Commercial Real Estate

Commercial and Investment Real Estate Market Starting To Show Signs Of Life by Grant Person

2011-04-08T14:59:00.000-07:00

The commercial and investment real estate business has been very soft for the last 2.5 to 3 years in this area. 2010 saw a reasonable up-tick in leasing activity, but sales remained substantially less than 50% of what we typically experience. Much of our investment activity over the past several years was driven by "1031" tax deferred exchange transactions. That has almost completely dried up.

In the last 3 - 4 months, we noticed a definite increase in leasing activity, some sales activity and substantially more prospects calling and looking at properties to lease and to purchase. Investors' psychology has begun to turn, wherein they are now seriously considering making an investment with the cash they have been sitting on. They perceive the market is "bottoming out" and perhaps now is the time to buy. Returns on alternative investments are at historic lows, and real estate can still deliver an honest 6% to 10% cash return.

There's plenty of commercial money available from various lenders....loan to value ratios are probably down in the 60% to 70% range (requiring more cash equity) and securing a loan at a fixed rate for 10 years or more is challenging to get, most want to re-price or call the loan in 5 years. However, interest rates remain at an all-time low. Depending on the property type, rates will range from low 5% to 6.5%, maybe 7%.

Even during this recent down turn in the economy, sellers have been very reluctant to recognize the fact that their property may have lost 20% to 30% of it's previous value...Thus, have not been motivated to sell. That's now beginning to change and we're seeing signs from sellers that they are becoming more motivated. This will create an environment where "deals" can be structured. In addition, we are hearing that some of the banks want to rid themselves of their foreclosed properties.

Higher than normal unemployment still hampers a robust rebound in our area (although we're better off than much of the nation) but considering all of these elements, 2011 looks like it will be a much improved year.

NAR/SIOR First Quarter 2011 Commercial Market Forecast

2011-03-01T10:35:00.000-08:00

Commercial Real Estate Vacancy Rates to Decline but Rent Recovery Delayed
WASHINGTON (February 25, 2011) – A stabilization trend is taking place in commercial real estate sectors, but in most markets rent will remain soft except for multifamily rentals, according to the National Association of Realtors.
Lawrence Yun, NAR chief economist, said a pullback in construction is helping stabilize the market. “Very limited construction of new commercial real estate over the past few years has essentially fixed the supply of available space,” he said. “This means vacancy rates could fall quickly from any increase in demand for commercial space.”
From the first quarter of this year to the first quarter of 2012, NAR expects vacancy rates to decline 0.5 percentage point in the office sector, 1.3 points in industrial real estate, 0.1 point in the retail sector and 0.9 percentage point in the multifamily rental market.
“Even with declining vacancy rates, rents are not likely to turn positive in most markets until next year, outside of multifamily rental properties,” Yun said. For example, office rents are forecast to fall 1.8 percent this year before turning higher by 4.0 percent in 2012.
“Apartment rent increases are expected to accelerate from job creation leading to new household formation, particularly among the young adult population who will seek their own housing arrangements – many will be leaving their parents’ homes, or choose to live with with fewer roommates,” Yun said.
Average apartment rent is projected to grow 3.4 percent this year and another 4.2 percent in 2012.
“Rising apartment rent in combination with rising oil prices could push the overall inflation rate beyond a comfort level, which could then force the Federal Reserve to raise interest rates later this year or early in 2012,” Yun added.
The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 360 local market experts,1 shows a notable improvement in market fundamentals.
The SIOR index, measuring the impact of 10 variables, rose 8.1 percentage points to 50.7 in the fourth quarter, the largest quarterly gain in five years, and is at the highest level since the fall of 2008. However, the index is well below a level of 100 that represents a balanced marketplace. This is the fifth consecutive quarterly improvement following nearly three years of decline, but the last time the index was at the 100 level was in the third quarter of 2007.

Commercial Real Estate Forecast/Market Report

Seventy-eight percent of SIOR participants expect improvements in the office and industrial sectors for the first quarter of this year.
There has been an increase of liquidity in Commercial Mortgage Backed Securities, which is helping to open the commercial market to more property transactions; commercial real estate sales had been stalled over the past few years with excessively tight credit conditions. In terms of development acquisitions, it remains a buyer’s market for those with cash or who can obtain credit financing.
NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK2 offers projections for four major commercial sectors and analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

Office Markets
Vacancy rates in the office sector are forecast to decline from 16.5 percent in the first quarter of this year to 16.0 percent in the first quarter of 2012.
The markets with the lowest office vacancy rates currently are New York City and Honolulu, with vacancies in the 8 to 9 percent range.
In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be 14.5 million square feet in 2011.

Industrial Markets
Industrial vacancy rates are projected to decline from 14.2 percent in the current quarter to 12.9 percent in the first quarter of 2012.
At present, the areas with the lowest industrial vacancy rates are Los Angeles and Salt Lake City, with vacancies of 7.5 percent.
Annual industrial rent is likely to decline 2.5 percent in 2011, before rising 3.0 percent next year. Net absorption of industrial space in 58 markets tracked should be 127.5 million square feet in 2011.

Retail Markets
Retail vacancy rates are expected to slip from 13.0 percent in the first quarter of this year to 12.9 percent in the first quarter of 2012.
Markets with the lowest retail vacancy rates currently include San Francisco; Miami; Honolulu; and Long Island, N.Y., all with vacancies in the 7 to 8 percent range.
Average retail rent is seen to decline 0.9 percent in 2011, then rising 0.7 percent next year. Net absorption of retail space in 53 tracked markets is projected to be 4.8 million in 2011.

