Saturday, August 7, 2010
I generated an offer
I generated an offer for an IRS-anchored building. Not bad after 4 months in commercial real estate.
Thursday, July 8, 2010
Distress? What Distress? 5 Office Markets Attract Top Dollar for Prime Assets
SL Green recently paid $193 million, or $636 per square foot, for 600 Lexington in New York City. The office REIT also secured the Canada Pension Plan Investment Board (CPPIB) as its joint venture partner in the trophy asset.
For all of the talk of distress in commercial real estate, you won't hear the "D" word mentioned among investors clamoring for top-quality office properties in at least five markets. Investment activity in institutional-quality office properties in Boston, New York, Washington DC, San Francisco and Southern California is thriving. And strong investor interest is also evident for the highest quality office propertis in other markets as well, although a huge canyon separates those select properties from other office classes in most markets.
"There is a Grand Canyon gap in value disparity between "A" properties and everything else," said Fred B. Cordova III, senior vice president / CART Western regional director at Colliers International in Los Angeles. "The private REITs are pushing pricing on quality product across all product types, but steering clear of anything below investment grade."
In an examination of 216 office deals of more than $10 million for single properties of more than 100,000 square feet since January 2009, CoStar Group found that the five markets listed above accounted for more than 70% of the deals by dollar volume. The total dollar volume of the 216 deals was $14.75 billion.
New York Metro: $4.17 billion
Washington DC Metro: $3.05 billion
San Francisco Bay Area: $1.2 billion
Southern California: $1.07 billion
Boston Metro: $893 million
REITs, both private and public, accounted for about $3.35 billion of the investment activity by dollar volume, but 25% of the deals by count. Other active buyer types included private equity and pension funds.
"Most are all-cash buyers, with debt placed after the fact," Cordova said. "The active buyers in the West are mostly REITs and are pushing pricing for top-tier product as a strategy to upgrade their portfolios at a significant discount to replacement cost with the expectation that there will be a flight to quality for top-tier tenants."
"As regulated buyers, most REITs keep their debt at or below 60% loan-to-value. At that level, with strong balance sheet sponsorship, debt is very available and cheap for top tier product with stabilized rent rolls at market rates," Cordova said.
The investment activity has picked up notably in the last nine months, said Richard Egitto, senior managing director of Crimson Services LLC in Littleton, CO.
"Activity is driven by a combination of public core investors in the U.S. having waited a long time to be able to invest after raising funds to buy these products in 2007, 2008 and 2009," Egitto said. "Private REITS such as Cole Companies out of Phoenix that raise money from a vast network of retail brokers are attaining so much money ($1 billion a year) they have had to expand from simply buying retail into buying core office product in order to move the money out that they have and make room for the additional money they raise every day."
William E. Jones, vice president and appraisal manager at Far East National Bank in Los Angeles, said that the perception of investors is "that prime U.S. real estate is a better bet than anything else. It is considered a good inflation hedge, and unlike gold it yields a dividend."
"What's driving the quest for Class A properties is a whole lot of cash that no one really knows what to do with. Put it in the stock market? Are you crazy? Buy bonds and get a yield of (maybe) 3%? (I think U.S. Government 10-year was briefly below 3%!) No way!" Jones said. "That leaves real estate. There is a lot of dough chasing a very few good deals."
The demand for office properties in these markets is especially apparent "for offices with high occupancies and long-term leases in place," said Stephanie Hession, a real estate economist for CoStar Group who covers the Washington DC, market. "A handful of office buildings in downtown Washington DC have sold for more than $500 a square foot this year, which was the weighted average price at the peak of the market three years ago."
In comparing what is happening in the investment market for prime office properties versus all office properties, the overall weighted average price for the 70 buildings traded in the Washington metro area in the second quarter was $350 a square foot. That was similar to the third quarter of 2008, but still 30% less than the 2007 peak, Hession said.
"There's already year-over-year job growth in this metro, asking rents have held up pretty well, and absorption has been positive recently thanks to federal government and related expansions," Hession said. "As a result, investors see Washington DC as a safe haven, and there is a lot of competition for well-leased assets. Owners that need cash sell because they can get higher prices here than in most other markets."
Why Other Markets Aren't Selling
The same property and market fundamentals are not as apparent outside of the five markets examined -- not even for such major markets as Chicago.
