Tag: Office

Death of the Elevator

Death of the Elevator

By John McNellis

Real Estate in the Plague Year

Without the elevator…there could be no downtown skyscrapers or residential high-rises, and city life as we know it would be impossible…the elevator’s role in American history has been no less profound or transformative than that of the automobile…“If we didn’t have elevators…we would have a megalopolis, one continuous city, stretching from Philadelphia to Boston, because everything would be five or six stories tall.” Boston Globe, 2 March 2014

Continue reading “Death of the Elevator” →

HUGE PROJECT WITH TWO 58-STORY TOWERS PLANNED FOR ARTS DISTRICT

HUGE PROJECT WITH TWO 58-STORY TOWERS PLANNED FOR ARTS DISTRICT

Last year, Irvine-based developer SunCal dropped $130 million on a 14.6-acre property bordered by Sixth, Alameda, Mill, and Wholesale streets in the Arts District, and now, we finally know what’s planned for this enormous parcel. Developers have shared with Curbed renderings and plans for a massive multi-use complex that includes two, 58-story towers, rental units and condos, office space, retail, and a school; the site is currently home to two warehouses mainly used by food distributors.
Continue reading “HUGE PROJECT WITH TWO 58-STORY TOWERS PLANNED FOR ARTS DISTRICT” →

IT’S NO LONGER A LANDLORD’S MARKET

IT’S NO LONGER A LANDLORD’S MARKET

While the following article relates primarily to the New York City office rental market, it is an indication of a trend likely to spread across the country, particularly in major cities. Many systemic factors are at work causing a reduction in demand for office space.

Climate Change: It’s No Longer a Landlord’s Market. Behold the Power of the Tenants!

By Lauren Elkies Schram

Just how eager have some landlords become to get vacant space rented?
Continue reading “IT’S NO LONGER A LANDLORD’S MARKET” →

BLACKSTONE IN TALKS TO SELL FOUR LA OFFICE TOWERS – WSJ

BLACKSTONE IN TALKS TO SELL FOUR LA OFFICE TOWERS – WSJ

Blackstone Group LP is in advanced discussions to sell four Los Angeles office towers for significantly more than $1 billion to a group led by West Coast landlord Douglas Emmett Inc., according to people familiar with the talks.

The deal, if completed, would be one of the largest office sales in Los Angeles in recent years and would mark a significant expansion by Douglas Emmett, one of the biggest office landlords on the West Coast.

Executives of Douglas Emmett, a real-estate investment trust that went public in 2006, have long craved the Blackstone-owned buildings, repeatedly telling investors they wanted to own the private equity giant’s properties in the area.

The buildings being sold are four towers with a combined 1.7 million square feet in the Westwood section of Los Angeles, an area in the western part of the city that commands relatively high office rents, though less than top neighborhoods like Beverly Hills or Santa Monica. Continue reading “BLACKSTONE IN TALKS TO SELL FOUR LA OFFICE TOWERS – WSJ” →

227,000 SF DOWNTOWN LA OFFICE TOWER BOUGHT BY ONNI GROUP

227,000 SF DOWNTOWN LA OFFICE TOWER BOUGHT BY ONNI GROUP

Vancouver-based Onni Group has acquired 800 Wilshire, a 16-story office tower in the heart of downtown Los Angeles’ Financial District. The the 227k sf high-rise, located at the corner of Wilshire and Flower St, was sold by joint venture partners Lincoln Property Company and Angelo, Gordon & Co.

800 Wilshire
800 Wilshire

Since acquiring the property in 2013 from Prudential Real Estate for around $48 mil, Lincoln has upgraded the common areas to cater to creative office users, improved the aesthetics of the building and recruited new retailers on the ground floor. During this time, occupancy soared from 65 percent to 95 percent. With the inclusion of new companies, including Cross Campus, the tenant mix includes a wide range of industries, including technology-driven businesses migrating Downtown.

800 Wilshire was constructed in 1972. Prior to Lincoln’s acquisition, the most recent renovation was in 2004. The building includes three levels of subterranean parking as well as unique office space on the 2nd and 16th floors, which feature high ceilings and outdoor balconies overlooking the downtown skyline.

Lincoln’s upgrades included renovation of the main lobby, with a focus on enhanced lighting and new finishes, and implementation of an open-ceiling model that meets the creative office standard, among other improvements. Lincoln also brought ground-floor retail space to life with the addition of 800 Degrees Pizza.

800 Wilshire is strategically located in the heart of Downtown’s financial core, in close proximity to Staples Center and L.A. Live, Bunker Hill, the new and continually expanding “restaurant row” on 7th Street, and to new apartment developments in the historic core, South Park, and City West. 800 Wilshire also has direct access to a robust transportation network including the Harbor and Santa Monica freeways, the Metro rail system and the Downtown Dash Bus.

