Category: commercial real estate news san francisco (74)

Prices Indices Rise at Double-Digit Rates for all U.S. Regions, Major Property Types
Source: CoStar
by: Randyl Drummer
Date Posted: May 13, 2015

Amid some of the strongest investment sales on record, commercial real estate prices rose across both the high and the low ends of the market during the first three months of 2015 as strong capital flows and healthy fundamentals converged to support broad pricing gains.

The latest release of the CoStar Commercial Repeat Sale Indices (CCRSI), an analysis of commercial property sales through March 2015 that provides one of the broadest measures of repeat sales activity, reflected increases across virtually every segment of the real estate market during the first quarter of 2015.

The value-weighted U.S. Composite Index, influenced by sales of high-quality assets in core markets, increased by 4.7% in the first quarter of 2015 and is now 11% above its previous peak in 2007. The equal-weighted U.S. Composite Index, which weighs each transaction equally and reflects the impact from the more numerous smaller transactions, rose 4.8% in the first quarter, although its price recovery started later in the cycle and remains 10% below its previous peak.

The General Commercial segment of the CCRSI Composite Index, made up of smaller deals typical of second- and third-tier markets, gained by 5% in the first quarter of 2015 and 15.9% for the 12 months ending in March 2015, moving to within 11.3% of its previous peak as deals outside of the primary markets continued to attract more investor attention.

The investment grade segment of the Composite Index, which encompasses larger-sized, high-quality properties most often purchased by institutional investors, posted solid but more modest growth of 4.6% in the first quarter and 10.5% in the 12-month period, moving to within 6% of its prior peak.


As the CRE recovery spread across more markets and property segments, all regional sectors and building types posted double-digit annual gains in the 12 months through March 2015. The Multifamily Index has already fully recovered, eclipsing its previous peak, while the retail and industrial indices climbed to within 10% of their previous peaks. The Office Index remained 15% below its previous 2007 high mark.

Among CCRSI’s regional indices, strong investor demand in core coastal metros propelled the Northeast Composite Index to 6.1% above its prior peak during March, while the West Composite Index moved to within 8.4% of its prior high.

Property sales transaction activity, which reached a cyclical high last year, remained strong in the first quarter of 2015, typically the weakest quarter of the year for sales activity. Total sales pair investment volume of $27.8 billion in the first quarter was still more than 50% higher than in the same period last year, suggesting that capital flows will continue to be strong through 2015.

The low cost of debt has helped support the robust deal volume, with low interest rates helping keep wide spreads over the risk-free bond rate, despite historically low capitalization rates.

All six property type indices logged double-digit gains in the 12 months. The CCRSI prime industrial and apartment indices, measuring sales of the properties in the top metros in each sector, saw limited growth due to the run-up in pricing in many core markets. However, the prime office and retail indices grew faster than the overall market average during the same period.

Apartment investment led all building types in annual growth, with the Multifamily Index increasing by 14.8% for the 12 months ending in March. While strong investor appetite for 5- and 4-Star assets in primary markets has propelled the Prime Multifamily Metros Index to lead all repeat sale indices in the recovery and is now 27.6% above its previous 2007 peak, new supply entering the market is beginning to exert downward pressure on occupancies and rent growth. Consequently, the Prime Multifamily Metros index slowed to 10.3% for the 12 months ending in March 2015, compared with 24% for the same period a year earlier.

With new office construction in check and office job growth continuing to outstrip overall employment growth, prices for office properties increased 13.9% during the 12-month period ending March 30. The Prime Office Metros Index advanced by an even stronger 19% annually, with sales of larger core office properties that more resemble bonds in terms of value retention and appreciation enjoying strong pricing growth. Investors view such assets as reliable alternative investments with good relative value.

The U.S. Retail Index rose 43.5% from its recessionary low and 13.5% for the 12 months ending in the first quarter. Retail pricing is now just 6.8% below its previous peak — second only to multifamily among the four major property types. Pricing gains were strongest in top-tier trade areas within core coastal markets over the period, while late-recovery markets, especially fast-growing Sun Belt metros, offered the most price appreciation potential.

Industrial vacancy rates fell to lows not seen since before the last recession, while rent growth, usually unremarkable for industrial property, remained strong at over 5% annually for the 12 months. As a result, the Industrial Index advanced by a solid 12.4%. After a 5.1% increase over the last 12 months, the Prime Industrial Metros Index is still below last cycle’s peak, suggesting more runway for price appreciation as rents continue to escalate. These prime metros are expected to become increasingly competitive as new supply comes on line.