"Chicago has been experiencing declining office rental rates in constant dollar terms since 2001 and declining occupancy rates," said McKim N. Barnes, senior vice president-research and analysis at Draper and Kramer Inc. in Chicago. "And the job counts in Where Workers Work (put out by the Illinois Dept. of Employment Security) indicate no growth in the Chicago region and in Chicago's downtown. Without job growth, how will there be rent increases in real terms?"
Jones of Far East National Bank, said he has "noticed no spillover effect to B- and C-level properties in sluggish markets. There, the mindset of buyers/investors is the opposite - no one seems to want to pay the asking price for an asset which is less than the price in a less-than-prime location. They may bid the asking price, but then they'll find all sorts of ways to negotiate the price down - problems with the property, potential liability issues, etc."
Anthony Homer, a commercial associate with LWR Commercial Realty in Lakewood Ranch, FL, said there is another reason the activity has not trickled down so far.
"Most of the Class A office properties in smaller markets, like ours, are owned by privately held firms or single owners. There has been a trend among national and local tenants of moving 'up the food chain', into the most desirable office properties," Homer said. "Couple these factors with a lack of comparable investment alternatives and there is little motivation for these landlords to sell performing assets. That's what we're seeing in our market and I think the same factors apply in many of the secondary and tertiary markets in Florida."
CoStar's Hession says that interestingly enough, the trend is reversed in the struggling Southern markets, with higher-vacancy properties changing hands.
"High-vacancy Southern markets including such markets as Dallas-Fort Worth, Houston, Atlanta, Phoenix, Tampa, and South Florida have yet to see an uptick in investment, and about one in four of this year's deals in those markets has been distressed," Hession said. "Properties that last sold during the peak are holding up a bit better, although vacancies are still extremely high compared to the favored [markets]. This suggests that sellers are throwing in the towel and dumping their poorly performing assets in these markets. The buyers of these assets, however, appear to be using their lower basis to buy occupancy. The vacancy rate in these recently purchased assets has been declining since the beginning of 2009, even as properties sold from 2006-07 continue to see occupancies erode."
"As investors get frustrated with the fierce competition for core assets in the primary markets, they will begin to move out along the risk spectrum, either acquiring higher-occupancy properties in secondary markets or more value-add deals in primary markets," Hession said. "When the capital train approaches those stops, pricing and competition will rise accordingly, particularly as job growth, leasing, and absorption become more apparent and vacancies begin to crest."
For all of the talk of distress in commercial real estate, you won't hear the "D" word mentioned among investors clamoring for top-quality office properties in at least five markets. Investment activity in institutional-quality office properties in Boston, New York, Washington DC, San Francisco and Southern California is thriving. And strong investor interest is also evident for the highest quality office propertis in other markets as well, although a huge canyon separates those select properties from other office classes in most markets.
"There is a Grand Canyon gap in value disparity between "A" properties and everything else," said Fred B. Cordova III, senior vice president / CART Western regional director at Colliers International in Los Angeles. "The private REITs are pushing pricing on quality product across all product types, but steering clear of anything below investment grade."
In an examination of 216 office deals of more than $10 million for single properties of more than 100,000 square feet since January 2009, CoStar Group found that the five markets listed above accounted for more than 70% of the deals by dollar volume. The total dollar volume of the 216 deals was $14.75 billion.
New York Metro: $4.17 billion
Washington DC Metro: $3.05 billion
San Francisco Bay Area: $1.2 billion
Southern California: $1.07 billion
Boston Metro: $893 million
REITs, both private and public, accounted for about $3.35 billion of the investment activity by dollar volume, but 25% of the deals by count. Other active buyer types included private equity and pension funds.
"Most are all-cash buyers, with debt placed after the fact," Cordova said. "The active buyers in the West are mostly REITs and are pushing pricing for top-tier product as a strategy to upgrade their portfolios at a significant discount to replacement cost with the expectation that there will be a flight to quality for top-tier tenants."
"As regulated buyers, most REITs keep their debt at or below 60% loan-to-value. At that level, with strong balance sheet sponsorship, debt is very available and cheap for top tier product with stabilized rent rolls at market rates," Cordova said.
The investment activity has picked up notably in the last nine months, said Richard Egitto, senior managing director of Crimson Services LLC in Littleton, CO.
"Activity is driven by a combination of public core investors in the U.S. having waited a long time to be able to invest after raising funds to buy these products in 2007, 2008 and 2009," Egitto said. "Private REITS such as Cole Companies out of Phoenix that raise money from a vast network of retail brokers are attaining so much money ($1 billion a year) they have had to expand from simply buying retail into buying core office product in order to move the money out that they have and make room for the additional money they raise every day."
