Blog | Calco Commercial, Inc.

Feb

Calco Commercial Real Estate: Recent Lease Transactions

Calco Commercial Real Estate has recently leased the following warehouses and offices in the San Francisco marketplace:

540 Barnveld Avenue. This clearspan warehouse space has one (1) drive-in loading door and is 3,950+/- square feet of commercial space and is part of the Valhalla Real Estate Industrial Complex in San Francisco.

455 Barneveld. This 5,830+/- square foot clear span warehouse includes one (1) drive-in loading door and is located within the Valhalla Real Estate Industrial Complex in San Francisco.

3130 20th Street #175. This 3,326+/- square foot Central Mission creative space included private and open areas, ground floor location and on-site parking availability.

75 Industrial. This 22,000+/- square foot clearspan warehouse includes a real yard, two (2) drive-in loading doors, and a high identity corner location in the Bayshore Area of San Francisco.

360 Bayshore Boulevard. This 5,720+/- square foot clearspan warehouse includes one (1) large roll-up door, a small office and a central Bayshore Corridor location. Zoned PDR-1G with the Bayshore Home Improvement Designation, 360 Bayshore Boulevard also allows for retail uses.

2170 Cesar Chavez. This 12,500+/- square foot clearspan warehouse includes four (4) docks, one (1) drive-in loading door, a small office and a large exterior loading and parking area.

If you have any questions about our available properties, or the San Francisco or Peninsula commercial real estate markets, call our office at 415.970.0000.

Commercial real estate, san Francisco commercial real estate, commercial real estate san Francisco, industrial real estate, san Francisco industrial real estate, industrial real estate san Francisco, warehouse san Francisco, commercial real estate news, industrial real estate news, industrial for lease, commercial real estate for lease, san Francisco commercial space for lease, san Francisco commercial office for lease, san Francisco warehouse for lease, san Francisco commercial broker, Commercial real estate, san Francisco commercial real estate, commercial real estate san Francisco, industrial real estate, san Francisco industrial real estate, industrial real estate san Francisco, warehouse san Francisco, commercial real estate news, industrial real estate news, industrial for lease, commercial real estate for lease, san Francisco commercial space for lease, san Francisco commercial office for lease, san Francisco warehouse for lease, san Francisco commercial broker

Feb

Commercial Real Estate News: $177MM Development Coming to South San Francisco

HCP to Start $177 MM Spec Development in South San Francisco
Reporter: Jon Peterson
Posted on February 10, 2015 by publisher6
Link to Article: SSF Development

Irvine-based HCP has broken ground on a new life science spec development in South San Francisco, The Cove at Oster Point. The first phase of his project involves the construction of 253,000 square feet and the entire development totals 884,000 square feet. The company is planning to spend up to $177 million according to this morning’s conference call.

“We feel that starting the Cove at this time will optimally meet the demand in the market. This is reflected in that the direct vacancy for life science properties in South San Francisco is [below] one percent,” says Jon Bergschneider, executive vice president for HCP Life Science Estates.

The company believes that the type of product that it will be creating will be new for the marketplace. “Our amenity center will be a feature that is not seen in any life science project,” said Bergschneider. The amenity center will be located on the first floor of the project. It will include a fitness center, recreation and meeting space, which is typically not found in life science real estate operations.

The first phase of the development broke ground last week. It will consist of two buildings totaling 253,000 square feet. The plan is to have these buildings completed by the third quarter of next year. The other phases of the project will be started based on the leasing success of the first phase.

The leasing efforts on the development will be led by CBRE through its life sciences group. This will include Chris Jacobs, an executive vice president, and Rick Friday, a senior vice president. They both work for the company out of its office in Foster City.

The life science market in South San Francisco has very strong market characteristics. “Strong life science market demand has resulted in a vacancy rate below 1 percent in South San Francisco. This inventory crisis has fueled raising lease rates. Over the last year, lease rates have increased approximately 30 percent from $2.85 to $3.70 NNN per square feet per month. Given the strong market fundamentals, we anticipate lease rates to push past $4 NNN per square foot per month in the near future,” says Jacobs.

