, hedge fund managers and other investors are scooping up much of what's available.

"I wonder what that's going to do to us," Kuhl said. "I see indecision. Everyone's being cautious."
It wasn't caution that led him into his new role. For most of the last 22 years, Kuhl was the main broker for TRI Commercial Real Estate, which began as a company he founded. And most recently, he had joined UGL Services in 2012.

The severe real estate downturn of a few years ago, he said, made him realize he needed to move onto a bigger platform if he wanted to do better for his clients. By working with a larger staff who can track down leads across several cities or even counties rather than his former base in western Placer County, he could make that happen. (Sacramento Business Journal) Real Estate Isn't in Toilet


by Bendix Anderson

Other lenders might finally have a chance to compete with Fannie Mae and Freddie Mac's loan programs in 2013-now that the federal government has ordered the government-sponsored enterprises and Freddie to scale back on providing permanent loans to multifamily properties.
That means that that borrowers looking to buy or refinance apartment properties will find lenders offering Fannie Mae and Freddie Mac loan programs being less aggressive, creating room in the market for competitors.

In March federal regulators released their goals for Fannie and Freddie in 2013, including a goal to cut their volume of new multifamily lending by 10%.

"We expect that this reduction will be achieved through some combination of increased pricing, more limited product offerings and tighter overall underwriting standards," said Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA) recent remarks to the National Association for Business Economics.

In a way, this is part of a natural progression. During the financial crisis, Fannie and Freddie program lenders originated up to 85% of multifamily financing.

Today capital markets have largely recovered and Fannie and Freddie's market share has shrunk to about 45%. "They are doing about half of what they were doing," says David Cardwell, vice president of capital markets for the National MultiHousing Council. "They did what they are supposed to do: Step in and provide liquidity."

Even the reduced market share for Fannie Mae and Freddie Mac in 2012 was still a huge volume of lending, because multifamily lending activity overall has sharply recovered since the financial crisis. Fannie Mae provided $33.8 billion in financing to the multifamily market in 2012 -- making it the third biggest year in its history. "The company remained the largest source of multifamily financing in 2012, working with lender partners to finance nearly 560,000 units of multifamily housing," according to a statement from Fannie Mae. (NREIOnline) Fannie Freddie Targets


How many burgers can America eat? Although it seems like there is a fast food or fast casual restaurant on every outpad in America, restaurant chains are gearing up for an expansive year, according to Chainlinks' 2013 retail forecast.


Of the 41,000 planned retail openings in 2013, 42%  are restaurant-related. Five Guys Pizza alone hopes to open 500 new stores this year, with eight other food chains announcing plans to open 200 or more U.S. outlets and 17 more planning between 100 and 200 new units. Shopping center landlords don't mind; they are looking to food and entertainment tenant mixes to drive traffic to brick-and-mortar centers. After all, you can't eat a burger over the Internet -- at least not yet.
Hospitality - Do hotel loyalty programs work? Not according to Deloitte's October 2012 survey of 4,000 travelers. Nearly 50% of loyalty members' annual hotel dollars were spent somewhere other than their preferred hotel. In fact, only 7.8% of participants always stay at the same hotel brand. The majority of respondents selected value, free parking, comfort, and location as a hotel brand's most important attributes.
Industrial - A stronger housing market will boost industrial absorption this year, cutting the current vacancy rate by 70 bps by year-end, reports Cassidy Turley. In the last two years, industrial absorption has topped 205 msf, surpassing the 145 msf lost during the recession. While landlords have been reducing rental rates to lease space, rents are poised to grow 2% to 3% this year.
Multifamily - In the next 12 to 15 months, 30 U.S. cities will pass mandates requiring multifamily property owners with more than 10,000 sf to enter energy use data in the Environmental Protection Agency's Portfolio Manager, a data resource that will be used to develop Energy Star ratings for apartment buildings, said EPA officials at the National Multi Housing Council's fall tech conference.
Office - Despite -- or because of -- the fiscal cliff scenario, 4Q12 demand for office space nearly tripled over the previous quarter, with markets absorbing 20.1 msf, up from 7.1 msf in 3Q12, says Kevin Thorpe, chief economist for Cassidy Turley. It was the strongest demand for office space since 2007, with 65 of the 80 metros tracked showing occupancy gains.
Retail - Class B is back. "Class B (community, neighborhood, and strip shopping centers are) now generally back to reasonable vacancy levels and rental rate growth in at least the top 70% of major U.S. markets," says Chainlinks Retail Advisors 2013 retail forecast. Just two years ago class B shopping centers were performing in only the top third of U.S. metros. (CCIM) Market Trends 



Are You Experienced?