William E. Jones, vice president and appraisal manager at Far East National Bank in Los Angeles, said that the perception of investors is "that prime U.S. real estate is a better bet than anything else. It is considered a good inflation hedge, and unlike gold it yields a dividend."
"What's driving the quest for Class A properties is a whole lot of cash that no one really knows what to do with. Put it in the stock market? Are you crazy? Buy bonds and get a yield of (maybe) 3%? (I think U.S. Government 10-year was briefly below 3%!) No way!" Jones said. "That leaves real estate. There is a lot of dough chasing a very few good deals."
The demand for office properties in these markets is especially apparent "for offices with high occupancies and long-term leases in place," said Stephanie Hession, a real estate economist for CoStar Group who covers the Washington DC, market. "A handful of office buildings in downtown Washington DC have sold for more than $500 a square foot this year, which was the weighted average price at the peak of the market three years ago."
In comparing what is happening in the investment market for prime office properties versus all office properties, the overall weighted average price for the 70 buildings traded in the Washington metro area in the second quarter was $350 a square foot. That was similar to the third quarter of 2008, but still 30% less than the 2007 peak, Hession said.
"There's already year-over-year job growth in this metro, asking rents have held up pretty well, and absorption has been positive recently thanks to federal government and related expansions," Hession said. "As a result, investors see Washington DC as a safe haven, and there is a lot of competition for well-leased assets. Owners that need cash sell because they can get higher prices here than in most other markets."
Why Other Markets Aren't Selling
The same property and market fundamentals are not as apparent outside of the five markets examined -- not even for such major markets as Chicago.
"Chicago has been experiencing declining office rental rates in constant dollar terms since 2001 and declining occupancy rates," said McKim N. Barnes, senior vice president-research and analysis at Draper and Kramer Inc. in Chicago. "And the job counts in Where Workers Work (put out by the Illinois Dept. of Employment Security) indicate no growth in the Chicago region and in Chicago's downtown. Without job growth, how will there be rent increases in real terms?"
Jones of Far East National Bank, said he has "noticed no spillover effect to B- and C-level properties in sluggish markets. There, the mindset of buyers/investors is the opposite - no one seems to want to pay the asking price for an asset which is less than the price in a less-than-prime location. They may bid the asking price, but then they'll find all sorts of ways to negotiate the price down - problems with the property, potential liability issues, etc."
Anthony Homer, a commercial associate with LWR Commercial Realty in Lakewood Ranch, FL, said there is another reason the activity has not trickled down so far.
"Most of the Class A office properties in smaller markets, like ours, are owned by privately held firms or single owners. There has been a trend among national and local tenants of moving 'up the food chain', into the most desirable office properties," Homer said. "Couple these factors with a lack of comparable investment alternatives and there is little motivation for these landlords to sell performing assets. That's what we're seeing in our market and I think the same factors apply in many of the secondary and tertiary markets in Florida."
CoStar's Hession says that interestingly enough, the trend is reversed in the struggling Southern markets, with higher-vacancy properties changing hands.
"High-vacancy Southern markets including such markets as Dallas-Fort Worth, Houston, Atlanta, Phoenix, Tampa, and South Florida have yet to see an uptick in investment, and about one in four of this year's deals in those markets has been distressed," Hession said. "Properties that last sold during the peak are holding up a bit better, although vacancies are still extremely high compared to the favored [markets]. This suggests that sellers are throwing in the towel and dumping their poorly performing assets in these markets. The buyers of these assets, however, appear to be using their lower basis to buy occupancy. The vacancy rate in these recently purchased assets has been declining since the beginning of 2009, even as properties sold from 2006-07 continue to see occupancies erode."
"As investors get frustrated with the fierce competition for core assets in the primary markets, they will begin to move out along the risk spectrum, either acquiring higher-occupancy properties in secondary markets or more value-add deals in primary markets," Hession said. "When the capital train approaches those stops, pricing and competition will rise accordingly, particularly as job growth, leasing, and absorption become more apparent and vacancies begin to crest."
Friday, July 2, 2010
$2.3 Billion in Troubled CMBS Loans Coming Due Over Next 6 Months
There are 960 fixed rate loans representing $9.6 billion scheduled to mature by the end of the year, according to a Fitch Ratings' review of CMBS fixed rate commercial loans. Of these 960 loans, 103 loans representing $2.3 billion (23.3%) are in special servicing. Of those in special servicing, 27 loans (representing 48% by balance) are current.