After relatively modest growth of just 4% in the prior period, the Hospitality Index surged by 20.6% in the 12-month period. U.S. hotel occupancies have reached their highest level since the mid-1990s, fueling growth in average room rates and revenue per available room (RevPAR).

Although the CCRSI Land Index gained 23.1% in the 12 months as developers bid up sites across all property sectors, the index has not yet reached its 2012 trough and is still in the earlier stages of its recovery. The Land Index remains 23.1% below its previous peak during the last cycle.

Link to article: CRE Prices Surge

Absorption of Lower-End Commercial Properties Rises 61% Over 12 Months Ended First-Quarter 2015

Source: CoStar
Reporter: Randyl Drummer
Date Posted: April 15, 2015

Continuing the broad recovery across all property types and throughout most U.S. markets, commercial real estate prices again moved upward in February, reflecting solid occupier demand as well as widening investor interest in smaller properties outside the largest U.S. metros.

The latest CoStar Commercial Repeat Sale Indices (CCRSI) shows that the two broadest measures of U.S. commercial property pricing, the value-weighted and the equal-weighted U.S. Composite Indices, gained 1.5% and 1.4%, respectively, in February. That’s a continuation of January’s strong performance, and both of these key indices have increased by more than 13% over the past 12 months as final sale pricing increases expand into smaller markets and secondary property types.

The equal-weighted composite index, reflecting rising momentum in transactions for smaller properties at the lower end of the market, in February has now recovered within 12% of its pre-recession high — its highest average since the fourth quarter of 2008 — with investors parking their capital in alternative locations as prices escalate in the most desirable core markets. The index has now recovered by 37.4% above its 2011 trough.

The momentum shift to lesser-quality and smaller properties has also turned up in recent growth in the General Commercial Index property segment, which has increased by 13.4% over the 12 months. Its higher-end counterpart, the Investment Grade Index, rose by 9.3%.

The value-weighted U.S. Composite Index — more heavily influenced by the high-value trades in the best primary markets that led the recovery — surpassed its previous 2008 peak by more than 8.8% in February.

Continuing what has become an seasonal slowing trend in recent years, net absorption of office, retail and industrial space slowed in first-quarter 2015 from its pace during the last three quarters of 2014. However, net absorption still totaled 527.2 million square feet for the 12 months ended March 30 — a very strong 39.6% above the previous 12-month period that ended in March of last year.

In more evidence of broad recovery, net absorption of general commercial properties rose a whopping 61% over the 12-month period, compared with a 31.4% gain in the investment grade segment. That’s a switch from earlier in the recovery, when high-end assets led absorption trends as tenants chased lower rents to move into prime space.

Leasing momentum is shifting toward low-end properties as vacancies have fallen and rents have escalated at the top end of the market, however.

For example, vacant office space in the 4 and 5 Star property segment dipped below its 15-year average of 12% in 2014, helping accelerate absorption and rent growth for 3-Star properties for the 12 months through first-quarter 2015.

Investment sales activity in the first three months of 2015 followed the typical pattern, falls from the previous year-end level. Despite the slowdown from the fourth quarter of 2014, however, trading activity through the end of February suggests another active year for CRE acquisitions in 2015.

The U.S. composite sales pair count of 2,357 and sales volume of $18.9 billion in the first two months of 2015 exceeded totals from the same period in 2014, while the share of properties selling at distressed prices fell from 32% in 2011 to less than 10% for the 12 months ended February 2015.

Link to article: CRE Rising Prices

Source: San Francisco Business Times
Reporter: Roland Li
Date Posted: April 22, 2015

San Francisco has the fifth-most expensive “prime” office space in the world, according to commercial brokerage Newmark Grubb Knight Frank’s 2015 Global Cities Skyscraper report.

SF aerial for web

San Francisco’s most expensive offices, mostly located on the top floors of skyscrapers, have rents of $97 per square foot, said Newmark. San Francisco was beaten in costs only by Tokyo, London, New York and Hong Kong, which had the highest prime office rents of $250.50 per square foot, according to Newmark. San Francisco outpaced global centers like Singapore, Sydney and Moscow and beat out every other U.S. city, aside from New York, in the report.

Climbing skyscraper rents are an indication of the revitalization of cities. Companies are looking to retain workers by offering more collaboration within modern buildings and locations in central business districts, according to Newmark.

