Commercial Real Estate

After Christmas, shoppers follow Boxing Day sales and all the other reduced prices to be found at year's end. Meanwhile, the real industry is reflecting on the more memorable deals of 2010. Of course, new home owners will be remembering their own private real estate transactions. As well, more than one commercial transaction during this year made a powerful impression.

Commercial Real Estate

The National Association of Realtors (NAR) predicts a more stabilized market in 2011 as well as a decrease in commercial vacancies. When commercial assets reach stabilization, owners are pleased with the outcome. The properties are generating profits rather than eating away at an owner's assets.

Denver, Colorado

This thriving Colorado city saw commercial real estate investments double year-over-year in 2010. In fact, Denver made the top ten list of preferred markets for investment during the past twelve months. Since many Denver commercial assets are stabilized, investors are targeting these properties.

Within this market, buyers cannot expect to find a good deal in terms of low prices. Yet investors are willing to pay a higher price for a stabilized asset. The purchase still adds up to a wise investment in the long term. During the coming year, Denver's commercial market is expected to see more big deals. The anticipated early 2011 sale of the 1800 Larimer building for $400 per square foot will be a record breaker (the 'per-square-foot record' for the sale of an office building in Denver).

Denver Commercial Real Estate Closes 2010 with a Bang

Hartford, Connecticut

In July 2010, Connecticut River Plaza, a well-known office property in downtown Hartford, was sold for $6,666,667 to a limited liability corporation in New York. This sale was one of the most anticipated transactions in the recent history of downtown Hartford’s commercial office market.

Winnipeg, Manitoba

During the past year, commercial property sales and leasing broke records in Winnipeg, Manitoba. This Canadian city can boast about $544.7 million of property sales between January-October, 2010. Winnipeg's yearly average for commercial sales is $300 million. One of the year's biggest sales transactions was the purchase of GEM Equities/B&M Land Co. property (three high-rise apartment blocks) by Toronto-based Timbercreek Asset Management for a reported $100 million.

Banner year for property purchases

Luxury Markets

New York City, New York

Throughout 2010, the NYC hotel industry was a vibrant market – the site of tons of transactions and substantial deals. In September, JRK Hotel Group sold the Hotel Roger Williams for $90 million (and $4.5 million in additional costs) to LaSalle Hotel Properties. The luxury hotel market is rebounding and investors have confidence in the Manhattan hotel scene.

Montreal, Quebec

Montreal has a smaller luxury market than New York City. Yet there is a growing demand for high-end condos. The sale of the penthouse at the Ritz Carlton Montreal Hotel and Residences brought in $13 million plus taxes – the highest price ever for a residential property in Quebec.

Distressed Properties

Of course, most real estate deals in 2010 were outside the luxury market. Interested buyers had abundant opportunities to pick up affordable properties. Even investors wanting to buy into the New York City hospitality industry were able to pick up distressed hotels at bargain prices. As well, home buyers across the country were paying discount prices for foreclosures.

Did You Find A Good Real Estate Deal In The Past Year?

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Commercial real estate is a global concern. A weak commercial real estate market is a drag on economic growth and subtracts from gross domestic product. The state of commercial real estate in a specific region, however, tends to mirror the local economy. Let us take a look at the current state of commercial real estate around the world.

U.S.

Commercial real estate in the US rose to 42.6 (a 1.6% increase) on the index during the 2010 third quarter. Since the index is measured on a scale to 100, these statistics do not indicate a balanced marketplace but the increase is the fourth rise in a row. According to the National Association of Realtors (NAR), the vacancy rate for office space should show a slight increase and come in at 16.7% during the present quarter. The vacancy rate is expected to decline gradually to 16.4% in the last three months of 2011.

NAR's chief economist, Lawrence Yun, points out that signs of stabilization are due to an increased demand for commercial space. Not surprisingly, New York City has one of the lowest vacancy rates. Honolulu is in the same position. Both cities have vacancy rates near 9% while other office markets report rates of more than ten percent.

The NAR says that rent in the retail sector is expected to drop 3.4% from the end of 2010 to the final quarter in 2011. It is believed that rent for industrial property will experience a drop of 7.4%.