The maturity breakdown by month through December is as follows:
* July: 148 loans, $1.7 billion
* August: 134 loans, $1.4 billion
* September: 154 loans, $1.1 billion
* October: 180 loans, $1.9 billion
* November: 161 loans, $1.6 billion
* December: 183 loans, $1.9 billion
Of the 148 loans maturing in July, 133, having an average balance of $8.5 million, are current and performing. Retail properties secure 40% of the loans (by dollar balance), followed by 34% office and 12% multifamily. By vintage, 57% of the maturing loans are from 2005 transactions, followed by 26% from 2000 and 8% from 2006 transactions. A majority of the loans have reported year-end 2009 results and have a weighted average debt service coverage ratio of 1.72 times.
While liquidity appears to be slowly returning to the market, the time it takes for borrowers to refinance has continued to be a lengthy process. Loans may remain with the master servicer for 60-90 days while the borrower works to close a new loan. In instances where a borrower is not responsive or has not provided documentation supporting their efforts to refinance; loans are being transferred to special servicing. The lack of liquidity in the market for refinancing mortgages coming due increases the likelihood of a transfer to special servicing for a modification or extension.
Of the 11 loans greater than $20 million scheduled to mature in July, Fitch expects eight loans to default at maturity based on its assumptions. The average loss expectation for these loans is less than 5%, with only four loans being modeled with an expected loss.
The maturity breakdown by month through December is as follows:
* July: 148 loans, $1.7 billion
* August: 134 loans, $1.4 billion
* September: 154 loans, $1.1 billion
* October: 180 loans, $1.9 billion
* November: 161 loans, $1.6 billion
* December: 183 loans, $1.9 billion
Of the 148 loans maturing in July, 133, having an average balance of $8.5 million, are current and performing. Retail properties secure 40% of the loans (by dollar balance), followed by 34% office and 12% multifamily. By vintage, 57% of the maturing loans are from 2005 transactions, followed by 26% from 2000 and 8% from 2006 transactions. A majority of the loans have reported year-end 2009 results and have a weighted average debt service coverage ratio of 1.72 times.
While liquidity appears to be slowly returning to the market, the time it takes for borrowers to refinance has continued to be a lengthy process. Loans may remain with the master servicer for 60-90 days while the borrower works to close a new loan. In instances where a borrower is not responsive or has not provided documentation supporting their efforts to refinance; loans are being transferred to special servicing. The lack of liquidity in the market for refinancing mortgages coming due increases the likelihood of a transfer to special servicing for a modification or extension.
Of the 11 loans greater than $20 million scheduled to mature in July, Fitch expects eight loans to default at maturity based on its assumptions. The average loss expectation for these loans is less than 5%, with only four loans being modeled with an expected loss.
Sunday, June 27, 2010
Negative absorption slows in Broward office market
Monday, May 24th, 2010
By: CB Richard Ellis
The Broward County office market is expected to experience market fluctuations throughout all of 2010, yet there appears to be a slow recovery period beginning to take shape.
Currently, Florida’s overall unemployment rate stands at 12.2%, slightly higher than the 12% rate reached during the peak of the 1973-1975 recession. For the last five years, Broward County’s office employment has declined by 1.3%, but in the last 12 months, employment declined by 4.2%.
There are now currently 169,700 office workers in Broward County, according to a recent forecast by CBRE’s Econometric Advisors. Employers have begun hiring temporary workers, but it is still too early to commit to expanding payrolls until economic stability improves. Professional and business services are projected to post the best job performance. Overall, office employment in Broward County is projected to grow by 3.1% over the course of the next five years.
Total vacancy increased by 5.6% from first quarter 2009 and 1.6% from year-end 2009. Total available sublease space now stands at 631,363sf for first quarter 2010, as compared to 700,478sf for first quarter 2010.
Tenants in the market are looking to take advantage of market conditions to either upgrade their space, downsize or relocate to a location having lower overall costs. Overall leasing activity, including renewals, totaled 353,163sf for first quarter 2010, down 22.3% from the 454,314sf recorded during first quarter 2009. Notable activity includes:
- 80,448sf lease signed by Franklin Templeton at 300 Las Olas Place. They will relocate from Broward Financial Centre into a building currently occupied by Stiles Realty. The transaction was a 10-year deal valued to be around $25 million.