“A high quality office environment is an essential part of building a business. With the economy improving, firms want offices that provide an inspiring place to work and demonstrate they value their employees,” said William Beardmore-Gray, head of global leasing services at Knight Frank.
San Francisco’s rental growth for upper floor skyscrapers was 2.1 percent, the eighth highest, during the last six months of 2014. New York’s midtown neighborhood led the way with a 20 percent jump, according to Newmark Grubb Knight Frank.

The report only considered the most expensive part of the market. Most San Francisco Class A buildings have rents in the $60. Either way, the city has become one of the hottest markets in the world, largely from the strength of the tech industry.

“San Francisco is certainly one of the most expensive cities for prime office space in the world and is experiencing the fastest rate of cost increase in the U.S.,” said Colin Yasukochi, research director at CBRE’s San Francisco office. CBRE ranked San Francisco as the ninth-most expensive city in the world for prime office space in a January report.

The buildings with the highest rents in San Francisco include 101 California St., 555 California St., the Ferry Building, Embarcadero Center and One Market Plaza to name a few. In Silicon Valley, prime buildings can also command huge rents. Venture capital firms along Sand Hill Road in Menlo Park pay $132 per square foot, and BNY Mellon Wealth Management is paying $114 per square foot at 537 Hamilton Ave. in Palo Alto, according to an industry source.

Although San Francisco has high rents, its towers are not very tall compared to the rest of the world. The Transamerica Pyramid is 1,065 feet and the only completed building in the city over 1,000 feet. The under-construction Salesforce Tower will be 1,070 feet. New York’s One World Trade Center is 1,776 feet tall including its antennae, and the world’s tallest building, Burj Khalifa in Dubai, is a staggering 2,717 feet. There are 79 towers over 1,000 feet today, up from 19 in 2009, and 40 percent are in China.

Link to article: Keeping Expensive Company

How SFMade is expanding San Francisco’s manufacturing space
Source: San Francisco Business Times
Reporter: Annie Sciacca
Date Posted: April 21, 2015

It’s expensive to build office space in San Francisco, but it can be even more challenging to build industrial space, and make it pencil, according to SFMade executive director Kate Sofis.

That’s why SFMade,which works to expand manufacturing in San Francisco, launched a sister nonprofit, PlaceMade a nonprofit real estate development initiative akin to an affordable housing developer.


Similar to affordable manufacturing space developers in other cities, such as Greenpoint Manufacturing out of Brooklyn, PlaceMade is focused on partnering with the city and with private sector developers to create industrial space. It also provides consulting support to developers or architects who need input on how best to design an industrial product suited for manufacturing.

“In this city we haven’t focused on manufacturing in the past as much as other cities have,” Sofis said. While zoning is effective, and there isn’t a ton of encroachment on industrial space from other uses, the urgent need at the moment is simply for more space.

The demand for space has bakers and chocolatiers competing for space with businesses like repair shops, clothing makers and 3D printer manufacturers. Some are bootstrapping their money while others get investment, and the differences in products mean wildly different profit margins. That means bidding wars can knock out those with less cash flow.

“There is a shortage right now; rents are up 30 to 40 percent just in the past two years or so,” David Lai, a principal with Yosemite Investment LLC, told the Business Times in September. That South San Francisco-based company develops and runs industrial space.

The first project to come from PlaceMade is the 56,000-square-foot multi-tenant industrial building that could be the first new manufacturing building in decades. Approved in January, more details on the project are emerging.

SFMade’s “manufacturing foundry” is part of a three-building site at 100 Hooper St. in the Potrero Hill neighborhood. Currently a self-storage facility, SFMade’s building, which is at 150 Hooper, would provide space for food producers, clothing makers and other startup manufacturers in the city.

Designed by Pfau Long Architecture, the building is the first project to take advantage of legislation sponsored by Supervisor Malia Cohen and Mayor Ed Lee that offers developers increased office space in exchange for dedicating a large portion of their buildings to manufacturing space.

The other buildings at 100 Hooper will connect via skybridges, making it a “campus-style” project, said Daniel Murphy of Urban Green Devco, which is developing the site.

In addition to the SFMade building, 100 Hooper will have another 90,000 square-feet of industrial space on the ground floor of the other two buildings, and the remainder — about 290,000 square-feet — will go to offices.

SFMade will own the manufacturing building outright, and it is pouring $20 million into construction costs alone, Sofis said, adding that the number would be much higher if the organization was not partnering with a developer as it is.