Multifamily Markets
The apartment rental market – multifamily housing – is tightening as the economy improves. Multifamily vacancy rates are forecast to decline from 5.8 percent in the current quarter to 4.9 percent in the first quarter of 2012.

Areas with the lowest multifamily vacancy rates presently are San Jose, Calif.; Pittsburgh; and Newark, N.J, with vacancies in a range around 3 percent.
Multifamily net absorption should be 207,000 units in 59 tracked metro areas in 2011.
The COMMERCIAL REAL ESTATE OUTLOOK is published by the NAR Research Division for the commercial community. NAR’s Commercial Division, formed in 1990, provides targeted products and services to meet the needs of the commercial market and constituency within NAR.
The NAR commercial components include commercial members; commercial committees, subcommittees and forums; commercial real estate boards and structures; and the NAR commercial affiliate organizations – CCIM Institute, Institute of Real Estate Management, Realtors® Land Institute, Society of Industrial and Office Realtors®, and Counselors of Real Estate.
Approximately 79,000 NAR and institute affiliate members specialize in commercial brokerage services, and an additional 263,000 members offer commercial real estate as a secondary business.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
# # #
1 The SIOR Commercial Real Estate Index, conducted by SIOR and analyzed by NAR Research, is a diffusion index based on market conditions as viewed by local SIOR experts. For more information contact Richard Hollander, SIOR, at 202/449-8200.

2Additional analyses will be posted under Economists’ Commentary in the Research area of Realtor.org in coming days.

The next commercial real estate forecast and quarterly market report will be released on May 24.

Information about NAR is available at www.realtor.org.

For Further Information Contact:
Walter Molony, 202/383-1177
wmolony@realtors.org

NAI Black Retained as Property Mgr & Leasing Agents for Rock Pointe Corporate Center

2011-01-18T12:40:00.000-08:00

NAI Black has been retained as property manager and leasing agent for the Rock Pointe Corporate Center, a Class A office park with 600,000 SF of office space plus structured parking in Spokane, WA. Thomas Hix, CPM, will be lead property manager for the asset, with Heidi Irvine as co-manager. Jeff Johnson, CCIM SIOR will direct leasing activities with Jeff McGougan and Jon Jeffreys as leasing agents.

GSA U.S. Army MEPS Transaction

2010-12-30T15:48:00.000-08:00

Jeff McGougan and Jon Jeffreys of Black Commercial, Inc. an NAI Black company finalized a build to suit lease transaction with the GSA US Army MEPS (Military Entrance Processing Station) on a 15 year lease for 20,328 useable square feet In Spokane, Washington. Total volume for this transaction was $9,278,715.60.

Latest Transactions

2010-12-06T14:03:00.000-08:00

Savory Restaurant
1314 South Grand Blvd
Leased 4,350 SF
Agents: Mark McLees
Chris Bell
James Black.

Farmers Market & Garden
1420 East Sprague
23,375 SF land
Sale Price $324,000
Agent: Mark McLees

103 E Indiana
5,200 SF
Buyers: Law Office of Geoffrey D. Swindler and Gallatin Public Affairs
Sale price $395,000
Agents: Mark McLees
Earl Engle
Kevin Edwards

Recent Transactions

2010-10-18T11:09:00.000-07:00

SALE Office Building
16,932 SF
Rowan Professional Building
12 East Rowan
Jim Orcutt
Black Commercial, Inc.
an NAI Black company

SALE Office Building
9,000 SF
910 West Boone
Jim Orcutt
Black Commercial, Inc.
an NAI Black company

SALE Industrial Land
Cheney School District
Mitch Swenson
Black Commercial, Inc.
an NAI Black company

SALE
Farmer's Market
1420 East Sprague
Mark McLees
Black Commercial, Inc.
an NAI Black company

LEASE
1,651 SF
COR, Center for Organizational Reform
1102 West 6th Avenue
Kevin Edwards
Black Commercial, Inc.
an NAI Black company

LEASE
U.S. Government
Schade Towers
528 East Spokane Falls Blvd
1,332 SF
Jeff McGougan
James S. Black III
Black Commercial, Inc.
an NAI Black company

LEASE
Law Offices of Andrew C. Bohrensen
Fernwell Building
505 West Riverside
1,587 SF
Jon Jeffreys
Black Commercial, Inc.
an NAI Black company

SALE
Office Land
51,653 SF
13424 East Mission
Mark McLees
Black Commercial, Inc.
an NAI Black company

Heidi Irvine selected as IREM Foundation Scholarship Recipient

2010-10-14T13:26:00.001-07:00

Heidi Irvine selected as an IREM Foundation Scholarship Recipient
"Heidi Irvine, Property Manager at Black Realty Management, Inc., an NAI Black company, has been selected as a recipient of the IREM Foundation's Paul H. Rittle Sr. Scholarship. The scholarship provides tuition assistance for the recipient to attend up to three IREM courses of their choosing. Irvine is an Associate Member of IREM and is pursuing IREM's Accredited Commercial Manager (ACoM) designation. She manages a portfolio of office, medical office, retail and industrial properties for NAI Black. NAI Black has been designated an Accredited Management Organization by IREM."