NAR predicts commercial vacancies to fall in 2011 as market stabilizes

Canada

If investors have an interest in commercial real estate in Canada, they must be prepared to pay considerable tax. In fact, Canada is the world's most expensive country to invest in commercial property. Investors can be prepared to pay 53% of total income. That figure is 12% higher than the US rate and 44.01% higher than Finland with the world's lowest taxes on commercial real estate. According to a report by Taxand, the average tax rate among the 23 countries in a recent survey fell to 23.5% (a decrease of 0.75%) last year.

High levels of income tax (30%) and real estate (3.6%) combine to create Canada's high tax on commercial property. Yet Canada is not the worst country in every aspect of commercial tax. Canada takes only 14% of sales in tax and that puts it at the world's sixth highest for taxes on sales. With a rate of 21.8%, Norway ranks as the most expensive country in that category.

Canada commercial property tax hit world’s highest

Ireland

Ireland is the world’s most vulnerable commercial real estate market. According to consultants DTZ, Ireland faces the biggest gap in funding relative to its size for refinancing debt. The $6.5 billion shortfall for debt coming due through 2013 equals 16% of the value of Ireland’s commercial real estate investment market. There has been a 60% slump in the value of commercial space and numerous Irish properties are "underwater." Lack of credit in the economy is blamed for low Irish property values.

Irish real estate described as one of the most vulnerable in the world

What Are Your Predictions For Commercial Real Estate In The Coming Year?

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If you are inside a NYC hotel, you are probably not alone – at least according to industry statistics. During 2010, Manhattan hotels have shown a 90% occupancy rate. At present, the NYC hotel market is favorable to buyer and sellers.

Favorable Market

This market is not expected to lose favor in the near future. Manhattan hopes to welcome more than 46,000,000 visitors by the end of the current year. By 2012, New York City will be entertaining over 50,000,000 guests per year. There was never a better time to be part of the Manhattan hotel industry.

Revenue per available room (RevPAR) in New York City has increased by 7.6% to $135. Yet the national average fell 2% to reach fifty dollars. Major players, as well as smaller entities, are recognizing the potential of the NYC hotel industry.

Recently, the Sheraton opened Brooklyn's first major hotel In 12 years. Hyatt Hotels and Resorts opened Andaz at 485 Fifth Avenue in September 2010. Actually, more than 31 new hotels are expected to appear on the Manhattan skyline between 2010-2011.

Luxury Market

The NYC hotel market is going non-stop with new development and properties changing hands. Even the luxury market is in high demand. Almost 100 transactions during 2010 were for luxury properties with a purchase price of more than $10,000,000.

Of course, all hotel buyers in New York City must be able to handle a high price tag. The 760-room Doubletree Metropolitan is selling for $400,000 per room. The W-New York on East 39th Street sold for $300,000 a room earlier in the year.

Goldman selling 3 NYC hotels

Corporate and Leisure Travelers

Investors are willing to take the chance on NYC hotels. Manhattan is expecting many more leisure and business travelers in the coming months. In particular, the corporate traveler is driving this activity. As a growing number of companies regain strength and revitalize their corporate travel practices, the NYC hotel market will reap the benefits. Regardless, New York City holds such an appeal that vacationers will continue to fill Manhattan hotels.

Inside NYC Hotels

Want a peek inside a New York City hotel? Besides the Andaz at 485 Fifth Avenue, another Andaz opened on 75 Wall Street in January 2010. The boutique-style rooms begin at $220 and offer a Hudson Valley-sourced restaurant, bar emphasizing 'Pullman-style mixed-at-your-table' cocktails, and spa allowing guests to order services in 15-minute increments.

Multi-sized bamboo panels in the lobby mirror the old lock boxes of Wall Street. The Andaz is a condominium/hotel with condos on its upper floors. The smallest rooms in the hotel start at 345-square feet. They have window seats and 11-foot high ceilings as well as double-paned glass with automated sleep shutters. In addition, guests can enjoy 42-inch LCD TVs and iPod docking stations.

The downstairs space houses the gym and casual conference rooms with their own kitchen facilities and espresso machines. The most lavish rooms feature peek-a-boo tubs and rotating closets. Restaurant lamps resemble pearls. Arching woodcuts in the ceiling display watermark detailing from the dollar bill. It looks like dollar bills will be changing hands fro a long time to come in the NYC hotel industry.