Having its own manufacturing space will allow SFMade to further its effort to find space for startup manufacturers and pursue public subsidies, such as new market tax credit, that will allow it to ultimately lower the rent for the manufacturing spaces it rents out, Sofis said.

SFMade will rent out the spaces at a range of about $15 to $22 per square-foot — or less than $2 per month per square-foot. Other industrial spaces with the site’s proximity to downtown San Francisco are trending well above $24 — in some cases, $36 — per month, Sofis said.

The space will also provide around 200 manufacturing jobs, mostly for people in entry-level positions and from lower-income communities. And SFMade will have personnel in the building to provide consulting and resources for manufacturers.

There’s been a flight of light industrial users to other cities with lower costs, Murphy said.

“We haven’t had space to accommodate the growing industrial sector,” he said. “This is a response to those trends.”

While SFMade will continue to help its network of manufacturers find space, PlaceMade’s focus will be on creating permanently affordable industrial space.

Some areas of the city are more ripe for industrial development than others. Areas like the Dogpatch and the northeast portion of the Mission have vibrant manufacturing scene, including Rickshaw Bagworks, Heath Ceramics, and Timbuk2.

The lower Potrero area, where the Hooper buildings are, holds potential, too, Sofis said, as does the Bayview neighborhood. The key is adding density and building vertically on sites that make sense for manufacturing. The Bayview, for example, has spots that could be renovated for better uses or added to. There are a few self-storage facilities that could provide cross-subsidization needed for such projects, Sofis said. In other neighborhoods, office space makes more sense as a partner in developing this kind of space.

Construction on 100 Hooper will likely begin in the second half of this year, Murphy said, and will take about a year to build.

Link to Article: SFMADE

Calco Commercial Real Estate has been named a “Top Leasing Firm” by CoStar! Additionally, Scott Mason has also won a “Power Broker” Award as a top Industrial Broker in San Francisco for 2014. Click here for the full story:

Costar Power Broker Winners

Over the past year, Calco Commercial has completed over 55 industrial, flex and office lease and sale transactions totaling 340,000+/- square feet. Based on the number of successfully completed industrial real estate transactions, Calco Commercial is the number one industrial leasing/sales brokerage firm located in San Francisco. Calco Commercial Real Estate has completed more industrial real estate deals than any other firm in San Francisco over the last year, and continually out-performs the competition. Calco is an independently run and locally founded company specializing in Landlord and Tenant representation. If you have any commercial real estate requirements or simply have questions about the San Francisco or Peninsula real estate markets, call 415.970.0000.

San Francisco

Warehouses become highrises: Map of S.F.’s Central SoMa real estate boom
Source: San Francisco Business Times
Reporter: Cory Weinberg
Posted: April 6, 2015

When you look at the map of some of the most ambitious projects that developers are proposing in South of Market, they’re concentrated along the new Central Subway and near the current Caltrain station at 4th and Townsend Streets.
screen-shot-2015-04-06-at-20659-pm-600xx548-365-22-0 (1)

On Friday, the Business Times reported that a family trust called Solbrach Property Group filed plans to build a 350-foot residential highrise with 426 units at 4th and Brannan Streets. Around that block, huge office and residential projects by CIM Group and Tishman Speyer will transform the industrial area that is being rezoned.

The Board of Supervisors is expected to green light the rezoning by early next year. That will unlock huge value for landowners to build taller office or residential buildings, which would replace the existing — and less lucrative — production, distribution and repair buildings. That value has created pressure for the city to extract enough money from developers for affordable housing, which I detailed in a February cover story.

Even though the Solbrach residential development is in the very early stages, it could turn into a showdown over heights. The proposed tower will sit on a plot that’s only 16,000 square feet, so it’s not one of the largest in the neighborhood. The Planning Department only wants the building to be 250 feet high — at most — and neighborhood activist John Elberling echoes that sentiment.

“Jamming a luxury highrise into there really is too much. We want to focus development of that maximum scale — residential or commercial — on the large sites in SoMa that are at least one acre in size,” said Elberling, who runs the affordable housing advocacy group TODCO.

The Planning Department recently published guidelines for large development sites “that offer tremendous potential for transformative new development.” In its guidelines for how high developers can build, it reiterates that “the predominant character of SoMa as a mid-rise district should be retained,” instead of it becoming a slew of highrises.