SUBORDINATION EDUCATION by Vincent Marino

2010-10-14T11:59:00.000-07:00

The subordination provision in a lease is very important. From a tenant's standpoint, if a lease is subordinate to a deed of trust granted by the landlord, the lease is generally terminated upon a subsequent foreclosure of the deed of trust. The buyer at a foreclosure sale might, under certain circumstances, attempt to continue the lease regardless of whether it is subordinate, but if the lease is not a favorable lease (e.g., the lease provides for a rental that is substantially below-marke, or contains other unfavorable provisions), a new owner may instead elect to have the tenant vacate the property after the foreclosure, rather than continuing the lease.

Sometimes the course of action could result in a ratification of a lease. For example, a lender forecloses on property on which there is a lease executed after execution of the deed of trust. The deed of trust is clearly superior to the lease, but if the tenant, after foreclosure, continues to pay rent under the lease and the lender continues to accept such rent, there may be a good argument that the lease has been affirmed and ratified. This could be either good or bad for a particular party. For example, if a lease is deemed ratified, a new owner/landlord might be subjected to certain unwanted obligations and liabilities under the lease.

A lease can be subordinate either by way of its later date of execution (relative to the execution date of the deed of trust) or by way of agreement of the parties. For example, if a lease is executed after a deed of trust is filed, then the lease is subordinate to the deed of trust. Even if the lease is executed before the deed of trust, it may still be subordinate by way of a subordination provision contained in the lease itself or by way of a separate subordination agreement executed contemporaneously therewith or anytime thereafter.

If a lease is subordinate, a tenant could obtain some protection by requesting and receiving a subordination and non-disturbance agreement. An SNDA basically could say that, regardless of whether a foreclosure occurs, the new owner agrees to recognize the tenant as its tenant. Whether a landlord will agree to pursue an SNDA for a particular tenant depends on various factors, including the willingness of the landlord (or mortgage lender) to cooperate and the tenant's bargaining power. It is entirely possible that a landlord may not want to bother its lender for an SNDA if the tenant is leasing a small space or because the landlord does not want to incur any costs because it and the lender have previously agreed on a charge for the lender's granting SNDAs. And, of course, there may be lenders who just won't agree to execute an SNDA unless specifically required by the deed of trust.

It should be noted that, with reference to foreclosures occurring after May 20, 2009, there is a new federal statute ("Protecting Tenants at Foreclosure Act of 2009") that may allow certain bona fide "dwelling or residential real property" tenants (who are current in their lease obligations) to remain in possession for at least 90 days after a notice to vacate is given even if their lease is subordinate to the deed of trust. This new federal law, which contains various exceptions, is scheduled to sunset on December 31, 2012.

Sometimes a deed of trust will contain a provision allowing the lender to unilaterally subordinate the deed of trust to a subsequent lease. A provision of that type grants a lender some flexibility. For example, if the lender desires to foreclose and not cause a termination of a favorable lease, the lender could by separate instrument (or perhaps in the notice of the foreclosure sale and trustee's deed) unilaterally subordinate the deed of trust to the subsequent lease - with the effect of the lender's foreclosing and accepting the property "subject to" a lease. There is some risk associated with a lender taking "subject to" an existing lease. The lender may be bound by lease amendments of which the new owner has no prior notice, including, for example, amendments changing the rental or otherwise modifying other terms of the lease or requiring monetary payments to the tenant. In addition, a new owner could be liable for damages arising out of a prior landlord's conduct. Proper advance planning could reduce, eliminate or at least alert the lender of some of these risks.

- Vincent Marino is a shareholder in Winstead's Houston Office, working in the Real Estate Development & Investments practice.

Latest Transactions from Black Commercial, Inc. an NAI Black company

2010-07-02T14:41:00.000-07:00

ASIAN BISTRO
3,400 SF Lease
Northgate Shopping Center
7458 North Division
Jim Orcutt
David Wright
Black Commercial, Inc.
an NAI Black company

STUDIO PILATES & PHYSICAL THERAPY
900 SF Lease
Ben Burr Building
5915 South Regal
Mark McLees
Black Commercial, Inc.
an NAI Black company

STICKER SHOCK SIGNS, Inc.
5,200 SF Purchase
4023 East Sprague
Mark McLees
Black Commercial, Inc.
an NAI Black company

OMS, Inc.
1,500 SF Lease
Metropole Building
176 South Howard
Mark McLees
Black Commercial, Inc.
an NAI Black company

GUTHRIE CHIROPRACTIC PLLP
dba HealthSource of Spokane
1,550 SF Lease
524 West Indiana
Jon Jeffreys
Black Commercial, Inc.
an NAI Black company

Top 5 Growth Factors For Spokane, Washington in 2010

2010-04-27T15:36:00.000-07:00

WESTERN SNAPSHOT, APRIL 2010

TOP 5 GROWTH FACTORS FOR SPOKANE, WASHINGTON, IN 2010

With Spokane's reputation as a steady commercial real estate market, it's little wonder that Seattle investors have said they invest in Seattle for appreciation and invest in Spokane for stable income. Growth percentages have increased slightly during the years as the city's economy has changed from relying on the area's agriculture, timber and mining interests. Today some of the main economic drivers are government, healthcare, visitor and convention business, technology and biotechnology. The largest metropolitan area between Seattle and Minneapolis, Spokane has been affected by the national economic downturn, but has not seen the high level of residential and commercial foreclosures common in some other markets its size. Here are five key areas to watch in Spokane in 2010:

1. Spokane's apartment market has always been a draw to California investors and those from western Washington. In 2008, approximately $70 million in multifamily investment real estate changed ownership in Spokane County, but only $10 million did last year. With relatively low vacancy rates and cap rates higher than many other West Coast markets, Spokane's multifamily investment sector will see renewed interest from outside investors that have been waiting on the sidelines.

