NOI Strategies News Alert

Block 37 handover pushed back again

Delays over insurance at Block 37 continue to keep the court-appointed receiver at bay.

In court Friday, the judge pushed the matter back another week as the CB Richard Ellis Inc. executive tapped to take over leasing and management of the new mall on State Street works on whether to assume an existing insurance policy or establish a new one.

The project’s developer, Chicago-based Joseph Freed & Associates LLC, said getting a new owner-controlled insurance program (OCIP) could lead to a work stoppage, as the policy covers contractors and subcontractors who would need to review a new policy.

Freed, again, said the delay over insurance shows that the receiver tapped by Bank of America Corp. in conjunction with its foreclosure lawsuit isn’t up to the job.

“It is not in the best interests of the project, the city or the bank to transfer control of this difficult project to a receiver demonstrably incapable of managing it, especially when a possible work stoppage might be the result,” Freed President Larry Freed said in an e-mailed statement.

CB Richard Ellis says in a statement that the receiver, CB executive Karen Pence Hollan, is ready to assume control of the project and that the additional week granted by Cook County Circuit Court Judge Margaret Brennan gives the parties time to determine whether the receiver will assume the existing policy or get a new one.

“CB Richard Ellis and the receiver are ready to assume complete control of Block 37,” the statement says.

 

Source: Eddie Baeb (2010). Block 37 handover pushed back again. Crain’s Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.chicagorealestatedaily.com/cgi-bin/news.pl?id=36684

Hines, CalPERS Sold 500,000-SF Office Park for $75M

National Office Partners LP, a joint venture of Hines and the California Public Employees' Retirement System (CalPERS), sold Station Square, a 496,967-square-foot office park in Silver Spring, MD, last week to a joint venture led by Moore & Associates, the park’s developer, and Urdang Value-Added Fund II LP. The three-building property traded for $74.7 million, or approximately $150 per square foot.

Moore & Associates originally sold the Class A complex to National Office Partners in December 2005 for $129.8 million, or about $256 per square foot, because of low cap rates.

“Today, capitalization rates are much higher and Silver Spring remains a strong office market in a balanced urban center,” said Lloyd W. Moore, chairman of Moore & Associates.

The portfolio is about 8 miles outside of Washington, DC, and one block from Discovery Communications’ 600,000-square-foot headquarters and the Silver Spring Metro station.

Station Square’s 10-story building at 8484 Georgia Ave. delivered in 1983 and the 14- and 12-story structures at 1010 and 1100 Wayne Ave. delivered in 1987. The assets are between 139,900 and 196,660 square feet and 75.6 and 84 percent leased. Current tenants include MayaTech Corp., the National Oceanic and Atmostpheric Administration, TV One LLC, Palladian and TEKsystems Inc.

This is the partnership’s fourth purchase. A multimillion-dollar renovation of the park will commence immediately and Moore & Associates will take the lead on property management, leasing and construction.

Bill Prutting Jr., Bill Kaye and Randall Heilig of CB Richard Ellis’ Investment Properties Group represented Hines and CalPERS. No outside brokers were mentioned for the acquisition group.

 

Source: Laurie Forbes (2010). Hines, CalPERS Sold 500,000-SF Office Park for $75M. Costar Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.costar.com/News/Article.aspx?id=883C6326BFC1F62891D7CD31A52A1F75

Colony Capital, REIT Strike Deal to Buy 40 Percent Stake in FDIC Portfolio

Colony Capital and its affiliated REIT, Colony Financial, have struck a deal with the FDIC to buy a 40 percent equity stake in a $1.02 billion portfolio of distressed mortgages, many of which are backed by commercial properties across the country.

The Colony team is paying $90.5 million for the stake, while the FDIC will retain a 60 percent stake and provide $233 million of financing, giving the transaction an overall value of $459.3 million, or 44 percent of its face value. According to the FDIC, 21 investor groups had submitted offers.

The portfolio was pitched by Deutsche Bank, FDIC's financial adviser, as containing commercial mortgages. But only 537 loans with a balance of $455.5 million, or 41.5 percent of the portfolio, are backed by traditional commercial properties - office, industrial, retail, apartment, self-storage and hotel properties.

A large chunk - 203 loans with a balance of $310.2 million - is backed by land assets. And the portfolio also contains a substantial concentration of other oddball assets. For instance, 30 loans with a balance of $30.7 million are backed by churches. Another 11, with a balance of $7.9 million, are backed by car washes. And two loans with a balance of $700,812 are backed by funeral homes, according to offering material that Deutsche had distributed.