He anticipates a mixture of tenants being interested in The Cove project. “We expect the project to attract local tenants from 30,000 square feet, as well as larger campus users,” said Jacobs.

HCP has owned The Cove site since 2011. This is when the company paid $65 million to acquire the 20 acres for the development. The project is projected to be a pre-certified LEED silver project. Some of its other features are a 5.5-acre outdoor green space and retail and hotel entitlements.

HCP is a real estate investment trust that focuses on the healthcare industry. It’s a major player in the San Francisco Bay Area, where it owns 4.8 million square feet of life science space in the region. This includes 2.8 million square feet within South San Francisco.

Feb

Commercial Real Estate News: Warehouse Owners Enjoy Accelerating Rents

With Little Available Modern Space, Investors Scrambling for Bulk Warehouses in Second-Tier Markets, Ramping Up New Development

Source: CoStar
Reporter: Randyl Drummer
Date: February 5, 2015
Article Link: Warehouse Owners

Package shipper UPS isn’t the only one who loves logistics.

Property owners and investors are singing the praises of the unattractive but highly functional and in-demand property type after another quarter of strong rent growth and increasing demand for modern, bulk warehouse space in key distribution markets.

So much so in fact, that investor demand for warehouse and logistics properties is limited only by the current shortage of modern new buildings available to buy, according to CoStar analysts presenting their findings at the Fourth Quarter Industrial Real Estate Review and Outlook last week.

With rental rates on the rise, especially for new, high quality logistics space, “You can build and lease a building potentially for the next 10 years with a good credit tenant,” said Rene Circ, director of research, industrial for CoStar Portfolio Strategy. “This is as good a time in industrial real estate as you could possibly imagine, and we are seeing that in terms of questions from our clients and people wanting to get into the market.”

Co-presenter and senior real estate economist Shaw Lupton also noted that, despite the dearth of property available in the market, sales of institutional grade properties have never been stronger in terms of sales volume and square footage traded.

Capitalization rates are at a record low of below 6% for institutional properties, with reports of much lower cap rates for sales of big box warehouse leased to triple-net credit tenants in the best markets, Lupton said.

“It’s a great time to own industrial real estate, and it’s increasingly competitive to get into it,” Lupton said. Investment sales were up a solid 8% in the industrial sector in 2014 to $60 billion.

Despite the robust investor interest, industrial property sales still lagged multifamily, office and retail property sales, largely because there simply wasn’t enough buildings available to buy. Construction on new bulk warehouse space is ramping up, but it has yet to catch up with investor demand for the new modern facilities favored in tenants for their increasingly sophisticated and high-tech logistics supply chains.

CoStar analyzed the inventory of newer logistics buildings five years old or less compared with all existing logistics buildings and found that both the supply of newer buildings and the ratio of sales has dwindled significantly since 2002, when 32% of all trades were of buildings less than five years old. Today, the number is closer to 10%.

“New supply will be needed to raise the overall level of transaction value,” Circ said. “You can make the argument that lack of new construction is holding back sales by as much as 10 percentage points. Building (prices) are being bid up because there are just not enough sellers.”

While industrial real estate rarely outperforms other more glamorous property sectors, rents for industrial space, led by demand for newer, high-functioning properties, grew an average 4.5% for all industrial properties in 2014 over the previous year. That rate of increase outstripped the healthy 3.7% rental rate increase logged by the office market, 3.2% in the apartment sector, and the 3% rent growth in retail real estate.

The amount of available space on the market is tightening. The 8.7% vacancy rate for logistics space in the fourth quarter compares with a reading of 9.9% at the height of the last real estate cycle in 2007. Absorption totaled 167 million square feet in 2014, slightly lighter than the year before only because of the lack of usable vacant space, Lupton said.

“There just isn’t enough space out there to allow for [larger] numbers,” he said. “We’re not lagging much below the absorption peak, but to get beyond that, we absolutely need more new construction.”

While logistics construction was up 14% in 2014 to 136 million square feet, it’s still about 44 million square feet below the early 2000s peak of 180 million square feet.

While the recovery in rents and property values for high quality logistics space is nearly complete, Circ and Lupton noted that the light industrial property segment is still in the early expansion phase, with very little new construction, which is expected to change over the next few quarters.