2. Spokane's quality healthcare providers serve a huge four-state region. This large regional draw for medical services has contributed to a very stable medical office space market. At the end of 2009, the medical office vacancy in Spokane ended the year at 7.06 percent. Medical office development, including specialty medical and dental practices, will continue at a steady pace for the foreseeable future.

3. The majority of the challenging loans made by Spokane area banks were for residential and commercial development projects outside of the Spokane market. To date, this has resulted in relatively few REO bank properties coming on the market in the area. Those that have are mostly the result of local office or retail businesses closing their doors. In the last month, significant interest in these properties from buyers, both users and investors, has become apparent. Overall, property valuations seem to be stabilizing as these properties work their way through the system to new ownership.

4. Spokane is fortunate to have a growing number of technology companies like Itron, which is the world's leading provider of solid-state water, electric and gas meters with $1.69 billion in sales in 2008, that provide consistent job growth to the area. Higher-education research and related private-sector investment in emerging technologies are strong as well. Spokane's higher-education institutions of Gonzaga University, Eastern Washington University, Whitworth University and Washington State University at Spokane have all contributed promising new technology, which along with advances by Spokane start-up companies has been fostered and funded by organizations such as the Hogan Entrepreneurial Institute at Gonzaga University and the Spokane Alliance of Angels. As a result, many new and exiting companies have been turning their ideas and technologies into growing, profitable business ventures.

5. Another growth factor is the steady in-migration of people from mostly California and western Washington, who are attracted to the affordable housing, quality of living and outdoor recreational opportunities. The in-migration to Spokane will only increase as the national economy turns around.

2010 looks to be a prosperous year of growth for Spokane's commercial real estate market, which should move ahead on its usual stable and steady track to a promising future.

Jeff Johnson is President of Black Commercial, Inc., an NAI Black company, in Spokane, Washington.

NAI Global Named Global Broker of the Year

2010-03-11T09:09:00.000-08:00

NAI Global Named Global Broker of the Year

By Private Equity Real Estate Magazine

The readers of Private Equity Real Estate (PERE) magazine named NAI Global the Global Broker of the Year in the PERE Awards 2009.

"Each year, the readers of PERE magazine and PERENews.com nominate and choose the firms, individuals and deals they believe stood out from the crowd the previous year," said Zoe Hughes, Senior Editor, Real Estate. "2009 was a year in which the private real estate investing world experienced a tremendous amount of turmoil, so to be selected in this year's awards is a tremendous accolade from our readers and a vote of confidence in what lies ahead forNAI Global."

"This award is a testament to the quality and commitment of NAI Global and its professionals around the world in serving the private equity and financial sectors," said Jeffrey M. Finn, NAI Global President & CEO. "Looking ahead, we will continue to innovate and add value with focused service offerings like our Special Asset Solutions group or the Commercial Property PowerSale program, to deliver exceptional results for clients around the globe."

NAI Global offers a wide range of services for the commercial real estate investment sector, including asset management, acquisition/disposition, property management, leasing/agency services, valuation and advisory, market analytics, auction and portfolio optimization. The Global Broker of the Year award from PERE serves as recognition that NAI Global is the best at identifying and anticipating a client's investment and brokerage needs.

Peter Setaro
Director of Public Relations

West Plains Development by Scott Person of NAI Black

2010-03-10T09:17:00.000-08:00

Spokane Kootenai County Real Estate Forum

West Plains Development by Scott Person of NAI Black

I. Spokane County- There have been three areas in the west plains that
Spokane County has focused on existing or future development. These areas/projects have been identified as the Spokane Raceway, potential sites for the new Spokane jail, and the Geiger rail spur re-alignment.
a. Geiger spur re-alignment
i. Approximately 4 years ago in conjunction with the federal government, Spokane County started the process to move the Geiger spur off of Fairchild Air Force Base to help increase base security and allow for increase amount of weekly trips on the rail spur.
ii. Because of the re-alignment, there are several businesses that were able to benefit and stay in the area, such as Seaport Steel, Metals Fabrication Co., Western Rail Switching.
iii. Geiger spur will allow for future development, in which the county has set aside space for a potential transloader facility to enhance the attractiveness of new business into the area.

b. Spokane Raceway
i. Raceway encompasses 314.43 acres that are broken out into 3 areas.
ii. The overall intentions of the raceway were to provide space for community activities facilities that include a sports complex; maintaining operations of a raceway; provide space within the county for a future law enforcement training facility.
iii. Raceway has identified an operator and are negotiating the contract hoping to have the raceway up and operating by spring 2010.
iv. Working with Airway Heights to develop a 72 acre sports facility that will include soccer and baseball playing fields.
v. No immediate plans, but conversations with the sheriff have taken place on potentially developing a regional training facility, but nothing planned in the near future.

c. Jail Site
i. Current lease of a 400 bed corrections facility expires on airport land in 2013.
ii. County has identified 10 locations of which 6 are located in the West Plains area.
iii. County has completed 2 of 3 steps to narrowing down site selection from the 10 identified by mid-March.