According to the offering material, the portfolio initially contained 1,232 loans with a balance of $1.09 billion, meaning Colony and FDIC agreed to kick some loans out by the time they agreed to a deal.

One-third of the portfolio's loans are classified as current, while the remainder is delinquent. A total of 318 loans with a balance of $440.8 million are more than 150 days past due.

The portfolio is heavily concentrated with assets in Georgia (30.7 percent of the portfolio's balance), California (14.7 percent), Nevada (14.4 percent) and Florida (13.5 percent). A total of 69 percent of the loan balance was originated between 2005 and 2007.

FDIC had put the portfolio, which was split into two geographic pools, in play last fall when it tapped Deutsche to handle marketing. But the transaction, like two others that were launched at nearly the same time, was postponed as the agency re-jiggered its so-called structured transactions.

As the agency's program was originally envisioned, it would sell stakes in large portfolios of assets to investors. Its thinking was that by keeping an interest, it could benefit down the line if property values improved and would make it easier to move massive volumes of assets. It subsequently added a seller-financing component, adopting elements of the federal government's proposed Legacy Loan Program.

In recent weeks, especially after it agreed to sell a $4.5 billion portfolio of assets from the failed Corus Bank to a team led by Starwood Capital Group, the FDIC decided to again re-jigger its offerings.

In that transaction, the Starwood team, which included TPG Capital, Perry Capital and WLR LeFrak, agreed to buy a 40 percent stake in the portfolio. But after it achieves a 25 percent internal rate of return, its interest in the portfolio drops to 30 percent.

While that shift bewildered many prospective investors, which called it a disincentive to aggressively work out assets, the agency adopted it for future structured offerings, including the portfolio sold to the Colony team.

The agency has two additional structured offerings in the market, bids for which will be taken on Jan. 20. Keefe, Bruyette & Woods is financial adviser for a $2.7 billion portfolio of residential acquisition and development loans, while the team of Midland Loan Services and Pentalpha Capital Group will handle the sale of a portfolio of $1 billion of commercial acquisition and development loans.

 

Source:  Colony Capital, REIT Strike Deal to Buy 40 Percent Stake in FDIC Portfolio. Commercial Real Estate Direct Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.crenews.com/index.php?option=com_content&task=view&id=63868&Itemid=127

Two PA Centers Trade Hands in Separate Deals

Two grocery-anchored shopping centers recently traded hands, one here, and one in Bensalem, in Bucks County, in two separate transactions. Though not large, the deals are potential signs that the standstill in retail centers trading hands is easing up.

In Allentown, Larken Associates purchased the 230,284-square-foot Tilghman Squarefor $19.4 million. The Hillsborough, NJ-based firm did not reveal the sales price or former owner, but a 2007 article in Construction Today magazine listed the Lamar Cos., of Morristown, NJ, as the owner in 2007.

Anchored by Amelia’s Grocery Outlet, Staples and an AMC Theatre, Tilghman has a total of 36 stores. Smaller tenants include PNC Bank, Wendy’s and Red Robin, in the 96%-leased center.

Further south in Bensalem, Bensalem Crossing Associates sold the 67,315-square-foot Bensalem Crossing to a private entity for $13.6 million, in a deal brokered by Marcus & Millichap. The center, which traded at a 7.85% cap rate, is leased and managed by the Goldstein Group, which will continue to stay on after the transaction. ShopRite and CVS are Bensalem Crossing’s main tenants, occupying 93% of the asset.

 

Source: Ian Ritter (2010). Two PA Centers Trade Hands in Separate Deals. Globest Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.globest.com/news/1574_1574/philadelphia/182989-1.html?sector=newyork

Houston office market hit skids in ‘09

Houston’s office market ended the year with 2.74 million square feet of negative net absorption — the largest loss since 1986, according to statistics compiled by CB Richard Ellis Inc.

The absorption rate is the net result of all office transactions during the year, meaning there was nearly 3 million square feet less space occupied in 2009 than the previous year.

The loss erased all of the gains in 2008, when the local office market experienced a positive net absorption of 2.74 million square feet.

Houston has about 190.6 million square feet of rentable office area. A total of 5.4 million square feet of office space was added to the local inventory during 2009. Another 2.4 million square feet of new office space remains in the pipeline, then no other facilities are in development for the foreseeable future.

A big chunk of 2009’s negative net absorption occurred in the fourth quarter. The office market had 1 million square feet of net loss in the final quarter — 805,000 square feet of which was in the suburbs.

Of the 17 submarkets assessed by CBRE, only five had positive net absorption for the quarter: Clear Lake, East, Energy Corridor, Greater Pearland and Katy Freeway.

