U.S. Commercial Property Prices Drop for First Time in Six Years

U.S. Commercial Property Prices Drop for First Time in Six Years

U.S. commercial real estate prices dropped in January for the first time since 2010, a sign of weakening demand by investors after a six-year rally that pushed values to records.
Continue reading “U.S. Commercial Property Prices Drop for First Time in Six Years”



The Martin Cadillac site is going to be completely re-developed by the Martin Family

The Martin Expo Town Center would put a big new residential/office/retail complex a block away from the Expo Line extension‘s Expo/Bundy station, on, somewhat poetically, the site of a Cadillac/GMC dealership. Plans first surfaced years ago, but now we’re finally seeing what it might look like, and it’s pretty dramatic. Urbanize LA says that the complex would replace the dealership with more than 500 residential units (either apartments for rent or condos), a 10-story tower with office and retail space, well over a thousand parking spaces, and a big pedestrian paseo to boot.



Fed Makes Long-Awaited Move; End of an Era, Signal of Confidence

  • The U.S. economy passed a major psychological threshold as the Federal Reserve closed the door on the extraordinary measures put in place to combat the financial crisis. With the quarter-point increase of its overnight lending rate, the Fed signaled that the economy has finally returned to normal operating levels. Though some sectors still face headwinds, broader economic measures including employment, retail sales and even home prices have largely returned to healthy performance standards. The Fed’s policy-setting committee reiterated that it will maintain a gradual pace of rate increases, aligning actions with key indicators such as labor market conditions, inflation, and international developments.
  • While short-term lending will be influenced by the Fed’s move, long-term interest rates will face little upward pressure in the immediate future. During 2016, the cost of long-term debt could see upward pressure, but this will be influenced as much by domestic and international confidence as by the central bank’s actions.
  • The move by the Federal Reserve will likely benefit commercial real estate investors, more because of the message it conveys than the influence of the rate change itself. By raising the rate for the first time since 2006, the Fed
    has finally expressed its confidence in economic growth, potentially opening the door to increased consumption and business investment. These positive trends would benefit all commercial real estate sectors as household formations escalate and increased discretionary income supports the demand for housing, retail goods, and business services.
  • The tempo and sustainability of economic growth that swayed the central bank represent a decidedly positive development for the office sector and industrial properties will also benefit from this trend. Additional hiring will generate new office space demand and put downward pressure on vacancy. Also, incremental demand may also emerge in interest-rate-sensitive financial services businesses, contributing to a projected decrease in the U.S. vacancy rate next year. In the industrial sector, a more robust pace of economic growth stemming from higher consumption will stimulate additional space demand from retailers. However, the rate increase will likely also strengthen the dollar, restraining U.S. companies with significant export business.
  • A solid pace of household creation accompanies an economic expansion and will generate new demand for apartments in the near term. U.S. apartment vacancy will fall this year to 4.2 percent and will rise nominally in 2016 as elevated completions narrowly outpace net absorption. Also, the Fed’s benchmark rate most directly affects consumer borrowing for items that include residential mortgages. Any additional tightening in monetary policy that suppresses the purchase of single-family homes and maintains a low rate of homeownership will provide a supplemental lift for the multifamily sector.


Source:  http://blog.marcusmillichap.com/2015/12/15/u-s-consumers-get-in-the-holiday-spirit-retail-sales-rise-fueled-by-gains-in-discretionary-categories/



Commercial real estate jargon is second nature to practitioners, but it probably sounds like a foreign language to occupants who are negotiating their first lease or purchase.


This column is designed to provide a “one-stop glossary” for those terms most commonly used in “the trade.”

NNN: Also called “triple net,” this refers to the way property taxes, property insurance, and maintenance of the foundation roof and walls are paid by the tenant. Generally, these sums are paid as due and are “net” of the base rent – in addition to – but in some cases, the owner will collect a monthly estimate of the annual expenses in addition to base rent.

Modified Net: Similar to NNN but one or two of the “n’s” are included in the base rent.

