Real Estate: December 2007

Saturday, December 15, 2007

Credit crunch ices commercial real estate deals

Real estate investment sales are falling off and prices dipping, brokers say, as the credit crunch puts a damper on large commercial real estate transactions.

Leading real estate investment adviser Eastdil Secured has seen monthly deal volume plummet from $19 billion to $5 billion nationally during the second half of 2007.

The lack of credit has particularly hit deals valued at more than $150 million, according to Eastdil Secured Senior Managing Director Jeffrey Weber, who spoke at a Urban Land Institute 2008 forecast Nov. 29. For those deals, prices are averaging 10.4 percent less than initial valuations, Weber said. In contrast, deals less than $150 million are still outpacing initial valuations by 1.3 percent.

"Those over $150 million have really taken it in the shorts," said Weber.

He added: "Today the mood is one of 'I don't want to make a mistake.' The debt isn't there for the mega-deals."

The scarcity of capital is also rewarding sellers of core downtown assets, rather than value-add properties, according to the Eastdil research. Of core downtown projects under contract, 2.4 percent are coming in at over the initial asking price; value-add properties are going into contract at 4.4 percent less than initial asking. Value-add properties are generally in need of capital improvements or have high vacancy rates, and thus pose more risk and higher potential rewards.

"We've had deals in which we have had no real fall-off, and others have fallen off 10 to 20 percent," Weber said.

The drop in monthly deal volume puts San Francisco back at levels seen during 2005 and 2006 -- respectable years, but far from the run up seen at the start of 2007 when Morgan Stanley bought the 3.9 million-square-foot former Equity Office portfolio for $2.8 billion, or an average of more than $700 a square foot.

"In the short terms we've clearly seen the peak, prices have come off what we saw earlier," said Weber. "On a long-term basis I think we're far from a peak."

Tom Sherlock, a managing partner of Buchanan Street Partners, said he has seen a 10 to 15 percent drop in prices. He said lenders are increasingly insistent on underwriting deals based on what is -- current rents, for example -- rather than what is projected in the future. With higher interest rates and spreads, banks are unwilling to take chances.

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source: bizjournals.com

Real estate pros kick off large office project at University Park

A real estate venture made up of several veterans of the local industry has announced its first development.

Milam Real Estate Investors has broken ground on a new office building. The project will be located within the master-planned development University Park -- which spans 176 acres of land at Interstate Highway 10 and DeZavala Road in Northwest San Antonio.

Milam's new building will come in at roughly 95,000 square feet -- to be spread out over two floors of some 47,000 square feet each. The parking ratio of the project will be 5.5 spaces per 1,000 square feet of space.

The design of Milam's project makes it a good option for users wanting a higher-density office space -- versus what is often found in a traditional Class A building, according to Mark Krenger, a partner in Milam.

The set up of the building, he adds, will be attractive to the "types of tenants that are already in this park."

Those tenants include noted names such as Southwest Business Corp., Kinetic Concepts, United HealthCare and OnBoard Software.

"This is a very well-established corporate environment," Krenger says. "It has a lot of great local and national corporate names. We like the area."

Milam's project is set to enter the market next June. It is being developed on a speculative basis.

The name of the building is 5859 Farinon -- which also happens to be the address of the project.

At least that's the name of the property for now.

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source: bizjournals.com

Crescent banks on Waverly's comeback for HQ

CARY - Crescent State Bank, Cary's only hometown banking institution, is finalizing a deal for a signature headquarters building that will be part of the $180 million redevelopment of the Waverly Place shopping center.

Crescent has signed a lease commitment with Waverly Place owner Zapolski + Rudd of Durham to anchor the first office building within the Waverly Place complex.

Crescent will occupy more than half of the 110,000-square-foot, five-story office building expected to open in November 2009.

Crescent State Bank President and CEO Mike Carlton says the bank had been searching for a new headquarters location for about six months before signing the deal at Waverly.

"We wanted to keep the headquarters in Cary if possible, and there's not much available (office space) in our market," he says. "We've got deadlines pending with leases expiring, and we are convinced the plans for Waverly are going to convert this to a nice focal point for the community."

Specialty grocer Whole Foods also has signed a deal to relocate its Waverly Place store to a larger 55,000-square-foot location on another part of the Waverly Place property at the southwest corner of Kildaire Farm Road and Tryon Road. The Wachovia bank branch at Waverly Place will also relocate within the center.

Demolition of much of the existing 181,500-square-foot Waverly Place center will begin within the next couple of months, and construction is expected to start in spring 2008, says Luis Rios, managing director of Zapolski + Rudd.

The new office space at Waverly Place will be a step up for Crescent State Bank, which has operated its headquarters from an 8,100-square-foot red brick building at Preston Corners on High House Road since 2000. That lease expires in November 2009. Crescent opened a 12,500-square-foot operations center at 206 High House Road in Cary in 2005.