- 62,241sf lease signed by Broadspire Services at 1391 NW 136th Avenue in Sunrise at the former Republic Services building. Broadspire Services moved from the Plantation submarket after subleasing 51,067sf to Kaplan University.
- Microsoft renewed its 56,049sf lease at Cypress Park - Bldg II, Fort Lauderdale.
- As a result of federal action against the attorney Scott Rothstein, 34,000sf of space within the Bank of America building was returned to market first quarter 2010 when offices were vacated.
Rates
The overall average asking direct lease rate declined by 8.4% from the $18.08 psf NNN rate recorded during fourth quarter 2009. Class A space declined by 9% over this same time period last year from $20.01 NNN, while Class B space decreased from $15.83 psf NNN to $14.87 psf NNN, or 6%.
Landlords have become increasingly aggressive in attempting to retain tenants and attract tenants, providing concessions such as temporary rent abatement or reduced rental rates in exchange for early renewals from existing tenants. It is also common practice to offer free rent - usually one month for every year in a lease term.
Absorption
For the fourth consecutive year, negative net absorption was recorded as supply continued to outpace demand. During this same time period last year, overall net absorption was -483,810sf. The rate of negative absorption is starting to slow. This factor, coupled with limited new construction, will limit the amount of speculative space added to the market within the immediate future.
The majority of the activity in the market consists of lease renewals and consolidations. In review, landlords are adjusting rents and offering favorable incentives in an effort to fill their buildings. Nortel Networks recently vacated 144,000sf in the Sawgrass submarket due to bankruptcy, while other tenants may announce similar plans in 2010.
By: CB Richard Ellis
The Broward County office market is expected to experience market fluctuations throughout all of 2010, yet there appears to be a slow recovery period beginning to take shape.
Currently, Florida’s overall unemployment rate stands at 12.2%, slightly higher than the 12% rate reached during the peak of the 1973-1975 recession. For the last five years, Broward County’s office employment has declined by 1.3%, but in the last 12 months, employment declined by 4.2%.
There are now currently 169,700 office workers in Broward County, according to a recent forecast by CBRE’s Econometric Advisors. Employers have begun hiring temporary workers, but it is still too early to commit to expanding payrolls until economic stability improves. Professional and business services are projected to post the best job performance. Overall, office employment in Broward County is projected to grow by 3.1% over the course of the next five years.
Total vacancy increased by 5.6% from first quarter 2009 and 1.6% from year-end 2009. Total available sublease space now stands at 631,363sf for first quarter 2010, as compared to 700,478sf for first quarter 2010.
Tenants in the market are looking to take advantage of market conditions to either upgrade their space, downsize or relocate to a location having lower overall costs. Overall leasing activity, including renewals, totaled 353,163sf for first quarter 2010, down 22.3% from the 454,314sf recorded during first quarter 2009. Notable activity includes:
- 80,448sf lease signed by Franklin Templeton at 300 Las Olas Place. They will relocate from Broward Financial Centre into a building currently occupied by Stiles Realty. The transaction was a 10-year deal valued to be around $25 million.
- 62,241sf lease signed by Broadspire Services at 1391 NW 136th Avenue in Sunrise at the former Republic Services building. Broadspire Services moved from the Plantation submarket after subleasing 51,067sf to Kaplan University.
- Microsoft renewed its 56,049sf lease at Cypress Park - Bldg II, Fort Lauderdale.
- As a result of federal action against the attorney Scott Rothstein, 34,000sf of space within the Bank of America building was returned to market first quarter 2010 when offices were vacated.
Rates
The overall average asking direct lease rate declined by 8.4% from the $18.08 psf NNN rate recorded during fourth quarter 2009. Class A space declined by 9% over this same time period last year from $20.01 NNN, while Class B space decreased from $15.83 psf NNN to $14.87 psf NNN, or 6%.
Landlords have become increasingly aggressive in attempting to retain tenants and attract tenants, providing concessions such as temporary rent abatement or reduced rental rates in exchange for early renewals from existing tenants. It is also common practice to offer free rent - usually one month for every year in a lease term.
Absorption
For the fourth consecutive year, negative net absorption was recorded as supply continued to outpace demand. During this same time period last year, overall net absorption was -483,810sf. The rate of negative absorption is starting to slow. This factor, coupled with limited new construction, will limit the amount of speculative space added to the market within the immediate future.