Gross: Property taxes, property insurance, and maintenance of the foundation, roof and walls, and other maintenance of the property are included in the base rent. Gross lease rates are generally higher than NNN lease rates.

Industrial gross: Similar to “gross,” but in this case the tenant is generally responsible for some property maintenance in addition to base rent. These leases include a “base year.”

Modified gross or MG: Property taxes, maintenance of the foundation, roof and walls, property insurance, or other maintenance of the property are paid in addition to base rent.

Full service gross or FSG: This is generally an “office” term and refers to the gross expenses plus janitorial and utilities included in the base year. These leases have an “expense stop” and a “base year” for expenses.

Base year: Used in FSG, MG, and industrial gross leases, this is the first full year of the lease. The tenant pays increases in expenses over the base year.

Expense stop: Used in a FSG lease, the expenses of the base year (first full year of the lease) are calculated and the tenant pays increases above this “stop.”

Lessor: Landlord or property owner

Lessee: Tenant or entity that leases or rents the location

SubLessor: Tenant

SubLessee: Subtenant

Master lessor: Property owner

CAM: Refers to common area maintenance and is generally in addition to base rent and commonly found in MG, or industrial gross leases

TIs: Tenant improvements

Bumps: Increases in the base rent that occur throughout the term of a lease

COLA: Cost of living adjustment

ROFR: The right of first refusal is a tenant’s right to buy the property in the event an acceptable offer (from another party) is received by the owner.

ROFO: The right of first offer is the tenant’s right to submit an offer in the event an owner decides to sell the property.

Option to renew: A tenant’s right to extend the term of the lease at pre-negotiated points.

Option to purchase: A tenant’s right to purchase the property at pre-negotiated points.

LOI: A letter of intent expresses, in a nonbinding fashion, the occupant’s desire to lease or purchase the property.

Due diligence: A period of time negotiated in a purchase and sale agreement for the purpose of studying the property to determine its suitability for financing, occupancy, title, etc.

Loan contingency: A period of time used for securing financing.

Prelim: A preliminary title report outlines matters of record – loans, ownership, recorded easements, liens, etc.

Free rent: A period of a lease that is free.

Abated rent: In the event of tenant default, an owner can sue for repayment of abated rent.

NOI: Net operating income is the rent on the property, less any expenses stated on an annualized basis.

Cap rate: The NOI divided by the purchase price.

Congratulations! You now can speak commercial real estate.



Source: What’s a ‘bump?’ A ‘base year?’ Get wise to commercial real estate jargon – The Orange County Register



The Los Angeles City Council on Wednesday unanimously approved a developer’s plan to demolish Studio City’s landmark Sportsmen’s Lodge event center and replace it with a nearly 100,000-square-foot outdoor mall.


The proposed $60 million Sportsmen’s Landing retail center by Weintraub Real Estate Group of Malibu will feature five restaurants, 20 shops and a 40,000-square-foot Equinox fitness center.

The project will be not break ground immediately, however.

A lawsuit challenging previous planning commission approval of the project has been filed in Los Angeles Superior Court by the owners of the adjacent, 39,000-square-foot Sportsmen’s Lodge Hotel. In May, Ventura Blvd Associates LLC, a North Hollywood holding company representing the New York family that has owned the hotel since 1961, sued Weintraub and the city to stop the development.

Land use attorney Alicia B. Bartley, who represents Weintraub, said she expects the lawsuit to get a court date sometime in the first half of next year. L.A. Superior Court Judge John Torribio is hearing the case.

Earlier this year the project drew opposition from neighbors, who said they had not been adequately notified about the development and complained that it would worsen traffic and parking congestion in the neighborhood.



The much-publicized EB-5 “Immigrant Investor” program is set to expire this week, putting billions of dollars for commercial development at risk.


EB-5 gives visas to foreign investors who invest $500k in projects that create at least 10 American jobs. When the program first passed in 1990, it required investors to spend $1M but was later adjusted to allow investors to spend half in rural or high-unemployment areas, CNBC reports.