CBRE data shows the market had an overall vacancy rate of 15.9 percent at the end of the year. However a higher amount of Houston’s office space, 18.2 percent, was available when taking into account additional sublease space.

The 15.9 percent vacancy in fourth quarter 2009 was 60 basis points higher than the previous quarter, and 400 basis points higher than the end of 2008.

As a result of higher vacancy rates, overall office lease rates declined for the first time since the second quarter of 2005, CBRE reported. Overall average gross asking rates were $24 per square foot across the city.

Sanford Criner, a CBRE executive vice president, said at the firm’s quarterly press luncheon Jan. 7 that the spike in oil prices is not yet translating into job growth, which is the fuel for office absorption. Energy firms are doing more with less, and quietly sending more jobs overseas, he said.

“There’s definitely some offshoring of jobs,” Criner said.

 

Source:  Jennifer Dawson(2009). Houston office market hit skids in ‘09. Houston Business Journal Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.bizjournals.com/houston/stories/2010/01/04/daily37.html?s=industry&i=commercial_real_estate

Office tower price is slashed

A Center City office tower has sold for nearly $40 million less than what it was bought for roughly seven years ago.

The sale of 2000 Market St., a 29-story, 665,000-square-foot building, for about $50 million came after its previous owner gave up the building to its lender in the face of declining property values.

The deal highlights a type of transaction expected to play out again with office buildings in the suburbs and Center City over the next few years as the market adjusts to current conditions plaguing commercial real estate, according to real estate experts. In general, landlords are facing weak leasing activity, lower rents, large debt loads and asking prices for buildings is still fluid.

On New Year’s Eve, CB Richard Ellis Investors, the pension advisory arm of CB Richard Ellis, bought 2000 Market St. for roughly $80 a square foot. The closing came after the owner, RREEF, in November voluntarily gave the building back to its lender, Prudential Life Insurance, in a deed in lieu of foreclosure, according to a person familiar with the details of the ownership and transaction. A spokesman at RREEF, the investment management business of Deutsche Bank, couldn’t be reached for comment. RREEF continues to own 70 million square feet of real estate throughout the United States. The Philadelphia office of CB Richard Ellis arranged the most recent sale and RREEF recently retained CB Richard Ellis to handle management of its portfolio.

The sale price was close to what the building sold for in 1997 when Rubenstein Co. paid $52.7 million for it.

It was not clear why RREEF gave the property back to its lender, though there are several reasons why an owner would do so. In general, a property owner that can make its loan payments tries to determine whether it’s worth continuing to own a building in hopes the market and values eventually recover.

RREEF bought the building in 2003, when the commercial real estate market was climbing to its peak, for $77 million and had a $49 million mortgage with Prudential on the building. Between the time RREEF bought the building and decided to relinquish ownership, the building had lost roughly $30 million in value. The building is 75 percent leased. Its largest tenant is Fox Rothschild, which renewed last year on 104,461 square feet for 15 years.

While nothing had physically changed with the building and its leasing stabilized, the real estate market — commercial and residential — has changed. Investors are unwilling to pay the high prices today or to take on as much risk as they were just a few years ago.

In October, the building nearly sold to a partnership that included Angelo Gordon & Co. and Amerimar Enterprises of Philadelphia. That deal fell through, according to people familiar with it, and Prudential took over the ownership of the property. Soon thereafter in November, an agreement between Prudential and CBRE Investors was hatched. In a coincidence of the transaction, CB Richard Investors had 2000 Market under agreement in October 2007 — before the credit crisis and global financial crash — for a reported $90 million, but that deal was never consummated.

Landlords, who bought Center City office buildings during the past seven or so years, are likely looking at this sale with trepidation since many of them bought buildings at a market high point. Since then, financial and real estate markets have changed and office buildings values are 35 percent to 40 percent off from their peaks, according to one investment broker. The price is definitely a new data point and helps to recalibrate the range in which office buildings begin to trade this year.

The property was constructed in 1973 and underwent major renovations in 1996 and ’97.

 

Source: Natalie Kostelni (2010). Office tower price is slashed. Philadelphia Business Journal Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.bizjournals.com/philadelphia/stories/2010/01/11/story1.html?b=1263186000%5e2690871&s=industry&i=commercial_real_estate

Office tower price is slashed

A Center City office tower has sold for nearly $40 million less than what it was bought for roughly seven years ago.

The sale of 2000 Market St., a 29-story, 665,000-square-foot building, for about $50 million came after its previous owner gave up the building to its lender in the face of declining property values.