It stands to reason that any transaction you undertake without prior experience is likely to go against you in some way. Commercial property transactions, as complex as they can be, are no exception. Lenders, counter parties, managers, brokers, even counsel, all represent their interests to the maximum. When they're on the other side of the table, you can bet that those interests will be represented at your expense if you lack the ability to see the deal in the terms they do. You obtain that ability in depth in only one way: through direct experience. Experience in commercial property ownership and management is critical to success.

Everybody Prefers Experience, Starting With The Lender
A borrower's understanding of how to operate the property is high on the list of what a lender is looking for. Creditworthiness is king, then market conditions have their say, but no matter what, the lender is always looking for clues that the borrower has an understanding of what owning this property entails. If the borrower's answer boils down to a simple "I'll be hiring a property manager," a lender has every right to wonder about the management capability of the borrower.


This is not to say that hiring a property manager is a mistake, it's to say that the borrower's management acumen should be on display, not downplayed. Take the intent to hire a manager as an example: the borrower's management of that relationship between herself and her property manager is still seen by the lender as the lender's best defense against the borrower running into trouble down the line with the property. And trouble means endangered loan service.

Showing Experience
A borrower needs to demonstrate to the lender an acumen at commercial property ownership and management. One way to do this is through the development of a document of that acumen. Sometimes called an REO Schedule (Real Estate Owned), this list of real property, which can include single-family, is to make it clear to the borrower that the lender has experience commercial real estate purchase, ownership and operation.

This document has such an effect on lenders that if a borrower happens to be out of the market at the time of the deal, the Schedule should include a list of properties once-owned with dates of sale, descriptions including unit numbers, square footage and other vitals.

Bottom line: Commercial property is income property -- show your lender that you've got the experience and can handle the ins and outs of an income stream, and you're more likely to get the capital you need to make the deal. (CommercialSource) 



banks failAt long last, the case for "too big to fail" banks is falling apart.

In the wake of the residential mortgage crisis, our industry has for years now struggled with finding the sources of capital it needs to finance the commercial real estate transactions that drive the broader economy. The role of banks is to allocate that capital to our sector, to manage risk and to both set up and follow rules that promote stability and predictability as that capital circulates into and out of our transactions.

But risk management and rules have fallen by the wayside.

When US Attorney General Eric Holder last week testified to Congress that some banks are so big that DOJ is afraid to bring charges against megabanks, not even the most strident opponent of government regulation could fail to notice that the country's top law enforcement official was actually giving up on law enforcement, at least when it came to TBTF banks.

The reason given by Holder was the same reason given by the banks themselves when accepting the bailouts: what's bad for megabanks is bad for the entire economy. In other words, first, in 2007, the banks in crisis managed to call off the basic rules of the market. Now they have effectively called off the law itself.

You can't get much more unregulated than that.

If you're not a megabank, and you gamble and lose, then you leave the table. But if you're JPM Chase, you get a pat on the back and a pile of new chips on a silver platter. Plus a few handfuls for your own pinstriped pockets. (CommercialSource)


The office-using and retail sectors added 100,000 and 23,700 jobs respectively in February, according to Cassidy Turley's March 2013 Employment Tracker. Job growth in the office sector marked the greatest monthly increase since September 2011, and demand for both office and retail space is expected to remain positive through 2013.

Secondary markets saw notable year-over-year increases in office-using jobs in 4Q12, including Austin, Texas (7.5%), Cincinnati (4.8%), and San Jose, Calif. (4.4%).

The growth in the office and retail sectors coincides with the overall national jobs trend, as unemployment hit a four-year low of 7.7% in February.

However, impressive employment gains might not be enough to counteract the potential effects of federal sequestration and rising gas prices. Assuming Congress reaches an agreement on federal spending cuts by the end of March, gross domestic product is on track to increase by 2.5%, creating an additional 1.9 million net new jobs this year. (Cassidy Turley) Download the report



by Tom Geissler

Creating value in real estate is a challenging task, but something every real estate property owner desires. Whether your property is retail, office or industrial, value must be earned through hard work and evaluated risk. Retail real estate, with all of its glamor and glitz, is unique. To create value in it requires experience and market intelligence.