The bank is expected to consolidate its headquarters and operations into the new Waverly Place office building, which will have drive-through bank branch services.

Crescent has been on a steady growth path since it was founded in Cary in 1998. The bank opened its 12th branch location in eastern North Carolina in Knightdale on Dec. 3 and acquired Wilmington's Port City Capital Bank in 2006, adding its first branch on the North Carolina coast. Crescent employs 130 people at its offices in Cary, Apex, Clayton, Garner, Holly Springs, Knightdale, Sanford, Southern Pines, Pinehurst, Raleigh and Wilmington.

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source: bizjournals.com

Pittsburgh market unshaken as others see sublease glut

Pittsburgh's commercial real estate market is flying steady, even as some of the nation's strongest office markets have taken a nose dive.

In the third quarter, the total amount of sublease office space available nationwide increased for the first time in five years, as some businesses took a hit from the subprime meltdown and put more of their space on the market, according to a report from Chicago-based Grubb & Ellis Co.

In Pittsburgh, this doesn't appear to be a problem so far.

The amount of sublease space decreased in the region over the past few years, but continued to drop in the third quarter, according to a local market report from Grubb & Ellis' Downtown office.

Total sublease space available in the central business district in the third quarter was 124,525 square feet, according to the report, down from 145,002 square feet in the second quarter and a high of more than 400,000 square feet as recently as 2002.

Likewise, sublease space in the fringe and suburban markets was down in the third quarter, with 108,772 square feet available, down from 155,587 square feet in the second quarter.

A glut of sublease space in a market can drive down office rents since subleasers generally secure space more cheaply and with less restrictions than traditional office tenants, said Nick Matt, a managing director with Downtown-based Holliday Fenoglio Fowler LP, a real estate investment and brokerage company.

"It's a lower-cost alternative, and at the same time, it is a more flexible alternative," Matt said.

Furthermore, a company that is trying to sublease much of its space will likely vacate or greatly reduce its space when the lease expires, Matt said.

One example is Ariba Inc., which tried unsuccessfully to lease about half of its 182,000 square feet in One Oliver Plaza Downtown for years. In January, the Sunnyvale, Calif.-based software company finalized an agreement to stay in the building through at least 2017, but gave back about 90,000 square feet to the landlord.

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source: bizjournals.com

Spare office space became a new revenue line for Beowulf

CHERRY HILL -- A family of business operators is taking advantage of some extra office space to tap into the $3 billion pay-as-needed business centers industry.

The à la carte office services concept, in which businesses rent space and individually priced business services on a pay-as-needed basis rather than sign up for hefty long-term leases, has been well established in both Europe and the United States for several decades, with annual projected growth for the next five years of 5 percent to 7 percent, according to Sam Albrecht, executive director of Office Business Centers Association International, a Mount Laurel-based association with 225 members.

The à la carte approach can save a business operator 20 percent over a comparably outfitted standard office, Albrecht estimated.

"It is a idea that is especially attractive for firms in large urban business districts such as New York City, London and Paris, where commercial square footage rates are sky high," said Albrecht.

But even in Cherry Hill, where rents, utilities and facility management costs are relatively reasonable, Beowulf Corp. has been able to post an estimated yearly growth of 10 percent in the past three years, and the company said it expects to double its current client base of 100 in the next year.

Beowulf models its flexible office concept after industry giant HQ Regus, which emerged in the 1970s and currently has some 800 locations worldwide, according to Sean Malady, vice president of sales and marketing and co-owner, along with his brother Mike and father Jack, of Beowulf.

"It's the perfect solution for many business people, who either don't have a lot of upfront capital, or who simply don't want the hassle of dealing with day-to-day facilities management-related issues," Malady said.

Sean, Mike and Jack also own and operate Cherry Hill-based J&J Staffing and Resources, a 35-year-old employment agency with 10 locations in the tri-state area.

It was some space leftover from the acquisition more than a decade ago of property to accommodate expansion of their employment agency business that ultimately led to the launch of Beowulf. The trio currently owns two buildings under the Beowulf banner with combined square footage totaling 42,000. The buildings straddle each side of Route 70 at the intersection of Marlkress Road.

"We generally reserve our 1,763-square-foot location, on the eastbound side, for clients who just need floor space and can provide their own staffing and administrative needs," said Malady, who charges tenants $19 to $22 per square foot on average.

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source: bizjournals.com

Real Estate

Saturday, December 15, 2007

Credit crunch ices commercial real estate deals

Real estate pros kick off large office project at University Park

Crescent banks on Waverly's comeback for HQ

Pittsburgh market unshaken as others see sublease glut

Spare office space became a new revenue line for Beowulf

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