The deal highlights a type of transaction expected to play out again with office buildings in the suburbs and Center City over the next few years as the market adjusts to current conditions plaguing commercial real estate, according to real estate experts. In general, landlords are facing weak leasing activity, lower rents, large debt loads and asking prices for buildings is still fluid.

On New Year’s Eve, CB Richard Ellis Investors, the pension advisory arm of CB Richard Ellis, bought 2000 Market St. for roughly $80 a square foot. The closing came after the owner, RREEF, in November voluntarily gave the building back to its lender, Prudential Life Insurance, in a deed in lieu of foreclosure, according to a person familiar with the details of the ownership and transaction. A spokesman at RREEF, the investment management business of Deutsche Bank, couldn’t be reached for comment. RREEF continues to own 70 million square feet of real estate throughout the United States. The Philadelphia office of CB Richard Ellis arranged the most recent sale and RREEF recently retained CB Richard Ellis to handle management of its portfolio.

The sale price was close to what the building sold for in 1997 when Rubenstein Co. paid $52.7 million for it.

It was not clear why RREEF gave the property back to its lender, though there are several reasons why an owner would do so. In general, a property owner that can make its loan payments tries to determine whether it’s worth continuing to own a building in hopes the market and values eventually recover.

RREEF bought the building in 2003, when the commercial real estate market was climbing to its peak, for $77 million and had a $49 million mortgage with Prudential on the building. Between the time RREEF bought the building and decided to relinquish ownership, the building had lost roughly $30 million in value. The building is 75 percent leased. Its largest tenant is Fox Rothschild, which renewed last year on 104,461 square feet for 15 years.

While nothing had physically changed with the building and its leasing stabilized, the real estate market — commercial and residential — has changed. Investors are unwilling to pay the high prices today or to take on as much risk as they were just a few years ago.

In October, the building nearly sold to a partnership that included Angelo Gordon & Co. and Amerimar Enterprises of Philadelphia. That deal fell through, according to people familiar with it, and Prudential took over the ownership of the property. Soon thereafter in November, an agreement between Prudential and CBRE Investors was hatched. In a coincidence of the transaction, CB Richard Investors had 2000 Market under agreement in October 2007 — before the credit crisis and global financial crash — for a reported $90 million, but that deal was never consummated.

Landlords, who bought Center City office buildings during the past seven or so years, are likely looking at this sale with trepidation since many of them bought buildings at a market high point. Since then, financial and real estate markets have changed and office buildings values are 35 percent to 40 percent off from their peaks, according to one investment broker. The price is definitely a new data point and helps to recalibrate the range in which office buildings begin to trade this year.

The property was constructed in 1973 and underwent major renovations in 1996 and ’97.

 

Source: Natalie Kostelni (2010). Office tower price is slashed. Philadelphia Business Journal Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.bizjournals.com/philadelphia/stories/2010/01/11/story1.html?b=1263186000%5e2690871&s=industry&i=commercial_real_estate

Slow recovery forecast for Denver commercial real estate in 2010

Grubb & Ellis Co. predicted Friday that the Denver area’s commercial real estate market will start a “slow recovery” in 2010, ahead of the national commercial market that’s expected to bounce back in 2011.

Based in Los Angeles, publicly traded Grubb & Ellis (NYSE: GBE) is one of the country’s — and metro Denver’s — largest commercial real estate brokerage firms.

While there will be leasing activity in the metro area this year, commercial property vacancy rates will likely stay flat because most tenants will move laterally to take advantage of attractive lease rates and landlord concessions, according to the G&E report.

The Denver-area real estate investment market is expected to remain generally flat in 2010, but buyers with cash are expected to purchase lower-priced properties, including distressed assets.

Metro Denver ranked 10th on G&E’s “Investment Opportunity Monitor” for 2010-2014, based on property, economic and demographic variables. Only Texas cities such as Houston and Austin; California markets like Los Angeles, San Francisco, San Diego and Orange County; Washington, D.C.; Portland, Ore.; and Raleigh-Durham, N.C., are expected to do better than the Denver area when it comes to commercial real estate investment.

“Leasing activity will certainly increase, and there will continue to be a large quantity of properties attractively priced for buyers with cash,” Mark Ballenger, executive vice president and managing director of G&E’s Denver operation, said in a statement.

Bob Back, G&E’s chief economist, thinks that while the national economy has started a “slow and cautious” recovery, the labor market won’t turn around until the second half of this year, since it often lags the broader economy.

“Because commercial real estate lags the labor market, [the national commercial real estate market] still has a ways to go before reaching its own low point,” Bach said in a statement.

