A recent poll of investors, lenders, executives and other commercial real estate stakeholders found a generally optimistic attitude towards the industry in 2011. More than 70% of the responders in the poll, which was conducted by PricewaterhouseCoopers, believe the recovery in commercial real estate is realistic enough to keep up its momentum. Over half of the respondents were confident enough to say that they plan to address their out-of-balance loans by extending their maturities and waiting out the market, which also suggests a positive outlook for the sector in the near future.
In what would be the biggest deal since the recession involving publicly traded real estate companies, AMB Property, the second largest public warehouse owner in the U.S., is near a merger with its larger rival, ProLogis. The Wall Street Journal has reported talks amongst the two companies which claim they would combine in an all-stock, at-market transaction. The combined capitalization rate of the two companies is just under $14 billion.
2010 saw bank closures increase 12% from the 140 that occurred in 2009. The main occurrence that does failed banks in is loans that go bad and spark excessive losses that delete capital. Quite a bit of the losses come from commercial real estate. According to the National Real Estate Investor, the rate of collapse is expected to moderate this year, but predicting the failure rate of lenders is an inexact science as no one can predict truly how things are going to shape up.
Blackstone Group LP is making a $2 billion investment in industrial commercial real estate, one of the hardest hit corners of the property market. According to Reuters, Blackstone's real estate division, Blackstone Real Estate Advisors, has amassed a portfolio of 275 industrial properties spanning about 45 million square feet. Tenants of these sometimes extremely large warehouses and distribution centers include shippers, manufacturers and retailers.
More than half of the commercial real estate loans reaching maturity in December 2010 were paid off by borrowers, marking the highest monthly payoff rate in two years. The inclination here is that replacement financing is growing more accessible to borrowers. According to the National Real Estate Investor, of the $856.2 million in CMBS loans that matured in December, borrowers were able to make balloon payments on time to retire $441 million. The 51.5% payoff rate marks the first time since December 2008 that the payoff rate cracked 50%.
The commercial mortgage market is expected to continue shrinking for another year and bottom out towards the end of 2011 at around $2.9 trillion. According to Business Wire, a Prudential Real Estate Investors report claims that the market should begin to rise in 2012 with volume reaching $3.3 trillion by 2015. The main factor used to determine the numbers was the availability of debt and how it helps gauge the health of the market. As commercial mortgage volume nears the bottom of the current cycle, activity will begin to pick up.
In anticipation of a commercial real estate recovery, several Jacksonville, FL agencies are adding to their staffs. According to the Jacksonville Business Journal, many firms had a positive 2010, including Coldwell Banker Commercial benchmark in Jacksonville who was up 29% in transactions in 2010 compared to 2009 and up 20% in gross revenue. Other agencies are banking on that glimmer of hope and following suit by adding more employees.
While the dire state of the housing market has caused occupancy rates at senior housing facilities to fall over the past year, 75% of senior housing managers or owners who responded to a National Real Estate Investor online survey claim that they expect the level of occupancy at their properties should increase over the next six months. Even better news is that one-third of the respondents indicate that transaction activity has already begun to increase, while 44% expect transaction levels to rise by the end of 2011.
After a rough start in 2010, this year is shaping out to be a better one for REIT initial public offerings (IPO's). The thought process behind this is that there is recognition that commercial real estate this year will be fine, if not great, as compared to the heavy doubt casted over conditions in 2010. According to Retail Traffic Magazines, many examples of the turnaround are already popping up with American Assets Trust in San Diego selling 27.5 million initial shares at a price of $20.50 apiece, raising approximately $563.8 million. The selling price for these shares was at the higher end of their range of $19 and $21, and was also the largest REIT IPO in over a year.
In Arizona, there are several classes of property (1 -9). Each class of property has its own ratio (the percentage applied to the Full Cash Value to arrive at the Assessed Value). For example: Class 1 (commercial property), 20%; Class 2 (vacant land), 16%; Class 4 (rental residential property), 10%; Class 9, 1%.
A recent hospitality client of Paradigm Tax Group presented itself as a very unique property. It is a large convention hotel built on State Land. This type of property is called an IPR (Improvements on (of) Possessory Rights). Since the improvements are not secured to the land (land not owned by the same entity as the owner of improvements), IPR's are considered Personal Property.
In reviewing the statutes, Paradigm Tax Group successfully determined that this property should qualify as Class 9 (1%), thereby lowering the ratio from Class 1 (20%) and effectively saving our client 95% on its property taxes. To become Class 9, the following criteria had to be met:
- The improvements had to be owned by our client.