II. New incorporation- As everyone has heard in the news, approximately 6,464 acres will be annexed between the city of Airway Heights and the city of Spokane.
a. Spokane will gain 6,144 acres and Airway Heights will gain 320.
b. This annexation is expected to go into affect January 1, 2012.
c. Until that time, all vested projects will be processed through the County.
d. Spokane owners should see some reduction in utility charges based on a use fee that was added when under county.
e. Services will not be affected by these areas.

III. Northern Quest Casino
a. New hotel that includes 250 rooms of which 22 are suites, and the new hotel will also house a 14,000 square foot spa and salon.
b. 22,000 square feet of conference & meeting rooms.
c. In addition to fine dining, there are 13 other food and lounge venues within the facility.
d. Future development includes the ability to develop another 450 room hotel and 252 acres to the south for retail and commercial development.

IV. Spokane International Airport Business Park
a. The airport has approximately 5,400 acres of which there are roughly 2,000 acres of development land broken down into the business park, industrial development and Airport Drive.
b. Business park consists of approximately 104 acres designed for office uses.
c. The industrial development land consists of approximately 950 acres for industrial development.
d. Airport Drive consists of approximately 120 acres that is being marketed for office light retail uses.
e. The Spokane Airport Business Park is identified as a foreign trade zone that does provide benefits to companies that conduct international business.
f. Waste to Energy contract expires at the end of 2011, although the plant will not be able to retail the energy, the airport and city will have the ability to utilize steam energy from the plant.
g. This year they’ll complete the extension of the main runway by 2,000 feet, replace the concrete apron and have increased number of non-stop flights and available seats.

V. City of Airway Heights
a. Focusing on residential development north of Hwy 2 , industrial south of Hwy 2 and commercial retail along Hwy 2.
b. Completing a new water treatment center in 2011 that will service properties along Hwy 2 and to the south.
c. Sports facility estimated some time in 2012.
d. Working to annex a small area at the west end of the city at Hwy 2 and Craig Road.

VI. Private Development
a. Supply of industrial land is approximately 9,300 acres.
b. Over the last 13 years, there have been approximately 935 acres used, of which approximately 4.5% have been utilized for manufacturing.
c. Average of 71.9 acres per year, of which 5.2 acres are for industrial uses.
d. At 71.9 acres per year, West Plains has about a 129 year supply for all uses.
e. Vandevert.
i. Northwest Tech Park
1. Consists of 223 acres.
2. Intent is to be developed with mixed office and light manufacturing/technology users.
3. Existing users consists of an 110,000 square foot Ambassadors Group building, 120 room hotel, 2 parcels under contract with government & office uses.

ii. Cross Point Plaza
1. Consists of 227,000 square feet of existing buildings that include an 188,000 square foot Walmart and approximately 39,000 square feet of retail space that was constructed starting about 2007. The 39,000 square feet of retail are near stabilized occupancy, and there is the ability to add an additional 60,000 square feet of retail uses, adjacent, to the east.

iii. Deer Creek Village
1. 25 acres.
2. New 29,000 square foot 10 screen theater.
3. Two Story 47,000 square foot office building to be built in spring 2010.

f. Other West Plain areas of development
i. Cheney Industrial and Research Park.
ii. County looking long term to encourage more commercial uses along the south side of I-90.

Over all, the West Plains has experienced a moderate level of growth over the past couple of years. Last year there was a dip in development that was obviously caused by the slow economy, but each of the private and governmental entities located in the West Plains have positioned themselves to continue business and development at a steady pace.

Spokane Commercial Real Estate Statistics

2010-02-23T09:23:00.000-08:00

Spokane's commercial real estate market, which is usually somewhat insulated from slowdowns in the national economy, saw significant declines in 2008 and 2009. Spokane's many small businesses continued to seek space to lease and buildings to purchase through SBA financing. Due to the lack of readily available financing, investment and development activity ground to a standstill. The attached statistics provided by Scott Fonte of First American Title Company bring this into clear focus. The number of commercial transactions in Spokane County were down 38% in 2008 and almost 40% in 2009. We look for this trend to reverse in 2010 as the economy improves, investors come back into the market, and financing becomes more available.

Jeff K Johnson

Global Economic Outlook with Dr. Peter Linneman

2010-02-03T15:24:00.000-08:00

Global Economic Outlook

Update on Washington Banks

2009-11-30T11:27:00.000-08:00

Seattle Times article on November 29th

Spokane Retail Market

2009-10-28T16:13:00.000-07:00

by David R. Black, CEO NAI Black

While the retail market in much of the country has taken a black eye, Spokane has faired far better.

Spokane County total sales dropped only 7.7% in the first quarter of 2009, compared to King County which dropped 15.3%. Rents, however, are all over the board and so are vacancy rates.

Most of the retail deals that are getting done are with medical or dental entities and restaurants. Most national retailers scaled back store openings for 2009-2010 and many are attempting to re-negotiate leases at lower rates, while extending their lease term.

A great example of retail prosperity in Spokane is the new North Town Square at the corner of Wellesley and Division, across from North Town Mall. This 71,000 square foot “Lifestyle Center” is anchored by the first Red Lobster in Spokane, a restaurant that is never lacking for patrons. North Town Square also has a Starbucks, Ulta Beauty, DSW shoes, STCU, Bajio Mexican Grill, Honey Baked Hams and Dress Barn.

Another outstanding project is Vandervert’s Village Centre Cinemas in the West Plains. Village Center, opening this month, is a 33,000 square foot, 10-screen theater complex just east of the city of Airway Heights. Vandervert also has plans to build a $7.2 million dollar hotel nearby.