Link to article: Warehouses become highrises

Too Much? Too Fast? (Part II)
Investors Digging Deeper for Best Potential Returns CRE Investors Still See Plenty of Opportunities To Be Had if You Know Where and What To Look For

By: Mark Heschmeyer
Source: Costar
Date: April 1, 2015

While some commercial real estate investors are starting to voice concern over the impact of the glut of investment capital on prices and underwriting, for many others the question prompted by the flood of capital earmarked for CRE investment is what to do with it all.

As CoStar News reported in Part I of this two-part story last week, the grumblings mostly appear to be focused on escalating prices for large trophy assets in major coastal core markets and the multifamily markets where development activity has already heated up and is threatening to curtail pricing growth.

“Buyers are extremely aggressive in gateway and other primary markets, mainly in the multifamily, industrial and core-located office asset classes,” said Ryan Tobias, founding partner of Triad Real Estate Partners in Chicago. “It’s seemingly a seller’s market in those places and there’s almost certainly a bubble somewhere as the rent growth and associated pricing cannot continue forever.”

However, the aggressiveness and the easy availability of cheap money aren’t necessarily deal breakers, according to Tobias. Rather, he said the trend should cause investors to pay even closer attention to market fundamentals and understand conditions in each submarket down to the block.

For Part II of this story, we asked investors and brokers where they see the best returns available for the money. And while some are still concerned about putting more money into core markets and in certain multifamily markets, that doesn’t mean there aren’t good returns to be had in those products and places. Real wage growth is just starting to take hold and thus core office and multifamily product still have legs, many said.

Smart money seems to be moving to certain interior or secondary metropolitan areas, Tobias said, but not to every submarket within those areas.

Other factors also have to be weighed in the balance beyond location, said Don Guarino, vice president of valuation and research for Aegon USA Realty Advisors.

“Tenant retention, appropriate capital expenditures, proper leverage levels, technology upgrades and energy efficiencies will be largely responsible for outperformance in the coming years as cap rate compression nears the end of its course,” Guarino said.

In the quest for overlooked markets, investors can over extend, warns Guarino. Tertiary markets may be a “bridge too far” if there is not a well-founded exit strategy, no matter how good the tenant or value-add opportunities in a given market.

Benjamin B. Lacy, chairman of Lacy Ltd. in Washington, DC, agrees with the importance of maintaining investment discipline no matter the size or location of the market.

“I think there’s room to run in some overlooked secondary and tertiary markets. But you have to be very careful with your underwriting and due diligence and to make sure the market is liquid enough to project a realistic exit at the end of the holding period. I am getting strong pitches in Salt Lake City,” Lacy said.

Kevin McGowan, president of McGowan Corporate Real Estate Advisors in one of those tertiary markets (Allentown, PA), said plenty of opportunities still exist for disciplined investors. The key, he said is “to be flexible and really press their network for off-market deals. There is lots of lazy capital trying to chase down the heavily marketed product. (But) lots of really good corporate assets are out there if you are willing to dig.”

Brian Poitras, president, chief investment officer of Waldorf Capital Management, said his firm is pursuing a modified core strategy looking for overlooked opportunities in markets, such as where he is based in Boston.

“The asset class that I think presents the most opportunity righ now is well located Class B office space right around core markets, transit hubs and in growing urban infill locations,” Poitras said. “The demands of office users are changing. There will be many older, obsolete office buildings in great locations, but with poor lighting, poor air circulation, and inefficient floorplans. They could see a huge value boost through smart redevelopment.”

Link to article: Too Much Too Fast Part II

TOO MUCH, TOO FAST? Investment Markets Eyeing Free-Flowing Capital With Some Concern
Some Worry Rising Capital Flows into CRE Threatening To Overheat Some Markets
Source: CoStar
By Mark Heschmeyer
March 25, 2015

As the San Diego City Employees’ Retirement System’s (SDCERS) board this past month debated putting an additional $30 million into JP Morgan’s Strategic Property Fund, a 100% core fund in which it already had invested $60 million, it had a major concern.

JP Morgan’s Strategic Property Fund bought $3.45 billion in core properties last year and has a queue of investors lined up to pump in another $1.7 billion. Compared with its peers, the JPMorgan fund has been one of the most active in buying core commercial properties, and SDCERS officials raised concerns that the manager had “pushed out capital too quickly.”

In the end SDCERS approved the additional commitment, concluding that the fund had deployed its capital in a “prudent manner,” and with the understanding that its new commitment most likely would take four to five quarters to invest fully.

The sentiment in the SDCERS boardroom is shared among other major CRE investors who express increasing concern over the impact of the large amount of investment capital flowing into commercial real estate is having on prices and underwriting.