“There’s still a lot of runway for growth in light industrial,” Circ said, adding that the improvement in this sector of the industrial real estate market is a very promising sign for the recovery of numerous local markets.

“These are not the big multinational companies, the Amazons, these are local businesses. We’re seeing the light industrial segment doing really well, which gives me a lot of comfort in the strength of local economies,” Circ said.

“When you see these local manufacturing and housing-oriented businesses taking space and making lease commitments, it means they have a lot more visibility into their business growing again, and that supports the guts of the local economy.”

Feb

4,736+/- SF of Funky/Creative Commercial Office Space for Lease

Calco Commercial Real Estate, is pleased to present 385-A 8th Street, which will be available to lease March 1, 2015. The commercial office space includes 4,736+/- square feet of second floor funky/creative space, a full kitche, skylights, hardwood floors, rooftop deck and an open floor plan. Situated in the SOMA, this space would be great for a creative user. The space will lease for $2.50 psf. or $30.00 psf. annual.

If you have any questions about this office listing, our other available properties, or the San Francisco commercial real estate market, please call our office at 415.970.0000.

Jan

National Industrial Outlook – 2015

Source: Costar
By: Randyl Drummer
Date: 12.30.14

The U.S. industrial real estate market’s amazing run shows no signs of slowing as the new year approaches, posting an incredible 19th consecutive quarter of falling vacancy rates to reach its lowest national level in nearly 14 years, ending 2014 at 7.2%.

Given optimistic forecasts for domestic growth in 2015, analysts expect 2015 to be another strong year for industrial space demand. Consensus growth forecast of around 3.5% in gross domestic product (GDP) as more people find work and wages begin to rise, said Bob Bach, director of research for the Americas with Newmark Grubb Knight Frank.

“This is very good news for the industrial market,” Bach said. “Expect the fall in vacancy rates and rise in rents to continue, although the pace should begin to level out by the end of 2015 as construction catches up with demand.”

GDP is considered a primary driver of demand for industrial space because its components — online and brick-and-mortar consumer spending, business spending, homebuilding, exports and imports — all generate activity in the warehouse and logistics market.

Healthy tenant demand, combined with a limited amount of quality ready supply, is tugging down the nation’s vacancy rate, said Aaron Ahlburn, senior vice president and director of research for the industrial and retail property markets for JLL’s Americas region.

“Although new big box construction is escalating, it does not appear to be overpowering current tenant requirements,” said Ahlburn. “E-commerce continues to be the headline-grabbing market driver, especially as retailers continue to determine their omni-channel distribution and fulfillment space needs.”

Outdated distribution centers that don’t support an integrated, omni-channel retail strategy will require updating or face obsolesence, Ahlburn added.
The only unwelcome guest at the warehouse party over the next 12 months could be overbuilding, which developers tend to do in times of economic growth. Even today’s vast 1 million-square-foot-plus mega warehouses are comparatively fast and easy to build, said Andrew Berk, vice president in Avison Young’s Los Angeles office.

According to NGKF’s Bach, the amount of space under construction has been ramping up slowly for 19 of the past 20 quarters. At year-end 2014, 130.5 million square feet was under way — up from 100 million square feet at the beginning of the year, but still below the prior peak of 190.1 million square feet in third-quarter of 2007, during the development heydays of the prior cycle, Bach notes.

Deliveries surged in the fourth quarter to a total of 45.4 million square feet, a quarter of which was completed in Dallas-Fort Worth. Houston was a distant second with 3.4 million square feet coming out of the pipeline. For the full year, industrial deliveries totaled 133 million square feet.

For now, the consensus among most analysts is that supply remains in line with demand across much of the country, even in the high-growth Dallas market.

“To date, no space has broken ground in Fort Worth during this cycle, so we should see landlords enjoying increased rental rates in 2015,” said Transwestern Principal Jeff Givens, adding that the Fort Worth office alone recently completed eight sales transactions totaling 525,500 square feet. “User sales were robust and the leasing market was very active, which increased occupancy.”