There are areas of Spokane that remain very stable for retail. For example, the South Hill boasts a 1.38% vacancy rate and rents in the $20/SF NNN range for small shops.

We hope that in 2010, store sales for retailers will rebound, and retailing as well as brokers and developers of retail, can look to the future with optimism.

Real Estate Auctions Are A Creative Way To Move Inventory

2009-07-24T16:10:00.001-07:00

Ask the right questions when picking a property manager

2009-07-24T16:09:00.001-07:00

Investment real estate owners will be happier if they do this analysis
By Colin Conway
SPECIAL TO THE JOURNAL OF BUSINESS

The two primary goals of investment real estate owners should be to protect their assets and increase net operating income. If you plan to select a property-management company to help you achieve those goals, and to handle the day-to-day oversight of your property or properties, there are some questions that would be good for you to consider.
*What is your plan for the property? Whether you plan to hold your asset long term or to sell it within a couple of years might impact your choice of management companies. You might change your goal, of course, but talk to the prospective company about how it can help you reach your current objective. Prepping an asset for sale or managing it long term aren’t mutually exclusive. However, a strategy should be discussed and steps taken to ensure you have the best support for your plan. Managing day to day isn’t the same as managing with a vision.
*Does the size of the property-management company matter? I don’t believe the size of the company makes a difference in the quality of service. Small or large shops can provide quality management. However, if your current or future group of assets extends beyond the local geographical area, you might want to consider a larger company that has market coverage matching your portfolio.
*What is the specialty of your prospective management company? Each type of asset will have its specific needs, and not all companies specialize in the type of property you own. Some companies can provide a full-service menu of management services, but others might not. For example, a company might provide exceptional service in multifamily property management, but be outside of its area of expertise in handling a retail strip center. Ask for a list of similar properties that your prospective management company is currently overseeing and take a look at them.
*What level of involvement do you want? If you desire minimal involvement in decision making, make that clear to your prospective management company; similarly, if you want to be hands on, make that known as well. Decide early on how much involvement you want. Your management company should be able to tailor an arrangement that fits your preferences. This will help your relationship get off on the right foot and, hopefully, continue to build for years to come.
*How much decision-making power will you give the management company? Property managers make decisions daily to help support your goals. There usually is a cost to those decisions. You can limit or expand the property manager’s ability to respond by defining a maximum dollar amount per expenditure. Make sure to define this limit in the property-management agreement.
*How does the management company handle after-hours emergencies? Hiring a management company means you should get 24-hour coverage for your property. If your property manager goes on vacation, how does the response get covered? What happens on evenings, weekends, and holidays? Ask the prospective company how it responds to after-hours emergencies.
*Who will manage your asset? Before selecting a property-management company, find out who will be assigned to your property. You’ll work directly with a property manager, so take the time to interview that person. Don’t just look for technical knowledge, but find out if you like how that person responds to you and your concerns. If you like the company, but didn’t connect with its proposed property manager, ask if you can work with someone else. You’ll want to find someone you enjoy working with so you can build a long-term business relationship.
*Ask for references on the property manager as well. More than likely these references will be clients who are highly satisfied with the property manager, but take the time to talk to them, anyway. Find out why that particular client enjoys working with that manager. Researching references could provide you with insight such as how the manager responded to a real emergency situation, cut expenses, or increased occupancy.
Colin Conway is a commercial property manager and sales and leasing agent with NAI Black, of Spokane.

Researching references could provide you with some valuable insight.

Real Estate Investing, A New Paradigm!

2009-05-15T09:45:00.000-07:00

The landscape of real estate investing has done a dramatic about face. Investment real estate goes through normal cycles of expansion and contraction like the rest of the economy but the cycle we are currently in has swung as far to one side of the equation as I have ever seen the market shift. Just a couple of years ago, a study by one the nation’s largest Commercial Real Estate companies determined that there were about twenty buyers for each investment property for sale in the United States. Today I am going to guess that there are twenty investment properties for sale for each investor in the market place!

So where have all the buyers gone? The first part of that answer is that many former buyers are out of the market due to tough new lending requirements by the banks, or in some cases a lack of any financing options for investment real estate purchases. If you are fortunate enough to meet the today’s credit requirements of the lenders, you need to be prepared to put 30% to 40% cash down to secure financing for investment real estate. These requirements have greatly reduced the pool of buyers active in the market place.

Secondly, investors’ return requirements have gone up. From talking with appraisers and real estate brokers, the consensus is that cap rates have gone up one hundred basis points or more over the last year and that number is still rising. I was in Seattle last week and what I heard was that cap rates for quality commercial investment properties are around 8%. Usually Spokane cap rates run one percent or more higher than those seen in the Seattle market. This would suggest cap rates here need to be 9% or more to attract buyers. Therefore, sellers, unless they are highly motivated to sell, will need to adjust their expectations and corresponding asking prices downward to attract buyers. It will probably take some time for most sellers to adjust to these new economics.

One segment of the real estate market that is quickly adjusting to the slow down in our economy is developers and investors who hold land with underlying debt. A lot of land has come on the market in the last six months and there is more coming. We are starting to see dramatic price adjustments from very motivated sellers who need to get relief from the debt on their land holdings. For those investors with cash and patience there will be some great land buying opportunities available this year.

I believe we are headed toward a new and healthier real estate investing paradigm. The shift will be slow and for some very painful but in the long run we are going to be ahead. So research the new financing options and sharpen your pencils. Real estate will continue to be a great investment for those of us who adjust to the changes before us.