Marc Renard, Vice Chairman of Cushman & Wakefield’s Capital Market Group, represented both parties in the transaction. The price was not immediately disclosed.

Continuation of Pessimism Not Warranted

By Natalie Dolce
GlobeSt.com

LOS ANGELES—With the amount of money the government was putting into the economy, it was inevitable that things would recover. We have regained 8 million jobs added since the bottom of the recession and the continuation of the pessimism and uncertainty isn’t really grounded. That is according to Hessam Nadji, SVP and chief strategy officer of Marcus & Millichap.

Nadji joined moderator Michael Desiato, moderator and VP and group publisher of ALM’s Real Estate Media Group, and other industry leaders at the recent RealShare Los Angeles event here on Tuesday. According to Nadji, “the notion that the US economy was out of the game is always wrong. We do find a way to come back.”

Having said that, Nadji says the growth rate isn’t anything to write home about. “But this moderate level of growth is here to stay.”

 

Panelists on the industry leaders panel say the moderate level of growth in the economy is here to stay.

 

Panelist Marc Jacobs, managing director of Oaktree Capital Management, agreed, noting that the real estate market is on solid footing, at least in the near term. But there are early signs of caution out there, he warned. “It may not be real estate in general, but it might be corporate America that is loading up on cheap debt and will struggle to pay that debt back,” he said. “What will happen once the Fed starts pulling back?”

According to Eric Paulsen, CEO at Auction.com, property values are still below their peaks, so there are still opportunities there. “An improving transactional market is always a better market. We willcontinue to see more and more sales with moderate improvement in the coming year.”

On the apartment side, according to Nadji, if you look at the recovery, “you are on the money about the apartment recovery being the only one for a long time.” But what’s interesting, he said, are to look at the fundamentals. “We should be seeing a slow down, but we aren’t really seeing that. The math still works for the most part but the big question mark is exit cap rates.”

 

We have regained 8 million jobs added since the bottom of the recession and the continuation of the pessimism and uncertainty isn’t really grounded, said Nadji (right) with Xceligent’s Doug Curry (left) and Oaktree’s Mark Jacobs.

 

There are some overbuilding on the high-end apartment side, warned panelist Mark Jacobs, managing director of Oaktree Capital Management.

“You will still see rent growth on the apartment side,” added Paulsen, but you are seeing more on the retail and office side, he said. Investors are chasing yields, with a lot of money chasing fewer assets. So what do they do? They go to a different market, he said. “One of the reasons you are seeing a bigger movement in secondary is the availability of information out there among other things.”

One of the companies with that information is Xceligent. Panelist Doug Curry, CEO of the company, said that his company is trying to bring a different level of transparency to the market with data collection.

The biggest laggard in this recovery has been office, according to Nadji, because of the excess space that was never put back on the market, and companies are now growing into that space. But that is the place to now invest, he said. “The demographics in job creation look strong… It is the year of the office market. The turning point is there. You will see the office market come back fast from this point forward.”    [emphasis added]   

Paulsen agreed that office is the place to go right now, but what’s important to consider, he said, is what the product will look like. “You are going to have to cater to a different demographic.”

Ryan Severino: Office Cap Rates Down to 7.4% In Limited Transaction Market

Ryan Severino: Office Cap Rates Down to 7.4% In Limited Transaction Market

Ryan Severino: Office Cap Rates Down to 7.4% In Limited Transaction Market.

(The following is adapted from from a portion of Reis’s latest quarterly Capital Markets Briefing, originally delivered by Ryan Severino, PhD, on 8/25/2010.)

national-office-cap-rate-trends1-300x225

As the slide above illustrates, the mean cap rate for office properties decreased dramatically in the second quarter, from 8.2% in the first quarter to 7.4% in the second quarter.  Mean office cap rates had been steadily increasing since the third quarter of 2008, before fluctuating a bit throughout 2009. Much like apartment, the limited and selective transaction market causes quarterly changes in mean cap rates to be somewhat unpredictable and volatile.  This quarter’s 80 basis point decline, while not unwelcome, epitomizes this ongoing phenomenon. The average price per square foot and the mean sales price increased also increased versus last quarter, even though the number of buildings transacted declined. Therefore, we can conclude that this quarter’s rather steep decline in cap rates is likely due to an increase in the quality of buildings that traded this quarter versus the quality of those traded in recent quarters past. Sentiment in the marketplace is improving, but it is important to understand that a changing mix of buildings from quarter to quarter can have a significant impact on the mean cap rate and we should not confuse this with a change in sentiment in the market.