Andaz Wall Street opens with rooms from $220

Are You Planning A Stay In A New York City Hotel?

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It's all over the news this week – even on the international scene. This company is coming out of bankruptcy; that company has started to make a profit. What's 'on the go' in business news?

Out of Bankruptcy

General Growth Properties Inc., the second-largest U.S. mall owner, just came out of the biggest real estate bankruptcy in the country’s history. This company was recovering from their bankruptcy filed in April 2009 – and a huge debt of $27 billion. They had been unable to refinance because of the collapse of the commercial mortgage-backed securities market and overall economic downturn.

General Growth Properties Inc. had an extensive restructuring plan. The company provided full recovery for creditors as well as recovery for shareholders. Usually, shareholders are not included in a bankruptcy reorganization.

In the initial restructuring stage, they concentrated on restructuring a mortgage debt of $15 billion tied to 140 properties. Of course, restructuring comes with a cost. The company lost $29.3 million in core funds from operations during the 2010 third quarter compared to a profit of $88.9 million last year. The culprit was restructuring costs. General Growth owns and operates over 183 retail centers in 43 states.

General Growth Exits Biggest Real Estate Bankruptcy

Reporting a Profit

Starwood Property Trust Inc., a significant real estate player, has reported a third-quarter profit. The company raised its dividend as it bought loans in the recent commercial property downturn. Keep in mind that Starwood reported a 2009 loss of $1.9 million. Starwood has made $203 million in new investments during the third quarter including commercial mortgage-backed securities tied to hotels, apartments, shopping centers, offices, and warehouses.

Starwood Property Reports Profit on Real Estate Loans, Increases Dividend

Global Scene

Canada

According to commercial real estate brokerage Avison Young, commercial real estate is rebounding in Canada. The value of commercial property deals is expected to reach $16 billion in 2010. By September, the year's transactions had exceeded 2009 numbers with more than $12 million of commercial real estate in the mix.

Actually, the 2010 figures are a 57% increase over a nine-month period in 2009. Of course, the numbers are not as favorable as in 2007 and 2008. Yet the figures are encouraging for the coming months in commercial real estate. Toronto was the most active market YTD (year to date).

"This is a significant improvement over the $11 billion worth of investment sale transactions completed in 2009, but is still shy of the $21 billion recorded in 2008 and the $30 billion in properties that changed hands at the peak of the market in 2007," says Bill Argeropoulos, Avison Young's Director of Research.

Commercial real estate rebounds

Philippines

The Villar-led property developer, Vista Land & Lifescapes Inc., grew its nine-month net profit by 36% to P2.17 billion. The growth was attributed in great part to revenues from its affordable housing business. Vista Land is expected to achieve its P20-billion sales target for this year.

Sales levels increased by 29% in the first three quarters in 2010. Vista Land senior vice president, Ricardo Tan Jr., says that consumers have confidence in the market. Vista is the holding company of five business units catering to different market segments.

"We expect to see continued strong sales performance in the fourth quarter as we have launched more projects over the last few months. We should comfortably exceed our sales target for the year by just repeating our third-quarter performance," says Vista Land senior vice president Ricardo Tan Jr.

Villar real estate company reports P2-B profit

Are Things Looking Up For You?

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You probably know someone who has moved to Washington. Of course, it is not surprising that so many people would make the move. The city is the nation's capital – the heart of the country.

Granted, many people just make a temporary move to Washington. The politicians account for many 'back and forth' moves. Even a few politicians choose to stay on in Washington after politics. Washington attracts political types – and not just from the US – and not even just for politics.

Canadian Buyers

Washington has just attracted the attention of the Canada Pension Plan Investment Board (CPPIB) – not for its policies – but for its real estate. The CPPIB invests funds that are not required for immediate use by the Canadian Pension Plan. The board is planning to buy two impressive office buildings in Washington, D.C.

They describe the market as being "more attractive" than a few years ago – and they are not referring to the state of the property. The "very, very, attractive" prices are the reason for the board's interest in Washington. The CPPIB is planning to pay $237 million for a 45 percent stake in the two properties - 1299 Pennsylvania Avenue (the Warner Building) and 1101 17th Street NW.