The majority of the activity in the market consists of lease renewals and consolidations. In review, landlords are adjusting rents and offering favorable incentives in an effort to fill their buildings. Nortel Networks recently vacated 144,000sf in the Sawgrass submarket due to bankruptcy, while other tenants may announce similar plans in 2010.
New buildings raise Miami office vacancy
Monday, May 24th, 2010
By:
CB Richard Ellis
The Miami office market, in short, remains in a state of flux as the local economy continues to struggle alongside the housing downturn. Last year, companies were reluctant to make real estate decisions, echoing the uncertainty being realized in the financial markets. As of first quarter, real estate professionals in Miami are noticing companies are now taking action by renewing their current leases or offering space to the sublease market.
Vacancy rate increases have been reported across the entire Miami-Dade market, most noticeably Biscayne Boulevard Corridor, North Miami, Airport West and Brickell. These submarkets have had large increases due to vacant space in new buildings.
In total, there was 2.3 msf of new inventory added to the market in 2009 and first quarter 2010. These buildings have a total vacancy rate of 56.5%, well above the county average of 16.5%.
Two buildings completed construction in first quarter of 2010 that contributed to the increase in total vacancy. Causeway Square, a 160,000sf mixed-use project in the North Miami submarket completed construction with 50% of the project pre-leased. 1450 Brickell Ave. completed construction in the Brickell submarket bringing 570,000sf of new inventory to the market. The project is 70% vacant with only one major tenant committed to the building. This is the first of three major buildings to come to market in the Central Business District. Met II is anticipated to deliver later this year and is currently 71% available. Brickell Financial Centre is currently planning on delivering sometime in 2011 and is 100% available.
The three new buildings in the CBD are all pre-certified with LEED ratings. This is also a new trend with existing buildings well as they try to keep pace with new product. Wachovia Financial Center and 355 Alhambra Circle recently announced they received LEED Gold Certification for Existing Buildings. The increase in market vacancy is causing landlords to look at ways to allow their property to stand out from the inventory. Renovations, energy efficiencies, and LEED certifications are attractive to tenants who are looking for lower operating costs and higher image and sustainability profiles.
Rates
The overall average asking direct lease rate declined by $0.55 psf from first quarter 2009 to $30.19 psf. The decline was most significant in Class C products, which experienced an average decline of $2.41 psf from the previous year. The Biscayne Boulevard Corridor, Airport West, and Brickell submarkets saw the largest declines in Class C average rental rates. The Class B average saw a decline of $1.17 psf from the previous year. Submarkets such as Downtown Miami, Brickell and Airport West have seen asking rates decline between $1.25 to $2.50 in the Class B rates.
Biscayne Boulevard Corridor saw an increase in asking rates in the past year with the addition of Class B space at the Omni coming to the market when the building completed construction. Class A rates remain unchanged from first quarter of last year due to new high end space coming to the market in recently delivered product asking higher asking rates.
Absorption
During first quarter the Miami office market has experienced 25,161sf of negative absorption. Smaller businesses, which primarily occupy Class B and C product types, have been hit hard by the economic downturn and are giving back space.
A handful of submarkets did experience positive absorption this quarter. Kendall saw 29,404sf of positive absorption due to the sale of Town and Country Corporate Center to Baptist Health South, a tenant in the building, who plans to occupy the remainder of the 34,465sf. The North Miami submarket had 79,540sf of positive absorption as a result of the delivery of Causeway Square, which had 80,000sf preleased. Brickell saw 150,778sf of positive absorption due to the completion of 1450 Brickell Ave.
The Downtown Miami submarket experienced 109,580sf of negative absorption in large part to large blocks of space becoming vacant as Bank of America consolidates their operations into their current location in the Brickell submarket.
By:
CB Richard Ellis
The Miami office market, in short, remains in a state of flux as the local economy continues to struggle alongside the housing downturn. Last year, companies were reluctant to make real estate decisions, echoing the uncertainty being realized in the financial markets. As of first quarter, real estate professionals in Miami are noticing companies are now taking action by renewing their current leases or offering space to the sublease market.
Vacancy rate increases have been reported across the entire Miami-Dade market, most noticeably Biscayne Boulevard Corridor, North Miami, Airport West and Brickell. These submarkets have had large increases due to vacant space in new buildings.
In total, there was 2.3 msf of new inventory added to the market in 2009 and first quarter 2010. These buildings have a total vacancy rate of 56.5%, well above the county average of 16.5%.