For now, the concerns appear to be limited to the market for large trophy assets in a handful of coastal core markets.

“There’s no doubt that capital flows into commercial real estate are rising and threaten to overheat some markets, but the real concerns are limited to relatively few trophy assets in select gateway markets,” said Andrew J. Nelson, chief economist | USA for Colliers International in San Francisco. “There is little evidence of excessive pricing on a broad scale.”

Nelson said there has been a lot of attention paid to a few transactions in which some foreign buyers have supposedly overpaid for trophy assets because they were purportedly more concerned with parking dollars in safe U.S. assets rather than achieving a market rate of return.

“Only time will tell whether these purchases ultimately earn a competitive return, but a review of the market data does not suggest that foreign buyers are driving prices to unsustainable levels,” Nelson said. “Rather, the high prices they pay on average reflects their preference for top markets and more expensive asset types.”

David Bahr, senior commercial appraiser with Standard Valuation Services in Mineola, New York, said that geopolitical instability has been a friend to U.S. sellers, particularly in the New York City area, where Russian, European and Chinese investors have been very active.

“All this (overseas) money only complements the institutional and high net worth private investors’ capital hitting the markets,” Bahr said. “Supply is great but demand is excessive.”

How Much Is Too Much?

The answer to the question of what constitutes too much money in the marketplace often depends on the role that person plays in the market. Real estate brokers and sellers generally believe the more money, the better. For lenders, a flood of capital can be a double-edged sword as more money means more competition to finance deals and the likelihood they have to adjust their underwriting criteria to compete. For large buyers, it drives up the price of core properties; and for smaller investors, it can create unrealistic price expectations from sellers.

“There is a ton of money out there chasing commercial real estate, but in my opinion, you can never have too much capital at least from a seller’s perspective,” said Paul Carr, senior managing director, spearheading the capital markets team at DTZ in Tampa. “Most buyers probably don’t enjoy having the additional competition, but we have seen what it is like to not have enough capital chasing deals, especially in challenging markets.”

Overaggressive investors are just creating more competition in the market place, which again, is not a bad thing if you are a seller, he added.

Mark Alexander product council chair for medical office properties for SVN in Chicago, also said the concept of ‘too much’ is relative to the times.

“I don’t think you can adequately measure ‘too much’ or ‘too little’ capital. The free market is always a pendulum swing, and now it is swinging towards growth,” Alexander said. “The extra capital out there is startling mostly because we are not used to it (after) coming off such a lousy downturn. It may be too much but it is unstoppable in the natural swing of the market. It makes life better for us brokers as more deals will get done.”

With so much capital in the marketplace competing for borrowers, loan underwriting guidelines are easing almost on a daily basis, allowing lenders to put out more and more dollars to prospective borrowers.

Christian J. Johannsen, senior executive managing director of NAI Miami, said he believes buyers are “over investing,” paying huge prices for assets that don’t necessarily warrant the prices.

“This is facilitated by the easily available and very cheap money that they have already raised, have commitments for, or can borrow,” said Johannsen.

Albert M. Lindeman and Jeff Albee, co-chairs of SVN’s national office product council, said they see a definite ‘use it or lose it’ mentality among investors in the market.

“Most private equity funds and syndicators will acquire rather than return their money to investors. This can have an overall negative impact to the market by overheating it,” said Lindeman and Albee.

Smaller Investors Feeling the Heat Most

Bradley Djukich, chief operating officer of Gotham Corporate Group in Los Angeles, which focuses on sub $20 million to $50 million property acquisitions, said the influx of foreign capital has led to hyperinflation of asking prices on many assets.

“In my niche, this has been development sites and hotel assets,” said Djukich. “How can a domestic buyer with fiduciary obligations to his capital investors compete with a Chinese syndicate looking to get money out of China and into the U.S., regardless of returns?”

Hillock Land Co. in Newport Beach, California, pursues infill-urban development projects. It too finds challenges posed by the current glut of money in the market backing new development as sellers re-evaluate the market potential for existing assets based on their development potential.

“High (price) expectations among sellers is present in all assets of all sizes,” said Danny Kradjian, managing partner of Hillock Land. “Often, these assets are not attractive to institutional players, as they do not have the densities or size required to allocate existing capital in a fund, or meet targeted returns in the future. Thus, these assets are normally pursued by small-scale operators.”

But the sellers don’t necessarily understand that distinction.

“With sellers placing a premium on their assets due to the overall level of activity in the market, local operators are being priced out,” Kradjian said.