Several times in my career, I've had opportunities to take mismanaged properties and, through improved management procedures, turned them into properties that fit the market they were in and reached their achievable value. Most times these properties didn't require any drastic physical changes; just the talent and a plan to correct their poor physical appearance, occupancy and management procedures. It takes a willing owner, the vision and ability to create the plan and the energy and dedication to implement it.
Whether property owners manage their real estate themselves or hire property managers, they must convey a clear and concise plan for how they want their real estate managed. Using the following five methods to develop the owner's plan will provide higher value and fewer headaches.

1.Replace low-credit tenants with nationally or regionally recognized players. For a lender or investor, reliable cash flow is the name of the game. Have it and you'll secure a lower interest rate on your mortgage and buyers will be willing to invest more for your property. Long-term leases, high rental rates and a good use all make a property attractive to investors.

For a very general example, take a property with five local "mom-and-pop" type tenants paying $100,000 annually -- all of equal credit paying $20,000 each. At a cap rate of 10%, the property could be worth about $1 million. In general terms, if two tenants are replaced with national or regional credit tenants that reduce the individual cap rate for the space by two points (from 10% to 8%), the blended cap rate for the center becomes about 9.1% and your value increases by about $100,000. Furthermore, it has the potential to increase lender funding and decrease your mortgage lending rate.(REGBlog) Create Value For Retail Landlord


By Randyl Drummer

U.S. commercial real estate sales transaction volume tapered off and pricing leveled in January in a seasonal slowdown in trading activity following December's busy year-end burst of activity, according to this month's analysis of repeat-sale pairs tracked by the CoStar Commercial Repeat Sale Indices (CCRSI).

While January's seasonal fluctuation resulted in a mixed picture for the CCRSI's Composite indices, property market pricing remained on an upward trajectory, based on the 703 repeat sales recorded in January and more than 100,000 sale pairs since 1996 observed by CoStar.

The narrowing gap between the initial asking and final sale prices -- and the dwindling time that for-sale properties are spending on the market -- show increased asset liquidity and improved investor sentiment, according to the report based on sales through Jan. 31, 2013.

The average time that properties are on the market declined 2.7% from its recent second quarter 2012 peak. Similarly, the spread between the price a seller asks and the price a buyer ultimately pays has narrowed by almost 2.5% from year-ago levels and now stands at its lowest level since early 2009.

Supported by a 40% annual increase in CRE lending activities in 2012, "the disconnect between seller and buyer expectations is narrowing," noted CCRSI report author Dr. Ruijue Peng. "Additionally, fewer properties are being withdrawn from the market by discouraged sellers, another indication of improving investor sentiment." (CoStar)  CRE Pricing Levels


by Mark Heschmeyer

Perhaps just as the inevitable disappearance of music, video and books stores should have been foreseen at the onset of a digitized connected world, so too should the commercial real estate industry start taking a hard look at changes occurring in the office market. 

Tenants are downsizing their offices, particularly larger public firms, as they increasingly adopt policies for sharing non-dedicated offices and implement technology to support their employees' ability to work anywhere and anytime, according to Norm G. Miller, PhD, a professor at the University of San Diego, Burnham-Moores, Center for Real Estate, in a webinar he presented to CoStar subscribers last week. 

Miller said he put together the webinar to examine what would happen if office tenants used 20% less of the nation's current office space, which has a total valuation of $1.25 trillion. That decrease in demand would represent $250 billion in excess office capacity. Although the current situation is not that dire, Miller said the trend is real, and he presented how it is currently playing out and the long-term implications for office building owners and investors.

Following the webinar, CoStar News interviewed Dr. Miller for a more in-depth discussion of the topic and surveyed a wide sample of webinar participants to share their firsthand account of the ongoing trend and its implications. 

According to Miller, four major trends are impacting the office market:
* Move to more standardized work space.
* Non-dedicated office space (sharing), along with more on-site amenities.
* Growing acceptance, even encouragement of telecommuting and working in third places, and
* More collaborative work spaces and functional project teams. (CoStar)  



by Robert Carr

One of the main excuses for a lack of new seniors housing development, even in the face of massive impending need in the next decade, is tight financing  --the theory that lenders don't want to fork over cash for properties that may not fill up in a sector not as understood as other commercial properties.