Two buildings completed construction in first quarter of 2010 that contributed to the increase in total vacancy. Causeway Square, a 160,000sf mixed-use project in the North Miami submarket completed construction with 50% of the project pre-leased. 1450 Brickell Ave. completed construction in the Brickell submarket bringing 570,000sf of new inventory to the market. The project is 70% vacant with only one major tenant committed to the building. This is the first of three major buildings to come to market in the Central Business District. Met II is anticipated to deliver later this year and is currently 71% available. Brickell Financial Centre is currently planning on delivering sometime in 2011 and is 100% available.
The three new buildings in the CBD are all pre-certified with LEED ratings. This is also a new trend with existing buildings well as they try to keep pace with new product. Wachovia Financial Center and 355 Alhambra Circle recently announced they received LEED Gold Certification for Existing Buildings. The increase in market vacancy is causing landlords to look at ways to allow their property to stand out from the inventory. Renovations, energy efficiencies, and LEED certifications are attractive to tenants who are looking for lower operating costs and higher image and sustainability profiles.
Rates
The overall average asking direct lease rate declined by $0.55 psf from first quarter 2009 to $30.19 psf. The decline was most significant in Class C products, which experienced an average decline of $2.41 psf from the previous year. The Biscayne Boulevard Corridor, Airport West, and Brickell submarkets saw the largest declines in Class C average rental rates. The Class B average saw a decline of $1.17 psf from the previous year. Submarkets such as Downtown Miami, Brickell and Airport West have seen asking rates decline between $1.25 to $2.50 in the Class B rates.
Biscayne Boulevard Corridor saw an increase in asking rates in the past year with the addition of Class B space at the Omni coming to the market when the building completed construction. Class A rates remain unchanged from first quarter of last year due to new high end space coming to the market in recently delivered product asking higher asking rates.
Absorption
During first quarter the Miami office market has experienced 25,161sf of negative absorption. Smaller businesses, which primarily occupy Class B and C product types, have been hit hard by the economic downturn and are giving back space.
A handful of submarkets did experience positive absorption this quarter. Kendall saw 29,404sf of positive absorption due to the sale of Town and Country Corporate Center to Baptist Health South, a tenant in the building, who plans to occupy the remainder of the 34,465sf. The North Miami submarket had 79,540sf of positive absorption as a result of the delivery of Causeway Square, which had 80,000sf preleased. Brickell saw 150,778sf of positive absorption due to the completion of 1450 Brickell Ave.
The Downtown Miami submarket experienced 109,580sf of negative absorption in large part to large blocks of space becoming vacant as Bank of America consolidates their operations into their current location in the Brickell submarket.
Saturday, February 20, 2010
Tiger Woods is taking a break from golf
He issued an apology to the public yesterday, feeling that he had betrayed his family as well as his investors. Moreover, he said he would suspend from playing golf indefinitely. Recently, many high profile celebrities and public figures have fallen from grace due to their infidelity. Talk show host David Letterman, Former South Carolina Governor Mark Sanford, and Presidential candidate John Edwards were all scorned by the public for their extramartial affairs. However, nobody has fallen so hard like Tiger did. Is that because of his racial background that America has spent extra efforts punishing him.? Yes, he cheated and lied. Elin was hurt. Immediately after Tiger confessed his infidelity, the media scourged him for the number of women he meddled with. To the contrary, none of the others have gone on to the extent to suspend their careers. David Letterman is still hosting the Late Night Show, Mark Sanford is still the governor, and John Edwards had a baby with his mistress and Elizabeth remains married to him. Most of all, nobody has suggested that any of them need treatment for their sex addiction.
Do you think Tiger is being punished too harshly?
Do you think Tiger is being punished too harshly?
Tuesday, February 9, 2010
Toyota Commercial
http://www.youtube.com/user/ToyotaUSA?srchid=K610_p280322058#p/c/9FC450C0F2BFE90B
Toyota has released a commerical to reassure their customers that the company and the employees are on top fixing the faulty gas pedal issue. Do you think it's effective? I have read the comments posted on Youtube and the feedback is mixed with both skepticism and applauses. Long term customers who have owned Toyotas believe the company still know their trade. New customers who have had bad experiences with recent models vow not to purchase from Toyota again.