The figure includes $91 million in equity and $146 million of the outstanding mortgage debt. This Canadian board is making an expensive purchase – even if it is more attractive than before. Peter Ballon, vice-president and head of the Americas division of CPPIB's real estate investments, agrees that it is a whopping sum. Yet he thinks that now is a good time to invest in key markets like Washington. New York and Los Angeles have also been identified as key markets because they are more stable than the rest of the nation.

In case you are wondering, yes, the CPPIB has heard about the damage from the recession. They know about the foreclosures and unemployment. Ballon explains the board's reasoning.

"We are not concerned by the debt market in the U.S. if anything we see it as an opportunity because we are typically an equity purchaser and do not need debt to make acquisitions," says Peter Ballon, vice-president and head of the Americas division of CPPIB's real estate investments.

High Stakes

Now, of course, the CPPIB is not doing all this on their own. The board has Vornado Realty Trust (NYSE:VNO) as a partner in this latest acquisition. Vornado Realty Trust owns 55% of this venture. No doubt, it is quite the venture – with an implied value of US$526 million. Vornado will manage and lease both buildings.

High Style

Last May, the CPPIB announced that it would pay US$663 million to buy a 45 percent stake in two Manhattan office properties including a 51-storey skyscraper in the Rockefeller Centre complex. If you wonder why a Canadian board would not seek out investments in Canada, the answer is – a smaller market. The CPPIB is looking to invest and Washington seems like a fine place to make a deal. It looks like Canadian business is moving into US real estate – in high style.

CPPIB seizes on low real estate prices in U.S. to buy stake in D.C. buildings

Are You Planning To Invest In US Property?

Decreased Demand

Commercial real estate has not been doing much business during the economic downturn. When businesses are closing and joblessness is rampant throughout the country, the demand for commercial space decreases except in a few big cities that weather the economic storm. Start-up businesses (except in specific categories) are few and far between during poor economic times.

Scarcity of Start-Up

Home businesses tend to be on the rise in dismal economic climates. Often unemployed workers try their hand at starting their own venture. Yet home businesses do not require extra commercial space. As well, more lenders set up during economic turmoil to take advantage of the financially-strapped individual's need for cash. Yet this type of lender may run a temporary operation.

Dealing with the Aftermath

Commercial real estate does not thrive in a recession. In fact, commercial space is not in big demand during the aftermath of economic upheaval. Things are still tight, joblessness remains an issue, and people are wary of their financial future.

Attracting New Tenants

Yet commercial real estate is still in business because the sector has no place to go only 'up' in terms of performance and profit. During difficult times, business brings out all the stops to attract new customers. Landlords are now lowering rents and making more concessions to tenants.

"...This is very much a tenant's market, which is quite favorable for businesses that are considering expansion...," says NAR chief economist, Lawrence Yun.

New Development

Development is expected to bounce back in this buyer's market. In a survey conducted by the Society of Industrial and Office Realtors, 57% of the participating 600 market experts predicted improvements in the office and industrial sectors in the coming months.

Commercial real estate remains soft but favors expansion

Office Space

Vacancy rates in office space are starting to level off and should improve dramatically by the end of 2011. Certain cities including New York City, Long Island, N.Y., and Honolulu had low vacancy rates in the office sector during April-June 2010.

Business in the Big Apple

It is no surprise that New York City, a global centre, fared so well in the findings. Studies have shown that more corporate travelers are visiting this thriving metropolis. In fact, a recent report about the NYC hotel industry indicates that Manhattan hotels had more than 90% occupancy rate in May 2010. Business is booming in the Big Apple.

Manhattan Hotel Industry in NYC - Manhattan Report 2010 - Second Edition

Rent Reduction

Of course, office space looks more appealing these days - especially with the offers of reduced rent. The cost of rent for office space is expected to fall 2.7% throughout 2010 and an additional 2.1% in 2011. Based on 57 markets, the vacant 13.6 million square feet of office space in 2010 will be replaced by 22.6 million square feet of occupied office space during 2011. This positive projection focuses on existing office spaces as well as new spaces coming on the market.

Industrial Space

Industrial spaces are expected to follow a similar trend as office space. During the coming year, industry leaders predict a .4% drop in vacancy rates for industrial space. That trend will continue throughout 2011. Industrial rent will decrease by 5.4% in 2010 and experience another drop of 4.7% in 2011.

Is This The Right Time To Invest In Commercial Retail Space?