Jeff K. Johnson SIOR CCIM
President

Overview of Capitalization Rate Trends

2009-05-15T08:43:00.000-07:00

Capitalization rates reflect the degree of risk associated with an investment. Net operating income divided by the capitalization rate equals value.

Beginning in 2008, and carrying over into 2009, market conditions have led to a noticeable increase in capitalization rates. These trends are a function of increased risk perceived by investors and more stringent lending conditions implemented by financial institutions.
As will be shown on the following pages, based various sources, capitalization rates have increase from about 50 to 150 basis points during the past 12 to 15 months. The result is that property values have declined commensurately.
The upward trends in capitalization rates are evident from several different perspectives:

1. The most common method for analyzing capitalization rate from a financial position is the Band of Investment Analysis.

Also known as the mortgage equity analysis, this technique divides the net income between debt and equity positions. Available financing and required investor equity dividend rates are the components of this analysis. Current loan terms would be in a range of:

Mortgage Ratio: 65%
Amortization Period: 25 years
Mortgage Interest Rate: 6.5%
Mortgage Constant: 0.0810
Equity Dividend: 0.0800

These terms are used in the mortgage equity calculation, which is presented below:

BAND OF INVESTMENT TECHNIQUE
Component % X Rate = Weighted Average
Debt 65% X 0.0810 = .0527
Equity 35% X 0.0800 = .0280
.0807
Indicated Rate 8.1%

A year ago rates would have been more similar to:

Mortgage Ratio: 75%
Amortization Period: 25 years
Mortgage Interest Rate: 6.0%
Mortgage Constant: 0.0773
Equity Dividend: 0.0700

Using these terms in the mortgage equity calculation, the indicated capitalization rate is 50 basis points higher:

BAND OF INVESTMENT TECHNIQUE
Component % X Rate = Weighted Average
Debt 75% X 0.0773 = .0580
Equity 25% X 0.0700 = .0175
.0755
Indicated Rate 7.6%

This analysis shows that even a slight change in the interest rate, or loan to value ratio, places upward pressure on the capitalization rate.

2. Comments from brokers in late 2008 and early 2009 indicate rates have increased about 100 basis points in the past 12 months, meaning a property that once traded at a 7.0% cap rate would now sell for 8.0%.

One broker with Capital Pacific commented in March 2009 that rates for triple net leased real estate would likely be in a range of about 7.5 to 8.5%.

Another retail broker, Kevin Hemstreet, sold two triple net properties in August and September 2008 at cap rates of 6.6% and 6.9%, felt that cap rates would be between 7.75 and 8.0% today.

3. Korpacz Investor Survey, is a national survey of real estate investors and portfolio managers which shows a similar trend. The survey results pertaining to the National Net Lease market from the 1st Quarter 2009 are summarized below:

NATIONAL NET LEASE MARKET
Cap Rate Range Avg. Cap Rate
1st Quarter 2009 6.0 to 10.0% 8.58%
4th Quarter 2008 6.0 to 10.0% 7.85%
3rd Quarter 2008 6.0 to 10.0% 7.65%
2nd Quarter 2008 6.0 to 10.0% 7.63%
1st Quarter 2008 6.0 to 10.0% 7.63%
Source: Korpacz, 1st Quarter 2009 Investor Survey

This data reveals that average capitalization rates for the National Net Lease market have increased about 95 basis points over the past year.

4. Regional net lease sales also provide strong evidence of upward trends. Investor purchases of fast food restaurant buildings with triple net leases are charted below.

TRIPLE NET LEASE SALES (1/08 TO 1/09)

Sale Year Cap
Date Tenant City State NRA Built Sale Price PPSF Rate
1/22/08 Carl's Jr McMinnville OR 2,657 2007 $1,820,000 $685 6.0%
2/15/08 Izzy's Salem OR 5,154 1982 $1,750,000 $340 5.0%
3/3/08 Starbucks Syracuse UT 1,750 2007 $1,300,000 $743 6.2%
4/4/08 Applebee's Pasco WA 5,415 2005 $2,625,000 $485 6.9%
4/24/08 Jack in the Box Grants Pass OR 2,662 2006 $2,120,000 $796 6.2%
5/22/08 KFC/Taco Bell Port Angeles WA 3,200 1990 $1,335,000 $417 6.0%
6/3/08 Jack in the Box Vancouver WA 2,654 2007 $1,215,000 $458 5.6%
7/23/08 El Pollo Loco Vancouver WA 2,844 2008 $2,600,000 $914 6.7%
8/22/08 Jack in the Box Klamath Falls OR 3,000 2007 $2,400,000 $800 6.5%
9/23/08 Arby's Grants Pass OR 2,700 2008 $2,100,000 $778 7.1%
12/1/08 Shari's The Dalles OR 4,950 2008 $1,800,000 $364 7.7%
1/29/09 Taco Johns Kennewick WA 1,768 1981 $857,000 $485 7.3%
Source: PGP Valuation/Capital Pacific

On the following page, the above data is plotted into a regression analysis, which clearly shows the upward trend in cap rates.

Based on this data, as of about one year ago, capitalization rates were about 5.75% and today would be about 7.5%.

5. Impact on Value The relationship between capitalization rates and value is inverse and can be significant because capitalization rates are a highly sensitive input into the calculation of value. Therefore, a slight increase in capitalization rates can have a dramatic downward effect on value.