There’s so much absorption and a historically low vacancy rate which has remained consistent for so many years that overbuilding does not seem to be a major concern in Class A or even B markets, Avison Young’s Berk added.

“Investors are favoring ‘Main & Main’ assets of almost any condition and size,” Berk said.

He noted, however, that further from the core geographic areas, investors are keen to make sure that the assets are located in good logistics markets with recent upside improvements.

“Development has been more controlled and disciplined this cycle, especially compared to past ‘boom’ cycles,” JLL’s Ahlburn said. “Although a handful of markets, including the Inland Empire, Dallas and Indianapolis, have flirted at times with overbuilding, the majority of U.S. markets are evenly-paced.”

Net absorption was solid at 42.1 million square feet for the quarter and 172.4 million square feet for the year. Atlanta led all markets for both periods, absorbing 3.8 million square feet in the fourth quarter and 8.8 million square feet in 2014. California’s Inland Empire took second place in both periods.

The average asking rental rate ended 2014 at $5.64 per square foot per year, triple net, up by just a penny from the third quarter. The yearly gain was more impressive -an increase of 3.8%. Of the 45 markets tracked in the survey, eight markets posted double-digit rent gains in 2014, led by Austin at 14%.

Other double-digit gaining markets included the Inland Empire, Indianapolis, San Antonio, Silicon Valley, Denver, Boston and Oakland-East Bay, according to NGKF and CoStar data.

Finally, risk mitigation in supply chains is another important factor in 2015, Ahlburn noted. Congestion at major West Coast seaports and the impending truck driver shortage has supply chain executives seeking alternative strategies.

“To avoid interruptions, they are moving discretionary shipments to East Coast ports,” he said.

Link to article: Industrial Outlook

Jan

Tech Users Race for More Space

Source: San Francisco Business Journal
Reporter: Cory Weinberg
Date: January 20, 2015

Social media companies Twitter and Pinterest and mobile payments startup Stripe are hunting for hundreds of thousands of feet of office space each, multiple real estate sources said.

Their eventual decisions have the potential to drive the leasing market this year and next. As it is, tech companies leased 91 percent of the 3.6 million square feet of office space taken in San Francisco last year, according to CBRE.

The companies could head to Oakland to anchor the refurbished 400,000-square-foot Sears Building when it opens by 2018, giving the East Bay city a techie jolt. More likely, they’ll have their eyes on spaces like Kilroy’s 1800 Owens St. (known as the Exchange on 16th) in Mission Bay, set to deliver 650,000 square feet next year, or 510 Townsend St.

If companies need hundreds of thousands of square feet, they could also look toward Transbay buildings such as the Salesforce Tower (opening in 2017), 181 Fremont (2016), 199 Fremont (2016) or 303 Second St. (2015).

“I don’t think you’ll see a large number of those kinds of users go to Oakland. Having said that, I do think there are some indications that (the Sears Building) could snatch some sort of user from San Francisco who decides that San Francisco doesn’t have enough space,” Mike Sample, a broker who specializes in tech companies for Newmark Cornish & Carey, said at a SPUR event last week.

Stripe, which has received $200 million of capital from the likes of Sequoia Capital, Peter Thiel, and Elon Musk, now leases about 27,000 square feet at 3180 18th St. in the Mission. It also scored a big coup by landing a spot as an Apple Pay partner earlier this year, fueling growth.
One source who spoke on the condition of anonymity said Stripe has looked at the 300,000 square feet available at the 500 block of Townsend Street, just west of the I-280 off-ramp near 6th Street.

Twitter has 760,000 square feet leased in Mid-Market. One broker who works with tech companies – and also declined to speak on the record – said Twitter is in the market for a few hundred thousand square feet and has its eye on Mission Bay now that Uber has decided to park its headquarters there.

“There’s a lot of energy going in that direction. I wouldn’t be surprised if they did something similar,” he said.

Pinterest has about 225,000 square feet across two buildings south of Market. One source said the company’s space need isn’t urgent because they just inked a new lease last fall. Pinterest, Stripe and Twitter did not return requests for comment.