For better guidance, it is instructive to examine the trend in the 12-month rolling cap rate, which shows that cap rates for the office market might–emphasis on might–have peaked last quarter. It is still too early to tell for certain if we have reached the peak in cap rates for office, especially because of the effect that this quarter’s decline in cap rates is having on the 12-month rolling rate. Nonetheless, this quarter’s decline in the 12-month rolling cap rate is the first time that we have observed a decline in almost two years, since the third quarter of 2008. Although it only represents a slight decline, it is the first indication of stabilization in pricing that we have observed in the office transaction market. The trajectory of cap rates for the remainder of the year will largely depend upon the trend in fundamentals and their impact on sentiment in the market throughout the latter half of the year. Office fundamentals have not yet begun to improve, but if they do during the remainder of the year that could provide support and enthusiasm for office transactions.

So Where are the “Good” Deals?

I have investors ask me every week to send them information on the “good’ deals.  You know, the deals where they can buy properties substantially below replacement cost, with an 9%-10% cap rate and 10% cash on cash returns.  After all, there must be a lot of properties that banks have foreclosed on and want to dispose of at bargain prices just to get them off their books.

Wrong.

This is not 1989-1994 where there was an RTC to force banks to take action when loans are delinquent.  Banks are not foreclosing.  There are really very few REO properties banks are trying to sell.  Investors are holding on to their cash waiting for the opportunities that I don’t think will ever materialize.

There as an article in the Wall Street Journal yesterday that illustrates this point completely.  It is about “Distressed Property” funds.  Private equity funds formed by the major investment banks to take advantage of the great bargains that were going to emerge in commercial and multifamily properties.  Those funds are returning billions of dollars to investors because there are no properties to buy that meet the investment criteria. Continue reading “So Where are the “Good” Deals?” →

Scarcity of Product And Shortage of Quality Pushes Office Cap Rates Lower

Scarcity of Product And Shortage of Quality Pushes Office Cap Rates Lower

Last year, capitalization rates on large office property sales rocketed from the mid-6 range to the mid-8 range. So far this year, cap rates have reversed course, falling back just as rapidly to mid-7 range. Under ‘normal’ conditions, this would imply that property values are increasing. So why isn’t the commercial real estate industry elated?

Cap rates are a benchmark determined by dividing income by property value. Increasing cap rates typically imply that property values are falling. Last year, no one in commercial real estate doubted that the rapid rise in cap rates reflected an equal rapid decline in property values.

However, this year’s decreasing cap rates, which would normally imply rising property values, are being viewed with some skepticism over whether they reflect a long-term trend in values, or simply a short term phenomenon.

According to Fred B. Córdova III, senior vice president / Investment Services Group for Colliers Asset Resolution Western regional team, the current cap rate phenomenon starts with that fact that there is two to three times more capital (debt and equity) in the market than there is product. That factor alone has pushed values up by 20% in three months, he said.

“There is a flight to quality NOI (net operating income) with a rational ‘governor’ that is price per square foot,” Córdova said. “We are seeing some pricing here in Los Angeles (with cap rates) as low as 5% based on market rates. That said, there is a great deal of anxiety out there as to how far cap rates have fallen in the last six months. Foreign money is leading the charge.”

Continue reading “Scarcity of Product And Shortage of Quality Pushes Office Cap Rates Lower” →

Los Angeles Office Update – 1st Quarter – 2010

Los Angeles Office Update – 1st Quarter – 2010

West LA Office Market Highlights:

Total Vacancy – 15%  – About 152,000 of the Yahoo! sublease in Santa Monica went vacant in the first quarter

Direct Current Monthly Lease Rate:  $3.45/FSG

Net Absorption (Negative)  -248,232 sq. ft.  (Approximately 100,000 of negative absorption was in Century City with HBO vacating)

This is the highest overall vacancy rate in West LA since the second quarter of 2004

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Los Angeles Office Market, as a whole:

During the first quarter 2010, the Greater Los Angeles office market experienced a direct vacancy rate jump from 14.8% at the end of the fourth quarter 2009 to 15.3%. The overall vacancy rate, which includes sublease space, also increased from 16.6% to 17.1% over the same period, the tenth straight quarterly increase.  As a result, seven of the nine submarket areas in Greater Los Angeles witnessed negative net absorption for the quarter with four of them totaling more than negative 200,000 square feet. This represented the eleventh straight quarter with negative net absorption in the LA office market.

Current Sub-Market Overall Vacancy Rates (Direct and Sub-Lease):

Downtown:   17.4%

Hollywood/Wilshire Corridor:  15.6%

San Fernando Valley:  20.8%

South Bay:  18.1%

West Los Angeles:  15%

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Other Stats:

The unemployment rate in Los Angeles County was 12.3% in February 2010, compared to a rate of 12.8% for California and 10.4% for the nation.
At the end of the first quarter 2010, the overall vacancy rate in Greater Los Angeles increased for the tenth straight quarter totaling 17.1%.
The weighted average asking lease rate for office space in Greater Los Angeles dropped during the first quarter to $2.45, a 2-cent decrease compared to the fourth quarter 2009.
Net absorption during the first quarter of 2010 totaled nearly 966,000 square feet of negative activity in Greater Los Angeles.