- The land must be owned by a government entity.
- The improvements must be used primarily for Convention or recreational use.
- At the end of the lease, the improvements must be turned over to the government entity who owns the land.
Just a reminder that this past June, the state of Georgia has passed the "Property Tax Assessment and Appeals Reform Bill" that has changed property tax assessment procedures in the state. Highlights of the bill include:
Downtown Los Angeles, California is considered a market with very high barriers to entry for multi-family acquisitions, making the sale of the 204-unit Canvas L.A. apartments for $62.5 million a rare occurrence. The market has historically been largely built-out with very few development opportunities left for investors. According to GlobeSt.com, the newly built Canvas L.A. complex has been acquired by LaSalle Investment Management from Alliance Residential Co. and enjoys barriers to entry for further development and a very strong potential future price.
With help from a huge month of December, 2010 commercial real estate sales totaled $115 billion, a 109% increase from the 2009 total of $54.6 billion. December's volume of $21 billion was the highest sum for a single month since the end of 2001. The December surge is in large part to an ongoing recovery in investment sales that allowed 2010's fourth quarter sales to be comparable to those sales volumes of Q4 2004 which was considered a healthy recovery year.
Categories: Real Property
The Manhattan, New York office market had a strong fourth quarter in 2010, amassing 7.5 million square feet of leasing deals for the hottest three month period since Q3 of 2006. The 7.5 million square feet total is just a shade less than half the 12-month total for 2009 and could have been larger if some sizable deals expected to close in the fourth quarter actually had. According to GlobeSt.com, Manhattan is leading the pack in rebounding from the downturn, but is hardly alone in recovering.
Though loans that back commercial mortgage-backed securities (CMBS) in the years before the financial crisis are becoming delinquent in continually greater numbers, analysts still expect the amount of defaults to decline in 2011. The main factor to support this claim, according to the National Real Estate Investor, is that an ongoing recovery in the commercial real estate market is helping to resolve loans. With more deals occurring, it is easier for special servicers to have a better idea of what a property is worth in the marketplace.
After one of its worst declines in history, the hotel industry is reemerging and entering a strong cyclical recovery as demand growth accelerates. According to the National Real Estate Investor, occupancy rates are expected to continue to rise steadily and hotel operators are rising, and will continue to raise average daily rates. New acquisitions also seem very well positioned to benefit from rising asset values and the recovering capital markets.
The 2010 holiday shopping season was a good one for retailers, with same-store sales growth for November and December coming in at about 4% and with total sales around $525 billion. According to Retail Traffic Magazine, it was the combination of relief over the end of the recession and deep discounting on the part of retailers that allowed shoppers to loosen up their purse strings in the latter months of 2010.
Many property owners in major markets across the nation are coming to the realization that commercial real estate values have been declining, and that the trend will continue. An analysis of Atlanta, Georgia-area commercial property valuations is showing the severity of value losses and the effect the drop has had on property taxes. According to the National Real Estate Investor, on a per-unit basis, sale prices for multifamily, retail, office, industrial, healthcare, flex, hospitality, and specialty properties in Atlanta-area zip codes fell 25% from the start of 2008 to the beginning of 2010. On a per square foot basis, those same properties fell 15% making it safe to say that when put, together commercial values decreased by 15% to 25% in that time span
Effective for tax years beginning on or after January 1, 2011, all counties in Virginia will now be required to offer an exemption on pollution control equipment. House Bill 2084 -- Chapter 671 provides the exemption for pollution control equipment but excludes the land on which the equipment is located. All equipment must meet the criteria of certified control equipment. Prior to the new Bill being enacted, counties were authorized, but not required, to offer an exemption for pollution control equipment.
The amount of occupied U.S. office space increased for the first time in nearly three years during the fourth quarter of 2010. According to the Wall Street Journal, more companies are postponing real-estate decisions and getting back into the leasing market. On top of decreasing vacancies, office rents rose by 0.2% to $22.09 per square foot, the first increase since the second quarter of 2008. The trend across the nation seems to show the balance of power shifting to landlords from tenants.
Brett White, chief executive of CB Richard Ellis Group, recently did an interview with The Washington Post in which he shared his thoughts on the economy, real estate and what the future holds for both. In the interview, White revealed that we are in the early days of an economic recovery and headed toward protracted expansion, citing a series of quarters of job growth and positive GDP with forecasts of increasing GDP in 2011.