Even if those companies don’t start expanding their offices this year or next, they’re increasingly thinking about future growth because of Prop. M. The city’s office space cap is likely to start squeezing the market later this year and possibly causing the current city average of $65 a square feet to increase at a faster rate.

“It seems like tenants are thinking five years out, especially the bigger ones who want to stay vested in San Francisco and think about how they will keep their headquarters in San Francisco,” Alexa Arena, vice president of Forest City’s San Francisco office, said at a Bisnow forum on Tuesday. “That’s clearly difficult for them because there’s not a lot of swaths of space where you have a single location to get the critical mass they need.”

Office complexes under construction or renovation south of San Francisco in Daly City and San Mateo will also hope to attract tech tenants this year. (It should be said that Reddit’s CEO was ousted over his proposed move to Daly City.) About 70,000 square feet at the Ferry Building in San Francisco will also likely fetch top dollar later this year.

Article Link: Tech Giants Race for More Space

Jan

San Francisco’s Vacancy Decreases to 3.9%

The San Francisco Industrial market ended the fourth quarter 2014 with a vacancy rate of 3.9%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 278,485 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, end- ing the quarter at 285,144 square feet. Rental rates ended the fourth quarter at $15.94, an increase over the previous quarter. There was 108,080 square feet still under construction at the end of the quarter.

ABSORPTION
Net absorption for the overall San Francisco Industrial market was positive 278,485 square feet in the fourth quarter2014. That compares to negative (98,393) square feet in the third quarter 2014, positive 979,226 square feet in the second quarter 2014, and positive 106,799 square feet in the first quarter 2014.

Tenants moving out of large blocks of space in 2014 include: FedEx moving out of (60,100) square feet at 200 Littlefield Ave, Vitasoy moving out of (52,500) square feet at 584 Eccles Ave, and KaloBios Pharmaceuticals moving out of(49,351) square feet at 260 E Grand Ave.

The Flex building market recorded net absorption of positive 131,243 square feet in the fourth quarter 2014, compared to positive 38,309 square feet in the third quarter 2014, positive 299,408 in the second quarter 2014, and negative (33,399) in the first quarter 2014.

The Warehouse building market recorded net absorption of positive 147,242 square feet in the fourth quarter 2014 com- pared to negative (136,702) square feet in the third quarter 2014, positive 679,818 in the second quarter 2014, and positive 140,198 in the first quarter 2014.

VACANCY
The Industrial vacancy rate in the San Francisco market area decreased to 3.9% at the end of the fourth quarter 2014. The vacancy rate was 4.2% at the end of the third quarter 2014, 4.1% at the end of the second quarter 2014, and 5.7% at the end of the first quarter 2014.

Flex projects reported a vacancy rate of 5.3% at the end of the fourth quarter 2014, 5.8% at the end of the third quarter 2014, 6.0% at the end of the second quarter 2014, and 9.3% at the end of the first quarter 2014.

Warehouse projects reported a vacancy rate of 3.4% at the end of the fourth quarter 2014, 3.7% at the end of third quarter 2014, 3.5% at the end of the second quarter 2014, and 4.5% at the end of the first quarter 2014.

RENTAL RATES
The average quoted asking rental rate for available Industrial space was $15.94 per square foot per year at the end of the fourth quarter 2014 in the San Francisco market area. This represented a 4.4% increase in quoted rental rates from the end of the third quarter 2014, when rents were reported at $15.27 per square foot.

The average quoted rate within the Flex sector was $25.58 per square foot at the end of the fourth quarter 2014, while Warehouse rates stood at $12.05. At the end of the third quarter 2014, Flex rates were $24.68 per square foot, and Warehouse rates were $11.65.

DELIVERIES AND CONSTRUCTION
During the fourth quarter 2014, no new space was completed in the San Francisco market area. This compares to 0 buildings completed in the previous three quarters. There were 108,080 square feet of Industrial space under construction at the end of the fourth quarter 2014. The largest projects underway at the end of fourth quarter 2014 were 901 Rankin St, an 82,480-square-foot building with 100% of its space pre-leased by Goodeggs and Mollie Stone’s Markets, and 1 Kelly Ct, a 25,600-square-foot facility that CS Bio Company, Inc. expanded.