As a result, Kradjian said he sees two typical outcomes. Sellers with high expectations hold on too long to their existing assets and eventually lose prospective buyers. Or, out-of-market buyers pay a premium for assets on which they are unlikely to achieve necessary return.

Perhaps Mark S. Davis, senior appraiser of Meridian Appraisal Group in Winter Springs, FL, summed up the concerns among investors when he said, “When investors have access to cheap credit money, they transition from investors to speculators. The incentive in the current economic environment is to borrow and spend, not to save and invest. What’s easy to see is that everybody around you is paddling like hell to catch this big wave of credit money that must go somewhere.”

Link to Article: Too Much Too Fast

Source: San Francisco Business Times
Reporter: Jahna Berry
Date: March 26, 2015

A lawsuit challenging a popular San Francisco ballot measure that requires voters to OK height increases for waterfront projects may proceed, a judge ruled Wednesday.
Poll: Can the state sink S.F.’s waterfront law?

Proposition B, which was passed overwhelmingly, requires voter approval for any new building on Port of San Francisco property that exceeds existing height limits, which generally range from 40 feet to 84 feet. The land encompasses a 7 ½ mile stretch of waterfront that is some of the city’s most desirable and expensive real estate.

In a lawsuit filed last July, the California State Lands Commission, which regulates much of the state’s waterfront land, argued that San Francisco voters shouldn’t get a say in development on port property, like Pier 70 or the Giants’ Mission Rock project. The commission said that the port is actually under the state’s control. Also, the port needs developers to build on its properties to close a $1.6 billion budget shortfall, the state argued, and Prop. B could halt that development.
City Attorney Dennis Herrera asked Superior Court Judge Suzanne Bolanos to throw out the state’s lawsuit. He has argued that Prop. B doesn’t hurt development. Developer Forest City has already successfully won voter approval for a waterfront project at Pier 70, he argued.

On Wednesday, Judge Bolanos denied some of the state’s motions, but ruled it could present evidence of the law’s economic impact. The litigants could start arguing that part of the case in May.

Herrara lauded Bolanos’ ruling, which he said underscores that the city’s law doesn’t conflict with the Burton Act. The state has argued the 1969 act gives it controls of the port land.

Link to Article: SF Waterfrong

Source: CoStar
Author: Randyl Drummer
Date: March 18, 2015

Buyers Swooping in to Pick Off Both Well-Leased and Increasingly Vacancy-Challenged Office Properties Outside CBDs

After taking its lumps well into the ongoing office market recovery, suburban office property is finally garnering increased investor interest. As recently as January 2013, after rounds of corporate downsizing during and after the recession sent suburban office vacancy rates as high as 50% in some markets, analysts were writing the latest obituary of suburban office parks, shopping centers and other far-flung properties as places where no one among the coming wave of millennials would want to work, shop or live.

But now, suburban office is where the action is, thanks to yield-starved real estate investors priced out of expensive CBD assets and continued job growth, especially for office-using industries.

In recent quarters, investors have responded to a spate of opportunistic and value-add plays, many involving vacancy risk that often goes hand in hand with suburban office investments. Buyers have been lured by the wide pricing spreads between well-leased properties north of 90% occupancy and challenged buildings between 50% and 75% occupancy, according to CoStar Portfolio Strategy. While that spread has compressed from 144% in 2011 to 97% in 2014, it is still double the 2006 level of 48%.

“By leasing up a property, investors can still achieve value-add, boosted returns. The icing on the cake for value-add investors is that 75% of metros will likely achieve occupancy gains over the next three years, which makes it easier to lease up vacant space,” said CoStar real estate economist Sam Tenenbaumin in a recent client note.

Increasingly overseas investors, usually focused on the safest core properties, are bidding on suburban office properties, according to Mary Sullivan Kelly, senior vice president and chief research officer for Colliers International.

“With the infusion of foreign capital seeking predominantly trophy CBD assets, other institutional equity will be forced to look towards B product and other value-add plays, driving up pricing in that sector,” Kelly said.

What has many investors swinging for the suburban ooffice fences is the recent homerun pulled off by Rubenstein Partners and Grubb Properties. In what The Wall Street Journal called “a casebook study of how to make money on suburban office property,” the pair of investors paid $26 million for an excess 67-acre office park in North Carolina’s Research Triangle Park from telecom company Ericsson. The Rubenstein-Grubb venture planned to upgrade the pair of vacant office buildings totaling 467,000 square feet and put the sapce up for lease, hoping to emulate the success they had in repositioning a former GlaxoSmithKline property nearby.