However, the lack of bank support may be a myth, experts say, as established firms are more likely just building carefully and focusing on need-based uses rather than market-rate properties. According to fourth quarter data from NIC, construction starts for seniors housing is at about 1.4% of inventory, which is about one-third of the level the industry saw right before the recession. Much of the drop is from independent living, which took a hit from seniors not able to leave their homes, but even need-based housing is down by a third.

David Hegarty, president and COO of Newton, Mass.-based Seniors Housing Properties Trust Management, says he believes that lenders are being very choosy about which projects they are financing. "At some point, as the CMBS market becomes more fluid, banks will be able to offload the debt and they may be able to go out more on a risk curve," Hegarty said during the trust's presentation at the Citi Global Property CEO conference on March 6. "I think the developers are all waiting on the sidelines with a plan for development all over the country, so I can envision certain markets being overdeveloped in about five years."

Other experts in seniors housing lending, however, say that it's more likely that the pipeline will be built gradually, with the most needed housing of assisted living and memory care being snapped up quickly as it is opened. For example, Chicago-based Harrison Street Real Estate Capital recently partnered with Garden City, N.Y.-based Engel Berman Group to acquire seven former Bristal seniors housing properties for $380 million in New York, and the venture plans to build 1,000 more units together.

"With the aging population and increased life expectancy we believe there is going to be a need for assisted and memory care properties," says Chris Merrill, CEO of Harrison Street. "We see the opportunity in these smaller assets with private pay and based on a rental, not a buy-in, model. We think skilled nursing will have challenges given the reliance on public pay. Also market rate and independent can be more tied to swings in the economy." (NREOnline)




extended stay

by Beth Mattson-Teig

Traditionally, extended-stay properties have not been high on the wish lists of institutional investors. Yet REITs, institutions and private equity players have made a big splash in the sector with major portfolio acquisitions in the past year. Those high-profile transactions coupled with strong fundamentals are piquing interest across a wide spectrum of investors.

So why the sudden interest? The simple answer is that extended-stay properties are attracting attention because they have performed well. They have strong operating margins. Financing is available, and buyers can acquire property at a more "rational" cap rate, says Dan Peek, a senior managing director at HFF in Tampa, Fla. "So, you can create short-term, pretty high returns on a levered basis out of a select service hotel, more so than you can out of a full-service hotel," he adds.

Although extended-stay properties have been rebounding along with the broader hotel industry, the niche has attracted more attention in the past year due to a strong increase in its average rate. Extended-stay hotels saw RevPAR rise to an all-time nominal high of $58.80 in 2012. The average rate for extended-stay properties rose 6.9% in 2012 compared to the 4.2% increase in the overall hotel industry, according to a recent report released by The Highland Group, an Atlanta-based consulting group.

That spike is due in part to the fact that extended-hotels have become more aggressive in boosting rates in the past year, notes Mark Skinner, ISHC, a partner at The Highland Group. In addition, extended-stay hotels were offering more discounted contracts for long-term stays to keep occupancies high during the recession. Now that the market is recovering, those discounts are disappearing. (NREIOnline) Hotel Buyers 



by Brad Doremus and Victor Calanog

The recovery in neighborhood and community shopping center space trudged onward during the last three months of 2012.

Improvements in fundamentals were minimal at best, on par with quarterly results exhibited since the retail space market bottomed. However, the sluggish recovery is far from unexpected. Despite historically low levels of completions, demand is severely depressed, resulting in only incremental improvements in occupancy and rents.

The vacancy rate declined by 10 basis points in the fourth quarter, just as it had in three of the previous four quarters. As a result, the year-over-year decline in vacancy was just 30 basis points. 


Limited demand is to blame for the lack of anything more than marginal improvements in vacancy. Net absorption for the fourth quarter totaled 2.29 million sq. ft. While this is an improvement over the 1.50 million sq. ft. absorbed in the third quarter, it still isn't robust enough to move the needle for occupancy in any meaningful fashion. Occupied stock increased by 9.53 million sq. ft. for the calendar year 2012.