INVENTORY
Total Industrial inventory in the San Francisco market area amounted to 94,659,417 square feet in 4,843 buildings as of the end of the fourth quarter 2014. The Flex sector consisted of 23,849,302 square feet in 789 projects. The Warehouse sector consisted of 70,810,115 square feet in 4,054 buildings. Within the Industrial market there were 511 owner-occupied buildings accounting for 12,380,944 square feet of Industrial space.

SALES ACTIVITY
Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures fell during the third quarter 2014 in terms of dollar volume compared to the second quarter of 2014. In the third quarter, nine industrial transactions closed with a total volume of $83,684,000. The nine buildings totaled 377,408 square feet and the average price per square foot equated to $221.73 per square foot. That compares to 20 trans- actions totaling $109,016,000 in the second quarter. The total square footage was 558,793 for an average price per square foot of $195.09.

Total year-to-date industrial building sales activity in 2014 is up compared to the previous year. In the first nine months of 2014, the market saw 36 industrial sales transactions with a total volume of $346,298,100. The price per square foot has averaged $215.98 this year. In the first nine months of 2013, the market posted 19 transactions with a total volume of $107,082,100. The price per square foot averaged $166.89.

Cap rates have been higher in 2014, averaging 6.70%, compared to the first nine months of last year when they averaged 6.10%.

Source: CoStar Year End 2014 Industrial Report

Jan

2015 Forecast: SF Office Spillover

Source: San Francisco Business Journal
Reporter: Cory Weinberg
Date: January 2, 2015

If the much-hyped San Francisco spillover of office tenants is ever going to happen, this will be the year. The city’s squeeze could start to take a noticeable toll in 2015, and other cities will be waiting with giant nets to scoop up big-name companies.

Until now, the tenant trickle to the East Bay and San Mateo County has been mostly talk. Companies recruiting young workers have flocked to San Francisco and seem to think the high cost of renting offices is worth the trouble.

Two converging forces may turn the hype into reality. First, San Francisco officials expect the city this year to hit the new office space cap imposed by the 1986 law under Proposition M.

About 4 million square feet of large office projects will be up for approval this year, enough to tip over the annual limit and constrain what gets approved. That doesn’t mean that office users will see much of an effect this year, but it is a restriction on new space nonetheless that may eventually send office rents much, much higher.

Meanwhile, Oakland, Daly City, San Mateo and San Ramon all have openings in large, attractive buildings near transit.
Oakland’s Sears building should land a tech tenant in the first half of 2015.

“San Francisco tech job growth has been seven times greater than in Silicon Valley. When you see the stats, it’s stunning,” said CBRE broker Bill Cumbelich, who is leasing the Sears building.

Bay Meadows in San Mateo also has its first office building under construction, while Bishop Ranch in San Ramon has 1 million square feet up for grabs. Daly City’s DC Station has space available, too. Still, cities in northern San Mateo County and the Tri-Valley haven’t been gotten down to single-digit vacancy rates.

“The market is getting very tight for large blocks of space and almost all of it is a result of local expansion, not San Francisco spillover,” said Bill Nork of Newmark Cornish & Carey. “Everyone was hoping, but it didn’t happen.”
Wait ’till this year?

5 key events from 2014

Salesforce dominates: Salesforce was ready to drive into Mission Bay office space when it hit the brakes. Instead, S.F.’s largest tech tenant made two huge office plays. First, it took 714,000 square feet in a Transbay tower. Later, it paid $640 million for the 50 Fremont tower.

Mission Bay’s tech future: There are about 300 acres in the Mission Bay neighborhood, and 30 of them could change the place’s whole dynamic. Uber announced it will build its headquarters there, while Kilroy Realty Corp. sketched plans for a new tech haven and the Golden State Warriors plotted office buildings next to its new arena. The turn toward tech offices could alter the identity of Mission Bay as a research hub.

Big plays for tech on the Peninsula and in East Bay: Four major office developments outside of San Francisco opened up over 2 million square feet of space geared toward tech tenants: the Sears building in Oakland, Bay Meadows in San Mateo, Bishop Ranch in San Ramon and DC Station in Daly City.