This recall demonstrates one thing. If customers have bad experiences with products, you will lose the customers forever. It doesn't matter that you have done well before. The past success does not guarantee the future. The bad experiences establish unfavorable salient brand associations on the mental map. Customers will recall unfavorable affects when they see the Toyota brand.
I think what Toyota needs to do is to have the long term customers be the support group and talk to the new customers with bad experiences. The company can make another commercial with testimonials from long term Toyota owners. They can talk about their fond memories with their Toyotas. That'd be more effective. Hopefully, that should convince the skeptics.
Toyota has released a commerical to reassure their customers that the company and the employees are on top fixing the faulty gas pedal issue. Do you think it's effective? I have read the comments posted on Youtube and the feedback is mixed with both skepticism and applauses. Long term customers who have owned Toyotas believe the company still know their trade. New customers who have had bad experiences with recent models vow not to purchase from Toyota again.
This recall demonstrates one thing. If customers have bad experiences with products, you will lose the customers forever. It doesn't matter that you have done well before. The past success does not guarantee the future. The bad experiences establish unfavorable salient brand associations on the mental map. Customers will recall unfavorable affects when they see the Toyota brand.
I think what Toyota needs to do is to have the long term customers be the support group and talk to the new customers with bad experiences. The company can make another commercial with testimonials from long term Toyota owners. They can talk about their fond memories with their Toyotas. That'd be more effective. Hopefully, that should convince the skeptics.
Friday, February 5, 2010
Toyota Recall
Toyota has issued the biggest recall in its history. Though Toyota issued recalls in the past, this time the recall is world-wide affecting millions of cars. The monetary loss is estimated at $2 billion. What is more at stake is the reputation. Like many Japanese automakers, Toyota has built its name on reliability. Unlike the previous ones, this recall is serious in nature because faulty gas pedals if stuck could result in high speed fatal accidents.
So would Toyota's reputation go down the drain? The company has been criticized for compromising its quality by producing too many models. It's tried to be everything for everyone. It's a big marketing mistake. You can not please everyone. You must know where your strength is.
Would this recall be the beginning of the decline for Toyota and one day the company end up like its American peers. The recall will definitely change the brand association. Reliability might not be a salient association from now on. Most of all, many customers will lose confidence in the brand. It will Toyota take a long time to win it back.
Tuesday, January 12, 2010
After reading Martin Lindstrom's Buyology, I think brands still matter amidst the omnipresence of private labels. The reason is that these labels are parasite brands. Most of their "brand equity" is derived from the host brands. For instance, I use Head and Shoulders because my scalp is dry. I know that both Walmart and Target sell their own private labels and the packages look really close to Head and Shoulders'. If P&G discontinues Head and Shoulders, those private labels will not survive for long. Customers might switch to the private labels for a brief period of time, but the retention rate will erode fast because the brand assoications are weak. Other major brands will sweep into the void and snatch the customers away. When the host brands die, the parasite brands will wither away.
Friday, January 8, 2010
I'm back online
I've moved to South Florida and reunited with my wife....Yeahhhhh...The move was not a lot of work since the only things that I have were clothes, books and binders. South Florida's climate is so balmy in December. We spent the Christmas together at home since we don't know anyone in the area....(We need to go out to make some new friends). New Year's Eve was the same...staying at home watching movies and TV....how boring...I know...Hopefully, the coming year will be more eventful..
H&M and Walmart threw away unsold clothes...........destroyed
http://shine.yahoo.com/channel/beauty/h-m-and-wal-mart-destroy-and-trash-unsold-goods-562909/
H&M and Walmart were caught slashing up unsold clothes and throwing them away in garbage bags. I don't understand why they did something so stupid, especially not long ago we lambasted corporate executives for taking excessive bonuses. They could have resold them to Ross or Marshalls. I'm sure lots of disadvantaged families and individuals would have benefited from free clothes. It's hard to belive that a cost conscious company like Walmart wasted such a good revenue stream. The worst case is they could donate the clothes to Goodwill or Salvation Army or give them to their hourly employees who make pittance.
H&M and Walmart were caught slashing up unsold clothes and throwing them away in garbage bags. I don't understand why they did something so stupid, especially not long ago we lambasted corporate executives for taking excessive bonuses. They could have resold them to Ross or Marshalls. I'm sure lots of disadvantaged families and individuals would have benefited from free clothes. It's hard to belive that a cost conscious company like Walmart wasted such a good revenue stream. The worst case is they could donate the clothes to Goodwill or Salvation Army or give them to their hourly employees who make pittance.
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