With demand for shopping center space so low, the only reason that vacancies are declining at all is the absence of much construction. Just 915,000 sq. ft. of new space was completed in the final quarter of 2012, which was actually an increase relative to the 723,000 sq. ft. that came online in the third quarter. This compares with a quarterly average of 7.80 million sq. ft. of new construction between 2000 and 2007. (NREIOnline) Slow Painful Improvement


Gamble by David Bodamer
With commercial real estate values peaking in 2007 and capital markets cratering in 2008, risk became a dirty word for investors. For much of the time since, the only deals getting done were the trades of the safest assets in the strongest markets.
The flight to quality was, in part, driven by the state of capital markets; lenders were only willing to finance the best bets. But as commercial real estate has stabilized and drawn more interest from lenders and investors, cap rates and yields have compressed. As a result, risk has reentered the equation.
Today, institutional investors including pension funds, private equity funds, hedge funds, life companies, REITs, endowments, sovereign wealth funds and other players with large pools of investable capital are taking new chances to boost their yields. That means more activity in secondary and tertiary markets and acquisition of non-core properties across all property types. It also is resulting in experimentation in other ways of investing in the space. 
Institutions are not just buying hotels, office buildings, apartments, industrial properties and retail centers. They are also making bets on single-family housing. They are acquiring distressed properties and debt. They are becoming more creative in deal structures, including entering joint ventures with other entities. And they are allocating capital to invest in publicly traded and non-traded REITs. Here's a look at how some of those trends are taking shape. Click here (NREIOnline)

by Susan Piperato

Sustainable buildings result in lower operating costs, not to mention long-term savings as the cost of energy continues to rise. Many investors and real estate firms are starting to focus on amassing green portfolios. But when will sustainability become as standard a criterion as location and quality in U.S. investors' acquisitions? According to many within the industry, thanks to a growing awareness of green as well as several benchmarking programs, that day is almost here.

Many public pension funds and some private pension funds are interested in being environmentally responsible, says Real Capital Analytics Managing Director Dan Fasulo. But "the only real green buildings are brand new buildings built to the U.S. Green Buildings Council's (USGBC) Leadership in Energy and Environmental Design (LEED) standards. While these buildings are becoming more common, especially in the major markets, it's still very uncommon for them to be up for sale."

There are pressures to go green everywhere, which will increase the stock of sustainable buildings. "Whether it's economic or there is pressure from shareholders or a perception of green increasing productivity or the like, it seems there is still a consistent push to improve the efficiency of commercial buildings," says David Pogue, the New York-based Global Sustainability Director for CBRE Group Inc. "In certain markets, say, downtown Boston or Seattle, every high-quality building and virtually any new building is being built to the highest standards."

Globally speaking, says Meredith Despins, Vice President of investment Affairs and Investor Education at NAREIT in Washington, D.C., "The environment social and governance issues are all top of mind [for] many investors." However, she notes, in the U.S., only a few large public investors like the California State Teachers Retirement Systems are specifically targeting green investments at this point. (NREIOnlin) Green Real Estate Investing 


american dream 
by Randyl Drummer

A recent spate of high-dollar transaction activity shows the extent to which Asian-Pacific capital is again seeking the safe haven of American shores -- this time with new players such as sovereign wealth, pension funds and insurance companies from Singapore, South Korea and China investing in flashy U.S. commercial real estate assets.
Singapore-based entities, the most active of the Asian cross-border investors over the last 12 months, allocated $2.5 billion toward investment in U.S. property during 2012, including the blockbuster $851 million purchase of 101 California St. in downtown San Francisco by a partnership led by the Government of Singapore Investment Corp. sovereign wealth fund.

Making headlines this week is another new entrant in the U.S. market, Overseas Union Enterprise Ltd., a Singapore-based developer and real estate investment company, which agreed to acquire the distressed U.S. Bank Tower, the tallest building west of Chicago, from downtown L.A. landlord MPG Office Trust, Inc.for $367.5 million.
These acquisitions illustrate how Asian-Pacific investors are again buying American -- albeit more cautiously than in previous cycles when investors took major stakes in numerous U.S. trophy office properties.
"These companies are very methodical about how they approach their [investment] programs," Richard Stockton, Los Angeles-based President and CEO for Singapore-based OUE for the Americas, tells CoStar. "I don't think you'll see a rush by them into real estate. I don't think that's how it will play out this time." (CoStar)