Rent gets too high for nonprofits: Increasing office rents, gentrifying neighborhoods and cheaper space in Oakland has created an exodus across the Bay for nonprofits. According to a city report, half of the city’s nonprofits left between 2011 and 2013 as rents have doubled to more than $50 a square foot in the last few years.

Redwood City’s emergence: The southern Peninsula city’s office market has the second-lowest vacancy and the second-highest rents in San Mateo County thanks in part to big plays by Google and Box this year. First, Box locked up 334,000 square feet at Crossing/900. Then, Google inked 934,000 square feet at Pacific Shores. Developers have since flooded the city with new proposals to build offices.

Link to article:
SF Office Spillover

Dec

Lenders Ease Tight Underwriting Standards for Commercial Real Estate Loans

It may be easier for Ben Bernanke to get a loan to buy an apartment building than to refinance his home mortgage.

While addressing a conference of the National Investment Center for Seniors Housing and Care in Chicago this fall, the former chairman of the Federal Reserve mentioned that he and his wife had recently been turned down by their lender after seeking to refinance their mortgage.

“The housing area is one area where regulation has not yet got it right,” Bernanke said. “I think the tightness of mortgage credit, lending is still probably excessive.”

Meanwhile, it certainly appears that commercial lenders have gotten it right, judging by the flood of capital available for commercial real estate borrowers.

However, after commercial real estate underwriting standards eased for the third consecutive year in a row according to the Office of the Comptroller of the Currency’s 20th Annual Survey of Credit Underwriting, some are beginning to sound a note of caution that perhaps lending standards are becoming too accommodating.

Surveyed banks noted that they have continued to ease underwriting standards and take on increased levels of credit risk in response to abundant liquidity for commercial property and competitive pressures in the current low interest-rate environment. Large banks, as a group, reported the highest share of eased underwriting standards among those surveyed.

Ratings agencies are particularly sensitive over underwriting standards after taking heat from Congress and investors for failing to adequately account for risks and when rating securities backed by residential and commercial mortgages before the recession.

Slippage in underwriting standards should remain a key credit concern for investors, particularly in certain segments such as construction where lending conditions have been relatively frothy, Standard and Poor’s said in its 2015 banking outlook issued this week.

“In some loan classes (e.g., construction and development loans), ultra-low net charge-offs are prompting a rebound in construction lending among some banks. We remain cautious that some U.S. banks with below-average exposure to this category may be easing credit standards somewhat and pricing loans more aggressively to generate growth, which could eventually lead to deceleration in asset quality,” S&P analysts noted in their report. “While we do not expect widespread degradation in U.S. banks’ asset quality in 2015, we do expect a gradual build-up of provisions for the banking industry as reserve levels bottom out and loan growth increases more consistently.”

In the recent OCC survey, one-third of bank respondents reported an easing in commercial construction lending. This is the highest level of responses in this category this century. Only 2% reported tightening standards for commercial construction loans, the lowest level this century.

In addition to acknowledging the relaxed credit standards, bank respondents also noted that the level of credit risk in their construction loan portfolios has increased, excluding residential development. Twenty-one percent reported that credit risk has increased somewhat – more than double the number of respondents who indicated this trend last year. In addition, 44% expected this risk to rise next year.

When it came to CRE lending for residential construction including multifamily, 13% of bank respondents noted that credit standards had eased. This is the first time in six years that any bank has noted that trend.

Thirteen percent of bankers also noted that this has raised the credit risk somewhat for their residential construction loan portfolios – none did last year. In addition, 25% expected this risk to rise next year.

Thirty-seven percent of banks said underwriting standards had eased in their other commercial real estate loan portfolios – up from 24% in 2013. Just 4% said underwriting had tightened. That is the lowest level this century and compares to the 76% who said they tightened standards during the Great Recession years.

Twenty-seven percent of bankers this year said the easing has raised the credit risk in their other commercial real estate loan portfolios. And 44% expected that risk to increase next year.

Jennifer Kelly, senior deputy comptroller for bank supervision policy and chief national bank examiner, sounded a reassuring note in the OCC survey: “As banks continue to reach for volume and yield to improve margins and compete for limited loan demand, [OCC] supervisors will focus on banks’ efforts to maintain prudent underwriting standards, monitor portfolio credit risk, and reduce exceptions to policy,” she said.