Its popularity has soared in recent years—sparked in large part by Chinese investors, who account for around 90% of all EB-5 visas granted—causing it to hit its visa limit of 10,000 per year in 2013 for the first time. (In 2007, only 700 visas were issued.)

The US Citizenship and Immigration Service estimates that EB-5 has brought in more than $2M and created more than 77,000 jobs, although those numbers are up for debate.

But some are concerned that more EB-5 money is being spent on projects in wealthy areas like New York City’s Hudson Yards or San Francisco’s Hunter’s Point Shipyard.

This week the Securities and Exchange Commission announced enforcement actions against lawyers charged with defrauding the system. A developer was also charged with using $6M from Chinese investors for a building conversion that never happened.

But on the flip side, EB-5 money has been beneficial, with projects like Washington DC’s Uline Arena (pictured), which is being converted into an office and retail center, as part of a project to rejuvenate the entire area.

Angelique Brunner, president of EB5 Capital, says the program needs more regulation so it can focus on the reason it was created, which was to spark economic development in distressed areas. One possible solution is a bipartisan proposal spearheaded by Judiciary Committee Chairman Chuck Grassley and Ranking Member Patrick Leahy. The proposal would increase the minimum investment in rural and high-unemployment areas to $800k and would reserve 4,000 of the 10,000 EB-5 visas for rural and high-unemployment areas. [CNBC]


Source: EB-5 Program Could End This Week – Commercial Real Estate



One of the most lucrative businesses in the world is still done based on manual data gathering. That’s about to change, says Ely Razin


An Israeli start-up is hoping to bring order to one of the most lucrative businesses in the world and one of the most disorganized — the commercial real estate market.

And what’s more, said Ely Razin, CEO of CrediFi, which provides the first source of hard data about the industry, his Jerusalem-based start-up consists largely of immigrants from the US and other English-speaking countries,

“Israel is usually known for its strong tech skills, and as a big data company, we have our share of data geeks,” Razin told The Times of Israel. “But to make this work as an Israeli company, we needed a lot of people who were experts in the commercial real estate, and we were able to find them among Western immigrants to Israel.”

CrediFi is an idea that has long been needed, said Razin.

“The commercial real estate market is worth trillions, but until this year there has not been a central depository of objective information about buildings, investors, landowners, and other essential, basic information an investor needs to make a good deal. That kind of data has long been around for the stock market and other investment markets – why not for commercial real estate?”

Razin is very familiar with those other sources of data. A former top executive at Thompson Reuters, he was recruited two years ago to help develop CrediFi. “The idea was puzzling to me, because it was hard to imagine that there was no automated source of information about this market – but an extensive study we conducted indicated that that was indeed the case.”

Thus, the market was wide open for CrediFi, which has as its goal helping investors make sense of the market they are investing in. “We automatically gather information from a large number of sources, digest it and then present it to clients, who use it to make decisions on what properties to buy,” said Razin.

That information fills a major void in the market. As incredible as it sounds, said Razin, most commercial real estate deals today are done based on word of mouth.

“Even among the biggest investors, who spend tens of millions on buildings, projects, malls, and other real estate, one of the most common ways for them to find a deal is the ‘some guy’ system, as in ‘some guy’ told them that there was a good property at a certain location. It’s in an industry that has until now been based on manual data gathering methods to compile, digest, and share crucial data for vital investment decisions.”

CrediFi aims to change that with up-to-date information about everything an investor needs to know – who owns a property, what bank and/or investor is financing a deal, how much other similar properties in the same area sold for, whether the bonds companies issue to finance transactions are safe, what the zoning issues are, whether the tenants of properties are doing well enough to pay the rent, and other details an investor should know before entering into any deal.