As it turns out, computer-maker Lenovo Group Ltd. was looking for a home in the Research Triangle area for the server business it had purchased from IBM and decided to lease the entire project from Rubenstein-Grubb in March 2014. With the Lenovo lease in hand, the investors hired Cushman & Wakfield to shop the property to prospective buyers. In February 2015, a joint venture between UK-based 90 North Real Estate Partners and Dubai-based Arzan Wealth bought the suburban campus for $127 million, just 15 months after Rubenstein and Grubb’s acquisition of the then-vacant property, and less than a year after Lenovo signed a long-term lease for the entire campus.

That kind of success attracts a lot of interest and many property owners who managed to hold onto their suburban office assets through the recession are eager to test the market. Case in point is New York City fund DRA Advisors and its partner Brandywine Realty of Radnor, PA. According to industry newsletter Real Estate Alert, the pair have put a 1.6 million-square-foot portfolio of 29 suburban office properties in Pennsylvania back on the market seeking a reported $200 million, or $125 per square foot. Market observers are eager to see if the timing proves better this time after pulling the portfolio off the market after it was first offered last summer.

Meanwhile other investors are moving in to take advantage of the improving prospects for suburban office market, attracted by declining vacancy rates amid stepped up leasing volume and historically low levels of new construction.

The most noteworthy being Duke Realty Corp.’s deal to sell a major portion of its suburban U.S. office portfolio for $1.12 billion to a joint venture of Starwood Capital Group, Vanderbilt Partners and Trinity Capital Advisors. The deal involves 62 office buildings with 6.9 million square feet of combined space and 57 acres of undeveloped land and includes all of Duke’s wholly owned suburban office properties in Nashville, Raleigh, South Florida and St. Louis.

Just this week, a partnership of New York-based Angelo, Gordon & Co. and Atlantic Realty Cos. acquired four suburban office buildings totaling 499,696 square feet in Reston, VA for approximately $82 million. The portfolio, located near the Dulles Access Road and the new Silver Line Metro station, is only half-leased, which investors increasingly view as hlf-full rather than half-empty.

Chicago: Ground Zero for Suburban Office

There may be no better place to gauge the current condition of the U.S. suburban office market than communities on the outskirts of Chicago such as Libertyville or Hoffman Estates, once the home of such corporate mainstays as Sears Holdings Corp., Motorola and AT&T.

After Motorola Mobility was purchased by Google in 2012 and resold to Lenovo last year, the company relocated 3,000 employees from its Libertyville, IL office campus between 2012 and 2014, leaving an empty shell at the 84-acre property built in 1994 that’s typical of the heyday of 1970s through ’90s era suburban corporate office properties.

Philadelphia-based Binswanger marketed the property, one of the largest suburban office campuses in the Chicago market, starting in January 2013. The Motorola listing in the Lake County office submarket — which suffered from a vacancy rate of more than 30% at mid-year 2014, highest among all suburban Chicago submarkets — lingered on the market for 18 months, similar to the vacancy drag at numerous office parks across the country from Northern New Jersey to the outer suburban rings of Los Angeles, Orange County and San Diego in Southern California.

Last year, Rockville, MD-based BECO Management Inc. scooped up the five-building, 1.1 million-square-foot former Motorola Mobility campus for $9.5 million, a mere $8.50 per square foot. BECO has embarked on a major renovation and the property will be ready for occupancy later this year.

More recently, a partnership of Itasca, IL-based Hamilton Partners and Accesso Partners jointly acquired The Esplanade at Locust Point, consisting of four Class A office and R&D buildings totaling 1.05 million square feet in Downers Grove within Chicago’s East-West corridor submarket. The buildings are 89% occupied, with tenants including Coca Cola Co., Prudential Insurance, Hewlett-Packard, Caterpillar Logistics, Siemens, American General Life, General Services Administration and Hillshire Brands/Tyson Foods.

“I can say with great confidence that this is the premier portfolio of suburban office buildings in the entire Chicago marketplace,” states Ariel Bentata, managing director investments and co-founder of Hallandale Beach, FL-based Accesso Partners.

Investors hope the risks pay-off as the increased transaction velocity is still a work in progress. Despite the strong finish, the huge corporate departures earlier in the year left the overall suburban Chicago vacancy rate at 21.1%, a bit higher than the 21% posted at year-end 2013.

Article Link: Suburban Office

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

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