Source: CoStar
Reporter: Mark Heschmeyer
Date: December 17, 2014

Link to Article: CRE Loans

Dec

SF’s Prop M Puts Development Under the Gun

With demand for office space in San Francisco at its highest level in 15 years, anxious developers are waiting for the city to determine how it will approve projects under Proposition M’s construction constraints.

The San Francisco Planning Commission most likely won’t implement a selection process until midway through 2015 at the earliest, but in mid-November an industry discussion panel provided an update on the city’s Prop. M policy formation and state of the office market.
The event was closed to the media, but presentations and attendees indicate that city planners continue to debate whether to institute a “competitive pool” policy, in which a group of projects compete for approval, or to continue evaluations on a project-by-project basis.

“What you can gather is that there are a lot of options about how to do this right now—there are procedural questions, substantive questions about criteria and questions about implementation,” said David Blackwell, who moderated the panel and leads the land use practice group for the Allen Matkins law firm in San Francisco. “There are a lot of variables that haven’t crystallized yet.”

Approved in 1986, Prop. M caps the amount of large new office projects at 875,000 square feet annually. Unused allocations are rolled forward, and the current cap is at a little more than 3 million square feet. But about 3.2 million square feet in applications are pending, and nearly 8 million square feet are in the pre-application process, according to a presentation that John Rahaim, the planning director for San Francisco, gave at the event. That amounts to a pipeline deficit of about 8 million square feet.

Meanwhile, office rents have skyrocketed amid a demand for space that parallels the height of the dot-com boom in 2000, a trend that shows no signs of slowing down absent an economic downturn.

Average asking rents since 2010 have doubled to $61.69 per square foot, while the average vacancy rate has dropped 150 basis points to 6.7 percent over the last year, according to a presentation made at the event by Phil Tippett, an executive vice president of CBRE in San Francisco. Users have absorbed 4.3 million square feet in the last three years, and tenants looking for an aggregate of about 6 million square feet are in the market.

History suggests that the planning commission will institute a competitive pool. The commission used the process the last time developers butted against Prop. M in 2000 and 2001 and then reverted to the project-by-project review during years of lower demand.

But the commission still must decide what criteria to use in such a process. In 2000 and 2001, for example, competitive pool principles focused on public views, shadows, housing displacement and a handful of other elements. By comparison, in the late 1980s, broader standards concentrated on design, location and consistency with the city’s general plan.

A planning department staff memo in September suggested that a competitive pool for this round of development include criteria such as green building design, proximity to transit and the impact on production, distribution and repair space.

According to Rahaim’s presentation, if the commission decides to implement a competitive pool process, it also needs to determine how to score or weigh different elements, when to officially begin the competition, how long review periods should be, and whether to approve proposed projects that are ready to move forward before launching the policy.

Overall, office supply constraints have put existing landlords in enviable positions. During their most recent earnings calls, executives with large publicly traded office real estate investment trusts discussed Prop. M amid concerns that the current level of demand is unsustainable.

Officials with Boston Properties, Inc., for example, suggested that their 61-story Salesforce Tower in the South of Market neighborhood, which is expected to be completed in 2017, is further along than most projects and that the views from the top 30 floors generally available for lease provided a competitive advantage. (The firm is asking for more than $95 per square foot, according to CBRE.)

Additionally, Hudson Pacific Properties Inc. earlier this year finished leasing up the 1 million-square-foot 1455 Market St., a property it repositioned to appeal to technology tenants after buying it from Bank of America in 2010.

“From our standpoint [Prop. M] is a non-existent issue because we don’t have ground-up development—everything we have and everything we’ve looked at is on a renovation basis,” Hudson Pacific CEO Victor Coleman told analysts in response to a question about Prop. M’s influence. “If you’re a landlord in San Francisco and you like your portfolio, I don’t think it hurts you.”

Source: The Registry
Reporter: Jose Gose
Date: December 16, 2014

Article Link: PROP M

Calco Commercial, Inc.

Map