“Because the data is so scattered, we have to work on a painstaking city-by-city basis to get all the information about properties, from municipal and other government resources, banks, the SEC and other federal agencies, from contracts and mortgage documents, and from information we cull from the web, social media, and many other sources,” said Razin. “It’s very much a big data play, taking into account a wide variety of data, from local real estate news to world events. All that can affect the price of real estate, and we scan, digest, and present the information to clients in an actionable form.”

The point is not to predict where prices are going, but to give investors the tools they need to make intelligent choices.

“Our big data solution gets that information and presents it in a way investors can actually use,” said Razin. “To date we’ve covered data about more than $2 trillion in loans, and have data on 1.5 million properties, with dozens of top investors as our customers. Data gathering and analysis in this area has turned out to be a real Israeli specialty, given the talent and capabilities we have here. With a start like this we believe our chances for success are great.”


Source: Big data a big deal in commercial real estate, says CrediFi | The Times of Israel



alarm-clock-public-domain-460x306By Michael Snyder

Economic activity is slowing down all over the planet, and a whole host of signs are indicating that we are essentially exactly where we were just prior to the great stock market crash of 2008.  Yesterday, I explained that the economies of Japan, Brazil, Canada and Russia are all in recession.  Today, I am mainly going to focus on the United States.  We are seeing so many things happen right now that we have not seen since 2008 and 2009.  In so many ways, it is almost as if we are watching an eerie replay of what happened the last time around, and yet most of the “experts” still appear to be oblivious to what is going on.  If you were to make up a checklist of all of the things that you would expect to see just before a major stock market crash, virtually all of them are happening right now.  The following are 11 critical indicators that are absolutely screaming that the global economic crisis is getting deeper… Continue reading “ALARM BELLS GO OFF AS 11 CRITICAL INDICATORS SCREAM THE GLOBAL ECONOMIC CRISIS IS GETTING DEEPER”


By Natalie Dolce

LOS ANGELES—Why are sale-leasebacks and build-to-suit deals so popular? According to Andrew White, CCIM, managing director of the western region at Gladstone Commercial REIT, and a moderator at the recent RealShare Net Lease Westconference here, the answer is because “Cap rate spread to treasury is still high.”stnllogos

The “Opportunities” panel discussed the opportunities in sale-leasebacks and the advantages of build-to-suit developments. Panelist Peter Deltondo, director of Marcus & Millichap Net Leased Retail Group, said that the most aggressive capital he is seeing in this space is from the 1031 buyers. “Most of them are coming out of the apartment sector and they are paying the most aggressive cap rates.” Continue reading “BIG DEMAND FOR NET LEASE PROPERTIES”

Once Again Time For Corporate Sale/Leasebacks?

By:  Allen C. Buchanan, Principal
Lee & Associates

In 2003, when California was in a world of hurt with worker’s comp rates, employers leaving the state, driver’s licenses for illegals (which all lead to Governor Gray Davis being terminated by the Terminator), we saw a huge amount of sale/leaseback activity from national corporate occupants.

Aquatics-Lasco Bathware, Akzo Nobel, Johnson Controls, Smurfit Stone, Parker Hannifin, Illinois Tool Works, Limbach…and many others sold manufacturing locations in Southern California and leased them back from the owners. Why, you may be wondering? Provide me your forbearance, while we hear from our sponsor, and I will explain my views…

I provide Location Advice to owners and occupants of industrial buildings in Southern California…AKA, I sell and lease commercial real estate for a living and have since 1984. I have been involved with many of the deals listed above which should qualify me as an expert of sorts…if I can only remember…

The two main reasons in 2003-2005 that many national (multi location) companies sold their locations and leased back, were real estate values and the business climate in Southern California. By selling the locations when the market was at its value peak and leasing back for a three to five year time frame, the companies maxed the real estate equity and could decide at the lease expiration whether to stay in California or consolidate into another location. Some stayed, but many left.

In my opinion, another perfect storm is approaching that could portend another round of sale/leasebacks…this time from closely held owners of real estate.

So, what are the reasons that a company should consider a sale/leaseback?

Continue reading “Once Again Time For Corporate Sale/Leasebacks?”