For example, if a property generating $100,000/year in NOI was purchased early 2008 at a 6.5% capitalization rate, the sale price would have been about $1,540,000 ($100,000 / 0.065). Today, at a capitalization rate of 7.5%, the value would be about $1,330,000 ($100,000 / 0.075). That suggests an erosion in value of $200,000, or about 13% ($210,000 / $1,540,000).

6. Looking ahead investors surveyed in the 1st Quarter 2009 Korpacz Investor Survey said they expect rates to increase another 50 basis points over the next 6 months. Again, these upward increases in cap rates are tied to economic conditions and more stringent lending requirements.

Reid Erickson
PGP Valuation Inc.
206.965.1106
Reid.Erickson@pgpinc.com

How do I finance tenant improvements?

2009-04-16T11:56:00.000-07:00

My friend Dick stopped by my house last week after work to chat. Dick shared with me that he had just negotiated a lease with a law firm to take space in an office building that he owned. As a part of the lease agreement, Dick was to provide the law firm with tenant improvements that were going to cost $63,000. With the current banking turmoil Dick was reluctant to sign the lease with the law firm until he knew that he could borrow the money for the tenant improvements. So with the lease in hand signed by the law firm, Dick went down to the local bank that he had done business with for many years to request a loan. After a review of Dick’s request the bank said that they would not be able to make him the loan. Dick was not happy about the situation to say the least.

Dick and I have been partners in real estate investments for almost thirty years, so I know Dick very well and know that he is bankable. Why would a local bank, without any current financial challenges, turn down a long term customer requesting a small tenant improvement loan? Dick said they did not even offer him any options. If the good customers of the banks can't get loans, who can? I was flabbergasted and suggested to Dick that he needed a new banker.

A couple of days later I received a phone call from Mark Cyrus, Business Development Officer in charge of SBA lending at Wells Fargo in Las Vegas. Mark was interested in sharing with our company the current benefits of the SBA loan program for small business owners who want to own real estate. As I mentioned in my last article, SBA loans are currently a great option for small business owners who need financing to purchase commercial real estate. I told Mark that we were up-to-date on the details of the SBA 504 and 7a loan programs. We just had Cliff Poffenroth and Joe Smith from Sterling Savings visit our office and give us an update on the current options available to owner-occupied commercial real estate purchasers under the SBA loan program and share with us Sterling's desire to make SBA loans.

What Mark Cyrus told me next really caught my attention. As he was sharing with me about Wells Fargo's SBA lending abilities he casually mentioned the SBA express loan program. Mark said the SBA express loan program provided loans as small as $25,000 that could be used for tenant improvements. So I asked Mark if a landlord could structure a lease so that a tenant could obtain an SBA program for their own tenant improvements? The answer is yes! So not only are SBA loans available for small business owners who want to own their own buildings, they are also available for small businesses that are leasing and need dollars for tenant improvements. This makes it advantageous for landlords to give tenants a reduced rent and have the tenants obtain their own tenant improvement financing through an SBA express loan.

So there are funds out there for tenant improvements! I will add a disclaimer here that I do not have all the details on the express loan program. Mark said the current interest rate for an SBA express loan is 5.5%. He also said the loan can be prepaid. Please give him a call if you would like more information on the SBA express loan program or other SBA loan programs. See below.

As an update to what I wrote last time the SBA is currently waiving some of the SBA loan fees to assist in stimulating the economy. We understand that the budget allowance for waiving fees will probably last until the end of this year, so do not wait around too long if you want to take advantage of this opportunity.

If you need more information on SBA financing, two lenders who specialize in these loans are:

Mark Cyrus of Wells Fargo Bank phone 702-952-7635

Cliff Poffenroth of Sterling Savings phone 509-363-8175

There has never been a better time to borrow money and buy a building for your business. Give us a call and we will be happy to guide you through the process of finding a building that fits your business’ needs!

Where is the money?

2009-03-10T08:04:00.000-07:00

Where is the money?

That’s what many business owners are asking us these days. A large part of our clientele are business owners looking to purchase commercial real estate to house their businesses. These are mostly small business owners who are leasing their current business location and want the benefits of ownership. After all, why pay rent when you can use that money to pay for a building and build equity! Although ownership may not be the right option for every business, such as one that is growing quickly and needs flexibility, for many businesses it has some great long term benefits.

But with today's more stringent lending requirements, when most lenders are now requiring 25% to 35% cash down payments, where do these small business owners get financing for the purchase of a building?

The answer is U.S. Small Business Administration (SBA) loans! The SBA offers numerous loan programs to assist small businesses, with the SBA acting as a guarantor for these loans.

With financing rather easy to come by in the last few years, SBA loans were almost forgotten by many seeking financing. Buyers did not want to hassle with the extra red tape and paperwork of an SBA loan. But with the days of easy financing behind us, SBA loans are looking better than ever.

By requiring a down payment of only 10%, SBA loans are fast becoming an attractive financing option. Additionally, as a part of the US government stimulus package, I am told that the normal SBA loan fee is going to be waived for the next eighteen months, making an SBA loan an even smarter option.

The beauty of SBA loans is that they can also be used for most sound business purposes, including building improvements and fixtures. The SBA loan process has been streamlined over the years and, unlike in the past, it now can be cost effective down to a loan amount of $200,000.

If you need more information on the benefits of building ownership or SBA financing give us a call!

Wishing you the greatest success with your business in 2009!

Jeff K Johnson