Other high points of G&E’s Denver forecast:

• Most commercial properties sold this year will be “come in the form of note sales and other non-recorded transactions.”

• Highly leveraged, lender-held buildings will get new owners, removing a major impediment to the recovery of the real estate investment market.

• Many larger office-building tenants will try to capitalize on lower rents and concessions offered by landlords at Class A and B properties, causing Class C properties to struggle to keep tenants.

• Metro Denver’s industrial real estate market is expected to see “positive growth and activity in 2010” when it comes to leasing, with renewable energy companies likely being responsible for most of that activity.

• Retail leasing in the metro area could see a moderate increase in activity this year, with grocery-anchored shopping centers as well as urban sites staying “fairly stable.” Most of that activity will come from educational and professional service businesses, taking advantage of lower asking rents.

• Job growth will be key to improvement in the local apartment market. (Even though apartment properties include residences, they are considered commercial real estate because they’re largely owned by companies or investors who don’t live there.)

 

Source: Paula Moore (2010). Slow recovery forecast for Denver commercial real estate in 2010. Denver Business Journal Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.bizjournals.com/denver/stories/2010/01/04/daily78.html?s=industry&i=commercial_real_estate

Report: Almost one-fifth of downtown Baltimore office space vacant

The vacancy rate in downtown Baltimore has soared to nearly 18 percent in the past year, battered by bank consolidations and corporate moves to other parts of the city and region.

Downtown’s vacancy rate jumped climbed to nearly 18 percent, up from just 10.3 percent a year ago, according to a quarterly report by Cushman & Wakefield Inc. in Baltimore.

Much of that increase came from large chunks of vacated office space driven by Legg Mason Inc.’s move to Harbor East, consolidations by M&T Bank and Bank of America, and Zurich American Insurance Co.’s relocation to Baltimore County.

Those shifts helped improve things in Baltimore County, which saw its vacancy rate shrink from 13.1 percent to 12.2 percent in the past year. The region’s overall vacancy rate rose to 16 percent from about 14 percent last year.

The Baltimore brokerage expects the coming year will be one of transition, as vacancies rise and rental rates fall for several more quarters before the region’s government and health care industries begin to have a positive impact on leasing activity.

 

Source: Daniel J. Sernovitz (2010). Report: Almost one-fifth of downtown Baltimore office space vacant. Baltimore Business Journal Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.bizjournals.com/baltimore/stories/2010/01/04/daily47.html?s=industry&i=commercial_real_estate

Local strip-mall vacancy highest in at least 29 years

The vacancy rate at Chicago-area strip malls was the highest last year since at least 1980, according to new data.

Vacancies at neighborhood shopping centers rose throughout the year, peaking at 11.5% in the fourth quarter, according to New York-based Reis Inc.

Chicago’s fourth-quarter vacancy rate also was much higher than Reis’ nationwide number, 10.6% — itself an 18-year high.

Possible reasons for Chicago’s rate being higher than the country’s are the steady decline of manufacturing jobs for Midwest cities such as Chicago and the fact that this market is one of the largest by square footage, meaning more competition for tenants, according to Reis economist Ryan Severino.

Mr. Severino expects strip mall vacancy here and nationwide to creep even higher in the next couple years. He cites two factors: Employment and consumer confidence will take a while to perk up, and a lot of store space has come online in the past couple years.

Chicago’s fourth-quarter rate was an increase from 11.2% in the third quarter, 10.9% in the second quarter and 10.7% in the first quarter, according to Reis. The rate was 10.1% at yearend 2008.

The previous high was 10.6% in 1990. Reis began tracking the data in 1980.

“Landlords are having to get more aggressive in deal structures,” says Doug Renner, vice-president of landlord representation at Chicago-based brokerage Baum Realty Group LLC.

Strip mall owners who can offer free rent and money for buildouts are more likely to be successful in this environment, Mr. Renner says.

In the Chicago market, effective strip mall rent fell 2% in 2009, better than the national decline of 3.7%. Asking rents here fell 1.2%, also better than the 2% national decrease, according to Reis.

Chicago’s vacancy rate last quarter put it in the middle of the 77 markets Reis tracks. The lowest vacancy was in San Francisco at 3.4%. Dayton, Ohio, had the highest vacancy at 16.3%.

 

Source: Todd J. Behme (2010). Local strip-mall vacancy highest in at least 29 years. Crain’s Published Jan 08, 2010  Viewed Jan 11, 2010,  http://www.chicagorealestatedaily.com/cgi-bin/news.pl?id=36677